The opinion of the court was delivered by: ROBERT W. SWEET
A swirl of motions have been made arising out of the affairs of the defendant Latino Americana de Reaseguros, S.A. ("LARSA") and its reorganization, including motions for intervention, the enforcement of an obligation, attorneys' liens, and a judgment, the discharge of the interpleading bank, and summary judgment to obtain various relief. The motions for intervention, and for discharge of interpleader will be granted. The motions to enforce attorneys' liens and the judgment will be denied, as will the motion for a stay. The reasons for this resolution will be set forth below, and in view of the complexities of this action and its evolution, leave will be granted to move within twenty days of the filing of this opinion for its modification.
The Parties and their Motions
Plaintiff Insurance Corporation of Hannover, Inc. ("Hannover") is an Illinois corporation which sought to enforce an obligation against LARSA by the filing of this action. Thereafter the Hannover action was settled.
LARSA is a reinsurance company incorporated under the laws of the Republic of Panama. It went into statutory reorganization on April 6, 1990 under the protection of the National Commission for Reinsurance of the Republic of Panama ("NCR"). NCR on July 3, 1993 deemed the reorganization terminated and sought possession of any assets held for the benefit of LARSA and sought summary judgment in accordance with Rule 56(a), Fed. R. Civ. P. to assert whatever rights LARSA possesses.
Counsel for the court appointed liquidator of LARSA has moved for the new liquidator to be substituted for LARSA as the real party in interest. That motion has been granted separately. Rochelle Corson, counsel representing the former management of LARSA ("Corson"), has sought a stay of these proceedings pending the resolution of proceedings apparently pending in Panama. Counsel for the liquidator moved for sanctions against Corson. That motion was denied separately.
Defendant and Counterclaim Plaintiff Citibank, N.A. ("Citibank") is a national banking corporation organized under New York law, which as trustee held certain assets of LARSA (the "Trust") under a trust agreement. It seeks summary judgment in accordance with Rule 56, Fed. R. Civ. P. discharging its obligation as trustee and for attorneys' fees.
Third Party Defendant Salvatore R. Curiale, Superintendent of Insurance of the State of New York ("Curiale" or the "Department") is responsible for the conduct of an audit of the Trust of which Citibank is the trustee.
Intervenor Robinson, Brog, Leinwand, Reich, Genovese and Gluck, P.C. ("Robinson Brog") is a New York law firm that seeks to enforce an order directing payment of its legal fees.
Intervenor Milledge, Iden & Held ("MIH") is a New York law firm seeking summary judgment in accordance with Rule 56, Fed. R. Civ. P. in the amount of its fees and disbursements to enforce an attorneys' lien for legal fees.
Intervenor Dunshaw Patton Financial Holdings Ltd. ("Dunshaw"), a Panamanian corporation, seeks to enforce a Panamanian judgment against LARSA.
Interpleader Defendant Banco Cafetero, S.A. ("Cafetero") is a Panamanian bank which seeks summary judgment to enforce payment of an obligation and judgment of LARSA from the Trust Fund.
This action was initiated by Hannover on December 3, 1990 and assigned to the Honorable Miriam G. Cedarbaum. It was reassigned to the Honorable Pierre N. Leval on June 25, 1991.
Citibank filed its answer and counterclaim for interpleader (the "Interpleader") on June 18, 1991.
The case was closed upon the representation of settlement on October 15, 1991 and reopened on March 15, 1993. An order was entered on July 22, 1993 determining the amount and enforcing the attorneys' lien of Robinson Brog. On September 15, 1993 the action of Hannover was settled and its claim resolved.
On October 18, 1993, a third party complaint against the Department was filed by NCR and on November 22, 1993 an order to show cause was filed by LARSA seeking determination of certain of the issues relating to the attorneys' liens. On January 24, 1994 the action was reassigned to this court upon the elevation of Judge Leval to the Court of Appeals.
On January 24, a pretrial conference was held during which it was determined that the resolution of the matter would be assisted by the completion of the Department's then ongoing audit of the Trust and all motions were deferred for that purpose. The audit having been substantially, but not finally completed, all motions were heard on July 6 and considered submitted at that time.
In order to be eligible for the placement of insurance business by excess line brokers licensed in the State of New York, LARSA, an unauthorized insurer within the meaning of the New York Insurance Law, established the Trust pursuant to New York State Insurance Department Regulation No. 41, 11 NYCRR 27.5 ("Regulation 41"). This Regulation 41 Trust established by LARSA with Citibank was terminated on or about December 23, 1990, and subsequently an independent auditor's report found there to be total outstanding liability to United States policyholders in the amount of $ 523,041.65.
The Trust Agreement dated January 31, 1978, as amended on February 25, 1981 between LARSA and Citibank (the "Trust Agreement"), provided, among other things, for the establishment of the Trust. The Trust was funded by a letter of credit in the amount of $ 1,500,000 issued by Chase Manhattan Bank (the "Trust Property" or "Trust Fund"). The Trust Property was maintained by Citibank pursuant to the terms of the Trust Agreement until December 23, 1990, the date the Trust Agreement expired. Thereafter, Citibank retained and continues to retain the Trust Property as a fiduciary, in accordance with New York law and at the direction of the Department as representative of all potential beneficiaries under the Trust Agreement, until the conditions for release of the Trust Property are fulfilled.
The claims asserted in the Interpleader, in the aggregate, exceed the value of available funds, which as of March 8, 1994 totalled $ 1,500,000 in principal and $ 87,884.49 in interest. Due to the length of time that has passed since the 1990 audit, a current audit is being performed so that the current status of LARSA's outstanding liabilities can be determined.
In 1984 and 1985, LARSA and Hannover entered into certain reinsurance contracts. LARSA's obligations to Hannover were secured by a letter of credit issued by Cafetero. The performance of the agreements with Hannover became the subject of a dispute which resulted in the initiation of the this action in which Hannover sought a recovery of over $ 2 million. Hannover also initiated an action against Cafetero in the Central District of California to require payment of its letter of credit.
On April 6, 1990, LARSA went into statutory reorganization proceedings in Panama under the protection of NCR.
The audit report required by the regulations of the Department was initially prepared by Peat, Marwick & Mitchell on or about January 28, 1991 and was delivered to Citibank and the Department on or about February 1, 1991. The audit report, inter alia, disclosed that LARSA has liabilities in the United States which may result in multiple claims against the Trust Property, including potential liabilities for claims on direct insurance business underwritten by LARSA in the United States in the amount of $ 440,114.12 and losses of $ 82,927.53, for a total of $ 523,041.65 (collectively referred to herein as the "Reserve Amount"). Because of challenges to the initial audit, a revised audit has now been undertaken by Horwath & Co. However, it is not anticipated that the results in gross amount will differ materially from the earlier audit.
On November 18, 1991, LARSA filed an ancillary proceeding in the United States Bankruptcy Court for the Southern District of New York pursuant to § 304 of Title 11 of the United States Code (the "Bankruptcy Code"). Pursuant to § 304(b)(1) of the Bankruptcy Code, the Bankruptcy Court issued a preliminary injunction staying Hannover's prosecution of both of the above-described federal court actions. On February 17, 1993, Judge Leval in In re Ocana, 151 Bankr. 670, S.D.N.Y. 1993, on appeal, issued a decision reversing the preliminary injunction imposed by the Bankruptcy Court. In vacating the order of the Bankruptcy Court staying Hannover's action against Cafetero, Judge Leval stated: "It seems clear that the reversionary right is properly subject to control by LARSA's bankruptcy court." (p. 675).
In the second settlement agreement (the "Second Settlement Agreement"), LARSA and Cafetero agreed that Cafetero would be indemnified by LARSA in the amount of $ 1 million in connection with payments Cafetero made to Hannover pursuant to the First Settlement Agreement, and that LARSA would pay Cafetero the indemnity amount plus 7.5% interest per annum and pledge as collateral its reversionary interest in the sums on deposit at Citibank that constitute the Trust Property.
Pursuant to the First Settlement Agreement and the Second Settlement Agreement (collectively, the "Settlement Agreements"), Cafetero paid Hannover $ 1 million. LARSA on July 20, 1993 wrote to Citibank directing that Cafetero be reimbursed from the Trust Property.
The General Release executed by Hannover in favor of LARSA, dated June 16, 1993, states as follows:
Releasor covenants and agrees with and warrants to Releasee that Releasor releases and waives any claim it may have as a policyholder or intended beneficiary against the New York Trust Fund which is the subject matter of Case No. 90 CV 7734 (PNL) in the United States District Court for the Southern District of New York, and Releasor will never institute, prosecute, or assert, or . . . aid in the institution, prosecution, or assertion against Releasee or anyone claiming by, through, or under Releasee, or any of Releasee's agents, attorneys, or employees, of any claim, suit, action or defense at law or otherwise, known or unknown, on account of any act, matter, cause, or thing whatsoever from the beginning of time to the date hereof.
On July 7, 1993, pursuant to Article 57 of Law 56 of December 20, 1984 of the Republic of Panama, NCR deemed the reorganization of LARSA terminated and, pursuant to Panamanian law, took possession of LARSA's holdings and assumed administration of all of its assets. On August 4, 1993, NCR requested a judicial order from the Panamanian Courts for the forced liquidation of LARSA.
Robinson Brog has rendered services as local counsel in connection with the commencement of the § 304 ancillary proceeding, a hearing held before the Bankruptcy Court in connection with the § 304 proceeding, and responding to Hannover's appeal of the Bankruptcy Orders. As a consequence, Robinson Brog was owed the sum of $ 13,111.50 for services and $ 3,207.34 for disbursements and expenses. On July 16, 1993, Robinson Brog filed a petition (the "Petition"), seeking an order enforcing an attorney's lien arising pursuant to Judiciary Law § 475 and enforcing such lien against the Trust Fund currently being held by Citibank.
On July 22, 1993, in connection with the Petition, which was unopposed, Judge Leval signed an order (the "Order") provisionally granting Robinson Brog an attorneys' lien in the amount of $ 16,318.34, for services rendered as local counsel for LARSA. The Order further provided that "upon disbursement of the proceeds currently in the Trust Fund, Citibank, N.A. shall be required to retain the sum of ...