Opinion
00 CV 8115 (HB)
September 7, 2001
OPINION ORDER
Appellants Jo-Dim Investment Trust S.A. ("Jo-Dim") and Regency Holding (Cayman), Inc., ("Regency") appeal a decision from the United States Bankruptcy Court, Southern District of New York. The decision granted the United States Department of Transportation, Maritime Administration's ("MARAD") summary judgment motion finding that Jo-Dim was not entitled to cancel the bond issued in MARAD's favor as it had failed to comply with the terms of its agreement with MARAD. Jo-Dim had issued the bond in favor of MARAD in connection with the purchase of a vessel. Appellants contend that the Bankruptcy Court erred in two respects: first when it found that the defense of impossibility did not excuse Jo-Dim's failure to perform in accordance with the terms of its agreement with MARAD, and second when it denied appellants' motion for reargument, which appellants had brought on the ground that the Bankruptcy Court overlooked material facts in its initial decision. For the foregoing reasons, the Bankruptcy Court's decision is affirmed.
BACKGROUND
This appeal involves a dispute over a $100,000 surety bond ("the MARAD bond") that Jo-Dim posted in favor of MARAD in 1989 in connection with the purchase of the vessel, The Rainbow. Jo-Dim is a Liberian corporation wholly owned by Regency Holdings, which was incorporated in 1992 under the laws of the Grand Cayman Islands, British West Indies. MARAD is the federal agency charged with the responsibility and authority to approve the transfer of United States flag vessels into foreign hands.
In 1989, Jo-Dim sought to purchase The Rainbow from a United States corporation. Jo-Dim sought MARAD's approval for the transfer, and it was granted on June 8, 1989 with the caveat that Jo-Dim agree to certain limitations on its use of the vessel and of its right to transfer ownership of the vessel in the future. The Approval Notice and Agreement contained the terms of MARAD's approval of the sale, including, inter alia, the following conditions: (1) The Rainbow's ownership would not be transferred and its registry and flag would not be further changed without the prior written approval of the Government; (2) ownership of the Vessel could not be transferred from its corporate owner to persons not citizens of the United States without the Government's prior written approval; (3) the vessel would not be chartered to noncitizens of the United States without the prior written approval of the Maritime Administration, (4) the vessel would be sold or chartered to the United States upon request as provided in 902 of the Merchant Marine Act, 1936, as amended 46 U.S.C. 1242, and (4) all of the foregoing provisions were to run with title to the Vessel and be binding on all future owners, and Jo-Dim in any sale to a third party would include these restrictions in its Bill of Sale. See Declaration of Frances M. Olsen, Ex. A at 1-2. The agreement also provided that in the event Jo-Dim defaulted on any of these obligations MARAD may remit the forfeiture of the Vessel or may require payment in lieu of forfeiture. Jo-Dim signed the agreement on June 15, 1989 and, as was required by the agreement, posted a $100,000 bond as surety in favor of MARAD, as obligee. The bond ("the MARAD bond") incorporated the terms of the Approval Notice by reference and further provides:
The condition of this obligation is such that if the above bounden [sic] Principal shall well, truly, faithfully and fully perform and observe all of the undertakings, terms and conditions contained in the aforesaid notice and agreement on the part of the said Principal to be performed and observed at the time or times, and in the hammer [sic] and for the period specified in said notice and agreement, including, but without limitation of the foregoing, the covenant and agreement of the Principal to pay the Obligee the sum required to be paid at the time or times and in the manner therein specified, then this obligation shall be null and void; otherwise to be and remain in full force and effect.
After the purchase of The Rainbow, Jo-Dim registered it as a Bahamian flag vessel and retrofitted and converted the vessel from a passenger and cargo vessel to a cruise vessel. In December 1990, Jo-Dim entered into several contracts with North River Overseas S.A., a Panamanian subsidiary of Kawasaki Enterprises Inc. (collectively "Kawasaki") to finance a retrofit of The Rainbow's sister vessel. The transaction was characterized as a "sale/leaseback financing with contemporaneous bareboat charterparty." Appellants explain this arrangement as constituting a type of secured loan transaction common in the shipping industry that involves technical transfer of the title, but not an actual, legal transfer of ownership of the vessel.
As the Bankruptcy Court noted, the legal nature of this transfer is irrelevant here since the Government takes no position on whether this transaction constituted a transfer of ownership of The Rainbow and the governing statute construes transfers narrowly. See 46 U.S.C. § 808(c)(1).
Approximately five years later, Jo-Dim's fortunes took a turn for the worse when, on October 19, 1995, Hallmark Cruise Services, Inc., ("Hallmark"), the company that had provided the food and bar concessions for The Rainbow, commenced an in rem action against the vessel. On October 27, 1995, the vessel was arrested in Tampa, Florida. Apparently in response to the arrest and other financial troubles, on November 7, 1995, Jo-Dim, Regency and five different affiliated companies filed voluntary petitions under Chapter 11 of the Bankruptcy Act. Shortly thereafter, Kawasaki moved to modify or vacate the automatic stay to permit it to enforce its rights with respect to The Rainbow. Jo-Dim and Regency initially opposed this motion but subsequently agreed with Kawasaki on the terms of a proposed Settlement Agreement that would provide Kawasaki relief from the stay, and they jointly moved with Kawasaki for a court order approving the agreement. The parties gave notice of the proposed Settlement Agreement and Order to the scheduled creditors by mail and by publication. The notice explained how to obtain copies of the settlement agreement and provided a April 5, 1996 deadline for filing objections to the agreement. The 827 page service list included Kay Gardner, Assistant United States Attorney on behalf of the "United States of America." No notice was provided to MARAD.
On April 17, 1996, the Bankruptcy Court granted the motion and signed the Settlement Order (the "1996 Order") that approved the Settlement Agreement. The Settlement Order provided, in pertinent part:
ORDERED, that . . . the automatic stay imposed by Section 362 of the Bankruptcy Code is lifted to permit the enforcement of Kawasaki's rights against The Rainbow . . .
ORDERED, that the Debtors and the Committee are authorized and directed to compromise their controversies with Kawasaki in accordance with Kawasaki Settlement Agreement, and to exchange mutual releases with Kawasaki relating thereto, and it is further
ORDERED that the automatic stay is lifted to the extent necessary to permit any party claiming an interest in The Rainbow . . . including without limitation a maritime lien . . . to participate fully in, and to take such other actions as it deems necessary or appropriate to protect or advance such asserted interest, in the admiralty actions pending with respect to the vessels . . .The Proceedings Below
On November 1, 1999, appellants filed a complaint in the Bankruptcy Court in which they sought an order to cancel the MARAD Bond. Although they admitted that Jo-Dim had failed to comply with the terms of the Approval Notice and Agreement in that Jo-Dim had failed to obtain MARAD's approval for the transfer and failed to impose the terms of the agreement on Kawasaki, appellants argued that this failure should be excused as it was impossible for Jo-Dim to have complied given its unanticipated financial hardship, the entry of the 1996 Order, and the fact that Jo-Dim had no control over The Rainbow and no way to insist that Kawasaki comply with the conditions. They also argued that MARAD had adequate notice of the proposed settlement through publication and that it had waived its right to object, that an issue of fact existed as to whether appellants' execution of the settlement agreement was voluntary, and that MARAD's failure to bring suit against the Surety to collect on the Bond for over four years estopped it from seeking to recover against the Bond.
MARAD filed a motion to dismiss appellant's complaint for failure to state a claim upon which relief could be granted or, in the alternative, for summary judgment. Specifically, MARAD argued: that impossibility was not a valid defense as appellants had consented to the entry of the 1996 Order; that the Bond was collectable at any time and therefore that MARAD was not estopped from recovering the bond; that there was no material issue of fact to preclude summary judgment; that there was no waiver by MARAD; and that appellant's had failed to join the Surety, an indispensable party to the action.
On June 28, 2000, the Bankruptcy Court granted MARAD's motion for summary judgment. The Bankruptcy Court found that Jo-Dim had failed to perform under the Approval Notice and Agreement and rejected appellants' impossibility defense on the ground that appellants "did not submit any evidence that their assistance or cooperation with Kawasaki played no role in causing the entry of the 1996 Order" and that appellants had "not come forward with any specific facts demonstrating that they took virtually every action within their powers to perform their duties under the Approval Notice and Agreement." See Bankr. Opinion at 13. The Court likewise found that appellants had failed to demonstrate that the notice by publication was sufficient to put MARAD on notice of the settlement with Kawasaki and held that since MARAD was known to be an interested party by the appellants, the notice employed by appellants was as a matter of law deficient. Finally, the court rejected the appellants' estoppel claim.
On July 10, 2000, appellants moved to re-argue contending, for the first time, that MARAD waived its right to object to the terms of the Settlement Agreement as it had actual notice via service on the Assistant United States Attorney. The Bankruptcy Court denied the motion on August 2, 2000. On October 20, 2000, appellants filed the instant appeal.
DISCUSSION
I. Standard of Review
On appeal from the bankruptcy court, a district court must independently examine the bankruptcy court's opinion "applying the clearly erroneous standard to findings of fact and de novo review to conclusions of law." In re Manville Forest Products, Corp., 209 F.3d 125, 128 (2d Cir. 2000).
II. Impossibility
Appellants argue that the Bankruptcy Court erred when it held that the doctrine of impossibility does not excuse Jo-Dim's failure to comply with the terms of the Approval Notice and Agreement. The Bankruptcy Court was correct.
Generally, "the excuse of impossibility of performance is limited to the destruction of the means of performance by an act of God, Vis major, [a greater or superior force; an irresistible force] or by law." See 407 East 61st Garage, Inc. v. Savoy Fifth Avenue Corp., 296 N.Y.S.2d 338, 343-44 (N.Y. 1968); Stasyszyn v. Sutton East Assoc., 555 N.Y.S.2d 297, 299 (App.Div. 1990). "[F]inancial difficulties or economic hardship, even to the extent of insolvency or bankruptcy" cannot constitute a defense of impossibility. Nat'l Enterprises, Inc. v. New England Development II, Inc., 198 F.3d 234, at *2 (2d Cir. 1999) (citing Savoy Fifth Avenue, 296 N YS.2d at 344.). Judicial action, as appellants argue, can be the basis for this defense. "The defense of impossibility extends to prohibition by judicial action as long as the party seeking to be excused has not caused or failed to prevent the judicial action." See RSB Manufacturing Corp. v. Bank of Baroda, 15 B.R. 650, 654 (S.D.N.Y. 1981). However, "the party pleading impossibility as a defense must demonstrate that it took virtually every action within its powers to perform its duties under the contract." See Kama Rippa Music, Inc. v. Schekeryk, 510 F.2d 837, 842 (2d Cir. 1975); see also Health-Chem Corp. v. Baker, 915 F.2d 805, 810 (2d Cir. 1990) ("[Appellant] makes no claim that it took virtually every action within its power to perform its duties under the contract and therefore cannot assert the defense of impossibility.")
Appellants contend that the arrest of The Rainbow and the 1996 Order of the Bankruptcy Court made it impossible for Jo-Dim to comply with the terms set forth in the Approval Notice and Agreement. They admit, however, that Jo-Dim failed to notify MARAD or seek its approval for the transfer of ownership, and they do not allege that Jo-Dim even informed Kawasaki of the conditions in the Approval Notice and Agreement, much less do they allege any attempt to convince Kawasaki to agree to those terms in exchange for relief from the automatic stay. Appellants now argue that any such action would have been futile and that this excuses their performance or at least presents an issue of fact as to whether they had the power to perform. I disagree.
Jo-Dim cannot do nothing and successfully argue later that any such action would have been futile. To rely on the impossibility defense, Jo-Dim was required to take "virtually every action" to allow it to perform under the contract. At the very least, Jo-Dim had the obligation to inform MARAD of the impending transfer of ownership and notify Kawasaki and the Bankruptcy Court of the terms of its agreement with MARAD. If Jo-Dim had the wherewithal to make a joint motion with Kawasaki before the Bankruptcy Court seeking approval of the Settlement Agreement and granting Kawasaki relief from the automatic stay, it undoubtably could have requested that the Court, whose major role was to recover assets of the estate, approve the agreement on condition that Kawasaki agree to the terms in the Approval Notice and Agreement. The fact that this process would be more difficult for appellants is no excuse. In short, the Bankruptcy Court was correct and summary judgment in favor of MARAD was proper.
III. Waiver
Appellants also argue that the Bankruptcy Court should have granted reargument on the ground that Jo-Dim's notice of the Settlement Agreement to the Assistant United States Attorney constituted actual notice to MARAD and, therefore, MARAD waived its right to collect on the bond as it failed to file a timely objection.
It is contrary to common sense to deem service on the Attorney General's Office notice to any and all government agencies. See Small Bus. Admin. v. Bridges, 894 F.2d 108, 111-112 (5th Cir. 1990) ("[N]otice or knowledge of an Assistant United States Attorney cannot, as a general proposition, be imputed to the particular agency to which a debt is owing."). In their attempt to do so, appellants seek to shift the burden of notice, which fell squarely on their shoulders pursuant to the Approval Notice and Agreement, to the government. There was no reason for the Attorney General's office to inform MARAD of the Settlement Agreement. Rather, it fell to Jo-Dim, who had explicitly agreed to notify MARAD of any sale, to provide actual notice to that agency. For these reasons, I find that the Bankruptcy's Court decision not to grant reargument on this issue was correct.
In fact, in a letter that Jo-Dim sent to MARAD after the transfer, Jo-Dim appears to admit that it simply overlooked providing notice to MARAD: "[i]nadvertently prior to the [1996 Order] being entered by the Court, permission was not sought from the Maritime Administration for the termination of Jo-Dim's interest in the Vessel and for the sole ownership in the Vessel to vest in Kawasaki."
The Bankruptcy Court was also right to deny appellants' request for reargument on the ground that motions under Rule 59(e) should not be granted to allow parties to present new legal theories, in effect getting a second bite at the apple. See Se qua Corp. v. GBJ Corp., 156 F.3d 136, 144 (2d Cir. 1998). Rather, the motion is available only to argue that the Court "overlooked factual matters or controlling decisions that were presented to it on the underlying motion." See Worldcom Inc. v. Voice Plus Int'l, Inc., 97 Civ. 8265, 2000 WL 274182, *1 (S.D.N.Y. Mar. 13, 2000). Here, although appellants claimed to be seeking a review of facts that the lower court had overlooked, in reality, appellants introduced a new legal theory, and thus the motion was properly denied.