Article

Prior History: Veolia Water N. Am. Op. Servs., LLC v. City of Atlanta, No. 1: 06-CV-1457-TWT, 2011 WL 3844214 (N.D. Ga. Aug. 29, 2011), noted in 2012 ANNUAL REVIEW OF INTERNATIONAL BANKING LAW & PRACTICE at 539.

Note: Veolia Water North America Operating Services, LLC (Contractor) entered into a service agreement with the City of Atlanta (City) under which Contractor would service City's wastewater treatment facilities. The agreement required Contractor to obtain a standby letter of credit in favor of City for USD 9,525,304 which it did.

When the failure of digester tanks due to lack of maintenance forced City to lease belt presses from a third party, City sent Contractor a notice of termination of the contract for breach of the service agreement and also drew on the letter of credit.

Contractor then sued City to recover for unpaid invoices and its increased operating expenses. The U.S. District Court for the Northern District of Georgia found that both parties had breached the agreement, ruling that City owed Contractor for unpaid work and was required to return the letter of credit proceeds, and that Contractor was liable for the expenses incurred from the failure of the digester tanks. The trial court ruled that Contractor's "prejudgment interest award included interest on the full amount of the letter of credit." On appeal, the U.S. Court of Appeals for the Eleventh Circuit, Jordan, Kravitch, & Albritton, J.J., in a per curiam opinion, reversed the award of prejudgment interest to Contractor on the full amount of the letter of credit.

The appellate court reasoned that City did not owe prejudgment interest on the full amount of the LC because "[i]n the event of breach by [Contractor], the service agreement allowed the City to draw on the letter of credit for the amount of damages estimated in its good faith assessment." "The City could not have wrongfully drawn on the entire letter of credit intended to secure Veolia's payment for anticipated damages given that the City successfully proved breach and damages that exceeded the letter of credit at trial." The appellate court instructed the trial court to use the amount that the letter of credit exceeded City's gross damages award as the principal for calculating prejudgment interest on remand.

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