Stuyvesant Insurance Co. v. Dean Construction Co.

• Decision Date: 16 May 1966
• Docket Number: No. 65 Civ. 3385.,65 Civ. 3385.
• Parties: The STUYVESANT INSURANCE COMPANY, Plaintiff, v. DEAN CONSTRUCTION COMPANY, Inc., the New Atlantic Beach Hotel and Cabana Club, Inc., Helen T. Johnson, as Administratrix of the Estate of Alma W. Taylor, Deceased, Hilda Berg, Sidney Berg, Frank L. Newburger, Jr., Dorothy E. Newburger and Audrey R. Kelly, Commissioner of Insurance of the Commonwealth of Pennsylvania, Defendants.
• Court: U.S. District Court — Southern District of New York

254 F. Supp. 102

The STUYVESANT INSURANCE COMPANY, Plaintiff, v. DEAN CONSTRUCTION COMPANY, Inc., the New Atlantic Beach Hotel and Cabana Club, Inc., Helen T. Johnson, as Administratrix of the Estate of Alma W. Taylor, Deceased, Hilda Berg, Sidney Berg, Frank L. Newburger, Jr., Dorothy E. Newburger and Audrey R. Kelly, Commissioner of Insurance of the Commonwealth of Pennsylvania, Defendants.

No. 65 Civ. 3385.

United States District Court S. D. New York.

May 16, 1966.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Ticktin & Bleich, New York City, for plaintiff, David Ticktin, New York City, of counsel.

Leo Fixler, New York City, for defendants Dean Const. Co., Inc. and the New Atlantic Beach Hotel and Cabana Club, Inc.

Jerome J. Verlin, Philadelphia, Pa., for defendant Helen T. Johnson, as Administratrix of the Estate of Alma W. Taylor, decd., Robert E. Quirk, New York City, of counsel.

Rodwin, Rodwin & Gelin, New York City, for Audrey R. Kelly, Comr. of Insurance of Commonwealth of Pennsylvania, Harry Rodwin, New York City, of counsel.

FREDERICK VAN PELT BRYAN, District Judge:

This is a statutory interpleader action brought under 28 U.S.C. § 1335.

Plaintiff Stuyvesant Insurance Company (Stuyvesant), a New York insurance company with its principal place of business here, is the obligor on a $65,000 bond securing payment of a judgment against Empire Mutual Insurance Corporation (Empire), a Pennsylvania insurance corporation. As collateral for the bond Stuyvesant holds $65,000 cash deposited by Empire. Empire has now been dissolved for insolvency under Pennsylvania court order, and defendant Audrey Kelly, the Pennsylvania Insurance Commissioner (the Commissioner), is liquidating Empire's assets for the benefit of creditors pursuant to applicable Pennsylvania law.

The judgment against Empire was entered in the New York Supreme Court and is in favor of defendants Dean Construction Company and New Atlantic Beach Hotel and Cabana Club, both of which are New York corporations with principal places of business here. These two defendants are united in interest, and will be referred to as Dean-Atlantic. They have commenced an action against plaintiff Stuyvesant on the bond securing the judgment in the New York Supreme Court.

The individual defendants Helen Johnson, Hilda and Sidney Berg, and Frank and Dorothy Newburger, all citizens and residents of Pennsylvania, are creditors of Empire who have levied attachments aggregating $15,000 against Stuyvesant. They claim an interest in the collateral.

Defendant Commissioner as statutory liquidator of Empire's assets has also laid claim to the collateral held by Stuyvesant.

Faced with these conflicting demands Stuyvesant filed its interpleader complaint admitting liability on the bond and alleging that it is entitled to reimburse itself from the collateral in its possession to the extent of any payments made in satisfaction of such liability. To satisfy its obligations it has deposited $65,000 in the registry of the court.

Defendants Dean-Atlantic, the Commissioner and Johnson have appeared and answered. Dean-Atlantic denies that there is interpleader jurisdiction but asserts its right to payment of $65,000 with interest under the bond. Defendant Commissioner does not contest interpleader jurisdiction but asserts a cross-claim against Dean-Atlantic alleging that the Dean-Atlantic judgment is void, that the bond continues in effect and that as liquidator of Empire she is entitled to the collateral. The answer of defendant Johnson asserts a claim of $11,000 against Stuyvesant, presumably against the collateral, and otherwise denies any knowledge or information sufficient to form a belief as to the allegations of the complaint. Defendants Hilda and Sidney Berg and Frank and Dorothy Newburger have defaulted.

Stuyvesant has now moved for summary judgment exonerating it from any liability beyond the $65,000 paid into court and for an injunction against any other actions or proceedings arising out of the bond and collateral. Defendants Dean-Atlantic have moved against Stuyvesant to dismiss the action for want of interpleader jurisdiction, or in the alternative, for summary judgment awarding them the fund deposited by Stuyvesant with the court. They have also moved to dismiss the cross-claim of the defendant Commissioner.

Facts

The rather complicated facts are virtually undisputed. On January 15, 1963, Dean-Atlantic commenced suit in New York Supreme Court to recover for storm damage on insurance policies issued by Empire and others. As a condition to defense of the action, Empire was required by § 59-a of the New York Insurance Law, McKinney's Consol. Laws, c. 28, to furnish a bond "in an amount * * sufficient * * * to secure the payment of any final judgment." Accordingly, on July 30, 1963, pursuant to court order Stuyvesant issued its bond in the amount of $65,000, and received cash collateral in the same amount from Empire.¹

While the action by Dean-Atlantic was pending in New York, on January 31, 1964 the Court of Common Pleas of Dauphin County, Pennsylvania, ordered that Empire be dissolved by reason of insolvency. The order vested title to Empire's assets and property in the defendant Commissioner and directed liquidation for the benefit of creditors in accordance with the applicable Pennsylvania law.² The order also provided "that all persons are hereby enjoined and restrained from instituting or prosecuting any action at law or in equity or any attachment or execution against Empire."

The Commissioner thereupon assumed the defense on behalf of Empire in the New York action by Dean-Atlantic, and retained Empire's attorney to represent her. She then moved for summary judgment on the ground that the suit had abated as a result of the dissolution of Empire which was directed by the Pennsylvania court. Dean-Atlantic cross-moved to strike the defense of abatement.

On April 14, 1964, Empire's motion for abatement was denied by the New York Supreme Court and the cross-motion to strike the defense was granted. Dean Constr. Co. v. Agricultural Ins. Co., 42 Misc.2d 834, 249 N.Y.S.2d 247 (Sup.Ct. 1964). On November 9, 1964, the Appellate Division, Second Department, affirmed "because Empire is not, under the Uniform Act Uniform Insurers Liquidation Act, domiciled in a reciprocal state and thus the Pennsylvania Insurance Commissioner is not vested by operation of law with title to Empire's New York property; nor, for that reason, may he sue to recover Empire's assets * *." 22 A.D.2d 82, 84-85, 254 N.Y.S.2d 196, 199 (2d Dep't 1964).

A notice of appeal from this decision to the New York Court of Appeals was filed on behalf of the Commissioner. Instead of prosecuting the appeal, however, the Commissioner entered into a stipulation of settlement with Dean-Atlantic on November 25, 1964.³ Under the terms of the settlement judgment was to be entered against Empire in favor of Dean-Atlantic for the sum of $65,000, the face amount of the Stuyvesant bond, on Dean-Atlantic's damage claim of $120,000. On December 1, 1964, it was separately agreed that Dean-Atlantic would retain $50,000 of the sum to be received on the Stuyvesant bond in payment of the judgment and the remaining $15,000 would be paid to the Commissioner provided no further litigation ensued.⁴ On December 2, 1964, the stipulation of settlement of November 25 was confirmed by court order and judgment on consent was entered accordingly against Empire in the amount of $65,000.

However, the Commissioner subsequently discharged the attorney who had been representing her and substituted new attorneys. On January 12, 1965, they moved in the Supreme Court, Nassau County, to vacate the stipulation of settlement on the grounds, among others, that it allegedly (1) contravened the full faith and credit clause of the United States Constitution by ignoring provisions of the Pennsylvania decree providing for the liquidation of Empire; (2) violated the Fourteenth Amendment by granting a discriminatory preference to Dean-Atlantic at the expense of Empire's other creditors; (3) was entered into by an attorney who lacked authority to act on her behalf.

Justice Brennan who heard the motion concluded that since "the settlement was entered into after the Appellate Division Second Department had rendered its unanimous decision striking the vitally important affirmative defense of abatement" which had been interposed on the same theories urged before him, the settlement necessarily reflected an acceptance by the then attorney for the Commissioner of the law as decided by that court. He held, therefore, that the first and second grounds urged were not open to the Commissioner and that the only question was whether the attorney who represented the Commissioner was authorized to enter into the settlement.

Since there were issues of fact on that question, a hearing was held on February 10, 1965. On March 30 Justice Brennan denied the motion to vacate the settlement, finding that the attorney then representing the Commissioner had been authorized to enter into the settlement. He found further that the possibility of an appeal to the Court of Appeals from the determination of the Appellate Division was simply one of the elements entering into the settlement negotiations.

The Second Department affirmed Justice Brennan's decision without opinion. And on October 28, 1965, the Court of Appeals refused an appeal on the ground that the Second Department's order of affirmance was not appealable under N.Y.C.P.L.R. §§ 5601, 5602, and 5611. This action was then commenced and two days later Dean-Atlantic initiated a suit against Stuyvesant on the bond in the New York Supreme Court.

1. Interpleader jurisdiction

Defendants Dean-Atlantic have moved to dismiss the action on the ground that this court lacks jurisdiction under 28 U.S.C. § 1335 because the case at bar does not involve "two or more adverse claimants, of diverse citizenship."...