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October 7, 1996


The opinion of the court was delivered by: MUKASEY


 General Star Indemnity Company ("General Star"), insured the premises of two of the defendants, Custom Editions Upholstery Corp. ("Custom Editions") and Sandra Rose Corp., against fire. It brought this interpleader action in New York State Supreme Court, New York County, to resolve conflicting claims to the proceeds of a claim stemming from a fire on these premises. The case was removed to federal court pursuant to 28 U.S.C. §§ 1444 and 2410, which permit removal of interpleader actions where the government is a defendant. Plaintiff asks this court to resolve the conflicting claims to the proceeds and absolve it from further liability to the multiple claimants. Six categories of defendants have asserted their rights to the proceeds and moved for summary judgment. For the reasons given below, summary judgment is granted to the United States and denied to the other parties.


 Sandra Rose Corp. is the owner of property located at 498-500 Nepperhan Avenue, Yonkers, New York (the "premises"), which Custom Editions leased for its upholstery business. Custom Editions and Sandra Rose purchased fire insurance for the premises from plaintiff for the period December 2, 1994 to December 2, 1995. (Macrae Aff. P 2) Under Commercial Property Insurance Policy Number IAG-328341 (the "policy"), General Star provided coverage for fire damage to the building for up to $ 1.5 million, for damage to the contents of the building for up to $ 300,000, and for business income loss for up to $ 200,000. (Id. P 3, Ex. 1) The policy contained a $ 5,000 deductible and named Sandra Rose and Custom Editions as the insured parties. (Id., Ex. 1) The policy named Stanley Kravet, Rhoda Kravet and Lourdes Profit Sharing Plan as mortgagees. (Id.)

 The mortgage on the premises was assigned to the current mortgagees, the Kravets and Lourdes Profit Sharing Plan, on April 28, 1993, with a remaining balance of $ 600,385.05. The assignment provided that the mortgagor would insure the premises against loss by fire for the benefit of the mortgagee. (Thurm Decl., Ex. A) The policy contains a New York "standard mortgagee" clause, and states that the insurer will pay for "loss of or damage to buildings or structures to each mortgage holder shown in the Declarations in their order of precedence, as interests may appear." (Macrae Decl., Ex. A) As of the date of the fire, the unpaid balance on the mortgage was $ 588,254.20, with interest of $ 4,416.57 accruing each month.

 On or about March 27, 1995, there was a fire at the premises. Custom Editions retained Ben Gruber, Inc., a public adjuster, *fn1" on March 27, 1995 to pursue its claim. It agreed to pay Gruber 5% of all proceeds recovered from General Star. (Gruber Aff. PP 6, 7) Custom Editions then retained Weg & Myers, a law firm, on October 27, 1995, to assist in adjusting the claim. (Weg & Myers 3(g) P 4) The Weg & Myers retainer agreement provided for a one-third contingency fee. However, it also stated that if the case was settled before Weg & Myers filed a certificate of readiness for trial, the fee would be 27.5% of any recovery, and that if the case was settled within 60 days of signing of the retainer agreement, the fee would be 10% of any recovery. (D'Antonio Aff., Ex. D) On November 3, 1995, Custom Editions hired Zimring & Associates ("Zimring") to replace Gruber as its public adjuster, and agreed to pay Zimring 10% of any recovery. (Yablon Aff. P 3) On November 13, 1995, Custom Editions terminated its relationship with Weg & Myers by letter from its counsel, Alan Kapson. (Gruber Aff., Ex. C) On November 29, 1995, Custom Editions terminated its relationship with Ben Gruber, Inc. with a similar letter. (Yablon Aff., Ex. C) Finally, on December 8, 1995, Zimring submitted a complete claim on behalf of Custom Editions to General Star. (Id., Ex. D)

 General Star's current estimate is that the fire resulted in $ 739,203 of building damage and $ 201,092 in damage to the contents of the building, excluding personal property of customers whose property was on the premises at the time of the fire. (Id. P 9) Custom Editions' customers who had personal property on the premises at the time of the fire have filed a total of $ 85,545.12 in claims. General Star has indicated that the adjustment process for the building and its contents is not yet complete, and reads the policy to mean that it owes no more than $ 2,500 to Custom Editions' customers.

 As noted, the action was removed to this court pursuant to a notice of removal filed by the United States under 28 U.S.C. §§ 1444 and 2410, because the case involves a government claim to insurance proceeds controlled by plaintiff. Plaintiff seeks an order: 1) permitting it to pay into court $ 937,795 in insurance proceeds under the policy; 2) discharging it from any and all liability to defendants under the policy to the extent of such payment; (3) determining the amount of insurance proceeds to which each of the defendants is entitled and the order in which payment should be made; and (4) awarding plaintiff payment for its expenses, including reasonable attorneys' fees.

 On May 6, 1996, this court ordered that all defendants claiming a right to priority payment from the policy proceeds submit papers justifying such priority. Six categories of defendants have filed motions seeking payment from the proceeds. First, the holders of a mortgage on the premises, the Kravets and Lourdes Profit Sharing Plan assert first priority to the proceeds pursuant to the "standard mortgagee" clause in the policy. They claim entitlement to $ 588,254, plus interest at a rate of $ 4,416.57 per month from March 1, 1995 to the date of payment, representing the outstanding principal and interest on the mortgage.

 Second, the City of Yonkers seeks enforcement of a lien on the premises for 1995/96 taxes in the amount of $ 19,187.26.

 Third, the United States seeks enforcement of a lien of $ 20,402.88, plus penalties and interest, for Custom Editions' unpaid taxes. Before the fire, the government perfected a tax lien by filing two liens against Custom Editions' property. On Nov. 4, 1993, the federal government filed a tax lien representing an unpaid March 21, 1991 tax assessment of $ 10,828.72. Then, on March 23, 1995, the federal government filed another tax lien representing unpaid tax assessments from August 8, 1994, September 5 and 26, 1994, and October 3, 1994 of $ 9,574.16. On April 17, 1995, the federal government served a Notice of Levy for $ 22,384.11 against Custom Editions, and it has since revised its claim to $ 20,402.80.

 Fourth, Custom Editions' current public adjuster, Zimring, seeks 10% of any adjusted loss proceeds pursuant to a retainer agreement with Custom Editions. (Yablon Aff. P 3)

 Fifth, Custom Editions' former public adjuster, Ben Gruber, Inc. and attorneys, Weg & Myers, P.C., seek payment of 5% and 10% of the proceeds, respectively, pursuant to their retainer agreements with Custom Editions. (Gruber Aff., Ex. A)

 Finally, about a dozen of Custom Editions' customers or their subrogees have submitted claims for property that was on the premises when the fire occurred. These include claims by: Marc Zeff Consulting Group, Inc. for $ 11,702.89; Aetna Casualty and Surety Company, as subrogee of Steven Donovan and Peter Trapp, for $ 21,030.34; Atlantic Mutual Insurance Company, as subrogee of Charles and Maria Fuerer, for $ 14,672.44; Lucy Weir Interiors, for $ 2,312.15; Chubb & Son, Inc., manager of Federal Insurance Company, as subrogee of Richard and Nancy Steinberg and Richard and Betty Hyman and Arthur Gurevich, and Chubb & Son, Inc., manager of Great Northern Insurance Company, as subrogee of David Walker and Irwin and Betty Sharkey, for a total of $ 25,627.60; Utica Mutual Insurance Company, as subrogee of Ellen Winkler, for $ 3,324.93; BAS Design, Inc., for $ 3,058; Alan and Michele Kapson, for $ 3,500; and Eleanor Windman, for $ 316.80.

 On September 29, 1996, upon stipulation of all defendants, I ordered that plaintiff pay the mortgagees $ 667,752.44, representing the unpaid balance of the mortgage on the premises with interest accrued through September 1, 1996. The mortgagees, in turn, agreed to pay defendant, City of Yonkers, $ 19,187.26 in full satisfaction of the unpaid taxes on the premises. As a result of this payment, the mortgagees were dismissed from this action.

 Defendants Zimring, Weg & Myers, Ben Gruber, Inc., United States, and a number of the customer claimants, now move for summary judgment on their claims.


 In an interpleader action, a party in possession of a property, instrument or obligation subject to multiple claims may deposit the item at issue with the court. The court has the authority to "hear and determine the case," determine the rights of the rival claimants, "discharge plaintiff from further liability," and restrain all parties from instituting proceedings in any court regarding the property, instrument or obligation at issue. 28 U.S.C. § 2361 (1994). Even if this case had been filed initially in this court, it would have been governed by state law. See Continental Coffee Prod. Co. v. Banque Lavoro S.A., 852 F. Supp. 1235, 1237 (S.D.N.Y. 1994) ("Federal courts are bound by state law governing the rights of rival claimants to a given fund in interpleader actions brought under 28 U.S.C. § 1335."). The rule should be no different simply because this case was started in state court and then removed. Cf. Butner v. Neustadter, 324 F.2d 783, 785 (9th Cir. 1963) (holding that after removal "federal court takes the case as it finds it on removal and treats everything that occurred in the state court as if it had taken place in federal court"). Under New York choice of law rules, New York law governs because this case involves a question of an insurer's duties for an incident in a building located in New York City. See Mount Vernon Fire Ins. co. v. Creative Hous. Ltd., 797 F. Supp. 176, 179 (E.D.N.Y. 1992).

 On a motion for summary judgment, the moving party must prove the absence of material factual issues and that the law requires judgment in the movant's favor. Fed. R. Civ. P. 56(c). The movant can do so by submitting affidavits, depositions and admissions that set forth facts which would be admissible at trial. Fed. R. Civ. P. 56(e). This burden on the moving party "may be discharged by 'showing' -- that is, pointing out to the district court -- that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). Although the movant bears the burden of persuasion, the nonmovant may not resist a motion for summary judgment simply by submitting conclusory allegations or mere assertions about the presence of metaphysical doubt. Rather, to defeat a motion for summary judgment the nonmovant must set forth specific facts through affidavits, depositions or admissions that demonstrate a genuine issue for trial. Fed. R. Civ. P. 56(e); Celotex, 477 U.S. at 324.


 Many parties have submitted claims of priority to the proceeds of the fire insurance policy issued by plaintiff. To explain clearly the priorities of each category of party, and the issues relating to the order of and right to payment, each category other than the ...

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