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LIMAN v. MIDLAND BANK

February 4, 1970

In the Matter of Arthur L. LIMAN, as Trustee in Bankruptcy of Seatrade Corporation, Kulukundis Maritime Industries, Inc., Tramp Shipping & Oil Transportation Co., A.H. Bull Steamship Co., A.H. Bull & Co. (Inc.), American Tramp Shipping Development Corporation, Messenian Shipping Corporation, and Star Line Agency, Inc., Plaintiff,
v.
MIDLAND BANK LTD. and Fairplay Tanker Corp., Defendants


Thomas F. Murphy, District Judge.


The opinion of the court was delivered by: MURPHY

THOMAS F. MURPHY, District Judge.

The defendant bank moves to dismiss the complaint on the ground that it fails to state a claim upon which relief can be granted or on the ground of forum non conveniens and for such other relief as the court may deem proper. Plaintiff cross-moves for discovery of documents. In the exercise of discretion under Rule 12(b) F.R. Civ. P., we exclude all matter outside the complaint in relation to the motion addressed to its sufficiency and consider the affidavits only in connection with the question concerning the forum.

 The complaint contains two claims. The first is asserted in the direct and primary right of the plaintiff as the trustee in bankruptcy of the eight corporations named in the caption of this action. The second is derivative.

 The allegations of the complaint will be stated with some detail. *fn1" For the purpose of the motion directed to the sufficiency of the claims, all the well pleaded facts are of course deemed admitted. Not deemed admitted, however, are conclusions of law cast in the form of factual allegations or unwarranted inferences of fact.

 I

 THE COMPLAINT

 It is alleged that this case arises under the Bankruptcy Act and that it is brought under § 70 of the Act on account of transfers of property of the bankrupt estate after bankruptcy. Jurisdiction is based on § 2a(7) and § 70e(3) of the Act (11 U.S.C. § 11a(7) and § 110e(3)) and on 28 U.S.C. § 1332.

 Plaintiff is a citizen of the State of New York. Defendant Midland Bank Ltd. is a corporation organized under the laws of the United Kingdom. Its principal place of business is in London. Defendant Fairplay Tanker Corporation is a Panamanian corporation. Its location or place of business is not stated in the claims. It has not been served with a summons and complaint, nor has the marshal been asked to do so, according to the docket.

 The eight bankrupts were in the shipping business. Between March 11 and April 19, 1963, they filed petitions for arrangements under Chapter XI of the Bankruptcy Act. On May 21, 1963, their Chapter XI proceedings were superseded by proceedings for reorganization under Chapter X of the Act. On May 20, 1966, the court made an order which consolidated these bankrupts, then debtors, and "ordered that for the purposes of the Chapter X proceedings and any ensuing proceedings under the bankruptcy laws 'their separate corporate entities shall be * * * disregarded and the assets and liabilities of said companies * * * shall be merged.'" *fn2"

 In or about January 1968 the Chapter X trustees liquidated and dissolved Red Canyon Corporation and merged all of its assets into the consolidated estate. On March 22, 1968, the court terminated the Chapter X proceedings and adjudicated the debtors therein bankrupts. On May 6, 1968, plaintiff qualified as the trustee in bankruptcy and succeeded to the assets of the bankrupts formerly held by their Chapter X trustees.

 The bankrupts and various subsidiary and related companies were owned and controlled, directly or indirectly, by Manuel E. Kulukundis and members of his family. He personally dominated all of them and conducted their operations as a single business enterprise. One of the eight bankrupts is Kulukundis Maritime Industries, Inc. ("KMI"). Its assets had been included in the consolidation. It owned all of the stock of the Red Canyon Corporation ("Red Canyon") mentioned above.

 When the Chapter XI and Chapter X petitions were filed, and at all times relevant to the complaint, "the bankrupt KMI or Red Canyon owned 90 percent of the stock of Fairplay Tanker Corporation ('Fairplay'), a Panamanian corporation." At all such times Red Canyon was also the largest creditor of Fairplay. The latter owed Red Canyon more than $1,000,000, no part of which has since been paid.

 At all such times, Fairplay owned a vessel called the Arcturus. Both Red Canyon and Fairplay were dominated and controlled by Kulukundis. Their assets were commingled with, and treated as a part of, those of the single business enterprise in which the bankrupts were engaged in disregard of their separate corporate entities. Midland Bank knew or had reasonable cause to believe that Fairplay was owned, directly or indirectly, by one of the bankrupts and that its assets were commingled with and treated as part of the single business enterprise in which they were engaged.

 Going back in the chronology, on October 11, 1963, at a closing alleged to have been held concurrently in New York and at the offices of the Midland Bank in London, Kulukundis caused Fairplay to transfer the vessel Arcturus, without the knowledge or consent of the Chapter X trustees or the court, to Bootes, S.A., a Panamanian corporation, for the sum of $1,400,000. After deductions, there was due and owing to Fairplay the sum of $651,302, the balance of the purchase price. At such closing this sum was paid by two checks payable to the order of Fairplay. The checks were delivered to Kulukundis at the offices of the Midland Bank which opened an account in the name of Fairplay at its London office. The bank permited Kulukundis to deposit one of the checks for $500,000 in that account or in an account in the name of Bruce Rappaport and exercised dominion and control over such funds of Fairplay.

 Thereafter the bank paid the $500,000 to Rappaport for his personal use without any consideration to Fairplay. The bank knew or had reasonable cause to believe that the transfer to Rappaport of funds belonging to Fairplay was not authorized by the Chapter X trustees or the court or by any other persons empowered to act in behalf of Fairplay. On October 11, 1963, Kulukundis endorsed the other check of $151,302 to the order of Rappaport. The Midland Bank negotiated it and credited the proceeds to the personal account of Rappaport. The rest of the allegations just summarized in connection with the first check are repeated in respect of the second check.

 The defendant bank expected or should reasonably have expected its acts to have consequences in the State of New York. It derives substantial revenue from international commerce.

 The relief requested is a money judgment in favor of the plaintiff against the defendant Midland Bank for $651,302 plus interest from October 11, 1963, and such other relief as the court may deem just.

 II

 It cannot be gainsaid that the successive Chapter X and bankruptcy trustees took title to all of the assets, wherever located, of the eight corporate debtors which became bankrupts. But did they, in their own direct and primary right, take title to Fairplay which was never before the court in any proceeding under the Bankruptcy Act, or to its assets, or to any causes of action which Fairplay might have had against the Midland Bank?

 This part of the case depends upon the allegation in the first sentence of the eleventh paragraph of the complaint. It says that at all relevant times "Fairplay owned the vessel called the S/T/T Arcturus," and that "the bankrupt KMI or Red Canyon owned 90 percent of the stock of Fairplay." That is not enough. Fairplay's assets and its own direct and primary causes of action are not thereby or by any fair inference ...


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