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Ninth Circuit Settles Application of Letter of Credit Proceeds to Landlords' Claims for Lease Rejection Damages in Bankruptcy Cases by Sue J. Hodges
Pillsbury Winthrop Shaw Pittman LLP
San Diego Office
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July 16, 2006
Previously published on September 12, 2005
The Ninth Circuit's decision in In re AB Liquidating Corp., 416 F.3d 961 (9th Cir. Cal. 2005) has settled in this circuit an open question regarding application of letter of credit proceeds to a landlord's claim for lease rejection damages. In AB Liquidating, the Ninth Circuit, joining the Third Circuit, held that proceeds of a secured letter of credit were to be applied to the "capped" amount of the landlord's claim, rather than to the "gross" amount of the claim. Previously, the issue had been undetermined at the Circuit Court level and there was conflicting lower court authority on the subject.
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