NASP 2008 Annual Conference Subro Goes Hollywood! SUBRO GOES HOLLYWOOD NASP 2008 Annual Conference

USING MARITIME REMEDIES TO OBTAIN JURISDICTION By: James F. Campise Cozen O’Conner

MARITIME LAW Maritime law is similar in many ways to land based common law – there are breaches of contract and torts. What is different in Maritime law are the concepts such as seaworthiness, salvage and general average, as well as some important procedural differences, one of which we will discuss today.

LIENS Under maritime law, a breach may give rise to a maritime lien. Why is this important? Because a lien gives a plaintiff the ability, pre judgment, to arrest and/or attach property. Arrests are available under Rule C and attachments under Rule B of the Supplemental Federal Rules. So, if you are having difficulty obtaining personal jurisdiction in a case, for example, a marina fire, it may be worthwhile to look for a possible maritime connection.

ATTACHMENT Let’s say you have a fire at a marina and the cause of the fire is traced to negligence of the service company for one of the boats that happened to be docked at that marina. The service company is based in Venezuela and has absolutely no U.S. contact and no way you can obtain in personam jurisdiction over this defendant. Under Rule B, you may be able to attach the company’s property that is located in the United States.

USED BY LAW ENFORCEMENT To give you some idea of how powerful this tool is, consider the case of United States v Daccarett, 6 F.3d 37 (2d Cir 1993). In June, 1990, the Luxembourg police arrested three associates of the Cali, Colombia drug cartel who had deposited large sums of money in hundreds of European banks. Anticipating that the arrests would trigger efforts by the cartel to move these funds to Colombia, the Luxembourg police wanted to “freeze” the money and sought assistance from several countries including the United States. During July and August 1990, a flurry of electronic fund transfers for the suspect accounts ensued resulting in the seizure of $12 Million in the United States which was the aggregate of dozens of Electronic Fund Transfers (EFT’s) sent through New York City intermediary banks that had corresponding relationships with Panamanian and Colombian Banks. The United States government interdicted the funds by serving a number of Rule C warrants in rem upon the New York intermediary banks. The other side argued that the intermediary banks merely served as messengers who never held the goods, but only pass the word along. The appellate court ruled, however, that on receipt of an EFT’s from originating banks, the intermediary banks possess the funds, in the form of bank credits, for some short period before transferring them on to the destination banks.

U.S. CONSTUTION The U.S. Constitution. extends the federal judicial power to all cases of admiralty and maritime jurisdiction. Procedurally, the Admiralty Rules are part of the Federal Rules of Civil Procedure (FRCP) and are called “Supplemental Rules for Admiralty or Maritime Claims.” One of the unique admiralty remedies, not available at common law, is:

ARRESTS ARREST Supplemental Rule C provides for in rem actions against a ship, its tackle, boilers, or cargo, etc. The ship, cargo, boiler, engines or tackle, etc becomes the res, or subject matter of the action. In effect, the res is the defendant. Under Supplemental Rule C, the res can be arrested, because of the maritime lien created. It is by arrest that the court establishes jurisdiction over the vessel or the property against which the lien is being asserted. Goodman v foot Trojan Vessel, 859 F.2d 71 (8th cir. 1988); Alyeska Pipeline Service Co v Vessel Bay Ridge, 703 F.2d 71 (9th Cir. 1988)

LIEN TRAVELS WITH THE RES With Arrest, it is as if the ship or thing (the res) committed a wrong. Arrest, however is only available against the thing (res) that committed the wrong (tortfeasor) i.e. the ship involved in the collision, or that failed to pay a chandler for supplies, or failed to pay crew wages, or contaminated a cargo. The lien created by the tort of collision, or the breach of contract, travels with the property. The ship must be arrested where it is located in order to acquire jurisdiction. You can arrest the offending ship wherever you can find her.

ARREST A THING With Arrest, it is as if the ship or thing (the res) committed a wrong. Arrest, however is only available against the thing (res) that committed the wrong (tortfeasor) i.e. the ship involved in the collision, or that failed to pay a chandler for supplies, or failed to pay crew wages, or contaminated a cargo. The lien created by the tort of collision, or the breach of contract, travels with the property. The ship must be arrested where it is located in order to acquire jurisdiction. You can arrest the offending ship wherever you can find her.

ATTACHMENT Attachment is another remedy available. But with attachment you are not limited to the offending ship or property. Supplemental Rule B permits attachment of other property, such as a sister ships or freight of the defendant owner where that property is located.

QUASI IN REM Maritime Arrest and Attachment are centuries old, antedating both the Congressional grant of Admiralty Jurisdiction and the Promulgation of the first Supreme Court Admiralty Rules in Manro v Almedia, 23 U.S. (10 Wheat) 473 (1825); Aurora Maritime Co. v Abdullah Mohamed Fahem & Co., 85 F.3d 44 (2d Cir. 1996). Maritime attachment is available whenever the plaintiff has an in personam claim against a defendant which is cognizable in Admiralty. The rationale underlying maritime attachment is two fold: (1) attachment provides a means to assure satisfaction of a judgment if the suit is successful and (2) attachment confers jurisdiction upon the court. The jurisdiction is said to be quasi in rem, in that in personam jurisdiction is obtained over the defendant, but only up to the amount of the value of the property that has been attached. So what types of property can be attached? Clearly, sister ships, as well as any other property, freight as well as tangible and intangible property such as EFT’s of an owner, who is not within the district.

WINTER STORM THE WINTER STORM This brings us to Winter Storm Shipping Company v TPI a/k/a Thai Petrochemical Industry Public Company Limited, 310 F.3d 263 (2d Cir. 2002)..

EFT In the words of Judge Charles (Terry) Haight, who wrote the opinion for the Second Circuit, “…the case involves the interplay between a centuries old admiralty law procedure and present day banking technology and poses the question whether funds involved in electronic fund transfer (“EFT”) between banks are subject to attachment under Rule B(1) of the Supplemental Rules for Admiralty and Maritime claims.” Judge Haight relied upon the Daccarett, stating that “an EFT, while it takes the form of a bank credit at an intermediary bank is clearly a seizable res under the forfeiture statutes.”

FACTS OF CASE In simplified form, the plaintiff, a Malta corporation chartered the vessel M/V Ninemia to defendant TPI, a Thai Corporation, to carry oil cargo from Saudi Arabia to Thailand. Winter Storm claims that TPI breached the Charter Party by failing to pay the full freight due and owes Winter Storm, the plaintiff $361, [N.B: A charter Party is like a lease of a boat. “Charta Partita” Lat.]

NO JURSIDCTION IN THE U.S. The charter party provides for arbitration in London. There is nothing whatsoever involving the U.S. TPI, maintained an account with a Thai Bank in Bangkok, “BA”, which in turn maintained an account at Bank of New York (“BNY”). TPI entered into an unrelated transaction with Oppsal Shipping Co, which maintained an account at the Royal Bank of Scotland in London (RBS). TPI was to pay Oppsal in United States Dollars. BNY received from BA a payment order in respect to an EFT in the amount of $1,085, on behalf of TPI to the account of Oppsal at RBS. The US dollar transfer would be made electronically through BNY in New York City. BA was the originating bank and BNY acted as the intermediary bank. The process of attachment prayed for by Winter Storm identified “Bank of New York” as a potential garnishees. Based on the Writ, BNY set aside about $300,000 of the $1.0 Million that was being transferred. TPI moved under Rule E to vacate the attachment of the funds being held by BNY. The lower court, Judge Shira Scheindlin, vacated the attachment and since the sole basis for jurisdiction, quasi in rem, was an attachment, dismissed the complaint. The lower court ruled that an EFT intercepted at an intermediary bank was not “property” that can be attached under Supplemental Rule B, reasoning that since the Admiralty Rules do not define “property” and there is no other federal precedent, the court must look to state law for the definition. The court concluded that U.C.C. § 4-A-503 which permits restraint of only an originator bank, was intended to insulate an intermediary bank from judicial restraint. In other words, stated the lower court, the EFT through the intermediary bank BNY could not be attached as the property of TPI. On appeal, the Second Circuit Court of Appeals reversed and remanded.

RULE B ATTACHMENT Noting that the perpetrators of a maritime injury are likely to be peripatetic, Judge Haight further noted that the constitutional power of the federal courts is separately divided on the admiralty side, and therefore separate policies can be utilized “to some extent”. The Circuit Court traced the history of maritime attachment, noting that until 1966 an attachment was obtained simply through application to the Clerk of Court. Out of due process concerns, judicial scrutiny is now required to obtain the Rule B attachment. Moreover, the 1985 amendments for the Admiralty Rules also included an addition to Rule E which applies both to in rem and quasi in rem proceedings and permits a prompt hearing where the plaintiff is to show cause why the attachment or arrest should not be vacated, or for other relief consistent with these rules. Thus, the Court found that the process of maritime attachment provided adequate due process safeguards.

A USEFUL TOOL While these are not everyday tools, maritime arrest and attachment are important specialized tools to keep in your tool chest for the right occasion.