CRM Collateral II, Inc. v. TriCounty Metropolitan Transportation District

Appellant Tri-County Metropolitan Transportation District of Oregon (“TriMet”) provides bus, light rail, and commuter rail service in the Portland metropolitan area. TriMet contracted with Colorado Railcar Manufacturing, LLC (“Colorado Railcar”) for the manufacture of light rail-cars. The contract (“Railcar Contract”) required Colorado Railcar to secure a $3 million standby letter of credit, which Colorado Railcar arranged through CRM Collateral II, Inc. (“Collateral II”), a bankruptcy remote entity. TriMet certified Collateral II’s default and drew on the Letter of Credit when Colorado Railcar defaulted. We consider whether Collateral II was a surety .to Colorado Railcar, entitled to the defense of discharge. We hold that it was not.

Because the standby letter of credit issued by KeyBank National Association (“KeyBank”) required TriMet to certify Collateral IPs default, TriMet sought clarification that should Colorado Railcar default, TriMet’s authority to certify Collateral IPs default would be triggered. In response to TriMet’s concern, Collateral II agreed to become a part of the Railcar Contract via Modification No. 1, but it undertook no new obligation nor did it…