## Facts

- Kirchhoff-Consigli Construction Management, LLC (KCCM) was the general contractor on a university expansion project.
- Deluxe Building Systems, Inc. (Deluxe) was a subcontractor on the project.
- The subcontract required Deluxe to obtain an irrevocable standby letter of credit (LOC) in the amount of $1 million for KCCM’s benefit.
- The standby LOC was silent about when KCCM could draw, and the subcontract, beyond requiring Deluxe to procure the LOC, did not set conditions or limits on KCCM’s right to make a draw.
- KCCM sued Deluxe for breach of contract arising out of performance disputes on the project.
- Deluxe filed counterclaims against KCCM, including breach of contract and unjust enrichment, alleging KCCM failed to pay for work Deluxe performed.
- While the litigation was pending, KCCM sent a demand to the LOC issuer and drew the entire $1 million.
- After the draw, Deluxe moved for leave to amend its counterclaims to add new claims based on the draw itself: breach of the subcontract, unjust enrichment, and breach of the UCC letter-of-credit warranty (UCC Article 5).

## Issues

1. Whether Deluxe’s proposed amended counterclaims plausibly stated claims for breach of contract or unjust enrichment based solely on KCCM’s $1 million draw where neither the standby LOC nor the subcontract imposed draw conditions.
2. Whether Deluxe, as the LOC applicant, could assert a UCC Article 5 letter-of-credit warranty claim (UCC § 5-110) directly against KCCM, the beneficiary/presenter, based on KCCM’s presentation to the issuer.

## Decision

- The court applied Federal Rule of Civil Procedure 15(a) and assessed futility under the Rule 12(b)(6) standard.
- The court denied leave to amend as futile as to the proposed breach-of-contract and unjust-enrichment claims tied to the draw, because the subcontract did not restrict KCCM’s ability to draw and the LOC was silent on draw conditions.
- The court denied leave to amend as futile as to the proposed UCC § 5-110 letter-of-credit warranty claim, because that statutory warranty runs to the issuer (and other bank-side parties specified by the statute), not to the applicant.

## Legal Principles

- Leave to amend under Rule 15(a) may be denied when the proposed amendment would not survive a Rule 12(b)(6) motion (futility).
- A standby letter of credit is treated as a separate undertaking by the issuer; the beneficiary’s right to payment depends on compliance with the credit’s terms, not on disputes about the underlying contract, unless the credit or the contract actually limits draws.
- Where the parties’ subcontract only requires the applicant to procure a standby LOC and does not condition or limit the beneficiary’s right to draw, allegations that the beneficiary’s draw was “wrongful” do not plausibly state a breach-of-contract claim.
- An unjust-enrichment theory cannot be used to recharacterize a draw as inequitable where the governing agreements do not impose the claimed limitations on the draw.
- UCC § 5-110 provides presentation-related warranties running from the presenter/beneficiary to the issuer (and other designated bank-side recipients); the applicant does not have a direct § 5-110 warranty claim against the beneficiary based only on the beneficiary’s presentation.

## Conclusion

The court denied Deluxe leave to amend its counterclaims to challenge KCCM’s $1 million draw on a standby letter of credit because neither the subcontract nor the credit restricted KCCM’s ability to draw, making Deluxe’s proposed breach-of-contract and unjust-enrichment theories legally insufficient, and because UCC § 5-110 does not give an LOC applicant a direct warranty claim against the beneficiary/presenter.


Kirchhoff-Consigli Construction Management, LLC v. Deluxe Building Systems, 2017 WL 3601981 (2017)