Itel Containers Intern. v. Atlanttrafik Exp. Serv.

• Citation: 668 F. Supp. 225
• Decision Date: 18 August 1987
• Docket Number: No. 86 Civ. 1313 (RLC).,86 Civ. 1313 (RLC).
• Parties: ITEL CONTAINERS INTERNATIONAL CORPORATION, et al., Plaintiffs, v. ATLANTTRAFIK EXPRESS SERVICE, LTD., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

668 F. Supp. 225

ITEL CONTAINERS INTERNATIONAL CORPORATION, et al., Plaintiffs, v. ATLANTTRAFIK EXPRESS SERVICE, LTD., et al., Defendants.

No. 86 Civ. 1313 (RLC).

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

August 18, 1987.

Burlingham, Underwood & Lord, New York City (Robert J. Zapf and Alfred E. Yudes, Jr., of counsel), for plaintiff Itel Containers Intern. Corp.

Wilson & Minasi, New York City (Michael D. Wilson, of counsel), for plaintiffs Textainer Inc. and Cross County Leasing Ltd.

O'Melveny & Myers, New York City (Andrew J. Frackman and Robin Dahlberg, of counsel), for plaintiff Flexi-Van Leasing, Inc.

Carter, Ledyard & Milburn, New York City (Lawrence F. Carnevale and James Gadsden, of counsel), for intervenors Strider 4 Inc., Strider 1 Ltd., Nagara Tam Ltd., Nagara Ltd. and Contender 1 Ltd.

OPINION

ROBERT L. CARTER, District Judge.

These consolidated actions arise from the default by defendant Atlanttrafik Express Service, Ltd. ("AES") on leases it entered into for marine cargo containers and chassis. In its Second Amended Complaint, plaintiff Flexi-Van Leasing, Inc. ("Flexi-Van"), a lessor of the equipment, asserts, inter alia, a claim in rem against the former vessels of the now-liquidated AES based on a maritime lien to recover unpaid charges on the equipment.¹ The present vessel owners—intervenors Strider 4 Inc., Strider 1 Ltd., Nagara Ltd., Nagara Tam Ltd., and Contender 1 Ltd.—now move for partial summary judgment to dismiss Flexi-Van's in rem action to the extent that it seeks a maritime lien for unpaid chassis and container charges other than those for per diem rents on containers for periods during which the containers were on board a vessel. The motion is filed pursuant to Rule 56, F.R.Civ.P.²

Whether maritime liens may be asserted for charges owing on chassis and containers for periods they were not used on board ship is apparently an issue of first impression not only in this circuit but in any federal court. In light of the growing importance this equipment now plays in modern cargo shipment, the issue before the court is thus one of some moment not only to the litigants but to the shipping industry as a whole. As a result, before addressing the competing claims of the parties, it is appropriate to review not only the applicable law but what has been called the "container revolution." Simon, The Law of Shipping Containers, 5 J.Mar.L. & Com. 507, 507 (1974).

BACKGROUND

Marine containers are large metal boxes used to transport cargo. They are usually 20 or 40 feet long, 8 feet wide, and 8 feet high. Chassis are frames and wheels designed to move containers to and from ports, in and around a port or dock area, and even, in the case of specially outfitted roll-on, roll-off vessels (so-called "ro-ro" vessels), onto the vessel. See Simon, supra, at 510.

Containerization has become increasingly popular because it offers a far more efficient means of transporting freight than the loose or "break-bulk" shipping of the past, when large quantities of smaller packages would be delivered to the pier by truck or rail, individually unloaded by hand and moved and stacked in a storage area before finally being loaded on board ship for a voyage that would end in a similarly cumbersome and labor-intensive unloading process. Simon, supra, at 510-11.

With containerization, a single reusable container holding many smaller packages can be delivered to the pier, put aside until the ship is ready, and loaded and unloaded, all without costly movement of the individual packages. The labor savings are substantial, damage to cargo is reduced, and ships and their crew spend less idle time in port. Simon, supra, at 512. As the United States Court of Appeals for the Second Circuit has noted, containerization has so "revolutionized maritime cargo-handling techniques" that it has been "characterized by one commentator as `one of the most important technological developments in the transportation of goods by sea since steam replaced sail.'" CTI-Container Leasing Corp. v. Oceanic Operations Corp., 682 F.2d 377, 380 (2d Cir.1982) (quoting Simon, supra, at 507).

Flexi-Van is one of the world's largest container lessors and the largest lessor of chassis in the world. In this action it seeks to recover $2,483,387.64 for AES's default on the lease arrangements. The damages claimed are for per diem rent, repair, insurance, drop-off charges,³ direct interchange charges,⁴ handling charges, charges for lost equipment, and accelerated rent. Second Amended Complaint, ¶¶ 11-20. The vessel owners do not dispute that these charges were never paid, only that the vessels may be subject to maritime liens as a result.

DISCUSSION

The question of whether Flexi-Van may assert a maritime lien on AES's former vessels turns on the Federal Maritime Lien Act, 46 U.S.C. § 971 et seq. ("the Act"). Under the Act, a federal maritime lien creates "a special property right in the vessel, arising in favor of the creditor by operation of law as security for a debt or claim. The lien arises when the debt arises, and grants the creditor the right to appropriate the vessel, have it sold, and be repaid the debt from the proceeds." Equilease Corp. v. M/V Sampson, 793 F.2d 598, 602 (5th Cir. 1986) (en banc), cert. denied, ___ U.S. ___, 107 S.Ct. 570, 93 L.Ed.2d 575 (1987). It is "a lien on the vessel," and "has been held to follow the vessel even after it has been sold to an innocent purchaser." Id. It serves the "dual purpose of keeping ships moving in commerce while not allowing them to escape their debts by sailing away." Id.; see also G. Gilmore & C. Black, The Law of Admiralty, § 9-34 at 657 (2d ed. 1975).

Section 971 of the Act provides that:

Any person furnishing repairs, supplies, towage, use of dry dock or marine railway, or other necessaries, to any vessel, whether foreign or domestic, upon the order of the owner of such vessel, or of a person authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall not be necessary to allege or prove that credit was given to the vessel.

The vessel owners contend that except for the period during which they are used on board ship, neither chassis nor containers are "necessaries" under the Act. In addition, they argue that the containers and chassis in this case were not "furnished to" the vessels within the meaning of the statute.

Under § 971, "the word `necessaries' ... should be broadly interpreted: `The test is whether the supplies or services furnished are reasonably needed in the ship's business.'" Nautilus Leasing Services, Inc. v. M/V Cosmos, 1983 A.M.C. 1483, 1483 (S.D.N.Y.1983) (MacMahon, J.) (citation omitted). The term "includes most goods or services that are useful to the vessel, keep her out of danger, and enable her to perform her particular function. Necessaries are the things that a prudent owner would provide to enable a ship to perform well the functions for which she has been engaged.... `It is the present, apparent want of the vessel, not the character of the thing supplied, which makes it a necessary.'" Equilease, supra, 793 F.2d at 603 (quoting 2 Benedict on Admiralty § 34 (7th ed. 1984)) (emphasis added); see also G. Gilmore & C. Black, supra, § 9-34 at 657-58 & n. 185 (citing cases).

In light of the expansive gloss surrounding "necessaries," it not surprising that all courts which have considered whether containers are necessaries have answered in the affirmative. Foss Launch & Tug Co. v. Char Ching Shipping U.S.A., Ltd., 808 F.2d 697, 700 (9th Cir.1987); Nautilus, supra, 1983 A.M.C. at 1483; Transamerica ICS, Inc. v. M/V Panatlantic, 1984 A.M.C. 489, 490 (S.D.Fla.1983). The vessel owners do not challenge the validity of these holdings, but seek to distinguish them on the ground that the liens at issue in those cases were only valid to the extent that the containers were in use on board ship. The liens sought in this case, they say, include charges for periods the chassis and containers were not used on board ship. See Intervenors' Reply Memorandum of Law at 7-19 passim.

It is unclear to what use the containers in the previously reported cases were put.⁵ It is clear, however, that the vessel owners' analysis misses the mark. As noted, it is the need of the vessel, "not the character of the thing supplied, which makes it a necessary." Equilease, supra, 793 F.2d at 603 (quoting Benedict on Admiralty, supra, § 34) (emphasis added). Thus, as far back as 1931 this court, upholding a maritime lien for unpaid taxi fare necessary to bring provisions to a crew, held that the fact that "the services were performed on land ... would not make them non-maritime." The Artemis, 53 F.2d 672, 680 (S.D.N.Y.1931) (Woolsey, J.) (citing, inter alia, The Susquehanna, 3 F.2d 1014 (D.Mass.1923) (lien attached when health officials required that passengers' baggage be fumigated on land)); see also Equilease, supra, 793 F.2d at 604 (insurance is a necessary because it "is something that every vessel today needs just to carry on its normal business").

Containers and chassis, similarly, are necessary to the operation of a modern container ship not only when they are on board ship but also when they are being used to transport or store freight around the port area, or to load it on board. In this latter sense, they are no different from cranes or stevedores, both of which are incontestably "necessaries" under § 971. As Judge Knapp noted in Atlantic & Gulf Stevedores, Inc. v. M.V. Rosa Roth, 587 F.Supp. 1033, 1035 (S.D.N.Y.1984) (Knapp, J.), where the defendant vessel resisted imposition of a lien on unpaid stevedore services: "The vessel was chartered out to carry freight; it needs no great expertise in admiralty to know that a vessel cannot fulfill that purpose without loading and unloading services such as those provided by plaintiff." See also TTT Stevedores of Texas, Inc. v. M/V Jagat Vijeta, 696 F.2d 1135, 1138 (5th Cir.1983) ...