Opinion ID: 3036337
Heading Depth: 2
Heading Rank: 3

Heading: letter of credit

Text: The district court held that the bankruptcy court erred in its July 2002 ruling, and therefore abused its discretion when it denied the motion to reconsider. On appeal, the Landlord contends that the district court erred in reaching the merits of the bankruptcy court’s July 2002 ruling and not limiting its analy1974 IN RE: ONECAST MEDIA sis to the motion to reconsider. We disagree. While the denial of a motion to reconsider is reviewed for abuse of discretion, a court abuses its discretion if the legal conclusions underlying the court’s determination are clearly erroneous. McDowell, 197 F.3d at 1255. [6] Letter of credit transactions involve three relationships: that of the bank to its customer who purchases the letter of credit; that of the bank to the beneficiary to whom it makes a promise to pay; and finally, that between the customer and the beneficiary. See Kenney v. Read, 997 P.2d 455, 458 (Wash. Ct. App. 2000). Under the so-called principle of independence, each of those three transactions must be treated separately. 1 RICHARD A. LORD, WILLISTON ON CONTRACTS § 2:23 (4th ed. 1999). This case does not involve the first two relationships. There is no issue concerning the bank’s performance under the letter of credit. Indeed, the Landlord, the beneficiary, has drawn down the full amount of the letter of credit. What is at issue here is simply the controversy between the Landlord and the Trustee over how much of the funds held by the Landlord it is entitled to retain. Following OneCast’s default under the lease, the Landlord drew down the entire letter of credit as the security deposit. The Trustee now seeks to recover so much of the security deposit as exceeded the Landlord’s damages. The Trustee’s interest in those funds is property of the estate, 11 U.S.C. § 541(a)(1) (2000), and thus within the bankruptcy court’s jurisdiction. In re Kaiser Group Int’l Inc., 399 F.3d 558, 566 (3d Cir. 2005); In re Graham Square, Inc., 126 F.3d 823, 828 (6th Cir. 1997) (“It is one thing to attempt to prevent the distribution of the proceeds of a letter of credit, an attempt the doctrine of independence is designed to prevent; but it is quite another to bring an action on the underlying contract that created the letter of credit.”); In re Papio Keno Club, Inc., 247 B.R. 453, 460 (B.A.P. 8th Cir. 2000) (“The fact that Debtor seeks the return of funds that are proceeds of a letter of credit does not negate the breach of contract claim on the underlying obligation.”).5 5 The cases cited by the Landlord are not apposite. All involved situations where a debtor or trustee challenged or sought to enjoin payment by IN RE: ONECAST MEDIA 1975 Because the bankruptcy court committed clear error in holding that it had no jurisdiction, its denial of the motion to reconsider was an abuse of discretion. See McDowell, 197 F.3d at 1255.