Sharma v. Skaarup Ship Management Corp.

• Decision Date: 17 October 1990
• Docket Number: Nos. 1085,D,1086,s. 1085
• Citation: 916 F.2d 820
• Parties: Birendra Mohan SHARMA, Astral Holding Corporation, Freesia Shipping Corporation, Sun Lily Maritime Inc., Doman Tankers Inc., and Zodiac Finance Corporation, Plaintiffs-Appellants, v. SKAARUP SHIP MANAGEMENT CORPORATION, Ole Skaarup, Bent Larson and Chemical Bank, Defendants-Appellees. ockets 89-9191, 90-7015.
• Court: U.S. Court of Appeals — Second Circuit

Page 820

916 F.2d 820

1991 A.M.C. 778

Birendra Mohan SHARMA, Astral Holding Corporation, Freesia Shipping Corporation, Sun Lily Maritime Inc. Doman Tankers Inc., and Zodiac Finance Corporation, Plaintiffs-Appellants, v. SKAARUP SHIP MANAGEMENT CORPORATION, Ole Skaarup, Bent Larson and Chemical Bank, Defendants-Appellees.

Nos. 1085, 1086, Dockets 89-9191, 90-7015.

United States Court of Appeals Second Circuit.

Argued March 26, 1990.

Decided Oct. 17, 1990.

Paul F. Doyle (Sarah L. Reid, Kelley Drye & Warren, New York City, of counsel), for plaintiffs-appellants.

David H. Braff (William M. Dallas, Jr., Sullivan & Cromwell, New York City, of counsel), for defendants-appellees Skaarup Ship Management Corp. and Ole Skaarup.

Henry Lewis Goodman (Harold N. Schwinger, Menachem O. Zelmanovitz, Margot B. Schonholtz, Jay Teitelbaum, Zalkin, Rodin & Goodman, New York City, of counsel), for defendant-appellee Chemical Bank.

Before OAKES, MINER and WINTER, Circuit Judges.

WINTER, Circuit Judge:

This appeal arises out of an action for the alleged breach of a financing agreement concerning three vessels. This agreement was between defendant-appellee Chemical Bank and plaintiffs-appellants Birendra Mohan Sharma ("Mr. Sharma"), Astral Holding Corp. ("Astral"), Freesia Shipping Corp. ("Freesia"), Sun Lily Maritime Inc. ("Sun Lily"), Doman Tankers Inc. ("Doman"), and Zodiac Finance Corp. ("Zodiac"). Appellants claim that Chemical Bank breached the agreement by preventing the refinancing of the vessels, thereby causing their foreclosure. They also claim that defendants-appellees Ole Skaarup and the Skaarup Ship Management Corp. (collectively "Skaarup") tortiously interfered with the contractual relations between appellants and Chemical Bank.

Appellants' claims were dismissed by the district court under circumstances described infra. We affirm.

BACKGROUND

Mr. Sharma was the president of Freesia, Sun Lily and Doman. Chemical Bank entered into secured financing agreements with Freesia, Sun Lily, and Doman that enabled the corporations to purchase the tankers WAYUSUT, WINGED DOLPHIN, and VALIANT PORPOISE, respectively, between 1977 and 1981. Mr. Sharma personally guaranteed the obligations of the corporations to Chemical Bank.

After 1981 and during a general decline in the shipping industry, the three corporations defaulted on payments of the principal of the loans. By September 1983, they In August 1984, when over $30 million was due on the three mortgages, Chemical Bank advised appellants that it intended to terminate the financing agreements and take possession of the tankers. Chemical Bank arrested the tanker WINGED DOLPHIN on September 7, 1984, and took steps toward foreclosure on the other vessels. Appellants obtained an injunction ex parte from the High Court in London to halt the arrest proceedings. Chemical Bank sought to have the injunction vacated. Four days later, on September 12, 1984 and before an appellate ruling on the validity of the injunction, the parties settled the litigation through a new financing agreement ("Settlement Agreement").

were also in default on interest payments. In late 1983, apparently seeking to increase its oversight of the vessels as the collateral for the debt, Chemical Bank retained Ole Skaarup and the Skaarup Ship Management Corporation to inspect the ships and their records. Although appellants objected to the inspections because Skaarup was a competitor in the shipping industry, they eventually acquiesced.

The Settlement Agreement provided that appellants' debt to Chemical Bank would be fully discharged by surrender of the vessels or by a lump sum payment of $16.5 million to Chemical Bank with a commitment to refinance. Mr. Sharma was released from his personal guarantee of the debt.

The agreement afforded appellants twenty-eight days in which to arrange a refinancing of the vessels and fifty-six days to make the payment of the reduced debt. Under the agreement, appellants had to pay $2000 per day per vessel for the opportunity to refinance. Appellants released Chemical Bank from any claims arising prior to the Settlement Agreement, including the then-pending litigation in England. In addition, Paragraph XIV of the agreement provided that appellants would not "without the prior consent of [Chemical Bank] enter into any time charterparty of a longer duration of three months or any voyage charterparty which in the ordinary course of events would last for more than three months or any demise charterparty." Pursuant to the agreement, appellants delivered bills of sale for the three tankers to an escrow agent, to be delivered to the new owners designated by Chemical Bank should appellants not pay the $16.5 million within the time stipulated.

Appellants failed to obtain refinancing within the time designated. They allege that this failure was caused by Chemical Bank's bad faith refusal to approve charter parties of more than three months under Paragraph XIV. On October 31, 1984, appellants and Chemical Bank reached a new agreement ("October Modification") that modified and extended the Settlement Agreement.

The modification provided:

2. On or before, 2nd November 1984, all financial institutions (the "Participants") participating in the refinancing of the Vessels (which shall be in the aggregate amount of US$16 million) shall have approved their respective participations subject only to:

(a) satisfactory inspection of the Vessels,

(b) the fixing of "Wayusut" and the "Winged Dolphin" under charter parties acceptable to the Participants and,

(c) satisfactory documentation of the refinancing.

and the Bank shall have received written confirmation of the foregoing from the Institution in form and substance satisfactory to the Bank.

3. On or before 7th November 1984, the Bank shall have received from the Institution written confirmation that item 2(a) above is no longer a condition to the closing of the re-financing.

4. Upon receipt by the Bank of the confirmation referred to in Item 3 above, the Companies shall be and hereby are authorized by the Bank to enter into charter parties covering the "Wayusut" and the "Winged Dolphin" provided however, that no such charter party shall (a) commit such Vessels, or either of them for a period (including options) of longer than 38 months, or (b) specify an average gross charter Further extensions were agreed to by Chemical Bank in January and March 1985, but appellants failed to procure refinancing before the final extension period expired on April 1, 1985. They attribute that failure to Chemical Bank's breach of the October Modification by refusing to allow them to enter into two three-year charter parties with Thakur Shipping Company that are alleged to have been within the thirty-eight month limit specified in the Modification. On April 26, 1985, title to the three tankers was transferred to Skaarup as Chemical Bank's designee. Skaarup managed the tankers' operations on behalf of Chemical Bank until Chemical Bank sold the three tankers in 1986 for approximately $14 million.

rate to the owner thereof of less than US$7.00 per ton, per month and (c) be in any form other than the standard major oil company form.

Appellants commenced this action in 1986, claiming that Skaarup tortiously interfered with contractual relations between appellants and Chemical Bank and that Chemical Bank breached implied and express duties of good faith and fair dealing under the various agreements. In the course of pretrial proceedings, they specifically asserted that Chemical Bank did not act in good faith by refusing charter parties in excess of the three months' duration of Paragraph XIV under the Settlement Agreement and breached the October Modification by preventing appellants from obtaining a three-year charter with Thakur Shipping. They also claimed that Chemical Bank acted in bad faith by instructing appellants' insurance broker to cancel the insurance on the three tankers in October 1984, and that Chemical Bank's arrangement with Skaarup, appellants' competitor, was injurious to appellants. Finally, they alleged that Chemical Bank breached an implied duty of confidentiality regarding plaintiffs' banking business and also breached an express duty of confidentiality set forth in the September 12, 1984 Settlement Agreement.

Appellants sought as damages, not the market value of the vessels on the date of the various breaches and repossession, approximately $15 million, but the profits that would have been earned in future years had appellants retained the three tankers. In their view, these damages amount to $80 million.

The gravamen of appellants' theory is that the Settlement Agreement was entered into by Chemical Bank to escape the effect of the High Court injunction and that Chemical thereafter wanted to prevent a refinancing. They argue that Chemical believed an upturn in the shipping industry was around the proverbial corner and wanted to acquire the vessels to resell them when that corner was turned. According to appellants, Chemical Bank arranged that Skaarup would take title to the vessels and operate them until a profitable sale could be made. Allegedly, this arrangement was necessary to evade banking regulations that prevent banks from owning and operating ships for speculation. It is argued that the bank's various breaches of the Settlement Agreement and October Modification were intended to, and did, prevent a refinancing, enabling Skaarup to take title to the vessels. As a result, appellants lost the substantial profits they would have reaped had they continued to own the vessels when the demand for shipping increased.

Chemical Bank, of course, disputes this view of events. It points out that the Settlement Agreement was reached within four days after the ex parte injunction was issued and before its validity had been litigated. That Agreement, moreover, released Mr. Sharma entirely from his personal guarantee and appellants from...