Article

Prior History: Jaffe v. Bank of America, N.A., 276 Fed. Appx. 932, 2008 WL 1934492 (11th Cir. 2008), aff'g D.C. No. 07-21093, 2008 WL 623031 (S.D. Fla. March 6, 2008) [USA], abstracted at 2009 ANNUAL SURVEY 450; Jaffe v. Bank of America, N.A., 667 F. Supp. 2d. 1299 (S.D. Fla. 2009) [USA] abstracted at 2010 ANNUAL SURVEY 546; Jaffe v. Bank of America, N.A., 674 F. Supp. 2d. 1360 (S.D. Fla. 2009) [USA] noted at 2010 ANNUAL SURVEY 551; Jaffe v. Bank of America, N.A., 395 Fed. Appx. 583 (11th Cir. 2010) abstracted at 2011 ANNUAL SURVEY 487.

Note: To serve as collateral for a loan for the construction of a luxury yacht, John and Barbara Jaffe (Applicants) applied for a USD 350,000 Irrevocable Standby Letter of Credit to be issued by Bank of America (Issuer). The LC was later amended to the amount of USD 6,030,500 and changed the beneficiary to Agricultural Bank of China (Beneficiary). When problems with the construction of the yacht arose, Applicants sued Issuer to enjoin honor on the grounds of fraud, unjust enrichment, civil conspiracy, and breach of fiduciary duty. The trial court granted the injunctions, and the appellate court reversed, dismissing all counts against Issuer and dissolving the injunction. Beneficiary renewed its draw on the LC; Issuer paid and sought reimbursement. To satisfy reimbursement and pursuant to the reimbursement agreement, Issuer liquidated Applicants' certificate of deposit and instituted foreclosure proceedings on Applicants' property.

Applicants sued Issuer again, this time for wrongful taking of monies, unjust enrichment and conversion against issuer. Applicants and Issuer both moved for summary judgment. The U.S. District Court for the Southern District of Florida, Miami Division, Martinez, J., granted Issuer's motion and denied Applicants' motion.

Applicants alleged that they were not bound by the Application and Agreement for the Letter of Credit because the page containing the indemnification provision was missing when they signed the Application and Agreement. As such, Applicants asserted, Issuer was not entitled to indemnification and its liquidation of the certificate of deposit and foreclosure proceeding constituted conversion and unjust enrichment. Applicants argued alternatively that res judicata precluded Issuer's purported right to the collateral because it failed to produce any evidence in its Motion for Clarification regarding its right to indemnification.

The Judge ruled that "the issue of whether [Applicants] are bound by the entire Application and Agreement has been decided by the Southern District of Florida Court and affirmed on appeal. [Applicants] are collaterally estopped from arguing that the Application and Agreement is not binding upon them." As such, the Judge in the instant action ruled that Issuer had a right to indemnification and Applicants' claims for unjust enrichment, wrongful taking of monies, and conversion failed as a matter of law.

The Judge reasoned that res judicata did not preclude Issuer's taking of the property because "contrary to [Applicants]' assertions, [Issuer] was not required to first obtain a judgment of indemnification against [Applicants] prior to seeking reimbursement under the letter of credit. [Issuer] was entitled to reimbursement from [Applicants] on the day it paid [Beneficiary]'s demand made under the letter of credit." The Judge added that "[i]n any event, [Applicants]' reimbursement obligations were not ripe at the time of [the previous proceedings]. The reimbursement obligation became ripe when [Issuer] made payment on the letter of credit as demanded by [Beneficiary]. As such, [Issuer]'s actions could not be barred under res judicata" (citation omitted).

The Judge also ruled that because Issuer was entitled to claim reimbursement under the Application and Agreement, its application of secured collateral to the debt could not constitute unjust enrichment or conversion.

Applicants also argued that Issuer "failed to state a claim for indemnification within the applicable statute of limitation". The Judge ruled that the statute of limitations was an affirmative defense and that Issuer was "not asserting any claims to which the statute of limitations defense would apply." Furthermore, the Judge added: "Contrary to the [Applicants]' assertion, [Issuer] was not required to first bring an indemnification action and then secure a judgment for indemnification" (citation omitted).

[JEB/kae/jdc]

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