CRM Collateral II v. TriCounty Metropolitan Trans.

TriMet's draw on a Letter of Credit was proper and did not violate the statutory warranty of ORS section 75.1100(1)(b), therefore Collateral II cannot be characterized as a surety and is not entitled discharge.

In November 2005, Tri-County Metropolitan Transportation District of Oregon ("TriMet") contracted with Colorado Railcar Manufacturing, LLC ("Colorado Railcar") for the manufacture of light railcars. The contract required that Colorado Railcar secure a $3 million standby Letter of Credit. Colorado Railcar arranged the letter though a bankruptcy remote entity, CRM Collateral II, Inc. ("Collateral II"). TriMet certified Collateral II's default and drew on the Letter when Colorado Railcar defaulted. A modification to the contract resulted in Collateral II becoming part of the Railcar contract. A group of Collateral II investors filed a motion to enjoin KeyBank, the issuer of the standby Letter of Credit, from honoring the Letter of Credit, whereas TriMet intervened and filed a motion to dissolve the injunction. The Ninth Circuit reversed the district court's grant of summary judgement for Collateral II, and remanded to entry of summary judgement in favor of TriMet, holding Collateral II was not a surety to Colorado Railcar and not entitled to the defense of discharge because TriMet's draw on a Letter of Credit was proper and did not violate the statutory warranty of ORS section 75.1100(1)(b). Additionally, the Court reversed and remanded the district court's dismissal of all remaining claims and cross-claims, with instructions to dispose of them in accordance with their opinion. REVERSED and REMANDED.