In re Millenium Seacarriers, Inc.
| Decision Date | 11 August 2005 |
| Docket Number | Docket No. 04-0633.,Docket No. 04-0631. |
| Citation | 419 F.3d 83 |
| Parties | In re: MILLENIUM SEACARRIERS, INC. et al., Debtor, Universal Oil Ltd, Liberian International Ship & Corporate Registry, LLC, Plaintiffs-Appellants, v. Allfirst Bank, formerly known as First National Bank of Maryland, formerly known as Wayland Investment Funds, LLC, Defendants-Appellees, Aspida Travel, Ltd, Assurance foreningen Skuld (Gjensidig)—Den Dan, Breakbulk Marine Services, Ltd., Canfornav, Ltd., The Crew of the Debtor's Vessell Det Norske Veritas Fuel and Marine Marketing, Gulf States Marine, Inc, IHI Marine Co., Ltd., Kent Trade & Finance, Maritime Transport Workers Union of Russia, Omni Navigation, Ltd., Orient Shipping, Pacnav, S.A., Pancoast Trading, S.A., Total Fina Elf Lubrifiants, S.A., Uniservice Mediterra, Praxis Energy Agents S.A., Plaintiffs. Praxis Energy Agents S.A., Plaintiff-Appellant, v. Allfirst Bank, formerly known as First National Bank of Maryland, formerly known as Wayland Investments Funds, LLC, Millenium Seacarriers, Inc., Ivy Navigation, Ltd., Millenium II, Inc., Millenium IV, Inc., Millenium V, Inc., Millenium VI, Inc., Millenium Aleksander, Inc., Millenium Amethyst, Inc., Millenium Asset Inc., Millenium Baltic, Inc., Defendants-Appellees, Aspida Travel, Ltd., Assurance foreningen Skuld (Gjensidig)—Den Dan, Breakbulk Marine Services, Ltd., Canfornav, Ltd., The Crew of the Debtor's Vessell Det Norske Veritas Fuel and Marine Marketing, Gulf States Marine, Inc, IHI Marine Co., Ltd., Kent Trade & Finance, Maritime Transport Workers, Union of Russia, Omni Navigation, Ltd., Orient Shipping, Pacnav, S.A., Pancoast Trading S.A., Total Fina Elf Lubrifiants, S.A., Uniservice Mediterra, Plaintiffs. |
| Court | U.S. Court of Appeals — Second Circuit |
Jeremy J.O. Harwood, Healy & Baillie, LLP, New York, NY, for Plaintiffs-Appellants.
James H. Hohenstein, Holland & Knight LLP (Francesca Morris, of counsel; Anthony Princi, Orrick, Herrington & Sutcliffe LLP, on the briefs), New York, NY, for Defendants-Appellees.
Before: WINTER, SOTOMAYOR, and PARKER, Circuit Judges.
Universal Oil, Ltd ("Universal"), Liberian International Ship & Corporate Registry ("LISC"), and Praxis Energy Agents S.A. ("Praxis") (collectively, "lienors") appeal from judgments of the United States District Court for the Southern District of New York (Patterson, J.), upholding grants of summary judgment by the Bankruptcy Court for the Southern District of New York (Blackshear, B.J.) in favor of the moving defendants-appellees Allfirst Bank ("Allfirst") and Wayland Investment Funds, LLC ("Wayland") (collectively "defendants"). See In re Millenium Seacarriers, Inc., 2004 WL 63501 (S.D.N.Y. Jan.14, 2004) ("Universal I"); In re Millenium Seacarriers, Inc., 2003 WL 22939112 (S.D.N.Y. Dec. 11, 2003) ("Praxis I").
This case presents a putative clash between bankruptcy law and admiralty law. We must clarify the scope of a bankruptcy judge's jurisdiction to administer a debtor's maritime assets under 28 U.S.C. §§ 1334(e) and 157. We hold that the congressional grant of subject matter jurisdiction to the district courts to adjudicate in bankruptcy "all . . . property, wherever located," 28 U.S.C. §§ 1334(e), extends to vessels that have not been arrested within the court's jurisdiction, and because the lienors litigated their lien claims before the bankruptcy court, the bankruptcy court had equitable jurisdiction to extinguish the lienors' maritime liens.
In 1998, Millennium Seacarriers was formed to hold the capital stock of various vessel-owning subsidiaries (collectively "Millenium" or "debtors"). Millenium raised capital by issuing notes with the aggregate principal amount of one hundred million dollars at maturity. These initial notes were later exchanged for certain first priority ship mortgage notes guaranteed by each of Millenium's vessel-owning subsidiaries (the "Notes"), as provided for in a July 15, 1998 Indenture, in favor of appellee Allfirst as indenture trustee. The Notes were subsequently registered with the Securities and Exchange Commission (SEC). Between March 1999 and November 2001, appellee Wayland purchased a substantial number of the Notes in the secondary market, and became the beneficial owner of approximately eighty-five percent of the Notes.
Millenium filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code, as amended, with the Bankruptcy Court for the Southern District of New York (Blackshear, B.J.) on January 15, 2002. On January 28, 2002, appellee Wayland filed a motion to lift the automatic stay of civil actions by creditors, or in the alternative, to convert the cases into petitions for liquidation under Chapter 7 of the Bankruptcy Code, or, in the alternative, to appoint a Chapter 11 trustee. Millenium filed an objection to Wayland's motion and the bankruptcy court held a hearing on February 13, 2002. At that hearing, Wayland and Millenium reached an agreement "so ordered" by Bankruptcy Judge Cornelius Blackshear. Pursuant to that agreement, Millenium filed an amended motion on February 28, 2002 (the "Sale Motion"), pursuant to Section 363 of the Bankruptcy Code, 11 U.S.C. § 363, to (a) sell substantially by mortgage credit bid all of Millenium's assets free and clear of liens, claims and interests; and (b) assume and assign contracts and leases in connection with such sale. The bankruptcy court accepted the Sale Motion the same day, and established bidding, notice and objection procedures pursuant to which all objections to the Sale Motion were due by March 22, 2002. Lienors LISCR and Universal, represented by the same counsel, filed maritime lien claims and objections to the sale order on March 21, 2002, and on March 22, 2002, lienor Praxis, separately represented, did as well.1
LISCR's notice of objection stated a claim for maritime liens under the Ship Mortgage Act, 46 U.S.C. §§ 31321-31330, arising from unpaid Liberian tonnage taxes. Universal's notice of objection stated claims for maritime liens under the same act, arising from deliveries of bunkers (tanks) of oil that took place in Panama in 2001 and 2002 and were never paid for. The substance of both LISCR's and Universal's notices of objection was that the bankruptcy court's authority to sell the vessels "free and clear" pursuant to 11 U.S.C. § 363(f) did not extend to vessels over which the district court lacked in rem jurisdiction, because only an admiralty court acting in rem pursuant to 46 U.S.C. § 31326 and traditional tenets of admiralty law could deliver a vessel free and clear of its maritime liens. Praxis' notice of objection stated maritime lien claims for tortious conversion and fraudulent inducement arising from unpaid marine fuel deliveries to those vessels. The substance of Praxis' objection was not jurisdictional, but was instead based on 11 U.S.C. § 363(f), which sets conditions for when debtors may sell their property free and clear of any lien. Praxis argued that the proposed sale did not meet the requirements of § 363(f) because, inter alia, substantive admiralty law did not recognize the superiority of foreign preferred ship mortgage liens over Praxis' maritime tort liens and because Praxis did not consent to the sale.
On March 27, 2002, Judge Blackshear held a hearing on the Sale Motion. Universal and LISCR argued that the bankruptcy court lacked in rem jurisdiction over the vessels because none of the vessels had been arrested within the district court's jurisdiction; indeed, some of the vessels were arrested in foreign ports. Counsel relied upon the decision of the Southern District of New York in In re Millenium Sea Carriers, Inc., 275 B.R. 690 (S.D.N.Y.2002) (Haight, J.) ("Millenium"), decided one day prior to the hearing, to support its contention that the bankruptcy court could not conduct a valid judicial auction expunging the liens on the vessels.
Millenium involved another lienor, Omni, who contested the validity of the same Sale Motion involved in the instant case. Omni sought relief from the district court in the form of mandatory withdrawal of the reference of the case to bankruptcy court, in order to enable Omni to arrest the specific Millenium vessel in admiralty and to compel Millenium to submit to arbitration for certain wage liens. 275 B.R. at 692-93. The district court held that because it lacked in rem jurisdiction over the vessel, it could not grant this relief. Id. at 698-99. The court also surveyed several district court decisions considering the interplay between bankruptcy and admiralty jurisdiction, as well as circuit cases discussing the scope of "core" bankruptcy jurisdiction, and ultimately concluded that withdrawal of the reference was not mandatory. Id. at 694-98. Specifically, the district court was satisfied that the bankruptcy court was competent to adjudicate Omni's maritime lien claim. Id. at 698.
Relying on the district court's holding in Millenium that it lacked the in rem jurisdiction required to exercise admiralty powers, Universal and LISCR argued that the bankruptcy court lacked jurisdiction to conduct a valid in rem judicial auction because the bankruptcy court's jurisdiction is derivative of that of the district court. They did not contest, however, the authority of the bankruptcy court to rank the priority and validity of the maritime liens. Instead, they challenged the bankruptcy court's jurisdiction to conduct a judicial auction that would conclusively expunge the vessels' maritime liens under admiralty law in a manner that would receive international recognition.
The bankruptcy court disagreed with counsel's reading of Millenium as depriving the bankruptcy court of jurisdiction to conduct the sale. The bankruptcy court observed that the vessels under arrest in other jurisdictions...
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