The United States District Court for the Southern District of New York denied a reinsurer’s motion to intervene in an interpleader action in which Battenkill Insurance Company argued it had an 85% interest in the funds at stake in an action involving a dispute over distribution of funds from a residential mortgage-backed securitization trust. Battenkill reinsured 85% of the risk under certain policies issued by one of the defendants in the interpleader action, Assured Guaranty Municipal Corp. Wales, LLC, one of the other defendants, counterclaimed against Wells Fargo, an interpleading plaintiff, arguing Wells Fargo misinterpreted the trust provisions and argued that Assured should be ordered to repay $47.7 million, plus interest, of the disputed distributions which Wells Fargo had held in escrow as a result of the dispute and then interplead. Because Battenkill would be required to reinsure 85% of the amounts which Assured would have to repay, Battenkill sought to intervene.
The court rejected the motion to intervene, reasoning that Assured would also lose a significant amount of money if it did not prevail, despite holding a smaller interest in the amount at stake, such that Battenkill and Assured had identical interests in the litigation. Assured would therefore adequately protect Battenkill’s interest and Battenkill thus did not have a right to intervene in the litigation. The court also rejected Battenkill’s argument that it should be allowed to intervene so that it could litigate the interpretation of the reinsurance agreement between it and Assured. Because the reinsurance agreement was not at issue in the in the interpleader action, Battenkill’s intervention would unnecessarily complicate the litigation and introduce immaterial issues to the trust’s interpretation. Wells Fargo Bank, NA v. Wales, LLC, et. al., 13 Civ. 6781 (PPG) (USDC S.D.N.Y. Sept. 19, 2014).
This post written by Leonor Lagomasino.
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