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CAMPINAS FOUNDATION v. SIMONI

United States District Court, S.D. New York


April 22, 2004.

CAMPINAS FOUNDATION (a/k/a CAMPINAS STIFTUNG, VADUZ), Plaintiff; -against- CARL SIMONI, ET AL., Defendants

The opinion of the court was delivered by: KEVIN FOX, Magistrate Judge

MEMORANDUM and ORDER

Redwood Investments Corp. ("Redwood") has made an application to the Court, pursuant to Fed.R.Civ.P. 24(a), that it be permitted to intervene as of right in the above-captioned action or, alternatively, that it be permitted, pursuant to Fed.R.Civ.P. 24(b), to intervene in the above-captioned action through the exercise of the Court's discretionary authority. Redwood maintains that, if the plaintiff is successful in establishing its claims that $1.6 million dollars were transferred from it to the defendant SSP Capital Partners Limited ("SSP"), to discharge a debt owed Redwood by Aviation Investors International Inc. ("AIIG"), for the buyout by AIIG of Redwood's shares in AUG and that SSP failed to tender those funds to Redwood, then Redwood would be entitled to receive those funds.

Plaintiff opposes Redwood's application. It contends that intervention as of right is inappropriate because, inter alia, Redwood's claim is contingent upon the plaintiff being victorious in this litigation and, furthermore, Redwood has no "legally protectable" interest in the funds that are the subject matter of this action. In addition, the plaintiff maintains that the Court should not exercise its discretion to permit Redwood to intervene in the action because, among other things, Redwood would introduce collateral or extrinsic issues into the action and Redwood's presence in the action is not needed to resolve the controversy at the heart of the litigation: whether the plaintiff made an investment in SSP when it caused funds to be electronically transferred to that entity or whether, as plaintiff contends, the funds were sent to SSP so that a debt owed to Redwood by AIIG might be satisfied.

  Fed.R.Civ.P. 24(a) provides, in relevant part, that:

Upon timely application, anyone shall be permitted to intervene in an action . . . (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties.
  An application to intervene in an action as a matter of right, pursuant to Fed.R.Civ.P. 24(a)(2) must be granted if the applicant: (a) files the request timely; (b) claims an interest relating to the property or transaction which is the subject matter of the action; (c) demonstrates that the interest may be impaired by the disposition of the action; and (d) shows that the interest is not adequately protected by the parties to the action. See New York News, Inc. v. Kheel, 972 F.2d 482, 485 (2d Cir. 1992); Restor-A-Dent Dental Labs., Inc. v. Certified Alloy Products Inc., 725 F.2d 871, 874 (2d Cir. 1984). The interest that the applicant seeking to intervene wishes to protect must be "direct, substantial and legally protectable . . . [for a]n interest that is remote from the subject matter of the proceeding, or that is contingent upon the occurrence of a sequence of events before it becomes colorable, will not satisfy the rule." Washington Elec. Cooperative Inc. v. Massachusetts Mun. Wholesale Electric Co., 922 F.2d 92, 96-97 (2d Cir. 1990). If any of the four elements noted above is not satisfied, an application for intervention as of right may be denied by a court. See In Re Bank of New York Derivative Litigation, 320 F.3d 291, 300 (2d Cir. 2003).

  In the case at bar, the Court finds that Redwood's application to intervene was made timely, since it was made at a juncture in the litigation when pretrial discovery activities had not progressed very far. Redwood has also demonstrated that it has an interest in the funds that are the subject matter of this action, given that the plaintiff contends that the funds sent to SSP were intended for Redwood as payment by AIIG for an amount outstanding in a shareholder buyout transaction. The Court also finds that Redwood's interest may be impaired by the disposition of the action because if the defendants prevail, it will mean that the funds that were transferred to SSP were not, as plaintiff contends, intended to be surrendered to Redwood. Furthermore, Redwood's interest is not being protected by any party to the action. While the defendants contend that Redwood is not entitled to the funds in dispute because they represent an investment in SSP, the plaintiff maintains that the funds should be returned to it if a determination is made that the funds it sent to SSP were not an investment in SSP but, rather, were to be passed on to Redwood. The plaintiff alleges that the funds should be returned to it and not delivered to Redwood because Redwood is controlled by defendant Carl Simoni ("Simoni") and the plaintiff transferred those funds based upon misrepresentations made by Simoni. Therefore, if the funds are awarded to Redwood, Simoni would profit from the misconduct in which the plaintiff maintains he engaged.

  Although Redwood has an interest in the funds that are the subject matter of the action, the Court finds that Redwood's interest is contingent upon the occurrence of several events. Among these events are the following: 1) the establishment by plaintiff that it did not transfer funds to SSP for the purpose of investing in that entity; and 2) a determination of the circumstances under which the plaintiff transferred the funds to SSP, that is, whether the plaintiff acted as it did in order to fulfill a contractual obligation of which Redwood might be a third-party beneficiary or whether the plaintiff transferred the funds in order to confer a gift upon Redwood. If no contractual obligation existed of which Redwood might be a third-party beneficiary, and if no gift was intended to be conferred on Redwood, then Redwood's interest in the funds that are the subject matter of this action may not be direct, as it contends. See Restor-A-Dent Dental Labs. Inc., 725 F.2d at 874. Until matters such as those noted immediately above are resolved, the Court cannot say that Redwood's interest in the subject matter of this action is direct and not contingent upon the occurrence of a sequence of events. Therefore, since Redwood cannot satisfy all of the conditions precedent to a determination that it may intervene as of right in the instant action, its application to intervene, made pursuant to Fed.R.Civ.P. 24(a)(2), is denied.

  Redwood has also requested that it be permitted to intervene in this action, with the permission of the Court, pursuant to Fed.R.Civ.P. 24(b). Under that provision of the Rule, anyone may be permitted to intervene in an action upon making a timely application "when an applicant's claim or defense and the main action have a question of law or fact in common." Fed.R.Civ.P. 24(b). Permissive intervention is a matter that is left to the discretion of a court. In exercising that discretion, Fed.R.Civ.P. 24(b) advises that the Court should consider "whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties." In connection with its application to intervene in this action as a defendant, Redwood has submitted a proposed answer to the complaint and a counterclaim. Through the counterclaim asserted by Redwood in its proposed pleading, it maintains that if the plaintiff prevails in the action, by establishing that the funds it transferred to SSP were not an investment in SSP, but were to be credited to the debt owed Redwood by AEG, then Redwood should receive the funds that are the subject matter of this action. Redwood's counterclaim and the main claim in the action, that plaintiff transferred funds to SSP to pay a debt owed to Redwood by AIIG and not for the purpose of investing in SSP, present common issues of fact. See Wiesshaus v. Swiss Bankers Ass'n, 225 F.3d 191, 202 (2d Cir. 2000). Moreover, intervention by Redwood will not delay the resolution of this action, rather it will facilitate the adjudication of the rights of the original parties or Redwood to the funds that are at the heart of the controversy in this litigation. See Comer v. Cisneros, 37 F.3d 775, 801 (2d Cir. 1994). Therefore, Redwood's application to intervene in this action, pursuant to Fed.R.Civ.P. 24(b), is granted. However, inasmuch as counsel to the defendants, who stand ready to represent Redwood, would not be able to champion Redwood's claim as well as those of the defendants who are already parties to this action free from any conflict of interest, Redwood must engage separate counsel to represent it as the litigation moves forward.

  SO ORDERED

20040422

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