Itel Containers Intern. Corp. v. Atlanttrafik Exp. Service Ltd.

• Decision Date: 16 July 1990
• Docket Number: 1251,Nos. 1249,D,1250,s. 1249
• Citation: 909 F.2d 698
• Parties: ITEL CONTAINERS INTERNATIONAL CORPORATION, Flexi-Van Leasing Inc., Cross-County Leasing Ltd., now named Textainer Inc., & Textainer Special Equipment Ltd., Plaintiffs-Appellants, v. ATLANTTRAFIK EXPRESS SERVICE LTD., in personam, and M/V TAVARA, AES Express, AES Challenge, Nagara and Cavara, their engines, boilers, tackle, freights, etc., in rem, and Sea Containers Ltd., Seaco Services Ltd., Sea Containers Australia Ltd., Seaco Inc., and Sea Containers America Inc., in personam, Defendants-Appellees. ockets 90-7012, 90-7042 and 90-7044.
• Court: U.S. Court of Appeals — Second Circuit

Page 698

909 F.2d 698

1990 A.M.C. 1817

ITEL CONTAINERS INTERNATIONAL CORPORATION, Flexi-Van Leasing Inc., Cross-County Leasing Ltd., now named Textainer Inc., & Textainer Special Equipment Ltd., Plaintiffs-Appellants, v. ATLANTTRAFIK EXPRESS SERVICE LTD., in personam, and M/V TAVARA, AES Express, AES Challenge, Nagara and Cavara, their engines, boilers, tackle, freights, etc., in rem, and Sea Containers Ltd., Seaco Services Ltd., Sea Containers Australia Ltd., Seaco Inc., and Sea Containers America Inc in personam, Defendants-Appellees.

Nos. 1249, 1250, 1251, Dockets 90-7012, 90-7042 and 90-7044.

United States Court of Appeals Second Circuit.

Argued April 25, 1990.

Decided July 16, 1990.

Alfred E. Yudes, Jr., New York City (Wendy D. Ciolino, Watson, Farley & Williams, New York City, on the brief), for plaintiff-appellant Itel Containers Intern. Corp.

O'Melveny & Myers, New York City (Andrew J. Frackman, Elisa L. Liang, New York City, of counsel), submitted a brief for plaintiff-appellant Flexi-Van Leasing, Inc.

Kirlin, Campbell & Keating, New York City (Michael D. Wilson, New York City, of counsel), submitted a brief for plaintiffs-appellants Textainer Inc. and Textainer Special Equipment Ltd.

Beth D. Jacob, New York City (James Gadsden, Barbara Q. Gray, Andris J. Vizbaras, and Drake A. Colley, Carter Ledyard & Milburn, New York City, on the brief), for appellees other than Atlanttrafik Express Service Ltd.

Before VAN GRAAFEILAND, NEWMAN and KEARSE, Circuit Judges.

KEARSE, Circuit Judge:

Plaintiffs Itel Containers International Corporation ("Itel"), et al., appeal from a final judgment entered in the United States District Court for the Southern District of New York after a bench trial before Robert L. Carter, Judge, dismissing their complaint seeking recovery for losses incurred in leasing containers to defendant Atlanttrafik Express Service Ltd. ("AES Ltd."). The district court ruled principally that defendant Sea Containers Ltd. ("SCL") had no responsibility for debts of AES Ltd. See 725 F.Supp. 1303 (1989). On appeal, plaintiffs contend (1) that the court should have

found SCL liable on theories of joint venture, agency, or abuse of the corporate form; (2) that they were entitled to judgment against defendants M/V TAVARA, AES EXPRESS, AES CHALLENGE, NAGARA, and CAVARA (collectively the "vessels") on the basis of maritime liens; and (3) that they were entitled to a default judgment against AES Ltd. For the reasons below, we vacate and remand with respect to the vessels and AES Ltd., and in all other respects we affirm.

I. BACKGROUND

The background of this litigation is set forth in detail in published opinions of the district court, see 725 F.Supp. 1303; 668 F.Supp. 225 (1987), familiarity with which is assumed. Briefly, the facts, as reflected in the largely unchallenged findings of the district court, are as follows.

SCL was engaged in the business of selling and leasing cargo containers and related equipment to ocean carriers. In 1984, SCL decided to purchase a shipping line (the "AES line") and its two ships, the NAGARA and the TAVARA. Since SCL did not wish to compete openly with its container customers, it decided to incorporate separate entities to buy and operate the line. SCL supplied the funds and legal fees for the creation of a company called Elliott Maritime, Ltd. ("Elliott Maritime"). The sole shareholder of Elliott Maritime was Arthur William Elliott, a business associate of SCL, who signed undated instruments by which his shares could be transferred to SCL upon its request. AES Ltd. was incorporated under the laws of England as a wholly owned subsidiary of Elliott Maritime, to be the holding company of the AES liner service. Atlanttrafik Express Service Inc. ("AES Inc."), was formed as a wholly owned subsidiary of AES Ltd. to operate the liner service.

SCL advanced AES Ltd. $3 million to purchase the AES line. AES Ltd. acquired the line in September 1984, and when its bank line of credit became operative, repaid the $3 million to SCL. SCL thereafter made loans to AES Ltd. to finance its operations. Through two wholly owned subsidiaries, SCL purchased the NAGARA and the TAVARA, which were then leased to AES Ltd. Two other ships owned by other SCL subsidiaries, the CAVARA and the AES EXPRESS, were also leased to AES Ltd. A fifth ship, the AES CHALLENGER, appears to have been leased by yet another SCL subsidiary and then subleased to AES Ltd. All five vessels were operated for AES Ltd. by AES Inc., whose employees had been employees of the prior owners of the AES line. AES Ltd. paid AES Inc. a fee for these services; AES Ltd. itself had no employees and was merely "a shell. Its sole function was to buy the liner service, and through loans and money earned on freights to finance the operation of the liner service, until it hopefully became a self-supporting enterprise." 725 F.Supp. at 1306.

Itel, plaintiff Flexi-Van Leasing Inc. ("Flexi-Van"), and plaintiffs Textainer Inc. and Textainer Special Equipment Ltd. (collectively "Textainer") were also engaged in the business of leasing cargo containers and related equipment to ocean carriers. They had leased equipment to the AES line prior to the formation of AES Ltd. and its purchase of the AES line. In the spring of 1984, the pending sale of the AES liner service to AES Ltd. was reported in the press, and SCL's involvement was rumored. In June and July of 1984, Flexi-Van, whose lease with the AES line was to expire on June 30, negotiated for a new lease and an extension of the existing lease with the then-owner of the line. It attempted to obtain SCL's guarantee of the leases. Similarly, when the sale to AES Ltd. was imminent and the then-owner of the line requested Itel's consent to the assignment of the lease to AES Ltd., Itel sought SCL's guarantee of AES Ltd.'s obligation on the lease.

SCL refused to give a guarantee to either lessor. Itel eventually entered into new leases with AES Ltd. The original Flexi-Van lease technically expired on June 30, 1984, but the equipment was not returned, and the lease was treated as if it had been extended; new Flexi-Van leases In the fall of 1985, the AES operation "fell apart." 725 F.Supp. at 1308. AES Ltd. was deeply in debt and incurring large monthly losses. SCL refused to give further financial assistance, and AES Ltd. eventually went into liquidation in England. With AES Ltd. in bankruptcy, plaintiffs commenced actions in the district court to recover payment for the equipment rentals from SCL. They also asserted maritime liens against the defendant vessels.

covering additional containers took effect in July 1984.

Following consolidation of the actions and a bench trial, the district court dismissed the consolidated complaint. It found no agency or contractual relationship between SCL and the plaintiffs and no basis for piercing AES Ltd.'s corporate veil to hold SCL liable for AES Ltd.'s contractual obligations. Judgment was entered in favor of all defendants, and this appeal followed.

II. DISCUSSION

On appeal, plaintiffs contend (1) that they were entitled to recover against SCL for the debts of AES Ltd. under any of several theories; (2) that their maritime liens against the five vessels should have been upheld; and (3) that they were entitled to a default judgment against AES Ltd. We reject the first contention and conclude that a remand is required with respect to the second and third.

A. The Claims Against SCL

Plaintiffs advance three theories in support of their contention that SCL is liable for the damages that resulted when AES Ltd. ceased doing business and thereby breached the container leases. They contend that SCL should have been found liable (1) as a joint venturer with AES Ltd., or (2) as AES Ltd.'s principal, or (3) for such abuse of the corporate form as to warrant piercing the corporate veil. We find no merit in any of these arguments.

1. The Joint Venture Theory

Under New York law, which applies to this case, see Itel Containers International Corp. v. Atlanttrafik Express Service Ltd., No. 86 Civ. 1313, slip op. at 12, 1988 WL 75262 (S.D.N.Y. July 13, 1988), a joint venture "is in a sense a partnership for a limited purpose, and it has long been recognized that the legal consequences of a joint venture are equivalent to those of a partnership." Gramercy Equities v. Dumont, 72 N.Y.2d 560, 565, 534 N.Y.S.2d 908, 911, 531 N.E.2d 629 (1988). Thus, for example, one coventurer will be bound by a lease signed by another coventurer, even if the first neither signed nor assented to the lease. See Edison Stone Corp. v. 42nd Street Development Corp., 145 A.D.2d 249, 255-56 & 256 n. 3, 538 N.Y.S.2d 249, 252-53 & 253 n. 3 (1st Dep't 1989); see also N.Y. Partnership Law Sec. 20(1) (McKinney 1988). Plaintiffs contend that the district court should have found that SCL and AES Ltd. were joint venturers in operating the AES line and that, under the above principles, SCL was liable for the container leases signed by AES Ltd. We conclude that the district court properly found that SCL was not party to a joint venture.

In order to form a joint venture, (1) two or more persons must enter into a specific agreement to carry on an enterprise for profit; (2) their agreement must evidence their intent to be joint venturers; (3) each must make a contribution of property, financing, skill, knowledge, or effort; (4) each must have some degree of joint control over the venture; and (5) there must be a provision for the sharing of both profits and losses. See, e.g., Flammia v. Mite Corp., 401 F.Supp. 1121, 1127 (E.D.N.Y.1975), aff'd without opinion, 553 F.2d 93 (2d Cir.1977). All of these elements must be present before joint venture liability may be imposed. At least two elements were lacking in the present case.

The district court found that SCL did not intend to engage in a joint venture. Plaintiffs have pointed to no evidence to the contrary, and the record fully supports the...