In re Sapphire Steamship Lines, Inc.

• Decision Date: 02 February 1972
• Docket Number: No. 67-B-252.,67-B-252.
• Citation: 339 F. Supp. 119
• Parties: In the Matter of SAPPHIRE STEAMSHIP LINES, INC., Bankrupt.
• Court: U.S. District Court — Southern District of New York

339 F. Supp. 119

In the Matter of SAPPHIRE STEAMSHIP LINES, INC., Bankrupt.

No. 67-B-252.

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

February 2, 1972.

Louis P. Rosenberg, Brooklyn, N. Y., for the Trustee by Alfred A. Rosenberg, Brooklyn, N. Y., of counsel.

Joseph L. Alioto, Sp. Counsel to Trustee, San Francisco, Cal., by Joseph L. Alioto, Lawrence Alioto, San Francisco, Cal., and Robert E. Scher, of counsel.

Winthrop, Stimson, Putnam & Roberts, New York City, for E. Bergendahl Co., Inc. (New York and Philadelphia) by Terence H. Benbow, New York City, of counsel.

Sullivan & Cromwell, New York City, for intervenor United States Lines, Inc. by Roy H. Steyer, New York City, of counsel.

Cleary, Gottlieb, Steen & Hamilton, Washington, D. C., for intervenor Waterman Steamship Corp. by John K. Mallory, Jr., Washington, D. C., of counsel.

Arnold & Porter, Washington, D. C., for intervenors American Export Isbrandtsen Lines, Inc., Bloomfield Steamship Company, Global Bulk Transport, Inc., Isthmian Lines, Inc., Lykes Bros. Steamship Co., Inc. and States Marine Lines, Inc. by Stuart J. Land, Melvin Spaeth and Irvin Nathan, Washington, D. C., of counsel.

Satterlee & Stephens, New York City, for intervenor Moore-McCormack Lines, Inc. by James F. Dwyer, New York City, of counsel.

Bergson, Borkland, Margolis & Adler, Washington, D. C., for "Non Trade" Shipping Lines by Daniel H. Margolis, Washington, D. C., of counsel, and Barrett, Knapp, Smith & Schapiro, New York City by Whitman Knapp, New York City, of counsel.

Whitney North Seymour, Jr., U. S. Atty., S. D. New York, New York City, for the United States by Alan B. Morrison, New York City, of counsel.

Foley, Hoag & Eliot, Boston, Mass., for intervenor Farrell Lines, Inc. by Andrew J. McElaney, Jr., Boston, Mass., of counsel.

LASKER, District Judge.

This is a petition by the trustee in bankruptcy to review and set aside the Referee's disapproval of a compromise of the trustee's antitrust claim against the former competitors of the bankrupt. In addition, the competitors move to intervene in the review proceedings. The facts are undisputed; the conclusions to be drawn from them are not.

The antitrust case, the major asset of the bankrupt estate, was filed in the summer of 1966 in the United States District Court for the District of Columbia.¹ In March 1967, Sapphire Steamship Lines, Inc. ("Sapphire") filed a petition in bankruptcy. The defendants are AGAFBO (the acronym for Atlantic & Gulf American Flag Berth Operators, a conference of steamship companies) and the 17 member lines of AGAFBO. Each defendant except the conference was a competitor of the plaintiff. The complaint alleges that the defendants conspired to put Sapphire out of business in violation of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and § 810 of the Merchant Marine Act, 46 U.S.C. § 1227, and that they in fact succeeded in doing so. Damages are claimed in the amount of approximately $4 million dollars trebled. The defendants have denied the allegations.

Sapphire was incorporated in February 1965 with a capital of $750,000. It engaged primarily in ocean transportation between the Atlantic Coast and the Gulf on the one hand and Northern Europe on the other. Its vessels (it controlled five at one time and owned three) carried general military cargo, military household goods, vehicles, ammunition, and other articles of commerce shipped by government service organizations, including the Military Sea Transport Service (MSTS).

It is undisputed that from the end of World War II until Sapphire's entry into the field the defendants monopolized or at least controlled the major share of MSTS business between the Eastern Gulf Coast and Northern Europe. Rates apparently were fixed by agreement among the defendants with MSTS approval, cargo being allocated by MSTS among the defendants in proportion to their respective sailings.

Sapphire's principals, who had previously been engaged in the trucking industry and who were new to the shipping business, concluded that they could make a profit at rates considerably lower than those being charged by the defendants, and filed rates for key government cargo at approximately 50% lower than defendants'.

The defendants met Sapphire's attack with an unrestrained counterattack which has been authoritatively determined to have put Sapphire out of business. (See Safir v. Gibson, 432 F.2d 137 (2d Cir. 1970), for a resume of proceedings brought against Sapphire's competitors before the Federal Maritime Commission.)

The original complaint alleged a variety of predatory acts other than predatory pricing. After the complaint had been brought the Federal Maritime Commission in Rates on U. S. Government Cargoes, No. 65-13, found defendants' rates to have been predatory, outside the scope of governmental immunity, and established for the purpose of putting plaintiff out of business. The complaint was thereupon amended to add predatory pricing to the other means alleged to have constituted the conspiracy to drive plaintiff out of business.

Sometime in 1969, defendants made a first offer to settle the case and related cases for $825,000. The offer was rejected by the trustee on advice of counsel. After several months of further negotiation, the present offer to settle the actions for $1,600,000 was made. The trustee, again on advice of counsel, accepted the offer subject to the approval of the Referee. After a hearing in which all interested parties participated, the Referee by opinion dated September 21, 1970, approved the settlement. His conclusion was based on the following factors:

1. The plaintiff's case as to liability of the defendants was very strong.

2. The case as to proof of damages was seriously deficient because certain basic accounting records of the bankrupt were missing, the original complaint did not allege predatory rate fixing, the bankrupt's principal, Marshall Safir, had been uncooperative as a witness for plaintiff, and the bankrupt's president, Arnold Weissberger, could probably not testify at trial because of illness. The Referee characterized the view of those opposing the compromise that these deficiencies could be overcome as "the purest of speculation."

The Referee recognized that, after paying the fee of special counsel and administrative costs and expenses, the balance would go to the government on a priority claim and the general creditors would be paid nothing. He therefore discounted their enthusiasm to continue the suit, pointing out that they had nothing to lose by proceeding and everything to gain, whereas the continuance of the suit would be costly to the other parties.

On October 8, 1970, the United States, E. Bergendahl Co., Inc. (New York), and E. Bergendahl Co., Inc. (Philadelphia) jointly moved the Referee for reconsideration of his order and for a rehearing on the proposed compromise.

On reargument, the moving parties submitted evidence showing that two Internal Revenue Agents (who were highly qualified accountants), assisted by Erling Thompsen, chief accounting officer for Sapphire, and Max Staves, Chief, Audits Branch, U. S. Department of Commerce, Maritime Administration, had examined the books and records of the bankrupt, as well as certain so-called "Cargo Lifted Reports," and that, on the basis of these records, these experts believed it possible to compute the total revenue realized from each of Sapphire's voyages. The exhibits attached to the moving papers showed the revenue results for the 48 voyages commenced by Sapphire between March 1, 1965 (the date Sapphire became active in the business) and October 1, 1966 (the date competitive bidding went into effect). From the exhibits it appeared that the average revenue for each of the first 35 voyages during the period the alleged illegal rates were in effect was approximately $153,000, whereas the average for the 13 voyages after March 1, 1966, when the illegal rates were not in effect, was $209,649. The Referee observed:

"If the difference of $57,000 per voyage represents a `loss' in revenue, then a projection back to the first thirty-five voyages could indicate a total loss of revenue of some $2 million.

"It may not be, as movants argue, an `inescapable conclusion' from the aforesaid revenue study that bankrupt suffered a $2 million loss as a result of the illegal rates, but it certainly is true that properly presented, a jury may very well draw that conclusion."

The Referee found that the material available on the motion for reconsideration, "now paints an entirely different picture from that presented when the compromise first came on for hearing ...," emphasizing that there were "promising new witnesses" and records available to the trustee which substantially strengthened the bankrupt's case on damages — the only prior element of weakness. The Referee pointed out that, in contrast to the situation which existed at the time of his original order approving the compromise, it now appeared that the trustee had available to him the following witnesses and records supporting the bankrupt's damage case:

1. Erling Thompsen, a certified public accountant and former treasurer and chief accounting officer of the bankrupt, who would testify that discriminatory practices of the defendants caused the bankrupt to go out of business. Thompsen had located many of bankrupt's books and expressed the view that some missing records could be reconstructed. He was willing to supervise the operation if requested. He had also located work sheets of the accountants for the bankrupt which might be of further assistance. It was his opinion that the damages sustained by the bankrupt exceeded $3 million.

2. Arnold Weissberger, previously believed ill, had stated by affidavit that he had recovered and was now able and willing to testify, and that he had in his possession documents containing accounting data relevant to damages. In his opinion damages were at least $3.5 million.²

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