Opinion
CIVIL ACTION No. 00-3805 C/W 00-3809; 01-0070; 01-0071; 01-1808; 01-1920, 01-2492 01-2617 SECTION: I/I
October 30, 2003
ORDER AND REASONS
Kennedy Funding, Inc., and Cordell Funding LLLP, as co-agents for Cordell Funding LLLP, Ashton Global Enterprises, Inc., J.C.W. Funding, Inc., K.S.I. Funding, Inc., Lexis Funding, Inc., and Pillar Funding, L.L.C. (hereinafter referred to as "Kennedy") filed this motion for summary judgment requesting a dismissal of two petitions filed by Winchester Navigation Ltd., (hereinafter "Winchester") against Kennedy. Winchester opposes the motion. The motion was submitted for consideration without oral argument at an earlier date. For the reasons that follow, the motion is GRANTED.
Winchester is a company organized under the laws of Liberia and it is wholly owned by the State of Ukraine.
Winchester Navigation Ltd, v. Kennedy Funding, Inc., Cordell Funding LLLP, as co-agents for Cordell Funding LLLP, Ashton Global Enterprises, Inc., Coastal Funding, Inc., J.C.W. Funding, Inc., K.S.I. Funding, Inc., Lexis Funding, Inc., and Pillar Funding, L.L.C. and Norsong Shipping, Ltd., Civil Action Nos. 01-2492 and 01-2617. Winchester's initial state court action did not include a verified affidavit in support of its writ of foreign attachment obtained pursuant to La. C.C.P. 3541(5). It refiled the action, the second state court lawsuit, accompanied by a verified affidavit. Otherwise, the petitions are identical. For simplicity, the court will refer to the "complaint".
I. BACKGROUND
The vessel at the heart of this matter, the M/V ENCHANTED CAPRI (hereinafter "CAPRI"), was used, but not owned, by Capri Cruises. On December 29, 2000, Capri Cruises filed for Chapter 11 bankruptcy protection in the Southern District of Florida. On January 10, 2001, immediately after the U.S. Bankruptcy Court released the CAPRI from the automatic stay, the vessel was arrested in the Eastern District of Louisiana by the United States Marshal on behalf of claimant Freret Marine Supply. The arrest of the CAPRI unleashed a torrent of claims and litigation in the Eastern District of Louisiana.On February 7, 2001, Kennedy intervened in the proceedings in order to assert its rights pursuant to its first preferred Bahamian ship mortgage (the "statutory mortgage") on the CAPRI. Ultimately, the court ordered an interlocutory judicial sale of the CAPRI on April 5, 2001, to satisfy the multitude of valid maritime liens against it and to minimize the cost of maintaining the vessel under arrest. The court allowed Kennedy to credit bid — the value of its mortgage, approximately $4,900,000, provided it agreed to pay all liens senior in priority to its preferred ship mortgage. Kennedy's winning bid, the only bid at the sale, was $4,000,000 in cash.
Rec. Doc. 143.
In its Order and Reasons dated May 22, 2001, Rec. Doc. 279, at page 4, the court stated that "the Mortgagees [Kennedy] made the winning bid of $4,000,000.00 plus the $4.9 million in credit." However, both Kennedy's motion to confirm the sale, Rec. Doc. 289, and the U.S. Marshal's bill of sale, Rec. Doc. 705, state that the sale price was $4,000,000 in cash. The credit bid of $4,900,000 was a commitment by Kennedy to pay cash at the judicial sale up to the outstanding value of its mortgage for the vessel. The bill of sale further states that the CAPRI was "SOLD FREE AND CLEAR OF ALL LIENS, MORTGAGES AND OTHER ENCUMBRANCES." Kennedy is not entitled to the value of its first preferred ship mortgage because that mortgage was extinguished upon its purchase of the CAPRI for $4,000,000 in cash.
On April 10, 2001, Winchester made its first appearance in the litigation by filing an opposition to confirmation of the judicial sale of the CAPRI and a claim of ownership. Winchester claimed to be the true owner of the CAPRI and it alleged the invalidity of Kennedy's mortgage. The district court deferred confirmation of the sale for 10 days in order to give Winchester the opportunity to post a release bond and secure the release of the CAPRI. Unable to post a release bond, Winchester instead filed a motion for reconsideration. The district court denied the motion and confirmed the sale on June 11, 2001. Kennedy deposited the funds in the registry of the court and on June 13, 2001, the U.S. Marshal issued a bill of sale to Faraglioni Ltd., Kennedy's nominee and alter ego.
Rec. Doc. 226. Winchester claims that it only learned of the pending judicial sale of the vessel on April 5, 2001, the day of the sale. Winchester's challenge to the judicial sale was resolved when the Fifth Circuit Court of Appeals affirmed then U.S. District Court Judge Edith Brown Clement's confirmation of the sale. Rec. Doc. 647.
Rec. Doc. 279.
Rec. Doc. 288.
Rec. Doc. 293.
Rec. Doc. 705.
In the months that followed the judicial sale of the CAPRI, Winchester filed three lawsuits against Kennedy and Norsong Shipping, Ltd. ("Norsong"), the purported owner of the CAPRI at the time Kennedy placed its mortgage on the vessel. The facts surrounding Norsong's purported ownership of the CAPRI and the validity of Kennedy's mortgage on the vessel are disputed. In its complaint, Winchester claims that Norsong was in possession of the CAPRI solely pursuant to a bareboat charter and that Norsong was never an owner of the vessel because Winchester never sold or transferred the vessel to Norsong. Winchester further alleges that Norsong forged the bill of sale purporting to transfer ownership of the CAPRI from Winchester to Norsong and that Norsong falsely represented to Kennedy that it was the owner of the vessel with the authority to encumber the vessel. Further, Winchester asserts state law claims of negligence and unjust enrichment against Kennedy and claims of fraud against Norsong.
One lawsuit was filed in federal court and two lawsuits were filed in state court. See Note 2 supra. Winchester voluntarily dismissed the federal lawsuit and Kennedy removed both state lawsuits to federal court for consolidation with this proceeding. Rec. Docs. 350 (C.A. 01-2492) and 375 (C.A. 01-2617).
Rec. Doc. 784, Kennedy's supplemental memorandum in support of its motion for summary judgment ("Supplemental Memorandum"), Exhibit 2, Winchester's Complaint.
When considering this motion for summary judgment, the following facts are undisputed. As of July, 1995, Winchester was the registered owner of the vessel M/V AZERBAYDZHAN which ultimately became the M/V ENCHANTED CAPRI. A bill of sale dated December 29, 1997, showing a sale from Winchester to Norsong, is on file with the Bahamian Maritime Authority. The vessel was de-registered with the Liberian Registry on March 17, 1998, and registered with the Bahamian Registry in 1998 which listed Norsong as the owner. On June 30, 2000, Norsong executed a promissory note in favor of Kennedy, as lender, in the original principal amount of $5,100,000. The loan was secured by a first preferred Bahamian ship mortgage on the CAPRI in favor of Kennedy. After making several scheduled payments, by January, 2001, Norsong — had defaulted on its loan from Kennedy leaving a loan balance of about $4,900,000.
See Kennedy's motion for summary judgment, statement of uncontested facts. Rec. Doc. 413.
Winchester's complaint alleges that pursuant to Louisiana negligence law, Kennedy is liable to Winchester for damages because Kennedy failed to exercise due care, failed to exercise due diligence, and failed to conduct a proper investigation into Norsong's alleged ownership of the CAPRI. According to Winchester, Kennedy wrongfully asserted its right to bid an invalid mortgage at the judicial sale of the vessel, failed to retract its bid in light of Winchester's claim of ownership, and unlawfully blocked Winchester's efforts to set aside the vessel sale. Winchester also alleges unjust enrichment against Kennedy claiming that Kennedy's invalid mortgage caused Winchester to lose title to the CAPRI.
Although Kennedy disputes the factual allegations in Winchester's complaint, it argues that it is entitled to summary judgment because even assuming that its mortgage was invalid, the mortgage caused no damage to Winchester. Winchester argues that Kennedy's motion for summary judgment should be denied because (1) it is premature; (2) causation is a matter of fact, not law; and (3) its damages were in fact caused by Kennedy's wrongful acts.
II. ANALYSIS
A motion for summary judgment is properly granted only if there is no genuine issue as to any material fact, and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L. Ed.3d 265 (1986). An issue is material if its resolution could affect the outcome of the action. Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In deciding whether a fact issue has been created, we must view the facts and the inferences to be drawn therefrom in the light most favorable to the nonmoving party. See Olabisiomotosho v. City of Houston, 185 F.3d 521, 525 (5th Cir. 1999). However, once a moving party properly supports a motion for summary judgment, the nonmoving party "must go beyond the pleadings and designate specific facts in the record showing that there is a genuine issue for trial."Lawrence v. Univ. of Tex. Med. Branch at Galveston, 163 F.3d 309, 311-12 (5th Cir. 1999), quoting Wallace v. Texas Tech. Univ., 80 F.3d 1042, 1047-48 (5th Cir. 1996). The nonmoving party cannot satisfy its burden with "unsubstantiated assertions" or "conclusory allegations." Id.Winchester first argues that Kennedy's motion for summary judgment is premature because various discovery is still outstanding. In particular, Winchester argues that it is still attempting to depose Yuri Kulbachenko, a principal of Norsong, and Robin Rodriguez, a Kennedy representative, both of whom Winchester believes were instrumental in the loan process. Kennedy filed its motion for summary judgment on September 18, 2001. Two years have passed since the motion was first filed. Even a cursory review of the voluminous record reveals that Winchester has vigorously pursued discovery during that time.
Rec. Doc. 786, second supplemental memorandum in opposition, pp. 6-7, Filed on April 30, 2003, this is actually Winchester's third supplemental memorandum in opposition.
Winchester's discovery has been focused on the facts surrounding Norsong's alleged fraud and the extent, if any, of Kennedy's alleged involvement in the perpetration of that alleged fraud as well as Kennedy's actions after the sale of the vessel. Winchester does not explain how its continuing discovery as to facts surrounding Norsong's alleged fraud and Kennedy's disputed mortgage on the CAPRI would be relevant to Kennedy's argument that the disputed mortgage, even if it is invalid, was not a cause of any damage Winchester may have suffered. In any event, since its second supplemental opposition was filed on November 6, 2001, Winchester has provided no additional evidence resulting from its discovery efforts in support of its claims against Kennedy. Kennedy's motion for summary judgment is not premature.
Id.
Rec. Doc. 509. See discussion of Winchester's unjust enrichment claim, infra at II.C.
Winchester's negligence claims against Kennedy arise under Louisiana law. Pursuant to Louisiana law, this Court will analyze Winchester's claim using a duty-risk analysis and determine whether of not: (1) the defendant had a duty to conform its conduct to a specific standard of care (the duty element); (2) the defendant failed to conform its conduct to the appropriate standard of care (the breach of duty element); (3) the defendant's substandard conduct was a cause-in-fact of the plaintiff's injuries (the cause-in-fact element); (4) the defendant's substandard conduct was a legal cause of the plaintiff's injuries (the scope of protection element); and (5) whether or not the plaintiff has sustained actual damages (the damage element). Westchester Fire Insurance Company v. Haspel-Kansas Investment Partnership, 342 F.3d 416, 419 (5th Cir. 2003), citing Pinsonneault v. Merchants Farmers Bank Trust Company, 816 So.2d 270, 275-76 (La. 2002). A plaintiff's failure to prove any single element is fatal to recovery. Goins v. Wal-Mart Stores, Inc., 800 So.2d 783, 788 (La. 2002).
As previously mentioned, Kennedy argues that it is entitled to summary judgment because even assuming the invalidity of the mortgage and that Kennedy owed Winchester a duty and breached that duty, the mortgage was not the cause-in-fact of Winchester's alleged damages. Winchester argues that the issue of causation is a question of fact for the factfinder and that Winchester's damages are causally linked to Kennedy's wrongful act.
Kennedy also argues that the arrest and judicial sale of the vessel are intervening and superceding acts which caused Winchester's alleged damages. The Court need not reach this argument because it concludes that Kennedy's mortgage, even if it is invalid, was not the cause-in-fact Winchester's damages, if any.
"Under Louisiana law, the determination of whether an action is the cause-in-fact of the injury is a question of fact." Westchester, 342 F.3d at 419, citing Lasvone v. Kansas City Southern Railroad, 786 So.2d 682, 691 (La. 2001). However, it is possible to determine cause-in-fact on summary judgment if reasonable minds could not differ. Gullie v. Comprehensive Addict. Program, 735 So.2d 775, 778 (La. 4 Cir. 1999), citing Fowler v. Roberts, 556 So.2d 1, 4 (La. 1989).
The Louisiana Supreme Court has explained that "[a] party's conduct is a cause-in-fact of the harm if it was a substantial factor in bringing about the harm." Westchester, 342 F.3d at 420, quoting Lasvone, 786 So.2d at 691. The determination of cause-in-fact is usually a "but for" inquiry, but when multiple causes are present a "substantial factor" inquiry is required. Id. at 420, citing Roberts v. Beniot, 605 So.2d 1032, 1042 (La. 1991). "[T]he pertinent question is to what extent" did the defendant's action or inaction have something to do with the injuries the plaintiff suffered. Id., quoting Lasvone, 786 So.2d at 691 (citing Roberts v. Beniot, 605 So.2d 1032 (La. 1991) and Hill v. Lundin Associates, Inc., 256 So.2d 620, 622 (La. 1972)) (emphasis added in Lasvone). The Fifth Circuit concluded that in cases involving multiple causes, the threshold test for cause-in-fact is "an inquiry of `to what extent' did the defendant's conduct have something to do with the plaintiff's injuries." Westchester, 342 F.3d at 420-421. In other words, a defendant's conduct is a cause-in-fact of a plaintiff's injuries if that conduct was a substantial factor in bringing about the plaintiff's harm. Id., citing, e.g., Adams v. Traina, 830 So.2d 526, 533 (La.App. 2nd Cir. 2002) ("Where there are concurrent causes of an accident, the proper inquiry is whether the conduct in question was a substantial factor in bringing about the harm or injuries.")
Winchester's loss of ownership of the CAPRI, as well its consequential damages, can be fairly attributed to the successive acts of several parties: Winchester's apparent lack of vigilance in protecting its ownership interest in the vessel; Norsong's alleged fraudulent conversion of the vessel; Kennedy's alleged lack of due diligence in determining the "true ownership" of the vessel before placing its mortgage on the vessel; Capri Cruises' failure to pay its bills and its subsequent bankruptcy; and finally, the seizing creditors' arrest of the vessel and its subsequent judicial sale to Kennedy.
There is no dispute that the CAPRI would have been arrested even if it had not been encumbered by Kennedy's mortgage, that the vessel would have been sold at a court ordered interlocutory judicial sale even if it had not been encumbered by Kennedy's mortgage, and that even if the CAPRI had not been encumbered by Kennedy's mortgage, the numerous valid maritime liens would have been paid from the sale proceeds in priority to any claims of the owner of the CAPRI. Reasonable minds could only conclude that Kennedy's mortgage was not a substantial factor in causing any damages that Winchester may have incurred as a result of the arrest and judicial sale of the CAPRI to Kennedy.
Winchester next argues that even if Kennedy's invalid mortgage was not the cause-in-fact of Winchester's loss of ownership of the CAPRI, Kennedy's conduct caused it other damages that transcend its loss of ownership of the vessel at the judicial sale. Winchester claims it was damaged by (1) Kennedy's bid of an invalid mortgage at the judicial sale which allegedly had a chilling effect on the sale by discouraging other potential bidders which resulted in a grossly inadequate sale price for the vessel; (2) Kennedy's failure to retract its bid when Winchester claimed ownership of the CAPRI; and, (3) Kennedy's opposition to Winchester's efforts to block confirmation of the sale. Each of these issues was previously presented to the district court in Winchester's motions opposing confirmation of the judicial sale. Twice, on May 22, 2001, and again on June 11, 2001, then U.S. District Judge Edith Brown Clement considered the evidence in support of Winchester's claims and carefully evaluated those claims. Judge Clement found them to be without merit. Winchester appealed and the Fifth Circuit affirmed the district court's confirmation of the sale on May 31, 2002. This court will not revisit these issues.
Rec. Doc. 425, Opposition at p. 4. Winchester argues that its damages transcend the arrest and sale of the vessel because pursuant to its claim of ownership, it is entitled to any residual funds after payment of liens from the proceeds of the sale, and that Kennedy stands in front of Winchester in asserting its rights to those funds pursuant to its invalid mortgage. Opposition, p. 3. These damage claims are in rem and flow from Winchester's claim of vessel ownership. The in rem damages are not cognizable as compensatory damages in tort.
Rec. Docs. 279 and 294.
Rec. Doc. 647.
Winchester has made no showing that it was ever capable of making a valid bid for the CAPRI, that there were any other viable potential bidders, or that the sale price would have been greater than that paid by Kennedy under any circumstances.
Winchester next seeks damages pursuant to Louisiana law based on Kennedy's unjust enrichment at Winchester's expense because, according to Winchester, Kennedy will receive a windfall when the CAPRI is sold to a third party. Winchester claims that, "[t]he `enrichment' is equal to the damages suffered by Winchester." There is neither legal nor evidentiary support for Winchester's claim.
Rec. Doc. 786 at p. 4.
Louisiana Civil Code article 2298 authorizes a private cause of action for unjust enrichment. The five requirements for a showing of unjust enrichment are: 1) an enrichment; 2) an impoverishment; 3) a connection between the enrichment and the impoverishment; 4) an absence of justification or cause for the enrichment and impoverishment; and 5) no other remedy at law available to the plaintiff. Pique Severn Avenue Partnership v. Ballen, 773 So.2d 179, 180 (La.App. 3 Cir. 2000), citing Baker v. Maclav Properties Co., 648 So.2d 888, 897 (La. 1995) (citations omitted).
Winchester cannot meet the fourth requirement. Louisiana Civil Code article 2298 provides in pertinent part:
A person who has been enriched without cause at the expense of another person is bound to compensate that person. The term `without cause' is used in this context to exclude cases in which the enrichment results from a. valid juridical act or the law.
As discussed supra, Kennedy purchased the CAPRI for $4,000,000 in cash at a court ordered interlocutory judicial sale. The sale was confirmed by the district court and the confirmation was affirmed on appeal to the Fifth Circuit. Kennedy owns the CAPRI pursuant to a valid juridical act.
Moreover, Winchester cannot show that Kennedy has been enriched. Even if Kennedy had any chance of collecting on its loan to Norsong prior to the sale, the judicial sale extinguished any right it had to enforce its mortgage. Kennedy is presently out-of-pocket well over $9,000,000 as a result of its loan to Norsong and its purchase of the CAPRI.
Kennedy lost $4,900,000 on its uncollectible loan to Norsong, it paid $4,000,000 in cash for the CAPRI, and paid $769,922.39 in custodia legis expenses while the vessel was under attachment. Rec. Doc. 852.
Finally, Winchester claims that the vessel is worth at least $12,000,000 and that Kennedy has offered it for sale at a price of $15,000,000. It claims that Kennedy will be enriched by up to $6,000,000 if Kennedy sells the vessel to a third party for the asking price of $15,000,000 because any amount over the $9,000,000 that Kennedy has invested in the CAPRI amounts to unjust enrichment.
In its second supplemental opposition dated April 30, 2003, Rec. Doc. 786 at p. 4, Winchester argues that "Kennedy's enrichment ranges between $5.5 million and $11 million" based on the asking price and/or the offers received. Winchester explains that the $11,0.00,000 enrichment figure is what Winchester assumes it would be entitled to if the vessel sold for $15,000,000. In arriving at that figure it has deducted the $4,000,000 paid for the vessel at the judicial sale and allowed no offset for Kennedy's $4,900,000 loss on the "invalid" mortgage or for the hundreds of thousands of dollars that Kennedy has paid in custodia legis expenses.
In support of its argument, Winchester produced an excerpt from its deposition of Patrick Bossetta. Bossetta is identified as an agent working for Kennedy under a written agreement to market and sell the CAPRI. Bossetta testified that while he had been marketing the CAPRI for $15,000,000, the only viable bids received were for $10,500,000 and $9,500,000. The latter bid was actually a $10,000,000 bid discounted for the estimated $500,000 cost to bring the vessel "up to class". Also attached is a letter from Nautica World Wide, Ltd., containing an offer to purchase the CAPRI for $10,000,000 "in an acceptable classification society" (the $10,000,000 offer mentioned above), or, alternatively, for $5,200,000 "as is where is".
Rec. Doc. 509, Exhibit "A".
Id. at p. 2.
Id. Exhibit "A" at pp. 7-8.
Id. Exhibit "B".
Approximately two years have elapsed since Bossetta's deposition, and Winchester has not shown that Kennedy has sold or will be able to sell the vessel for its asking price, or that any sale of the CAPRI will bring enough to even cover the amount Kennedy has already invested in the vessel. In short, Winchester cannot demonstrate that Kennedy has been or will be unjustly enriched, or receive a "windfall", if and when it sells the CAPRI.
IV. CONCLUSION
Winchester's claim of damages caused by Kennedy is based on its unsubstantiated assertions as to the value of the vessel and unsupported conclusory allegations as to the effect of Kennedy's mortgage on the judicial sale of the CAPRI. Whether Kennedy's mortgage is invalid or not, that mortgage was not a cause-in-fact of Winchester's damages. Moreover, Winchester has not shown that Kennedy has been or will be unjustly enriched at Winchester's expense if or when the vessel is sold to a third party.
Accordingly,
IT IS ORDERED that Kennedy's motion for summary judgment is GRANTED.