Court Opinion

ID: 9490686
Source: CourtListenerOpinion
Date Created: 2023-08-05 13:51:48.647949+00
Date Added: 2024-06-11T17:54:15.749994
License: Public Domain

BOOCHEVER, Circuit Judge,
dissenting.
I respectfully dissent.
Our jurisdiction in this case is based on diversity of citizenship, and we apply the law of Oregon. Thus, we are asked to determine whether the Supreme Court of Oregon would allow Kogyo to be subrogated to Mitsubishi’s right to recover from National.
On an appeal from a dismissal for failure to state a claim, we take the facts as they are stated in the complaint. We must assume, then, that National violated the terms of the letter of credit and its “red clause” when it advanced West Road initially $1,435,000 and later $1,780,000 on a second letter of credit. Mitsubishi then paid National for the amounts paid out to West Road. Under those circumstances, Mitsubishi, the issuer of the letter of credit, would certainly be entitled to recover the amount paid by National that did not comply with the agreed upon terms. See, e.g., Confeccoes Texteis de Vouzela v. Riggs Nat’l Bank, 994 F.2d 851, 853 (D.C.Cir.1993) (confirming bank owes duty to issuing bank). The only question is whether Kogyo, having reimbursed Mitsubishi, may be subrogated to Mitsubishi’s right to recovery from National. The Uniform Commercial Code (UCC) has been adopted by the state of Oregon. At the time that the transactions in question occurred, the UCC provisions concerning the rights of an applicant, such as Kogyo, that reimburses an issuer, such as Mitsubishi, to be subrogated to the rights of the issuer as against the confirming bank were somewhat ambiguous. New appellate courts have addressed this question, and in doing so they applied state law. Bankruptcy courts are split on whether subrogation was permissible under the pre-revision version of the UCC. See Tudor Dev. Group, Inc. v. United States Fidelity & Guar. Co., 968 F.2d 357, 361-62 (3rd Cir.1992) (majority view does not allow subrogation, but minority does permit it).
Our task is to determine as best we can whether the Supreme Court of Oregon would allow subrogation. Under these facts, I believe that it would.
First, Oregon recognizes broad subrogation rights where the equities so demand. The Supreme Court of Oregon has stated,
[sjubrogation is a remedy which is highly favored. The courts are inclined to expand rather than to restrict the principle. Although formerly the right was limited to transactions between principals and sure*1138ties, it is now broad and expansive, and has a very liberal application ... the principle being modified to meet the circumstances of the individual case.
Oregon v. Smither, 290 Or. 827, 626 P.2d 356, 359 (1981) (citation omitted). See also Maine Bonding & Casualty v. Centennial Insurance Co., 298 Or. 514, 693 P.2d 1296, 1301 (1985) (subrogation “is a doctrine which will be applied or not according to the dictates of equity and good conscience, and consideration of public policy, and will be allowed in all cases where the equities of the case demand it”).
Taking the facts from the face of the complaint, the equities of this case are clear. National advanced West Road close to three million dollars despite West Road’s failure to comply with the terms laid out by the letter of credit defining the parameters of such advances. Mitsubishi performed as the letter of credit required and reimbursed National for those advances. Kogyo, in its turn, did the same for Mitsubishi. In the end, National’s failure to abide by the terms of the letter of credit cost Kogyo millions of dollars. As the party at fault, National “in equity and good conscience ought to pay” to Kogyo the sum that Kogyo was compelled by contract to pay to Mitsubishi. See Maine Bonding & Casualty Co., 693 P.2d at 1301.
Moreover, in light of its expansive reading of subrogation rights, I believe that the Supreme Court of Oregon would interpret the UCC, as adopted by the Oregon legislature, as allowing subrogation in this context. Revised Article 5 § 5-117(b) of the UCC provides:
An applicant that reimburses an issuer is subrogated to the rights of the issuer against any beneficiary, presenter, or nominated person to the same extent as if the applicant were the secondary obligor of the obligations to the issuer____
This revised section, which was adopted by the Oregon legislature after the events at issue took place, has not yet been interpreted by Oregon courts. In fact, Oregon courts have never specifically addressed what subrogation rights exist in the letter of credit context. The drafters of the UCC, however, stated that the new provision merely “clarifies the subrogation rights of an Issuer who has honored a letter of credit. These rights of subrogation also extend to an applicant who reimburses____” UCC Rev. Art. 5, Prefatory Note, p.6.1 Thus, the UCC drafters believed that the UCC as originally drafted, and adopted by the Oregon legislature, permitted subrogation.
In light of Oregon’s broad subrogation doctrine, I believe that the Supreme Court of Oregon would fall in line with the UCC drafters. I would hold that the Oregon legislature originally adopted the UCC with the intention of allowing “[a]n applicant that reimburses an issuer [to be] subrogated to the rights of the issuer against” the confirming bank, Rev. UCC § 5-117(b), and would thus allow Kogyo to proceed against National.

. The majority points out that Oregon's adoption of the above provision applies only to letters of credit issued on or after January 1, 1998. Majority Opinion at 1136. This is true. But, as the majority also points out, it is not dispositive. See Kaiser Cement v. Tax Com., 250 Or. 374, 443 P.2d 233, 235 (1968) (applying clarifying amendment to tax code in case filed prior to 1965 notwithstanding provision in amending statute that changes were "retroactive only to January 1, 1965”).