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FLEXI VAN LEASING v. PHAROS LINES

June 17, 1992

FLEXI-VAN LEASING, INC., Plaintiff,
v.
PHAROS LINES, S.A and CONSTELLATION NAVIGATION, INC., Defendants.



The opinion of the court was delivered by: CONSTANCE BAKER MOTLEY

FINDINGS OF FACT AND CONCLUSIONS OF LAW

 I. Introduction

 This action was commenced on November 28, 1989 when plaintiff Flexi-Van Leasing, Inc. ("Flexi-Van") filed suit against defendant Pharos Lines, S.A. ("Pharos Lines"). Flexi-Van claimed breach of contract and conversion regarding marine equipment it had leased to Pharos Lines.

 On August 10, 1990, Flexi-Van filed a separate action against defendant Constellation Navigation, Inc. ("Constellation Navigation") Flexi-Van alleged that Constellation Navigation, as Pharos Lines' agent, had exercised dominion and control over the marine equipment Flexi-Van had leased to Pharos Lines. Flexi-Van claimed that Constellation Navigation, therefore, owed Flexi-Van a duty to use reasonable care in the management, dominion and control of the equipment. The duty was allegedly breached by Constellation Navigation's negligence.

 On October 19, 1990, by stipulation and order, the two suits were consolidated. On January 8, 1992, Judge Sand transferred the consolidated action to Judge Motley, who held a bench trial on January 13-15, 27-29, 1992.

 The court notes that Pharos Lines has withdrawn three of its four counterclaims. The only remaining counterclaim is Pharos Lines' claim for expenses and charges allegedly incurred by Pharos Lines in returning Flexi-Van containers from Romania and Turkey which had been under lease to Prudential Lines, Inc.

 II. Findings of Fact

 After hearing the evidence and weighing the testimony and exhibits received in evidence, as well as the credibility of the witnesses, the court makes the following findings of fact:

 1. Flexi -Van is a Delaware corporation with its principal place of business at One University Plaza, Hackensack, N.J. 07601. (Complaint at 1).

 2. Pharos Lines is a Panamanian corporation and did business within the United States through its general agent Constellation Navigation. (Ex. FF).

 3. Constellation Navigation is a New York corporation with its principal place of business at 80 Broad Street, New York, N.Y. 10004. Previously, Constellation Navigation was located at 233 Broadway, 6th Floor, New York, N.Y. 10007. (Tr. 625/12-18; Complaint at 2; Ex. FF).

 4. At all times as to the matters alleged in the Complaint, Constellation Navigation acted as the general agent in the United States for Pharos Lines. (Pre-trial Order at 2, 3(a)(2) (stipulated fact)).

 %A. The Lease Agreement

 5. Pursuant to a written agreement dated October 22, 1985 and addenda thereto (the "Lease Agreement"), Pharos Lines and Flexi-Van entered into a marine equipment Lease Agreement. (Ex. 1; Pre-trial Order at 2, 3(a)(1) (stipulated fact)).

 6. Under the Lease Agreement, Flexi-Van leased to Pharos Lines almost seven hundred units of equipment, consisting of chassis, marine containers and flatbed trailers. (Ex. 1; Tr. 62/22-63/4). Among other things, the Terms and Conditions of the Lease Agreement provide that the lessee shall have the duty to maintain the equipment in good repair, with the lessee being responsible for the costs of such repairs ( 2); that the lessee shall be responsible for the payment of casualty values relative to any unit that is lost, missing or otherwise not returned to Flexi-Van ( 3); that the lessee shall be charged at an interest rate of 15% per annum for any outstanding charges that are not timely paid ( 6); and that the lessee shall be responsible for attorney's fees incurred by Flexi-Van in connection with Flexi-Van's efforts to recover outstanding charges or unreturned equipment ( 9).

 7. By its terms, the Lease Agreement was to run for five years, from September 1, 1985 to August 31, 1990. (Ex. 1).

 8. At the time when Flexi-Van and Pharos Lines entered into the Lease Agreement, the units of equipment leased thereunder were then on lease to nonparty Constellation Lines, S.A. ("Constellation Lines"). *fn1" (See Ex. PP, PP-1, PP-2, PP-3, PP-4, QQ). Elias J. Kulukundis, a director of Pharos Lines (Ex. 13 at 14/17-23), testified that Pharos Lines was incorporated in 1985 for the business purpose of continuing a liner service from the eastern seaboard ports in the United States to the eastern Mediterranean that had previously been under the control of Constellation Lines, which ceased to provide that liner service in 1985. (Ex. 13 at 16/9-22/11).

 9. The continuity running from the operations of Constellation Lines to Pharos Lines is further manifested by the fact that Pharos Lines' general agent, Constellation Navigation, also served as the general agent for Constellation Lines. (Tr. 730/10-11).

 10. The Lease Agreement explicitly states that "Lessee will, at its expense, pick up the units [of leased equipment] from Lessor at: As is, where is." (Ex. 1). Thus, the lease provided that it would be incumbent upon Pharos Lines to take possession of the equipment from wherever Constellation Lines, the previous lessee, had last placed the equipment. Such an arrangement made sense since Pharos Lines was then assuming and continuing Constellation Lines' liner service. Presumably, the equipment would be in locations conducive to the operation of that same liner service.

 B. Payment Problems

 11. Throughout the duration of the parties' relationship, there was no dispute regarding the amount Pharos Lines owed Flexi-Van under the lease. As both parties indicated, every time Pharos Lines made a lease payment, it was made in the full amount due for the respective billing period. (Tr. 73/23-76/6; 464/14-465-5; 608/23-610/22).

 12. However, Pharos Lines was consistently late in making payments, or otherwise completely missed making payments under the Lease Agreement. (Tr. 60/14-62/21). On account of Pharos Lines having been in arrears (and, therefore, in default) under the Lease Agreement, on March 24, 1987 Flexi-Van exercised its rights to terminate the Lease Agreement with Pharos Lines. (See Ex. 2, 7). Flexi-Van, however, allowed Pharos Lines to cure this default. On April 28, 1987, Flexi-Van and Pharos Lines entered into a Settlement Agreement which incorporated a paydown schedule with respect to the arrearage and which also provided that Pharos Lines must pay all future outstanding invoices within 20 days of the invoice date on an ongoing basis. (Ex. 2; Tr. 73/9-13).

 13. Notwithstanding the promises made by Pharos Lines under the Settlement Agreement, Pharos Lines persistently failed to make timely payments to Flexi-Van under the Lease Agreement and the Settlement Agreement. (Tr. 432/25-437/15; 454/3-16).

 14. Pharos Lines ultimately went into default under the Lease Agreement on account of its failure to make timely lease payments to Flexi-Van. On November 22, 1989, Flexi-Van exercised its right to terminate the Lease Agreement on account of the Pharos Lines's default. (Tr. 78/12-79/3; Ex. 3).

 16. Since Pharos Lines' counterclaims in no way exceeded the balance to be paid under the Lease Agreement (see infra), the court would reach the same conclusion -- that Pharos Lines defaulted on the Lease Agreement -- whether or not the court found that Flexi-Van accepted Pharos Lines' payments in November 1989, December 1989, January 1990 and February 1990. For the sake of clarity, the court finds that Pharos Lines defaulted on March 20, 1990 when it failed to make its lease payment for the month of March 1990. This ruling is in keeping with the fact that plaintiff seeks damages only from March 1990 forward. (Tr. 445/8-21).

 17. The Lease Agreement provides that upon the default of Pharos Lines, Flexi-Van is entitled to accelerate and immediately recover from Pharos Lines rental fees that are to become due during the remainder of the term of the Lease Agreement. (Ex. 1, Terms and Conditions 9). At the time that Flexi-Van terminated the Lease Agreement, it demanded that Pharos Lines immediately pay those accelerated rental fees. Also, in accord with its rights under the Lease Agreement, Flexi-Van demanded the immediate return of the leased equipment. (Pre-trial Order at 2, 3(a)(5) (stipulated fact)). However, neither Pharos Lines nor its general agent Constellation Navigation -- who maintained exclusive and complete dominion and control over the leased equipment -- returned the equipment to Flexi-Van; rather, Pharos Lines and Constellation Navigation converted the equipment for their own benefit. (See infra).

 C. The Agency Relationship Between Pharos Lines and Constellation Navigation

 18. As noted in 4, supra, at all times relevant to this action Constellation Navigation acted as the general agent in the United States for Pharos Lines. (Pre-trial Order at 2, 3(a)(2) (stipulated fact).

 19. Prior to the parties' execution of the Lease Agreement, Pharos Lines and Constellation Navigation had already forged a broad principal-agent relationship. Pharos Lines had delegated to Constellation Navigation exclusive and complete authority and responsibility to manage and operate Pharos Lines' ocean liner service. This delegation included, without limitation, the authority and responsibility to: (1) negotiate and coordinate the booking, loading and discharge of cargo; (2) negotiate and coordinate services provided by stevedores and other suppliers of services and goods incidental to the ocean liner service; (3) collect freight from shippers, pay bills and perform accounting services; and, most importantly here, (4) coordinate and monitor intermodal operations including the use, maintenance and payment for the use of leased intermodal equipment such as that leased from Flexi-Van to Pharos Lines under the Lease Agreement. (Ex. 13 at 44/12-45/18; 46/2-10; 48/23-50/8; 50/19-52/7; Tr. at 566/9-17; 584/2-585/5).

 20. Constellation Navigation maintained a Container Manager, Kamal Nayan Shah, who was in charge of intermodal operations. His duties were, among other things, to coordinate the use of marine equipment by Constellation Navigation's principals, which included Pharos Lines. (Tr. 565/6-14; Pre-trial Order at 2, 3(a)(3) (stipulated fact)).

 D. Defendants' Alleged Breach

 22. Notwithstanding these duties, Constellation Navigation personnel failed to keep track of the whereabouts of Flexi-Van's equipment which was the subject of the Lease Agreement. Pharos Lines' Mr. Kulukundis testified as to Constellation Navigation's poor performance in this regard.

 
Q. [by Mr. Flicker] Do you know what type of tracking system [Constellation] Navigation did use?
 
A. [by Mr. Kulukundis] No system.
 
Q. Were they supposed to have a system?
 
A. They were supposed to.
 
Q. What was the system supposed to have done?
 
A. Supposed to trace and report to me how many containers and where they were and conditions they were, but I never got this, chassis and flatbeds. I apologize, I don't know this business, but all equipment including some forklifts. They were leased but also owned some of them. They're supposed to know where every bloody piece of equipment was.
 
Q. That was Pharos' expectation of Navigation, that they would be able to advise Pharos as to the location of each unit at any time?
 
A. They had -- actually Pharos was me at the time.
 
Q. They were supposed to advise you?
 
A. Yes.
 
Q. It's your statement that they did not or were not able to provide you with that information?
 
A. They never provided me with complete and true -- I don't mean lie, but complete.
 
Q. Accurate?
 
A. Accurate.
 
Q. Did you ever -- who was the individual at Navigation who was responsible for this?
 
A. Everybody was responsible but including Mr. Casino, Christophides.
 
Q. Mr. Shah?
 
A. Shah came after my time. It was Mike Boyle mainly and then Casino and Kevin Shield for some time.
 
Q. Were you supposed to get reports on -- at certain time intervals as to where the equipment was located?
 
A. Yes. I supposed to get how many units we had.
 
Q. How often were you supposed to get this information?
 
A. Actually I should get it any time I ask for it, and every two, three months after the completion of a voyage, because was really locating the containers of voyage.
 
Q. Did you get this information provided to you?
 
A. No.
 
Q. Did you get it on two- or three-month intervals?
 
A. I got it a few times during the period of my tenure.
 
Q. Did you get it when you asked for it?
 
A. I was given some figures but they were never accurate.
 
Q. [by Mr. Flicker] Now, in this system you've testified that there were a bunch of units in different locations that were being retained by third parties, and were there other units that were just missing?
 
A. [by Mr. Shah] There were quite a few units which we could not find their movements after I had joined the company.
 
Q. Of course, I'm talking about the Flexi-Van?
 
A. Yes.
 
Q. Now, of those units there was no idea as to where they were; ...

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