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United States District Court, S.D. New York

January 12, 2004.

In re: MILLENIUM SEACARRIERS, INC., et al, Debtors Liberian International Ship & Corporate Registry, LLC; and Universal Oil, Ltd., Appellants,
Allfirst Bank (f\k\a First National Bank of Maryland) and Wayland Investment Funds, LLC Appellees, Chapter 11

The opinion of the court was delivered by: ROBERT PATTERSON, Senior District Judge


Appellants Universal Oil Ltd. ("Universal") and Liberian International Ship & Corporate Registry, LLC ("LISCR") appeal, pursuant to 28 U.S.C. § 158, the orders of Hon. Cornelius Blackshear, United States Bankruptcy Judge, entered on August 1, 2000, granting the motions for summary judgment of the adversary defendants, Allfirst Bank ("Allfirst") and Wayland Investment Fund, LLC ("Wayland").


  A. The Preliminary Bankruptcy Proceeding

  On or about January 15, 2002, Millenium Seacarriers, Inc. and its Millenium subsidiaries (collectively, "Millenium" or "Debtors"), each of which owned a merchant vessel, commenced Page 2 Chapter 11 proceedings by filing with the Bankruptcy Court voluntary petitions for relief under Chapter 11 of Title 11, United States Code, as amended.*fn1 (L-26, ¶ 6; U-26, ¶ 6.)*fn2

  On January 28, 2003, Wayland, the purchaser of first preferred ship mortgage exchange notes issued by Millenium (the "Notes"), filed a motion to lift the automatic stay or, in the alternative, to appoint a Chapter 11 Trustee. (L-26, ¶ 7; U-26, ¶ 7.) Defendant Wayland had purchased a substantial number of the Notes in the secondary market between March 1999 and November 2001, and beneficially owned 85% of the Notes. (L-26, ¶¶ 3-4; U-26, ¶¶ 3-4.)

  The Debtors filed an objection to Wayland's motion, and a hearing was held on Wayland's motion on February 13, 2002. (L-26, ¶ 7; U-26, 17.) On February 13, 2002, Wayland and the Debtors came to an agreement entered on the record and so ordered by the Bankruptcy Court at the hearing resolving Wayland's motion. (L-26, ¶ 8; U-26, ¶ 8.) Pursuant to that agreement, on February 28, 2002, the Debtors filed an amended motion ("Sale Motion") pursuant to Section 363 of the Bankruptcy Code to sell substantially all the assets of the Debtors free and clear of liens, claims and interests; and (b) assume and assign contracts and leases in connection with such sale. (L-26, ¶ 9; U-26, ¶ 9.) On February 28, 2002, the Bankruptcy Court Page 3 accepted the Sale Motion and established bidding, notice and objection procedures pursuant to which all objections to the Sale Motion were due by March 22, 2002. (L-26, ¶ 9; U-26, ¶ 9.)

  On March 21, 2002, LISCR and Universal filed maritime lien claims and objections to the Sale Motion. (UW-1;LW-1.) On March 27, 2002, a hearing on the Sale Motion was held before the Bankruptcy Court ("Sale Hearing"). (UW-2; LW-2.) At the conclusion of that hearing, the Bankruptcy Court granted the Sale Motion and, ultimately, issued the Sale Order (L-5; U-5),*fn3 which, inter alia, ordered the sale of the Debtors' vessels "subject to such Lien and related Claim, if any," held by the objecting lien party that the Bankruptcy Court "finds, after due notice and a hearing, is superior in right to the Lien and related Claim of the Indenture Trustee." (L-5, ¶ 7; U-5, ¶ 7.) During the hearing, the Bankruptcy Court made clear that it would retain equity jurisdiction of the case and order that the Indenture Trustee be liable for any liens found to be superior to the liens of the purchaser. (L-11, Ex. A at 256-257; U-11, Ex. A at 256-57.) The Indenture Trustee (All first) was the successful and only bidder for eighteen of the vessels. (L-26, ¶ 11; U-26, ¶ 11.) The estate did not profit from these sales since the amount of each outstanding mortgage exceeded the purchase price for each vessel. (Arg. Tr. at 5.) A nineteenth vessel was sold for cash, but administrative expenses will exceed its sale price and any remaining assets of the estate. (Id. at 5-6.)

  B. The Adversary Proceeding

  On April 4, 2002, Debtors, as ordered by Judge Blackshear, filed the complaint in the Adversary Proceeding to resolve the priority of the maritime liens asserted by the Indenture Page 4 Trustee and by the parties who had objected to the sale. (L-26; U-26.) The complaint stated it was a core proceeding pursuant to 28 U.S.C. § 157(b). (L-26, ¶ 5; U-26, ¶ 5.) Each of the objecting parties claiming maritime liens, including Universal and LISCR, was named as a plaintiff in the Adversary Proceeding, and Wayland and All first were each named as defendants. (L-26; U-26.) On April 17, 2002, counsel for the appellants objected to the Debtors filing a complaint naming his clients as plaintiff. The Bankruptcy Judge responded that he had ordered the Debtors to do that to expedite matters and offered to have the appellants' counsel's clients removed from the adversary action. (L-11, Ex. B at 40; U-11, Ex. B at 40.) On April 29, 2002, defendants filed answers denying the priority of appellants' liens. (L-23; U-23.)

  On April 25, 2002, Judge Blackshear signed a scheduling order setting deadlines for discovery and ordering that any motions for summary judgment in the Adversary Proceeding be filed by May 31, 2002. (L-24; U-24.)

  On May 31, 2002, appellees moved for summary judgment with supporting memoranda of law and Local Civil Rule 56.1 Statements on the claims asserted by LISCR in Adversary Proceeding 02/8031A and by Universal in Adversary Proceeding 02/8031. (L-18, 20; U-18, 20; LW-14, 15; UW-14, 15.) Universal and LISCR filed answering memorandum of law and Local Civil Rule 56.1 Statements on June 16, 2002. (L-30, 31; U-30, 31.) On June 21, 2002, appellees filed reply memorandum and reply Local Rule 56.1 Statements. (L-11-14; U-11-14.)

  Appellees' motion for summary judgment against LISCR asserted that there was no genuine issue of material fact regarding (1) the fact that the first preferred ship mortgages held by Allfirst on its Liberian flagged vessels were validly executed and duly registered under the laws of Liberia, and (2) that LISCR's claim for Liberian tonnage taxes on those vessels were state — Page 5 created liens of a maritime nature and of a lower priority than that of its first preferred ship mortgages. (U-18.)

  Appellees' motion for summary judgment against Universal asserted that there was no genuine issue of material fact regarding (1) the foreign first preferred ship mortgage held by Allfirst on the M/V Millenium Eagle, a Liberian flagged vessel, was validly executed and duly registered under the laws of Liberia, and (2) that on November 24, 2001, and January 6, 2002, Universal delivered bunkers to the M/V Millenium Eagle in Panama. (L-20; U-20.)

  In answer, the appellants filed a joint brief with non-party Orient Shipping and separate Local Civil Rule 56.1 Statements which set forth statements of fact to substantiate a defense of lack of subject matter jurisdiction and only responded to the appellees' Local Civil Rule 56.1 Statements in the final paragraphs.*fn4 (L-30, 31; U-30, 31.) Neither of appellants' Local Civil Rule Statements contradicted All first's statement that the first preferred ship mortgages held by Allfirst on its Liberian flagged vessels were validly executed and duly registered under the laws of Liberia. (L-31; U-31.) Instead, the LISCR Local Bankruptcy Rule 7056.1 Statement stated, without citation to evidence, that (1) LISCR provided its registry services to Debtors in the United States; and (2) those services were "necessaries" under maritime law. (L-30, ¶ 21-23.) The Universal Local Civil Rule 56.1 Statement stated that (1) the bunkers were "necessaries" under maritime law, and (2) because Debtors had no intent to pay for the bunkers Universal delivered, the Debtors' consumption of Universal bunkers with knowledge of Debtors' inability to pay constituted the maritime tort of conversion, and thus Universal's liens had priority over Page 6 the ship mortgage liens of appellee. (U-31.) Appellees filed responsive Rule 56.1 Statements on June 21, 2002, noting LISCR cited no evidence to support its claim for "necessaries" and stating that the depositions of defendants* witnesses cited in Universal's Local Civil Rule 56.1 statement did not support the claim that the Debtors knew Debtors could not pay for the necessaries received. (L-14.)

  On July 10, 2002, defendants' motion for summary judgment was granted by memorandum decision. (L-10; U-10.) In granting defendants' motions for summary judgment against Universal and LISCR, the Bankruptcy Court made the following relevant findings of fact and conclusions of law:

(1) There are no facts in dispute. . . . Insofar as counsel for the non movants has included a cross motion for summary judgment in his reply papers, the cross motion is denied in its entirety because it was not filed on or before the deadline set in this Court scheduling order dated April 25, 2002.
(2) Universal has asserted a claim for conversion. The parties were dealing with one another pursuant to a contract for the sale of bunkers. The bunkers were provided to the Debtors pursuant to the contract. Apparently, the Debtors have failed to pay for the bunkers pursuant to the contract. Universal's remedy therefore, is not in tort, it is in contract, and as such, its lien occupies a position subordinate to that of Defendants. "Conversion occurs when a defendant exercises unauthorized dominion over personal property in interference with a plaintiffs [sic] legal title or superior right of possession." Rolls-Royce Motor Cars v. Schudroff, 929 F. Supp. 117, 124 (S.D.N.Y. 1996); Bankers Trust Co. v. Cerrato Sweeney. Cohn, Stahl & Vaccaro, 590 N.Y.S.2d 200, 202 (N.Y. App. Div. 1992). Furthermore, as the damages are merely being sought for breach of contract, the claim for conversion is unsubstantiated because Universal does not allege any unlawful or wrongful act on the part of the Debtors.
* * *
  (4) LISCR has liens for payment of Liberian tonnage taxes and counsel has failed to provide any legal or factual basis for the denial of the herein Motion; therefore its objections are summarily denied. Page 7

 (D-10, at 2-3.)

  An order granting appellees' motion and denying appellants' answer motion was signed by Judge Blackshear on July 30, 2002. (LW-17; UW-17.) On August 7, LISCR and Universal filed notices of appeal. (L-8, 9; U-8, 9.)


  Conclusions of law of the Bankruptcy Court are reviewed de novo by the District Court. F.R.Bankr.P. 8013; In re Ionosphere Clubs, Inc., 922 F.2d 984, 988 (2d Cir. 1990). Findings of fact shall not be set aside unless clearly erroneous. F.R.Bankr.P. 8013; Ionosphere, 922 F.2d at 988.


  A. The Bankruptcy Court Had Subject Matter Jurisdiction

  In his decision granting Allfirst's motion for summary judgment against LISCR and Universal, Judge Blackshear should not have denied the non-movants' cross motions for summary judgment, even though they were filed with appellants' responsive papers and not on or before May 31, 2002, the deadline set in the Bankruptcy Court's scheduling order dated April 25, 2002. Appellants' cross motion clearly raised the issue of the Bankruptcy Court's subject matter jurisdiction.

  Appellants argued (1) that because the Sale Order by its terms extinguished Allfirst's ship mortgages at the time of the closing (i.e., transfer of the vessels to Allfirst), there no longer were any ship mortgages in place, and (2) that because appellants had filed an appeal of the Sale Order, the Bankruptcy Court no longer had jurisdiction to determine the priority of the claims filed by the lien claimants in the Adversary Proceeding. Page 8

  When a court's jurisdiction is challenged, the court has an obligation to resolve that issue before proceeding to the other issues in a proceeding. Steel Co. v. Citizens for Better Environment, 523 U.S. 83, 94 (1998) ("The requirement that jurisdiction be established as a threshold matter `springs from the nature and limits the judicial power of the United States' and is `inflexible and without exception.'") (citations omitted). By ruling that the motion had not been timely filed, the Bankruptcy Court avoided this obligation. Nevertheless, the Court will not reverse and remand on this ground because it is clear that the Bankruptcy Court did have subject matter jurisdiction.

  1. The Case law: In re Petrie

  In Luan Investment S.E. v. Franklin 145 Corporation (In re Petrie Retail, Inc.), 304 F.3d 223 (2d Cir. 2002), the Second Circuit was confronted with factual issues relevant to the matters raised by the appellants in these cases. In Petrie. the successor to the debtor, Marianne Ltd., had purchased the lease at issue pursuant to a sale order of the bankruptcy court. Id. at 226. Prior to the sale order, the lessor, Luan Investment S.E. (Luan), filed a proof of claim for additional rent pursuant to an escalation clause in the lease. Id. Under the Petrie sale order, certain liabilities of the estate were excluded, including "defaults under the assigned contracts that existed prior to the assignments and any other obligations arising prior to, and required to be performed prior to, the assignments, unless Marianne specifically assumed those obligations." Id. (emphasis added). The sale order also provided that those entities holding any excluded liabilities were further barred and enjoined from asserting against Marianne any default or breach under the leases that was outstanding as of the date of closing. Id. The bankruptcy court retained "sole and exclusive jurisdiction over all matters arising from or related to the [lease], the [debtor's motion seeking Page 9 approval of the assumption and assignment of certain unexpired leases], the Transaction Documents, the implementation thereof and [the sale] order." Id. (alterations in original).

  Ten months after the sale transferring the lease to Marianne was closed, on September 27, 1999, Luan sent a letter to Marianne declaring it in default and announcing its intention to terminate the lease for nonpayment of rent. Id. at 227. Marianne then filed a motion in the bankruptcy court pursuant to 11 U.S.C. § 1141a and 1142(b) for an order in aid of consummation of the plan. Id. Around the same time, Luan filed a lawsuit against Marianne for back rent in the U.S. District Court in Puerto Rico. Id. The bankruptcy court entered an order granting the plan consummation motion and enjoined Luan from "commencing, continuing or prosecuting any action contingent upon the interpretation of the . . . provisions of the leases at issue before this Court." Id. (alterations in original). The District Court affirmed the bankruptcy court's orders, as did the Second Circuit. Id. at 230-31.

  In its analysis, the Second Circuit noted that (1) the dispute was based on rights established by the sale order, (2) "`[o]rders approving the sale of property' are core bankruptcy proceedings" and (3)"although the original lease was a prepetition contract, many of Marianne's rights with regard to the lease were established as part of the core bankruptcy court function of approving the sale of the Petrie property." Id. at 229-30. The court also noted that (1) "the bankruptcy court found Luan's demand of Marianne involved excluded liabilities as defined in the sale order," and (2) "the contract dispute between Luan and Marianne involved rights specifically established by the sale order." Id. at 230. Thus, the dispute was "inextricably linked to the bankruptcy court's `Sale Order.'" Id. (citing Comco Assocs. v. Faraldi Food Indus., 170 B.R. 765, 772 (E.D.N.Y. 1994)). Additionally, the Second Circuit noted that "the plan Page 10 consummation motion sought enforcement of a pre-existing injunction issued as part of the bankruptcy court's sale order and confirmation order" and that the bankruptcy court retained post-confirmation jurisdiction to enforce its own orders, particularly when disputes arise over a bankruptcy plan of reorganization. Id.

  Finally, the Second Circuit noted that "the dispute between Luan and Marianne involved an issue already before the bankruptcy court as part of its consideration of Luan's claim against the estate" and, thus, was "uniquely affected and was uniquely affected by the core bankruptcy functions as to `matters concerning the administration of the estate,'" and the "`allowance or disallowance of claims against the estate.'" Id. (citing 28 U.S.C. § 157(b)(2)). Under these circumstances, "the interpretation of the lease was originally raised as part of the bankruptcy court's core function of determining whether to allow Luan's claim in the administration of the estate." Id. The Court went on to find that the "combination of factors in this case leads us to conclude that the plan consummation motion was a core proceeding because it was not independent of the reorganization." Id. at 231.

  3. Analysis

  In this case, as in Petrie, the dispute between the parties involves the resolution of rights enumerated in the Sale Order. The Sale Order set forth the rights of the debtors' successors and the rights of the lien claimants, LISCR and Universal, in connection with the sale of the vessels. (L-5, ¶ 16, 19; U-5, ¶ 16, 19.) Although this matter was initiated as a Chapter 11 proceeding, it soon developed that the Debtors had no assets with which to operate or pay administrative expenses during the Chapter 11 proceeding. The Sale Motion was a sale of "substantially all the assets of the Debtor" during the pendency of a motion to convert the proceeding to a Chapter 7 Page 11 proceeding and liquidate the estate. Thus, the Sale Motion and related adversary proceedings were core proceedings under 28 U.S.C. § 1334. The Sale Order contains the finding that "the sale of sale Assets and the assumption and assignment of the Assigned Contracts and Leases to the purchasers) is a prerequisite to the Debtors' ability to confirm and consummate a plan of reorganization," and the finding that the "sale is a sale in contemplation of a plan and, accordingly, a transfer pursuant to Section 1146(c) of the Bankruptcy Code." (L-5, ¶ U; U-5 ¶¶ U.) The procedural terms of the Sale Order required that the outcome of the Adversary Proceedings and the rights thereunder would determine substantive terms of the Sale Order and, as in Petrie, were established as part of the core bankruptcy court function of approving the sale of the debtor's property. (L-5, ¶ 5; U-5, ¶ 5; Petrie, 304 F.3d at 230.)

  Additionally, the arguments before this Court make clear that prompt action by the Bankruptcy Court was crucial as the cost of maintaining the assets and proposed administration expenses exceeded any expectation of income. The terms of the Sale Order make clear that, faced with the claim of priority liens based on the foreign ship mortgages of Allfirst and faced with the various claims of the lien claimants listed in Exhibit A to the Sale Order, the Bankruptcy Court ordered the transfer subject to any lien "that the Court finds . . . is superior in right to the Lien and Related Claim of the Indenture Trustee." (L-5, ¶ 7; U-5, ¶ 7.) In the face of such language, it is illogical for appellants to argue that the Sale Order intended to extinguish the mortgage liens held by the Indenture Trustee (Allfirst) when the Bankruptcy Court makes clear in the same paragraph that it will conduct a proceeding to determine whether the claimed maritime lien claims of the creditors listed are superior to those liens asserted by the Indenture Trustee. Moreover, contrary to the contention of Universal and LISCR, the Bankruptcy Court indicated at Page 12 the Sale Order hearing and in response to their counsel's inquiry that, if their claims were found to be senior in priority to the foreign mortgages liens of Allfirst, if necessary, the Court would invoke its equity powers and the senior liens would be honored.*fn5

  The terms of the Sale Order contemplated that the determination of the priority of maritime liens, referred to in the Sale Order and in the Adversary Proceeding to be initiated pursuant to the Sale Order, was to be made as of the date of the Sale Order or some other date prior to the sale of the vessels. See Ost-West-Handle Bruno Bishoff GmbH v. Project Asia Line, 970 F. Supp. 471, 473, 489 (E.D. Va. 1997). Accordingly, any transfer of title to the vessels at the closing did not divest the Bankruptcy Court of its jurisdiction to determine the priority of the liens.

  Universal and LISCR had filed claims against the estate, asserting that (1) Universal's deliveries of bunkers to the debtors' vessel, M/V Millenium Eagle, are liens against that vessel, and (2) LISCR's claims for tonnage taxes to be paid to the government of Liberia were also liens against various of the debtors' vessels. As in Petrie, the dispute here involves claims filed against the estate and placed before the Bankruptcy Court to be decided as part of the Court's "core function" of determining whether to allow claims. The proof of claim, as well as appellants' objections to the proposed Sale Order, required the Bankruptcy Court to determine the priority of the liens against the vessels in order to determine whether the vessels should be sold to Allfirst with or without maritime liens in favor of the claimants. As such, the claims Page 13 involved a dispute that uniquely affected and was uniquely affected by the core bankruptcy functions as to matters concerning the administration of the estate.

  Appellants' contention that their interlocutory appeal of the Sale Order divested the Bankruptcy Court of jurisdiction to conduct the Adversary Proceeding is without merit. An interlocutory appeal only divests a lower court of jurisdiction "with respect to `issues decided in the order being appealed.'" SATCOM Int'l Group PLC v. ORBCOMM Int'l Partners. 55 F. Supp.2d 231, 234 (S.D.N.Y. 1999). quoting Webb v. GAP Corp., 78 F.2d 53, 55 (2d Cir. 1998), aff'd, 105 F.3d 1324 (2d Cir. 1999).

  Additionally, Universal and LISCR argue in this appeal that, in making its decision in the Adversary Proceeding, the Bankruptcy Court lacked subject matter jurisdiction because the Adversary Proceeding was a non-core matter under 28 U.S.C. § 157. Appellants assert that the Adversary Proceeding is not "related to" the Millenium bankruptcy proceeding and that "the Debtors had no direct interest in this adversary proceeding" because the resolution of the Adversary Proceeding had no effect on Millenium's estate, but was an improper determination of lien priorities on the vessels already sold pursuant to the Sale Order. (Appellants' Reply Mem. of Law in Support of Appeal, dated Dec. 16, 2002 ("Appellants Mem."), at 16.) Thus, appellants argue, the Bankruptcy Court made nunc pro tunc determinations of the appellees' lien priorities over other lien priorities which, under the terms of the Sale Order, remain on the vessels and that, whereas the Court "might have had jurisdiction in March 2002 prior to the Sale to make the rulings . . . it clearly did not in July 2002 when those vessels were no longer property of any debtor's estate and it had no in rem jurisdiction." (Id. at 18-19.) Appellants base their argument principally on footnote six of Celotex Corporation v. Edwards, in which the Supreme Court Page 14 stated, in determining the existence of "related to" jurisdiction, that whatever test is used, [the] cases make clear that bankruptcy courts have no jurisdiction over proceedings that have no effect on the estate of the debtor."*fn6 514 U.S. 300, 380 n.6 (1995).

  The error in appellants' argument is that the Sale Order contained the terms of the bankruptcy estate's sale of its property, and the Adversary Proceeding was conducted to carry out the Sale Order's requirement that the Bankruptcy Court determine the priority of the liens. The Adversary Proceeding for which Universal and LISCR claim no subject matter jurisdiction exists was commenced for the sole purpose of effectuating and enforcing the Sale Order. As mentioned, the terms of the Sale Order stated that the vessels were "transferred subject to such Lien and related Claim, if any, held by any party listed on Schedule A attached hereto (each an `Objecting Lien Party') that the Court finds, after due notice and a hearing, is superior in right to the Lien and related Claim of the Indenture Trustee," (L-5, ¶ 7; U-5, ¶ 7 (emphasis added).) Judge Blackshear stated that the Adversary Proceeding was filed under his instructions in order to resolve a function of the Bankruptcy Court: to determine the priority of the maritime lien claims in an efficient manner. (L-11, Ex. B at 39-40; U-11, Ex. B at 39-40.) As in Petrie, the Adversary Proceeding involved the interpretation of the Bankruptcy Court's Sale Order and a bankruptcy court retains jurisdiction to interpret and enforce its own orders, LTV Corp. v. Back (In re Chateaugay Corp.) 201 B.R. 48, 62 (S.D.N.Y. 1996). Page 15

  The factors cited by the Second Circuit in Petrie as conferrl/12/04ing subject matter jurisdiction were also present in the Adversary Proceeding. Accordingly, the Bankruptcy Court had subject matter jurisdiction under 28 U.S.C. § 1334 to determine the priority of the maritime liens filed against the vessels.*fn7

  B. Universal and LISCR's Substantive Claims

  In its Local Civil Rule 56.1 Statement filed on June 16, 2002 in response to All first's motion for summary judgment, Universal stated that its claims for maritime liens filed on March 21, 2002, were maritime tort claims and, alternatively, claims for liens as "necessaries." (U-31, ¶ 20.)

  In its Local Bankruptcy Rule 7056-1 statement filed on June 16, 2002 in response to Allfirst's motion for summary judgment, LISCR stated that its claim filed on March 21, 2002 for provision of registry services should be considered a claim for "a maritime necessity to permit Debtors' vessels to sail." (L-30, ¶ 23.)

  1. Priority of Maritime Liens

  Competing maritime liens are ranked according to class and the top-ranked claims are paid out first. Cargill Inc. v. M/T Pac. Dawn, 876 F. Supp. 508, 510 (S.D.N.Y. 1995).

  The classes in rank of priority are:

1. Expenses of justice during custodia legis;
  2. Seaman's liens . . .; Page 16

  3. Salvage and general average liens;

  4. Tort liens, including personal injuries;

  5. Preferred mortgage liens (U.S. Flag Vessels);


6. Liens for necessaries under the Maritime Lien Act of 1920;
7. State-created liens of a maritime nature;
8. Maritime liens for penalties and forfeitures . . .;
9. Perfected non-maritime liens, including tax liens;
10. Attaching liens in causes of action within the admiralty and maritime jurisdictional (foreign attachment); and
11. Maritime liens in bankruptcy.
Id. at 510-511, n.2 (citations omitted).

  Generally, ship mortgage liens are governed by 46 U.S.C. § 31301, et seq., the Ship Mortgage Act. A preferred mortgage includes a mortgage "established as a security on a foreign vessel*fn8 if the mortgage . . . was executed under the laws of the foreign country" where the vessel is registered. 46 U.S.C. § 31301(6). Section 31325 of the Ship Mortgage Act provides that a "preferred mortgage is a lien on the mortgage vessel in the amount of the outstanding mortgage indebtedness secured by the vessel." 46 U.S.C. § 31325(a).

  In 1954 Congress amended the Ship Mortgage Act to cover foreign mortgages without imposing on foreign mortgages the same procedural requirements as for domestic mortgages.

  Under the Ship Mortgage Act, a "preferred mortgage" now includes:

[A] mortgage . . . that is established as a security on a foreign vessel if the mortgage . . . was executed under the laws of a foreign country under whose laws the ownership of the vessel is documented and has been registered under these laws in a public register at the port of registry of the vessel or at a central office.
46 U.S.C. § 31301(6)(B).*fn9 Page 17

  Title 46 U.S.C. § 31326 states that:

(a) When a vessel is sold by order of the district court in a civil action in rem brought to enforce a preferred mortgage lien or a maritime lien, any claim in the vessel existing on the date of sale is terminated, including a possessory common law lien of which a person is deprived under section 31325(e)(2) of this title, and the vessel is sold free of all those claims.
(b) Each of the claims terminated under subsection (a) of this section attaches in the same amount and in accordance with their priorities to the proceeds of the sale, except that:
(1) the preferred mortgage lien, including a preferred mortgage lien on a foreign vessel whose mortgage has been guaranteed under title XI of the Merchant Marine Act, 1936 (46 App. U.S.C. § 1101, et seq.) has priority over all claims against the vessel (except for expenses and fees allowed by the Court, costs imposed by the court, and preferred maritime liens); and
(2) for a foreign vessel whose mortgage has not been guaranteed under title XI of that Act, the preferred mortgage lien is subordinate to a maritime lien for necessaries provided in the United States.
46 U.S.C. § 31326.

  Thus, if Universal showed that it had a maritime tort lien or LISCR or Universal showed it had a lien for necessaries provided in the United States, those liens would have priority over appellants' foreign preferred mortgage liens.

  To prove the priority of its mortgage lien on Millenium Liberian flagged vessels, Allfirst filed (1) the affidavit of George Henries, a senior counselor of the Supreme Court of Liberia, to the effect that the M/V Millenium Eagle and all the vessels, for which LISCR claims a lien, were at all relevant times registered by the Republic of Liberia and were subject to a first preferred Page 18 ship mortgage in favor of Allfirst, each of which was duly and validly executed and duly registered under the laws of Liberia (UW-6); and (2) attached copies of the registry of each vessel and the first preferred ship mortgage in favor of Allfirst.

  Universal and LISCR assert that these mortgages have been deleted or extinguished by the transfer of the vessels pursuant to the terms of the Sale Order. They do not claim the mortgages were not duly and validly executed and duly registered in Liberia. Thus, the issue before the Court is whether there is a genuine issue of material fact with respect to the priority of appellees' liens found by the Bankruptcy Court.*fn10

  2. Universal Has Not Provided Any Evidence It Has is a Maritime Tort Lien

  Universal argues that its sale of bunkers to the Debtors created a bailment and that when the M/V Millenium Eagle used the bunkers its officers committed the tort of conversion. (Universal Mem. of Law in Opp'n to Moving Defs.' Summ. Judgment Mot., dated June 14, 2002, at 3.) Universal's Rule 56.1 Statement first states that it incorporates by reference Praxis Energy Agents, S.A.S.' ("Praxis") Rule 56.1 Statement. (U-31, ¶ 1.) Praxis's Rule 56.1 Statement relied on Praxis' Standard Terms and Conditions for the Sale of Marine Bunker Fuels, particularly clause 8.06 which provided that title to the bunkers furnished to the buyer's vessels remained in Praxis until such time as the Buyers fully paid Praxis. (Praxis Local Civil Rule 56.1 Statement, dated June 11, 2002.) Nowhere does Universal attach a copy of Universal's Standard Terms and Conditions of Sale of Marine Bunkers or any other evidence of the nature of those conditions. Page 19

  Furthermore, Universal's Rule 56.1 Statement goes on to state:

2. Pursuant to its business relationship Debtors ordered and received from Universal marine fuels to power several of their vessels including the M/V Millenium Eagle ("Eagle").
3. Debtors were fully aware of Universal's Standard Terms and Conditions of the Sale of Marine Bunkers which govern the relationship between the parties, and debtors agreed to them. (Deposition Transcript of Capt. Androulidakis dated April 15,200 at 42-43; Kyriazis' Decl. at ¶ 8.)
(U-31, ¶ 2-3.)

  Capt. Androulidakis at 42-43 does not state in the cited pages that he was aware of the terms of Universal's Standard Terms and Conditions of Sale of Marine Bunkers. He merely acknowledges that all of the oil suppliers have standard terms and conditions of sale. Nor does Universal provide any evidence to show that Praxis's Standard Terms and Conditions of Sale are the same as Universal's. In fact, the Kyriazis Declaration cited by Universal was not included in Universal's answering papers. However, review of the Kyriazis Declaration in the Praxis papers reveals that it does not apply to Universal's supply of bunkers. (P-7, Ex. M ("Kyriazis Decl.").)

  Nonetheless, Universal argued in its joint brief to the Bankruptcy Court that, "[t]he facts and circumstances surrounding the parties' business relationship will establish that the Millenium Eagle was bailers (sic) of Universal's bunkers until such time as Debtors fully compensated the bunker suppliers." (D-27, at 13.) `Title to the marine fuels did not pass to the vessels until payment. Until such time, the Debtors' vessel were merely the bailees (sic)." (Id. at 13.)

  If Universal had supported this position with some evidence that Debtors did hold its bunkers as bailees, then there might be a basis for Universal's argument that Debtors had converted its property. However, Universal did not submit its Standard Terms and Conditions of Page 20 Sale for the sale of Marine Bunkers to substantiate this claim. Accordingly, Universal did not submit evidence, as required by Fed.R.Civ.P. Rule 56(e), to create a genuine issue of material fact sufficient to defeat Allfirst's motion for summary judgment. See McGovern v. Local 456, Int'l Bld. of Teamsters, 107 F. Supp.2d 311, 320-21 (S.D.N.Y. 2000), aff'd, 2001 U.S. App. Lexis 28459 (2d Cir. Feb. 14, 2001); Caracciola v. City of New York, 1999 U.S. Dist. Lexis 2983, at *27 n.10 (S.D.N.Y. 1999); Vann v. New York City Transit Auth.. 4 F. Supp.2d 327, 330 (S.D.N.Y. 1998) (rejecting as insufficient unsupported statements made in memorandum of law).

  In its Rule 56.1 Statement, Universal has admitted its delivery of the bunkers and invoicing on both November 24, 2001 and January 6, 2002. (U-20.) These admissions are evidence of a contractual relationship in which title to the bunkers was intended to change to purchaser that day. Accordingly, the Bankruptcy Judge's determination that Universal had failed to state a viable conversion claim was warranted. See Rolls Royce, 929 F. Supp. at 124 ("to state a viable conversion claim, [party] `must allege facts that are unlawful and wrongful as distinguished from acts that are a mere violation of contractual rights'") (citations omitted); see also Evergreen Marine Corp. v. Six Consignments of Frozen Scallops, 4 F.3d 90, 94 (1st Cir. 1993) ("conversion is simply an intentional and wrongful exercise of dominion and control over a chattel, which seriously interferes with the owner's right in the chattel").

  3. LISCR's Claim for a Lien for Necessaries

  LISCR's Local Rule 56.1 Statement, with no citation to supporting evidence states:

  21. LISCR provided to and received all documents relating to the vessels in the United States. Page 21


22. LISCR invoiced for and received payment for its services in the United States.
23. LISCR's provision of registry services were a maritime necessity to permit Debtors' vessels to sail.
(L-30, ¶ 21-23.)

  However, LISCR's Notice of Lien filed with the Bankruptcy Court dated March 21, 2002, listed seven claims (one against each vessel), each of which was described as "Republic of Liberia Tonnage Taxes." (LW-1, at 3.) Nowhere does the LISCR Notice mention a claim for necessaries.*fn11 (Id. at 1-5.)

  Tonnage taxes are not included in the definition of "necessaries" included in the Ship Mortgage Act, 46 U.S.C. § 31301 et seq., the statute governing the validity of maritime liens. "`Necessaries' include repairs, supplies, towage and the use of a dry dock or marine railway." 46 U.S.C. § 31301(4). Tonnage taxes claimed by LISCR are taxes imposed by the Republic of Liberia on vessels flying the Liberian Flag, according to the registered net tonnage of the vessel, 21 Liberian Codes Revised § 54, and do not fit the definition of necessaries in 46 U.S.C. § 31301 (4). Although the term "necessaries" is broadly construed by the courts, see Thomas J. Schoenbaum, Admiralty and Maritime Law 343, § 703 (2d Ed. 1994), LISCR did not attempt to explain to the Bankruptcy Court how or why tonnage taxes might fit that definition. Therefore, the Bankruptcy Court's finding that LISCR's "counsel has failed to provide any legal or factual Page 22 basis for the denial of the herein motion" was correct. LISCR had failed to state a claim for a lien for necessaries. McGovern. 107 F. Supp.2d at 320-21; Caracciola, 1999 U.S. Dist. Lexis at *27, n.10; Vann, 4 F. Supp.2d at 330.*fn12

  4. Universal's Claim for Necessaries

  Under United States law, lubricants and bunkers are necessaries, the supply of which will result in a maritime lien against a vessel. Cantieri Navali Reuniti v. M/V Skyptron, 621 F. Supp. 171, 183-84 (W.D. La. 1985); In re Queen, Ltd. 361 F. Supp. 1009, 1013 (ED. Pa. 1973); see Schoenbaum, supra at 343 ("[T]he term `necessaries' is broadly construed by the courts to mean any goods and services that are useful to the vessel, keep her out of danger and enable her to perform her particular function.").

  The plain language in 46 U.S.C. § 31326 provides that a foreign registered mortgage on foreign registered vessels have a lien priority over maritime liens for necessaries provided outside the United States. Under 46 U.S.C. § 951, the predecessor statute to 46 U.S.C. § 31326(b)(2), the same language was construed as providing a priority over foreign preferred ship mortgages only for necessaries performed and supplied in the United States. Mobil Sales & Supply Corp. v. Panamax Venus, 804 F.2d 541, 542-543 (9th Cir. 1986).

  In its responses to Allfirst's Rule 56.1 Statement, Universal admitted Allfirst's statement that on November 24, 2001, Universal delivered 430 MT of marine fuel oil to the M/V Millenium Eagle in Panama and, on November 24, 2001, issued invoice number 3095 for delivery of bunkers to the M/V Millenium Eagle (L-20, ¶¶ 3, 4; U-31, at 8), and that on January Page 23 6 2 002, Universal delivered seven hundred MT of marine fuel oil and ten MT of MDO oil to the M/V Millenium Eagle in Panama and issued invoice number 3137 for delivery of bunkers to the Millenium Eagle on January 6, 2002 (L-20, ¶ 5-6; U-31, at 8.).

  Thus, appellees proved that Allfirst had a validly executed and duly registered foreign preferred mortgage lien on the M/V Millenium Eagle and that Universal's claims for necessaries were provided outside the United States. Accordingly, Judge Blackshear's order granting appellees' motion for summary judgment with respect to Universal's claims of liens for necessaries was correct.


  The Bankruptcy Judge's opinion granting appellees' motion for summary judgment is affirmed.


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