Case Doc 964 Filed 07/13/16 Entered 07/13/16 07:50:46 Main Document Pg 1 of 8

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1 Pg 1 of 8 UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF MISSOURI SOUTHEASTERN DIVISION In re: ) ) Case No NORANDA ALUMINUM, INC. et al., ) Chapter 11 ) Jointly Administered Debtors. ) Honorable Barry S. Schermer ). ASSOCIATED TERMINALS LLC S MEMORANDUM IN REPLY TO NORANDA ALUMINA LLC S OPPOSITION TO MOTION FOR IMMEDIATE PAYMENT FOR POST-PETITION SERVICES, ALTERNATIVE MOTION TO REQUIRE SEQUESTRATION OF FUNDS Contrary to Alumina s assertions, Associated Terminals, LLC ( Associated ) is not attempting to dictate to this Honorable Court the timing of payment of administrative expenses. Neither is Associated trying to bypass this Court s prior ruling on its first motion seeking immediate payment for Post-Petition stevedoring services. Rather, Associated has endeavored to remove any impediments to payment for the Post-Petition stevedoring services Associated has provided by agreeing to fully secure Alumina s dock damage claim. Associated avers that now that Associated has agreed to fully secure the Alumina dock damage claim, there is no just reason to allow Alumina to continue to deviate from the agreed payment terms set forth in this Honorable Court s March 21, 2016 Interim Order. Now that Associated has offered to post full security for the dock damage claim, there remains only one reason why Alumina continues to refuse to pay for Post-Petition stevedoring services: Alumina wants to direct its limited assets elsewhere, to the direct detriment of Associated. 1 That is not a justifiable reason for refusing to pay Associated for the services that have enabled Alumina to continue to do business after filing for bankruptcy. 1 Associated remains owed more than $1.3 million for Pre-Petition stevedoring services.

2 Pg 2 of 8 Associated recognizes that it is within the province and power of this Honorable Court to set the timing of payments of Post-Petition administrative expenses such as the cost of these stevedoring services. This Court exercised that power when, on March 21, 2016, the Court entered an Interim Order reflecting the agreement of the parties regarding continued stevedoring services and agreed payment terms. [Doc. 409]. I. Equity and Fairness In its Opposition Memorandum, Alumina calls upon this Court s equitable power and suggests that it would be unfair to require Alumina to pay Associated. On the contrary, the equities in this situation call for entry of an Order requiring immediate payment to Associated. The relevant timeline is as follows: This Honorable Court entered an Order on March 21, 2016 allowing the Debtor, Alumina, to continue its ordinary business operations. Pursuant to this Order, Alumina continued to offload aluminum cargo in the New Orleans, Louisiana area, and Associated acted as stevedore to perform the operations of unloading ships and loading barges in Louisiana. Alumina claims that Associated damaged its dock at Gramercy, Louisiana on March 16, Pursuant to an Interim Order signed by this Court on March 21, 2016, five days after the alleged dock damage, new payment terms and contractual arrangements were set in place between Alumina and Associated. [Doc. 409]. Pursuant to the Interim Order, Associated continued to perform stevedoring services and, in fact, was paid for a portion of those services by Alumina. Ultimately, Alumina began withholding payment for continuing stevedoring services and now owes Associated $443, for Post-Petition stevedoring services provided pursuant to the Interim Order. The foregoing timeline establishes that Alumina was aware at the time it negotiated the proposed Interim Order, which ultimately was entered by this Court on March 21, 2016, that it would procure additional services from Associated knowing that it would not pay for those services and instead would rely upon an accident that happened before the Interim Order was agreed and 2

3 Pg 3 of 8 signed to rationalize withholding payment. This is pernicious and bad faith commercial conduct. Based upon this timeline of events, any effort by Alumina to rely upon notions of equity and fairness should not be countenanced. Equity and fairness dictate that Associated be paid now for the Post-Petition services provided. Additionally, Associated s invoice claim is a simple matter: Alumina does not dispute the amount charged or that these amounts were for Post-Petition administrative services. In contrast, Alumina s dock damage claim will involve complicated analysis of depreciation schedules, dock valuation and repair as well as discovery into the pre-existing decrepit condition of the dock and the facts Alumina claims warrants a finding of liability against Associated. Moreover, as evidenced by the security posted by Associated s insurers, the dock damage claim involves exposure to insurance proceeds, whereas the sums unfairly withheld by Alumina in violation of the Interim Order impair the cash flow of Associated. Unfairness from awaiting payment while the dock damage claim is adjudicated is another reason why equitable concerns dictate paying Associated now on the invoice claim. II. The Setoff Issue Alumina claims it is well established law that Alumina is entitled to setoff. Yet, in St. James Stevedoring Co., Inc. v. Cementos Del Mar, Inc AMC 657, 1991 WL (E.D. La), a case arising from the same area of the lower Mississippi River where Associated performed services for alumina, a shipowner argued it was entitled to setoff a claim for cargo damage against unpaid invoices for stevedoring services. 2 The district court agreed with the stevedore s argument that absent a contractual provision allowing for setoff, setoff was not allowed. The court held that the stevedore has performed services in compliance with the stevedoring agreement. The agreement calls for [the stevedore] to offload all 2 Associated relied on St. James in its memorandum in support of this motion. The case has been ignored by Alumina. 3

4 Pg 4 of 8 the cargo from defendant s vessels. This would include even damaged cargo, for it cannot remain onboard the vessel. Defendants must pay for the services and then seek reimbursement for that which they claim was lost due to mishandling. * * * Stevedoring companies, no less than vessel owners, must be paid despite claims of damage to freight; otherwise, stevedores would be most reluctant to perform their essential services. St. James, 1982 A.M.C. at 661. St. James is the lead case and most analogous decision addressing whether setoff is available here. It belies the contention of Alumina that it is well established law that it is entitled to setoff. Alumina relies as support for its well established law assertion on Galveston Dry Dock & Construction Co. v. Standard Dredging, 9 F.Supp. 370 (S.D.N.Y. 1934). In that case, the owner of a dredge which had been repaired on dry dock was sued for payment for dry dock services. The dredge owner sought to reduce the amount owed by a demurrage amount incurred from eleven extra days on dry dock allegedly caused by negligence of the dry dock operator. In this 82 year old district court case, a setoff occurred, but no party challenged whether setoff was allowed under the General Maritime Law of the United States. Moreover, the reduced amount owed as a consequence of demurrage related directly to the services provided by the dry dock during the period of demurrage. In contrast, the present case involves an alleged dock damage event which is said to have occurred on March 16, 2016, while the stevedoring services which are the subject of Associated s administrative claim were provided in May. Galveston Dry Dock does not stand for the notion that setoff for a wholly unrelated, unliquidated debt is allowed in the General Maritime Law. The United States Second Circuit Court of Appeals addressed setoff in the General Maritime Law much later, and held that in the absence of a contractual provision allowing for setoff, setoff could not be used by a cargo owner claiming damage against a vessel who was owed freight for carrying that cargo. See, Metallgesellschaft A.G. v. M/V CAPITAN CONSTANTE, 790 F.2d 280 (2 nd Cir. 1986). This decision 4

5 Pg 5 of 8 undermines Alumina s reliance upon Galveston Dry Dock a case decided by a district court within the Second Circuit. The second General Maritime Law case sited by Alumina is the 116 year old decision Charles Warner Co. v. United States, 101 F.884 (D.Del. 1900). In this district court decision, the court commented that it had jurisdiction under a statute governing claims of the federal government to hear and determine all setoffs, counter-claims, claims for damages or other demands whatsoever against the United States. The court commented only that it had jurisdiction to evaluate certain claims involving the government. This case does not hold setoff is permissible in the General Maritime Law in a matter involving private parties such as Alumina and Associated. In the third maritime case relied upon by Alumina, 3 a yacht owner sought to withhold a portion of sums owed to the shipbuilder on the basis that certain teak decking was poorly constructed. No party raised whether setoff is allowed in the General Maritime Law, or cited a case which authorized setoff. Moreover, the case invoked a claim for payment of invoices for shipbuilding services and a counter-claim that the services were not performed correctly. In contrast, Associated seeks payment for stevedoring services provided AFTER the Interim Order was agreed: Alumina seeks to withhold that payment to setoff a tort claim for dock damage allegedly occurring BEFORE the Interim Order was agreed. Norfolk Shipbuilding does not support allowing setoff in such a scenario. The St. James case clearly establishes that absent a setoff provision in the stevedoring contract, a stevedore has a right to be paid without setoff principles being applied to withhold payment. This case was not distinguished by Alumina in its Opposition Memorandum. Moreover, at the time the property damage claim arose, there was no issue of setoff, because the $443, in Post-Petition stevedoring services which are the subject of the setoff 3 Norfolk Shipbuilding and Dry Dock Corp. v. M/Y LA BELLE SIMONE, 537 F.2d 1201 (4 TH Cir. 1976). 5

6 Pg 6 of 8 argument had not even been performed. Alumina essentially kept the tort claim in its hip pocket while negotiating for the terms of continuing stevedoring services which ultimately became formalized by entry of this Court s Interim Order on March 21, This was a pernicious ploy to obtain continued stevedoring services in a scenario in which Alumina knew full well that it would not pay for those services. On June 9, 2016, this Honorable Court denied Associated Terminal s emergency motion seeking payment for its Post-Petition stevedoring services. The motion seeking payment for these services has been renewed by Associated Terminals not, as Alumina has implied, to question this Court s authority to determine the timing of payment for Post-Petition services, but to inform the Court that the alleged impediment for payment of those services has been removed. This motion is now bottomed upon Associated s contention that assuming arguendo setoff for an unliquidated dock damage claim could form the basis of refusing to pay agreed administrative expenses, Associated agrees to fully secure the claim for dock damage by posting a Letter of Undertaking from its Primary liability insurer and a surety bond from the Excess insurers at Lloyds of London. 4 CONCLUSION The one obstacle to allowing Associated to be paid for its Post-Petition stevedoring services a claim for setoff in respect of an alleged dock damage incident which is said to have occurred before entry of the Interim Order setting the terms for payment of Post-Petition stevedoring services - has been removed by Associated s agreement to post security for the dock damage claim. The removal of this obstacle means the only reason Alumina is not paying for the Post-Petition services is that it desires to use its cash for other purposes. Alumina should not be 4 Alumina suggest that it reserves its right to contest the reliability of the security here, but does not directly assail the reliability of the security posted by C.V. Starr for the Primary portion or Syndicates at Lloyds of London for the Excess portion. 6

7 Pg 7 of 8 able to pick and choose the administrative services it wishes to pay for or refuse to pay Associated. It should be held to the terms of the Interim Order. To the extent this Court s equitable powers and concepts of fairness dictate whether Associated should be paid, these fundamental principles weigh heavily in favoring of ordering payment because the debtor in this instance kept a tort claim in its hip pocket while it negotiated the terms of the Interim Order arranging for continuing stevedoring services from Associated Terminals. Associated submits that this tactic should not be awarded by allowing Alumina to continue to delay payment to Associated. For the foregoing reasons, Associated respectfully requests and prays that the Court enter its Order requiring Alumina to make immediate payment to Associated in the sum of $443, or, in the alternative, to sequester the sum of $443, pending the outcome of matters at issue in the Adversary Proceeding as well as for additional relief as the Court deems appropriate. /s/ Patrick J. McShane Patrick J. McShane Frilot, LLC 1100 Poydras Street, Suite 3700 New Orleans, LA Ph: (504) Fax: (504) Jmcshane@frilot.com HEPLERBROOM, LLC /s/ Steven M. Wallace Steven M. Wallace 130 North Main Street Edwardsville, Illinois Direct: (618) Fax: (618) steven.wallace@heplerbroom.com Counsel to Associated Terminals, LLC 7

8 Pg 8 of 8 Certificate of Service The undersigned certifies that a true and correct copy of the foregoing was filed with the Court via CM/ECF this 13 th day of July, 2016, and service was made (a) via CM/ECF on all parties receiving electronic notice, (b) via on all parties on the Core Service List dated May 26, 2016, who provided addresses, and (c) via the United States Postal Service, postage fully prepaid, on those parties on the Core Service List who have not provided addresses. /s/ Steven M. Wallace 8