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ITEL CNTINRS INT'L. v. ATLANTTRAFIK EXP.

December 11, 1991

ITEL CONTAINERS INTERNATIONAL CORPORATION, FLEXI-VAN LEASING INC., CROSS-COUNTY LEASING LTD., NOW NAMED TEXTAINER INC., AND TEXTAINER SPECIAL EQUIPMENT LTD., PLAINTIFFS,
v.
ATLANTTRAFIK EXPRESS SERVICE LTD., IN PERSONAM AND M/V TAVARA, AES EXPRESS, AES CHALLENGE, NAGARA AND CAVARA, THEIR ENGINES, BOILERS, TACKLE, FREIGHTS, ETC., IN REM, AND SEA CONTAINERS LTD., SEACO SERVICES LTD., SEA CONTAINERS AUSTRALIA LTD., SEACO INC. AND SEA CONTAINERS AMERICA INC., IN PERSONAM, DEFENDANTS.



The opinion of the court was delivered by: Robert L. Carter, District Judge.

    OPINION

The plaintiffs in this action are Itel Containers International Corp. ("Itel"), Flexi-Van Leasing, Inc. ("Flexi-Van"), Textainer Incorporated ("Textainer"), and Textainer Special Equipment, Ltd. ("TSEL"). The defendants remaining in this action are Atlanttrafik Express Service, Ltd. ("AES Ltd."), against which plaintiffs have asserted in personam claims, and M/V Tavara, AES Express, AES Challenge, Nagara and Cavara (collectively "the vessels"), against which the plaintiffs have asserted in rem maritime lien claims. The vessels owners ("the owners"), Nagara Ltd., owner of the M/V Nagara; Nagara Tam, Ltd., the owner of the M/V Tavara; Contender I Ltd., owner of the M/V Cavara; Strider I Limited, owner of the M/V AES Express and charterer of the AES Challenge; and Strider 4, Ltd., owner of the M/V AES Challenge, are also represented in this action.

PROCEDURAL HISTORY

The background of this case is set out in previous opinions of the court, reported at 668 F. Supp. 225 (S.D.N.Y. 1987) and 725 F. Supp. 1303 (S.D.N.Y. 1989), familiarity with which is assumed. Plaintiffs are suppliers of maritime containers, large metal boxes used to transport maritime cargo, and chassis, frames and wheels used to move containers about. Sea Containers Limited ("SCL") organized defendant AES Ltd. in 1984 for the purpose of operating the AES shipping line. Plaintiffs had entered into container lease agreements with the previous operators of the vessels of the AES line and extended or renewed them with AES Ltd. after it began operating the line.

In the fall of 1985 SCL withdrew its support for AES Ltd., and in 1986 AES Ltd. closed down the operation of the AES line and later went into voluntary liquidation in England.

Plaintiffs subsequently began this action alleging breach of the container lease agreements against AES Ltd., and asserting corporate veil-piercing theories as to SCL and a number of other SCL subsidiaries. Plaintiffs also asserted maritime liens against the vessels.

After trial, the court dismissed all of plaintiffs' claims, but did not discuss plaintiffs' maritime lien claims or their claims against AES Ltd. 725 F. Supp. at 1308-14. On appeal, the Second Circuit affirmed on all the issues discussed but remanded for findings of fact and conclusions of law on the two matters not dealt with by the trial court. See 909 F.2d 698 (2d Cir. 1990). The parties have submitted additional briefing to the court asserting their positions on the remanded issues.

FACTS AND ISSUES ON REMAND

Plaintiffs' in rem claims against the vessels were secured by defendants' posting of the following bonds with the court:

Vessel                          Plaintiff            Amount
— ----------------------------  ---------------  ---------------
M/V AES Challenge               Itel                 $470,000.00
M/V AES Challenge               TSEL                   23,400.00
M/V Tavara                      Itel                  481,275.00
M/V Tavara                      Textainer               7,100.00
M/V Tavara                      TSEL                   14,750.00
M/V Cavara                      Itel                  481,275.00
M/V Cavara                      Textainer              10,558.81
M/V Cavara                      TSEL                   30,731.86
M/V Nagara                      Textainer               9,779.30
M/V Nagara                      TSEL                   30,463.07

As to these claims, several disputed factual issues must be decided. The first disputed issue is whether the plaintiffs, in entering into their leases with AES Ltd., chose to forego their right to maritime liens on the vessels and relied entirely on the credit of AES Ltd. or SCL.

Itel and Textainer each learned of the acquisition of the AES line by AES Ltd., and ultimately SCL, in 1984. Each took action to increase the security of its leases. Itel sought higher rates and a guaranty of the leases by SCL. Although Itel temporarily received the higher rates, in 1985 it entered into a new lease with AES Ltd. at the old rate and did not receive a guaranty from SCL. 725 F. Supp. at 1307. Itel's leases reserved its rights to "assert maritime or other liens" on default by the lessee. Itel Ex. 1 ¶ 13(b).*fn1

Textainer sought to secure information on the ownership of AES Ltd. In negotiating a new lease in 1985. Textainer did a credit check on AES Ltd. but received little information. Tr. 67-69; 725 F. Supp. at 1307.*fn2 Textainer's "New Business Checklist" dated December 5, 1985, indicates that some consideration may have been given to the credit of the vessels. The checklist has a space indicating whether AES's credit references were all checked. In this space is written: "Yes. For vessels see under Sea Containers X 5 ships." SC Defendants' Ex. 196. Textainer's credit manager testified that Textainer's minimum standards for deciding to issue credit to a customer do not include the customer's vessels, although Textainer does examine the books of ship owners. Geoffrey MacDonald dep. at 16, 19. However, Textainer's operations manager testified that Textainer's credit ratings of customers do include vessel ownership. Tr. 485-86. Textainer increased the credit extended to AES Ltd. after it was purchased by SCL.

It is unclear whether TSEL took any action to obtain guarantees or what the extent of its credit checks were.

There is little evidence illuminating the issue of Itel or TSEL's reliance on the credit of the vessels. There is more evidence that Textainer gave some consideration to the vessels when leasing its containers, although evidence on this issue is also sparse. As explained in the court's discussion of waiver, infra, however, there is a statutory presumption that the credit of the vessels is relied upon. Therefore, in the absence of clear evidence that plaintiffs intended to forego their rights to their liens, the court must find that they did not intend to do so.

A second disputed issue is whether plaintiffs' containers were put to maritime use by the vessels. This issue was raised previously and decided in plaintiffs' favor in the opinion reported at 668 F. Supp. 229-30. The nature of plaintiffs' leases, which primarily envisioned maritime use of the containers, the nature of AES Ltd's business and the testimony at trial confirm this conclusion. See, e.g., Itel Ex. 1; Textainer Ex. 1; TSEL Ex. 16; Tr. 574, 651.

A third disputed issue is whether plaintiffs' claims for damages to their equipment are for ordinary wear and tear or for damages attributable to AES Ltd. The unrefuted testimony of Itel's director of technical services was that Itel deducted ordinary wear and tear, as defined in the container inspection manual of the Institute of International Container Lessors, before billing its customers for repair expenses. Tr. 317-20; Defendants' Ex. 555. Defendants introduced testimony of an expert witness who had examined plaintiffs' repair documentation, had concluded that it did not include sufficient wear and tear deductions and produced an alternative set of repair expenses. Tr. 744-45. However, at least with respect to Itel, defendants' expert did not have a complete set of supporting documentation for his repair estimate. Hence part of the difference between his and Itel's calculations may have been due to reliance on dissimilar data. Tr. 851-55. In addition, the expert made his calculations from Itel documents that reflected damages to equipment before Itel took its deductions for wear and tear, and his testimony was not based on a personal examination of the equipment. Tr. 855-58, 872-73. There was also testimony that Itel did not repair some units until long after they were brought in, and that these delays could have caused further damage to the equipment. Tr. 280-84, 305-08, 318-19, 969. However, Itel provided estimated repair figures for equipment that had not been repaired, and a damage report was prepared for each piece of equipment as soon as it was received at an Itel depot. Tr. 260-61, 317-18. Therefore, based on the evidence adduced at trial, the court finds that plaintiffs' repair claims reflect damages attributable to AES Ltd.

Finally, the court must determine the date when plaintiffs' containers ceased to be used by the vessels. A confidential SCL memorandum dated February 28, 1986, discloses that sometime before that date, three of the vessels, the AES Challenge, the Nagara and the Cavara, had, discharged their cargoes. As of that date the Tavara was under arrest in Italy, and the AES Express was making its last voyage. See Plaintiffs' Ex. 426. Since, as explained below in the court's discussion of its in rem jurisdiction, plaintiffs have no lien claims against the AES Express, the court finds that February 28, 1986, is the last date that plaintiffs' containers were

DISCUSSION

I. Plaintiffs' Maritime Lien Claims

A. Jurisdiction

Jurisdiction only exists in an in rem action where "the subject matter of the action, or an appropriate substitute thereof, is within the jurisdiction of the court in which the action lies." American Bank of Wage Claims v. Registry of Dist. Court of Guam, 431 F.2d 1215, 1218 (9th Cir. 1970); see also Tube Prods of India v. S.S. Rio Grande, 334 F. Supp. 1039, 1041 (S.D.N.Y. 1971) (Cooper, J.). Since defendants have posted bonds in this action to secure the in rem claims of plaintiffs Itel, Textainer and TSEL, the court has jurisdiction over the in rem claims of these plaintiffs.

Plaintiff Flexi-Van, however, has not arrested any of the defendant vessels within the jurisdiction of the court; nor have defendants posted bonds with the court to secure Flexi-Van's claims. Instead, Flexi-Van arrested the M/V Tavara in Livorno, Italy. SCL posted security in Italy for the release of that vessel.

Normally, failure to arrest or cause security to be posted within a court's jurisdiction is fatal to in rem jurisdiction. See American Bank of Wage Claims, supra, 431 F.2d at 1218; Burns Bros. v. Long Island R. Co., 176 F.2d 950 (2d Cir. 1949); Carroll v. United States, 133 F.2d 690 (2d Cir. 1943); Tube Prods., supra, 334 F. Supp. at 1041. Nonetheless, a vessel owner may waive objection to in rem jurisdiction under certain circumstances, Continental Grain Co. v. Federal Barge Lines, Inc., 268 F.2d 240 (5th Cir. 1959), aff'd 364 U.S. 19, 80 S.Ct. 1470, 4 L.Ed.2d 1540 (1960), although such a "waiver" may in reality take the form of a posting of security. See Cargill B.V. v. S/S "Ocean Traveller", 726 F. Supp. 56, 57 (S.D.N.Y. 1989) (Leval, J.) (allowing the issuance of a letter of undertaking to be the basis of jurisdiction). However, such a waiver is normally made in the same court which takes jurisdiction, rather than in another forum. See Cargill B.V., supra, 726 F. Supp. at 57; Continental Grain, supra. Since in the present case, the only possible waiver occurred in Italy, the court lacks jurisdiction over Flexi-Van's in rem claims.*fn3 Therefore they must be dismissed.*fn4

The court also lacks jurisdiction over plaintiffs' in rem claims against the AES Express, since none of the plaintiffs have caused the vessel to be arrested within the court's jurisdiction or succeeded in having bonds posted to secure their claims against it.

B. Whether Plaintiffs' Containers are Necessaries

Plaintiffs' maritime lien claims against the vessels are based on the Federal Maritime Lien Act, 46 U.S.C. § 971 et seq. (1988),*fn5 which provides, in pertinent part:

  Any person furnishing repairs, supplies, towage, use of dry
  dock or marine railway, or other necessaries, to any vessel
  . . . shall have a maritime lien on the vessel, which may be
  enforced by suit in rem, and it shall not be necessary to
  allege or prove that credit was given to the vessel.

Defendants contend that plaintiffs' containers were not "necessaries" under the Act. The court dealt with this argument in its previous opinion, 668 F. Supp. at 227-31, and held to the contrary. That holding is the law of the case.

In that opinion, the court held that "`the word "necessaries" should be broadly interpreted: the test is whether the supplies and services furnished are reasonably needed in the ship's business.'" 668 F. Supp. at 228 (quoting Nautilus Leasing Servs., Inc. v. M/V Cosmos, 1983 A.M.C. 1483, 1483 (S.D.N Y 1983) (MacMahon, J.) (citation omitted)). The court also held that "[t]he term `includes most goods or services that are useful to the vessel, keep her out of danger, and enable her to perform her particular function. Necessaries are things that a prudent owner would provide to enable a ship to perform well the functions for which she has been engaged. . . .'" 668 F. Supp. at 228 (quoting Equilease Corp. v. M/V Sampson, 793 F.2d 598, 603 (5th Cir. 1986) (en banc), cert. denied 479 U.S. 984, 107 S.Ct. 570, 93 L.Ed.2d 575 (1986)). In addition, the court held that "[i]t is the present, apparent want of the vessel, not the character of the thing supplied, which makes it a necessary." Id. ((citations omitted) (emphasis added)). Applying these principles, the court had no difficulty holding that plaintiffs' containers were necessaries within the meaning of the Act. See 668 F. Supp. at 228.

The evidence adduced at trial confirms that plaintiffs' containers were used in a manner consistent with this holding. Plaintiffs' containers were delivered to AES Ltd. and used by its vessels. While AES Ltd. leased two to three times as many containers as its fleet capacity could accommodate, as explained previously, a ship may need as many as three times the containers as it has capacity for. See 668 F. Supp. at 229.

Defendants, however, argue for a reversal of the court's previous holding on the basis that certain portions of the container leases are "preliminary to" the maritime contract, presumably those portions of the lease that occur before the containers are actually placed on board ship. Defendants' reading of the "preliminary to" cases is not in accord with the law of this Circuit. The "preliminary to" cases do hold that certain services provided to vessels are not within the court's admiralty jurisdiction because they are "preliminary to" maritime contracts.*fn6 See, e.g., Peralta Shipping Corp. v. Smith & Johnson (Shipping) Corp., 739 F.2d 798, 801-02 (2d Cir. 1984) (holding that general agency agreements to procure "husbanding" service for a vessel are preliminary services not within maritime jurisdiction), cert. denied, 470 U.S. 1031, 105 S.Ct. 1405, 84 L.Ed.2d 791 (1985). However, this doctrine has not been extended to container leasing agreements. Such agreements have been held to be within the court's maritime jurisdiction, even when the containers are leased by a general agent to be subsequently leased to vessels. See CTI-Container Leasing Corp. v. Oceanic Operations Corp., 682 F.2d 377, 378-81 (2d Cir. 1982). Therefore, defendants' argument that the containers were preliminary supplies not within the court's maritime jurisdiction for periods before they were placed aboard ship must fail.

  C. Whether Plaintiffs' Containers Were "Furnished" to the
     Vessels

Defendants contend that plaintiffs' containers were not "furnished" to the defendant vessels within the meaning of the Act because the containers were leased to the fleet through AES Ltd. rather than leased to the individual vessels. Thus defendants argue that the containers must (1) "be earmarked for a particular vessel," and (2) "be furnished to that vessel by the lienor." SC Defendants' Memorandum of Law on Remand at 26. Defendants contend that the containers in the present case do not meet these requirements. This argument has also been rejected by the court, 668 F. Supp. at 230-31, but defendants ask the court now to reach a contrary determination.

In its earlier opinion, the court held that "a lien may attach when services or supplies are provided to a fleet of vessels as long as title is not diverted to an intermediary." 668 F. Supp. at 230. Maritime liens can arise if supplies are furnished to a fleet of vessels and delivered to the fleet owner, or delivered to an intermediary who delivers them to the vessels, as long as the intermediary does not take title to the supplies. See Bankers Trust Co. v. Hudson River Day Line, 93 F.2d 457, 459 (2d Cir. 1937) ("[T]he supplyman may, in effect, make the owner his agent to complete the `furnishing' by putting the goods on board."); Equilease Corp. v. M/V Sampson, 793 F.2d 598, 603 (5th Cir. 1986) (en banc) ("To read `furnishing' as requiring an actual thing to be physically delivered to the vessel would foreclose any intangible services from ever being held necessaries under section 971."), cert. denied, 479 U.S. 984, 107 S.Ct. 570, 93 L.Ed.2d 575 (1986); Jeffrey v. Henderson Bros., 193 F.2d 589, 590, 594 (4th Cir. 1951) (rejecting argument that delivery of supplies to owner rather than directly to the vessel defeated a maritime lien). Because containers leased for maritime use are "the functional equivalent of the hold of ...


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