Morgan Guar. Trust Co. of NY v. Hellenic Lines
| Decision Date | 23 February 1984 |
| Docket Number | No. 83 Civ. 8560 (RWS).,83 Civ. 8560 (RWS). |
| Citation | 38 BR 987 |
| Parties | MORGAN GUARANTY TRUST COMPANY OF NEW YORK, et al., Plaintiffs, v. HELLENIC LINES LIMITED, et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
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Lord Day & Lord, New York City, for plaintiff Morgan Guar. Trust Co. of New York; John J. Loflin, Jerry E. Muntz, New York City, of counsel.
Nourse & Bowles, New York City, for plaintiff Intern. Terminal Operating Co., Inc.; John E. Bradley, David A. Nourse, New York City, of counsel.
Ober, Kaler, Grimes & Shriver, New York City, for plaintiffs CTI-Container Leasing Corp. and Transamerica ICS, Inc.; Kieron F. Quinn, John T. Ward, New York City, of counsel.
Poles, Tublin, Patestides & Stratakis, New York City, for defendant Hellenic Lines Ltd.; John G. Poles, Alan Van Praag, Peter P. McNamara, New York City, of counsel.
Two motions are before this court, both of which seek to establish the validity and priority of maritime liens asserted against certain Hellenic Lines Limited ("Hellenic") vessels and their freights.1 A number of admiralty in rem proceedings, including several now consolidated before this court,2 were pending when Hellenic filed a voluntary petition for Chapter 11 reorganization under the Bankruptcy Code, 11 U.S.C. § 1101 et seq. Prior to the filing of Hellenic's petition, maritime lien claimants had arrested four Hellenic vessels in this jurisdiction, and at least one maritime lien claimant had arrested the freights, sub-freights and charter-hire of these and other Hellenic vessels. Certain maritime lien claimants now seek a determination that this court retains exclusive jurisdiction over the arrested vessels and freights, despite Hellenic's Chapter 11 petition, thus squarely presenting the jurisdictional and procedural conflicts between this court, sitting in admiralty, and the Bankruptcy Court. For the reasons set forth below, the motion of CTI Container Leasing Corporation ("CTI") and Transamerica ICS, Inc. ("ICS") will be granted and that of International Terminal Operating Co., Inc., ITO Corporation of Virginia, ITO Corporation of Baltimore, ITO Corporation, and Atlantic & Gulf Stevedores, Inc. (collectively "ITO") will be granted in part and denied in part.
CTI and ICS commenced actions on November 28, 1983 against Hellenic in personam and the MV HELLENIC INNOVATOR and her freights in rem, and on December 9, 1983 against the MV HELLENIC SPIRIT and her freights in rem to enforce maritime liens arising out of various leases of marine cargo containers and related marine equipment. CTI and ICS assert that the leases are maritime contracts, see CTI-Container Leasing Corp. v. Oceanic Operators, 682 F.2d 377, 380 (2d Cir.1982), and that the containers provided to the vessels are "necessaries" and therefore give rise to maritime liens under 46 U.S.C. § 971, Nautilus Leasing Services, Inc. v. MV COSMOS, 1983 AMC 1483 (S.D.N.Y. March 22, 1983). CTI seeks to recover more than $2,078,000 in rent and other charges due under the leases or the value of the equipment, reputedly $9,000,000. Similarly, ICS seeks to recover $459,000 under its leases or $1,646,000 as the value of the unreturned equipment. By this motion they seek an order declaring that this court has exclusive jurisdiction over the vessels and their freights.
ITO commenced an action, 83 Civ. 8608, on November 29, 1983, against Hellenic in personam and twenty Hellenic vessels in rem. Pursuant to 46 U.S.C. § 971, ITO claims a maritime lien for stevedoring services and other necessaries provided to the vessels for or on behalf of Hellenic. On November 29, 1983, ITO obtained Warrants For Arrest in rem against the MV HELLENIC STAR ("STAR") and the MV HELLENIC INNOVATOR ("INNOVATOR"). Morgan Guaranty Trust Company of New York ("Morgan Guaranty") and other maritime lien claimants arrested a third vessel, the MV HELLENIC IDEAL ("IDEAL"), at roughly the same time. On December 12, 1983, ITO and other maritime lien claimants obtained Warrants For Arrest in rem against the MV HELLENIC SPIRIT ("SPIRIT").
On December 8, 1983, ITO obtained Warrants For Arrest in rem against the freights, sub-freights and charter-hire of eighteen vessels named in its Amended Verified Complaint.3 The Clerk of the Court issued a summons to show cause why intangible property should not be paid into court to each of the following: Morgan Guaranty, Hellenic American Agencies, Inc. ("Hellenic American") and Continental Bank International ("Continental"), and to all persons having control of the freights, sub-freights, and charter-hire of the MV HELLENIC CHALLENGER, MV HELLENIC CHAMPION, MV HELLENIC PRINCE, MV HELLENIC EXPLORER, MV HELLENIC SKY, MV HELLENIC GRACE, MV HELLENIC PATRIOT, MV HELLENIC PIONEER, MV GRIGORIS C.I.V., MV HELLENIC PRIDE, MV HELLENIC SEAMAN, MV HELLENIC SUN, MV HELLENIC VALOR and MV HELLENIC WAVE and the STAR, INNOVATOR, IDEAL and SPIRIT. Morgan Guaranty filed a Verified Answer of Garnishee indicating that it has custody and control of $99,880.94 in freight monies earned by ten of the eighteen vessels whose freights were subject to ITO's arrest. Neither Hellenic American nor Continental filed a garnishee's answer, but Continental informed ITO that it holds no such freight monies.
On December 12, 1983, Hellenic and Hellenic American filed petitions for reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 1101 et seq., in the Southern District of New York. On December 28, 1983, Hellenic moved, by order to show cause, in the Bankruptcy Court, for permission to use $420,000 in freight revenue located in New York to cover operating expenses through mid-January 1984. At a hearing on January 4, 1984, over the objections of ITO and other maritime lien claimants, Bankruptcy Judge Burton R. Lifland granted Hellenic's motion, allowing it to use the $420,000 in freight monies and requiring it to grant Morgan Guaranty, ITO and other lien claimants a first lien and security interest upon Hellenic's leasehold interest in its premises at 39 Broadway, New York, New York and upon the proceeds of the sale of the MV HELLENIC CONCORDE, owned by Transpacific Carrier Corporation, after payment of all valid and perfected prior liens, as substituted collateral.
In an order filed January 4, 1984, Judge Lifland vacated the automatic stay of Section 362 of the Bankruptcy Reform Act of 1978 (the "Bankruptcy Code"), 11 U.S.C. § 362, "to the extent of permitting CTI to intervene or participate in any action, existing or future, against any assets, including vessels, of Hellenic wherever they might be found. . . ." Acknowledging that courts of admiralty outside the United States may not recognize the jurisdiction of United States Bankruptcy Courts with respect to the disposition of vessels free and clear of maritime liens and in an effort to maximize the proceeds from the sale of the vessels arrested in this and other actions, Judge Lifland, in an order filed January 20, 1984, further vacated the automatic stay and permitted any party having a claim against fourteen Hellenic vessels, including the INNOVATOR, the STAR, the IDEAL, and the SPIRIT, the vessels arrested in this action, to "take any and all steps necessary to protect and enforce their rights and interests in the aforementioned Vessels, including the commencement and prosecution of Admiralty Proceedings in courts of competent jurisdiction, sale of the aforementioned Vessels and the distribution of the proceeds of such sales."
On February 3, 1984, this court ordered the interlocutory sale of the ships arrested here, the STAR, IDEAL, SPIRIT and INNOVATOR, on March 2, 6, 13 and 16, respectively, subject to confirmation by the court.
On February 6, 1984, Hellenic again sought permission of the Bankruptcy Court to use freight revenue to cover operating expenses, this time seeking to use up to $700,000 for the period of February through April, 1984. Judge Lifland declined to sign Hellenic's order to show cause which was then submitted to this court. It was withdrawn by Hellenic before the return date on the understanding that Judge Lifland would permit Hellenic to redraft the application to include additional information and would then entertain the application. The renewed order to show cause has not yet been filed in either court.
CTI and ICS seek an order declaring that this court retains exclusive jurisdiction over the INNOVATOR and the SPIRIT and their freights. CTI and ICS contend that their pre-petition in rem actions involve matters lying within the exclusive admiralty and maritime jurisdiction of this court, U.S. Const. Art. III § 2 and 28 U.S.C. § 1333, and therefore the vessels and their freights do not come within the control of the Bankruptcy Court as assets to be administered in the bankruptcy proceeding.
As noted above, the Bankruptcy Court has lifted the automatic stay of Section 362 of the Bankruptcy Code to permit the prosecution of admiralty proceedings in courts of competent jurisdiction against fourteen Hellenic vessels, including the INNOVATOR and the STAR. To the extent, if any, the automatic stay applied to the pending in rem actions by CTI and ICS against these vessels, it is no longer a bar. As a result, there is no jurisdictional clash between this court, sitting as a court in admiralty, and the Bankruptcy Court, with respect to the sale of these vessels.
The INNOVATOR and SPIRIT are scheduled to be sold on March 16 and March 13, 1984, respectively, subject to confirmation by this court. When the INNOVATOR and SPIRIT are sold, the maritime liens will be extinguished as against these vessels in the hands of the purchasers. See G. Gilmore & C. Black, The Law of Admiralty § 9-85, at 787 (2d ed. 1975). A judicial sale of vessels by an admiralty court acting in rem divests not only all liens held by claimants who intervened in or had...
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