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.

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