1

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

IN RE: )

BENDER SHIPBUILDING & REPAIR )

CO., INC., )

)

Debtor. )

)

)

BENDER SHIPBUILDING & REPAIR )

CO., INC., )

)

Appellant, )

)

v. ) CIVIL ACTION NO. 09-0653-CG-M

)

SEACOR MARINE, LLC and )

REGIONS BANK, )

)

Appellees.

ORDER

This is an appeal from an order in Adversary Proceeding 09-01064, within Appellant’s

current bankruptcy case, Case No. 09-12616. This court has appellate jurisdiction over this case

pursuant to 28 U.S.C. § 158(a)(1). Appellant asserts that the United States Bankruptcy Court

Judge erred in granting defendant Seacor Marine, LLC’s (“Seacor”) motion to dismiss the

debtor’s complaint seeking an injunction against Seacor from pursuing a draw on the letter of

credit based upon Appellant’s involuntary bankruptcy and against Regions Bank (“Regions”) 

from paying on the letter of credit on the basis of Seacor’s presentment. This court finds that

Appellant has failed to show a substantial likelihood of success on the merits. As such, the

decision of the United States Bankruptcy Court is due to be AFFIRMED.

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BACKGROUND

The facts of this case are generally not in dispute. In September 2007, Bender

Shipbuilding & Repair Co. (“Bender”) and Seacor entered into a shipbuilding contract

(“Bender/Seacor Contract”) whereby Bender was to build six vessels for Seacor. (Doc. 1-1, p.

29). Bender’s performance under that contract was secured by a letter of credit in the amount of

$5,000,000 issued by Regions. The contract states that “in the case of insolvency of [Bender]...

[Seacor] shall be entitled to make full drawing on the Letter of Credit.” (Id. at 88). The contract

also provides that Seacor may draw upon the letter of credit in full “by presentation of a

statement [to Regions] by [Seacor] stating either of the following:”

(1) “that an undisputed event of default by [Bender] has occurred and is continuing under

Article 12(a) hereof and [Bender] has been notified in writing of such default and all

applicable cure and/or grace periods with respect to such default have expired”...

(Id., at 87). 

Article 12(a) of the contract provides an ipso facto provision that states that Seacor may, by

written notice to Bender, “terminate all or any part of this Contract” if “one or more of its

creditors files a petition against [Bender] seek[ing] relief under any bankruptcy or insolvency

law, which petition shall not have been dissolved within a period of ten (10) days from the filing

of the petition in that court.” (Id., at 58-59). 

Regions issued a standby letter of credit as required by the Bender/Seacor Contract. (Id.

at 93-94). In this document, Regions acknowledges that Seacor may draw on this letter of credit

if a “statement purportedly signed by an authorized official of Seacor” provides, in relevant part,

that: 

The undersigned, an officer or authorized agent of Seacor [], hereby certifies that

an undisputed event of default by Bender [] has occurred and is continuing under

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Article 12(a) of [the Bender/Seacor Contract]... and that [Bender] has been

notified in writing of such default and all applicable cure and/or grace periods

with respect to such default have expired...”

(Id. at 93). 

On June 9, 2009, Bender was placed in involuntary bankruptcy. (See Doc. 1-1, p. 99). 

On June 22, 2009, Seacor sent a letter to Bender which provided the following:

We are advised that creditors of Bender [] petitioned for bankruptcy on June 10,

2009 in the United States Bankruptcy Court in Mobile, Alabama. More than ten

(10) days have elapsed since the filing of the petition and it has not been

dissolved. 

Bender [] is therefore in default under Article 12(a) of the above-referenced

contract and such default is continuing. 

(Doc. 1-1, p. 19). 

On that same day, Seacor made a demand on Regions by presentation of a sight draft for the

entire amount of the letter of credit based on the certificate of Seacor’s authorized agent

certifying that “an undisputed even of default by Bender [] has occurred and is continuing under

Article 12(A) of [the Bender/Seacor contract] and [Bender] has been notified in writing of such

default and all applicable cure and/or grace periods with regard to such default have expired.” 

(Doc. 1-1, p. 109). 

On June 23, 2009, Seacor filed an action against Regions in the United States District

Court for the Northern District of Alabama seeking “a declaratory judgement that defendant

Regions [] is required to honor Seacor’s June 22, 2009 draw request under a $5 million letter of

credit...” because “Seacor has certified to Regions that an event of default has occurred under”

the Bender/Seacor Contract “– namely the filing of an involuntary bankruptcy petition against

Bender [] that was not dissolved within ten days of the filing of the petition – Seacor is entitled

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to an immediate payment of $5 million from Regions under the clear terms of the Letter of

Credit.” (Doc. 1-1, pp. 21-22). 

On June 24, 2009, Bender filed a verified complaint in the Bankruptcy Court for the

Southern District of Alabama requesting “a declaratory judgment that Seacor’s notice of default

is void and an injunction enjoining Seacor from pursuing a draw on the letter of credit based

upon that alleged default and enjoining Regions Bank from paying on the letter of credit on the

basis of Seacor’s presentment dated June 22, 2009.” (Doc. 1-1, p. 13). 

On that same date, Bender filed a request for a temporary restraining order and

preliminary injunction asking the bankruptcy court to enjoin Seacor from pursuing payment of

the $5,000,000 letter of credit drawn on Regions and to enjoin Regions from honoring Seacor’s

presentation. (Doc. 1-1, p. 111). In support of this request, Bender made the following

argument:

As grounds, Plaintiff shows that the presentation of the letter of credit based on

the alleged default in the Defendant, Seacor[]’s contract with Plaintiff due to

Plaintiff’s failure to dissolve an involuntary bankruptcy petition filed against

Plaintiff within ten (10) days of the filling of the same is contrary and violative of

Section 365(e)(1) of the Bankruptcy Code and that Plaintiff will suffer immediate

and irreparable injury, loss, or damage in the absence of a temporary restraining

order... 

(Id., p. 111-112). 

On June 26, 2009, the bankruptcy judge entered oral findings of facts and conclusions of law

denying Bender’s request for a temporary restraining order. (Doc. 2-1, p. 77). First, the

bankruptcy judge concluded that “Bender has not sustained its burden that it’s likely to succeed

on the merits on the legal arguments it is making...” (Id., p. 84). Second, the bankruptcy judge

concluded that Bender had shown that it would suffer irreparable harm if the injunction were not

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allowed and that Seacor would not suffer irreparable harm if the injunction were allowed. (Id.,

pp. 85-86). Third, the bankruptcy judge concluded that the public policy consideration weighs in

favor of Seacor as “the interests of the public in the certainty of use of financial instruments and

payment under them, as the cases call it, the integrity of the market, is an important public

consideration.” (Id., pp. 85-86). Since two of the four factors weighed in favor of denying

Bender’s request for a temporary restraining order, the bankruptcy court denied Bender’s motion

for a temporary restraining order. A written order was entered on June 29, 2009. (Id., p. 129). 

On July 10, 2009, Seacor filed a motion to dismiss Bender’s verified complaint for lack

of jurisdiction under Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim for

which relief could be granted under Federal Rule of Civil Procedure 12(b)(6). (Doc. 1-1, pp.

133-134). On July 24, 2009, the bankruptcy court denied Seacor’s motion to dismiss under Rule

12(b)(1) for lack of jurisdiction and granted with prejudice Seacor’s motion to dismiss under

Rule 12(b)(6) for failure to state a claim. (Doc. 1-1, p. 207). 

As to Rule 12(b)(1), the bankruptcy court reasoned that “if what [Bender] asserts is true,

which I must assume for this motion, a draw on the letter of credit will trigger immediate

liability of Bender to Regions as opposed to the disputed and contingent liability it now has to

Seacor. And this will impact its ability to reorganize.” As a result, the bankruptcy court

concluded that “[t]his is a clear issue in the bankruptcy case because it, ‘alters the Debtors rights,

options, and/or freedom of action and could conceivably affect its ability to reorganize’” thus

“this Court has subject matter jurisdiction over this adversary under its related-to jurisdiction

under 28 U.S.C. Section 1334(b).” (Doc. 2-1, pp. 188-190). 

In regards to Rule 12(b)(6), Bender argued that it had a claim for relief based upon

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 Specifically, Bender asserts that (1) “under bankruptcy law the sole ground upon which

Seacor claims a right to terminate the contract, the filing of a bankruptcy petition is of no affect

in the bankruptcy case because of Section 365(e)(1)” and that (2) “Section 362(a)(6) prohibits

actions of creditors, ‘to collect, assess or recover a claim,’ against a Debtor without relief from

the stay.” In light of these two violations of bankruptcy law, Bender argues “that Seacor could

not issue its notice of default due to this provision and the [letter of credit] requires a notice have

been given to Bender prior to any draw on the [letter of credit]”, and “[t]he notice given by

Seacor, according to Bender, violated the automatic stay and was therefore void.” (Doc. 2-1, p.

186). Bender further argues that because that notice was void, the bankruptcy court and “Regions

should treat the situation as if the event did not occur.” (Id., p. 190). 

Regions joined Benders’ arguments and also maintained that “the Alabama Uniform

Commercial Code which governs here at 7-5-109, allows the bank to refuse to honor a draw

request if the certificate seeking the draw contains a false statement. The statement here is that it

gave a notice of default and/or that there was a default, that is the false statement.” (Id., p. 187). 

On the other hand, Seacor argued “that it is entitled to payment on the irrevocable

standby letter of credit because the condition precedent to the draw set out in the contract of

Seacor and Bender has occurred. Bender did not get the involuntary bankruptcy case that was

filed against it dismissed within ten days.” (Id., p. 190). 

6

Bankruptcy Code Sections 365(e)(1) and/or 362(a)(6).1

 After first concluding that the

Bender/Seacor Contract was an executory contract, the bankruptcy court then turned to 11

U.S.C. § 365(e)(1) which provides that “an executory contract...of the debtor may not be

terminated... solely because of a provision in the contract... that is conditioned on the

commencement of a case under this title.” In light of this provision, the bankruptcy court stated

that there was an issue of whether Seacor can “use [the ipso facto] clause not against the Debtor

directly, but against a third party who as soon as the letter of credit is drawn, becomes a creditor

in Bender’s estate with different rights and remedies than Seacor.” (Doc. 2-1, p. 192). Framing

the issue in this context, the bankruptcy court found only one case directly on point, In re

Metrobility Optical Systems, Inc., 268 B.R. 326 (Bankr.D.N.H. 2001), which “prevented a lessor

from drawing on [a letter of credit] when the Debtor’s sole default was filing bankruptcy”

because “‘the Code invalidates ipso facto clauses as the basis for default and, thus, as a matter of

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federal bankruptcy law the Debtor was not in default.’” (Id., pp. 192-193). Disagreeing with

that court, the bankruptcy court reasoned that the “fiction of invalidation [in the bankruptcy case]

does not extend beyond the bankruptcy case to other parties and contracts” thus “[t]he [ipso

facto] provision is still there and enforceable outside the case.” (Id., p. 193). Due to this

“independence principle,” the bankruptcy court concluded that “Bender’s claim for relief under

365(e)(1) fails as a matter of law.” (Id., p. 196). 

The bankruptcy court provided similar reasoning in regards to 11 U.S.C. § 362(a)(6), a

provision which prohibits actions of creditors, “to collect, assess or recover a claim,” against a

debtor without relief from the stay. The bankruptcy court concluded that “[t]he notice of default

serves two purposes in this case.” First, “it notifies Bender that paragraph 12A has been

breached, and establishes the grounds to collect funds from an independent source.” Second, “it

serves as grounds for Seacor to take certain actions in regard to its contract with Bender.” The

bankruptcy court found that the first purpose “could violate the stay” but that the second purpose

“is satisfying the requirement for collection of non-debtor property” and “such a notice standing

alone would not violate the stay.” (Doc. 2-1, p. 198). Thus, the bankruptcy court determined the

issue is “[i]f the notice is void for one purpose”, as any action in the Eleventh Circuit that

violates the automatic stay is void, “is it void for all purposes[?]” The bankruptcy court

concluded that “[c]onsistent with the view of the law [the court] expressed about 11 U.S.C.

Section 365(e)(1), [the court] believe[s] the same dichotomy is true in this instance.” (Id., p.

199). The court made the following observations:

It is clear that Seacor cannot proceed in the bankruptcy case to take action to

recover its alleged claim against Bender without relief from the stay. Seacor,

depending on the facts and a motion I do not have in front of me, may have

violated the stay as to Bender by not seeking relief from stay before it issued its

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notice of default. The notice vis a vis Seacor and Bender may be ineffective and

not allowable. However, there is no stay that applies to actions between Seacor

and Regions. 

If Seacor gave the notice to Bender, it can certify that it did so. If the notice violated

Bender’s stay, that’s a separate issue between Bender and Seacor, not an issue for Seacor

and Regions Bank. Seacor will merely have to suffer the consequences, if any, if Bender

seeks relief for a stay violation. 

I don’t need to mix stay litigation with this letter of credit litigation. 

(Id., p. 199-200). 

Therefore, the bankruptcy court concluded “that Bender’s request for a preliminary injunction on

Section 362(a)(6) grounds fails to state a claim and must be dismissed.” (Id., p. 200). 

In sum, since Bender’s 11 U.S.C. § 105 argument was “grounded upon the propriety of

relief under Section 365(e)(1) and 362(a)(6),” the bankruptcy court rejected that argument for the

same reasons above. (Doc. 2-1, p. 200). 

After joining all of Bender’s arguments, Regions added that “the Alabama Uniform

Commercial Code which governs here at 7-5-109, allows the bank to refuse to honor a draw

request if the certificate seeking the draw contains a false statement. The statement here is that it

gave a notice of default and/or that there was a default, that is the false statement.” (Id., p. 187). 

The bankruptcy court concluded that this argument must be denied “[b]ecause I have concluded

that Section 365(e)(1) and 362(a)(6) do not prohibit Seacor from asserting the default as against

the [the letter of credit], or as it pertains to the [letter of credit.]” (Doc. 2-1, p. 200). 

On August 8, 2009, Bender filed a notice of appeal under 28 U.S.C. § 158(a) from the

bankruptcy court’s order dismissing its complaint under Rule 12(b)(6). (Doc. 1-1, p. 208). 

DISCUSSION

Appellant Bender asserts that the United States Bankruptcy Court’s ruling was in error

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because §§ 365(e)(1) and 362(a)(6) of the Bankruptcy Code provide a cause of action for an

injunction under 11 U.S.C. § 105 against Seacor from demanding payment on the letter of credit

based solely on the debtor’s failure to cause the involuntary bankruptcy petition to be dissolved

within ten days and supported by a certification containing an affirmation that notice of default

was given to the debtor after the filing of the involuntary petition. (Doc. 6, pp. 1-2). Bender’s

contentions address the Bankruptcy Court’s conclusions of law and, thus, will be reviewed on a

de novo basis. Englander v. Mills (In re Englander), 95 F.3d 1028, 1030 (11th Cir. 1996).

I. Standard of Review

“[W]hen considering a Rule 12(b)(6) motion to dismiss for failure to state a claim, the

court construes the complaint in the light most favorable to the plaintiff and accepts all well-pled

facts alleged by [the plaintiff] in the complaint as true.” Sinaltrainal v. Coca-Cola Co., 578 F.3d

1252, 1260 (11th Cir. 2009). “Although it must accept well-pled facts as true, the court is not

required to accept a plaintiff’s legal conclusions.” Id. (citing Ashcroft v. Iqbal, 129 S.Ct. 1937,

1949, 173 L.Ed.2d 868 (2009)). 

In evaluating the sufficiency of a plaintiff’s pleadings, we make reasonable

inferences in Plaintiff’s favor, “but we are not required to draw plaintiff’s

inference.” Aldana v. Del Monte Fresh Produce, N.A., Inc., 416 F.3d 1242, 1248

(11th Cir. 2005). Similarly, “unwarranted deductions of fact” in a complaint are

not admitted as true for the purpose of testing the sufficiency of plaintiff’s

allegations. Id.; see also Iqbal, 129 S.Ct. at 1951(stating conclusory allegations

are “not entitled to be assumed true”). 

A complaint may be dismissed if the facts as pled do not state a claim for relief

that is plausible on its face. See Iqbal, 129 S.Ct. at 1950 (explaining “only a

complaint that states a plausible claim for relief survives a motion to dismiss”);

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 561-62, 570, 127 S.Ct. 1955, 1968-69,

1974, 167 L.Ed. 929 (2007)(retiring the prior “unless it appears beyond doubt that

the plaintiff can prove no set of facts” standard). In Twombly, the Supreme Court

emphasized a complaint “requires more than labels and conclusions, and a

formulaic recitation of the elements of a cause of action will not do.” Twombly,

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550 U.S. at 555, 127 S.Ct. at 1965. Factual allegations in a complaint need not be

detailed but “must be enough to raise a right to relief above the speculative level

on the assumption that all the allegations in the complaint are true (even if

doubtful in fact).” Id. at 555, 127 S.Ct. at 1964-65 (internal citations omitted and

emphasis omitted). 

... A complaint must state a plausible claim for relief, and “[a] claim has facial

plausibility when the plaintiff pleads factual content that allows the court to draw

the reasonable inference that the defendant is liable for the misconduct alleged.” 

Id. The mere possibility the defendants acted unlawfully is insufficient to survive

a motion to dismiss. Id. The well-pled allegations must nudge the claim “across

the line from conceivable to plausible.” Twombly, 550 U.S. at 570, 127 S.Ct. at

1974.

Sinaltrainal, 578 F.3d at 1260-1261.

In its verified complaint, Bender “requests... an injunction enjoining Seacor from

pursuing a draw on the letter of credit based upon that alleged default and enjoining Regions

Bank from paying on the letter of credit on the basis of Seacor’s presentment dated June 22,

2009.” (Doc. 1-1, p. 13). A district court may grant preliminary injunctive relief if the movant

shows the following: (1) a substantial likelihood of success on the merits; (2) irreparable injury

to the movant if the preliminary injunction is denied; (3) the threatened injury to the movant

outweighs the damage the injunction would cause the non-movant; and (4) the injunction would

not be adverse to the public interest. Four Seasons Hotels & Resorts, B.V. v. Consorcio Barr,

S.A., 320 F.3d 1205, 1210 (11th Cir. 2003); McDonald’s Corp. v. Robertson, 147 F.3d 1301,

1306 (11th Cir. 1998). The standard for a permanent injunction is essentially the same as for a

preliminary injunction except that the movant must show actual success on the merits instead of

a likelihood of success on the merits. Siegel v. LePore, 234 F.3d 1163, 1213 (11th Cir. 2000). 

The movant must demonstrate irreparable injury and the absence of an adequate remedy at law.

Id.. 

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II. Substantial Likelihood of Success on the Merits

Section 105 provides that “[t]he court may issue any order, process, or judgment that is

necessary or appropriate to carry out the provisions of this title.” 11 U.S.C. § 105(a). Bender

asserts that § 105 provides a bankruptcy court “with the authority to enjoin Seacor from violating

the provisions of Section 365(e) and Section 362(a) of the Bankruptcy Code” (Doc. 6, p. 14) and

that the facts in this case warrant an injunction for this court to compel compliance with the

bankruptcy code. 

A. 11 U.S.C. § 365(e)

Bender argues that “Seacor’s declaration of a default under the Bender/Seacor Contract

due to the filing of the involuntary bankruptcy petition against Bender violates Section 365(e)

because Seacor terminated or modified that contract solely because of the involuntary petition

filing, an action that is prohibited by the express language of Section 365(e).” Therefore, “[t]he

Bankruptcy Court has the authority to use its Section 105(a) powers to enjoin Seacor from

openly and defiantly violating this provision of the Bankruptcy Code.” (Doc. 6, p. 16). 

Section 365(e)(1) of the Bankruptcy Code provides that 

an executory contract or unexpired lease of the debtor may not be terminated or

modified, and any right or obligation under such contract or lease may not be

terminated or modified, at any time after the commencement of the case solely

because of a provision in such contract or lease that is conditioned on... (B) the

commencement of a case under this title...

11 U.S.C. § 365(e)(1)

This subsection “prevents an executory contract or lease from being automatically terminated or

modified by virtue of the other party's filing for bankruptcy” thus “[t]he aim is to protect the

right of the bankruptcy estate to adopt, reaffirm and continue a contract or lease where this will

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serve the estate's interests.” Liberty Mut. Ins. Co. v. Greenwich Ins. Co., 417 F.3d 193, 198 (1st

Cir. 2005). In light of this purpose, an issue arises as to whether Seacor can use an

ipso facto clause not against the debtor directly, as this is not allowed under § 365(e)(1), but

against a third party “who as soon as the letter of credit is drawn, becomes a creditor in Bender’s

estate with different rights and remedies than Seacor.” (Doc. 2-1, p. 192).

There is only one case directly on point, In re Metrobility Optical Sys., Inc., 268 B.R.

326 (Bankr. D.N.H. 2001). In Metrobility, a debtor/lessee and a lessor entered into a lease

agreement. The lease agreement contained provisions referencing an irrevocable letter of credit

which the debtor/lessee and lessor executed simultaneously with the lease agreement. The Bank

of New Hampshire issued this irrevocable letter of credit in favor of the lessor. Pursuant to the

letter of credit, in order to draw upon it, the beneficiary lessor must certify to the bank that the

debtor/lessee had failed to perform one of its obligations under the lease, a failure which occurs

under the lease agreement when the debtor/lessee files for bankruptcy. The debtor/lessee

thereafter filed for bankruptcy, and the lessor thereafter served a notice of default and

termination of the lease upon the debtor/lessee . The debtor/lessee thus sought a preliminary

injunction seeking to prevent the lessor from drawing upon the letter of credit. Id. at 327-328.

The Bankruptcy Court for the District of New Hampshire held that the debtor had

“exhibited a likelihood of success on the merits.” The court explained that “[t]he Bankruptcy

Code embraces the policy of preventing the enforcement of ipso facto clauses, which

automatically terminate in the event of a bankruptcy filing.” Id. at 329(citing 3 COLLIER ON

BANKRUPTCY ¶ 365.05[4] (Lawrence P. King ed., 15th Ed. 2001)). The court maintained that

the evidence showed that the only reason given for the beneficiary/lessee’s attempt to draw upon

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2

 This court also questions whether Metrobility is still good law in light of Liberty Mut.

Ins. Co. v. Greenwich Ins. Co., 417 F.3d 193, 198-199 (1st Cir. 2005). 

3

 Regions argues that “[t]he plain language of the Bender-Seacor Contract and the Letter

of Credit reveals... that Seacor could draw under the Letter of Credit only if Seacor terminated,

in full or in part, the Bender-Seacor Contract...” (Doc. 22, p. 11). This court disagrees. The letter

of credit provides that Seacor may draw on this letter of credit if a “statement purportedly signed

by an authorized official of Seacor” provides, in relevant part, that: 

The undersigned, an officer or authorized agent of Seacor [], hereby certifies that

an undisputed event of default by Bender [] has occurred and is continuing under

Article 12(a) of [the Bender/Seacor Contract]... and that [Bender] has been

13

the letter of credit was the debtor/lessor’s filing for bankruptcy. Since “[t]he Code invalidates an

ipso facto bankruptcy filing as the basis for default”, the court determined that “as a matter of

federal bankruptcy law, the Debtor upon filing was not in default under the terms of its Lease.” 

As a result, the court held that the beneficiary/lessor “did not have a basis upon which to issue

the Notices upon Debtor...” Id.

 This court respectfully disagrees with the Bankruptcy Court for the District of New

Hampshire2 and concludes that the bankruptcy court properly concluded that § 365(e)(1) does

not prohibit Seacor from demanding payment from Regions under a letter of credit. This court

must first “start, as always, with the language of the statute.” Dean v. United States, —,—, 129

S.Ct. 1849, 1853, 173 L.Ed.2d 785 (2009). Section 365(e)(1) provides that “an executory

contract... of the debtor [or any right or obligation under such contract]... may not be terminated

or modified...” due to an ipso facto clause. 11 U.S.C. § 365(e)(1)(emphasis added). There is no

question that the Bender/Seacor Contract is an executory contract “of the debtor.” However,

there is no evidence before this court that by requesting a draw from the letter of credit, Seacor is

attempting to terminate the Bender/Seacor Contract or any terms of that underlying contract

because of the ipso facto clause.3

 Furthermore, this court also sees no evidence that Seacor is

Case 1:09-cv-00653-CG-N Document 37 Filed 03/02/10 Page 13 of 19
notified in writing of such default and all applicable cure and/or grace periods

with respect to such default have expired...”

(Doc. 1-1, p. 93). 

The express words of the letter of credit do not require Seacor to terminate the underlying

contract in order to draw upon the letter of credit. Instead, it merely needs to provide notice that

an undisputed event of default has occurred under Article 12(a) of the underlying contract. 

Furthermore, Article 12(a) does not require Seacor to terminate the contract if an event of default

occurs, rather terminating all or part of the contract is entirely discretionary. (See Doc. 1-1, p.

58)(Seacor “may, by written notice to [Bender] terminate all or any part of” the underlying

contract” (emphasis added)).

4

 Bender asserts that Seacor’s declaration of default under the Bender/Seacor Contract

due to the filing of the bankruptcy violates § 365(e)(1). (Doc. 6, p. 16). However, unless

declaring default automatically terminates the underlying contract or automatically modifies the

rights and obligations of the underlying contract, the mere declaring of default does not in itself

violate § 365(e)(1). See Liberty Mut. Ins. Co., 417 F.3d at 198(“[Section 365(e)(1)] prevents an

executory contract or lease from being automatically terminated or modified by virtue of the

other party’s filing for bankruptcy.”). According to the Bender/Seacor Contract, Seacor may

only terminate all or part of the contract upon written notice to Builder seeking termination, and

there is no evidence before this court that Seacor wished to terminate all or part of the underlying

contract. (See Doc. 1-1, p. 58). 

5

 Regions argues that “Section 365(e)(1)(B) is clause-centric and applies whenever the

creditor relies on the ipso facto clause in a contract of the debtor during a bankruptcy, even if

the creditor is seeking to obtain payment under a letter of credit.” In other words, “Section 365

14

attempting to modify the Bender/Seacor Contract by requesting a draw from the letter of credit

due to the ipso facto clause.4

 On the other hand, any modification or termination of the letter of

credit is not barred by Seacor’s reliance of an ipso facto provision since the letter of credit is not

“of the debtor.” The express language of the statute provides that the executory contract must be

“of the debtor,” and the Court of Appeals for the Eleventh Circuit maintains that a letter of credit

and its proceeds are not property of the debtor’s estate. See Am. Bank of Martin County v.

Leasing Serv. Corp. (In re Air Conditioning, Inc. of Stuart), 845 F.2d 293, 296 (11th Cir.

1988)(“...neither a letter of credit nor its proceeds are property of the debtor’s estate.”).5

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expressly voids any attempts by a creditor to terminate or modify rights affecting the debtor

based on an ipso facto clause if the clause is contained in an executory contract ‘of the debtor.’”

(Doc. 20, p. 19). Despite Regions’ arguments to the contrary, Section 365(e) does not expressly

void any attempts to modify rights “affecting the debtor.” The statute expressly provides that a

creditor may not terminate or modify “any right or obligation” under “an executory contract... of

the debtor.” Regions’ interpretation of the statute is much too broad. 

6

 Furthermore, “[t]his same result follows when one considers the purpose of the

section.” Liberty Mut. Ins. Co., 417 F.3d at 198. The purpose of this section “– avowed in both

legislative history and case law– is to protect the bankruptcy estate, primarily against the loss of

contractual rights that the estate might choose to assume and reaffirm.” Id. at 199(citations

omitted). Determining that Regions is not barred from paying Seacor under the letter of credit

due to § 365(e) does not modify the rights of Bender’s estate against Seacor or prevent the estate

from reaffirming any contractual rights it may have under its policies with Seacor. 

15

Therefore, the express words of § 365(e) lead this court to conclude that Seacor can use an

ipso facto clause against Regions in seeking payment on a letter of credit.6

This conclusion is further supported by the “independence principle” which provides that

the letter of credit is a contract between Regions and Seacor that is independent from the

underlying contract between Bender and Seacor and should be treated as such. Under Alabama

law, “‘[a] letter of credit transaction typically includes three separate commitments: (1) the

applicant’s agreement with the bank, which obligates the bank to issue the letter and obligates

the applicant to reimburse the bank; (2) the bank-beneficiary relationship, i.e., the letter of credit

itself; and (3) the applicant-beneficiary relationship, i.e., the underlying contract.’” Diamond v.

Bank of Ala., – So.3d –, 2009 WL 4015644, at *9 (Ala. 2009)(quoting S. Energy Homes, Inc. v.

AmSouth Bank of Ala., 709 So.2d 1180, 1185 (Ala. 1998)(emphasis added)). “The letter-ofcredit transaction is essentially an independent contract between the issuer [Regions] and the

beneficiary [Seacor].” S. Energy Homes, Inc., 709 So.2d at 1185; see Banco Gen. Runinahui,

S.A. v. Citibank Int’l, 97 F.3d 480, 482 (11th Cir. 1996)(“The key to the commercial vitality of

the letter of credit is its independence: it is wholly separate and distinct from the underlying

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contract.”). As a result, “[i]n these transactions, the issuer must honor the drafts or other

demands for payment upon compliance with the terms of the letter of credit, which exist

independently from the underlying transaction.” S. Energy Homes, Inc., 709 So.2d at 1185;

see also Banco Gen., 97 F.3d at 482(“When the beneficiary submits documents to the

issuing/confirming bank, the bank’s only duty is to examine the documents and determine

whether they are in accordance with the terms and conditions of the credit. If the bank finds the

documents to be conforming, it is then obligated to honor a draft on the credit, independent of

the performance of the underlying contract for which the credit was issued.”). In sum, this

court’s conclusion that Seacor can use an ipso facto clause against Regions in seeking payment

on a letter of credit not only rests on the express words of § 365(e) but also rests on the

proposition that the letter of credit is an independent contract between Regions and Seacor that

happens to be triggered by Bender’s bankruptcy filing. 

In light of the foregoing, this court finds that the bankruptcy court properly found that §

365(e)(1) does not prohibit Seacor from demanding payment from Regions. As a result, this

court finds that Bender’s request for an injunction on § 365(e) grounds fails to state a claim upon

which relief can be granted and is due to be dismissed. 

B. 11 U.S.C. § 362(a)(6)

Bender alternatively asserts that “the notice given by Seacor to Bender after the Petition

Filing Date was an action in violation of the automatic stay of Section 362(a)(6)” and that “[i]n

the Eleventh Circuit, violations of the automatic stay are void and without effect.” As a result,

Bender argues that “[i]f the notice was void as a violation of the stay, then the required

certification by the authorized representative of Seacor... is incorrect or false because the notice

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 The bankruptcy court correctly stated that it could not at this time conclude that

Seacor’s actions violated the automatic stay as that motion was not currently in front of the

court. (Doc. 2-1, p. 199). 

17

Seacor sent was void.” (Doc. 6, pp. 17-18). Because the notice sent by Seacor to Regions was

incorrect, Bender asks this court to enjoin Seacor from receiving and Regions from giving any

payments under the line of credit.

This court is not persuaded by Bender’s arguments. Again, a court must first “start, as

always, with the language of the statute.” Dean v. United States, 129 S.Ct. at 1853. The filing of

an involuntary petition “operates as a stay, applicable to all entities, of... any act to collect,

assess, or recover a claim against the debtor that arose before the commencement of the case

under this title against any claim against the debtor.” 11 U.S.C. § 362(a)(6). As the bankruptcy

court correctly pointed out, the notice sent from Seacor to Bender could violate the stay as

“Seacor cannot proceed in the bankruptcy case to take action to recover its alleged claim against

Bender without relief from the stay.”7 (Doc. 2-1, p. 199). However, because a line of credit is

not property of Bender’s estate, Seacor’s notice to Regions requesting a draw on the line of

credit is not in itself a violation of the automatic stay. See In re Air Conditioning, Inc. of Stuart,

845 F.2d at 296(“...neither a letter of credit nor its proceeds are property of the debtor’s estate.”). 

Section 105 of the Bankruptcy Code gives discretion to the bankruptcy court to “issue

any order, process, or judgment that is necessary or appropriate to carry out the provisions of this

title.” 11 U.S.C. § 105(a). As explained above in regards to § 365(e), the letter of credit and the

underlying contract are to be treated as separate from one another. If the letter of credit itself

violated the automatic stay, then it would be proper for the bankruptcy court to enjoin such a

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8

 This reasoning also applies to Regions’ “material fraud” argument pursuant to Alabama

law. (See Doc. 20, p. 29). Section 7-5-109(b) of the Alabama Code gives the discretion to a

court of competent jurisdiction to enjoin a payment under a letter of credit where “honor of the

presentation would facilitate a material fraud by the beneficiary on the issuer or applicant.” Ala.

Code § 7-5-109(b). A “[m]aterial fraud by the beneficiary occurs only when the beneficiary has

no colorable right to expect honor and where there is no basis in fact to support such a right to

honor.” Ala. Code § 7-5-109(b), Official Comment 1. Regions asserts that the notice it received

from Seacor was fraudulent because Seacor has no “colorable right to payment” because the

notice sent by Seacor to Bender is void and without effect thus Seacor could not certify that it

had notified Debtor of the default. (Doc. 20, p. 31). This argument is a defense of Regions as to

the adequacy of the notice that was sent by Seacor to Regions. Therefore, if the bankruptcy court

determines at a later date that Seacor’s notice to Bender violated the automatic stay and thus is

void, the District Court for the Northern District of Alabama is the proper court to determine

whether the bankruptcy court’s finding rises to the level of a material fraud under Alabama Code

§ 7-5-109(b). 

18

transaction. However, since this court concludes as a matter of law that the notice sent by

Seacor to Regions does not in itself violate the automatic stay as the letter of credit is not

property of Bender’s estate, any disputes over the adequacy of that notice should be before the

District Court for the Northern District of Alabama which currently presides over the dispute

concerning the line of credit between Regions and Seacor. For example, if the bankruptcy court

were to conclude at a later date that Seacor’s notice to Bender violated the automatic stay and

thus is void, the District Court for the Northern District of Alabama would then be the proper

court to determine what the effect, if any, that finding would have on the notice sent by Seacor to

Regions.8

 

In light of the foregoing, this court agrees with the bankruptcy court that it is not proper

for the bankruptcy court to enjoin two non-debtor parties from performing their duties under a

contract which is not estate property. Therefore, this court concludes that Bender’s request for an

injunction on § 362 grounds fails to state a claim and must be dismissed. 

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CONCLUSION

For the reasons stated herein, the court finds that the order of the U.S. Bankruptcy Court

for the Southern District of Alabama in Adversary Proceeding 09-01064, Bankruptcy Case No.

09-12616, granting defendant Seacor Marine, LLC’s motion to dismiss the debtor’s complaint

seeking an injunction, is due to be, and is hereby, AFFIRMED. Regions’ and Bender’s motion

for oral argument (Doc. 23 & 26) and Regions’ motion to compel mediation (Doc. 32) are 

therefore MOOT. 

DONE and ORDERED this 2nd day of March, 2010.

/s/ Callie V. S. Granade 

UNITED STATES DISTRICT JUDGE

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