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Creditor Lays Claim To Manager’s Award From Coverage Suit

Law360 Insurance Authority

  • February 4, 2022

A creditor of a manager of a Colorado restaurant venture, to whom a Nationwide unit must pay more than $1 million in an ensuing dispute, asked a New York federal court to find that it is entitled to the manager's award for funds owed in an underlying bankruptcy dispute.

Hanford Holdings LLC filed a motion Thursday to intervene in the case between Scottsdale Insurance Co. and Patrick McGrath, the manager of restaurant venture Rocky Aspen, saying McGrath's award should be turned over to the creditor to offset his $11.7 million bankruptcy debt.

"Because the debt of Scottsdale to McGrath was created within the instant action, and quite frankly to avoid the expense to Hanford of commencing a new action and making jurisdictional service," the creditor is looking to intervene so it can petition for a turnover order, Hanford's counsel, Jeffrey E. Glen, said in a declaration of support.

A restraining notice was issued to Scottsdale, prohibiting the insurer from transferring funds to give McGrath, Glen said. However, he added that a turnover order is necessary so that Scottsdale may be directed to transfer the money to Hanford.

. . .

The court has power to consider an application for permissive intervention, which allows a nonparty to seek modification to a judgment, Glen said, adding that Hanford's motion is also timely as the conditional judgment was entered only a few months ago.

"There is no prejudice to existing parties through permitting intervention, and by doing so, the court will ensure that funds to be paid to Patrick McGrath will be available to the intervening judgment creditor and not diverted or dissipated," Glen said.

Scottsdale has not objected to the motion, according to Glen, who added that McGrath should be able to respond if the court grants the motion and filing of the turnover petition.

Hanford is not seeking to recover the attorney fees awarded to McGrath.

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