The opinion of the court was delivered by: Sprizzo, District Judge.
These cross-motions for summary judgment present the
question of whether it is a defense to a claim of unjust
enrichment that the plaintiff was indebted to the defendant
for more than the amount of the enrichment. The Court
concludes that in the present case it is not and accordingly,
plaintiffs' David E.W. Lines and Gerry A. Weiss, joint
liquidators of Cambridge Reinsurance Limited ("Cambridge"),
motion for summary judgment is granted and Defendant and
Third-Party Defendant Occidental Fire and Casualty Company of
North Carolina's ("Occidental") cross-motion for summary
judgment is denied.
The following facts are undisputed.
Cambridge is a limited company organized under the laws of
Bermuda. See Stipulation of Undisputed Facts ("Stip.") at ¶ 1.
Prior to April 19, 1985, Cambridge was engaged in the business
of entering into contracts of reinsurance with respect to
property, casualty and other risks. On April 19, 1985 Cambridge
filed a petition in the Supreme Court of Bermuda seeking a
winding up of its affairs. See Stip. at ¶ 2 & Ex. A. The
Bermuda Court appointed plaintiffs, David E.W. Lines and Gerry
A. Weiss as liquidators on April 22, 1985 and, subsequently, on
May 17, 1985, granted the company's petition and ordered that
Cambridge's affairs be wound up in accordance with Bermuda law.
See Stip. at ¶¶ 3, 4 & Exs. B, C.
Occidental is a corporation organized under the laws of the
State of North Carolina that does business in the State of
New York. See Stip. at ¶ 5. Occidental is in the business of
insuring property, casualty and other risks. Id.
Prior to January 1, 1984 Cambridge and Occidental entered
into four separate reinsurance agreements. See Stip. at ¶ 6.
These agreements provided, inter alia, that Cambridge, as a
reinsurer not admitted to do business in the United States,
collateralize its obligations to Occidental for its share of
outstanding losses, its share of incurred but not reported
losses and its share of unearned premiums. See Stip. at ¶ 6;
Affidavit of James O. Eason, Jr. ("Eason Aff.") at ¶ 7 (sworn
to June 8, 1989). Cambridge elected to comply with its
collateral obligations by providing Occidental with
unconditional letters of credit in Occidental's favor.
Cambridge caused Bankers Trust Company to issue four
unconditional and irrevocable letters of credit in order to
collateralize its obligations. These letters of credit were
due to expire on December 31, 1984. At the end of 1984, the
Bankers Trust letters of credit were in the aggregate amount
of $187,825.00. See Stip. at ¶ 7; Eason Aff. at ¶ 11. This
amount was far less than Cambridge's actual collateral
requirements. In fact, it was less than half of the actual
collateral obligations, which by December 24, 1984 amounted to
$395,650.00. See Stip. at ¶ 10; Eason Aff. at ¶¶ 11-12.
Moreover, there is no dispute that Occidental had demanded that
Cambridge issue an additional letter of credit or increase the
existing letters of credit to meet its obligations. See Stip.
at ¶ 8; Eason Aff. at ¶ 10.
However, instead of increasing the amounts of the letters
of credit, Cambridge decided to replace the Bankers Trust
letters of credit with new ones issued by the
Bank of America. Accordingly, prior to December 20, 1984,
Occidental received notice from Bankers Trust that the four
letters of credit would not be extended beyond their current
expiration date of December 31, 1984, see Stip. at ¶ 9(a), and
would be replaced by identical ones from Bank of America. In a
letter to all of the insurance companies who were beneficiaries
of letters of credit from Bankers Trust, Peter J. Thrower, a
Vice President of a company acting as Cambridge's managers,
stated "it should be emphasized that this is a change in
issuing banks only, and that the terms and conditions and
amount(s) of your present letter(s) of credit will not be
altered." Stip. at ¶ 9(b) & Ex. I. There is no indication in
the record of what response, if any, Occidental made with
respect to this communication.
On or about December 21, 1984, Cambridge caused Bank of
America to issue and deliver four letters of credit in favor
of Occidental, which corresponded to the four prior letters
of credit from Bankers Trust. See Stip. at ¶ 11. These letters
of credit were to become effective on January 1, 1985. See
Stip. at ¶ 11.
On December 31, 1984, shortly before the Bankers Trust
letters were due to expire, Occidental drew down upon and was
paid the full amount of those letters of credit. See Stip. at ¶
12. Thereafter, on May 10 and 16, 1985, Occidental drew upon
and was paid the full amount of the new letters of credit
issued by Bank of America. See Stip. at ¶ 13. Both banks
credited themselves with the security that Cambridge had posted
to secure the letters of credit. Thus, Occidental received the
benefit of both sets of letters of credit.
On May 17, 1988, plaintiffs commenced the instant action.
They originally sued Bankers Trust and Bank of America
alleging that they wrongfully paid out on the letters of
credit. Bank of America then brought a third-party complaint
against Occidental and other insurance companies that had
also drawn down on both sets of letters of credit. Plaintiffs
later dropped Bankers Trust as a defendant when they filed
their First Amended Complaint. On May 9, 1989 plaintiffs
filed a Second Amended Complaint and asserted a claim for
relief directly against Occidental. This claim was based upon
equitable theories of restitution, quasi-contract, unjust
enrichment and money had and received. Plaintiffs sought
damages of $197,825, the proceeds of one set of letters of
credit, plus interest. Occidental's answer admitted most of
the relevant facts but denied liability.
Plaintiff relies upon equitable principals of
quasi-contract, money had and received, unjust enrichment and
constructive trust, which, under New York law,*fn1 permit a
plaintiff to recover money when it has come into the
defendant's hands wrongfully and it is, under the
circumstances, "against good conscience for the defendant to
keep the money." Parsa v. State, 64 N.Y.2d 143, 148,
474 N.E.2d 235, 237, 485 N.Y.S.2d 27, 29 (1984) (discussing action for
money had and received) (quotations omitted); see Republic of
Philippines v. Marcos, 806 F.2d 344, 355 (2d Cir. 1986), cert.
dismissed, 480 U.S. 942, 107 S.Ct. 1597, 94 L.Ed.2d 784 (1987)
(discussing constructive trusts); Simonds v. Simonds, 45 N.Y.2d
233, 241-42, 380 N.E.2d 189, 193-94, 408 N.Y.S.2d 359, 363-64
(1978) (discussing constructive trusts); Bradkin v. Leverton,
26 N.Y.2d 192, 196-97, 257 N.E.2d 643, 645, 309 N.Y.S.2d 192,
195-96 (1970) (discussing quasi-contract); Miller v. Schloss,
218 N.Y. 400, 407-08, 113 N.E. 337, 339 (1916) ...