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CORRESPONDENT SERVICES CORP. v. J.V.W. INVESTMENTS LTD.

May 30, 2002

CORRESPONDENT SERVICES CORPORATION, INTERPLEADER-PLAINTIFF,
V.
J.V.W. INVESTMENTS LTD., FIRST EQUITIES CORPORATION OF FLORIDA, J.V. WAGGONER, AND DONAL KELLEHER, INTERPLEADER-DEFENDANTS, AND SUISSE SECURITY BANK AND TRUST, LTD., ADDITIONAL DEFENDANT ON THE CROSS-CLAIMS.



The opinion of the court was delivered by: Sweet, U.S.D.J.

  OPINION

Cross-claim defendant Suisse Security Bank and Trust Ltd. ("SSBT") has moved: (1) to dismiss the action brought by interpleader plaintiff Correspondent Services Corporation ("CSC") pursuant to CSC's Notice of Voluntary Dismissal under Rule 41(a), Fed.R. Civ. P., and for lack of subject matter jurisdiction pursuant to Rule 12(h)(3), Fed.R. Civ. P.; (2) to return its attached assets to its receiver in the Bahamas pursuant to 11 U.S.C. § 304; and (3) to be awarded attorneys' fees incurred in defending this action. Interpleader defendant JVW Investments Ltd. ("JVW") has moved for summary judgment on its cross-claim for breach of contract. For the reasons set forth below, SSBT's motions are granted and the summary judgment motion by JVW is denied.

As will become more apparent from the discussion that follows, this action results from a complicated web of offshore transactions initiated by JVW, a Commonwealth of Dominica International Business Company, owned and controlled by J.V. Waggoner, a Texas resident. JVW and Waggoner had developed a relationship with interpleader defendant Donal Kelleher, a citizen of Great Britain, which has become the subject of cross-claims. SSBT, a banking company established under the laws of the Commonwealth of the Bahamas, became an additional defendant on these cross-claims as a result of its participation in the affairs of JVW, Waggoner, and Kelleher, and is now currently bankrupt and in liquidation. Despite this protracted litigation, the Waggoner/Kelleher dispute remains somewhat unresolved, but the claim of JVW and Waggoner has moved to the foreground to a large extent as a result of the attachment of SSBT funds by this Court. The issues now raised and discussed below require that these disputes be resolved elsewhere.

Prior Proceedings

This interpleader action was commenced on August 16, 1999 by CSC, which held a certificate of deposit to which several parties laid claim. The defendants answered, asserted cross-claims, and moved for various relief. Four opinions in this case have been filed, familiarity with which is assumed. See Correspondent Services Corp. v. J.V.W. Investment Ltd., 173 F. Supp.2d 171 (S.D.N.Y. 2001) ("JVW IV"); Correspondent Services Corp. v. J.V.W. Investment Ltd., 204 F.R.D. 47 (S.D.N.Y. 2001) ("JVW III"); Correspondent Services Corp. v. J.V.W. Investment Ltd., 120 F. Supp.2d 401 (S.D.N.Y. 2000) ("JVW II"); Correspondent Services Corp. v. J.V.W. Investment Ltd., No. 99 Civ. 8934 (RWS), 2000 WL 1174980 (S.D.N.Y. August 18, 2000) ("JVW I")

On August 18, 2000, in JVW I, 2000 WL 1174980, at *22, this Court denied Kelleher's motion to disqualify Kenneth A. Caruso, Esq. and Shaw Pittman from appearing as counsel for JVW and Waggoner, and granted in part Waggoner's motion to dismiss, which the Court converted to a motion for summary judgment.

On September 28, 2000, JVW moved by order to show cause to serve an amended pleading that asserted claims against SSBT and granted an order of attachment against SSBT. This Court issued a temporary restraining order attaching up to $3 million in assets held by SSBT. On November 13, 2000, in JVW II, 120 F. Supp.2d at 406, the Court confirmed the order of attachment. On April 18, 2001, a second amended order of attachment was entered, and SSBT's funds were turned over to the United States Marshal the following day.

Discovery proceeded with documents produced, interrogatories answered, and depositions taken. This Court discharged CSC from liability in this action and, in JVW III, 204 F.R.D. at 50, awarded attorney's fees to CSC. On November 26, 2001, this Court granted in part a motion for summary judgment brought by Waggoner as to Kelleher's amended cross-claim alleging breach of fiduciary duty. Waggoner's motion was denied as to Kelleher's cross-claim alleging breach of contract, and Kelleher's cross-motion to compel further discovery was granted in part. See JVW IV, 173 F. Supp.2d at 181.

Meanwhile, on July 3, 2001, SSBT, by letter to the Court, had raised the question whether the Court has subject matter jurisdiction. CSC was granted leave to file an amended complaint, which CSC did on or about August 20, 2001. SSBT moved to dismiss the original complaint on August 22, 2001 and briefing and submissions continued until February 4, 2002. On October 21, 2001, CSC filed a "Notice of Voluntary Dismissal of Amended Complaint" with this Court. The Court received correspondence on the issue, and the issue was argued in the briefings relating to SSBT's motion to dismiss.

On March 11, 2002, JVW filed a motion for summary judgment on its cross-claim against SSBT for breach of contract. The motion was deemed fully submitted on April 17, 2002.

The Facts

On June 26, 1998, British Trade and Commerce Bank ("BTCB"), organized under the laws of Dominica, issued a Certificate of Time Deposit (the "CTD") to JVW. The CTD stated on its face that JVW "has deposited with this bank the sum of TEN MILLION DOLLARS . . . ." The CTD, however, also provided, "Deposits made in any form shall not be considered good until the same have been cleared." The CTD states, "This deposit shall bear interest at the rate of SIX Percent (6%) per Annum for a period of 365 Days . . ." The CTD would mature on June 25, 1999. The CTD continues, "The deposit covered by this certificate will be paid by the issuing Bank . . . upon presentation of the original certificate duly endorsed by the depositor." Finally, the CTD stated:

If the deposit is not withdrawn on the maturity date, the deposit shall be treated as a regular savings account and shall earn interest as such from the date of maturity up to the date of actual withdrawal.

At the time the CTD was issued to JVW, JVW had made no deposits with BTCB. JVW instructed BTCB to deliver the CTD to SSBT in the Bahamas to be held in JVW's account with SSBT. After a dispute arose between SSBT and JVW, JVW requested that SSBT transfer the CTD to First Equity Corporation of Florida ("First Equity"), a Miami brokerage house that was a subsidiary of BTCB. In September and October of 1998, JVW made several deposits into its account at BTCB which, according to SSBT, totaled approximately $7.7 million. BTCB then issued a new Certificate of Deposit (the "CD") as a substitute for the CTD issued earlier, containing the term that "[d]eposits made in any form shall not be considered good until the same have been cleared," and was identical to the original CTD except for its title and for the fact that it was issued to "Bearer" rather than to JVW. This "Bearer" CD became the subject of this interpleader action. From July 1998 through May 1999, the CTD and thereafter its replacement, the CD, were reflected on JVW's account statements from First Equity, which clears through CSC/PaineWebber,*fn1 as having a face value of $10 million.

In June of 1999, as the CD was about to become due, BTCB informed Waggoner that because only $7.7 million had been deposited by JVW — rather than the $10 million expected — the CD was worth only $7.7 million. At that time, Kelleher commenced a letter writing campaign to PaineWebber and other entities in which he purported to be the "sole director" of JVW and made demands with respect to JVW's brokerage account at First Equity.

On June 25, 1999, the CD matured and pursuant to its terms reverted to a savings account at BTCB. At the same time, JVW liquidated its bank account at BTCB, and transferred the funds contained therein (approximately $7.7 million) to another account in the name of a different corporation, the "Wagonwheel Trust." Contemporaneously with this transfer, BTCB issued a new CD to Overseas Projects, Ltd. a Dominica corporation also organized and owned by Waggoner. This third CD, with a face value of approximately $7.7 million is not now and has never been in the custody of interpleader plaintiff CSC. The monthly statements for JVW's brokerage account at First Equity thereafter reflected a "zero" value for the CD.

On August 16, 1999, CSC commenced this interpleader action seeking to resolve what it regarded as competing claims to the "Bearer" CD in its possession. The complaint named, but did not otherwise assert any causes of action against interpleader defendants JVW, First Equity,*fn2 Waggoner, and Kelleher, and alleged jurisdiction under 28 U.S.C. § 1335. JVW and Waggoner jointly answered and asserted a variety of claims against Kelleher, who, in turn, asserted claims against Waggoner for breach of fiduciary duty and breach of contract.

On September 28, 2000, JVW and Waggoner moved by order to show cause to assert claims against SSBT for conversion, aiding and abetting a conversion, breach of contract, and unjust enrichment and sought to attach $3 million of funds belonging to SSBT. The Court confirmed the attachment by order on November 13, 2000, see JVW II, 120 F. Supp.2d at 406, and a second amended order of attachment was entered on April 18, 2001. Thereafter, Kelleher asserted claims against SSBT for interference with economic advantage and indemnification. SSBT answered the claims asserted against it, and counterclaimed against Kelleher, JVW, and Waggoner for contribution and indemnity.

Discussion

I. CSC's Interpleader Action Against SSBT Is Dismissed

A. CSC's Action Is Dismissed Under Rule 41(a)(2)

Rule 41(a) of the Federal Rules of Civil Procedure states, in pertinent part:

(a) Voluntary Dismissal: Effect Thereof

(1) By Plaintiff; by Stipulation. [A]n action may be dismissed by the plaintiff without order of the court (i) by filing a notice of dismissal at any time before service by the adverse party of an answer or of a motion for summary judgment, whichever first occurs, or (ii) by filing a stipulation of dismissal signed by all parties who have appeared in the action. Unless otherwise stated in the notice of dismissal or stipulation, the dismissal is without prejudice . . .
(2) By Order of Court. Except, as provided in paragraph (1) of this subdivision of this rule, an action shall not be dismissed at the plaintiff's insistence save upon order of the court and upon such terms and conditions as the court deems proper. If a counterclaim has been pleaded by a defendant prior to the service upon the defendant of the plaintiff's motion to dismiss, the action shall not be dismissed against the defendant's objection unless the counterclaim can remain pending for independent adjudication by the court. Unless otherwise specified in the order, a dismissal under this paragraph is without prejudice.

Construing CSC's submissions a motion to dismiss pursuant to Rule 41(a)(2) is appropriate and is consistent with practice in this district. See, e.g., Kya-Hill v. Davidson, No. 87 Civ. 7802 (JES), 1988 WL 108487, at *1 (S.D.N.Y. Oct. 12, 1988) (treating letter from counsel as a motion for dismissal pursuant to Rule 41(a)(2)); see also Fabry v. Meridian Vat Reclaim, Inc., Nos. 99 Civ. 5149 and 99 Civ. 5150 (NRB), 2000 WL 1515182 at *2 (S.D.N.Y. Oct. 11, 2000) (treating correspondence between counsel as motion for summary judgment). CSC, in addition to filing a Notice of Voluntary Dismissal, submitted letters to the Court setting forth the basis for the requested dismissal with prejudice and certain of the reasons why the dismissal should be granted. Specifically, CSC stated that because CSC received the complete release from Kelleher, it no longer faced competing claims to the CD and has no desire to continue with costly litigation. The other parties to this action have responded through correspondence and formal motion papers. Accordingly, requiring a formal motion would not have advanced the Court's or the parties' understanding of the issue.

Turning to the substance of the motion, Rule 41(a)(2) provides that, except where all parties agree to a stipulation of dismissal, "an action shall not be dismissed at the plaintiff's instance save upon order of the court and upon such terms and conditions as the court deems proper." Fed.R.Civ.P. 41(a)(2). While a "[v]oluntary dismissal without prejudice is . . . not a matter of right," Zangano v. Fordham Univ., 900 F.2d 12, 14 (2d Cir. 1990), such a dismissal "will be allowed `if the defendant will not be prejudiced thereby.'" D'Alto v. Dahon California, Inc., 100 F.3d 281, 283 (2d Cir. 1996) (quoting Wakefield v. Northern Telecom Inc., 769 F.2d 109, 114 (2d Cir. 1985)). "[T]he presumption in this circuit is that a court should grant a dismissal pursuant ...


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