In re Atlas Shipping a/S

404 B.R. 726

In re ATLAS SHIPPING A/S, a Danish Corporation, Foreign Debtor.

No. 09-10314.

United States Bankruptcy Court, S.D. New York.

April 27, 2009.

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James F. Sweeney, Nicoletti Hornig & Sweeney, New York, NY, Attorneys for Atlas Shipping A/S.

Thomas L. Tisdale, Tisdale Law Offices LLC, New York, NY, Attorneys for Dormin

Shipping S.A. & New Era Shipping, Inc.

Jeremy J.O. Harwood, Blank Rome LLP, New York, NY, Attorneys for Allied Maritime, Inc.

Peter Scoufalos, Brown, Gavalas & Fromm LLP, New York, NY, Attorneys for Malena Shipping Co.

MEMORANDUM OPINION AND ORDER GRANTING FOREIGN REPRESENTATIVE'S MOTION FOR ADDITIONAL RELIEF

MARTIN GLENN, Bankruptcy Judge.

The Court in this case is asked to vacate nine Supplemental Rule B maritime attachments obtained in the United States District Court for the Southern District of New York by foreign creditors of Atlas Shipping A/S and Atlas Bulk Shipping AS (together "Atlas"), two Danish corporations that are debtors in a bankruptcy proceeding in Denmark and, through their foreign representative, petitioners in a Bankruptcy Code chapter 15 proceeding in this Court. The Court is also asked to entrust the garnished funds to the foreign representative for administration in the Danish bankruptcy proceeding. The maritime attachments were issued in support of arbitrations commenced by Atlas' creditors in London pursuant to provisions of applicable maritime charters.

Under the former Bankruptcy Code § 304 regime for ancillary U.S. bankruptcy proceedings, case law clearly supports granting a foreign representative the relief sought here. The objecting foreign creditors argue that under the new chapter 15 regime, the relief sought could only be granted if the foreign representative also commenced a case under chapters 7 or 11. For the reasons explained below, the Court rejects the creditors' arguments and concludes, consistent with principles of comity, that the Supplemental Rule B attachments should be vacated pursuant to Bankruptcy Code §§ 1521(a)(5) and 1521(b), and the garnished funds turned over to the foreign representative subject to administration in the Danish bankruptcy proceeding.

BACKGROUND

Atlas is an international shipping company based in Copenhagen, Denmark. On December 17, 2008, Atlas filed a bankruptcy petition in Denmark, and was declared a bankrupt by the Danish court on December 18, 2008. The Danish court then appointed Lisa Bo Larsen and Michael Ziegler as trustees of Atlas. Under Danish law, once Atlas was declared bankrupt, all of Atlas' assets vested in the trustees. Danish law also provides for a stay—similar to the automatic stay under the U.S. Bankruptcy Code—of all proceedings involving Atlas. Finally, Danish law provides that all existing attachments lapse upon commencement of the bankruptcy, and no further attachments may be levied against the company's assets.

Between early November¹ and late December 2008, a number of Atlas's alleged creditors sought and obtained Rule B attachments against Atlas' funds found in banks in New York. The dates and attaching parties are as follows:

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      DATE          ATTACHING PARTY
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November 3, 2008    Dormin Shipping
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November 13, 2008   Limankoy
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December 18, 2008   Amanda Navigation
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December 19, 2008   Sertio Shipping
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December 22, 2008   Allied Maritime
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December 22, 2008   New Era Shipping
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December 22, 2008   Cargill International
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December 23, 2008   Peninsula Petroleum
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December 29, 2008   Malena Shipping
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As a result of these attachments, approximately $4.3 million of Atlas' funds were restrained. None of the above creditors is based in the United States. The first two attachments were obtained before the Danish bankruptcy proceeding was commenced; the remaining seven attachments were obtained after the Danish bankruptcy was commenced. While the legal analysis of the validity of the attachments differs depending on whether the attachments were obtained before or after the Danish bankruptcy commenced, the result here is the same—namely, all of the attachments shall be vacated and the funds entrusted to the foreign representative for administration in the Danish bankruptcy proceeding.

On January 23, 2009, Lisa Bo Larsen, the duly-appointed foreign representative of Atlas filed chapter 15 petitions (now jointly administered) in this Court. On January 27, 2009, the Court granted provisional relief pursuant to Bankruptcy Code § 1519(a) pending the recognition hearing. (ECF Docs. # 7, 8.) The provisional relief required that the garnished funds be turned over to the foreign representative's U.S. counsel, to be held in escrow pending determination of the parties' respective rights in those funds. On February 20, 2009, the Court granted recognition of the Danish proceeding as a foreign main proceeding pursuant to Bankruptcy Code § 1517. (ECF # 22.) During the recognition hearing, no creditors objected to recognition of the Danish bankruptcy proceeding as a foreign main proceeding, but several creditors—including the two objecting creditors here, Dormin Shipping and Allied Maritime (the "Objecting Creditors")—objected to the request of Atlas' foreign representative for additional discretionary relief pursuant to § 1521 to vacate the attachments and turn the escrowed funds over to the representative to be administered in the Danish bankruptcy proceeding. The Objecting Creditors argued that the attachments could be vacated only if Atlas' foreign representative first commenced a case under chapters 7 or 11 of the Bankruptcy Code, and then commenced and obtained judgment in an avoidance action under § 547.² The Court directed further briefing on the issues and scheduled a further hearing for March 25, 2009.

DISCUSSION

A. Maritime Attachment Liens

The maritime attachment lien is an ancient device that predates the grant of general admiralty jurisdiction to federal courts and that the Rules Enabling Act formalized in the admiralty rules. Maritime attachment liens are now governed by Rule B of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions to the Federal Rules of Civil Procedure ("Supplemental Rules").

Historically, Rule B attachments served two purposes: (1) they ensured satisfaction if a suit against the shipping company is ultimately successful; and (2) they ensured a defendant's appearance in an action. Aurora Maritime Co. v. Abdullah Mohamed Fahem & Co., 85 F.3d 44, 48 (2d Cir.1996). Because shipping-company assets can be far-flung around the world, the liens are intended to maintain the status quo until the dispute can be litigated. Id.; see also DSND Subsea AS v. Oceanografia, S.A. de CV, 569 F.Supp.2d 339, 348 (S.D.N.Y.2008).

Under Supplemental Rule B, a plaintiff may obtain an order of attachment against a defendant's property that is in the hands of a garnishee. FED.R.CIV.P. SUPP. R. B(1)(a). Once the property has been restrained, Supplemental Rule E(4)(f) provides the defendant with an opportunity to appear before the court to contest the attachment. FED.R.CIV.P. SUPP. R. E(4)(f). Rule E(4)(f) does not by itself establish the test a district court should apply in vacating a Rule B attachment. The Second Circuit, adopting the practice in the Southern and Eastern Districts of New York (embodied in former Local Rule 12), has set out standards for issuing and then vacating maritime attachments. Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 444 (2d Cir.2006). In the Second Circuit, "in addition to having to meet the filing requirements of Rules B and E, an attachment should issue if the plaintiffs shows that 1) it has a valid prima facie admiralty claim against the defendant; 2) the defendant cannot be found within the district; 3) the defendant's property may be found within the district; and 4) there is no statutory or maritime law bar to the attachment." Id. at 445; see also Proshipline Inc. v. Aspen Infrastructures Ltd., 533 F.Supp.2d 422, 426 (S.D.N.Y.2008). Conversely, a court may vacate an attachment "if the defendant shows at the Rule E hearing that 1) the defendant is subject to suit in a convenient adjacent jurisdiction; 2) the plaintiff could obtain in personam jurisdiction over the defendant in the district where the plaintiff is located; or 3) the plaintiff has already obtained sufficient security for the potential judgment, by attachment or otherwise." Aqua Stoli, 460 F.3d at 445.

In more recent times, litigants have deployed Rule B attachments to attach bank credits used in electronic fund transfers ("EFTs") to or from parties absent from the jurisdiction. Aqua Stoli, 460 F.3d at 436. Before Aqua Stoli was decided, some courts criticized this practice, as it "work[ed] an unfairness to litigants because EFTs to or from them can be attached despite the litigants' having no connection to the district at all, save that they happened to be a participant in a wire transfer of U.S. dollars." Id. at 445 (citing Seaplus Line Co. v. Bulkhandling Handymax AS, 409 F.Supp.2d 316, 320 (S.D.N.Y. 2005)). Nevertheless, the use of Rule B attachments to restrain EFTs has exploded recently. Increasing financial distress of the worldwide shipping industry has resulted in increased use of Rule B attachments. In fact, one news account estimated that Rule B attachments accounted for 10-30% of all monthly filings in the Southern District of New York in the second half of 2008. Greg Miller, Rule B Deluge Floods New York Court, FAIRPLAY, at p. 8 (Jan. 22,...