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Note: As part of a construction agreement with Agape Round Rock Housing, Inc., d/b/a Chandler Creek Apartments (Owner), JP Morgan Chase Bank (Bond Trustee/LC Issuer) issued a letter of credit in the amount of US$15,800,000 to bond owner Charter MAC Equity Issuer Trust (Bondholder/LC Beneficiary). Owner missed the project completion date, causing an "event of default" to occur under the construction agreement. As a result, Bondholder/Beneficiary instructed Trustee/ Issuer to draw upon the letter of credit to pay the interest due at the time. Trustee/Issuer took possession of the bonds as collateral for the amount owed by Owner under the loan. Subsequently, Trustee/Issuer sold the bonds for US$12 million, a US$4 million loss.

Various subcontractors sued Bond Trustee/LC Issuer and others under various theories including misappropriation of trust funds, breach of fiduciary duty, negligence, and conversion. The Texas District Court of Williamson County, Anderson, J. awarded damages and exemplary damages against Bond Trustee/LC Issuer. After having settled certain issues, Bond Trustee appealed the judgment with respect to a finding that it violated a duty to withhold amounts, misapplication of trust funds, negligence and gross negligence in failing to withhold the amounts, violation of fiduciary duty to subcontractors, and conversion. On appeal, the Court of Appeals of Texas, Austin, Law, C.J., Puryear, and Henson, JJ., in an opinion by Henson, J., reversed as to the issues of violation of a duty as agent to withhold amounts, violation of a statutory duty with respect to trust accounts, negligence in failing to withhold amounts, breach of fiduciary duty, and conversion, and also ruled that exemplary damages were not appropriate.

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