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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,
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.
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
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.
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
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
I. Plaintiffs' Maritime Lien Claims
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
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
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
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 ...