Petition for Writ of Certiorari — Aztec General Agency v. Federal Deposit Insurance Corp.

98 1933 Fes 161999

OFFICE OF THE CLERK

NO.

IN THE SUPREME COURT OF THE UNITED STATES

October Term, 1999

AZTEC GENERAL AGENCY,

Appellant

V.

FEDERAL DEPOSIT INSURANCE CORPORATION,

In Its Corporate Capacity,

Respondent

On Petition for Writ of Certiorari from the United States

Court of Appeals for the Fifth Circuit

Petition for Writ-of Certioran

Stephen R. Goetzmann

2651 N. Harwood St.

Ste. 330

Dallas, Texas 75201

214-871-2565

<>) Ox?

>> e\

The question presented for review

Were the commercial letters of credit issued to Aztec

General Agency insured deposits under 12 U.S.C. §

1813(D0)?

il

A list of all parties

John Henry Pelt d/b/a Aztec General Agency,

Petitioner/Appellant in this Court;

Ann S. DuRoss, Robert D. McGillicuddy, and Jeannette

E. Roach, 550 17th Street, N.W. Room H-3071, Washington,

D.C. 20429, Counsel of Record for Respondent/Appellee

Federal Deposit Insurance Corporation.

Table of contents and a table of cited authorities

The question presented for review

A list of all parties

Table of contents and a table of cited authorities

Cited authorities

12 U.S.C. § 1813()(Q))

28 U.S.C. 1254(1)

12 U.S.C.S. §1821 (f)(4)

5 U.S.C. §701 et.seq.

IV

1,2

l

Federal Deposit Ins. Corp,, v. Philadelphia Gear

Corp.,

476 U.S. 426 (1986) 3,4,.7&8

Vern. Tex. St. Ann. Tex. Gov’t Code Chapter

2353.023

Auto Servico San Ignocia, SRL v.

Compania Anonima Venezolano

3

De Navegacion, 765 F.2d 1306, 1310 (5" Cir

1985).

4

York Bank & Trust Co. v. Federal Sav. & Loan

Ins. Corp., 851 F.2d 637,

639-41(3rd Cir. 1988) cert. denied, 488 U.S.

1005 (1989).

8

Cred,

25 Stan. L. Rev. 716, 716(1973)

77 Cong.[***1936] Rec. 3837,

3840(1933)(remarks of Rep Stegall).

Opinion Below

Jurisdiction

Applicable Statute

Jurisdiction of Court below

Statement of Case

Reasons of Allowing this Wnt

Conclusion

Table of Appendix

Opinion Below

Letter disallowing claim

Letter of Credit

Opinion of Judge Solis

Verkuil, Bank Solvency and Guaranty Letters of

9

3838,

9

l

l

]

Opinion Below

The opinion of the Court of appeals for the United

States Fifth Circuit Court of Appeals (1. ) is an unpublished

opinion. This opinion was a review of the Federal Deposit

Insurance Corporation, In Its Corporate Capacity, hereinafter

referred to as FDIC, decision denying appellant’s claims.

Jurisdiction

The opinion of the United States Fifth Circuit Court of

Appeals in this matter was rendered September 4, 1998. (See

Appendix 1) Thereafter, Petitioner’s motion for rehearing was

overruled November 18, 1998.(See Appendix 2) The

jurisdiction of this Court is invoked under 28 U.S.C. 1254(1).

Applicable Statute

The Federal Deposit Insurance Corporation is

burdened with paying for insured deposits under the following

definition:

“(1) the unpaid balance of money or its

equivalent received or held by a bank or a

savings association in the usual course of

business and for which it has given or is

obligated to give credit, either conditionally or

unconditionally, to a commercial, checking

_ saving, time or thrift certificate, investment

certificate, certificate of indebtedness, or other

similar name, or a check or draft drawn against

a deposit account and certified by the band or

savings association or a letter of credit or a

traveler’s check on which the bank is primarily

liable: Provided, That, without limiting the

generality of the term ‘money or its

equivalent,’ any such account or instrument

must be regarded as evidencing the receipt of

the equivalent of money when credited or

issued in exchange for checks or instrument is

primarily or secondarily liable, or for a charge

against a deposit account, or in settlement of

checks, drafts or other instruments forwarded

to such bank or saving associations for

collection.”12 U.S.C. § 1813()(1)

Jurisdiction of the Court Below

Jurisdiction of the United States Fifth Court of

Appeals was proper under 12 U.S.C.S. §1821 (f)(4) as a

review of the Federal Deposit Insurance Corporation’s

determination in accordance with Chapter 7 of Title V of the

United States Code, 5 U.S.C. §701 et.seq. On January

31,1996, the FDIC notified Petitioner of disallowance of his

claim presented therein. Pursuant to 12 U.S.C. §1821 (f)(4),

(5) the Petitioner for review was filed with the United States

Court of Appeals, 5th Circuit, on March 29, 1996, within the

sixty-day statute of limitations required for such

determination.

Statement of the Case

Aztec General Agency provided public work

performance and construction bonds to construction

companies to build state, county and municipal buildings in

tN

the State of Texas'. The construction companies paid Aztec

General Agency for its services, in part, with the letters of

credit. The FDIC concluded that Aztec’s letters of credit

were not an insured deposit.(See Appendix, 3)

Reasons of Allowing this Writ

United States court of appeals for the Fifth Circuit did

not command the FDIC to follow this Court unmistakable

analysis in Philadelphia Gear to first determine whether a

letter of credit is a commercial or clean letters of credit.

Federal Deposit Ins. Corp,, v. Philadelphia Gear Corp., 476

U.S. 426 (1986). Letters of credit are the method of payment

many merchants in many different types of transactions.

Congress recognized their importance by specifically

including them in the definition of an insured deposit.

Although, this Court specifically differentiated clean or

commercial letters oficredit from standby letters of credit no

federal appellate court has published an opinion directing the

FDIC to pay claims on commercial letters of credit. Without

direction from this court the FDIC will continue applying the

Philadelphia Gear hard assets test, to all letters of credit. In

doing so the FDIC jeopardizes stability and strength of our

nation’s banking system.

'Vern. Tex. St. Annot. Texas Gov’t Code Chapter

2353.023.

Lv)

The Federal Deposit Insurance Act defines an insured

deposit as:

“(1) the unpaid balance of money or its

equivalent received or held by a bank or a

savings association in the usual course of

business and for which it has given or is

obligated to give credit, either conditionally or

unconditionally, to a commercial, checking

saving, time or thrift certificate...or a letter of

credit or a traveler’s check on which the bank

is primarily liable: Provided, That, without

limiting the generality of the term money or its

equivalent,’ any such account or instrument

must be regarded as evidencing the receipt of

the equivalent of money when credited or

issued in exchange for checks or instrument is

primarily or secondarily liable....”

12 U.S.C. § 1813(1)(1)(Emphasis added). This Court

previously applied this particular portion of the above statute

in Federal Deposit Ins. Corp,, v. Philadelphia Gear Corp., 476

U.S. 426 (1986). Justice O’Connor, writing for the majority,

concluded “a letter of credit” means commercial and standby

letters of credit. Philadelphia Gear, 476 U.S. at 428 (1986).

The particular letter of credit in Philadelphia Gear, a standby

letter of credit conditioned payment upon the default of the

account party. Id. In accord with that letter a draft drawn

upon the letter of credit would be honored by the bank only if

accompanied by Philadelphia Gear’s “ ‘signed statement the

[it had} invoiced Orion Manufacturing Corporation and that

said invoices have remained unpaid for at least 15 days.’ ” Id.

This Court determined the letter to be a standby in looking

only to the content of the letter itself in accord with well

established rules of contractual interpretation. Auto Servico

San Ignocia, SRL v. Compania Anonima Venezolano De

Navegacion, 765 F.2d 1306, 1310 (5™ Cir. 1985). This Court

established that only standby letters of credit must be backed

by hard assets to become insured deposits.

Apparently, the FDIC did not read Aztec’s letters in

conjunction with Justice O’Connor’s opinion in Philadelphia

Gear, wherein, this Court first determined, solely from the

content of the letter, that the Philadelphia Gear letter that it

was a standby letter of credit and made the following rule:

“Because the letter or credit was intended to

provide payment to the seller only if the buyer

of the letter invoiced goods failed to make

payment, the letter of credit was what is

commonly referred to as a ‘standby’ or

‘guaranty’ letter of credit. See, e.g., 12 C.F.R.

§ 337.2(a), and n.1(1985)(defining standby

letters of credit and mentioning that they may “

* guaranty’ payment of a money obligation’).

A conventional ‘commercial’ letter of credit, in

contrast, is one in which the seller obtains

payment from the issuing bank without looking

to the buyer for payment even in the first

instance. See ibid...”

Philadeiphia Gear, 476 U.S. at 427 (1986). Nothing in

Aztec’s letters prevented Aztec General Agency drawing on

the letters of credit except presentation of the letter to the

financial institution. (See Appendix 4). The FDIC disallowed

Aztec’s claim because it considered the letters standby letters.

(See Appendix, 3). The FOIC maintained its position even

though the United States District Court of Texas for the

Northern District, Judge Solis, found the above quoted letter

of credit a clean letter of credit as an insured deposit. (See

Appendix, 5 for unpublished opinion)’.

The Aztec letters of credit are the other side of the

coin from the Philadelphia Gear letter. Most of the letters,

each addressed to Aztec General Agency and signed by the

bank officer, read as follows:

“By order of our client, J & D Construction Company,

we hereby establish this Irrevocable Letter of Credit

No. 03-07-1989 in your favor for an amount up to but

no exceeding the aggregate sum of seventy thousand

and no/100 Dollars ($70,000.00), effective

immediately, and expiring at the offices of the bank on

March 7, 1990, unless renewed has hereinafter

provided.

Funds under this Letter of Credit are available to you

against your Sight Draft, signed by your authorized

corporate officer, drawn on us bearing the clause

‘Drawn Under Letter of Credit No. 034-07-1989.’

This Letter of Credit will be automatically renewed for

a one-year period upon the expiration date set forth

above and upon each anniversary of such date, unless

at least sixty (60) days prior to such expiration date,

or prior to any anniversary of such date, we notify

both you and your client in writing by certified mail

that we elect not to so renew this Letter of Credit.

* Aztec General Agency filed suit in Cause No. #:91-

CV-2361-P asking for a review of the FDIC denial of a letter

of credit. The District Court granted Aztec’s Motion for

summary judgment, in part, and found the letter in question to

be “...true, clean letter of credit” and therefore an insured

deposit.

Upon receipt by you of our notice of election not to

renew this Letter of Credit, you may draw hereunder

by your Sight Draft drawn on use and bearing the

clause ‘Drawn Under Letter of Credit No. 03-07-

1989.’

This Letter of Credit sets forth in full the terms of our

undertaking and such undertaking shall not in any way

be modified, amended or amplified by reference to any

documents or instrument referred to herein or in

which this Letter of Credit is ref rred to or to which

this Letter of Credit relates and any such reference

shall not be deemed to incorporate herein by reference

any document or instrument.

All bank charges and commissions incurred in this

transaction are for the applicant’s account.

We hereby agree with the drawers, endorsers and

bona fide holders of drafts drawn under and in

compliance with the terms of this credit that such

drafts will be duly honored by presentation to the

drawee.

Except as otherwise expressly stated herein, this credit

is subject to the Uniform Custom and Practice for

Commercial Documentary Credits (1974 Revision).”

(See Appendix, 3). These letters do not make payment

conditioned upon a default of the account party as in

Philadelphia Gear. Id. In fact, the letter contemplates this

letter being sold to a bona fide holder or a holder in due

course. (See Appendix 4)

Evidently the FDIC did not consider the content of the

letters of credit themselves. In fact, the FDIC argued, to the

= ,

Fifth Circuit Court, two basic points. First, since they could

not find records of accounts for the account party the letters

of credit were not payable. Second that “Aztec is Barred

From Obtaining Deposit Insurance on Standby or Disaffirmed

LOCs....” Both of these approaches assume that Aztec’s

letter are standby. Why else would the FDIC have to look to

the failed bank’s records when they had a genuine bank

record in the letters of credit themselves? The letters of credit

are written by the banks and signed by the bank’s officers.

(See Appendix, 4). The FDIC looked to additional banking

records because it assumed the letters to standby letters with

were payable only if hard assets were present. At the

administrative level the FDIC disallowed Aztec’s claims, in

part, because:

“’..The letters of Credit comprising your claim

were secured by contingent promissory notes,

and no money or its equivalent had been give

for consideration. Therefore, the Letters of

Credit do not constitute insured deposits as

defined in 12 U.S.C. § 1813(1). ...”

(See Appendix 3 ). At no point did the FDIC point to any of

the language of Aztec’s letters of credit in determining them

to be standby letters, instead they simply assumed them to be

standby.

The Fifth Circuit failed to recognize that the FDIC’s

acted arbitrarily and capriciously, in denying Aztec’s claims.

York Bank & Trust Co. v. Federal Sav. & Loan Ins. Corp.,

851 F.2d 637, 639-41(3rd Cir. 1988) cert. denied, 488 U.S.

1005 (1989). Nothing could be more arbitrary then to apply

the Philadelphia Gear standby letter test without considering

the content of the letters.

Conclusion

Letters of credit of the type used by Aztec are vital to

our economy. Mr: Verkuil in his 1973 article, on letters or

credit cited in Philadelphia Gear, explained that data showed

that the bulk of approximately $40 billion in international

trade relied upon letters of credit. See Verkuil, Bank Solvency

and Guaranty Letters of Cred, 25 Stan. L. Rev. 716,

716(1973) It not hard to imagine that a means of shifting the

risk of non-payment from the seller of goods or deliverer of

services to a bank providing the confidence to send the sellers

goods or provide services because the money’s already in the

bank. The purpose of the FDIC creation was to make sure our

country could count on its banking system after its failure

during the great depression. In fact, the system was intended

to allow “that every citizen may place the fruits of their toil

and know that a deposit slip in return for their hard earnings

will be as safe as a Government bond.” See Federal Deposit

Ins. Corp,, v. Philadelphia Gear Corp., 476 U.S. 426 (1986)

quoting 77 Cong.[***1936] Rec. 3837, 3838,

3840(1933)(remarks of Rep Stegall). Aztec presented bank

records to verify its deposit as defined by the statute. It

would be cruelly ironic that Aztec’s toil in guaranteeing

completion of state, county and municipal building, which it

presumed to be paid was money in the bank, evaporated

because of failure of the very government entity meant to

protect its citizens. The FDIC’s actions in this matter were

without regard to this Court’s clear direction.

RespeCtfully Submitted,

Sk Shem

265 1SN_Harwood, Ste. 330

Dallas, Texas 75201

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

NO. 97-60630

AZTEC GENERAL AGENCY,

Petitioner,

versus

FEDERAL DEPOSIT INSURANCE

CORPORATION, In Its, Corporate

Capacity

Respondent,

Petition for Review: Federal Deposit Insurance

Corporation

(12 USC 1821 (f) (4)

Before POLITZ, Chief Judge, EMILO M. GARZA

and STEWART, Circuit Judges.

PER CURIAM:!

' Pursuant to 5™ Cir. R. 47.5, the Court has

determined that this opinion should not be published and is

not precedent except under limited circumstances set forth in

l

ENFORCED. See 5" Cir. R. 47.6.

5" Cir. R. 47.5.4

2

FDIC

Federal Deposit Insurance Corporation

5080 Spectrum Drive, Suite 1000E, Dallas, Texas 75248

(800) 759-9314 (214)991-0039

Southw: rvice Center Division of sitor &

Asset Services

January 31, 1996

Aztec General Agency

Attn: John Pelt

508 N. Cedar Ridge

Duncanville, DC 75116

Re: Notice of Disallowance of Claim

Dear Mr. Pelt:

Please reference your letter dated November 20E 1995,

asserting a claim for $6,432,434 on the basis of

numerous Letters of Credit issued for the benefit of

Aztec General Agency asserting that these should be

treated as insured deposits. The letters of Credit were

issued by a variety of banks, some of which were

eventually placed in receivership and some of which

remain open. Obviously, there can be no claim for

deposit insurance in regard to banks which are still open,

and Aztec must pursue any claims it might have with

those individual institutions.

Your claim has been reviewed by the Receiver for those

institutions which were closed and placed into

receivership. The Receiver has determined to disallow

your claim for the following reasons:

The Letters of Credit comprising your claim

were secured by contingent promissory notes,

and no money or its equivalent had been given

for consideration. Therefore, the Letters of

Credit do not constitute insured deposits as

defined in 12 U.S.C. §1813(1). Additionally,

Aztec cannot file under the claims procedures in

regards to these Letters of Credit, as the time

frame for filing has expired for all of the

receiverships.

You have the right to seek judicial determination of the

disallowance of your claim. To obtain such review, you

must file a lawsuit (or continue a prior pending action)

on your claim in the district or territorial court of the

United States for the district within which the banks'

principal places of business were located or the United

States District Court for the District of Columbia]

within SIXTY (60) days of the date or postmark,

whichever is later, of this letter. Your failure to file suit

(or move the court to continue a prior pending action)

bn. or before the 60 days from the later of the date of or

postmark of this letter, will result in your claim being

forever barred and you will have no further rights or

remedies with respect to your claim.

Your only means of review of the disallowance of your

claim is to file a lawsuit as set forth above.

The statutory provisions governing this claims process

are found in section 1821(d)(3)-(13) of Title 12 of the

United States Code; You may wish to obtain advice

from an attorney concerning these claims process. The

4

FDIC cannot provide legal advice.

If you have any questions, please contact the

undersigned at (214)385-6235.

Sincerely,

Gary Makovec

Claims Specialist

Chireno State Bank

P.O. Drawer 84

Chireno, Texas 75937

409/362-2336

409/275-2336

March 7, 1989

Aztec General Agency and/or

Great Piains Insurance Co., Inc.

5787 South Hampton Road, Suite 300

Dallas Texas 75232

RE: IRREVOCABLE LETTER OF CREDIT

NO. 03-07-1989

Beneficiaries:

By order of our client, J & D Construction Company,

we hereby establish this Irrevocable Letter of Credit No.

03-07-1989 in your favor for an amount up to but not

exceeding the aggregate sum of seventy thousand &

00/100($70,000) dollars, effective immediately, and

expiring at the offices of the bank on March 7, 1990,

unless renewed as hereinafter provided.

Funds under this Letter of Credit are available to you

against your Sight Draft, signed by your authorized

corporate ofiicer, drawn on us bearing the clause

"Drawn Under Letter of Credit No. 03-07-1989"

This Letter of Credit will be automatically renewed for

a one-year period upon the expiration date set forth

above and upon each anniversary of such date, unless at

least sixty (60) days prior to such expiration date or

6

prior to any anniversary of such date, we notify both you

and your client in writing by certified mail that we elect

not to so renew this Letter of Credit.

Upon receipt by you of our notice of election not ot

renew this Letter of Credit, you may draw hereunder by

your Sight Draft drawn on us and bearing the clause

"Drawn Under Letter of Credit No. 03-07-1989.

This Letter of Credit sets forth in full the terms of our

understanding and such undertaking shall not in any way

be modified, amended or applied by reference to any

documents or instrument referred to herein or in which

this Letter of Credit is referred to or to which this Letter

of Credit relates and any such reference shall not be

deemed to incorporate herein by reference any document

or instrument.

All bank charges and commissions incurred in this

transaction are for the applicant's account.

We hereby agree with the drawers, endorsers and bona

fide holders of drafts drawn under and in compliance

with the terms of this credit that such drafts will be duly

honored upon

Aztec General Agency and/or

Great Plains Insurance Co., Inc.

Irrevocable Letter of Credit No. 03-07-1989

Page 2

presentation to the drawee.

Except as otherwise expressly stated herein, this credit

is subject to the Uniform Customs and Practice for

Commercial Documentary Credits.

7

Very truly yours,

William H. McMillion

President

WHM/ec

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

_ DALLAS DIVISION

AZTEC GENERAL AGENCY §

Plaintiff, §

§

NO. 3:91-CV-2361-P

vs, §

§

FEDERAL DEPOSIT INSURANCE §

CORPORATION, AS RECEIVER OF §

CHIRENO STATE BANK, ANDINITS_~ §

CORPORATE CAPACITY, §

Defendants §

MEMORANDUM OPINION AND ORDER

The Memorandum Opinion and Order in the

above-styled and numbered cause signed and entered on

February 5, 1992 is vacated. This Memorandum Opinion

and Order is substituted therefor.

Now before the Court are the following

dispositive motions:

1) Plaintiffs Motion For Summary

Judgment, filed on November 15, 1992.

2) Defendants' Response To Plaintiff's

Motion For Summary Judgment, filed on | December

31, 1992;

po ee

3) Plaintiffs Brief in Response To Defendants'

Response to Plaintiffs MotionFor Summary

Judgment, filed on January 19, 1993;

4) Plaintiffs Notice of Non-suit of FDIC-

Receiver, filed on January 4, 1993;

5) Defendant FDIC-Receiver's Response to

Notice of Non-suit, filed on January 20, 1993;

6) Motion To Dismiss For Lack of Subject

Matter Jurisdiction and Brief in support Thereof,

filed on February 24, 1993;

7) Brief in Support of Motion To Non-suit FDIC

As Receiver For Chireno Bank Without Prejudice, filed

on February 24, 1983; and

8) Brief in Support of Defendants’ Position

Regarding Awarding of Interest and Attorneys’ Fees,

filed on February 24, 1993.

FACTS

The dispute between the parties involves a Letter

of Credit ("LOC"), No. 03-07-1989, issued by Chireno

State Bank, Chireno, Texas, ("Chireno") on March 7,

1989. The LOC, in the amount of $70,000.00, was

established for the benefit of Aztec General Agency

("Aztec") by J&D Construction Company ("J&D"). J&D

executed a promissory note ("Note"), in the amount of

$70,000.00, payable to Chireno in the event that the

LOC was to be paid. The Note was secured by certain

J&D equipment.

A fee equal to one percent (1%) of the LOC was

10

ee ee ee

charged by Chireno upon its issuance. After the fee was

paid, the LOC was valid for one (1) year, expiring on

March 7, 1990. The LOC provided for automatic annual

renewal of the LOC upon payment of the one percent

(1%) fee.

The LOC was renewed by J&D in 1990, and

again in 1991.

On May 9, 1991, Chireno was declared

insolvent, and the FDIC was appointed Receiver.

On May 10. 1991, FDIC-Receiver notified J&D

and Aztec that Chireno's records indicated that they

were respectively the account party and beneficiary of

the LOC. The LOC was characterized by the FDIC-

Receiver as "a -stand-by letter of credit."

On May 21, 1991, Aztec requested payment on

the LOC.

No written disaffirmation of the LOC by FDIC-

Receiver was received by Aztec; but, on October 25,

1991, FDIC-Receiver did terminate all liens that it held

on J&D's equipment which secured the $70,000.00

promissory note.

On September 27, 1991, Aztec filed suit in the

14th Judicial District Court of Dallas County, Texas

against Chireno and FDIC-Corporate. Aztec sought to

recover the $70,00.00 on the LOC, and alleged other

causes of action, including claims of breach of contract

and violation of the Texas Deceptive Trade Practices

Act.

On October 25. 1991, FDIC-Receiver filed its

Plea of Intervention and Motion to Substitute as a

Defendant party in place of Chireno. On that same day,

both FDIC-Corporate and FDIC-Receiver filed their

Original Answers in the State Court action.

On October 31, 1991, FDIC-Corporate and

FDIC-Receiver filed their petition for removal to federal

1]

court.

On March 1, 1992, the Court entered an Order

Approving Joint Stipulation of Dismissal at DTPA

claims.

PLAINTIFF'S MOTION FOR SUMMARY

JUDGMENT

I_ SUMMARY JUDGMENT STANDARD

Summary judgment is proper when the pleadings

and evidence on file show that no genuine issue exists as

to any material fact and that the moving party is entitled

to judgment or partial judgment as a matter or law. See

Fed. R. Civ. P. 56. As the Fifth Circuit stated in

Christophersen v. Allied-signal Corp., 902 F.2d 362,

364 (Sth Cir. 1990), "[bjefore a court may grant

summary judgment, the moving party rnust demonstrate

that it is Entitled to judgrnent as a matter of law

because there is no actual dispute as to an essential

element of the plaintiff's case."

If the moving party bears the burden of proof on

a claim or defense upon which it is moving for sununary

judgment, it must come forward with evidence that

establishes "beyond peradventure all of the essential

elements of the claim or defense." Fontenot V Upjohn

Company, 780 F.2d 1190, 1194 (Sth Cir. 1986).

Il ARGUMENTS REGARDING LETTER OF

CREDIT

The gist of Plaintiffs Motion For Summary

Judgment is that the LOC is an insured deposit that

FDIC-Corporate is legally obligated to pay, just like any

other insured deposit, when an insured bank fails, citing

12 U.S.C.§ 1813 (1) Cl) 1989:

12

el De

"The term ‘deposit’ means --

(1) the unpaid balance of money or its

equivalent received or held by a bank or savings

association in the usual course of business and for which

it has given or is obligated to give credit, either

conditionally or unconditionally, to a commercial,

checking, savings, time, or thrift account, or which is

evidenced by its certificate of deposit, thrift certificate,

investment certificate, certificate of indebtedness, or

other similar name, or a check or draft drawn against a

deposit account and certified by the bank or savings

association, or a letter of credit [emphasis added] or a

traveler's check on which the bank or savings association

is primarily liable,,,," Id.

Plaintiff characterizes the LOC as a "true letter

of credit" and a "clean letter of credit" that is payable

upon presentation or sight, citing U.C.C. § 5-103 (a) (1}

and Ensco Enviromental Services, Inc. v. United States

650 F. Supp. 583 (W.D. Mo. 1986). As a beneficiary of

a true, clean letter of credit, Aztec contends that it is

not required to present any documentation, or wait for

any contingency or default of any party to occur, in

order to collect payment on the LOC. On the other

hand, the gist of Defendants' opposition to Plaintiff's

Motion For Summary Judgment is that the LOC is a

"standby letter of credit" that the United States

Supreme Court has construed as not being a deposit

protected and insured under the Federal Deposit

Insurance Act, citing FDIC v._ Philadelphia Gear

Corporation, 476 U.S. 426, 106 S.Ct. 1931, 90 L-Ed.2d

428 (1986). Consequently, from the Defendants'

perspective, the FDIC-Receiver was within its authority

to disaffirm the LOC.

In response, Plaintiff argues that even if the

Court were to rule that the LOC is in fact a standby

13

letter of credit, the FDIC- Receiver ought not have

disaffirmed the LOC. Relying primarily on First Empire

Bank-New York v. FDIC, 572 F. 2d 1361 (9th Cir.

1978), cert. denied, 439 U.S. 919, 99 S.Ct. 293 (1979),

Plaintiff asserts that the LOC, as a standby letter of

credit, is a provable claim. The three prong test

enunciated in First Empire to determine provability of a

standby letter of credit claim was adopted by the Fifth

Circuit. See Interfirst Bank-Abilene, 777 F.2d. 1092,

1094 (Sth cir. 1985) , and Citizens State Bank Lometa

v. F DLC, 946 F.2d 408 (Sth Cir. 1991). In order to

establish a standby letter of credit claim under the First

Empire three prong test, as adapted by the Fifth Circuit,

the beneficiary is required to show: "1) it existed before

the issuing bank's insolvency and did not depend on any

new contractual obligation arising later; 2) liability on

the claim was absolute and certain in amount when suit

was filed against the receiver; and 3) the claim was made

in a timely manner." Citizens State Bank of Lometa, at

412.

While Plaintiff maintains that the LOC is a true,

clean letter of credit, and should be paid as an insured

deposit by FDIC- Corporate, he asserts that if the Court

were to construe the LOC as a standby letter of credit,

the LOC passes the First Empire test.

Defendants argue that pursuant to 12 U.S.C. §

1821(e), as amended by the Financial Institutions

Recovery, Reform & Enforcement Act of 1989

("FIRREA"), the FDIC-Receiver was authorized to

disaffrm or repudiate the LOC as a burdensome

contract. Therefore, Plaintiff ts not entitled to payment

of the LOC as a standby letter of credit under First

Empire. The Defendants also contend that First Empire

is a pre-FIRREA case, and is no longer viable law.

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Il(A). ANALYSIS AND RULING

Courts have generally def ined standby letters of

credit in terms of contingency. Some default or other

triggering event must occur before a standby letter of

credit will be paid. First Empire, at 1366-1367; Citizens

State Bank of Lometa, at 414.

Construing the LOC in light of these definitions,

the Court finds that the LOC is a true, lean letter of

credit. There is nothing in the language of the LOC that

can be construed as _ prescribing a particular default,

contingency or event that must occur to payment.

In, Philadelphia Gear, payment the letter of

credit was contingent on the beneficiary providing

documentary proof that the buyer of equipment had not

paid. In Citizens state Bank of Lometa, payment of the

letter of credit was contingent on the beneficiary

providing documentary proof that the maker of a loan

had defaulted. There is no similar contingency in the

LOC at issue in this case The only contingencies in the

LOC pertain to the expiration and renewal of the LOC.

If these contingencies had occurred, the LOC simply

would have expired and ceased to exist. They were not

conditions precedent which would trigger payment of

the LOC. In fact, the LOC in this case provides that

upon notice by Chireno of its intent not to renew the

LOC, which had to be provided at least 60 days before

the expiration date of the LOC, Aztec could present the

LOC fpr payment. At the time Aztec presented the

LOC to Chireno for payment, J& D had paid the annual

LOC fee, and that fee had been accepted by Chireno.

consequently, the LOC was in full force and effect, and

Aztec was not obligated to prove the occurrence of

some contingency to collect. All that was necessary for

collection was presentment, and Aztec has done that.

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Since the Court finds that the Loc is a true, clean

letter of credit, the Court GRANTS Plaintiff's Motion

For Summary Judgment insofar as it rules that the FDIC

is obligated to pay the LOC as an insured deposit.

Ill_ ARGUMENTS REGARDING PRE-JUDGMEN'T

AND POST-JUDGMENT INTEREST

Plaintiff contends that he is entitled to pre-judgment

interest, citing for support the UCC, Texas case law,

Republic National Bank of Dallas v. Northwest National

Bank of Fort Worth, 578 S.W. 2d 109 (Tex 1978) and

New Braunfels National Bank v. Odiorne, 780 S.W. 2d

313 (Tex. App. -Austin, 1989), a Federal District Court

decision, Agri Export Cooperative and Bankers Trust

Company v. Universal Savings Association, 767 F.

Supp. 824 (S.D. Texas, 1991), and a Federal Appellate

Court decision, First Empire.

In opposition, Defendants cite Philadelphia Gear

Corporation v. FDIC, 751 F. 2d 1131 (10th Cir. 1984),

in which the Tenth Circuit Court of Appeals held that

absent an express waiver the doctrine of sovereign

immunity bars claims for pre-judgment interest. Id. at

1138-1139. The Tenth Circuit specifically determined

that congress did not waive sovereign immunity with

respect to pre-judgment interest on insurance proceeds

claims:

"...Congress expressly recognized that

delays would occur in paying some insurance claims, yet

it did not expressly waive its immunity to prejudgment

interest. Under those circumstances we must hold that

prejudgment interest should not have been awarded on

the claims for insurance proceeds." Id. at 1139.

III(A). ANALYSIS AND RULING

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The Court considers Philadelphia Gear

dispositive of the issue of pre-judgment interest.

Consequently, the Court DENIES Plaintiff's Motion for

pre-judgment interest.

IV. ARGUMENTS REGARDING POST-JUDGMENT

INTEREST

Plaintiff cites 28 U.S.C. § 1961 in support of his

contention that he ought to be awarded post-judgment

interest. In opposition, Defendants make the same

sovereign immunity argument that it makes in support of

its position against the award of pre-judgrnent interest.

IV(A). ANALYSIS AND RULING

The Court relies on the reasoning explicated in

the Fifth Circuit decision of A.L.T. v. Small Business

Admin., 823 F.2d 126 (Sth Cir. 1987), to determine

whether post-judgment interest is appropriate in this

case. Quoting from Llbrary of Congress v. Shaw 478

U.S. 310, 106 S.Ct. 2957, 2961, 92 L.Ed.2d 250

(1986), the Fifth Circuit acknowledged in A.L.T. that

generally "the United States is immune from awards of

interest absent an ‘express congressional consent to the

award of interest separate from a general waiver of

immunity to suit.' A.L.T. at 127. An exception to that

rule regarding sovereign immunity from awards of post-

judgment interest is applicable when the Governmental

entity assumes the status of a commercial enterprise. Id.

In ALT. the Fifth Circuit stated that

determining whether a governmental agency assumes the

status of a private enterprise “Turns on whether the

government agency’s activities are primarily commercial

and whether those activities aspire to profitarility.” Id. at

128. Applying that test to the instance case, the Court

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rules that the FDIC is a governmental agency that has

assumed the status of a private enterprise. Unlike the

Small Business Administration, the governmental agency

in A.L.T., the FDIC is financially self-sufficient and is

not dependant on Congressional funding and “was

established to provide services that, while commercial in

nature, would not be supplied by the private market” Id.

at 128.

Consequently, the Court GRANTS Plaintiff's

Motion for post -judgment interest at the rate of 3.21%,

a rate equal to the coupon-issue yield equivalent of the

average accepted auction price for the last auction of

fifty-two week United States Treasury bills settled

immediately prior to the date of this judgment

V. ARGUMENTS REGARDING ATTORNEYS'FEES

Plaintiff cites 28 U.S.C. E 2412(b) in support of

his argument that he be awarded attorneys' fees.

Defendants cite a different section of the same

statute, 28 U.S.C. S 2412(d) (i) (A), to argue that denial

of attorneys’ fees is appropriate because the position of

the FDIC is substantially justified, and/or there are

special circumstances that make the award of attorneys.

V(A). ANALYSIS AND RULING

Court finds that 28 U.S.C. 2412(b) is dispositive.

Furthermore, the court finds that the FDIC's position in

the lawsuit is not substantially justified, nor are there any

special circumstances that make the award of attorneys'

fees inappropriate.

Regarding the amount of attorneys’ fees, the

Court holds the FDIC to its stipulation, made at the

conference held on the morning of the date of the trial

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setting, Tuesday, February 16, 1993, that the amount at

attorneys’ fees for plaintiff will be $19,200.00,

contingent on the court's determination of whether

Plaintiff will be awarded attorneys' fees. The Court rules

that Plaintiff is Entitled to attorneys' fees. Consequently,

the Court GRANTS Plaintiff's Motion for attorneys'

Fees, in the amount of $15,200.00, as previously

stipulated to by the parties.

SO ORDERED

March 9, 1993

JORGE A. SOLIS

UNITED STATES DISTRICT JUDGE

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