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Note: Cityview at Riverwalk, LLC and Focus Development, Inc. (Developers/Applicants) contracted with Knoxville Community Development Corporation and the City of Knoxville, Tennessee (Governmental Authorities/Beneficiaries) to undertake a municipal redevelopment project. Accordingly, Developers/Applicants obtained a standby letter of credit in favor of Governmental Authorities/ Beneficiaries to assure performance.

When the relationship was subsequently terminated, Governmental Authorities/Beneficiaries drew on the standby and were paid. Developers/ Applicants then sued Governmental Authorities/ Beneficiaries for wrongfully drawing on the standby and having misapplied the proceeds. Cross motions were filed.

The United States District Court for the Eastern District of Tennessee, Jordan J., dismissed the claim based on the tort of conversion, but denied the motion to dismiss other counts.

Governmental Authorities/Beneficiaries had argued that the action was based on the standby LC as to which the statute of limitations had run under U.S. Rev. UCC § 5-115 (Statute of Limitations). The Judge, however, concluded that the action was based on the underlying agreement.

[JEB/njd]

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