CRM Collateral II, Inc. v. TriCounty Metropolitan Transportation District
669 F.3d 963
9th Cir.2012Background
- TriMet contracted to buy three light railcars and a trailer from Colorado Railcar for $17,299,135; Colorado Railcar arranged a $3M standby letter of credit through Collateral II with KeyBank; TriMet drew on the LC after Colorado Railcar defaulted.
- Collateral II was formed to support the Letter of Credit, with its directors tied to Colorado Railcar; the Letter of Credit named TriMet as beneficiary and Collateral II as applicant.
- Modification No. 1 added Collateral II to the Railcar Contract to equate Colorado Railcar's default with Collateral II's default for LC drawing, but Collateral II did not take new obligations.
- In January 2008 TriMet entered PMA to monitor Colorado Railcar, authorize special payments, and permit draws on the LC; Collateral II was not invited or consented to the PMA or its amendments.
- TriMet drew $3 million on the LC in December 2009; the district court held Collateral II was a surety and thus discharged under PMA, leading to summary judgment in Collateral II's favor, which this court reverses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Collateral II is a surety to the Railcar Contract | Collateral II status as secondary obligor under Modification 1 | Modification 1 does not create a secondary obligation | Collateral II is not a surety |
| Whether PMA increased Collateral II's risk to discharge its obligation | PMA materially increased surety risk | No surety relationship existed to be discharged | Not applicable since Collateral II was not a surety; no discharge defense |
| Whether TriMet's LC draw violated the statutory warranty § 75.1100(1)(b) | Draw violated warranty due to Collateral II default | Draw was proper; collateral not a surety | Draw did not violate the warranty; TriMet entitled to summary judgment for TriMet |
Key Cases Cited
- Ochoco Lumber Co. v. Fibrex & Shipping Co., 164 Or.App. 769, 994 P.2d 793 (Or. Ct. App. 2000) (discusses subrogation and standby LC context under Oregon law)
- In re Hamada, 291 F.3d 645 (9th Cir. 2002) (standby LC principles; issuer's primary obligation)
- W. Sur. Co. v. Bank of S. Or., 257 F.3d 933 (9th Cir. 2001) (independence principle in LC transactions; issuer's liability)