Legal Case Summaries

Article

Note: The International Union of Operating Engineers, Local Union (Union/Judgment Creditor) sought to enforce a judgment order against L.A. Pipeline Construction Co., Inc. (Employer/Applicant), an Ohio corporation. Pursuant to the West Virginia Wage Payment Collection Act (WPCA), Employer/Applicant was required to obtain a wage bond to secure Union/Judgment Creditor’s wages in connection with construction of a pipeline because it “had not conducted much work in West Virginia.” Employer/Applicant, therefore, obtained a standby LC from United Bank, Inc. (Issuer) in favor of the West Virginia Labor Commissioner (Beneficiary). The LC provided: “This perpetual irrevocable letter of credit is posted as a wage bond pursuant to [the WPCA], and is subject to the provisions thereof, and the laws of the State of West Virginia…This perpetual irrevocable letter of credit/wage bond may only be terminated with the approval of the Commissioner of the West Virginia Division of Labor pursuant to the terms and conditions of [the WPCA]…The Issuing bank further agrees to notify the Commissioner…prior to the five (5) year anniversary of the Issuing date so that the Commissioner can determine if the wage bond may be terminated pursuant to [the WPCA].”

The WPCA provided that an LC issued under it as a “wage bond” could only be terminated with the Department of Labor’s consent.

Following Employer/Applicant’s failure to pay Union/Judgment Creditor’s wages and fringe benefits, Union/Judgment Creditor sued Employer/Applicant for nonpayment, resulting in a judgment of USD 129,273.90. When Employer/Applicant failed to satisfy the judgment, Union/Judgment Creditor filed a writ of suggestion with the Labor Department, requesting it to draw on the LC. Union/Judgment Creditor claimed that the LC was still operative because the LC could not be terminated under WPCA procedure without Beneficiary’s approval. Employer/Applicant argued that the LC which was by its terms “perpetual,” had been issued over five years earlier, and therefore expired under West Virginia Revised UCC § 5-106(d) (Issuance, Amendment, Cancellation and Duration).¹ That provision provides, “[a] letter of credit that states that it is perpetual expires five years after its stated date of issuance.” Issuer intervened, echoing Employer/Applicant’s position.

At trial, the United States District Court for the Southern District of West Virginia, Chambers, J., certified a question regarding the perpetual LC’s operative duration. Presented with a question of statutory interpretation, the Supreme Court of Appeals of West Virginia, Ketchum, J., ruled that the LC was still valid and Union/Judgment Creditor could proceed to seek enforcement of its USD 129,273.90 judgment on the perpetual LC.

The appellate court first reviewed the statutory language of the WPCA and held its text was unambiguous. The Court noted that Beneficiary possessed the exclusive right under WPCA to terminate LCs posted as work bonds following an employer’s demonstration of payment. The Court rejected Employer/Applicant and Issuer’s position that the WPCA was preempted by Revised UCC § 5-106(d) because, “under [this court’s] rule in which a specific statute prevails over a general statute, the WPCA must prevail over the [UCC].”

The appellate court relied on Leary v. McDowell County National Bank, 552 S.E.2d 420 (W. Va. 2001), in which the court had reached a similar conclusion, based on the prior version of UCC Article 5. In that case, a group of coal miners were in a position similar to Union/Judgment Creditor’s in the present case. The Leary appellate court ruled in favor of the coal miners, noting WPCA’s purpose of protecting workers. In the instant case, the appellate court noted that the rationale from Leary was applicable because (1) the Revised UCC also allowed for supplementation by other statutes, and (2) the remedial nature of WPCA supported Union/Judgment Creditor’s pursuit of payment drawn from the LC. In a footnote, the appellate court mentioned that its ruling was limited to LCs issued as work bonds under the WPCA.

Text of LC: The opinion contained the following excerpt from the standby: “This perpetual irrevocable letter of credit is posted as a wage bond pursuant to [the WPCA], and is subject to the provisions thereof, and the laws of the State of West Virginia…This perpetual irrevocable letter of credit/wage bond may only be terminated with the approval of the Commissioner of the West Virginia Division of Labor pursuant to the terms and conditions of [the WPCA]…The Issuing bank further agrees to notify the Commissioner…prior to the five (5) year anniversary of the Issuing date so that the Commissioner can determine if the wage bond may be terminated pursuant to [the WPCA].”

Statute: W. Va. Code § 21-5-14(g) Termination of bond: The bond may be terminated, with the approval of the commissioner, after an employer submits a statement, under oath or affirmation lawfully administered, to the commissioner that the following has occurred: The employer has ceased doing business and all wages and fringe benefits have been paid, or the employer has been doing business in this state for at least five consecutive years and has paid all wages and fringe benefits. The approval of the commissioner will be granted only after the commissioner has determined that the wages and fringe benefits of all employees have been paid. The bond may also be terminated upon a determination by the commissioner that an employer is of sufficient financial responsibility to pay wages and fringe benefits.

Comment: The appellate court did not address the question of whether the undertaking is a § 5-102(a)(10) (Definitions) (Letters of Credit) letter of credit given that the W. Va. Wage Bond statute alters the character of the undertaking in fundamental ways, arguably rendering the undertaking a suretyship promise rather than a LC. Nor did it consider the consequences of the unavailability of UCC Art. 5’s default terms or of the O.C.C. regulations regarding LCs.

---

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.