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Note: In connection with a residential development, a real estate developer (Developer/ Applicant) applied to the City of Freeport (City/ Beneficiary) to construct a residential development. Under local development laws, City/Beneficiary had the discretion to require Developer/Applicant to post security before undertaking the project. Developer/Applicant provided a standby LC issued by from DC Capital (Issuer) in the amount of USD 4,870,000 as security in favor of City/Beneficiary. Later, Developer/Applicant applied for a loan from Beach Community Bank (Mortgagor) to continue the project, and Mortgagor took several plots of the development as collateral.

When Developer/Applicant failed to complete the project, City/Beneficiary drew on the LC but found that Issuer did not have enough money to honor the LC. As a result of Developer/Applicant's failure to complete the project, Mortgagor lost money and sued City/Beneficiary for failure to conduct due diligence regarding Issuer to see if it had the ability to honor the LC. City/Beneficiary claimed that investigation and enforcement decisions were discretionary policy decisions and protected under sovereign immunity. The trial court disagreed and ordered the case to go to trial. City/Beneficiary appealed.

The Supreme Court of Florida, in a per curiam decision, reversed the decision of the trial court on the ground of sovereign immunity. The appellate court noted, "Regardless of its wisdom, [City/ Beneficiary]'s decision not to dedicate resources towards fraud prevention by investigating the authenticity of the security or the financial solvency of its backer, was a policy decision that we are not permitted to second-guess."

[JAH]

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