Northwestern Nat. Ins. Co. of Milwaukee, Wisconsin v. Alberts
| Citation | 937 F.2d 77 |
| Decision Date | 28 June 1991 |
| Docket Number | 628 and 629,D,Nos. 627,s. 627 |
| Parties | NORTHWESTERN NATIONAL INSURANCE COMPANY OF MILWAUKEE, WISCONSIN, Plaintiff-Appellee, v. Michael J. ALBERTS, James R. Alberts, Richard J. Alberts, Cassandra M. Sheehan, Raymond Cosgrove, Penelope A. Boyle, John C. Maucere, Jerry Silva, Michael L. Metheny, H.U.A. Resources, Inc., Alton Jones, Arthur Lawson, John J. Muller, Michael J. O'Connell, Randolph K. Pace, Southern Companies, Inc., Michael J. McCann, William Curran, James M. McCabe, Harold A. Thau, Patrick J. Rooney, Van Allen Capital Corp., and Robert T. Norton, Defendants, James R. Alberts, Richard J. Alberts, Cassandra M. Sheehan, Penelope A. Boyle, Harold A. Thau, Patrick J. Rooney, Raymond Cosgrove, John J. Muller, William Curran, James M. McCabe, Robert T. Norton, Jerry Silva, Michael J. McCann, Defendants-Appellants. ockets 90-7708, 90-7710 and 90-7742. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Robert A. Goodsell, New York City (Mary H. Post, George W. Keefer, III, Irwin and Post, New York City, of counsel), for defendants-appellants Cosgrove, Thau, Muller, Curran, and McCabe.
Vernon & Aaron, Shrewsbury, N.J. (Robert A. Weir, Jr., Shrewsbury, N.J., of counsel), for defendants-appellants James R. Alberts, Richard J. Alberts, Sheehan, Boyle, and Rooney, filed a letter joining the brief of defendants Cosgrove et al.
Jerome R. Halperin, New York City, for defendants-appellants Silva and McCann, filed a letter joining the brief of defendants Cosgrove et al.
Benjamin D. Lentz, New York City (H. Adam Prussin, Peter Reiser, James E. Scranton, Hart & Hume, New York City, Weil Gotshal & Manges, New York City of counsel), for plaintiff-appellee.
Before KEARSE, MAHONEY and McLAUGHLIN, Circuit Judges.
Defendants-appellants, individuals who have failed to make payments under certain loan assumption agreements, appeal from a preliminary injunction entered in the United States District Court for the Southern District of New York, Robert W. Sweet, Judge, requiring that they pay their share of a final installment of a loan into court. The district court premised preliminary relief upon the ground that plaintiff-appellee Northwestern National Insurance Company of Milwaukee, Wisconsin ("Northwestern"), which had contracted to act as surety for defendants' obligations, was entitled to immediate enforcement of its common law rights of exoneration and quia timet. Northwestern Nat'l Ins. Co. v. Alberts, 741 F.Supp. 424 (S.D.N.Y.1990).
We conclude that only Raymond Cosgrove, Harold A. Thau, John J. Muller, William Curran, and James M. McCabe (the "Cosgrove Defendants") have perfected an appeal to this court. The notices of appeal filed by all other defendants were ineffective because they were filed during the pendency of a motion for reconsideration. See Fed.R.App.P. 4(a)(4). As to the Cosgrove Defendants, however, we vacate the preliminary injunction in reliance upon Borey v. National Union Fire Ins. Co., 934 F.2d 30 (2d Cir.1991). The appeal is dismissed as to the remaining defendants-appellants.
This litigation arises from a project to construct and operate a gas pipeline in Oklahoma. Defendants-appellants, together with others, originally participated in the project as limited partners in Southern Pipeline Partners (the "Partnership"). They invested early in 1985 by executing promissory notes payable to the Partnership in varying amounts calculated at $185,000 per unit, each unit representing a 2.70% interest. The notes were then negotiated to Equilease Corporation ("Equilease"). To induce Equilease to purchase the promissory notes, Northwestern issued a surety bond guaranteeing payment by the limited partners, who in turn agreed to indemnify Northwestern. After reducing the principal balance by $925,000, the Partnership stopped making payments to Equilease in June 1986. Northwestern thereafter made payments, as surety, of $2,095,688.66 to Equilease on behalf of the limited partners.
In February 1987, the parties effected a restructuring of the pipeline project designed, inter alia, to compromise and retire the remaining obligations to Equilease. Among the participants were Southern Reserve, Inc. ("Reserve") and its wholly-owned subsidiary Southern Pipeline Development, Inc. ("Development"), a general partner of the Partnership. As found by the district court, the restructuring consisted of:
(1) the transfer of the partnership's assets to Reserve; (2) Reserve's borrowing of $6,845,000 from a new financial institution; (3) the assumption by the former limited partners of the $6,845,000 borrowing by execution of assumption agreements; (4) Northwestern issuing a financial guarantee bond in favor of the new financial institution guaranteeing the payments due under the assumption agreements; (5) Reserve and Development indemnifying Northwestern against all loss, cost and expense it would incur by issuing a new financial guarantee bond, and, as collateral security for their promise to indemnify, would grant to Northwestern a first security interest/mortgage in the transportation system; and (6) Reserve's use of the $6,845,000 loan proceeds to pay Equilease the remaining monies due on the limited partners' promissory notes (less a discount), reimburse Northwestern for the payments it had made to Equilease on behalf of the limited partners, and establishment of a fund of $700,000 to make improvements to the transportation system.
At the closing on February 12, 1987, Reserve executed a promissory note (the "Note") in the principal amount of $6,845,000 and delivered it to Merchant Marine Bank (the "Bank"). The principal amount was payable in three installments: two payments of $2,280,000 due December 31, 1987 and 1988, and a final payment of $2,285,000 due December 31, 1989. Quarterly interest was also payable over that period. The former limited partners of the Partnership, including the defendants-appellants, undertook liability for the Note through assumption agreements. Northwestern secured payment under the assumption agreements by issuing a financial guarantee bond in favor of the Bank. In turn, defendants-appellants executed agreements with Northwestern undertaking to indemnify Northwestern for any resulting loss.
After making the first two quarterly interest payments, both Reserve and the makers of the assumption agreements defaulted on their obligations with respect to the Note. Pursuant to its guarantee bond, Northwestern began in November 1987 to cover the payments to the Bank. In May 1988, Northwestern commenced this diversity action, seeking indemnification from all defendants and a declaration of their liability for Northwestern's future outlays under the bond. Various defendants filed a variety of counterclaims.
By early 1990, Northwestern had paid a total of $5,816,807 to the Bank pursuant to its obligations as surety, and the Bank had notified Northwestern that it would be demanding payment on the final installments of principal and interest that had become due December 31, 1989. Northwestern thereupon sought "leave to amend its complaint to add a new count asserting its surety rights of exoneration and quia timet, and move[d] for a preliminary injunction to enforce these rights by compelling the defendants/principals to pay into the court their respective portions of the $2,285,000 final installment (plus accrued interest) due to the bank." 741 F.Supp. at 429.
The district court allowed the amendment and granted the preliminary injunction. The court began by briefly explaining the common law rights that Northwestern had asserted:
Quia timet is a right used to protect a party against an anticipated future injury when it cannot be avoided by a present action at law, for example, by allowing a surety to compel its principal to post collateral for an anticipated liability. Exoneration is the right of a surety to compel its principal to pay for debt for which the surety's liability already has matured.
The court thereafter determined that Northwestern would suffer irreparable harm absent preliminary enforcement of these common law rights. The district court explained that once Northwestern had made the final loan payment on behalf of the defendants, it would have lost the opportunity to compel them to pay the Bank directly:
The irreparable injury requisite for the preliminary injunction overlaps with the absent lack of adequate remedy at law necessary to establish the equitable rights. Because the rights will extinguish if not asserted prior to the final payments, Northwestern must vindicate these principles of surety law now. As the Court in Barney found, "[u]nless the injunctive relief requested below is granted, [Northwestern] will not be adequately secured for its obligations and will forever and irreparably lose its rights of quia timet and exoneration." Northwestern Nat'l Ins. Co. v. Barney, C89-3936 (unpublished memorandum and order) (W.D. Ohio 1988). Therefore, the loss of the rights, not the potential financial loss, constitutes the irreparable harm. Cf. Citibank, N.A. v. Singer Co., 684 F.Supp. 382, 386 (S.D.N.Y.1988) ().
Hereafter, the dates, all of which are in 1990, are critical. An order was entered on July 10 (the "July 10 Order") 1 that granted the preliminary injunction from which this appeal is taken, and provided various other relief regarding the pleadings and discovery. The preliminary injunction ordered the defendants to pay into court their respective shares of the final installment of the loan by July 27. On July 23, the Cosgrove Defendants served a motion for the district court to reconsider the order both with...
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