Today's Other Opinion: A complex LOC and U.C.C. Article 5
Alhadeff v. Kitsap Cmty. Fed. Credit Union d/b/a Kitsap Credit Union, No. 81833-9. A swanky condominium project, "The Meridian on Bainbridge [Island]," flopped, leaving the courts to sort through a letter of credit (LOC) controversy that the Supreme Court today deems "significantly more complex than a typical LOC transaction."
Developer Meridian received a construction loan from Kitsap Credit Union for $4,500,000. The Credit Union required that Meridian contribute equity in the form of a $1,000,000 LOC. Meridian arranged for the LOC from investor Jack Alhadeff, who authorized his bank, Wells Fargo, to issue the LOC to Kitsap Credit Union. The terms of the LOC required the Credit Union to certify that Meridian was not in default before drawing on the LOC.
Kitsap Credit Union drew on the letter three times, in May, June, and July of 2004, exhausting the full $1,000,000. Despite the Credit Union's certification each time that Meridian was not in default, two "events of default" had already occurred: a tax deficiency and the imposition of a construction lien by a contractor. The Credit Union was also aware that Meridian was exceeding its budget. In September 2004, Meridian asked the Credit Union for a further loan. The Credit Union eventually declared Meridian in default in November 2006.
In August 2006, Alhadeff sued Kitsap Credit Union alleging eight causes of action related to the LOC. The trial court granted the Credit Union's motion for summary judgment, finding the situation covered by U.C.C. Article 5 and the claims thus barred by the one-year statute of limitations. Alhadeff appealed, the Court of Appeals reversed the trial court, and Kitsap Credit Union appealed.
Today, the Supreme Court unanimously reverses the Court of Appeals, holding that the U.C.C. Article 5 statute of limitations does apply and that none of Alhadeff's claims survive summary judgment. Justice James Johnson wrote the opinion, which includes a helpful Diagram of Letter of Credit Transaction. And somewhere in there, reversed Court of Appeals Judge Theodore Spearman administered this author's oath of attorney. (briefs and argument)
