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AMERICAN INS. CO. v. NEW YORK CITY HEALTH AND HOSP. CORP.

July 8, 2003

AMERICAN INSURANCE COMPANY, PLAINTIFF,
v.
NEW YORK CITY HEALTH AND HOSPITALS CORPORATION, DEFENDANT. NEW YORK CITY HEALTH AND HOSPITALS CORPORATION, INTERPLEADER PLAINTIFF, V. LEVINSON & SANTORO ELECTRIC CORPORATION, ET AL., INTERPLEADER DEFENDANTS.



The opinion of the court was delivered by: Loretta Preska, District Judge

MEMORANDUM AND ORDER

Interpleader defendant the United States (the "Government") and plaintiff American Insurance Company ("American") have cross-moved for summary judgment in this action concerning funds due Levinson & Santoro Electric Corporation ("L&S") under certain contracts with defendant-interpleader plaintiff New York Health and Hospitals Corporation ("NYHHC"). At issue is whether the Government or American has a priority claim to the interpleader fund.

BACKGROUND

The following facts are undisputed unless otherwise noted. In March 1987 and April 1994, L&S and certain others executed and re-executed a General Indemnity Agreement (collectively, the "Indemnity Agreements") as a precondition to American's issuance of payment and performance bonds on behalf of L&S in connection with certain construction projects. (American Rule 56.1 Statement ¶ 1). The Indemnity Agreements granted American certain rights including "an assignment of all monies due, or to become due, to L&S in connection with bonded and unbonded projects, as well as a separate security interest in all monies due, or to become due, to L&S in connection with the bonded and unbonded projects." (Id. at ¶¶ 2-3). In the fall of 1995, L&S advised American that it needed financial assistance to complete its work under various construction contracts, and as a result, in December 1995, American and L&S entered into an agreement (the "Assistance Agreement"). (Id. at ¶¶ 7-8). Under the Assistance Agreement, American "provided financial assistance to L&S for the completion of various bonded projects. . . ." (Id. at ¶ 8). On December 20, 1995, "as part of the consideration to American for the Assistance Agreement," L&S executed certain assignments (the "Assignments") "cumulative with American's existing rights under the [previously entered into] Indemnity Agreements, expressly assigning to American L&S' right to all contract funds in connection with various bonded and unbonded projects." (Id. at ¶ 9). Specifically, L&S provided American "with an express assignment of its rights to receive existing or future Contract Funds" for two projects, the Queens Hospital Project and the Bellevue Project. (Id. at ¶¶ 10-11). The Assignments, by their express terms, are "irrevocable" and provide that L&S "immediately assigns, transfers and sets over to" American "all right, title and ownership to all contract funds of any nature," whether those funds "are due now or shall, in the future, become due" for the Queens Hospital and Bellevue Projects. (American Rule 56.1 Statement at ¶¶ 13-14, 16-17). American states that in reliance on the Assignments and other agreements, it provided financial assistance to L&S and incurred "losses, costs, fees and expenses in the total amount of $11,741,485.90." (Id. at ¶¶ 15, 18-19). The Government disputes the accuracy of this amount, arguing that American only provided financial assistance and/or incurred losses of no more than $7,050.71. (Gov. Response to American's Rule 56.1 Statement ¶¶ 15, 19).

L&S' tax liability for the tax periods ending September 30, 1995 and December 31, 1995 was assessed on March 11, 1996 and May 20, 1996, respectively. (Ex. A to the Declaration of David J. Kennedy, sworn to on July 30, 2002). On January 16, 1997, the Internal Revenue Service (the "IRS") filed a federal tax lien against L&S in the amount of $753,393.33. (Gov. Rule 56.1 Statement ¶ 1). On March 10, 1997, American served NYHHC with the Assignments. (American Rule 56.1 Statement ¶¶ 20-21). It is undisputed that as of that date, certain funds were due and owing to L&S under the Queens Hospital contract, although the Government disputes that American has proven that any funds were due and owing under the Bellevue Contract*fn1 and that any funds under either contract remain due and owing L&S. (Id. ¶ 22; Gov. Response to American Rule 56.1 Statement ¶¶ 23-25).

American commenced the instant action against NYHHC in 1999 in the Supreme Court of New York, New York County, and the case was subsequently removed to federal court. By notice of motion filed on or about July 31, 2002, the Government moved for summary judgment in the amount of $758,174.73 plus interest from July 8, 2002. American filed its cross-motion for summary judgment on or about August 21, 2002. The Government argues that American does not qualify as either a purchaser or a holder of a security interest and that, therefore, the federal tax lien has a priority claim to the interpleader fund. In support of this argument, the Government points out that American has admitted that it did not file any U.C.C. financing statements with regard to the Assignments, thus defeating any claim that American holds a perfected security interest. In response, American argues that, contrary to the Government's characterization of its position, American does not base its claim on a security interest, but rather on the theory that it owns the monies due L&S based upon the Assignments. American argues that under New York law, the Assignments — executed in 1995 — made the funds the property of American and that, therefore, the federal tax lien against L&S — filed in 1997 — could not attach to the funds.*fn2 In addition, or alternatively, American argues that it qualifies as a purchaser under 26 U.S.C. § 6323(a) with an interest superior to that of the Government. American also adds a final argument regarding a subrogation claim under Article 3-A of the New York Lien Law for the approximately $7000 it expended on L&S' behalf.

DISCUSSION

I. Summary Judgment Standard

"A motion for summary judgment may not be granted unless the court determines that there is no genuine issue of material fact to be tried and that the facts as to which there is no such issue warrant judgment for the moving party as a matter of law." Chambers v. TRM Copy Centers Corp., 43 F.3d 29, 36 (2d Cir. 1994); see Fed.R.Civ.P. 56(c); see generally Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986). An issue of fact is genuine when "a reasonable jury could return a verdict for the nonmoving party," and facts are material to the outcome of the particular litigation if the substantive law at issue so renders them. Anderson, 477 U.S. at 248.

The burden of establishing that no genuine factual dispute exists rests on the party seeking summary judgment. Chambers, 43 F.3d at 36. "In moving for summary judgment against a party who will bear the ultimate burden of proof at trial," however, "the movant's burden will be satisfied if he can point to an absence of evidence to support an essential element of the nonmoving party's claim." Goenaga v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir. 1995); accord Gallo v. Prudential Residential Servs., 22 F.3d 1219, 1223-24 (2d Cir. 1994) ("The moving party may obtain summary judgment by showing that little or no evidence may be found in support of the nonmoving party's case."). The moving party, in other words, does not bear the burden of disproving an essential element of the nonmoving party's claim.

If the moving party meets its burden, the burden shifts to the nonmoving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P.56(e); accord Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525-26 (2d Cir. 1994). The nonmoving party must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586. Instead, the nonmovant must "`come forward with enough evidence to support a jury verdict in its favor, and the motion will not be defeated merely . . . on the basis of conjecture or surmise.'" Trans Sport v. Starter Sportswear, 964 F.2d 186, 188 (2d Cir. 1992) (citation omitted).

II. Analysis

As noted at the outset, resolution of these motions turns on which party has a priority claim to the interpleader fund. Federal law determines the priority of competing liens, governed by the traditional rule of "first in time is first in right." See United States v. City of New Britain, 347 U.S. 81, 85-86 (1954); United States v. Hage, 417 F. Supp. 74, 76 (N.D.N.Y. 1976). As against a federal tax lien, a state lien can take priority only if, in addition to being first in time, it is choate, or fully established, before the federal lien attaches. See Don King Prods., Inc. v. Thomas, 945 F.2d 529, 533 (2d Cir. 1991) ("A choate lien is one in which the identity of the lienor, the property subject to the lien and the amount of the lien are established."); United States v. 110-118 Riverside Tenants Corp., 886 F.2d 514, 518 (2d Cir. 1989); Hage, 417 F. Supp. at 76-77. A federal tax lien attaches to "all property and rights to property, whether real or personal," belonging to the taxpayer, here, L&S. 26 U.S.C. ยง 6321. The nature of the taxpayer's property interest is determined by state law, here the law of the State of New York. Thus, in order to make a determination as to priority, I must first consider when each party's rights ...


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