951 F.2d 1357 (2nd Cir. 1991), 414, Daval Steel Products, a Div. of Francosteel Corp. v. M/V Fakredine

Docket Nº:414, 415, Dockets 91-7705, 91-7707.
Citation:951 F.2d 1357
Party Name:DAVAL STEEL PRODUCTS, A DIVISION OF FRANCOSTEEL CORPORATION; New York Marine Managers, Inc., as subrogated underwriters; D.B. Orban Canada Inc.; and Metal Processing, Inc., Plaintiffs-Appellees, v. M/V FAKREDINE (Ex Diana, Ex Lila, Ex Minola), her engines, boilers, etc.; National Shipping Co.; Ektrans International Transport & Trade, Inc.; Ekco Int
Case Date:December 03, 1991
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Page 1357

951 F.2d 1357 (2nd Cir. 1991)

DAVAL STEEL PRODUCTS, A DIVISION OF FRANCOSTEEL CORPORATION;

New York Marine Managers, Inc., as subrogated

underwriters; D.B. Orban Canada Inc.;

and Metal Processing, Inc.,

Plaintiffs-Appellees,

v.

M/V FAKREDINE (Ex Diana, Ex Lila, Ex Minola), her engines,

boilers, etc.; National Shipping Co.; Ektrans

International Transport & Trade, Inc.; Ekco International

Trade Corp.; Erbosan Erciyas Boru Sanayi Ve Ticaret, A.S.;

Transaymar Shipping & Trade, S.A.; Irmania Trading &

Shipping, Inc.; Zihni Shipping & Trading, S.A.; and

Ekinciler Dis Ticaret, A.S., Defendants,

Ekco International Trade Corp. and Ekinciler Dis Ticaret,

A.S., Defendants-Appellants.

Nos. 414, 415, Dockets 91-7705, 91-7707.

United States Court of Appeals, Second Circuit

December 3, 1991

Argued Sept. 20, 1991.

Page 1358

David B. Wolf, New York City (Aydin S. Caginalp, Howard Bender, Walter Conston Alexander & Green, P.C., of counsel), for defendant-appellant Ekco Intern. Trade Corp.

James F. Sweeney, New York City (Donovan Parry Walsh & Repetto, of counsel), for plaintiff-appellee Daval Steel Products.

James E. Ryan, New York City (Vincent J. Barra, Dougherty, Ryan, Guiffra, Zambito & Barra, of counsel), for plaintiffs-appellees New York Marine Managers, Inc., D.B. Orban Canada Inc., and Metal Processing, Inc.

Mel Dogan, New York City (Dogan & Morrissey, of counsel), for defendant-appellant Ekinciler Dis Ticaret, A.S.

Before VAN GRAAFEILAND, MESKILL and MAHONEY, Circuit Judges.

MAHONEY, Circuit Judge:

Defendants-appellants Ekco International Trade Corp. ("Ekco") and Ekinciler Dis Ticaret, A.S. ("Ekinciler") appeal from (1) an order of the United States District Court for the Southern District of New York, Richard Owen, Judge, entered July 18, 1991 that prohibited them from presenting

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evidence on the issue of "alter ego" liability, and deemed that issue to be established in accordance with the plaintiffs-appellees' claims, pursuant to Fed.R.Civ.P. 37(b)(2)(A) and (B); and from (2) judgments entered July 18, 1991 against Ekco and Ekinciler pursuant to that order.

Because there was outstanding against Ekco, but not against Ekinciler, an "order" within the meaning of Fed.R.Civ.P. 37(b)(2) that could be the subject of sanctions thereunder, we affirm as to Ekco, but reverse and remand as to Ekinciler.

Background

  1. Facts.

    The events of this case began in 1986, when plaintiffs-appellees Daval Steel Products ("Daval"), D.B. Orban Canada Inc. ("Orban"), and Metal Processing, Inc. ("Metal Processing") bought steel in Turkey. The steel purchase was arranged and conducted through the Ekinciler group of companies, a group of Turkish corporations almost wholly owned, and controlled, by members of the family of the late Ali Ekinci of Turkey. See New York Marine Managers, Inc. v. M.V. "TOPOR-1", 716 F.Supp. 783, 784-85 (S.D.N.Y.1989).

    Ekinciler Holdings, A.S. ("Holdings") is a Turkish corporation whose various subsidiary and affiliated entities engage in steel manufacturing, paper production, commodities trading, and international transportation, marketing, finance, and insurance. Holdings is largely owned, and is controlled by, the Ekinci family.

    There are three principal corporations involved in this action. Ekinciler is a Turkish corporation that produces steel; it is almost wholly owned by Holdings, a Holdings subsidiary, and members of the Ekinci family. Ektrans International Transport and Trade, Inc. ("Ektrans"), also a Turkish corporation, provides ocean transportation to Ekinciler, and is almost wholly owned by members of the Ekinci family. Ekco is a New York corporation that is wholly owned by Ekinciler.

    The 1986 steel transactions involved separate purchases by Daval, and by Orban and Metal Processing (the "Orban purchase"). The Orban purchase was made directly from Ekinciler, while the Daval purchase was made from an independent manufacturer. Delivery of both purchases, however, was arranged by Ektrans, the voyage charterer employed by Ekinciler, and provided for the steel to be shipped aboard the vessel known as "M/V Fakredine" ("Fakredine"). The steel was shipped together to take advantage of various Turkish customs laws. The transactions were financed through a letter of credit drawn in favor of Ekinciler and the payments, including freight charges, were made by plaintiffs-appellees to Ekco, acting as the New York agent for Ekinciler.

    The vessel and its cargo never arrived in the United States. Rather, the cargo was apparently diverted to Lebanon. Both the money paid for the freight charges ($155,688.31), the cargo, and the vessel "vanished into the sands of this record," as the district court colorfully put the matter in granting summary judgment to plaintiffs-appellees against Ektrans. The district court also found that Ektrans had used the same vessel (then named the "Minola") in a prior transaction where the cargo similarly disappeared.

  2. Proceedings Below.

    1. Initial Proceedings.

    Daval Steel brought suit against Ektrans and Ekco, inter alia, on September 9, 1987 in the United States District Court for the Southern District of New York, seeking $1.1 million in damages for nondelivery of the shipment of steel. The amended complaint presented a claim under the Carriage of Goods at Sea Act ("COGSA"), 46 U.S.C.app. § 1300 (1988) et seq., as well as for negligence and breach of contract, and invoked federal admiralty and maritime jurisdiction.

    Plaintiff-appellee New York Marine Managers, Inc. ("Marine Managers"), as subrogated underwriters, Orban, and Metal Processing also brought suit against Ektrans, Ekco, and Ekinciler, inter alia, in the United States District Court for the Southern District of Texas, alleging similar claims

    Page 1360

    and seeking $2.8 million in damages, while simultaneously bringing a similar suit in the Southern District of New York. The two New York suits were consolidated before Judge Owen, and the Texas suit was transferred to the Southern District of New York and also so consolidated.

    The district court denied various motions of Ektrans, Ekco, and Ekinciler to dismiss the complaints for insufficiency of process, lack of jurisdiction, and improper venue. The court then granted summary judgment in favor of plaintiffs-appellees on the issue of liability against Ektrans. The court found that the undisputed facts established a diversion of the cargo that constituted an act of barratry, for which a charterer was not exonerated under COGSA. The court's order and judgment ambiguously stated that "Ekco, Ektrans and Ekinciler are so interrelated as to be alter egos, under common control and ownership such that the acts of one are the acts of all," although granting judgment only against Ektrans. Ekco, Ektrans, and Ekinciler then took an interlocutory appeal to this court pursuant to 28 U.S.C. § 1292(a)(3) (1988). While the appeal was pending, damages were ascertained and the district court entered judgments exceeding $4.5 million on behalf of plaintiffs-appellees against Ektrans.

    In a summary order dated June 27, 1991, this court affirmed the judgment and order of the district court awarding summary judgment against Ektrans. With respect to the issue of alter ego liability, however, we stated:

    [W]e are unable to discern what the district court intended when it made a finding that appellants Ektrans, Ekco and Ekinciler were "alter egos." Despite making this finding, the district court proceeded only to enter judgment against Ektrans. Thus, we, as well as Ekco and Ekinciler, are left to speculate as to what the district court intended. We, therefore, remand that aspect of the district court's order for clarification.

    2. Alter Ego Proceedings.

    On remand, a motion was brought in the district court to amend the judgment against Ektrans to include Ekco and Ekinciler as alter egos. On June 27, 1991, the plaintiffs-appellees promptly served Ekco with notices of deposition and subpoenas duces tecum returnable on July 9, 1991. The subpoenas required Ekco to produce at deposition documents concerning (1) property in which Ektrans had an interest or was entitled to any proceeds; (2) all transactions by Ekco with other Ekinciler companies; (3) stock ownership, corporate records, dividend distributions, and directors meetings of Ekco; (4) bank records of Ekco for the last four years; and (5) records relating to property owned by Ektrans anywhere in the world.

    On July 2, 1991, a hearing was held on the motion concerning Ekco's and Ekinciler's alter ego liability. The hearing was prompted by concerns that Ekco, Ekinciler, and Ektrans were attempting to divert assets to avoid execution of the judgment against Ektrans. The district court orally ordered that the court's prior finding of alter ego liability should not be disturbed until a full evidentiary hearing could finally determine the issue. The court then set July 16, 1991 as the date for that hearing. Neither Ekco nor Ekinciler objected at the July 2 hearing to the plaintiffs-appellees' pending notices of deposition and subpoenas duces tecum.

    On July 2, 1991, plaintiffs-appellees served a deposition subpoena upon one of the banks at which Ekco maintained an account, Banco di Roma. This notice demanded production of documents related to account transactions for Ektrans, Ekco, Ekinciler, and D.B. Turkish Cargo Lines. The return date was July 10, 1991.

    On July 8, 1991, one day before the return date of the notices of deposition and subpoenas previously served upon Ekco, Ekco served a motion to quash them on the grounds that: (1) the discovery should be postponed until after the July 16 hearing "to avoid needless and repetitive discovery," (2) the...

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