Court: United States Bankruptcy Court, M.D. Florida; February 29, 1988; Us Bankruptcy; United States Bankruptcy Court
Cairan Graham, captain of the vessel Victoria U, along with 16 crew members, filed an application for payment of administrative expenses for unpaid wages totaling $61,687.56. They argue that their claims should be classified as administrative expenses under Section 503 of the Bankruptcy Code, granting them first priority under Section 507(a)(1). The Debtor, Uiterwyk Corporation, disputes this, asserting that the crew was unauthorized to perform services after the Chapter 11 Petition was filed on January 28, 1988. Evidence presented shows that Uiterwyk, a Florida corporation engaged in shipping operations, chartered the Victoria U from Beryl Shipping Corporation and contracted the crew, including Captain Graham. The journey commenced in New York and was meant to end in Duala, Cameroon. However, the crew faced payment delays, and by January 31, 1983, the Debtor's home office confirmed the company entered voluntary liquidation on January 27, and that crew payments had not been made since October, indicating the crews would have a lien on the vessels for unpaid wages if sold.
Captain Graham denies receiving a critical message from the home office, but it is reasonable to infer he was informed of its contents, especially since Mr. White, the Debtor's representative, was likely in contact with the vessel when it arrived in Monrovia on February 4, 1983. On February 2, the home office instructed Captain Graham to proceed directly to Monrovia, emphasizing that the ship and cargo were insured only for that voyage. Failure to comply would result in the Captain being held responsible for piracy and subject to arrest. The message warned that crew members refusing orders would be guilty of mutiny, and it assured that the crew's wages were secured by a lien on the vessel, with provisions made for payment upon arrival in Monrovia.
This communication followed Captain Graham's prior message stating he could not proceed until all outstanding wages were paid, including those owed to Captain Maddison, a former employee of the Debtor. Captain Graham also communicated that the crew would not go to Monrovia without written confirmation of payment in U.S. dollars. The final directive from the home office reiterated the necessity of immediate compliance to avoid severe consequences. At this point, the Victoria U had already departed Abidjan, moving away from its authorized destination of Duala. After receiving the last instruction, Captain Graham turned the vessel back towards Monrovia but had to anchor in open sea before finally berthing on February 4.
Upon arrival, Alpha Lines West Africa obtained an arrest warrant for the Victoria U, claiming an unspecified amount against the Debtor and the vessel, securing a $1 million bond with the Supreme Court of Liberia. Following the warrant's service, Captain Graham informed the home office that the crew would not stay on board due to the Debtor's failure to provide funds for their wages.
Captain Graham informed the home office that if a settlement on their claims was not reached by February 18, the officers would return home independently while pursuing their claims against the Victoria U in Monrovia's courts. He also indicated he could no longer guarantee the vessel's and cargo's security. This message marked the final communication with the home office. Subsequently, Captain Graham and the crew decided to pursue their unpaid wage claims but lacked funds to post the required bond under Liberian law. They sought permission from Alpha Lines to join its posted bond to file claims against the Victoria U, which was granted. The Supreme Court of Monrovia later ordered the vessel's sale on March 25 to satisfy claims, including those from Alpha Lines and the crew.
Despite the legal proceedings, Captain Graham defied home office instructions and departed Monrovia on March 10, heading to Dakar. The circumstances of the Victoria U's departure were unclear, but it was noted that Alpha Lines facilitated its clearance. After passing Dakar, the vessel continued to Gibraltar and then to Tripoli, Lebanon, where it was arrested again and directed to Beirut.
Captain Graham negotiated with a New York law firm representing the cargo interest to secure funds for crew repatriation and unpaid wages. An agreement was reached wherein the cargo interest would pay $18,000, held in escrow by agent George Sahiouni, for repatriation costs and a percentage of the cargo's value. The law firm also committed to covering ship provisioning expenses and indemnifying Captain Graham against any financial liabilities related to discharging the cargo in Beirut. In return, Captain Graham agreed to assist with the cargo discharge operation. The agreement was executed on April 29, 1983, and the cargo was subsequently discharged from the Victoria U in Beirut.
The cargo of the vessel Victoria U was ultimately delivered to Duala, Cameroon, following its discharge in Beirut. After the cargo was unloaded, Captain Graham and the crew, some of whom were Liberian citizens, returned home, with the entire crew departing the vessel by June 8. The fate of the Victoria U is uncertain, but it appears to have been sold in absentia on March 25, 1983, under a Liberian Supreme Court order.
Captain Graham and the crew are claiming unpaid wages and seek administrative priority for these claims under the Bankruptcy Code, asserting their right to be paid as costs of administration under § 503 and first priority under § 507(a). They acknowledge that they were prohibited from leaving Monrovia and argue that their services after March 10 were necessary for the Debtor's estate. However, it is noted that these services were not performed on behalf of the Debtor, as they acted against the Debtor’s express orders, which included threats of arrest for piracy and mutiny.
The claimants further argue that their employment contracts were executory and never rejected, thus deemed assumed by the Debtor, which would legally obligate the Debtor to pay wages. While this argument might seem initially persuasive, it does not withstand scrutiny, as it would unjustly hold the Debtor liable for wages incurred during actions that were contrary to the Debtor's directives and did not benefit the estate. The evidence indicates that any services rendered by Captain Graham and the crew post-March 10 were in the interest of the cargo, not the Debtor.
The evidence does not support the claim that services were rendered to protect the Debtor's interests, with the assertion being weak and largely unsubstantiated. The claimants argue that the Victoria U left Monrovia against home office instructions to safeguard the ship and cargo, potentially benefiting the Debtor. However, it is established that Captain Graham was informed that leaving would void the ship's insurance, contradicting the claimants' position. Additionally, departing for Lebanon, a politically unstable region, posed a significant risk to the Victoria U and could have increased the Debtor's liability if the ship and cargo were lost.
The Court rejects the claimants' argument that they were unaware of the Debtor's Chapter 11 status. Any claims for unpaid wages are limited to those earned before the Chapter 11 case began and only wages earned post-petition from January 28, 1983, to March 10, 1983, will receive administrative priority under the Bankruptcy Code. The Court partially grants and partially denies the Application for Payment of Administrative Expense for wages and salaries, ordering the Debtor's counsel and claimants to agree on the amount owed to Captain Graham and the crew for the specified period, while disallowing any claims for unpaid wages accrued after March 10, 1983.
