Sinking of M/V Ukola, In re, 86-1412

• Decision Date: 24 November 1986
• Docket Number: No. 86-1412,86-1412
• Citation: 806 F.2d 1
• Parties: In re the SINKING OF the M/V UKOLA (Crew Cases). The OCEANUS MUTUAL UNDERWRITING ASSOCIATION, (BERMUDA) LIMITED, Plaintiff, Appellee, v. IMPERIAL SUGAR COMPANY, et al., Defendants, Appellees. Appeal of NATIONAL SURETY CORPORATION.
• Court: U.S. Court of Appeals — First Circuit

Page 1

806 F.2d 1

1988 A.M.C. 1516

In re the SINKING OF the M/V UKOLA (Crew Cases).

The OCEANUS MUTUAL UNDERWRITING ASSOCIATION, (BERMUDA)

LIMITED, Plaintiff, Appellee, v. IMPERIAL SUGAR COMPANY, et al., Defendants, Appellees.

Appeal of NATIONAL SURETY CORPORATION.

No. 86-1412.

United States Court of Appeals, First Circuit.

Argued Sept. 4, 1986.

Decided Nov. 24, 1986.

Francisco Castro Amy, San Juan, P.R., for appellant.

C. John Caskey, Baton Rouge, La., with whom Herbert W. Brown, III, Peter J. Satz, Calvesbert & Brown, San Juan, P.R., Reginald M. Hayden, Jr. and Hayden & Milliken, Miami, Fla., were on brief, for defendants, appellees Imperial Sugar Co., et al.

Before BOWNES and TORRUELLA, Circuit Judges, and CARTER, ^* District Judge.

BOWNES, Circuit Judge.

The National Surety Corporation (National) appeals from a grant of a motion for summary judgment by the United States District Court for the District of Puerto Rico in an interpleader action brought by the Oceanus Mutual Underwriting Association (Bermuda) Ltd. (Oceanus). Oceanus, as part of its interpleader action, had posted a bond underwritten by National. The court ordered payment under the bond to satisfy a judgment against Oceanus' insureds, Arosa Mercantil, S.A. (Arosa) and Inversiones Calmer, S.A. (Calmer), issued by the United States District Court for the Southern District of Florida. The Florida court had found Arosa and Calmer liable for property damage resulting from the sinking of the M/V Ukola. We affirm the Puerto Rico district court's ruling.

I BACKGROUND

In January, 1977, the M/V Ukola sank in the Gulf of Mexico en route to Galveston, Texas. ¹ Twenty people died in the sinking, three survived. The ship was carrying 9,856,071 pounds of raw sugar belonging to the Imperial Sugar Company (Imperial) and insured by the Continental Insurance Company (Continental). The vessel was owned and/or operated by Arosa, a Panamanian corporation. Calmer, also a Panamanian corporation, was the operator/charterer of the Ukola.

Much litigation followed in the wake of the sinking. Two judgments resulting from that litigation are central to this appeal: (1) the judgment in the Florida district court awarding damages for the loss of the cargo; and (2) the judgment in the interpleader action begun in Texas and concluded in Puerto Rico.

A. The Florida Judgment

Numerous lawsuits were filed in several states claiming damages for the deaths, injuries and destruction of property caused by the sinking of the Ukola. The various cases were assigned Multidistrict Litigation Number 354. A suit filed by Imperial and Continental against Arosa and Calmer in the Florida district court for the loss of the sugar was consolidated with the Multidistrict Litigation package. Arosa and Calmer were represented by Oceanus throughout the Florida proceedings. On August 18, 1984, the Florida court found that defendants Arosa and Calmer had "failed to use due diligence to make the UKOLA seaworthy, and that that failure caused the sinking of the UKOLA." The court issued a "Final Judgment" in favor of Imperial and Continental in the amount of $1,007,917.35, plus interest.

B. The Interpleader Judgment

In June, 1978, Oceanus filed an interpleader complaint in the United States District Court for the Southern District of Texas "against all persons alleging causes of action against Oceanus and its insureds, [Arosa and Calmer], for damages arising out of the sinking of the M/V Ukola...." Oceanus asserted that the total claims for damages still outstanding exceeded the limits of liability remaining on the insurance policy that it had provided. Oceanus alleged that, after settling eight claims and subtracting legal fees and the deductibles provided for in the policy, a total of $445,905.98 remained. With National as surety, Oceanus posted a bond for that amount with the Texas court. In July, 1984, the interpleader suit was stayed pending the outcome of the Florida damages litigation. In October, 1984, the interpleader action was transferred to Puerto Rico.

Meanwhile, on March 23, 1984, a voluntary petition for bankruptcy, under chapter 7 of the Bankruptcy Act, had been filed on behalf of Oceanus by contractually appointed receivers in the United States Bankruptcy Court for the Southern District of New York. An involuntary petition by court-appointed liquidators followed on May 1, 1984. In March, 1985, Oceanus filed a notice of automatic stay in the interpleader action in the Puerto Rico district court pending the bankruptcy proceedings, pursuant to 11 U.S.C. Sec. 362 (1982).

In September, 1985, Imperial, Continental, Arosa, Calmer and personal injury and wrongful death claimants moved the Puerto Rico District Court for summary judgment against Oceanus and/or its surety, National. The movants, appellees herein, contended that there was no reason why the $445,905.98 should not be immediately paid to Imperial and Continental to satisfy the Florida judgment entered in their favor against Arosa and Calmer. ² The district court granted the motion. It noted that the insurance proceeds could not be collected from Oceanus due to its "precarious economic condition" and that judgment could not be entered against Oceanus because of the automatic stay arising from the bankruptcy proceedings. The court entered a judgment against National for the amount of the bond.

C. Appellate Jurisdiction

The threshold issue is whether the summary judgment has the finality required for appellate jurisdiction under 28 U.S.C. Sec. 1291 (1982). The standard for finality in an interpleader action was stated in Insurance Co. of North America v. Bay, 784 F.2d 869, 872 (8th Cir.1986): "A judgment is final in an interpleader action when the court determines the claimants entitled to the money and the amount due each claimant."

In view of the procedural history of this case, we find that the summary judgment constituted a "final decision" for appellate jurisdictional purposes. The movants for summary judgment in the district court included personal injury and wrongful death claimants, as well as Imperial, Continental, Arosa and Calmer. The district court found that it "appear[ed] ... that there is no objection to the disbursement of these funds by any of the other defendants in this interpleader." To ensure that there were in fact no such objections, the court issued an order, dated March 4, 1986, allowing all parties until April 1, 1986, to inform the court if any other claims were pending in the action. Barring any such notification, the case would be "deemed concluded pursuant to the summary judment."

The district court ruled on the motion for summary judgment after finding that it "appear[ed]" that "a final judgment ha[d] been entered against Arosa and Calmer with respect to the cargo claims" in the Florida district court. In fact, the Florida court had issued an order, dated August 18, 1984, which stated that "FINAL JUDGMENT is hereby entered in favor of Plaintiffs, [Imperial] and [Continental]."

Although our decision concerns the propriety of the Puerto Rico court's judgment, Oceanus' automatic stay pending bankruptcy proceedings does not affect the finality of that judgment. A general principle of bankruptcy law is that the liability of a surety is not affected by the discharge of the principal debtor. 11 U.S.C. Sec. 524(e) (1982); Underhill v. Royal, 769 F.2d 1426, 1432 (9th Cir.1985); In re General Steel Tank Co., 478 F.2d 294, 296 (4th Cir.1973). This principle "rests on the premise that a discharge is personal and that it results from the operation of the law, not the consent of the creditor." In re General Steel Tank Co., 478 F.2d at 296; 9A Am.Jur.2d Bankruptcy Sec. 782 (1980). Therefore, the Puerto Rico District Court's judgment constitutes a final judgment against National for jurisdictional purposes notwithstanding Oceanus' bankruptcy proceedings.

II THE INTERPRETATION OF THE BOND

The summary judgment motion was argued and decided on the basis of a single issue: the proper interpretation of the terms of the bond posted by Oceanus and its surety, National. The bond states:

WHEREAS, in the above entitled and numbered cause, pending in the United States District Court for the Southern District of Texas, Houston Division, [Oceanus], Plaintiff in the above entitled and numbered cause, filed a Complaint and Bill in the Nature of an Interpleader against various and sundry Defendants in connection with claims for money damages being asserted against Plaintiff by the named Defendants in connection with an incident more fully described in the Complaint and Bill in the Nature of an Interpleader; and,

WHEREAS, contemporaneous with the filing of the Complaint and Bill in the Nature of an Interpleader [Oceanus] as principal, and [National], as Surety, bound themselves to deposit into the Registry of this Court and to pay unto the District Clerk of the District Court of the United States for the Sourthern [sic] District of Texas, Houston Division, and his successors and assigns, pursuant to the provisions of 28 U.S.C.A., Sec. 1335, the sume [sic] of FOUR HUNDRED FORTY-FIVE THOUSAND NINE HUNDRED FIVE AND 98/100 ($445,905.98) DOLLARS lawful money of the United States of America;

NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS: That we, [Oceanus], as principal and [National] as surety, acknowledge ourselves bound to pay to the said V. Bailey Thomas, District Clerk of the District Court of the United States for the Southern District of Texas, Houston Division, and his successors and assigns, pursuant to the provisions of 28 U.S.C.A., Sec. 1335, the sum of [$445,905.98], conditioned that [Oceanus] shall well and truly pay any judgment and all costs that may be awarded against [Oceanus] by the United States District Court for the Southern District of Texas, Houston Division, with respect to the subject matter of this Complaint and Bill in the Nature of an Interpleader and [Oceanus] shall perform the Court's...