The opinion of the court was delivered by: McCURN, Senior District Judge.
MEMORANDUM-DECISION AND ORDER
By order dated February 13, 2001, this court preliminarily
enjoined Trafalgar Power, Inc. (TPI), from assigning or
otherwise disbursing a judgment it had obtained in a separate
yet related malpractice action. The tort judgment proceeds are
currently being held in an escrow account pending determination
on the merits of the parties' various claims. TPI now seeks
reimbursement from those proceeds the amount that it expended in
securing the tort judgment and, to that extent, moves to modify
this court's prior order. For the following reasons, the court
denies the motion.
The full facts of this consolidated action are set forth in a
prior memorandum-decision and order, see 131 F. Supp.2d 341,
and only the facts necessary to resolve the instant motion need
be discussed. TPI obtained a $7.6 million tort judgment in a
professional malpractice action against the engineers and
architects of certain hydroelectric power plants located in
Upstate New York. TPI subsequently commenced this breach of
contract action against Algonquin Power Corporation, Inc. and
Aetna Life Insurance Company (99-CV-1238), alleging that Aetna
improperly transferred to Algonquin certain notes evidencing
Aetna's loan to TPI. Algonquin asserted counterclaims seeking
both a declaration that it rightfully owns the above notes, and
money damages stemming from TPI's alleged breach of an agreement
relating to the notes.
TPI now moves to modify this court's order preliminarily
enjoining it from distributing any funds held in the escrow
account. Specifically, TPI seeks to recover from the proceeds of
the frozen tort judgment the amount it expended in attorneys'
fees and expenses litigating the malpractice action which
produced the judgment. TPI argues that even if Algonquin has a
potential property interest in the tort judgment proceeds by
virtue of its counterclaims in 99-CV-1238, TPI is nonetheless
entitled to reimbursement because TPI's expenditures created the
fund from which Algonquin may benefit. In support of this
argument, TPI relies on United States v. 110-118 Riverside
Tenants Corp., 886 F.2d 514 (2d Cir. 1989), among other cases,
for the proposition that a party that obtains the benefit of a
lawsuit without contributing to its cost is unjustly enriched at
the expense of the party who created the fund.
Algonquin counters that TPI is not entitled to any proceeds of
the tort judgment because it assigned all of those proceeds to
Pine Run and, thus, the very terms of that assignment prohibit
TPI from now collecting its expenses from the judgment.
Algonquin further argues that TPI's cited case law is
distinguishable from these facts, and that no authority supports
a situation where, as here, a potential debtor such as TPI seeks
to recover the expenses from a fund it created before paying its
potential creditor. Algonquin urges the court to leave the tort
judgment undisturbed until a final decision and judgment is
reached on the merits in the underlying action.
Algonquin has the better argument here. First, TPI had an
opportunity to reserve payment for its expenses in litigating
the malpractice action when it assigned the tort judgment to
Pine Run. It chose not to do so. The assignment states that TPI
"does assign transfer and set over to Pine Run, its successors
and assigns, the said judgment and all sum or sums of money that
may be had or obtained by means thereof, or on any proceedings
to be had thereupon" (Assignment of Judgment, Mem. of Law in
Opp. to TPI's Order to Show Cause, Exh. A). Regardless of the
fact that TPI and Pine Run are both owned by Arthur Steckler,
permitting TPI to now dip into the tort judgment would clearly
violate the express terms of the assignment.
Even assuming that TPI has any rights left in the tort
judgment, its reliance on United States v. 110-118 Riverside
Tenants Corp., supra, is distinguishable from the facts
presented here. In Riverside, the Internal Revenue Service
filed a lien for unpaid taxes against the owner of an
cooperative apartment in the Riverside building, and a
foreclosure action resulted in the government being awarded
judgment on the shares representing the taxpayer's ownership of
the apartment. See 886 F.2d at 516. After the owner eventually
defaulted on his maintenance payments, Riverside evicted him
and, with the approval of the government, sold the apartment.
See id. at 516-17. Both the government and Riverside then
claimed rights to the proceeds of the sale. See id. at 517.
Where a party creates a substantial fund at behest of
and for the benefit of another party, equity requires
that the expenses of the creator of the fund be paid
out of the fund. The doctrine rests on the perception
that persons who obtain the benefit of a lawsuit
without contributing to its costs are unjustly
enriched at the successful litigant's expense.
Id. at 521 (quoting in part Boeing Co. v. Van Gemert,
444 U.S. 472, 478, 100 S.Ct. 745, 749, 62 L.Ed.2d 676 (1980))
(internal quotations omitted).
Here, Algonquin apparently was aware of TPI's prosecution of
the malpractice action, but declined to join the action. Unlike
the government in Riverside, however, Algonquin had no
obligation to join TPI in the malpractice litigation. TPI's
recovery of the tort judgment had nothing to do with Algonquin's
counterclaims against TPI, and TPI ...