WarehouseOne Decries Bailee Letter Ruling

The Pennsylvania Supreme Court is making it very difficult for warehouse lenders to conduct business in the state because of its "shocking" decision regarding bailee letters, according to WarehouseOne, a warehouse lender based in West Trenton, N.J.The idea that the potential purchaser "owns the notes in violation of the express terms of the bailee letters is shocking to any knowledgeable observer that reads the Court's decision," WarehouseOne general counsel Mark Loreto says in urging the state Supreme Court to vacate its decision in Pioneer v. CoreStates. Bailee letters are supposed to protect a lender's interest in loans when they are sent to potential investors for inspection. But the court ruled against Pioneer Commercial Funding Corp., even though the defunct California warehouse lender did not get paid for the loans it sent with a bailee letter. The $1.7 million payment was wired to the wrong lender, and CoreStates Bank NA, Philadelphia, used it to cover overdrafts by that lender. WarehouseOne contends that the state Supreme Court's validation for the conduct in the case provides a roadmap for fraudulent schemes. The decision also indicates that the Pennsylvania courts "stand ready to support those who perpetuate such frauds," WarehouseOne says in an amicus brief on behalf of Pioneer. Pioneer has petitioned the Pennsylvania Supreme Court to rehear the case. Wachovia Corp., which owns CoreStates, contends that the court correctly ruled that CoreStates had the right to offset the overdrafts.