In re the Containership Co.

• Decision Date: 10 February 2012
• Docket Number: No. 11–12622 (SHL).,11–12622 (SHL).
• Parties: In re The CONTAINERSHIP COMPANY (TCC) A/S, Debtor in a Foreign Proceeding.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

466 B.R. 219

56 Bankr.Ct.Dec. 15

In re The CONTAINERSHIP COMPANY (TCC) A/S, Debtor in a Foreign Proceeding.

No. 11–12622 (SHL).

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

Feb. 10, 2012.

GKG Law, P.C., By: Edward D. Greenberg, Esq., David P. Street, Esq., Brendan Collins, Esq., Washington, DC, for Apex Maritime Co., Inc., Argos Freight, Inc., Barthco International, Inc., LCL Lines, O.E.C. Shipping Los Angeles, Inc., Pantainer Ltd., T–Z Cargo Limited, Universal Shipping Inc., Wako Express (HK) Co. Ltd., Multi–Trans Shipping Agency, Inc., Winair Logistics, Inc., Interglobo North America Inc., CEVA Freight, LLC, Global Forwarding, Ltd., U.S. United Logistics (Ningbo), Inc., MCL–Multi Container Line, Inc., Seapassion Logistics, Inc., Rocky International, LLC, TT Ocean Logistics, LLC, STD Logistics Ltd., On Time Shipping Line Ltd. and American International Cargo Service, Inc.

Holland & Knight LLP, By: Barbra R. Parlin, Esq., Christopher R. Nolan, Esq., New York, NY, by J. Michael Cavanaugh, Esq., Washington, DC, for UPS Ocean Freight Service, Inc. and Ocean World Lines.

Law Office of James Maloney, By: James M. Maloney, Esq., Port Washington, NY, for Pactrans Air & Sea, Inc.Blank Rome LLP, By: Jeremy J.O. Harwood, Esq., Marc E. Richards, Esq., Rocco A. Cavaliere, Esq., Jeremy Herschaft, Esq., New York, NY, Special United States Counsel to Jørgen Hauschildt, Foreign Representative of The Containership Company (TCC) A/S.Curtis, Mallet–Prevost, Colt & Mosle LLP, By: Maryann Gallagher, Esq., Timothy A. Barnes, Esq., Lizabeth L. Burrell, Esq., Heather Elizabeth Saydah, Esq., New York, NY, for Globe Express Services, Ltd.Rodriguez, O'Donnell, Gonzalez & Williams, P.C., By: Henry P. Gonzalez, Esq., Carlos Rodriguez, Esq., Washington, DC, for U.S. Pacific Transport, Inc., Phoenix International Freight Services, Ltd., Union Logistics, Inc., Translink Shipping, Inc., Pudong Trans. USA, Inc., United Logistics (LAX), Inc., Headwin Global Logistics (USA), Inc., Shanghai YiJia International Transportation Co., CMA CGM Logistics S.A. and Sirius Global Logistics Co., Ltd.Strongin, Rothman & Abrams LLP, By: Howard F. Strongin, Esq., New York, NY, for England Global Logistics USA, Inc.Venable LLP, By: Rishi Kapoor, Esq., Brian P. Dunning, Esq., Edward A. Smith, Esq., New York, NY, for Topocean.Carlo & Lozada, LLC, By: Gerardo A. Carlo Altieri, Esq., San Juan, PR, for Phoenix International Freight Services, Ltd. and U.S. Pacific Transport.Cooper, Brown & Behrle, P.C., By: Sandra Gale Behrle, Esq., New York, NY, for Seapassion Logistics, Inc., Rocky International, LLC, TT Ocean Logistics, LLC, STD Logistics Ltd., On Time Shipping Line Ltd. and American International Cargo Service, Inc. Winston & Winston, P.C., By: Aleksander Powietrzynski, Esq., New York, NY, for Howard Berger Company.

MEMORANDUM OF DECISION

SEAN H. LANE, Bankruptcy Judge.

Before the Court is a motion to modify the automatic stay (the “Motion”), pursuant to Section 362(d)(1) of the Bankruptcy Code. The Motion was filed by 22 parties, and joined by more than a dozen others (collectively, the “Movants”), all of whom are defendants in adversary proceedings filed by the Chapter 15 debtor alleging breach of contract. The Movants seek to lift the stay to file complaints before the Federal Maritime Commission alleging violations of the federal Shipping Act of 1984 (the “Shipping Act”) by the debtor. The Motion further requests that the Chapter 15 debtor's adversary proceedings against the Movants be stayed indefinitely. For the reasons set forth below, the Court denies the Motion because it concludes that the Federal Maritime Commission does not have exclusive or primary jurisdiction over the Movants' allegations, which are in the nature of defenses to the Chapter 15 debtor's breach of contract actions.

BACKGROUND

The relevant facts are undisputed. On April 8, 2011, the Containership Company (the “Debtor”) filed a petition for “reconstruction” in Denmark and a Danish court approved the “restructuring plan” on April 27, 2011. On May 31, 2011, the Debtor, through its Danish court-appointed trustee or “Reconstructor,” filed a petition in this Court pursuant to Sections 1504 and 1515 of the Bankruptcy Code, seeking recognition of the Danish reconstruction as a foreign main proceeding and other related relief. On July 1, 2011, this Court entered the Order Granting Recognition and Relief in Aid of a Foreign Main Proceeding Pursuant to 11 U.S.C. §§ 1517, 1520 and 1521 [ECF No. 24], recognizing the Danish reconstruction as a foreign main proceeding and the Reconstructor as the Debtor's foreign representative.

On August 1st and August 2, 2011, the Debtor filed approximately 77 adversary proceedings against certain shippers alleging breach of pre-petition service contracts entered into between the Debtor and the shippers. The relevant contracts each included a minimum quantity commitment (“MQC”), requiring the shipper to tender a certain quantity of containers to the Debtor within the term of the contracts. The complaints in the adversary proceedings assert that the shippers breached these service contracts by failing to meet the specified MQCs, and they seek liquidated damages plus interest and reasonable attorneys' fees. The service contracts provide that, “[i]n case of a dispute arising under or relating to this contract, the Shipper and the Carrier each agree to jurisdiction in the United States District Court for the Southern District of New York.” Motion, Exhibit D.

On August 19, 2011, some of the defendants in the adversary proceedings filed a Motion to (A) Modify the Automatic Stay to Allow Movants to File Claims Against the Debtor and Permit the Federal Maritime Commission to Exercise Jurisdiction Over Actions Alleging Violations of the Shipping Act of 1984 and (B) Stay Related Adversary Proceedings [ECF No. 107]. The Motion was filed on behalf of 22 parties ¹ and an additional 16 parties seek to join in the Motion.² The Movants contend that the Debtor violated the Shipping Act of 1984 and that Debtor's conduct should be brought to the attention of the Federal Maritime Commission (the “FMC”). More specifically, the Movants complain that the Debtor seeks liquidated damages from Movants for failure to satisfy the MQC requirements of their contracts, even though the Debtor allegedly engaged in the following conduct in violation of the Shipping Act:

• Debtor unilaterally ceased operations and terminated the service contracts before their expiration such that it was impossible for Movants to meet the MQC requirements.

• Debtor failed to provide space and equipment sufficient to enable Movants to meet their MQC requirements.

• Debtor unilaterally terminated the service contracts allegedly “without penalty.”

• Debtor's contract with one or more Movants provided that, if the Debtor terminated its service on the single trade lane it served, the MQC requirements would automatically be reduced to the amount of cargo previously carried, yet never filed any contract amendments with the FMC despite agreeing to do so.

• Debtor suggested that at least one Movant engaged in improper practices in connection with its service contract in order to cure the Debtor's breach of such service contract.

• The service contracts are invalid and illusory because the Debtor did not commit to provide a defined level of service as required by the Shipping Act.

Motion, at 16–18 and Exhibit C. The Movants further assert that the FMC has exclusive and primary jurisdiction to address these allegations, and that continuing with the adversary proceedings would waste judicial resources and raise the possibility of inconsistent determinations.

The Debtor opposes the request to lift the stay, asserting that the Shipping Act violations alleged by Movants are merely disguised affirmative defenses to the breach of contract claims asserted in the adversary proceedings. The Debtor further notes that, by statute, breach of contract disputes for service contracts are to be addressed in an “appropriate court,” and not the FMC. The Debtor, therefore, contends that the FMC does not have exclusive or primary jurisdiction over Movants' allegations. Finally, the Debtor relies on the forum selection clause in the service contracts to justify jurisdiction in this Court over all these disputes.

DISCUSSION

A. Standard for Relief from the Automatic Stay

Section 362 of the Bankruptcy Code provides that “a petition filed under section 301, 302, or 303 of [the Bankruptcy Code] ... operates as a stay, applicable to all entities,” of certain actions taken against a debtor or the property of the estate. 11 U.S.C. § 362(a). The automatic stay prohibits, among other things, “the commencement or continuation” of any “judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case” or “to recover a claim against the debtor that arose before the commencement of the case.” 11 U.S.C. § 362(a)(1). Such a stay is effective in a Chapter 15 case where, as here, there has been a “recognition of a foreign proceeding [as a] foreign main proceeding.” 11 U.S.C. § 1520(a). In such circumstances, the stay under Section 362 of the Bankruptcy Code shall apply “to the debtor and the property of the debtor that is within the territorial jurisdiction of the United States.” 11 U.S.C. § 1520(a).

Section 362(d)(1) of the Bankruptcy Code provides that a court may modify the automatic stay for “cause.” 11 U.S.C. § 362(d)(1). “Cause” is not defined in the Bankruptcy Code. In evaluating a motion to lift the automatic stay, courts evaluate the following twelve factors set forth by the Second Circuit in In re Sonnax Indus, 907 F.2d 1280 (2d Cir.1990):

1. Whether relief would result in a partial or complete resolution of the issues;

2. Lack of any connection with or interference with the bankruptcy case;

3. Whether the other proceeding involves the debtor as a...