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Note: To ensure payment of rent under its sublease, Arkin Kaplan Rice LLP (Subtenant) obtained a USD 833,000 standby letter of credit from Signature Bank (Issuer) in favor of Ladenburg Thalmann & Co., Inc. (Beneficiary).Apparently, when Subtenant began winding up to dissolve its partnership, Subtenant defaulted on the sublease and Beneficiary demanded payment on the standby. When Issuer dishonored Beneficiary’s presentation, Beneficiary ultimately sued Issuer for a declaratory judgment seeking honor of the standby as well as asserting claims for breach of contract. Separately, however, Subtenant sued Beneficiary for breach of contract, conversion, tortious interference with contract and aiding and abetting a breach of fiduciary duty (the final claims asserted regarding Beneficiary’s demand with Issuer partially resolved in action abstracted in the 2016 Annual Review). The trial court granted Beneficiary’s motion to dismiss the claims against it. Subtenant appealed. The New York Supreme Court, Appellate Division, Freidman, Renwick, Webber, Kahn and Kern, JJ., affirmed.

Subtenant primarily argued that Beneficiary’s demand on the standby was improper both under the lease as well as with respect to Subtenant’s relationship with Issuer. The appellate court disagreed, however, noting that the drawing of the standby, “the method by which the lease provided for the rent to be collected - [did not] constitute a fraudulent conveyance, conversion, or an act in furtherance of aiding and abetting a breach of fiduciary duty.”

[MJK]

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