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January 16, 2001


The opinion of the court was delivered by: McCURN, Senior District Judge.


In this recently consolidated action, plaintiffs Algonquin Power Corporation, Inc., and Algonquin Power Income Fund (collectively Algonquin), move in 00-CV-1246 for an order of attachment pursuant to Fed.R.Civ.P. 64 and/or a preliminary injunction pursuant to Fed.R.Civ.P. 65 freezing a $7.6 million tort judgment that defendant Trafalgar Power, Inc. (TPI) obtained in a separate yet related professional malpractice action. In support of the motion, Algonquin argues that TPI fraudulently assigned the $7.6 million judgment to defendant Pine Run Virginia, Inc., and that Pine Run is a shell corporation of Marina Development, Inc. — the corporation which in turn owns TPI. Algonquin asserts that the assignment was designed to frustrate any judgment it might realize on counterclaims asserted against TPI in 99-CV-1238, another separate but related action. TPI, Pine Run and defendant Christine Falls Corporation (CFC) oppose the motion and, without citing any specific subsection of Fed.R.Civ.P. 12, move to dismiss 00-CV-1246 based on the pendency of 99-CV-1238.

In addition to the motion for an order of attachment and/or a preliminary injunction in 00-CV-1246, Algonquin moved for an order consolidating that action with 99-CV-1238. Aetna Life Insurance Company, a defendant in 99-CV-1238, moved to intervene.

Pursuant to 28 U.S.C. § 636(b)(1)(A) & (B), the matter was referred to Magistrate Judge Peebles for proposed findings of fact and recommendations for disposition of Algonquin's motion for an order of attachment and/or preliminary injunction and the cross motion to dismiss, in addition to deciding the various non-dispositive motions. In a Report, Recommendation and Order dated November 8, 2000 (the Report), the Magistrate Judge decided the motions for non-dispositive relief by granting Algonquin's motion for consolidation of 00-CV-1246 with 99-CV-1238, and denying Aetna's motion for leave to intervene as moot. With respect to the remaining motions, the Magistrate Judge concludes that Algonquin is entitled to both an order of attachment and a preliminary injunction. However, he ultimately recommends that the court (1) grant the motion for a preliminary injunction, (2) deny the motion for an order of attachment, and (3) deny the cross motion to dismiss.

Pursuant to 28 U.S.C. § 636(b)(1) and Local Rule 72.1(b), the parties have filed numerous timely objections to the Magistrate Judge's Report. Thus, the court is required to undertake a de novo review of those portions of the Report to which the parties specifically object and may "accept, reject or modify, in whole or in part, the findings or recommendations" in the Report. 28 U.S.C. § 636(b)(1)(C). Having carefully considered the Report, the parties' objections, and the record, the court adopts the Magistrate Judges's findings and recommendations, but for reasons different than those contained in the Report.


A full recitation of the facts and procedural history of this case, as well as the other related actions, is set forth in the Report of Magistrate Judge Peebles, familiarity with which is assumed. However, to better understand these instant motions, it is necessary to particularize the facts relating to the three different actions. In the late 1980's, defendant TPI, a Delaware corporation, acquired and developed seven hydroelectric plants in upstate New York. Defendant CFC, a wholly-owned subsidiary of TPI, was a New York corporation incorporated to develop the hydroelectric plant located in Christine Falls, New York.*fn1 Defendant Pine Run is a Delaware corporation with its principal place of business in Richmond, Virginia, and was incorporated to perform work associated with a large real estate subdivision located in Virginia. Both TPI and Pine Run are wholly-owned subsidiaries of Marina Development, Inc. Marina, in turn, is owned by Arthur Steckler.

Sometime in either 1988 or 1989, Aetna Life Insurance Company made TPI and CFC a $22,500,000 loan relating to the power projects. On January 15, 1996, that loan was restructured and the parties entered into a Revised Loan Agreement. Under the 1996 Revised Loan Agreement, TPI and CFC exchanged the original notes and the original loan was broken into two separate notes — "A Notes" with a face value of $6,700,000, and "B Notes" totaling $15,800,000. The Revised Loan Agreement also provided TPI and CFC with a limited right of first refusal should Aetna seek to sell either the A Notes or the B Notes.

Simultaneous with the Revised Loan Agreement, the parties entered into an Amended and Restated Collateral Trust Indenture, and a formal Management Agreement. Under the Management Agreement, the parties agreed that Algonquin would assume operational responsibility for the hydroelectric plants. The Trust Indenture named State Street Bank as security trustee, among other things.*fn2

In November of 1996, Algonquin offered to purchase the B Notes from Aetna for $94,000.*fn3 Pursuant to the Revised Loan Agreement, Aetna subsequently notified TPI and CFC of the purchase offer. By formal notice to Aetna dated December 17, 1996, TPI and CFC exercised their limited right to first refusal to purchase the B Notes for 105% of Algonquin's purchase offer. Additionally, TPI and CFC gave Aetna a $50,000 deposit towards the purchase of the B Notes, and named February 11, 1997, as the date that the remaining balance would be paid. However, TPI and CFC failed to tender the remaining $48,700 to Aetna on February 11, 1997. Rather, TPI and CFC delivered the balance due on the B Notes to Aetna on February 17, 1997, six days after the original due date named by TPI and CFC. Aetna rejected the $48,700 as untimely, refused to sell TPI and CFC the B Notes, and eventually sold the B Notes to Algonquin.

In September of 1997, Algonquin offered to purchase the A Notes from Aetna for the lesser amount of either $5,900,000 or the outstanding principal of the notes. Aetna again notified TPI and CFC of the purchase offer. TPI and CFC apparently did not respond to the notice of the proposed sale, and Aetna and Algonquin reached an agreement for the transfer of the A Notes to Algonquin. The sale of the A Notes was consummated in December of 1997.*fn4

On July 1, 1999, TPI and CFC received a notice of intent to levy based on unpaid taxes from the Internal Revenue Service. Based upon that notice of intent to levy, Algonquin, as holder of the B Notes, declared TPI and CFC in default of the revised loan agreement on August 5, 1999, and accelerated the amount due under the notes. The IRS subsequently issued the notice of levy on August 20, 1999. Algonquin, who continues to operate and control the power plants, thereafter directed payment of the tax amount due.

On August 6, 1999, TPI and CFC commenced a breach of contract action against Algonquin and Aetna (99-CV-1238), and that action is still pending before this court. In 99-CV-1238, TPI and CFC claim that Aetna improperly transferred both the A Notes and B Notes to Algonquin. Algonquin's counterclaims in 99-CV-1238 seek a declaration that it is the rightful owner of the notes and money damages stemming from TPI's alleged breach of the Trust Indenture with respect to the B Notes.

As referred to above, TPI was awarded the principal sum of $7.6 million in its professional malpractice action against the engineers and architects of the power plants. An appeal bond in the amount of $8,436,250 was issued by American Casualty Company of Reading, Pennsylvania.*fn5 On December 22, 1999, during the pendency of the appeal of the malpractice action, TPI filed with the court an assignment of the $7.6 million judgment to Pine Run, reciting as consideration for the transfer "Five ($5.00) Dollars and other good and valuable consideration" (Complaint, Docket No. 1, Exh B). After learning of the assignment and the fact that Arthur Steckler owned both TPI and Pine Run, Algonquin filed 00-CV-1246, claiming that TPI was attempting to frustrate any potential judgment by Algonquin on its counterclaims in 99-CV-1238. Specifically, Algonquin asserts that the assignment is an unlawful conversion based upon language contained in the Trust Indenture and, further, that the assignment violates sections 273 and 276 of New York Debtor and Creditor Law.*fn6 Additionally, Algonquin seeks attorneys' fees pursuant to Debtor and Creditor Law § 276-a.

Algonquin's motion for an order of attachment and/or a preliminary injunction in 00-CV-1246 is based on its belief that if the assignment of the judgment is not frozen until a resolution of the claims and counterclaims in 99-CV-1238, TPI will not have sufficient assets to satisfy any judgment Algonquin might realize in that action. In support of their cross motion to dismiss, TPI, CFC and Pine Run contend that 00-CV-1246 needlessly complicates 99-CV-1238.


Even though the Magistrate Judge ordered 00-CV-1246 consolidated with 99-CV-1238 under Fed.R.Civ.P. 42(a), the actions do not lose their separate identities. See Johnson v. Manhattan Ry. Co., 289 U.S. 479, 497, 53 S.Ct. 721, 728, 77 L.Ed. 1331 (1933) (Consolidation "does not merge suits into a single cause, or change the rights of parties, or make those who are parties in one suit parties in another."); Cole v. Schenley Indus. Inc., 563 F.2d 35, 38 (2d Cir. 1977) ("Consolidation under Rule 42(a) is a procedural device designed to promote judicial economy, and consolidation cannot effect a merger of the actions or the defenses of the separate parties. It does not change the rights of the parties in the separate suits."). With this is mind, the court turns to the provisional relief Algonquin seeks in 00-CV-1246.

1. Order of Attachment

New York Law governs any order of attachment issued by this court. See Fed.R.Civ.P. 64; Bank Leumi Trust Co. of New York v. Istim, Inc., 892 F. Supp. 478, 481 (S.D.N.Y. 1995). To obtain an order of attachment under New York law, a moving party must demonstrate through affidavit or other written evidence (1) that a cause of action for a money judgment exists, (2) a probability of success on the merits, (3) the existence of one or more grounds enumerated in section 6201 of the CPLR, and (4) that the amount demanded from the defendant exceeds all counterclaims known to the plaintiff. See CPLR ยงยง 6201; 6212(a); Bank ...

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