Atlantic Richfield Co. v. Good Hope Refineries, Inc.

• Decision Date: 16 October 1979
• Docket Number: No. 77-1909,77-1909
• Citation: 604 F.2d 865
• Parties: , Bankr. L. Rep. P 67,237 ATLANTIC RICHFIELD COMPANY, a foreign corporation, Plaintiff- Appellee Cross-Appellant, v. GOOD HOPE REFINERIES, INC., as Claimant Owner of 30,000 Tons of Oil, Defendant-Appellant Cross-Appellee, and Peerless Insurance Company, Movant-Appellant Cross-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 865

604 F.2d 865

5 Bankr.Ct.Dec. 923, Bankr. L. Rep. P 67,237

ATLANTIC RICHFIELD COMPANY, a foreign corporation, Plaintiff- Appellee Cross-Appellant, v. GOOD HOPE REFINERIES, INC., as Claimant Owner of 30,000 Tons

of Oil, Defendant-Appellant Cross-Appellee,

and

Peerless Insurance Company, Movant-Appellant Cross-Appellee.

No. 77-1909.

United States Court of Appeals, Fifth Circuit.

Oct. 16, 1979.

Frank J. Marston, Miami, Fla., for defendant-appellant cross-appellee.

Mercer K. Clarke, Miami, Fla., for plaintiff-appellee cross-appellant.

Appeals from the United States District Court for the Southern District of Florida.

Before GODBOLD, Circuit Judge, SKELTON, Senior Judge ^*, and RUBIN, Circuit Judge.

ALVIN B. RUBIN, Circuit Judge:

In the wake of a collision between admiralty and arrangement proceedings under Chapter XI of the Bankruptcy Act, appellant Good Hope Refineries challenges the decision of the district court to proceed with the merits of an in rem admiralty action to assert a lien against cargo for demurrage owed by Good Hope to the Atlantic Richfield Company despite an order issued by the United States District Court for the District of Massachusetts enjoining the prosecution of any actions against Good Hope. It also contends that the trial court erred in resolving the merits of the controversy by ruling that all cargoes transported by Good Hope aboard a vessel chartered from Atlantic Richfield for consecutive voyages over a one year period were impressed with a lien in favor of the vessel owner for demurrage charges accruing on any voyage during the term of the charter. We conclude that the district court properly continued with the in rem action, but hold, on the merits, that the charter in question did not confer the broad lien sought by Atlantic Richfield.

Acting through a charter broker in New York, Good Hope chartered the vessel ATLANTIC COMMUNICATOR from Atlantic Richfield pursuant to a contract titled "Tanker Voyage Charter Party" on July 27, 1973. The vessel was to be used for the transportation of bulk petroleum products. The contract was on a printed form for a standard voyage charter one designed for the charter of a vessel for a single trip with certain minor modifications made by the parties, including a clause establishing the duration of the contract as twelve consecutive months with an option to renew for another year. The amount of free laytime time spent in loading or discharging cargo was dictated by the American Tanker Rate Schedule. Once Good Hope exceeded the 72 hours there allowed, it was charged a certain number of dollars per hour for demurrage. Demurrage charges ceased only when the cargo was completely discharged and the discharging hoses disconnected.

During the course of nineteen separate voyages from April 22, 1974 through May 31, 1975 Good Hope incurred $598,251.57 in demurrage charges. On July 11, 1975, Atlantic Richfield attached a cargo of 30,000 tons of oil in a United States district court in Florida, claiming a lien for the accumulated demurrage charges, none of which pertained to the voyage on which the 30,000 tons was carried. The cargo was released after Good Hope and its surety, Peerless Insurance Company, posted a security bond in the sum of $600,000.

On November 5, 1975, a federal district court in Massachusetts entered a general restraining order under Chapter XI of the Bankruptcy Act enjoining all persons from continuing to prosecute any actions against Good Hope. The Florida district court granted a motion to stay the in personam action against Good Hope, but permitted the in rem aspect to continue "to establish liability of the corporate surety on the bond of Peerless Insurance Company which has been substituted for the 30,000 tons of oil but any execution on that bond as against principal Good Hope Refineries, Inc. is restrained while the injunction described remains in effect."

After trial, the court concluded that Atlantic Richfield had, under the terms of the charter, a lien on all cargoes carried during the term of the charter for all demurrage charges incurred during the same period and entered judgment against Good Hope and Peerless Insurance for the amount of the bond, $600,000. ¹ The practical effect of this interpretation was to impress a lien on the cargo carried during the most recent voyage for demurrage charges incurred during prior voyages.

I. The Chapter XI Injunction

A bankruptcy court acting under Chapter XI may "enjoin or stay until final decree any act or the commencement or continuation of any proceeding to enforce any lien upon the property of a debtor." 11 U.S.C. § 714. The purpose of this stay is to prevent interference with, or diminution of, the assets of the debtor, See, e. g., Teledyne Industries, Inc. v. Eon Corp., S.D.N.Y.1974, 373 F.Supp. 191, 203, and to protect the bankruptcy court's exclusive jurisdiction over "the debtor and his property, wherever located." 11 U.S.C. § 711. These courts have similar power in Chapter X (reorganization) proceedings under 11 U.S.C. §§ 513, 516(4) and 548, and in bankruptcy under 11 U.S.C. § 11(a) (15). Thus, whether the petition is for bankruptcy, reorganization or an arrangement, the bankruptcy court has the power to enjoin admiralty proceedings in rem brought against a vessel or cargo that is the property of the debtor if the bankruptcy court has previously acquired jurisdiction over the property. See, e. g., In re Meredosia Harbor & Fleeting Service, Inc., 7 Cir. 1976, 545 F.2d 583, 586-87, Cert. denied, 1977, 430 U.S. 967, 97 S.Ct. 1649, 52 L.Ed.2d 359; Texas Co. v. Hauptman, 9 Cir. 1937, 91 F.2d 449, 451; West Kentucky Coal Co. v. Dillman, 8 Cir. 1926, 15 F.2d 25, 26; Defense Plant Corp. v. United States Barge Lines, Inc., S.D.N.Y.1944, 57 F.Supp. 14, 15, Aff'd, 2 Cir., 145 F.2d 766.

When the admiralty proceeding precedes the petition in bankruptcy court, the power of the bankruptcy court to enjoin further proceedings depends on the type of insolvency proceeding that is, whether the action is in bankruptcy as distinguished from a reorganization (Chapter X) or an arrangement (Chapter XI) and the nature of the property held by the admiralty court. Here, where the Massachusetts proceeding is pursuant to Chapter XI, and the res is a surety bond rather than property of the debtor, we conclude that the admiralty court properly proceeded with the in rem claim.

When an in rem action is instituted, the property comes into the jurisdiction of the admiralty court and neither the later filing of a bankruptcy proceeding nor the issuance of a stay by the bankruptcy court divests the maritime court of jurisdiction. See, e. g., The Philomena, D.Mass.1911, 200 F. 859. ² This conclusion is a practical means of resolving the conflict between courts of concurrent jurisdiction by allowing the court that first secures custody of the property to proceed with the action without interference. See Moran v. Sturges, 1894, 154 U.S. 256, 284, 14 S.Ct. 1019, 1028, 38 L.Ed. 981, 990; Bryan v. Speakman, 5 Cir. 1931, 53 F.2d 463, 465, Cert. denied, 1932, 285 U.S. 539, 52 S.Ct. 312, 76 L.Ed. 932; 1 Collier on Bankruptcy P 2.10 at 180 (14th ed. 1974). Cf. Parks v. B. F. Leaman and Sons, Inc., 5 Cir. 1960, 279 F.2d 529, 533 (appeal held moot). No competing need arises by virtue of the later insolvency proceeding, the purpose of which is solely to liquidate the debtor's estate and distribute its assets among creditors.

However, in reorganization and arrangement proceedings the court seeks to achieve the continuation of the debtor's enterprise, and it is essential to marshal all assets of that business necessary to its rehabilitation whether or not those assets are subject to liens. See generally G. Gilmore & C. Black, The Law of Admiralty 807-08 (2d ed. 1975); Landers, The Shipowner Becomes a Bankrupt, 39 U.Chi.L.Rev. 490, 509 (1972). Therefore, the powers of the court administering the debtor's estate are more extensive. Thus, in In re J. S. Gissel & Co., S.D.Tex.1965, 238 F.Supp. 130, a stay issued in a Chapter X proceeding was held applicable to a suit in rem and in personam brought earlier to foreclose a preferred mortgage on a vessel. ³ Were there property of the debtor involved, then, the stay would have been proper, and the Florida court's route would have been barred. Here, however, that court did not act with respect to "property of (the) debtor" or with respect to any asset needed for its rehabilitation. This action therefore neither falls within the literal language of the stay issued by the Massachusetts court, nor do the policies behind the broad injunctive powers of a Chapter XI bankruptcy court motivate us to extend that stay to embrace it.

The res at issue is the bond posted by the surety, Peerless; the cargo of oil is long gone and even its proceeds are presumably under reorganization administration. The admiralty court explicitly limited the action to one determining the liability of the surety on the bond. Under these circumstances, there is no need to preserve the property of the debtor for rehabilitative purposes and, therefore, no justification for a stay. See, in accord, Kapczynski v. T. M. T. Trailer Ferry, Inc., E.D.Pa.1959, 176 F.Supp. 190, 192. Cf. Peter Pan Seafoods, Inc. v. M/V Polar Viking, W.D.Wash.1977, 446 F.Supp. 1283, 1285 (res was property of third party rather than of Chapter XI debtor).

Recent changes in the Bankruptcy Rules setting forth the proper procedure for challenging the operation of an ordered stay in a Chapter XI proceeding do not undermine this rationale: the res in question is not the property of the estate nor was it ever the property of the bankrupt. Whatever the procedure for challenging a stay, there was no property that the stay could operate to protect. ⁴

Good Hope invites us to speculate that the arrangement between Good Hope and Peerless may have implicated other assets of the debtor in which the bankruptcy court might have an...