On September 12, 2014, Justice Bransten of the New York County Commercial Division issued a decision in Hong Leong Fin. Ltd. (Singapore) v. Morgan Stanley, 2014 NY Slip Op. 51396(U), dismissing a claim for equitable subrogation.
In Hong Leong Fin. Ltd., the defendants moved to dismiss the complaint of “Plaintiff Hong Leong Finance Limited (Singapore) (“HLF”), a Singapore financial company” relating to “HLF’s purchase of credit-linked notes (‘CLNs’), issued by defendant Pinnacle and created and sold by Defendants.” The motion related to a number of claims; this post focuses on its discussion of the plaintiff’s claim for equitable subrogation, which the court dismissed, explaining:
The doctrine of equitable subrogation is applicable to cases where a party is compelled to pay the debt of a third person to protect his own rights, or to save his own property. Thus, where one person uses his property to discharge an obligation owed by another, or a lien upon the property of another, the latter person would be unjustly enriched by the retention of the benefit conferred, so the first person is entitled to be surrogated to the position of the obligee or lien-holder. Equitable subrogation only can be invoked where the payment made was not voluntary — it was either a contractual obligation or the person needed to make it in order to protect its own legal or economic interests. In demonstrating the latter ground, the party seeking subrogation must show that the act is not merely helpful but necessary to the protection of its interests. The purpose of the doctrine is to shift the debt or obligation onto the party who more properly should be accountable to prevent unjust enrichment and an unfair result.
Here, HLF paid its Pinnacle Notes customers as a result of the proceedings before the MAS, which found that HLF violated provisions of Singapore’s Financial Advisors Act. Not only were the payments a voluntary settlement, HLF only partially satisfied its customers’ alleged damage claims regarding the Pinnacle Notes, paying only claims of wrongdoing leveled against HLF in the MAS proceedings. Equitable subrogation requires that the debt be paid in full. It is not intended to be used by a party who merely pays his or her own debt. Contrary to HLF’s argument, Winkelmann v Excelsior Ins. Co., 85 NY2d 577 (1995), does not state that claims for partial equitable subrogation are permitted. Rather, the Court held that where an insurer pays the policy limits to its insured, it may be subrogated to the rights of the insured even though the insured’s losses were not fully covered by the proceeds of the policy (i.e., the losses were above the policy limit). Further, this claim is a quasi-contract claim, and the written Distributor Agreement, with its indemnification provisions, governs this subject matter and precludes recovery in quasi-contract.
(Internal quotations and citations omitted) (emphasis added).