Opinion ID: 316528
Heading Depth: 1
Heading Rank: 4

Heading: the andean appeal

Text: 71 The seeds of Andean's involvement in the instant lawsuit were planted on July 27, 1973. On that date, United States Customs officials seized the yacht, Patricia III, while it was undergoint repairs at the Merrill Stevens Dry Dock Company in Miami, Florida. The yacht was of Panamanian registry, the registration certificate having been issued to Andean, a Panamanian corporation. The vessel was seized for allegedly failing to pay duties pursuant to relevant Tariff Schedules of the United States. These payments are required as duty assessments on yachts of foreign origin which enter the United States while chartered to or owned by a resident of the United States. In this instance Vesco was that American resident. 72 One week after the yacht's seizure by the United States, on August 3, ICC moved for and Judge Ward granted a temporary restraining order enjoining Vesco from removing the yacht from its Miami berth. 24 On August 14, Andean appeared as intervenor before Judge Ward and subsequently, on August 16, submitted a written application supported by an affidavit of counsel to Judge Stewart seeking to dissolve the restraining order on the ground that it and not Vesco was the owner of the Patricia III. ICC's response was that Andean was nothing more than a nominee for Vesco, and that the source of the funds used to purchase the yacht was Vesco. In the alternative, ICC claimed that the Columbus Trust Company (Columbus Trust) which held a $1,500,000 mortgage on the yacht, was either a mere conduit for moneys provided by Vesco or was, itself, independently liable to ICC as a result of its participation in Vesco's alleged scheme to loot the assets of ICC. 25 73 In an effort to support its serious charges, ICC deposed Roland Boddy, Captain of the Patricia III, and Joseph Sutton, President of Merrill Stevens. ICC also sought to take the deposition of Eusebio Morales, Andean's sole shareholder, but Morales refused to appear in Miami for the deposition despite Judge Stewart's order so requiring. 26 ICC also failed in its effort to depose Donald Aberle, President of Columbus Trust, who, like Morales, preferred to remain in the snug harbor of Nassau. Unlike Morales, Aberle had not been ordered by the Court to appear. Instead, and by way of response to ICC's charges that Andean and/or Columbus Trust were fronts for Vesco, Andean submitted affidavits by Morales, Aberle, several other officers of Columbus Trust, and by Virgil Coakley, an assistant to the Controller of Property Resources Limited (PRL), a corporation in which ICC formerly had an indirect interest, and the assets of which were allegedly misappropriated by Vesco with the aid of Columbus Trust. 74 On October 2, 1973, an evidentiary hearing was held before Judge Stewart at which David Warham, former Controller of PRL, and Charles Bliven, a yacht broker who arranged the sale of the Patricia III to Andean, testified on behalf of ICC. Three days later, on October 5, 1973, the district judge issued his preliminary injunction, enjoining Andean and Columbus Trust from moving the Patricia III, an order from which only Andean has appealed. 27
75 At the outset, we note that the question before us is quite narrow. Since both Vesco, against whom a default judgment has already been entered, and Columbus Trust, a Bahamian corporation, are effectively immunized from execution because they both are beyond the reach of the court, enjoying the protection of the Bahamian government, it is indisputable that ICC would be irreparably harmed should we permit this yacht, valued in excess of one million dollars, to depart our shores and sail to other lands, perhaps to a rendezvous with her alleged owner Vesco. Accordingly, with the balance of hardships so obviously in ICC's favor, we need decide only whether Judge Stewart abused his discretion in determining that serious questions were raised concerning the source or sources of the funds used to purchase the yacht and Columbus Trust's alleged role in defrauding ICC. Sonesta International Hotels Corp. v. Wellington Associates, supra; Checker Motors Corp. v. Chrysler Corp., supra; Hamilton Watch Co. v. Benrus Watch Co., supra. After a careful review of the record, we find no abuse. 76 Morales's affidavit discloses that Andean was formed in February, 1973, when Morales contributed $10,000 in return for all of the corporation's stock. After its incorporation, neither Andean nor Morales played more than a passive role in the purchase or operation of the Patricia III. Instead, it was Aberle who negotiated for the acquisition of the yacht from Charles Bliven & Co., yacht brokers. On May 14, 1973, Columbus Trust wired $1,326,000 to Bliven, and Andean took title to the yacht. 77 Thereafter, Andean entered into a charter party with Mackinley Limited, a Bahamian corporation whose interest in chartering a luxury yacht had, according to Aberle, initially prompted his negotiations with Bliven. Mackinley, however, was hardly a stranger to Aberle, who, coincidentally, happened to be Mackinley's Secretary. Moreover, it does not appear wholly without significance or is it perhaps simply another coincidence, that a letter sent by Aberle to the Registrar-General of Nassau in February, 1973 stated that Vesco was appointed as Director and President of Mackinley. To add yet a third curious note, we find that Aberle subsequently termed this appointment 'incorrect' in a second letter to the Registrar-General, sent shortly after the first, in which Aberle made the rather unusual request that the first letter be returned. In any event, Mackinley's strange background aside, it arranged with Andean for a one-year charter, with an option to renew for five additional one-year periods, at the rate of $30,000 per month. 78 On June 20, 1973, Vesco, Patricia Vesco, his wife, and Vesco's family boarded the yacht (renamed Patricia III after its purchase) and Vesco and his family remained it sole users until shortly before it put into Miami for repairs. The record discloses that Vesco submitted plans for the extensive refurbishing and refitting of the yacht's interior. Indeed, in July, 1973 a check for $40,000 was issued by Patricia Melzer (Mrs. Vesco's maiden name), on behalf of Mackinley, Ltd., to Merrill Stevens Dry Dock Company in partial payment for work performed on the yacht. Payment on this check was stopped, however, and it was replaced with a check issued by Columbus Trust. 79 Turning our attention to Columbus Trust and its pedigree, we observe that it was incorporated by Aberle and one Dobbie in 1969 as a vehicle for those seeking to invest capital in the Bahamas, a tax haven not unknown to the initiated. By 1973, Dobbie's interest was acquired by the Bahamas Commonwealth Bank, Ltd. (BCB), a defendant in this lawsuit. BCB was in turn controlled by Norman LeBlanc, another defendant and both are also defendants in SEC v. Vesco et al., supra, against whom default judgments have been entered in the SEC action. 80 In March, 1973, Aberle and two other Bahamians purchased BCB's interest in Columbus Trust. In that same month, according to Warham's testimony at the evidentiary hearing before Judge Stewart, PRL, of which LeBlanc was a director, arranged to have Columbus Trust manage the not insignificant sum of $40,750,000 then held in certificates of deposit in PRL's account in London. Warham also testified that this important arrangement was consluded at the behest of Vesco, who, though neither a director nor officer of PRL, appeared to have a strong influence over the management of PRL's funds. Finally, Warham described in some detail a series of transactions by which PRL-- which was controlled by a corporation (Value Capital Limited) in which ICC owned a controlling interest-- was subsequently transferred by Vesco, through ICC's sale of its interest in Value Capital Limited, to a corporation dominated by LeBlanc. This series of transactions have been alleged by both the SEC and ICC to have violated the securities laws. 81 Once Columbus had control of PRL's $40,750,000 it proceeded to purchase $5,700,000 in Costa Rican bonds from BCB. Another $3,350,000 is, according to Coakley's affidavit and a telex exhibit from a Panama bank, deposited in the Banco Nacional de Panama. The balance of $31,700,000 remains in London, frozen in PRL's account by an order of the English Chancery Court. 82 Upon the foregoing, we can hardly say that ICC has failed to raise serious questions concerning the source of funds used to purchase the Patricia III. One thing appears clear: Andean performed no function other than that of a mere nominee or shell. Aberle undertook all negotiations for the yacht's acquisition, and it is undisputed that Columbus Trust supplied both the $1,326,000 purchase price and the substantial sums subsequently required to repair and refit the yacht. Moreover, at the evidentiary hearing, ICC submitted an audited financial statement of Columbus Trust revealing a net worth of only $266,808 as of March 31, 1972. Although this net worth figure related to a period more than one year prior to the yacht's purchase, we are unaware of any effort by Columbus Trust to rebut this evidence by introducing a more recent financial statement, although such information is under the control of Columbus Trust. We conclude on the totality of circumstances that ICC has made a sufficient showing of Vesco's interest in the yacht to sustain the injunctive relief granted. 28 Accordingly, we need not pass upon ICC's alternative contention, also accepted below, that it has demonstrated with sufficient likelihood Columbus Trust's liability to ICC through its mishandling of the PRL funds.
83 Andean claims that the district court erred in denying its request for security by ICC, pursuant to Fed.R.Civ.P. 65(c). Rule 65(c) states, in pertinent part: 84 No restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper . . .. 85 In construing this language, we have stated that, especially in view of the phrase-- 'as the court deems proper'-- the district court may dispense with security where there has been no proof of likelihood of harm to the party enjoined. Ferguson v. Tabah, 288 F.2d 665, 675 (2d Cir. 1961). See also Urbain v. Knapp Brothers Manufacturing Co., 217 F.2d 810 (6th Cir. 1954), cert. denied, 349 U.S. 930, 75 S.Ct. 772, 99 L.Ed. 1260 (1955). Andean argues, however, that its inability to move the yacht has been costly, both in the loss of charter revenues and in additional maintenance expenses. ICC's response to this is quite simple. It claims that even were the restraint lifted, Andean would be unable to remove the yacht because of a forfeiture action brought by the United States in the Southern District of Florida for the unpaid assessed duties. 86 Subsequent to the argument of this case, we received a copy of findings of fact and conclusions of law signed by Judge Mehrtens in the actions pending before him in Florida. Although he found Andean liable for customs duties in the amount of $60,000, and indebted to the Merrill-Stevens Dry Dock Company in the sum of $77,474 for breach of a repairs and improvements contract, Judge Mehrtens denied the Government's claim for forfeiture. Thus, should Andean satisfy these judgments, it would be barred from removing the Patricia III only by the preliminary injunction granted below. Accordingly, in light of the Florida dispositions, we remand to the court below for reconsideration of Andean's motion for security. 87 Although we have scarcely plumbed the depths of Vesco's alleged financial manipulations, we have attempted to describe the intricacies of the web spun by him and his associates in their alleged scheme to ensnare the assets of ICC and its subsidiaries. Emerging from this maze of securities schemes, of corporate shells and subsidiary spin-offs, one point stands out in bold relief: the ingenious plotter cannot find a medium more supple than the world of securities to effectuate his design. Thus, we find in these appeals further proof of the wisdom in adopting a flexible approach to the application of Section 10(b), a judicial construction consonant with that Section's broad prophylactic purpose. Confidence in our securities markets can only be maintained by establishing a protective shield which cannot be circumvented by recourse simply to the novel, to the unexpected, or to entanglements difficult to unravel. We remand to the district court for further proceedings not inconsistent with this opinion. 88