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IN RE MILLENIUM SEACARRIERS

June 22, 2004.

In re: MILLENIUM SEACARRIERS, INC., et al., Chapter 11, Debtors. Fuel and Marine Marketing LLC, Appellant,
v.
Allfirst Bank (f/k/a First National Bank of Maryland) and Wayland Investment Funds, L.L.C. Appellees.



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

On Appeal from the United States Bankruptcy Court for the Southern District of New York.

OPINION AND ORDER

  Appellant-Adversary Plaintiff, Fuel and Marine Marketing LLC ("Appellant" or "FAMM"), appeals, pursuant to 28 U.S.C. § 158, from the order of the Honorable Cornelius Blackshear, United States Bankruptcy Judge, entered August 1, 2002, granting the Motion for Summary Judgment on behalf of the Appellees-Adversary Defendants, Allfirst Bank ("Allfirst") and Wayland Investment Funds, L.L.C. ("Wayland") (collectively "Foreign Mortgagees" or "Appellees") and holding that under English law, FAMM did not have enforceable maritime liens for its provision of marine lubricants to the vessels of the Debtors. The appeal is denied and the Bankruptcy Court decision granting Appellee's motion for summary judgment is affirmed.

  The Underlying Proceedings

  On January 15, 2002, the Debtors, Millenium Seacarriers, Inc. (hereinafter "Millenium") and its nineteen wholly-owned subsidiary companies (hereinafter the "Subsidiaries"), the owners and operators of nineteen ocean-going merchant vessels, commenced this voluntary Chapter 11 proceeding in the Bankruptcy Court due to the inability of Millenium and the Subsidiaries to meet the debts claimed by various creditors, among which were first preferred mortgages on the vessels in favor of Allfirst and claims for maritime liens asserted by various parties.

  During February 2002, the Bankruptcy Court approved the application of the Debtors to file a motion to sell substantially all its assets, including the Vessels ("Sale Motion"). The Court set March 22, 2002 for interested parties to object to the proposed sale and to assert liens, if any, against the Vessels. On March 22, 2002, FAMM filed an objection to the Sale Motion and a notice of a claim for "Preferred Maritime Liens for Necessaries Provided in the United States in Accordance with the Federal Maritime Lien Act, 46 U.S.C. § 31342" based on unpaid amounts due for the supply of lubricating oils. (D-26.)*fn1

  On March 27, 2002, at the conclusion of the hearing on the Sale Motion, the Bankruptcy Court granted the Sale Motion ("Sale Order"). (FAMM-1; FAMM-2, Transcript of March 27, 2002 Hearing ("Hearing Tr.") at 257.) The Court also instructed the Debtors to file an Adversary Proceeding so that the priority of the various claims could be judicially determined. (Hearing Tr. at 263.)

  On March 27, 2002, the Bankruptcy Court also stated that, upon application, he would require the prospective purchasers (Appellees who held foreign preferred mortgages on all the Debtors' vessels) to fund the payment of those maritime liens which he found were superior to the lien of the Indenture Trustee. (Hearing Tr. at 256-57.) After the hearing, the Court issued the Sale Order for the transfer of the Debtors' assets, including the listed vessels, free and clear of all mortgage liens and encumbrances, etc., "provided, however, that the Assets shall be transferred subject to such Lien and related Claim . . . that the Court finds, after due notice and a hearing, is superior in right to the Lien and related Claim of the Indenture Trustee." (FAMM-1 at 12-13.)

  The Indenture Trustee (Allfirst) was the successful — and only — bidder for eighteen of the nineteen vessels. (FAMM-1 at 9-11.) The Indenture Trustee was acting for Wayland, the beneficial owner of about 85% of First Preferred Mortgage Exchange Notes ("Notes") issued by Millenium and secured by First Preferred Ship Mortgages on each of the vessels in favor of Allfirst, all registered with the SEC. (D-26 at ¶¶ 3-4; D-1-D-24.)*fn2 All the Debtors' vessels were sailing under foreign flags (D-26 at ¶ 5) and were foreign owned (D-1-D-23).

  On May 31, 2002, Appellees moved for summary judgment and filed a memorandum of law, affidavit in support and Local Rule 56.1 Statement against the claims asserted by FAMM, stating that the contract by which the lubricants were supplied was governed by English law, and that under English law no maritime lien arises from the supply of necessaries or lubricants to vessels. (FAMM-5, 6, 7, 8.) Supporting their motion, the Appellees filed affidavits or declarations that covered each of the foreign flagged vessels, and stated that, at all relevant times, the vessel was registered or operated under the authority of a particular foreign country and was subject to a first preferred mortgage in favor of Allfirst executed under the laws of the foreign country and registered under those laws in a public register at the Port of Registry of the vessel or at a central office. (D-1-D-23.)

  On June 7, 2002, FAMM, Inc. filed a memorandum of law, supporting affidavit, Local Bankruptcy Rule 7056-1 Statement setting forth additional material facts, and a declaration of Larry A. Katz, dated June 7, 2002 ("Katz Decl."), in opposition to Appellees' motion for summary judgment, showing that its claim for necessaries is based on a May 27, 1999 Marine Lubricants Agreement ("Agreement") of Fuel and Marine Marketing Limited ("FAMM Ltd.") with Millenium. (FAMM-9, 10, 11, 12.) The Agreement contains an English choice of law provision. (FAMM-10, Ex. 1 ¶ XXIII.) Under the Agreement, FAMM, Ltd. agreed either to supply or arrange for the supply of Marine Lubricants specified in a price schedule to vessels owned by the Millenium subsidiaries and operated and managed by two sub-managing companies, Millenium Maritime Services, Inc. ("Millenium New York") and Millenium Maritime Services, Ltd. ("Millenium Piraeus"), subsidiaries of Millenium or Millenium Management, Inc., the owner of all Millenium's stock. (FAMM-12, Declaration of Thomas E. Willoughby, dated June 2002, Ex. 1 ("Livanos Dep.") at 6-8, 19-22; FAMM-8, Ex. 1 ¶ III) FAMM's responsive papers did not deny that the Appellees held valid foreign first preferred mortgage liens. Instead, FAMM argued that FAMM's liens for necessaries were of a higher priority because the necessaries were supplied to vessels in the United States.

  On June 14, 2002, Appellees filed reply papers and a Local Bankruptcy Rule 7056-1 Statement responsive to FAMM's Local Bankruptcy Rule 7056-1 Statement. (FAMM-13; D-24.)*fn3

  On July 10, 2002, the defendants' motion for summary judgment was granted by memorandum decision of the Bankruptcy Court. (FAMM-14.) An order granting defendants' motion for summary judgment and dismissing FAMM's claims was signed by Judge Blackshear on August 2, 2002. (FAMM-16.) The Decision of the Bankruptcy Court

  Judge Blackshear's decision issued July 10, 2002 held that as FAMM did not claim the choice of law provision was unreasonable, the choice of English law clause in the Marine Lubricants Agreement covering transaction international in character was presumed valid and controlled, citing Bremen, et al. v. Zapata Offshore Co., 407 U.S. 1, 15 (1972); Roby, et al. v. Corporation of Lloyds, et al., 996 F.2d 1353, 1362 (2d Cir. 1993); Sembawang Shipyard Ltd. v. Charger, Inc., et al., 995 F.2d ...


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