The opinion of the court was delivered by: Rosemary M. Collyer United States District Judge
Carmel & Carmel, PC, a law firm, acted as Escrow Agent for Clarity, Ltd., Purchaser, and Dellis Construction Ltd., Contractor, holding monies for payment on Dellis's construction of a resort villa in the Turks & Caicos Islands. Clarity and Dellis were signatories to the relevant escrow agreement. Dellis is now under the control of an Official Liquidator, Stephen Katz, who has been appointed by the court in Turks & Caicos to wind up Dellis's affairs. Litigation by other disappointed purchasers has been transferred from New York to the liquidation proceeding in Turks & Caicos.
In the meantime, Clarity demanded that Carmel release to it the escrowed funds in whole. Carmel sought Dellis's agreement, which, to date, has been neither granted nor denied.
Asserting uncertainty as to what to do, Carmel filed this interpleader action and deposited the funds with the Court. Clarity filed a counterclaim, alleging conversion and breach of the escrow agreement on the basis of willful default and gross negligence by Carmel. Dellis recently filed an answer, taking the position that the Official Liquidator does not know enough yet to ascertain whether Dellis might have any claim to the escrowed funds and that he cannot therefore release any claim. Carmel has filed a motion to dismiss Clarity's counterclaim, which is briefed and pending before the Court. At an initial scheduling conference in open court, the Court queried the parties about the expense and goals of this litigation. This Memorandum Opinion tracks that conversation and is entered to reflect the Court's findings and conclusions.*fn1 Carmel's motion to dismiss Clarity's counterclaims, which the Court treats a motion for summary judgment, will be granted.
Carmel & Carmel is a law firm organized and existing under the laws of the District of Columbia.*fn2 Defendants are both limited liability entities organized under the Turks & Caicos Island Companies Ordinance. Dellis is an affiliate of Turks, Ltd. another Turks & Caicos company.
On or about July 11, 2007, in conjunction with its representation of Turks, Ltd., Carmel filed a registration for The Strata Corporation for Dellis Cay Hotel and Beach House Residences ("Dellis Cay") with the New York Department of Law's Real Estate Financing Bureau. As part of the regulation requirements, an escrow agreement was established. See Compl., Ex. 1.
Thereafter, Robert and Lynne Grossman, beneficial owners of Clarity, delivered to Carmel $1,428,570 that was placed in escrow at the Wachovia Bank NA in Washington, D.C., in connection with the purchase of a condominium unit at Dellis Cay. Later, Clarity (as purchaser), Turks (as vendor), and Dellis (as contractor) entered into a new purchase agreement for an "overwater" villa in Dellis Cay. This was a complicated transaction involving a yacht owned by the Grossmans as well as the real estate in Turks & Caicos. As part of the transaction and at the joint request of both the Grossmans and Turks, Carmel returned the majority of the Grossmans' original deposit to them. Carmel transferred the remaining funds -- $476,190 -- to Northern Trust in New York, and Clarity, Carmel, and Dellis signed a second escrow agreement (the "Escrow Agreement" or "Agreement") covering these funds. It is these funds and the corresponding Escrow Agreement that are presently in dispute. As of January 24, 2011, when the Complaint was filed, the amount of funds held in escrow (the "Escrow Amount") equaled approximately $476,982.45, with interest accruing. The Escrow Agreement provides that:
1. [Carmel] will deliver the Escrow Amount to [Clarity], [Dellis] or both . . . upon the following conditions:
(a) To [Dellis] on the Completion Date; or . . .
(c) To [Clarity], upon receipt of written demand therefor, stating (y) that the Construction Agreement has, as a result of [Dellis's] default . . . been terminated and [Clarity] is entitled to the return of the entire Escrow Amount and (z) the facts and circumstances underlying such default; provided, however, that [Carmel] shall not honor such demand until more than ten (10) days after [Carmel] has served a copy of such demand to [Dellis] . . . nor thereafter if [Carmel] shall have received written notice of objection from [Dellis] in accordance with the provisions of paragraph 2 of this Escrow Agreement.
2. Upon [Carmel's] receipt of a written demand for all or any portion of the Escrow Amount by [Clarity] or [Dellis] . . . [Carmel] shall promptly serve a copy thereof on the other party. The other party shall have the right to object to the delivery of the Escrow Amount . . . by sending written notice of such objection to [Carmel within ten days] . . . .
3. In the event [Carmel] shall have received the notice of objection provided for in paragraph 2 . . . within the time therein prescribed, [Carmel] shall continue to hold the Escrow Amount until (i) [Carmel] receives written notice from [Dellis] and [Clarity] directing the disbursement of the Escrow Amount . . . or (ii) in the event of litigation between [Dellis] and [Clarity], [Carmel] shall deposit the Escrow Amount with the Clerk of the Court in which said litigation is pending or (iii) [Carmel] shall take such affirmative steps as [Carmel] may, at [Carmel's] option elect . . . including . . . an action for interpleader . . . . Compl., Ex. 2. The Agreement also provides that Carmel shall not be liable for errors in the performance of its duties as the escrow agent "except for [Carmel's] own willful default and gross negligence." Id. ¶ 4.
Not long after the parties executed the Escrow Agreement, Dellis collapsed and ceased work on Dellis Cay. On or about January 8, 2010, Clarity served upon Dellis and Carmel a written Notice of Termination of Construction Agreement which, among other things, demanded return of the Escrow Amount.
In an email dated January 18, 2010, Timothy O'Sullivan, Clarity's attorney in the Turks & Caicos, advised Carmel that, " . . . for the moment I am proceeding on the basis of getting the contracting parties [Dellis and Clarity] to jointly instruct you to release escrowed fund [sic] upon the termination of agreements -- by mutual consent. I should have these to you on the . . . Grossman/clarity [sic] deal tomorrow." Carmel Mot. to Dismiss Counterclaims ("Mot. to Dismiss") [Dkt. # 9] Ex. 2 at 32*fn3 . Mr. O'Sullivan's comments were part of an email chain in which he informally provided information to Frank J. Carmel concerning "the liquidation of Dellis Construction Ltd. and the receivership of Turks, Ltd." Id. at 33-34. By this latter email, Mr. O'Sullivan identified the "provisional liquidator of [Dellis Construction Ltd.]" as "Mr. Katz." Id. See also Complaint ¶ 13 ("Plaintiff has been informed that on February 13, 2009, by Order of the Turks & Caicos Supreme Court, Stephen Katz was appointed as the Provisional Liquidator, and that on August 13, 2010, by Order of the Turks & Caicos Supreme Court, Stephen Katz was appointed as the Official Liquidator" for Dellis.).
In fact, by email dated January 14, 2010, Stephen Katz, a partner at David Rubin & Partners LLP in London and Provisional Liquidator for Dellis, had already advised Mr. O'Sullivan:
I can confirm formally receipt of the notice of termination served by you on behalf of your client Clarity Limited dated 8 January 2010 and can further confirm my agreement and acceptance of the termination on behalf of [Dellis Construction Ltd.]
In connection with your request to give instructions to the escrow agents I note that the escrow agreement contains a specific mechanism for dealing with the funds on termination. Unfortunately, and as you are no doubt aware, I am not in funds to warrant taking legal advice in this matter in New York where the agreement is written and therefore will leave it to the escrow agents to deal with any return of funds pursuant to the terms of the agreement. Of course your client accepted these terms when signing the contracts.
Mot. to Dismiss, Ex. 3 at 40. There is no indication that this email was sent to Carmel at that time.
On May 8, 2010, Mr. O'Sullivan, sent an email to Carmel, forwarding a second copy of the January 8, 2010 Clarity Notice of Termination and informing Carmel that he had not received any objection to a distribution from the provisional liquidator. Id., Ex. 5 at 63. Mr. O'Sullivan attached ...