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INT'L MINERALS AND RESOURCES v. PAPPAS

April 19, 1991

INTERNATIONAL MINERALS AND RESOURCES, INC., INTERNATIONAL SHIPPING COMPANY, S.A., AND LYGREN MARITIME SERVICES, S.A., PLAINTIFFS,
v.
T. PETER PAPPAS, BOMAR RESOURCES, INC., AMERICAN GENERAL RESOURCES, INC., RICHARD JAROSS, AND A.L. BURBANK SHIPBROKERS, LTD., DEFENDANTS, AND ATLE LYGREN, ADDITIONAL DEFENDANT ON COUNTERCLAIM.



The opinion of the court was delivered by: Leisure, District Judge.

OPINION AND ORDER

BACKGROUND

The claims asserted in this lawsuit derive from the confused events surrounding various parties' attempts to purchase the Brazilian Friendship. All of the parties in this action have some involvement in the business of investing in ships, whether as brokers, principals, or scrappers of distressed vessels. The moving defendants are AGR, a corporation formed under the laws of Texas, and Jaross, vice president and treasurer of AGR (collectively, the "moving defendants"). AGR is engaged in the business of buying, selling, salvaging, repairing and scrapping vessels. By written agreement dated June 30, 1986, AGR contracted to locate scrap and distressed vessels for defendant Bomar Resources, Inc. ("Bomar"), a trader in such vessels. Defendant A.L. Burbank ("Burbank") is a shipbroker that has frequently acted as broker for AGR and Bomar in ship acquisitions.

Counterclaim defendant Lygren is a Norwegian citizen and Swiss resident with extensive experience as a shipbroker. He claims that since the fall of 1986 he has acted primarily on behalf of plaintiff International Minerals and Resources, Inc. ("IMR"), as a principal. IMR is a corporation organized under the laws of Liberia and formed at the request of Lygren, who manages its affairs under a power of attorney. IMR is engaged in the business of investing in ships and in transporting bulk cargoes by sea.

Plaintiff International Shipping Company, S.A. ("ISC"), is a corporation formed under the laws of Panama and a wholly owned subsidiary of IMR, acquired for the purpose of taking title to the Friendship. ISC is managed by Lygren under a power of attorney. Plaintiff Lygren Maritime Services ("LMS") is a Swiss corporation, of which Lygren is principal shareholder, president and chief executive officer. Until at least the latter part of 1985, LMS acted primarily as a broker in the sale and purchase of second-hand vessels, negotiating shipbuilding and transportation contracts, and financing ships.

In November 1985, the Friendship ran aground in the Orinoco River in Venezuela, while carrying a cargo of some 64,000 metric tons of iron ore. The ship and its cargo were the subject of considerable international interest by those involved in the purchase and sale of distressed vessels, for salvage, scrap or restoration. Among those interested in the ship's availability were the plaintiffs and defendants in this action. Title to the vessel was not clear until April 1987, when it passed to a local salvage company in Venezuela, which nominated Hydra Offshore Ltd. ("Hydra") to take title to the vessel.

The parties do not dispute that Lygren and Jaross spoke on or about November 17 or 18, 1986, concerning a plan whereby AGR, Lygren and defendant Bomar would acquire the vessel and tow it to a Romanian shipyard, where the cargo of iron ore would be traded for the cost of repairs. Lygren informed the moving defendants that he had extensive connections in Romania and could secure a good price for the ore. Plaintiffs characterize the plan as a proposed joint venture, to which defendants never committed. The moving defendants assert that Lygren agreed to act as their broker.

After November 17, 1986, Jaross sent certain information to Lygren concerning the Friendship. The moving defendants claim that the information was confidential and that Lygren wrongfully passed it on to others, while plaintiffs claim that it was generally available in the market. During November and December 1986, Lygren sent a series of telex and telefax communications to Jaross concerning the Romanian aspect of the proposed Friendship acquisition. See DX 22-28.*fn1

Lygren and Jaross also discussed a number of other vessels then available in the market. The moving defendants claim, and plaintiffs deny, that Lygren was acting as AGR's broker for those vessels. However, Lygren admits that, in January 1987, he acted as AGR's broker during a trip to Moscow that did not involve the Friendship.

In early January 1987, Jaross visited Lygren's home in Switzerland; the parties dispute whether the Friendship was a subject of discussion. Lygren declares that during that visit, he concluded that the joint venture would never go forward, because of Jaross's personal, legal and financial problems. Later that month, Lygren received a repair quote from the Romanian shipyard and submitted a bid for the ship on behalf of either IMR or ISC,*fn2 which was met by a counteroffer. See PX 43-45. Lygren admittedly did not inform AGR or Jaross of either the repair quote or the bid.

Lygren again submitted bids in April 1987, after legal title to the ship had been resolved. See PX 50-53. On April 23, 1987, certain terms apparently were agreed to by Hydra and IMR,*fn3 including a purchase price of $2,650,000. The terms were summarized in a telex that stated that they were subject to approval by IMR's board of directors and the signing of a formal Memorandum of Agreement (the "Agreement"). See DX 34 ¶¶ 2, 7. The telex also provided: "Contract to be based on NSF 83 suitably ammended [sic]. Contract shall be in accordance with standard S and P terms with logical ammendments [sic] for this specific transaction. . . ." Id. ¶ 9. Payment of a ten percent deposit was to be made either "upon signing contract or all subjects lifted, whichever is later." Id. ¶ 2. Buyers were to be entitled to nominate a delivery date and to place representatives on board the vessel "once contract signed and deposit lodged." Id. ¶¶ 4, 6.

On May 15, Lygren, acting through his power of attorney, lifted the "subject to approval" condition. See DX 35. Plaintiffs contend that a valid contract existed as of April 23, or, alternatively, as of May 15. However, the May 15 telex included requests for a draft of the Agreement "for buyers [sic] review and comments" and for further information regarding such things as the identity of the registered owners and whether the insurers had taken title to the ship and paid all claims, liens and mortgages. See DX 34, 35.

On May 15, 1987, Jaross was informed by Nicholas Reisini, Lygren's partner at LMS, that Lygren had bought the Friendship. Jaross then sent a telex to Lygren, expressing both his understanding that Lygren had been acting as AGR's broker for the vessel and his surprise at Lygren's actions. See DX 37. On May 18, Lygren sent a telex to Jaross denying that he and Reisini had purchased the vessel. See DX 38.

Burbank submitted AGR's bid of $2.8 million to EWS on May 22, stating that it understood that "the party to whom the [vessel] was previously committed has not lodged a deposit." DX 41.

Shortly thereafter, Jaross raised his bid to $2,925,000, and sent that bid directly to Hydra in Venezuela, as well as to EWS in London. See DX 42, 43. On May 24, Jaross spoke to James Gosling ("Gosling"), Hydra's London solicitor, who said that he was unsure whether a Memorandum of Agreement had been signed or was to be signed the following day.

Throughout the day of May 25, 1987, Lygren admittedly continued to negotiate terms of the Agreement, which was signed that evening. See DX 44, 45. Late that evening, London time, Carla de Calderan ("de Calderan"), the President of Hydra, placed a call from Venezuela to Jaross in London. The moving defendants contend, and plaintiffs deny, that de Calderan told Jaross that the Friendship was still available, and that she had never received AGR's May 18 bid.

The next day, Jaross told Burbank to send copies of the May 18 bid to de Calderan in Venezuela. On May 27, Jaross spoke to his New York counsel, Richard Jarashow ("Jarashow"), who referred him to London counsel, P.T. O'Neill ("O'Neill"). O'Neill has stated under oath that he advised Jaross that if a contract had been executed on the Friendship, Jaross should withdraw his bid. Affidavit of P.T. O'Neill, sworn to on Feb. 14, 1990, at 1. O'Neill then spoke to Hydra's London attorney, Gosling, was told of the executed Agreement, and withdrew AGR's bid. Id. at 1-2. Jarashow had two conversations on May 27 with Brendan O'Sullivan, Hydra's Florida counsel, the content of which is disputed.

On May 28, 1987, Hydra notified ISC that it was cancelling the Agreement, purportedly because ISC had not timely deposited the requisite ten percent of the purchase price. See DX 48. On May 29, at Jarashow's request, Gosling sent him a telex confirming that the Friendship was available. See DX 49.

The events subsequent to the cancellation of the Agreement need not be stated in detail, for although hotly contested by the parties, they are not crucial to the Court's ruling today. It is apparent that Jaross contacted defendants Bomar and T. Peter Pappas ("Pappas") and informed them that the ship was available. Ultimately, a deal was arranged whereby the ship was purchased by Maryland Navigation Corporation ("Maryland"), a Liberian corporation wholly owned by Pappas, as nominee for Duke Petroleum Corporation, and a fee was paid to Bomar for "flipping" the deal to Pappas.

Meanwhile, ISC had commenced legal proceedings against Hydra in a London court. On June 1, the High Court of Justice, Queen's Bench Division, Commercial Court, issued an injunction enjoining Hydra and its agents from selling or delivering the Friendship to any party other than ISC. Although a written contract had apparently already been executed between Hydra and Maryland, the June 1 closing in Tampa, Florida, was adjourned after the parties received news of the injunction. However, Hydra maintained that the injunction had no ...


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