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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1998 LC CASE SUMMARIES No. 5:96-CV-828-BR(1), 1998 U.S. Dist. Lexis 18622 (E.D. N.C. 1998)
Topics:
Enforcement of Judgement; Bankruptcy: Automatic Stay.
Type of Lawsuit:
Parent seeks enforcement of judgement against tortfeasor in action for wrongful death of child pursuant to agreed settlement order, permitting a drawing an LC backing self-insurance scheme.
Parties:
Parent/Judgement Creditor- Letha Mae Artis (Counsel for Parent: Cecil P. Merritt; William O. Richardson of Richardson, Beaver, Holt, Richardson, Sternlicht, Burge and Glazier)
Tortfeasor/Judgement Debtor/Applicant- Harold Alton Myracle, Builder's Transport, Inc. (Counsel for Tortfeasor: Henry L. Anderson, Jr. of Anderson, Daniel and Coxe)
Trustee/Beneficiary- First Union National Bank of South Carolina
Underlying Transaction:
Settlement agreement in a wrongful death lawsuit.
LC:
Standby for US$ 1,000,000. Silent as to governing rules.
Decision:
The U.S. District Court for the Eastern District of North Carolina, Western Division, Britt, J., granted parent's motion to enforce the settlement agreement. The court denied parent's motion to hold applicants in contempt of court.
Rationale:
Letter of credit does not fall within the applicant's bankruptcy estate and is, therefore, not protected by the automatic stay.
Article
Factual Summary:
Parent's son was killed in a traffic accident caused by applicant's truck. Pursuant to a settlement agreement, judgement was entered against applicant in the sum of $100,000, payable in four monthly installments. Under U.S. transportation law, in connection with a self-insurance scheme, the applicant, a trucking company, was required to post an LC with a statutory beneficiary as trustee. The LC required presentation of "a statement of an official of applicant, certifying that such claimant has obtained a non-appealable final judgement against or a written acknowledgement of liability…which has gone unsatisfied for thirty business days after demand by such claimant."
The Settlement Agreement provided that, in the event of default, the applicant would help the parent in obtaining the proceeds of the LC. Applicant defaulted on the final payments and filed for bankruptcy protection pursuant to Chapter 11 of the U.S. Bankruptcy Code. Consequently, parent wrote trustee/beneficiary demanding payment under the LC. However, in accordance with the terms of the LC, trustee refused to make payment. Applicant refused to provide the required certification. As a result, parent filed the Motion to Enforce Judgement which was granted.
Legal Analysis:
1. Bankruptcy: Automatic Stay:The court considered the effect of the applicant's bankruptcy filing on the parent's claim on the LC. Noting that the statute required that a self-insured transportation company file a "bond, insurance policy, or other type of security", the court concluded that the LC "serves the same purpose as would a surety bond, as an emergency source of money for those injured by a self-insuring company to access in the event of a defaulted liability." Because of this statutory purpose, the court ruled that LC should be regarded as outside the Bankruptcy Estate in the same fashion as a surety bond and, therefore, that an order to the applicant to supply the required documents does not violate the automatic stay.
©1999 INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE
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 ICC or the other partners in DC-PRO.