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Atlanta Shipping Corp. v. Chemical Bank

decided: April 29, 1987.


Appeal from a judgment of the District Court for the Southern District of New York (Gerard L. Goettel, Judge) dismissing an action after plaintiff failed to post a bond for costs. Plaintiff seeks review of the ruling requiring the bond and other rulings dismissing admiralty and state law claims. Affirmed.

Author: Newman

Before: VAN GRAAFEILAND, MESKILL, and NEWMAN, Circuit Judges.

JON O. NEWMAN, Circuit Judge:

This appeal concerns primarily issues of appellate review and admiralty jurisdiction. The first issue is whether a plaintiff who suffers the dismissal of some but not all of his claims and invites dismissal of his entire suit rather than post a bond imposed as a condition of pursuing the one claim not originally dismissed may obtain appellate review of the rulings that preceded the order to post the bond. The second issue is whether admiralty jurisdiction is available to consider an equitable claim to set aside a transfer to a creditor allegedly made to frustrate payment of a maritime debt where admiralty jurisdiction was not invoked with respect to the underlying debt. These issues arise on an appeal by plaintiff-appellant Atlanta Shipping Corporation, Inc. ("Atlanta") from a judgment of the District Court for the Southern District of New York (Gerard L. Goettel, Judge) dismissing all claims against defendant-appellee Chemical Bank ("Chemical"). 631 F. Supp. 335 (S.D.N.Y. 1986). Judge Goettel initially dismissed Atlanta's admiralty claims, dismissed most of Atlanta's state law claims, permitted Atlanta to replead a state law claim under N.Y. Debt. and Cred. Law § 276 (McKinney 1945) ("DCL"), and left standing a state law claim under N.Y. Bus. Corp. Law § 720 (McKinney 1986) ("BCL"). He also ordered Atlanta to post a $10,000 bond as security for costs. Upon Atlanta's refusal to replead or post the bond, the entire action was dismissed. For reasons that follow, we hold that Atlanta may secure appellate review of rulings made before it elected not to pursue the one undismissed claim, that all of those rulings were correct, and that final judgment was properly entered. We therefore affirm.


In March 1976, Robert Waldron, Frank Visconti, DIC Concrete Corporation ("DIC"), and Underhill Construction Corporation ("Underhill") formed International Modular Housing, Inc. ("IMH") with $125,000 in invested capital for the purpose of purchasing modular homes in the United States for sale in Saudi Arabia. In June 1976, IMH and Atlanta, a Liberian corporation, entered into a shipping contract (the "Liner Booking Note") under which Atlanta agreed to carry 560 mobile homes from the United States to Saudi Arabia in four voyages in exchange for $1.54 million per voyage to be paid in installments.

To finance IMH, DIC and Underhill each borrowed $1.5 million from Chemical in October 1976, pledging their assets as security. DIC and Underhill lent the $3 million to IMH, receiving notes and a chattel mortgage on 103 of IMH's modular homes. In December 1976, Chemical loaned $3 million to IMH, with DIC and Underhill acting as guarantors. On January 10, 1977, Chemical loaned IMH an additional $3 million, guaranteed by DIC and Underhill, which was used to repay DIC's and Underhill's $1.5 million direct loans from Chemical. After these transactions, IMH owed Chemical $6 million, guaranteed by DIC and Underhill. As of January 1977, IMH had total debts of $14 million (including the $6 million owed to Chemical) and $125,000 in equity.

The first of the four contracted voyages with Atlanta was completed and paid for as provided by the Liner Booking Note. On January 25, 1977, IMH defaulted on a $385,000 payment due as the last installment on the second voyage. On February 9, 1977, IMH defaulted on the first installment for the third voyage, bringing its level of indebtedness to Atlanta to $1,067,393.56. On February 22, 1977, IMH and Atlanta entered into a "Credit Agreement" whereby Atlanta obtained title, possession, and a security interest in 141 homes then abroad an Atlanta ship in exchange for a promissory note deferring payments under the Liner Booking Note. On March 23, 1977, the date on which the first payment was due under the Credit Agreement, IMH commenced an action in the New York Supreme Court to enjoin enforcement of the agreement, claiming that it was entered into under economic duress. Atlanta removed that action to the District Court for the Southern District of New York, commenced a separate action against IMH in the Southern District of New York to enforce collection of the promissory note, and served notice of arbitration upon IMH to enforce collection of the amounts due to Atlanta pursuant to the Liner Booking Note. These actions resulted in protracted arbitration proceedings and litigation between IMH and Atlanta. On September 30, 1982, and March 14, 1983, the District Court confirmed arbitration awards in favor of Atlanta of $2,012,500 and $1,753,572, respectively, most of which remains unsatisfied.

On December 11, 1984, Atlanta commenced the present action against Chemical, seeking recovery from Chemical of IMH's repayments as well as punitive damages and attorney's fees. The suit challenges Chemical's receipt of full repayment of principal and interest on IMH's $6 million loan during the period from January 1977 to March 1980. Atlanta alleges the following background facts. IMH encountered difficulty in selling its modular homes in Saudi Arabia and, as a result, found itself unable to service its large debt. Nonetheless, IMH forestalled default on its Chemical loans through financial assistance from DIC and Underhill and by Chemical's frequent renewals and extensions of the due dates of IMH's obligations to the bank. On February 7, 1980, Chemical forwarded a renewal notice to IMH extending its loans for sixty days and requesting immediate payment of $205,381 to cover interest to the extension date. IMH defaulted on this interest payment. In early March 1980, IMH sold its remaining inventory of modular housing in Saudi Arabia and deposited the proceeds into its Chemical account. On March 12, 1980, Chemical, exercising its right of setoff, debited IMH's account for $2,150,000. On March 13, 1980, Chemical notified DIC and Underhill of the setoff and demanded, pursuant to the guarantees, repayment of the remaining outstanding principal balance of $600,000 and accrued interest of $247,510.07. On April 3, 1980, DIC and Underhill paid the balance of IMH's debt. Throughout the period of repayment, Chemical monitored IMH's financial condition and was aware of IMH's obligations to other creditors, including Atlanta.

Atlanta's suit alleges numerous grounds on which IMH's repayments to Chemical were illegal. The following alleged violations may be gleaned from Atlanta's rather imprecise amended complaint: that IMH's loan repayments to Chemical represented fraudulent conveyances in violation of DCL §§ 273, 273-a, 274, 275, 276 (McKinney 1945 & Supp. 1987), the common law of New York, and the law of admiralty; that the transfer to Chemical of the proceeds from the sale of the 141 homes securing the Credit Agreement between IMH and Atlanta violated N.Y.U.C.C. Art. 9 (McKinney 1964 & Supp. 1987); that Chemical violated BCL §§ 510, 719, 720 (McKinney 1986); that Chemical received preferential transfers in violation of the common law of New York and the law of admiralty; and that Chemical aided and abetted fraudulent conveyances by directors and/or stockholders of IMH, improper transfers of assets by directors of IMH in violation of BCL § 720, and distributions to stockholders in violation of BCL §§ 510, 719.

Chemical moved for dismissal of the amended complaint for lack of subject matter jurisdiction and failure to state a claim upon which relief could be granted. Chemical also moved for partial summary judgment with respect to certain claims, a more definite statement, and an order requiring Atlanta to furnish security for costs. On March 25, 1986, Judge Goettel issued an opinion finding that diversity jurisdiction existed and dismissing admiralty claims for lack of jurisdiction. Pursuant to Fed. R. Civ. P. 12(b)(6), he dismissed all other claims except the claim under BCL § 720. In addition, Judge Goettel required Atlanta to replead its claim under DCL § 276 with particularity and to post a $10,000 bond as security for costs, both steps to be taken within thirty days.*fn1 Judge Goettel denied Atlanta's request to certify the dismissal of the admiralty claims for interlocutory appeal, pursuant to 28 U.S.C. § 1292(b) (1982).

Atlanta did not comply with the District Court's orders and instead on April 23, 1986, filed an appeal, which was dismissed on June 3, 1986, for lack of appellate jurisdiction. On April 24, 1986, Atlanta's counsel wrote to Judge Goettel stating that Atlanta chose not to "post security at this time and because it may not serve an amended complaint without posting such security, all claims of Atlanta against Chemical have been effectively dismissed as of April 24, 1986." Atlanta requested Judge Goettel to enter judgment because "Atlanta wished to pursue its appeal rather than try this case under principles of law enunciated by the Court." In view of this representation and Atlanta's failure to post the required $10,000 bond, Judge Goettel on May 6, 1986, entered final judgment dismissing Atlanta's complaint with prejudice pursuant to Fed. R. Civ. P. 41(b).


At the outset, we must decide the threshold question of which rulings of the District Court are reviewable on this appeal. Atlanta seeks review of virtually all aspects of Judge Goettel's order of March 25, including the dismissal of most of its claims. Chemical contends that our scope of review is much more limited. It suggests that by failing to post the $10,000 bond Atlanta forfeited its right to challenge all of the March 25 rulings except the ruling requiring a bond to be posted. If we find as a threshold matter that the District Court acted within its discretion in ordering that the bond be posted, Chemical contends that we must affirm the final judgment dismissing all claims.

We disagree with Chemical's view that only the propriety of the bond requirement is reviewable. Appellate procedure may be somewhat complex and may sometimes confront litigants with unpleasant choices, but it does not require results as harsh as those for which Chemical contends. On March 25, when Judge Goettel ordered all of Atlanta's claims dismissed except the claim under BCL § 720, no final judgment was then entered, and the order was not applicable.*fn2 As an interlocutory order, it could have been appealed only if certified under 28 U.S.C. § 1292(b), a step Judge Goettel declined to take. Atlanta then confronted a choice. It could post the $10,000 bond, replead its claim under DCL § 276 and pursue its claim under BCL § 720; or it could decline to post the bond, invite entry of a final judgment dismissing all claims, and appeal that judgment. Atlanta chose the latter course. As Atlanta made clear in its April 24 letter to Judge Goettel, its choice was deliberate. It did not wish to bear the expense of two trials, a result it contemplated if it pursued the BCL § 720 claim to a verdict, appealed from a final judgment entered after trial, secured a reversal of the dismissal of its other claims, and then went to trial on those claims.

In considering what aspects of the March 25 order are reviewable on the appeal from the final judgment Atlanta chose to have entered, it will be helpful to distinguish three distinct rulings comprehended by that order. First, Judge Goettel dismissed outright all of the claims except the claims under DCL § 276 and BCL § 720. Second, he dismissed the DCL § 276 claim but granted leave to replead. Third, he required the posting of ...

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