Article

Factual Summary: (Developer) entered into an Agreement with (City) for development of land into single-family lots. Under the agreement, some activities and improvements would be implemented by Developer, and others by City at Developer's expense. The Agreement allowed these activities and improvements to be financed through property assessments, but Developer waived its right to challenge the assessments. The Agreement also required Developer to provide City with two standby letters of credit, naming City as Beneficiary: the first for US$19,600, 125% of the estimated cost of Plan A Activities, and the second for $664,479.08, representing 125% of the estimated cost of Plan B Improvements, which had been made.

When City served Developer/Applicant with a Notice of Assessment, Developer/Applicant sued City, challenging the assessment, but the suit was dismissed because of the Agreement's waiver clause. Developer/Applicant then sought to have the LCs released because it had mostly completed the Plan A activities and the property assessments made the second letter of credit unnecessary, but City refused. When Applicant failed to pay the assessments, City notified Issuer that it intended to draw on the LCs. In January 2009, Applicant sued City, seeking a temporary injunction enjoining City from drawing on the letters of credit, which the trial court granted.

Subsequently, City moved to dissolve the injunction and requested a bond be posted by Developer. The trial court denied the motions. On appeal, this ruling was reversed and remanded for further fact finding, and the application of appropriate standards of review.

Legal Analysis:

1. Changed circumstances; injunction: The trial court originally granted an injunction to prevent foreclosure and the financial ruin of the Applicant. Beneficiary argued at trial that since foreclosure proceedings had begun on one of the lots in the development, the injunction could be lifted, allowing Beneficiary to draw on the letters of credit. The trial court found that the entire development had to be in foreclosure for the circumstances to have sufficiently changed. The appellate court found the trial court's position unfounded, ruling that a preference for the status quo was not the proper standard. The appellate court directed the district court to provide a basis for its decision with respect to the change of circumstances caused by one foreclosure and a balancing of the equities

2. Abuse of Discretion: City contended that the $500 bond Applicant had previously posted was insufficient, and sought a $987,798.60 bond to cover past and future expenses for development, as well as interest and penalties. The trial court dismissed the motion to increase the bond without addressing it. The appellate court ruled that the dismissal was an abuse of discretion.

Comment:

1. Here is yet another case involving an injunction in which the court does not mention Rev. UCC '5-109 (Fraud and Forgery) or LC fraud. While a determination of LC fraud was not, strictly speaking, required to reverse an issuance of an injunction on appeal, presumably the trial court made a finding of LC fraud in granting it. Consequently, one would expect a comment regarding LC fraud in the appellate decision.

[JEB/jsc]

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