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Note: To assure payment of rent on a lease of real property, Cotford I, Ltd. (Lessee/Applicant) obtained a standby LC issued by Texas Brand Bancshares, Inc., d/b/a Texas Brand Bank (Issuer) for an amount not disclosed in the opinion in favor of DG Real Estate, LLC (Lessor/Beneficiary). When Lessee/Applicant failed to make payments, Lessor/Beneficiary drew on the standby. When Issuer dishonoured, Lessor/Beneficiary sued Issuer for wrongful dishonour in the Colorado state courts. This action was removed to the federal courts under US federal law. Claiming res judicata, Issuer moved to dismiss. The US District Court, District of Colorado, Watanabe, J., granted the motion.

After the Colorado action was filed, Issuer sued Lessor/Beneficiary in the Texas state courts. Even though the Texas state action was filed after the Colorado action, Lessor/Beneficiary did not seek to stay the Texas state action due to the prior federal action as it would have been entitled to do or to file counterclaims. The Texas state court entered summary judgment in favor of Issuer, ruling that Lessor/Beneficiary had failed to present the original operative standby so that Issuer could verify its genuineness and authenticity. No appeal of this order was made by Lessor/Beneficiary.

The Colorado federal court ruled that the Texas state decision involved the same operative facts and parties, had resolved them in favor of Issuer, and under the doctrine of res judicata was entitled to effect on the Colorado action. Moreover, the Judge noted that "to date, [Lessor/Beneficiary] has not delivered an original letter of credit to this court in opposition to the subject motion for summary judgment . . ., nor has [Lessor/Beneficiary] submitted the original letter of credit to the Texas District Court".

[JEB/mlm]

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