ITEL CONTAINERS INTERN. v. ATLANTTRAFIK EXP. SERV., 86 Civ. 1313 (RLC)

• Decision Date: 22 November 1989
• Docket Number: 86 Civ. 2366 (RLC) and 86 Civ. 3717 (RLC).,No. 86 Civ. 1313 (RLC),86 Civ. 1313 (RLC)
• Citation: 725 F. Supp. 1303
• Parties: ITEL CONTAINERS INTERNATIONAL, CORP., Plaintiffs, v. ATLANTTRAFIK EXPRESS SERVICE, LTD., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

725 F. Supp. 1303

ITEL CONTAINERS INTERNATIONAL, CORP., Plaintiffs, v. ATLANTTRAFIK EXPRESS SERVICE, LTD., et al., Defendants.

Nos. 86 Civ. 1313 (RLC), 86 Civ. 2366 (RLC) and 86 Civ. 3717 (RLC).

United States District Court, S.D. New York.

November 22, 1989.

Burlingham, Underwood & Lord (Alfred E. Yudes, Jr., Amy S. Rich, of counsel), O'Melveny & Myers, (Andrew J. Frackman, Bernard J. Vaughan, of counsel), Kirlin, Campbell & Keating (Michael D. Wilson, of counsel), New York City for plaintiffs.

Carter, Ledyard & Milburn (James Gadsden, Beth D. Jacob, of counsel), New York City, for defendants.

ROBERT L. CARTER, District Judge.

Plaintiffs in this consolidated action are: Itel Containers International Corp. ("Itel"), a corporation organized under the laws of Delaware; Flexi-Van Leasing, Inc. ("Flexi-Van"), a corporation organized under the laws of Delaware; Textainer Incorporated ("Tex"), a corporation organized under the laws of Panama; and Textainer Special Equipment, Ltd. ("TSEL") (formerly Cross County Leasing, Ltd.), a limited corporation organized under the laws of England. All are engaged in the international maritime business of leasing cargo containers and/or chassis, and/or flatracks and related equipment to ocean carriers and others.

Defendants are: Sea Containers, Ltd. ("SCL"), a limited company organized under the laws of Bermuda with James B. Sherwood its president and chief executive officer; Sea Containers Services, Ltd. ("SCS"), a wholly owned subsidiary of SCL, and a limited company organized under the laws of England; Orient Express Hotels, Inc. ("OEH"), a corporation organized under the laws of New York; Orient Express Hotels Services, Ltd. ("OEHS"), a wholly owned subsidiary of OEH, and a limited company organized under the laws of England; Sea Containers Australia, Ltd. ("SCAL"), a wholly owned subsidiary of SCL, and a limited company organized under the laws of Australia; Sea Containers America ("SCA"), a wholly owned subsidiary of SCL, and a corporation organized under the laws of Delaware.

Elliott Maritime, Ltd. ("Elliott Maritime"), a limited company organized under the laws of Hong Kong as "Poudane Shipping Co., Ltd.;" Atlanttrafik Express Service, Ltd. ("AES, Ltd."), a wholly owned subsidiary of Elliott Maritime, a limited company organized under the laws of England and Atlanttrafik Express Service, Inc. ("AES, Inc."), a wholly owned subsidiary of AES, Ltd., a corporation organized under the laws of New York.

Nagara, Ltd., a wholly owned subsidiary of SCL, a limited company organized under the laws of Bermuda, and the owner of M/V Nagara at all times relevant to these proceedings; Nagara Tam, Ltd., a wholly owned subsidiary of SCL, a limited company organized under the laws of Bermuda, and the owner of the M/V Tavara at all times relevant to these proceedings. Contender I, Ltd., a wholly owned subsidiary of SCL, a limited company organized under the laws of Bermuda, and the owner of the M/V Cavara at all times relevant to these proceedings; Strider I, Ltd. a wholly owned subsidiary of SCL, a corporation organized under the laws of Liberia, and the owner of the M/V AES Express at all times relevant to these proceedings; Strider 4, Ltd., a wholly owned subsidiary of OEH, a limited company organized under the laws of Bermuda, and the owner of M/V AES Challenger at all times relevant to these proceedings which vessel was chartered to Strider I, Ltd.

As of January 1, 1984, Brostrom Rederi AB ("Brostrom"), a Swedish shipping company and part owner of a cargo liner service known as AES, transferred AES liner service assets to Rederiaktiebolaget Transocean ("Transocean").

Arthur William Elliott who, since 1982, had had an ongoing business relationship with SCL, and Arvid Rasmussen, managing director of SCAL, proposed to SCL the purchase of the AES line and the Tavara and Nagara from Brostrom. SCL considered operating the AES liner service as a partner with Brostrom. Sherwood, however, did not wish to operate a liner service openly because it would place SCL in competition with its customers. Therefore, it was decided that corporate entities would be formed that would buy and operate the line, and SCL would initially supply the necessary funds for these purposes.

Sherwood arranged for SCL's Hong Kong attorneys, White & Case, to acquire a Hong Kong shelf company, Poudane Shipping Company, Ltd., which was renamed Elliott Maritime, Ltd. Elliott, Rasmussen and two attorneys from White & Case's Hong Kong office were made directors of Elliott Maritime, and SCL indemnified the two attorneys against any liabilities they might incur as directors. Legal fees and all funds necessary for the establishment of Elliott Maritime and for its initial capitalization were supplied by SCL. Elliott invested none of his own funds in the enterprise. All the shares of Elliott Maritime were in Elliott's name, but he executed an undated and irrevocable stock power and instrument of transfer in favor of SCL, signed an undated letter of resignation as director of Elliott Maritime and signed an undated letter addressed to White & Case authorizing the firm to transfer his shares in Elliott Maritime, which were held in the custody of White & Case, to SCL upon the request of any SCL officers.

SCL arranged for its London attorneys to set up AES, Ltd., as a wholly owned subsidiary of Elliott Maritime. SCL bore all the costs necessary for the creation of AES, Ltd. including start up costs. AES, Ltd. was created to operate as parent and holding company of the AES liner service. Its directors were Elliott, Henry Davidson and Charles Uggla.

During the spring and summer of 1984, Elliott negotiated with Brostrom and Transocean for the acquisition of the AES liner service, and the service was acquired by AES, Ltd. in September, 1984, which included its assets, trade name and good will, at a purchase price of $5 million, less $2 million net working capital which the vendors were to leave for AES, Ltd. for two years. In addition, SCL was to purchase the Nagara and Tavara, through its subsidiaries, and these ships were to be leased to AES, Ltd. as the new operator of the liner service. AES, Ltd. was to secure the funds for purchase through a draw down on a line of credit with Irving Trust Co., the credit advanced with a guarantee from SCL. However, SCL loaned AES, Ltd. $3 million to close the transaction, but when Irving Trust's line of credit became operative, AES, Ltd. repaid SCL. The agreement provided that if the line remained in operation after September 19, 1986, AES, Ltd. would pay Transocean, over a 5-year period, the $2 million retained, plus $1 million per ship and the line was to be deemed operative unless the AES, Ltd.'s board of directors by resolution wound up the line and no sailing activity existed as of September 19, 1986.

Nagara, Ltd. and Nagara Tam, Ltd. purchased the Nagara and Tavara for $5 million each. SCL agreed to pay for the vessels for the first two years under an 8 year loan bearing 10% interest, and if AES continued in operation thereafter, Transocean was authorized to demand the balance due in cash; if AES operations were discontinued before the end of the two years, SCL was authorized to redeliver the vessel forfeiting all payments heretofore made, but without further liability on the credit sales agreement.

AES Management Corporation was incorporated in New York on April 8, 1983. AES, Inc. was incorporated in Delaware on June 8, 1984. The two corporations merged on September 19, 1984, the surviving corporation being AES Management. Its name was changed to AES, Inc., a New York corporation. The board of directors of AES, Inc. on September 19, 1984, elected the same officers as those of AES, Inc., the decedent Delaware corporation: Uggla, President; Elliott, Vice President; Danielson, Secretary-Treasurer and Executive Vice Presidents, Carl E. Giseau, Edward G. Ryznan, William Fallon and John Tobin.

SCL provided loans to AES, Ltd. directly; time charters through its subsidiaries, Nagara, Ltd., Nagara Tam, Contender I, Ltd. and Strider I, Ltd.; cargo container services through SCAL and depot services through a Singapore subsidiary. AES, Ltd. had no employees, and the liner service was managed and operated by AES, Inc. AES, Ltd. paid AES, Inc. for its administrative expenses plus 4% as a fee for services. The income of AES, Ltd., aside from loans from SCL, came from the freights carried on the liner service.

AES, Inc.'s employees (about 27) in New York were the same who had operated the liner service under Brostrom and Transocean. Uggla ran the liner service operation from AES, Inc.'s New York offices, and its day-to-day operation was his responsibility. The day-to-day operation of AES, Ltd. was Elliott's responsibility.

A Steering Committee was formed consisting of Elliott, Uggla and Hume. This committee did not involve itself in the day-to-day operations of either AES, Ltd. or AES, Inc. Its function was to devise and agree upon policies best suited to the profitable operation of the liner service. Unquestionably, Hume's presence on the committee was to protect SCL's interests and financial investment in the operation, and it was unlikely that any action was taken to which Hume strenuously objected. There was uncontroverted evidence, however, that the liner service on a more or less consistent basis refused or failed to reposition SCL's empty containers which was a primary service benefit Sherwood had envisioned that SCL would obtain through the purchase of the liner service. AES, Ltd. billed SCL for this service and SCL objected to these charges as being too high. This aspect of AES Ltd., AES, Inc. and SCL's relationship was never satisfactorily resolved.

AES, Inc. functioned as an ongoing organization. It had a financial, logistic and sales and marketing operation. It had a bank account at Irving Trust Co. out of which it paid for its supplies and operating expenses. It maintained...