Case No. 02-10180 (CB), Jointly Administered.
June 22, 2004
Hill Rivkins Hayden, LLP, New York, By: Thomas E. Willoughby, Esq., Daniel J. McInerney, Jr., Esq., Attorneys for Fuel and Marine Marketing LLC.
Holland and Knight LLP, New York, By: James H. Hohenstein, Esq., Michael S. Frevola, Esq., Attorneys for Allfirst Bank and Wayland Investment Fund.
On Appeal from the United States Bankruptcy Court for the Southern District of New York.
OPINION AND ORDER
Appellant-Adversary Plaintiff, Fuel and Marine Marketing LLC ("Appellant" or "FAMM"), appeals, pursuant to 28 U.S.C. § 158, from the order of the Honorable Cornelius Blackshear, United States Bankruptcy Judge, entered August 1, 2002, granting the Motion for Summary Judgment on behalf of the Appellees-Adversary Defendants, Allfirst Bank ("Allfirst") and Wayland Investment Funds, L.L.C. ("Wayland") (collectively "Foreign Mortgagees" or "Appellees") and holding that under English law, FAMM did not have enforceable maritime liens for its provision of marine lubricants to the vessels of the Debtors. The appeal is denied and the Bankruptcy Court decision granting Appellee's motion for summary judgment is affirmed.
The Underlying Proceedings
On January 15, 2002, the Debtors, Millenium Seacarriers, Inc. (hereinafter "Millenium") and its nineteen wholly-owned subsidiary companies (hereinafter the "Subsidiaries"), the owners and operators of nineteen ocean-going merchant vessels, commenced this voluntary Chapter 11 proceeding in the Bankruptcy Court due to the inability of Millenium and the Subsidiaries to meet the debts claimed by various creditors, among which were first preferred mortgages on the vessels in favor of Allfirst and claims for maritime liens asserted by various parties.
During February 2002, the Bankruptcy Court approved the application of the Debtors to file a motion to sell substantially all its assets, including the Vessels ("Sale Motion"). The Court set March 22, 2002 for interested parties to object to the proposed sale and to assert liens, if any, against the Vessels.
On March 22, 2002, FAMM filed an objection to the Sale Motion and a notice of a claim for "Preferred Maritime Liens for Necessaries Provided in the United States in Accordance with the Federal Maritime Lien Act, 46 U.S.C. § 31342" based on unpaid amounts due for the supply of lubricating oils. (D-26.)
All Appellants and the Appellees in the Adversary Proceeding have designated their records on appeal by the letter "D." To eliminate confusion, documents contained in Appellees-Defendants' record on appeal will be designated "D-"; the documents contained in Appellant-Plaintiff's record on appeal will be designated "FAMM-."
On March 27, 2002, at the conclusion of the hearing on the Sale Motion, the Bankruptcy Court granted the Sale Motion ("Sale Order"). (FAMM-1; FAMM-2, Transcript of March 27, 2002 Hearing ("Hearing Tr.") at 257.) The Court also instructed the Debtors to file an Adversary Proceeding so that the priority of the various claims could be judicially determined. (Hearing Tr. at 263.)
On March 27, 2002, the Bankruptcy Court also stated that, upon application, he would require the prospective purchasers (Appellees who held foreign preferred mortgages on all the Debtors' vessels) to fund the payment of those maritime liens which he found were superior to the lien of the Indenture Trustee. (Hearing Tr. at 256-57.) After the hearing, the Court issued the Sale Order for the transfer of the Debtors' assets, including the listed vessels, free and clear of all mortgage liens and encumbrances, etc., "provided, however, that the Assets shall be transferred subject to such Lien and related Claim . . . that the Court finds, after due notice and a hearing, is superior in right to the Lien and related Claim of the Indenture Trustee." (FAMM-1 at 12-13.)
The Indenture Trustee (Allfirst) was the successful — and only — bidder for eighteen of the nineteen vessels. (FAMM-1 at 9-11.) The Indenture Trustee was acting for Wayland, the beneficial owner of about 85% of First Preferred Mortgage Exchange Notes ("Notes") issued by Millenium and secured by First Preferred Ship Mortgages on each of the vessels in favor of Allfirst, all registered with the SEC. (D-26 at ¶¶ 3-4; D-1-D-24.) All the Debtors' vessels were sailing under foreign flags (D-26 at ¶ 5) and were foreign owned (D-1-D-23).
The Debtors filed the Adversary Proceeding on April 4, 2002. On April 25, 2002, Judge Blackshear signed a scheduling order setting deadlines for discovery and ordering that any motions for summary judgment in the Adversary Proceeding be filed by May 31, 2002.
On May 31, 2002, Appellees moved for summary judgment and filed a memorandum of law, affidavit in support and Local Rule 56.1 Statement against the claims asserted by FAMM, stating that the contract by which the lubricants were supplied was governed by English law, and that under English law no maritime lien arises from the supply of necessaries or lubricants to vessels. (FAMM-5, 6, 7, 8.) Supporting their motion, the Appellees filed affidavits or declarations that covered each of the foreign flagged vessels, and stated that, at all relevant times, the vessel was registered or operated under the authority of a particular foreign country and was subject to a first preferred mortgage in favor of Allfirst executed under the laws of the foreign country and registered under those laws in a public register at the Port of Registry of the vessel or at a central office. (D-1-D-23.)
On June 7, 2002, FAMM, Inc. filed a memorandum of law, supporting affidavit, Local Bankruptcy Rule 7056-1 Statement setting forth additional material facts, and a declaration of Larry A. Katz, dated June 7, 2002 ("Katz Decl."), in opposition to Appellees' motion for summary judgment, showing that its claim for necessaries is based on a May 27, 1999 Marine Lubricants Agreement ("Agreement") of Fuel and Marine Marketing Limited ("FAMM Ltd.") with Millenium. (FAMM-9, 10, 11, 12.) The Agreement contains an English choice of law provision. (FAMM-10, Ex. 1 ¶ XXIII.) Under the Agreement, FAMM, Ltd. agreed either to supply or arrange for the supply of Marine Lubricants specified in a price schedule to vessels owned by the Millenium subsidiaries and operated and managed by two sub-managing companies, Millenium Maritime Services, Inc. ("Millenium New York") and Millenium Maritime Services, Ltd. ("Millenium Piraeus"), subsidiaries of Millenium or Millenium Management, Inc., the owner of all Millenium's stock. (FAMM-12, Declaration of Thomas E. Willoughby, dated June 2002, Ex. 1 ("Livanos Dep.") at 6-8, 19-22; FAMM-8, Ex. 1 ¶ III) FAMM's responsive papers did not deny that the Appellees held valid foreign first preferred mortgage liens. Instead, FAMM argued that FAMM's liens for necessaries were of a higher priority because the necessaries were supplied to vessels in the United States.
FAMM claims it is owed $418,460.11 for marine lubricants supplied to maintain vessels belonging to the Millenium fleet. (FAMM-10 ¶ 11.) Appellees maintain that of the $418,460.11, $141,240.37 represents the amount of deliveries to vessels in United States' ports, and $110,806.72 of that amount applies to the vessels in this proceeding as opposed to vessels belonging to other Millenium subsidiaries, and that the remaining balance of $277,219.74 claimed by FAMM represents sums owed for supply of Millenium vessels in foreign ports (FAMM-6 ¶ 39; D-24) and, accordingly, that only $110,806.72 represented necessaries provided to Debtors' vessels in the United States.
On July 10, 2002, the defendants' motion for summary judgment was granted by memorandum decision of the Bankruptcy Court. (FAMM-14.) An order granting defendants' motion for summary judgment and dismissing FAMM's claims was signed by Judge Blackshear on August 2, 2002. (FAMM-16.)
The Decision of the Bankruptcy Court
Judge Blackshear's decision issued July 10, 2002 held that as FAMM did not claim the choice of law provision was unreasonable, the choice of English law clause in the Marine Lubricants Agreement covering transaction international in character was presumed valid and controlled, citing Bremen, et al. v. Zapata Offshore Co., 407 U.S. 1, 15 (1972); Roby, et al. v. Corporation of Lloyds, et al., 996 F.2d 1353, 1362 (2d Cir. 1993); Sembawang Shipyard Ltd. v. Charger, Inc., et al., 995 F.2d 983, 986 (5th Cir. 1992); Bolongon, et al. v. M/V Nor Atlantic, et al., 1999 U.S. Dist. Lexis 15575 (E.D. La. 1999). (FAMM-14.)
The decision of the Bankruptcy Court is affirmed. The Marine Lubricants Agreement dated May 27, 1999 is between Fuel and Marine Marketing Limited, Canary Wharf, London, England, and Millenium Maritime Services (U.S.A.), New York. (FAMM-8, Ex. A; FAMM-10, Ex. 1.) By letters dated February 16 and 29, 2000, FAMM Ltd. (London) agreed to amend the contract to name Millenium Seacarriers, Inc. as the contracting party. (FAMM-8, Ex. C.) The Agreement contains a choice of law provision, which reads:
This Agreement shall be governed by and interpreted in accordance with the laws of England and the parties hereby submit to the jurisdiction of the English Courts.
(FAMM-8, Ex. A ¶ XXIII; FAMM-10, Ex. 1 ¶ XXIII.)
Contrary to the declaration of Larry A. Katz (FAMM-10 ¶¶ 2-3), the evidence submitted by the Appellants shows that the Marine Lubricants Agreement was not entered into by Fuel and Marine Marketing LLC, a Delaware corporation with offices in Texas and New York. (FAMM-10, Ex. 1.) All purchases and deliveries to the vessels in Millenium's fleet were made pursuant to the Agreement with FAMM Ltd. (London). The thirty-five invoices were issued by FAMM, Ltd. or, in the case of six invoices, by Fuel Oil Marine Marketing Hellas A.E. of Piraeus, Greece (id., Ex. 2 at 98), as permitted under the Agreement (id., Ex. 1 ¶ II ("Seller may appoint an agent or supplier to undertake deliveries on its behalf.")).
In support of their motion for summary judgment, Appellees submitted a comprehensive opinion by a well-qualified expert in English law, Timothy N. Young, Q.C., who reviewed the Marine Lubricants Agreement and related documents pursuant to which FAMM LLC is asserting a maritime lien for necessaries. Mr. Young concluded that under English law, (1) there is no "maritime lien" for necessaries, and (2) the "maritime lien" of a ship mortgage has priority over a claim for necessaries, citing Pacific, BL 243 (1864) and Pieve Superiore, L.R. 5 C.P. 482 (1874). (FAMM-8, Ex. E; Declaration of Timothy Nicholas Young, Q.C., dated May 17, 2002 ("Young Decl.") ¶ 13-14.) FAMM submitted no evidence disputing this opinion of English counsel.
Since the commercial transactions covered by the Marine Lubricants Agreement were clearly international in character, the Bankruptcy Judge was correct in relying on Bremen, 407 U.S. at 20; Roby, 996 F.2d at 1360, 1361; and Sunbarwang, 995 F.2d at 986.
Furthermore, even applying the factors cited in Lauritzen v. Jensen, 345 U.S. 571 (1953) for use in maritime tort cases and general maritime law, which do not seem applicable to commercial transaction cases, or applying the factors used in Advani Enterprise, Inc. v. Underwriters at Lloyds, et al., 140 F.2d 157, 162 (2d Cir. 1998), the same result would obtain. The contract was not entered into by FAMM Ltd. which conducts business in the United States. Accordingly, the choice of law clause in the Agreement, the English domicile and office address of FAMM Ltd. and the invoicing by FAMM Ltd. and Fuel and Marine Marketing Hellas to Millenium Seacarriers in Piraeus, Greece, for numerous Millenium vessels throughout the world, would require the Court to apply English law despite Millenium's management location in New York.
Lauritzen considered the following factors: (1) place of the wrongful act, (2) law of the flag (a ship's nationality, as shown by its papers and its flag), (3) allegiance or domicile of injured party, (4) allegiance of the defendant shipowner, (4) place of contract, (5) inaccessibility of foreign forum, and (6) the law of the forum. Lauritzen, 345 U.S. at 585-586. InAdvani, the court found "choice-of-law analysis should include an assessment of the following contacts":
(1) any choice-of-law provision contained in the contract; (2) the place where the contract was negotiated, issued, and signed; (3) the place of performance; (4) the location of the subject matter of the contract; and (5) the domicile, residence, nationality, place of incorporation, and place of business of the parties.Advani, 140 F.3d at 162.
The Appellants argue that Article VI "Orders and Delivery" of the Agreement states, "[e]ach order and delivery hereunder shall be deemed a separate contract," and that the orders and delivery documents do not contain the "choice of law provision." Reading the Agreement with the invoices, however, it is clear that the invoices are issued pursuant to the Agreement. An invoice was issued for each sale, purchase and delivery of marine lubricants to Millenium's vessels at various ports throughout the world. (FAMM-10, Ex. 1-2.) The invoices refer to the terms of the Agreement and specifically incorporate the "In Service" discounts, which are outlined in Schedule B of the Agreement. (FAMM-10, Ex. 1, Contract and Schedule B.) These invoices were issued by FAMM, Ltd. of London or FAMM Hellas P.E. of Greece ("FAMM Hellas"). (FAMM-10, Ex. 2.) The clear intent of Article VI of the Agreement is that separate terms of price and quantity and quality time of payment of the product can be separately billed and collected under the Agreement. Accordingly, the Agreement's choice of law provision applies.
The decision of the Bankruptcy Court is affirmed.
IT IS SO ORDERED.