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Note: Under the provisions of its Employee Stock Option Plan, former employees (Employees) of The Kirk Corporation (Employer) exercised an option to sell their shares back to Employer and gave Employer the option of making payments in five year installments. Under the terms of the plan, when Employer elected to pay in installments, it was required to provide adequate security to meet its obligation. To do so, Employer opened an escrow account with Cole Taylor Bank (Escrow Agent) and obtained a standby LC in the amount of US$847,000 with the understanding that Escrow Agent would make payments to Employees if Employer failed to do so. Although more employees retired over time, the amount of the standby was not correspondingly raised.

When Employer filed for bankruptcy reorganization, Escrow Agent attempted to work matters out. When its efforts were unsuccessful, Escrow Agent drew on the standby and, at the suggestion of the court, filed an interpleader action against Employees and Employer. Employees crossclaimed, alleging breach of fiduciary duty against Employer in failing to secure sufficient funding under the LC. The US Bankruptcy Court for the Northern District of Illinois, Doyle, J. granted Employer's Motion to Dismiss. The Judge noted that the standby did not come into effect until after the Employees ceased to be covered by the plan, and concluded that there could be no duty to fund the plan after the distribution.

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