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KREATSOULAS v. FREIGHT OF THE LEVANT PRIDE

December 2, 1993

PETER KREATSOULAS, Plaintiff,
v.
THE FREIGHTS OF THE LEVANT PRIDE AND THE LEVANT FORTUNE, STEVE VALIOTIS, PETER XENOPOULOS, DIMITRIOS BEKAS, DEMETRIOS DEMETRIOS a/k/a DIMITRIOS PAULOS DIMITRIOLAKAS and JOHN ZAPANTIS, Defendants.


Leisure


The opinion of the court was delivered by: PETER K. LEISURE

LEISURE, District Judge:

 BACKGROUND

 This case arises out of a $ 500,000 loan that was made by the plaintiff, Peter Kreatsoulas, to Levant Line, S.A. ("Levant Line"), a steamship company that offered ocean freight carriage service between the United States and Greece. Levant Line operated, but did not own, the ships that carried the freight it booked. The loan agreement between Kreatsoulas and Levant Line was embodied in four separate promissory notes for $ 75,000.00, $ 25,000.00, $ 50,000.00, and $ 350,000.00. The loan money was to be used by Levant Line to finance the fulfillment of a major contract of transporting military equipment from the U.S. to Greece for the Greek Ministry of Defense.

 The loan was secured in two ways: (1) in a written contract dated December 23, 1991, the Personal Guarantors guaranteed repayment of the $ 50,000.00 loan, and (2) in a written contract dated January 3, 1992, the owners of the two vessels operated by Levant Line, the LEVANT PRIDE and the LEVANT FORTUNE ("the Owners"), assigned to the plaintiff certain freights *fn1" to be earned by the two vessels by carrying military equipment consigned to the Greek Ministry of Defense.

 Although Levant Line is the principal debtor of the loan, it was not named as a defendant in this action, presumably because it is currently in Chapter 11 bankruptcy proceedings. The defendants in this action are: (1) the freights that had been assigned to the plaintiff as security for the loan, (2) the Owners, and (3) the Personal Guarantors. Only the Personal Guarantors have appeared in response to the complaint.

 The Personal Guarantors have moved to have the action dismissed pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction.

 DISCUSSION

 Defendants allege that the contracts in question are not maritime contracts, and thus are not subject to federal admiralty jurisdiction. The plaintiff advances two alternative arguments for his position that this Court does, in fact, have federal admiralty jurisdiction over the contracts in question. First, the plaintiff contends that the Court has direct subject matter jurisdiction over the contract of personal guaranty. Alternatively, the plaintiff argues that this Court has pendant party jurisdiction over the causes of action asserted against the Personal Guarantors of the loan. As discussed below, the Court finds these arguments unpersuasive.

 There are three contracts at issue in this case. The core agreement, between the plaintiff and the now bankrupt Levant Line, was the aforementioned loan embodied in four separate promissory notes. The other two contracts, each signed on a different date by different parties and embodied in a different writing, served as security for the core loan agreement. In the assignment contract, the Owners of the ships assigned all freights of the ships to the plaintiff. In the contract of personal guaranty, the five Personal Guarantors guaranteed payment of the loan to Levant Line. It is this third contract over which the movants claim this Court lacks jurisdiction.

 As a court of limited jurisdiction, a district court is empowered only to hear cases that either sound in diversity or are based on a federal question. "Whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action." Fed. R. Civ. P. 12(h)(3). This Court, therefore, must decide at this juncture whether any of the claims brought by the plaintiff are proper subject matter for this Court's jurisdiction, and is not limited to consideration of the claims against the present movants.

 In considering a motion to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), allegations of the complaint should be construed favorably to the pleader. Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974); Antares Aircraft, L.P. v. Fed. Republic of Nigeria, 948 F.2d 90, 96 (2d Cir. 1991). However, argumentative inferences favorable to the party asserting jurisdiction should not be drawn. Norton v. Larney, 266 U.S. 511, 515, 69 L. Ed. 413, 45 S. Ct. 145 (1925); Atlantic Mut. Ins. Co. v. Balfour MacLaine Int'l Ltd., 968 F.2d 196, 198 (2d Cir. 1992). This Court shall now consider each of the plaintiff's arguments for a possible basis of federal admiralty jurisdiction.

 A. Direct Subject Matter Jurisdiction Over the Personal Guaranty

 Title 28 U.S.C. ยง 1333 grants federal district courts the power to entertain "any civil case of admiralty or maritime jurisdiction." As the United States Court of Appeals for the Second Circuit ("Second Circuit") has recently noted in Atlantic Mut. Ins. Co. v. Balfour MacLaine Int'l Ltd., "it has long been decided that this grant includes jurisdiction 'over all contracts . . . which relate to the navigation, business, or commerce of the sea.'" 968 F.2d 196, 199 (2d Cir. 1992) (quoting De Lovio v. Boit, 7 F. Cas. 418, 444 (C.C.D.Mass. 1815) (No. 3,776) (Story, J.)). However, the Balfour Court further noted that "'the boundaries of admiralty jurisdiction over contracts . . . being conceptual rather than spatial, have always been difficult to draw.'" Balfour, 968 F.2d at 199 (quoting Kossick v. United Fruit Co., 365 U.S. 731, 735, 6 L. Ed. 2d 56, 81 S. Ct. 886 (1961)). Precedent in this area provides some guidance as to whether or not a contract should be considered maritime. A contract to repair a ship, for example, is a maritime contract, Rubino v. Hudson River Glassworks, No. 90 Civ. 1439, 1990 U.S. Dist. LEXIS 9388, 1990 WL 108364 (S.D.N.Y. July 26, 1990), while a contract to sell a ship is not. Lynnhaven Dolphin Corp. v. E.L.O. Enterps., Inc., 776 F.2d 538 (5th Cir. 1985). A contract to "insure a ship . . . is maritime, but a contract to build a ship is not. . . ." Kossick v. United Fruit Co., 365 U.S. 731, 6 L. Ed. 2d 56, 81 S. Ct. 886 (1960) (citations omitted).

 The contract under which the movants here are being sued is one of personal guaranty -- the five individual defendants promised to repay the $ 500,000 to the plaintiff should Levant Line default on the loan. In order for this action to be grounded directly in admiralty jurisdiction, the contract of personal guaranty must be found to be a maritime contract. Ingersoll Milling Machine Co. v. M/V Bodena, 829 F.2d 293, 302 (2d Cir. 1987), cert. denied, 484 U.S. 1042, 98 L. Ed. 2d 860, 108 S. Ct. 774 (1988).

 Any analysis of whether or not a contract should be considered a maritime contract must begin with an examination of the goals of admiralty jurisdiction. "The question of whether a dispute falls within admiralty jurisdiction cannot be divorced from the 'purposes for which admiralty and maritime jurisdiction was granted.'" Balfour, 968 F.2d at 199 (citing Insurance Co. v. Dunham, 78 U.S. 1, 31, 20 L. Ed. 90 (1871)). As the Second Circuit has recently explained:

 
before attempting to categorize contractual rights as maritime or non-maritime, a federal court must first consider whether an issue related ...

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