ML Private Finance L.L.C. v. Halsey McLean Minor et al
Filing
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OPINION & ORDER, re: 164 MOTION for Reconsideration re; 163 Order on Motion for Miscellaneous Relief. filed by ML Private Finance L.L.C. The Court concludes that it has subject matter jurisdiction to order the discharge of the liens; that defend ants have paid the judgment and all Costs of Collection in this action; and that defendants currently have no other obligations under the Loan Agreement. Plaintiffs motion for reconsideration is denied. The parties are directed to submit a joint proposed final judgment to the Court on or before May 31, 2011. (Signed by Judge Sidney H. Stein on 5/19/11) (pl)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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M.L. PRIVATE FINANCE LLC,
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Plaintiff,
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-against:
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HALSEY MCLEAN MINOR, THE HALSEY
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MCLEAN MINOR TRUST DATED NOVEMBER :
3, 2004, and DOES 1 through 50,
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Defendants.
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08 Civ. 11187 (SHS)
OPINION & ORDER
SIDNEY H. STEIN, U.S. District Judge.
Plaintiff M.L. Private Finance LLC (MLPF moves pursuant to Local Civil Rule
“
”)
6.3 for reconsideration of this Court’s Order dated April 4, 2011, granting the motion of
defendants Halsey McLean Minor and The Halsey McLean Minor Revocable Trust
(collectively,“defendants or “Minor to terminate the receiver and discharge the liens
”
”)
asserted over certain artwork owned by Minor. MLPF seeks reconsideration only insofar
as the April 4 Order permitted the discharge of MLPF’s secured interest in collateral that
was not subject to the Receivership Order dated April 1, 2010. For the reasons set forth
below, plaintiff’s motion for reconsideration is denied.
I. BACKGROUND
MLPF brought this diversity action to recover money it had lent to defendants
pursuant to a promissory note defendants did not repay. MLPF and Minor had entered
into a Loan Agreement whereby Minor borrowed in excess of $20 million from MLPF.
The Loan Agreement granted MLPF a “continuing first-priority lien and security interest
”
in certain artwork pledged as collateral until defendants’ obligations under the Loan
Agreement had “indefeasibly been paid and performed in full. (Loan Agreement, Ex. 1 to
”
Decl. of James W. Kennedy dated Oct. 7, 2010 at 18, 32, Dkt. No. 138.)
In October 2009, the Court granted plaintiff’s motion for summary judgment on its
claims for a money judgment of $21,502,907.60 on the promissory note as well as
payment of the costs and fees incurred in collecting on that note (the “Costs of Collection
”).
The Court also granted plaintiff’s motion to dismiss defendants’ counterclaims. Plaintiff
moved for entry of an order of final judgment solely with respect to Count One for breach
—
of the promissory note pursuant to Federal Rule of Civil Procedure 54(b). In support of
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the motion, plaintiff wrote that the“Eleventh Cause of Action for costs of collection of the
debt is a separate contract right, involving separate damages. (Pl.’s Letter dated Oct. 21,
”
2009, Dkt. No. 79.) The Court granted that motion and directed that Rule 54(b) final
judgment be entered only on Count One plaintiff’s claim for payment of the promissory
—
note. (Rule 54(b) Order dated Oct. 23, 2009, Dkt. No. 80.) The Court also directed
plaintiff to submit an application for its Costs of Collection. (Order dated Oct. 23, 2009,
Dkt. No. 82.)
In November 2009, plaintiff submitted its first application for costs, which
included the fees and the costs it incurred in litigating Minor v. ML Private Finance LLC,
BC 409337 (Cal. App. Dep’t Super. Ct.), a separate action in California state court
between plaintiff and Minor (the“California action). In April 2010, the Court granted that
”
application in part, awarding MLPF $1,268,655.00 as its collection costs in litigating this
action through October 2009. However, the Court determined that the costs MLPF had
incurred in litigating the California action were not recoverable under the parties’ Loan
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Agreement. (See Transcript of April 1, 2010 hearing at 7:10-12; Order dated Apr. 1,
2010, Dkt. No. 112.) During the next nine months, MLPF continued to accrue collection
costs in its efforts to enforce the money judgment on Count One in this action and,
thereafter, to obtain its legal fees and expenses. Based on those accruing fees and
expenses, the Court granted MLPF’s three successive applications for Costs of Collection
in an amount totaling $659,371.42. (See Orders dated Nov. 12, 2010, Dec. 22, 2010, and
Jan. 26, 2011, Dkt. Nos. 151, 157, 162.)
The Court also appointed Phillips, de Pury & Company, LLC as Receiver for all
property of defendants in the possession of Christie’s auction house and the Paul Kasmin
Gallery, including artwork that defendants had pledged as collateral in the Loan
Agreement. (Receivership Order dated Apr. 1, 2010, Dkt. No. 111.) In the Receivership
Order, the Court directed Phillips to sell the artwork and to deliver the proceeds to MLPF
in satisfaction of the money judgment on the promissory note. Phillips has done so.
In October 2010, defendants filed a motion seeking to terminate the Receivership
and to discharge the Uniform Commercial Code liens that MLPF had filed on defendants’
artwork. Defendants argued that such relief was warranted because they had fully paid
the $21,502,907.60 money judgment on the promissory note and the $177,671.68 in preand post-judgment interest on that judgment. Minor also urged that if the liens were not
released he would be severely prejudiced because he would be unable to sell the
encumbered art to pay massive debts owed other creditors. MLPF did not dispute that the
underlying judgment and interest had been paid, but opposed the motion on several
grounds, chief among them that granting such relief was premature given that defendants
had not fully paid plaintiff’s collection costs.
3
In a March 22, 2011 letter, defendants informed the Court that they had fully paid
MLPF’s court-awarded Costs of Collection, including all outstanding interest as well as
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additional costs that MLPF had incurred since the fourth application and therefore
—
requested that the Court grant their motion to terminate the receiver and discharge the
liens. Plaintiff did not dispute that everything the Court determined plaintiff was due had
been paid to plaintiff. Nevertheless, MLPF argued that Minor’s motion should be denied
because, in addition to its previous opposition to the motion, (1) MLPF had recently filed
a cross-complaint against Minor in the California action seeking indemnification in that
action,1 and (2) one of Minor’s companies, Carter Grove LLC, had recently filed a
voluntary bankruptcy petition.
In an Order dated April 4, 2011, this Court found that neither MLPF’s crosscomplaint in the California action nor the Carter Grove bankruptcy provided a basis for
keeping the liens in place and, having determined that defendants had paid the judgment
and all court-awarded Costs of Collection in this action, granted defendants’ motion. On
April 18, 2011, plaintiff moved for reconsideration of that Order.
II. DISCUSSION
A request for reconsideration under Local Civil Rule 6.3 “must demonstrate
controlling law or factual matters put before the court in its decision on the underlying
matter that the movant believes the court overlooked and that might reasonably be
expected to alter the conclusion reached by the court. Hinds Cty., Miss. v. Wachovia
”
Bank N.A., 708 F. Supp. 2d 348, 369 (S.D.N.Y. 2010). “The provision for reargument is
not designed to allow wasteful repetition of arguments already briefed, considered and
1
In the cross-complaint, MLPF seeks to recover from Minor pursuant to section 10.2, the “Costs
of Collection” provision, and section 10.5(b), a general indemnification provision, in the Loan Agreement
for costs, fees, and expenses that MLPF has incurred and will continue to incur in the California action.
4
decided. Id. (citation omitted). The standard for granting such a motion is strict. See
”
Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995). “The major grounds
justifying reconsideration are an intervening change in controlling law, the availability of
new evidence, or the need to correct a clear error or prevent manifest injustice. Virgin
”
Atl. Airways, Ltd. v. Nat’l Mediation Bd., 956 F.2d 1245, 1255 (2d Cir. 1992) (internal
quotation marks omitted).
MLPF urges reconsideration on the basis of the same arguments it raised in its
brief opposing defendants’ motion to terminate the receiver and discharge the liens.
Plaintiff has not proffered new or overlooked evidence or any legal authority binding on
the Court that might reasonably be expected to alter this Court’s April 4 Order.
Nonetheless, according to plaintiff, the Court’s April 4 Order did not address the
following assertions made by plaintiff: (1) that the Court lacked subject matter
jurisdiction to order the release of liens on collateral that was not included in the
Receivership Order, and (2) that release of the liens was improper because defendants
still have contingent obligations under the Loan Agreement. Because the Court has
already considered plaintiff’s arguments and, in any event, they do not alter the Court’s
decision to grant defendants’ motion to terminate the receiver and discharge the liens, the
motion for reconsideration is denied.
A. Subject Matter Jurisdiction
Plaintiff does not dispute that the Court had jurisdiction in the plenary action over
the collateral in the Loan Agreement. Indeed, in the amended complaint, MLPF
requested that the Court enter an order of “specific performance requiring defendants to
”
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deliver the collateral to MLPF. (Am. Compl. ¶ 101.)2 Rather, plaintiff asserts that the
Court should not have permitted the release of liens in collateral outside the Receivership
because, plaintiff contends, the Court decided defendants’ motion during ancillary
proceedings. “[T]he doctrine of ancillary jurisdiction . . . recognizes federal courts’
jurisdiction over some matters (otherwise beyond their competence) that are incidental to
other matters properly before them. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S.
”
375, 378 (1994). Although the “boundaries of ancillary jurisdiction are not easily defined
and the cases addressing it are hardly a model of clarity, Garcia v. Teitler, 443 F.3d 202,
”
208 (2d Cir. 2006), ancillary jurisdiction is intended“to permit disposition of claims that
are, in varying respects and degrees, factually interdependent by a single court, and . . . to
enable a court to function successfully, that is, to manage its proceedings, vindicate its
authority, and effectuate its decrees. Stein v. KPMG, LLP, 486 F.3d 753, 760 (2d Cir.
”
2007).
1. Defendants’ motion was made and decided during plenary proceedings
Contrary to plaintiff’s assertion, this action was still in plenary proceedings both
when Minor’s motion was made and when it was decided. Even now, no final judgment
has been entered on plaintiff’s claim for recovery of its Costs of Collection or on the
dismissal of defendants’ counterclaims. See Covanta Onondaga v. Onondaga Cnty. Res.
Recovery Agency, 318 F.3d 392, 396 (2d Cir. 2003) (a court’s jurisdiction is limited once
it has concluded“its adjudication of the merits of a case . . . by entering a final judgment .
. . . (emphasis added)).
”
2
That request, which plaintiff later withdrew, was based on section 8.2(b) of the Loan Agreement,
which states that if defendants are in default of the Loan Agreement, they shall authorize MLPF to
“retrieve, seize, and/or repossess” the collateral. (Id. ¶ 94.)
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In addition, from November 2009 to January 2011, MLPF filed four separate
applications seriatim seeking its Costs of Collection. In deciding whether to grant
plaintiff’s applications, the Court was repeatedly required to determine the parties’ rights
under the Loan Agreement in particular, whether plaintiff could recover in this action (1)
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costs it had incurred in the California action and (2) costs it had incurred in opposing
Minor’s motion to terminate the receiver and discharge the liens. See Weyant v. Okst, 198
F.3d 311, 314 (2d Cir. 1999) ( judgment is said to be final if it conclusively determines
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the rights of the parties to the litigation and leaves nothing for the court to do but execute
the order or resolve collateral issues. (internal citations omitted)). Because defendants’
”
motion was made and decided during plenary proceedings, the Court had the authority to
order the discharge of the liens.
2. The Court had jurisdiction to release the liens even if defendants’ motion was
made and decided during ancillary proceedings
Even assuming arguendo that defendants’ motion was made and decided in
ancillary proceedings, the Court finds that ordering the discharge of the liens is within its
ancillary jurisdiction. The Court was uniquely positioned to determine that the liens
should be released because this action put the parties’ Loan Agreement and plaintiff’s right
under the Loan Agreement to assert liens on defendants’ property squarely before the
Court. The exercise of ancillary jurisdiction was thus appropriate because the“subsidiary
controversy related to release of the liens had a “direct relation to property or assets
”
actually or constructively drawn into the court’s possession or control by the principal
suit. Grimes v. Chrysler Motors Corp., 565 F.2d 841, 844 (2d Cir. 1977) (internal
”
quotation marks omitted).
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In the almost two-and-one-half years since this litigation began, the Court has
expended significant time and resources dealing with issues related to the scope of the
Loan Agreement and, through the Receivership, plaintiff’s liens on defendants’ artwork.
Thus, the interests of judicial economy weighed in favor of the Court exercising its
ancillary jurisdiction in order to decide defendants’ motion, rather than requiring that
defendants seek the same relief in a forum less knowledgeable about the parties, the Loan
Agreement, and the liens at issue. See Chesley v. Union Carbide Corp., 927 F.2d 60, 64
(2d Cir. 1991) (stating that determination of “whether to exercise ancillary jurisdiction is
discretionary, and is informed by considerations of judicial economy, convenience, and
fairness to litigants
”).
The final question is whether the Court had jurisdiction over all or just a subset of
—
—
the collateral under the Loan Agreement. MLPF claims that, after the Court’s entry of the
April 2010 Order appointing a Receiver, the Court no longer had jurisdiction over
collateral that defendants had pledged in the Loan Agreement but that was not included in
the Receivership Order. However, MLPF has not articulated any legal basis for this
assertion. Moreover, it is unlikely that plaintiff would be making this argument if the
sale proceeds from the artwork subject to the Receivership Order had not satisfied
plaintiff’s money judgment and Costs of Collection. Had it been necessary to satisfy the
judgment, the Court certainly had the authority to modify the Receivership Order to
authorize the Receiver to collect and sell the remaining collateral under the Loan
Agreement. See N.Y. C.P.L.R § 5228. Accordingly, plaintiff’s claim that the Court only
had jurisdiction over collateral that was subject to the Receivership Order is without
merit.
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B. Defendants’ Obligations Under the Loan Agreement
Plaintiff also maintains that its liens should remain in place until its right to
recover under the Loan Agreement for expenses incurred in the California action is
conclusively determined, both on appeal from a final judgment in this action to the
Second Circuit as well as in the California action itself. Under section 9.1(b) of the Loan
Agreement, MLPF has a perfected security interest in the collateral until all “Obligations
have been indefeasibly been paid and performed in full. (Loan Agreement at 32.) The
”
term“Obligations is, in turn, defined as“all of the indebtedness, liabilities and obligations
”
of the Borrower to the Lender . . . whether now existing or hereafter arising, whether or
not currently contemplated, contingent or otherwise . . . . (Id. at 4.) Based on this
”
language in the Loan Agreement, MLPF asserts that contingent obligations currently
exist because (1) the California court has yet to decide MLPF’s claim for indemnification
against Minor in that action, and (2) it intends to appeal this Court’s ruling that expenses
MLPF has incurred in the California action are not recoverable collection costs under the
Loan Agreement.
This Court is not persuaded that defendants have any remaining obligations under
the Loan Agreement. Plaintiff’s interpretation of the term“Obligations in the Loan
”
Agreement admits of no limiting principle. The California action is based on MLPF’s
alleged violation of California’s Fair Debt Collection Practices Act and Unfair Business
Practices Act. It does not concern, as this action does, MLPF’s recovery on the
promissory note. Nevertheless, according to MLPF, its mere assertion of a claim against
Minor in that action that invokes an indemnification provision in the Loan Agreement
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regardless of the merits of that claimcreates a contingent obligation. MLPF cites no legal
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authority whatsoever for this proposition.3
Similarly, MLPF asserts that the single fact that it has stated it intends to appeal
this Court’s ruling on the Costs of Collection issueand the possibility of a reversal on
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appeal creates a contingent obligation. MLPF cites two district court casesMerrill Lynch
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Interfunding v. Argenti, 00 Civ. 933, 2000 WL 490739 (S.D.N.Y. Apr. 26, 2000), aff’d, 2
Fed. Appx. 98 (2d Cir. 2001) (unpublished summary order), and United States v. Pound,
07 Civ. 427, 2010 WL 2330240 (E.D. Okla. June 8, 2010) for the proposition that a
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secured creditor may retain its security interest in collateral while an appeal from an
adverse ruling concerning the underlying debt is pending. Neither case is controlling and
both are distinguishable.
In Argenti, the defendants signed notes payable to the plaintiff in the amount of
$6,950,000, secured by two mortgages and a security interest in artwork. When the
plaintiff sued to enforce the loan, the defendants counterclaimed that the plaintiff had
breached the loan agreement, and the jury agreed, reducing the defendants’ liability on the
note to $735,179. The defendants argued that the plaintiff wrongfully refused to release
the mortgages and liens in return for the defendants’ offer to pay the $735,179 judgment.
Argenti is distinguishable from the instant action because, in that case, the claim was
based on Connecticut law, the plaintiff had already appealed the trial court judgment by
the time the defendants requested release of the mortgages and liens, and the defendants
had not paid the plaintiff on the underlying judgment, let alone the full amount of the
3
The Court also notes that the assertion of MLPF’s cross-complaint in California may be an effort
to create a contingent obligation where none exists. Although Minor commenced the California action in
March 2009, MLPF’s indemnification claim against Minor in that action was not filed until two years later,
in February 2011.
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original notes payable. In this action, by contrast, no appeal is pending and defendants
have paid the entirety due on the underlying promissory note and interest, as well as all
court-awarded Costs of Collection. In Pound, no party had requested that the liens be
released and the court explicitly wrote that its discussion of the liens was “
obiter dictum.
”
Pound, 2010 WL 2330240 at *1.
In furtherance of its argument that contingent obligations remain, MLPF states
that“were [it] to prevail on an appeal or in the California litigation on [the indemnification
claim], defendants would have additional indebtedness under the Loan Agreement. (Pl.’s
”
Mem. of Law at 6.) True, but plaintiff has not provided any support for construing the
definition of“Obligations in the Loan Agreement so broadly as to encompass anything
”
and everything that might happen in the future in other fora. The Court thus finds that
defendants’ obligations do not extend to their hypothetical future indebtedness arising out
of the possible success on a potential appeal from this Court’s judgment or the resolution
of plaintiff’s indemnification claim in the California action.
Finally, MLPF insists that it is a manifest injustice for liens on property outside
the Receivership to be discharged because it will make it more difficult for MLPF to
collect any future judgments it might obtain against defendants. Although the Court
sympathizes with MLPF’s legitimate concern, given the length of time it has taken and
expense incurred in order to collect a massive debt that Minor simply refused to pay
when due, its plight hardly rises to the level of manifest injustice. Not only has it
received its full $21,680,579.28 recovery on the promissory note and the interest on that
note, but it has also already received nearly two million dollars from defendants in
attorneys’ fees and costs. It has, in short, been made whole in this litigation.
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III. CONCLUSION
Based on the foregoing, the Court concludes that it has subject matter jurisdiction
to order the discharge of the liens; that defendants have paid the judgment and all Costs
of Collection in this action; and that defendants currently have no other obligations under
the Loan Agreement. Plaintiffs motion for reconsideration is denied. The parties are
directed to submit a joint proposed final judgment to the Court on or before May 31,
2011.
Dated: New York, New York
May 19, 2011
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