Rainbow Line, Inc. v. M/V TEQUILA

• Decision Date: 18 April 1972
• Docket Number: No. 71 Civ. 2722.,71 Civ. 2722.
• Citation: 1972 AMC 1540,341 F. Supp. 459
• Parties: RAINBOW LINE, INC., Plaintiff, v. M/V TEQUILA (ex Linglee), her engines, tackle, boiler, equipment, etc., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

341 F. Supp. 459

1972 AMC 1540

RAINBOW LINE, INC., Plaintiff, v. M/V TEQUILA (ex Linglee), her engines, tackle, boiler, equipment, etc., et al., Defendants.

No. 71 Civ. 2722.

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

April 18, 1972.

Cichanowicz & Callan, New York City, for plaintiff; Francis H. McNamara, New York City, of counsel.

Anthony J. Pirrotti, Brookyln, N. Y., for Murphy Pacific Marine Salvage Co.; Colum P. Nugent, New York City, of counsel.

Burlingham, Underwood & Lord, New York City, for Empire Commercial Corp.; William M. Kimball, Michael M. Cohen and John G. Ingram, New York City, of counsel.

Kenneth Heller, New York City, for defendants.

METZNER, District Judge:

Plaintiff Rainbow Line, Inc. Rainbow moves pursuant to Rule 56, Fed.R. Civ.P., for summary judgment on its claim arising out of an alleged breach of a charter party by defendant Simpson Steamship & Navigation Co. Simpson. Rainbow also moves for an order directing the clerk of the court to pay the United States Marshal the sum of $13,891.75, this being the marshal's expenses and fees for arresting, keeping and selling the vessel M/V Tequila. Plaintiff Murphy Pacific Marine Salvage Co. Murphy has likewise moved for summary judgment on the basis of a claimed salvor's lien against the Tequila.

The various claims involved in these four consolidated lawsuits arise out of the checkered career of the M/V Tequila. Her adventures began on November 6, 1969, when she was chartered by Rainbow from her owner Simpson, a Bahamian corporation. At that time the Tequila bore the name M/V Linglee and was registered under the British flag. The charter contract was on the standard New York Produce Exchange form, and in paragraph 17 recited that any dispute between owner and charterer should be submitted to arbitration, that the decision of the arbitrators would be final, and that "for the purpose of enforcing any award, this agreement may be made a rule of the Court."

The Linglee was delivered to Rainbow on December 12, 1969. Sometime thereafter a dispute arose, and on October 28, 1970 the vessel was withdrawn by Simpson. Negotiations proved fruitless, and on January 4, 1971 Rainbow demanded arbitration pursuant to paragraph 17 of the contract, claiming $32,978.59 in damages. On May 13, 1971 the arbitration panel filed a decision awarding Rainbow $17,849.42 on its claims. To date no payment has been made by Simpson on the award. Rainbow's complaint seeks to have judgment entered on this award, or in the alternative, if any party to the action contests the award, it seeks judgment for its original claim.

The claims of Murphy have their origin in another facet of the Linglee's history. In November of 1970, after the vessel was withdrawn from the charter party but before the commencement of arbitration, she ran aground off Cape Cameron, Honduras. Plaintiff Lewis Raymond Nadle unsuccessfully attempted to salvage the ship. Salvage assistance was then offered by Murphy, but the initial terms were unacceptable to Simpson's parent corporation, Windjammer International Windjammer. Negotiations continued, and on December 11, 1970 Murphy dispatched its salvage tug M/V Curb to aid the stricken vessel.

On December 14, 1970 Murphy and Windjammer reached agreement on the terms of compensation. Murphy was to be paid $3,600 per day from the time of dispatch of the Curb until her return, plus $5,000 per day for time spent at the site. In addition, Windjammer agreed to deposit with Murphy, as security for payment, 15,000 shares of Windjammer stock together with an assignment of the stock to Murphy. Murphy realized that the ship it was attempting to salvage was uninsured and that Windjammer apparently was in some financial difficulty.

On December 21, 1970 the vessel was refloated by the Curb. No payments, however, have been forthcoming by Windjammer under the salvage contract. Murphy claims that $61,632.08 is due and owing.

Meanwhile, another chapter in the hapless vessel's history was being written. On March 8, 1971, between the time the Linglee was refloated and the time arbitration began, she was sold by Simpson to another subsidiary of Windjammer, Tequila, Ltd., a Liberian corporation. The vessel's name was thereupon changed to the M/V Tequila, and she was registered under the Liberian flag.

As part of this transaction, Tequila, Ltd. signed a promissory note for $180,000 in favor of Empire Commercial Corp. Empire, which had advanced the money necessary for the purchase. The note was guaranteed by Windjammer. Empire also secured a first preferred mortgage on the vessel, which was duly recorded on March 8, 1971 in Liberia in accordance with Liberian law. On May 21, 1971 Empire sent Tequila, Ltd. notice of default and called the entire principal due. There remains $176,400 to be paid on the note.

The denouement was fast approaching for the good ship. In May of 1971 she was arrested in New York by a United States Marshal upon the complaint of Lewis Raymond Nadle, who claimed that $60,000 was due and owing for salvage and towage services furnished when the vessel ran aground off Honduras. In quick succession she was also arrested by Rainbow, Murphy and Empire. On June 22, 1971 she was sold at auction by the marshal for $162,000, the proceeds being paid into the registry of the court. Crew wages and subsistence in the amount of $24,939.20 have been paid out of the fund, leaving a balance of $137,060.80. The total claims against the vessel, amounting to $367,373.20, far exceed the monies available for payment. Thus the relative priorities of the various claims have crucial significance.

In its motion for summary judgment Rainbow argues that Simpson's breach of the charter party gave rise to a maritime lien on behalf of Rainbow. It contends that this lien, having arisen before the recording of Empire's first preferred mortgage, has priority over that mortgage. Rainbow further argues that Murphy waived its salvor's lien by taking the 15,000 shares of Windjammer stock as security under the salvage contract. If Rainbow's contentions are correct, it would be entitled to full and immediate payment because the fund is sufficient to cover all claims apart from those of Empire and Murphy.

For its part, Empire contends that Rainbow cannot collect on its arbitration award because that award has never been reduced to judgment. Empire further claims that breach of a charter party does not create a maritime lien, and that even if it does, the maritime lien would be inferior to a preferred mortgage. Empire also takes the position that Murphy waived its salvor's lien by accepting the Windjammer stock.

Murphy bases its motion for summary judgment on a claimed salvor's lien. If it had such a lien it would have priority over any lien that Rainbow had and, since it attached before the recording of the mortgage, over Empire's first preferred mortgage. Murphy argues that a salvor's lien is not waived merely by taking additional security, but that the intent of the parties is controlling, and that it never intended to waive its lien.

Turning now to the various claims, on the threshold is the question of whether Rainbow can rely upon its arbitration award to establish breach of the charter party and damages caused by that breach. Empire contends that Simpson, against whom the award runs, has not been served with process as required by 9 U.S.C. § 9, and that the court therefore lacks jurisdiction to enter judgment on the award.

Although there has been some confusion as to whether Simpson is a party to the present proceedings, it is now apparent that on May 5, 1971 Kenneth Heller filed a notice of appearance on behalf of all defendants, including both Simpson and the Tequila, and that on June 4, 1971 Heller submitted answering papers for all defendants. Simpson therefore is definitely a party and the present motion papers have been served in accordance with 9 U.S.C. § 9. Hence the court does have jurisdiction to enter judgment confirming the arbitration award. In addition, that judgment can be in rem against the vessel even though the arbitration award was in personam against Simpson. Marine Transit Corp. v. Dreyfus, 284 U.S. 263, 52 S.Ct. 166, 76 L.Ed. 282 (1932); Diana Compania Maritima, S. A. of Panama v. Subfreights of the S.S. Admiralty Flyer, 280 F.Supp. 607, 615-616 (S.D.N.Y. 1968); 9 U.S.C. § 8.

No reason having been shown why the arbitration award should not be confirmed, the court enters judgment confirming the award in the amount of $17,217.65, as claimed by Rainbow. 9 U.S.C. § 9.

Of course, the mere fact that the arbitration award has been confirmed does not entitle Rainbow to immediate payment on it. Resolution of this issue depends upon whether breach of a charter party gives rise to a maritime lien, and, if so, whether that lien has priority over the other claims asserted.

At the outset, these issues raise choice of law problems. Empire contends that it is flag law which determines whether a maritime lien is created by breach of a charter party. According to Empire's approach, British law would govern since the Linglee was of British registry at the time of breach. Under British law, breach of a charter party does not give rise to a maritime lien. 2 Carver, Carriage of Goods by Sea 1386 (12th ed. Colinvaux 1971); Scrutton on Charter Parties 434-35 & n. (i) (17th ed. McNair, Mocatta & Mustill 1964).

In support of its choice of law rule, Empire cites Lauritzen v. Larsen, 345 U.S. 571, 73 S.Ct. 921, 97 L.Ed. 1254 (1953). That case, however, did not lay down a per se rule that flag law must govern in all situations. Rather, the Court evaluated the significant contacts and determined that under the facts presented in that case flag law would be controlling. Lauritzen v. Larsen was a tort action, and, as the Court pointed out, "the tendency of the law is to apply in contract matters the law which the parties intended to apply." 345 U.S. at 588-589, 73 S.Ct. at 931....