In re Elsinore Shore Associates, Bankruptcy No. 85-06058

• Decision Date: 16 December 1986
• Docket Number: Bankruptcy No. 85-06058,Adv. No. 86-0043.
• Parties: In re ELSINORE SHORE ASSOCIATES, f/k/a Playboy Elsinore Associates, a New Jersey partnership, d/b/a the Atlantis Casino Hotel, Debtor-in-Possession. ELSINORE SHORE ASSOCIATES, f/k/a Playboy Elsinore Associates, a New Jersey partnership, d/b/a the Atlantis Casino Hotel, Plaintiff, v. FIRST FIDELITY BANK, N.A., SOUTH JERSEY, Defendants.
• Court: U.S. Bankruptcy Court — District of New Jersey

67 B.R. 926 (1986)

In re ELSINORE SHORE ASSOCIATES, f/k/a Playboy Elsinore Associates, a New Jersey partnership, d/b/a the Atlantis Casino Hotel, Debtor-in-Possession ELSINORE SHORE ASSOCIATES, f/k/a Playboy Elsinore Associates, a New Jersey partnership, d/b/a the Atlantis Casino Hotel, Plaintiff, v. FIRST FIDELITY BANK, N.A., SOUTH JERSEY, Defendants.

Bankruptcy No. 85-06058, Adv. No. 86-0043.

United States Bankruptcy Court, D. New Jersey.

December 16, 1986.

Crummy, Del Deo, Dolan, Griffinger & Vecchione by Paul R. DeFilippo, Newark, N.J., for Elsinore Shore Associates.

Scheider & Wiener by Jeremy Galton, Newark, N.J., for First Fidelity Bank, N.A., South Jersey.

Valore, McAllister, Westmoreland, Gould Vesper & Schwartz by Eric A. Browndorf, Northfield, N.J., for Unsecured Creditors Committee.

OPINION

ROSEMARY GAMBARDELLA, Bankruptcy Judge.

The debtor, Elsinore Shore Associates, f/k/a Playboy Elsinore Associates, a New Jersey partnership, d/b/a The Atlantis Casino Hotel, (ESA), has filed a motion for reconsideration of this Court's denial of ESA's motion for summary judgment on the First Count of its Complaint against First Fidelity Bank, N.A., South Jersey (First Fidelity Bank) and for other relief seeking in the alternative entry of summary judgment on the First Count of the Complaint compelling turnover of the sum of $545,000.00 by the defendant First Fidelity Bank, to ESA, alternatively, partial summary judgment on Count One of the complaint in the amount of $545,000.00, or such sum as the court may determine should be turned over to ESA due to the absence of any right of setoff by First Fidelity Bank, an order pursuant to Fed.R. Civ.P. 56(d) and Bankruptcy Rule 7056 specifying those genuine issues of material fact which exist for purposes of trial, and for a preemptory trial date on all issues not resolved by summary judgment.

First Fidelity Bank has concurrently moved for the entry of an order compelling ESA to exonerate First Fidelity Bank from liability under a certain letter of credit issued by First Fidelity Bank on behalf of the debtor in favor of American Home Assurance Company (American Home) by payment of $379,405.00, which American Home has demanded or if American Home draws down on Letter of Credit No. 1219/85, an order allowing First Fidelity Bank to pay American Home $379,405.00 and to setoff against the obligation owed by First Fidelity Bank to the debtor, the sum of $379,405.00 paid by First Fidelity Bank to American Home.

ESA filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Reform Act of 1978 as amended by The Bankruptcy Amendments and Federal Judgeship Act of 1984 (Bankruptcy Code) on November 14, 1985.

On October 12, 1980, Playboy-Elsinore Associates (PEA), ESA's predecessor, applied to First Fidelity Bank for the issuance of an irrevocable letter of credit in the amount of $50,000.00 in favor of Insurance Company of North America (INA). Playboy-Elsinore Associates at that time executed a guaranty of payment to First Fidelity Bank for its reimbursement obligations in the event the letter of credit was drawn upon. On October 24, 1980, First Fidelity Bank issued an Irrevocable Letter of Credit, No. 1075, in the amount of $50,000.00 in favor of INA. That letter of credit has a current expiration date of October 26, 1986.

On December 10, 1984 the debtor, ESA, applied to First Fidelity Bank for an irrevocable letter of credit in favor of American Home. At that time the debtor executed a guaranty of payment in favor of First Fidelity Bank agreeing to pay First Fidelity Bank in the event the letter of credit was drawn upon. On January 28, 1985 ESA obtained an Irrevocable Letter of Credit, No. 1219/85 from the Bank in the amount of $490,000.00 in favor of American Home. That letter of credit has a current expiration date of December 31, 1986.

Pursuant to the terms of Letter of Credit No. 1219/85 and Letter of Credit No. 1075, if either of the beneficiaries draw upon the Letters of Credit, in accordance with the terms of the respective letters of credit, First Fidelity Bank is obligated to honor and pay the drafts as presented. The Irrevocable Letter of Credit No. 1219/85 dated January 28, 1985 naming American Home as beneficiary provided:

We First Fidelity Bank N.A., South Jersey do hereby issue in your favor this Irrevocable Letter of Credit for the account of Elsinore Shore Associates for a sum not exceeding a total of Four Hundred Ninety Thousand Dollars and 00/100 ($490,000.00) available by your draft(s) at sight.

Drafts must be drawn and presented to us no later than December 31, 1985. All drafts must be marked "Drawn under First Fidelity Bank, National Association, South Jersey, Credit No. 1219/85, dated January 28, 1985.

All drafts must be accompanied by (a) a statement to the effect that your account is over 30 days past due, (2) you are satisfying the account through presentation of the draft, and (3) you have provided a notice of cancellation and demand for payment which has not been satisfied within the 10 day period specified.

The "Irrevocable Letter of Credit" No. 1075 dated October 24, 1980 naming INA as beneficiary, provided:

At the request of Playboy-Elsinore Associates, we First National Bank of South Jersey, predecessor to First Fidelity Bank hereby authorize you to draw on First National Bank of South Jersey of Pleasantville, NJ up to an aggregate amount of U.S. Fifty Thousand and 00/100 dollars ($50,000) available by your drafts at sight accompanied by a statement to the effect that you have been called upon to make payment of loss, attorney\'s fees or other expenses by reason of executing Atlantic City Performance Bond(s) as surety on behalf of Playboy-Elsinore Associates as principal and in favor of Atlantic City, NJ as obligee in the penalty of U.S. Fifty Thousand and 00/100 dollars ($50,000) and dated on or about the 24th day of October 1980, or that the premium(s) thereon are unpaid and overdue.

ESA had also obtained an Irrevocable Letter of Credit dated January 28, 1985 from First Fidelity Bank in favor of Atlantic City Electric Co., No. 1218/85, in the amount of $150,000 and an Irrevocable Letter of Credit dated June 27, 1985 from First National State Bank of South Jersey, a predecessor to First Fidelity Bank in favor of South Jersey Gas Co., No. 1239/85 in the amount of $70,000. Both of these letters of credit expired on December 31, 1985.

On October 12, 1980 Playboy-Elsinore Associates executed a guaranty of Commercial Letter of Credit to First National Bank of South Jersey (predecessor to First Fidelity Bank) in connection with the INA letter of credit which provided in its Paragraph One:

In consideration of your opening, at the request of the undersigned (PEA) the Commercial Letter of Credit (hereinafter called the "Credit") applied for on the reversed side hereof, it is agreed:

1. As to bills drawn under said Credit payable in United States currency, the undersigned will provide you at your office with United States currency to the amount thereof at least one day prior to the maturity of such bills or any instruments executed in extension or renewal thereof. If any such bills shall be payable at sight, then the undersigned will provide such funds immediately upon receipt of notice of payment.

Paragraph 10 of the guaranty further provided:

Upon demand, the undersigned will deliver, convey and transfer to you as security for the payment and performance of the obligation contained in this guaranty and the payment of any and all other obligations or liabilities of the undersigned to you, collateral security of a value and character satisfactory to you.

On November 27, 1984, ESA executed a Guaranty of Commercial Credit to First National State Bank of South Jersey (predecessor to the Bank) in connection with the American Home letter of credit which contained the identical terms of Paragraph One of the INA guaranty recited above, but struck out the language of Paragraph Ten (10) also recited above.

Similar guaranties were executed by ESA in favor of First National State Bank of South Jersey in connection with the Atlantic City Electric Company letter of credit and the South Jersey Gas Company letter of credit, those guaranties dated December 10, 1984 and June 4, 1985, respectively.

On October 4, 1985 ESA deposited $775,000.00 into its general checking account No. 409421 at First Fidelity. On that same day the Bank debited the account for the sum of $765,000.00. The $765,000.00 debit was transferred by the Bank to a daily Repurchase Agreement.

On October 15, 1985 Alan D. Weiner, Esquire, counsel for First Fidelity Bank sent a letter to ESA which stated:

As requested, this is to confirm the discussion had between yourself, other representatives of Elsinore Shore Associates, and ourselves on October 3, 1985. As we advised you, pursuant to the terms of the applicable letter of credit agreement between First Fidelity Bank, N.A., South Jersey and Elsinore Shore Associates, a demand was made by the bank for the posting of collateral by Elsinore Shore Associates with respect to the outstanding letters of credit issued by the bank on the application of Elsinore Shore Associates. No collateral having been forthcoming, the bank exercised its rights to have the balance of the demand deposit account of Elsinore Shore Associates with the bank, up to the amount of the outstanding letters of credit, held as collateral for the reimbursement obligations of Elsinore Shore Associates with respect to said letters of credit. As further indicated to you at that meeting, any balance of the account over and above the amount of the letters of credit, or any future sums thereafter deposited and increasing the balance of said account would not be held by the bank as collateral, and would accordingly be available for use by Elsinore Shore Associates. If substitute collateral, acceptable to the bank, was pledged in favor of the bank, the credit

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