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Note: In exchange for incorporation of unannexed property into the Village of Sugar Grove (City/Beneficiary), Hannaford Farm, L.L.C. (Developer/Applicant) agreed to make certain public improvements. Additionally, in connection with further development of the property, Applicant was required to post security for the estimated value of required improvement. As a result, Applicant obtained standby letters of credit from Benchmark Bank (Issuer) in favor of City/Beneficiary totaling US $2,077,675.13. To assure reimbursement of Issuer, Developer/ Applicant executed promissory notes in Issuer's favor.

The standbys entitled City/Beneficiary to demand payment in the event that Beneficiary determined Applicant had demonstrated it would be unable to complete the improvements. After Applicant defaulted, City/Beneficiary presented sight drafts to Issuer demanding payment according to the standbys. When issuer dishonored the drafts, Beneficiary sued Issuer in Illinois state court for breach of contract and wrongful dishonor.

Soon afterwards, Issuer was closed by The Federal Deposit Insurance Corporation (FDIC) and Illinois Department of Financial and Professional Regulation (IDFPR). The FDIC was named receiver and MB Financial Bank (Successor) assumed Issuer's liabilities. City/Beneficiary filed an administrative claim with the FDIC, which led the FDIC to issue a "Receiver's Certificate" for the full amount of the standbys. Alleging that this certificate is worthless because the FDIC classified City/Beneficiary as a general unsecured creditor and no funds were available to pay such creditors, Buyer sued Successor for wrongful dishonor.

On cross-motions for remand to state court and dismissal, the US District Court for the Northern District of Illinois, Eastern Division, Grady, J., denied City/Beneficiary's motion to remand to state court and denied in part Successor's motion to dismiss. The Judge granted Successor's motion to dismiss City/ Beneficiary's claim for declaratory judgment but denied the motion on all other claims, ruling that the declaratory judgment claim was duplicative.

The court stated that the Purchase and Assumption Agreement between MB Financial stated that Successor did not assume liability for letters of credit, but Successor did agree to pay, perform, and discharge assumed deposits. Therefore, in order for City/Beneficiary to recover against Successor, the promissory notes executed by Applicant must have been "uncontingent," which would qualify the notes as insured deposits that cannot be satisfied by a receiver's certificate, as defined by the Federal Deposit Insurance Act.

In denying the motion to dismiss, the Judge ruled that he is not in a position to declare that the promissory notes are not "deposits" under the Federal Deposit Insurance Act. Further, the Judge ruled that because City/Beneficiary alleges the standbys are deposits, as defined in the Federal Deposit Insurance Act, Successor's agreement to assume such deposits and its refusal to pay Beneficiary state a claim for breach of contract on a third party beneficiary theory.

[JEB/rhw]

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