Article

Note: Gaby Fraifer incorporated Telecenter, Inc. (Applicant) in Florida and TCI Direct, Inc. (“TCI Direct”) in Delaware and opened a business money market account and a commercial checking account with First Commercial Bank of Tampa Bay (Issuer). At Fraifer’s request, Issuer issued a standby letter of credit (“LC”) for USD 100,000 to ensure payment to Dollar Phone Enterprises, Inc. (Beneficiary) by Applicant. Reimbursement of a drawing on the standby was collateralized by a Certificate of Deposit (“CD”) obtained from TCI Direct’s funds but issued to Fraifer who, on inquiry, asserted that he was told that “it did not matter.”

When Applicant obtained extension of the LC, Fraifer assigned the CD as security for Applicant’s variable rate business loan in the amount of USD 100,000, which was to be applied toward the LC extension. Eventually, the LC expired. Another of Fraifer's companies, Gulf Brisas, LLC ("Gulf Brisas"), obtained a loan from Issuer in the approximate amount of USD 1,400,000, with Fraifer as the individual guarantor of the loan. When it had not been paid for four months, the loan became delinquent.

Issuer was subsequently closed by the Florida Office of Financial Regulation, and the FDIC (Receiver) was appointed as receiver. Receiver notified Applicant of its decision “to disaffirm the letter of credit and advised [Applicant] to file a Proof of Claim [within three months] to preserve any claims it may have against the receivership estate.” This letter was sent even though the LC had apparently expired. Applicant filed a Proof of Claim with the Receiver, claiming the full amount of the CD plus interest. Receiver requested additional information regarding Applicant’s proof of claim and afterward was not provided the requested documentation. Meanwhile, Stonegate Bank assumed the accounts of Issuer, acquired the Gulf Brisas loan, and “off-set the CD against the Gulf Brisas loan because Fraifer was a guarantor on that loan, the loan was in default, and the CD was in Fraifer’s name.”

Applicant sued Receiver, alleging breach of contract, conversion by Receiver in its capacity as the receiver for Issuer, and liability for Issuer's negligence. The U.S. District Court for the Middle District of Florida, Honeywell, J. ruled in favor of Receiver, concluding that there was no breach of contract because there was no contract between Applicant and Receiver or Issuer since the CD was issued to TCI Direct, not Applicant.

The Judge also ruled that Applicant’s claim for Issuer’s conversion of proceeds of the CD in the amount of USD 100,000 plus interest was barred under § 1346(b) of the Federal Torts Claim Act because the only proper defendant in such action is the United States, not its agencies.

Additionally, alleging that Receiver “stands in the shoes of [Issuer] and, therefore, is liable for the negligent acts of [Issuer’s] employees,” Applicant contended that Issuer was negligent when it put the CD in Fraifer’s name rather than Applicant’s name and told Fraifer that it did not matter. The Judge stated that under the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”) federal courts generally lack the authority to decide claims against an institution in federal receivership until the claimant has exhausted his administrative remedies against Receiver, and that Applicant failed to exhaust these remedies when he received the notice from Receiver to submit additional documentation but failed to comply and submit any claims to Receiver by the specified date.

[GJL]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of the ICC or Coastline Solutions.