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Netherlands Shipmortgage Corp. v. Madias

decided: September 12, 1983.


Appeal from a judgment of the United States District Court for the Southern District of New York, Charles S. Haight, Jr., Judge, staying and conditionally dismissing appellants' complaints seeking recovery from guarantors of a ship mortgage and equitable relief due to lack of admiralty jurisdiction and lack of standing to maintain the action in diversity under N.Y.B.C.L. § 1312.

Kearse, Pierce and Peck,*fn* Circuit Judges.

Author: PECK

PECK, Circuit Judge:

Netherlands Shipmortgage Corporation (NSC) appeals the dismissal for lack of standing by the District Court for the Southern District of New York of its actions for recovery on a guaranty executed by Mark Madias and Nicholas Skarvelis and for voidance of a conveyance of real estate by Madias and Skarvelis to their spouses without consideration.*fn1 NSC contends that the district court erred in holding that it did not have jurisdiction for the actions under the Ship Mortgage Act of 1920, as amended, 46 U.S.C. § 954, and that NSC is barred from bringing this action under diversity jurisdiction by New York's "door closing" statute, New York Business Corporation Law (B.C.L.) § 1312. The issues raised by the latter contention include whether NSC was doing business in New York State within the meaning of B.C.L. § 1312, whether defendants are estopped from raising B.C.L. § 1312 as a defense, and whether B.C.L. § 1312 would violate the commerce clause if applied in this case.

Although we hold that the Ship Mortgage Act does not provide the district court with jurisdiction of these actions, we reverse the judgment of the district court and remand the cause to that court for further proceedings because the district court's finding that NSC was doing business in New York for the purposes of B.C.L. § 1312 was clearly erroneous.


NSC is a Bermuda corporation engaged in the business of accepting deposits and making loans on "floating objects". The defendants are New York citizens and residents.

On October 23, 1981, NSC loaned Phoenix, Inc., a Liberian corporation of which Madias and Skarvelis are the principal shareholders, $1,550.000 to purchase the M/V Nagos, a ship of Liberian registry. A loan agreement between Phoenix, NSC and Triship Agency incorporating the terms of the loan was executed on August 3, 1981. In addition to executing and transferring a promissory note, Phoenix executed and delivered a mortgage on the Nagos to NSC as security for the loan. On October 23, 1981, in consideration of the making of the loan to Phoenix, Madias and Skarvelis executed a written personal guaranty of the obligations arising from the Note, the Mortgage and the Loan Agreement.

In 1982, Phoenix defaulted on its obligations to NSC. NSC seized the Nagos and sold it at a foreclosure sale. On September 24, 1982, NSC filed suit against Madias and Skarvelis to recover, under the guaranty, $1,508,288 as the outstanding obligations of Phoenix. On December 23, 1982, NSC initiated a second action against Madias, Skarvelis, their spouses and a New York partnership, Real Associates, to set aside conveyances of realty by Madias and Skarvelis to their spouses as fraudulent and to restrain Madias and Skarvelis from disposing of their remaining assets during the pendency of the initial action on the guaranty.

The district court, on December 23, 1982, issued a temporary restraining order prohibiting defendants from further transferring any property. An evidentiary hearing on the second action was held on December 29, 1982. On the following day, the district court delivered an oral opinion and order holding that the court did not have admiralty jurisdiction over the guaranty action, that NSC was subject to B.C.L. § 1312, and that NSC was doing business in New York State in violation of B.C.L. § 1312. The opinion subsequently was reduced to writing and supplemented with footnotes. 554 F. Supp. 375 (S.D.N.Y. 1983). On the basis of the opinion the court entered orders dissolving the temporary restraining order, denying the equitable relief sought by NSC and entering a conditional order of dismissal in both actions. NSC filed a timely appeal of these orders.*fn2


NSC's first contention on appeal is that the district court had admiralty jurisdiction over the action on the guaranty as a result of the Ship Mortgage Act of 1920, 46 U.S.C. § 954(a).*fn3 NSC argues that the Ship Mortgage Act must be read broadly because the act is remedial in nature. NSC further suggests that if admiralty jurisdiction exists, B.C.L. § 1312 will not bar its action on the guaranty. See In re Grand Bahama Petroleum Co., 550 F.2d 1320 (2d Cir. 1977) (construing B.C.L. § 1312 in action arising under Federal Arbitration Act). We hold, however, that the district court properly construed the Ship Mortgage Act as not conferring jurisdiction on the district court over the action on the guaranty.

In deciding any issue of statutory construction, consideration must first be given to the language of the statute. Bowsher v. Merck & Co., 460 U.S. 824, 103 S. Ct. 1587, 1591-92, 75 L. Ed. 2d 580 (1983); Dawson Chemical Co. v. Rohm & Haas Co., 448 U.S. 176, 187, 65 L. Ed. 2d 696, 100 S. Ct. 2601 (1980). Section 954(a) reads as follows:

Upon the default of any term or condition of a preferred mortgage upon a vessel, the mortgagee may, in addition to all other remedies granted by this section, bring suit in personam in admiralty in a district court of the United States, against the mortgagor for the amount of the outstanding mortgage indebtedness secured by such vessel or any deficiency in the full payment thereof.

The district court acted properly in construing this statutory grant of jurisdiction narrowly. As the district court noted, the federal courts are courts of limited jurisdiction which may entertain a case only if there is a congressional grant of jurisdiction and a constitutional basis on which the statute rests. Additionally, as the Supreme Court has decreed, "Jurisdictional statutes are to be construed 'with precision and with fidelity to the terms by which Congress has expressed its wishes '. . . ." Palmore v. United States, 411 U.S. 389, ...

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