Opinion ID: 203971
Heading Depth: 3
Heading Rank: 4

Heading: Arch's motion to dissolve the attachment

Text: On June 5, 2007, Arch moved to intervene in this federal action and to dissolve USF & G's attachment. Under Massachusetts law, any person who claims an interest in an attached propertyincluding a subsequent attachmentmay dispute the validity and effect of [the] attachment on the ground that the amount demanded ... was not justly due or was not payable when [the action] was commenced. Mass Gen. Laws ch. 223, § 106. Arch argued that USF & G's attachment was improper, since the money was not justly due or payable to USF & G when its action was commenced. In support of its position, Arch marshaled a Massachusetts case, New Eng. Merch. Nat. Bank v. Latshaw, 12 Mass.App.Ct. 150, 421 N.E.2d 1264 (1981), dissolving a surety's attachment of its indemnitor's property because the surety had not yet suffered a loss at the time the indemnity action was commenced, even though demand had already been made. This outcome, Arch argued, was consistent with the generally accepted princip[le] that as long as the amount of bond claims were indefinite, there is no adequate remedy at law available to the surety because its future damages are not ascertainable and it cannot yet institute an action for indemnification. Moreover, Arch preemptively asserted that USF & G was precluded from arguing that its inability to pursue an action for an indemnity based on only anticipated future losses would have deprived it of the right to prevent dissipation of Eastern's collateral, because it was commonly understood in the surety industry that a surety must seek the equitable remedy of specific performance in order to enforce collateral provisions in an indemnity agreement. (Emphasis removed.) Thus, if USF & G wanted to prevent the dissipation of assets during the pendency of the litigation, it should have sought specific performance of the MSA's collateral security clause, and, in the interim, a preliminary injunction to protect its rights and prevent Eastern from transferring the property. Arch accused USF & G of ignor[ing] the availability of the remedy sureties typically seek in these situations and instead pursuing an ex parte attachment because an order of specific performance would have required that Eastern have an opportunity to be heard, whereas USF & G wanted to secretly attach Eastern's asserts to frustrate Arch's interests. In arguing that the attachment was proper, USF & G's opposition to the petition for dissolution relied only upon the collateral security provision of the MSA, which required Eastern to place USF & G in funds before USF & G made any payment, and provided that such funds could be, at USF & G's option, money or property, or liens or security interest in property. It distinguished Latshaw on the grounds that the agreement there contained no collateral security provision. In its reply brief in support of dissolution, Arch argued that 1) the attachment was founded upon a claim for indemnification that was premature when the action was commenced because a surety's right to indemnity does not accrue until it has actually made payment or otherwise incurred a loss; 2) USF & G essentially conceded the irrelevance of the indemnification clause of the MSA by retroactively shifting the basis for its attachment to the collateral security clause in its opposition; and 3) such a post-hoc shift was improper. Moreover, Arch argued that 4) even if the attachment had been based on the collateral security clause, it would still be invalid because: the purpose of a real property attachment is to preserve assets to satisfy an eventual judgment for damages in favor of the plaintiff. [6] The mechanism through which a surety may be awarded a judgment for damages under the MSA and the common law is a cause of action for indemnity for losses incurred, not an equitable claim for specific performance of a collateral security clause or quia timet. Therefore, successful enforcement of a collateral security clause would not result in a judgment for damages to the surety for losses; instead, the funds would be placed in a trust out of which obligations from the bonds would then be paid out. Thus, Arch essentially argued that the indemnity and collateral security clauses were two separate and distinct remedies, and that neither one was a proper basis for the attachment under the circumstances. Finally, as a procedural matter, Arch noted that the affidavit that USF & G had submitted in support of its motion for an attachment, by referring only to anticipated losses, did not certify a dollar amount of losses actually incurred by USF & G at the time of the commencement of the action. Nor did the affidavit mention the collateral security clause at all, making an attachment on that basis improper under Rule 4.1(h) of the Massachusetts Rules of Civil Procedure. [7]