Topics: Proceeds

Prior History: B.C. Rogers Poultry, Inc. v. CIT Group/Equipment Financing, Inc. (In re B.C. Rogers Poultry, Inc.), No. 01-06516-EE, 2009 Bankr. LEXIS 3729 (Bankr. S.D. Miss. Nov. 16, 2009) [USA], noted in 2010 Annual Review 521.

Note: To finance equipment for poultry processing, B.C. Rogers Poultry, Inc. and B.C. Rogers Processors, Inc. (Lessees) agreed with the CIT Group/Equipment Financing Inc. (Lessor/Beneficiary) to a sale/leaseback arrangement. The arrangement was backed by US$ 3,000,000 in standby letters of credit issued by Community Trust Bank and PaineWebber (Issuers) to the prior owners of Lessees, John M. Rogers, Sr. and J. Kelley Williams (Sureties/Applicants).

When Lessees defaulted on the lease payments, Lessor/Beneficiary drew on the letters of credit supporting the lease. Issuers paid Lessor/Beneficiary and sought reimbursement from Sureties/Applicants. Sureties/Applicants reimbursed Issuers, but were later unsuccessful in their attempt to be reimbursed by Lessees.

Sureties/Applicants subsequently sued Lessor/Beneficiary, claiming $3,000,000 in damages, plus interest and attorney's fees. The United States Bankruptcy Court for the Southern District of Mississippi, Ellington, J. dismissed Lessor/Beneficiary's motion for partial summary judgment for failure to meet its burden of proof.

Sureties/Applicants then made the following claims against Lessor/Beneficiary: 1) misrepresentation; 2) conspiracy; 3) breach of the duty of good faith and fair dealing; 4) breach of the duty to dispose of the equipment in a commercially reasonable manner; 5) unjust enrichment; and 6) breach of the lease regarding the timing of draws upon the letters of credit, unauthorized draws upon the letters of credit, and entitlement to an accounting.

The Judge ruled that Sureties/Applicants understood the risk when they agreed to provide letters of credit as part of the required refinancing plan and denied Sureties/Applicants' request for relief. The Judge noted that Lessor/Beneficiary did not fraudulently induce Sureties/Applicants to provide the letters of credit when Lessor/Beneficiary presented an Equipment List that included certain items that had been double leased. The Judge also noted that Lessor/Beneficiary's retention of the proceeds of the letters of credit complied with the lease agreement and so, Lessor/Beneficiary was not unjustly enriched.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.