Case Information
*1 13-0192-cv
Blue Whale Corp. v. Grand China Shipping Dev. Co., Ltd., et al.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2012 (Argued: April 17, 2013 Decided: July 16, 2013) Docket No. 13-0192-cv
BLUE WHALE CORPORATION, Plaintiff-Appellant ,
-v.-
GRAND CHINA SHIPPING DEVELOPMENT CO., LTD,
AKA SHANGHAI GRAND CHINA SHIPPING DEVELOPMENT CO., LTD., GRAND CHINA LOGISTICS HOLDING (GROUP) COMPANY LIMITED, HNA GROUP CO. LTD.,
Defendants-Appellees .
Before:
P OOLER , W ESLEY , D RONEY , Circuit Judges .
Plaintiff-Appellant Blue Whale Corporation (“Blue Whale”) appeals from the January 11, 2013 Order by the United States District Court for the Southern District of New York (Nathan, J. ) vacating its prior Rule B maritime attachment order against Defendant-Appellee HNA Group Company, Ltd. (“HNA”). Contracting parties Blue Whale and Defendant-Appellee Grand China Shipping Development Company, Ltd. (“Development”) are currently engaged in arbitration in London to resolve a dispute that arose out of the parties’ *2 maritime shipping contract. In anticipation of an arbitration award against Development, Blue Whale brought a Rule B claim in the Southern District of New York against Development’s alleged alter ego, HNA, seeking to attach approximately $1.3 million worth of HNA assets located in New York. The district court vacated the Rule B attachment order after Defendants-Appellees challenged the sufficiency of Blue Whale’s alter-ego claim under Rule E(4)(f). The district court evaluated the prima facie validity of Blue Whale’s veil-piercing claim under English law, pursuant to the choice-of-law provision in the charter party, and determined that Blue Whale had insufficiently alleged that HNA was an alter ego of Development. Because we find that Blue Whale’s alter-ego claim was collateral to the contractual dispute and that English law did not govern, we apply federal maritime conflicts-of-law analysis to determine the governing law. Accordingly, we VACATE the district court’s order and REMAND with instructions to re- evaluate the prima facie validity of Blue Whale’s claim under federal common law.
VACATED AND REMANDED.
GEORGE M. CHALOS (Katherine N. Christodoulatos, Briton P. Sparkman, on the brief ), Chalos & Co., P.C., Oyster Bay, NY, for Plaintiff- Appellant .
THOMAS H. BELKNAP, JR. (W. Cameron Beard, Of Counsel, on the brief ), Blank Rome LLP, New York, NY, for Defendants-Appellees.
MICHAEL J. FREVOLA (Christopher R. Nolan, Warren E. Gluck, on the brief ), Holland & Knight LLP, New York, NY, for Amicus Curiae White Rosebay Shipping S.A.
W ESLEY , Circuit Judge :
This admiralty law dispute arises from a distinctly international transaction: a Chinese company contracted to transport goods from Brazil to China aboard a Liberian vessel. The existence of so many foreign interests yields an inherently federal choice-of-law question – one we resolve via application of maritime conflicts-of-law principles.
Background
Plaintiff-Appellant Blue Whale Corporation (“Blue Whale”), a foreign company, [1] entered into a charter party (a maritime contract) with Defendant-Appellee Grand China Shipping Development Company, Ltd. (“Development”), a Chinese company, on May 25, 2011. The charter party provided for transport of 250,000 metric tons of iron ore from Brazil to China aboard a Blue Whale vessel registered in the republic of Liberia. The contract purportedly required Development to pay 98% of the total freight costs *4 to Blue Whale within seven days of loading the iron ore; allegedly, Development failed to make this payment. Blue Whale therefore held the vessel and its contents until Development satisfied the claimed debt, resulting in more than $1 million in damages borne by Blue Whale. Blue Whale commenced arbitration against Development in London pursuant to the charter party’s clause specifying that “[a]ny disputes arising under the Contract,” if not settled amicably, “shall be referred to arbitration in London [with] British law to apply.” The arbitration is ongoing.
On March 26, 2012, Blue Whale filed a complaint in the United States District Court for the Southern District of New York seeking to attach property belonging to Development’s alleged alter ego, Defendant-Appellee HNA Group Company, Ltd. (“HNA”), also a Chinese company, in anticipation of a future arbitration award against Development. Rule B of the Supplemental Rules for Certain Admiralty and Maritime Claims (“Rule B”) allows plaintiffs to seek an attachment of “defendant’s tangible or intangible personal property – up to the amount sued for – in the hands of garnishees named in the process,” “[i]f a defendant is not found within the district” at the time the complaint is *5 filed. F ED . R. C IV . P. S UPP . R. B(1)(a). Blue Whale alleged that Development and HNA “are in fact a single business enterprise” and that the district court should allow Blue Whale to pierce the corporate veil to reach in-district HNA assets of approximately $1.3 million.
On May 17, 2012, the district court (Nathan, J. ) issued an order authorizing attachment of HNA’s holdings in third- party Pacific American Corporation – a privately-held direct subsidiary of HNA based in New York – in an amount up to approximately $1.3 million. HNA subsequently moved to vacate the district court’s maritime attachment order under Rule E(4)(f), which provides that a person claiming interest in attached property “shall be entitled to a prompt hearing at which the plaintiff shall be required to show why the arrest or attachment should not be vacated.” F ED . R. C IV . P. S UPP . R. E(4)(f).
Under Rule B, attachment is only appropriate if, inter alia , the plaintiff has a valid prima facie admiralty claim against the defendant. Neither party disputed that Blue Whale had alleged a claim sounding in admiralty and that the court had maritime jurisdiction. However, the parties disagreed over what substantive body of law controlled *6 whether Blue Whale had alleged a valid prima facie claim to pierce the corporate veil. HNA argued that English law governed pursuant to the charter party’s choice-of-law provision and that Blue Whale had failed to allege sufficient facts to support a prima facie alter-ego claim. In response, Blue Whale argued that federal common law controlled the inquiry because Rule B is procedural in nature and, in addition, because “it is well-settled that ‘federal courts sitting in admiralty must apply federal common law when examining corporate identity.’” [2] Memorandum of Law in Opposition to Motion to Vacate Maritime Rule B Attachment, at 8-9, Blue Whale Corp. v. Grand China Shipping Dev. Co., Ltd., et al. , No. 12 Civ. 02213 (AJN) (S.D.N.Y. 2012).
The district court separately analyzed the two elements required for Blue Whale’s claim: (1) whether the claim sounded in admiralty; and (2) whether the claim was prima facie valid. First, the court held that whether Blue Whale *7 adequately pled an admiralty claim was a procedural question governed by federal maritime law because it related to the court’s subject matter jurisdiction (a point not disputed by the parties). The court therefore exercised maritime jurisdiction over the claim. Second, the district court held that the substantive question of whether Blue Whale had pled a valid prima facie alter-ego claim was controlled by English law pursuant to the contractual choice-of-law provision. Under English law, the court concluded that Blue Whale had not alleged an adequate prima facie claim to pierce the corporate veil, and therefore vacated the attachment. [3]
*8 Supported by Amicus Curiae White Rosebay Shipping S.A.
(“White Rosebay”), [4] Blue Whale appeals from the district court’s January 11, 2013 order vacating the prior Rule B maritime attachment order against HNA.
Discussion
“We review a district court’s decision to vacate a maritime attachment for abuse of discretion; however, we review de novo any legal determinations on which this discretion rests.” Williamson v. Recovery Ltd. P’ship , 542 F.3d 43, 48 (2d Cir. 2008). This Court has interpreted Rule B to permit a plaintiff to obtain an order of attachment if it can show that
1) it has a valid prima facie admiralty
claim against the defendant; 2) the
defendant cannot be found within the
district; 3) the defendant’s property may
complaint that prays for attachment and the affidavit required by
Rule B(1)(b).”);
see also Marimed Shipping Inc. v. Persian Gulf
Shipping Co. Inc.
,
[4] White Rosebay’s interest in this appeal stems from its separate commencement of two admiralty veil-piercing actions against HNA (and other parties).
be found within the district; and 4) there is no statutory or maritime law bar to the attachment.
Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd.
, 460 F.3d
434, 445 (2d Cir. 2006),
overruled on other grounds by
Shipping Corp. of India Ltd. v. Jaldhi Overseas Pte Ltd
.,
The principal issue on appeal is whether Blue Whale satisfied its burden of pleading a valid prima facie admiralty claim against HNA in satisfaction of the first prong of Aqua Stoli . As the district court recognized, this evaluation requires us to answer two questions: (1) whether Blue Whale’s claim against HNA sounds in admiralty; and (2) whether the claim is prima facie valid. Each of these questions, in turn, necessitates determining the governing body of law. For the reasons explained below, we conclude that the district court properly applied federal maritime law to the procedural question of whether Blue Whale’s claim sounds in admiralty, and we agree that the claim does sound in admiralty because it arose out of a maritime contract.
We also agree with the district court that the issue of the claim’s prima facie validity is a substantive inquiry. We conclude, however, that the district court’s application of English law to this question was improper because the charter party’s choice-of-law provision does not govern Blue Whale’s collateral alter-ego claim against HNA. Instead, we draw on maritime choice-of-law principles to hold that although federal common law does not govern every claim of this nature, federal common law does apply here, primarily because of the collateral claim’s close ties to the United States. We remand for reconsideration by the district court of the prima facie validity of Blue Whale’s alter-ego claim under federal common law.
I. The Rule B Inquiry Is Procedural in Part and Substantive in Part
“There is a split of authority” in the Southern
District of New York on the issue of what law governs
“whether [a] plaintiff has pled a facially valid admiralty
claim . . . and the Second Circuit has not ruled on it.”
Al
Fatah Int’l Nav. Co. Ltd. v. Shivsu Canadian Clear Waters
Tech.(P) Ltd.
,
*12
A. Whether a Claim Sounds in Admiralty Is a Procedural
Question Governed by Federal Maritime Law
Despite the divide, what is clear is that federal law
controls the procedural inquiry, namely, whether a
plaintiff’s claim sounds in admiralty.
See id.
at 299 n.4;
Euro Trust Trading S.A. v. Allgrains U.K. Co.
, No. 09 Civ.
4483 (GEL),
B. Whether a Claim Is Prima Facie Valid Is a Substantive Question Governed by the Relevant Substantive Law
If the prima facie validity component of the inquiry is
No. 07 Civ. 8325 (JGK),
procedural in nature, federal law will control; if it is substantive, the relevant substantive body of law will control. The district courts in the Southern District of New York have laid out the competing arguments for us. In Harley Mullion & Co. Ltd. v. Caverton Marine Ltd. , the court explained its reasoning for finding that “the better view is that federal law governs all questions concerning the validity of a Rule B attachment” as follows:
If, in order to comply with the requirements set forth in Aqua Stoli, a claim must be valid under the substantive law that will govern the underlying action, parties initiating or responding to a Rule 4(E) [sic] challenge would be routinely required to litigate issues of foreign law and courts would have to probe into the merits of the underlying claim. This sort of detailed examination is inappropriate at a Rule 4(E) [sic] hearing as it would undermine the prima facie standard and is at odds with the limited inquiry contemplated by Aqua Stoli.
24 25
No. 08-cv-5435 (BSJ),
29
30 Rule B itself does not provide the basis 31 for determining the existence of a valid 32 prima facie admiralty claim. . . . [T]he 33 existence of a valid prima facie claim 34 turns on substantive law. Where the
substantive law underlying the claim is foreign, it would make no sense to determine the claim’s prima facie validity under U.S. law.
We agree with Judge Chin’s reasoning. Admiralty law provides the remedy; substantive law defines the right to the remedy. Assessing the prima facie validity of a claim is a substantive inquiry that should be governed by the relevant substantive law. By contrast, whether a claim sounds in admiralty is a procedural question, the answer to which supplies the source of a court’s subject matter jurisdiction.
As the district court here recognized, the decisions
incorporating the reasoning in
Harley Mullion
typically do
so in the context of resolving a dispute over whether a
plaintiff has sufficiently alleged an
admiralty
claim – not
whether a plaintiff has pled a
valid prima facie claim
.
See
Indagro S.A. v. Bauche S.A.
,
We hold that federal maritime law governs whether a claim sounds in admiralty and that the relevant substantive law governs whether a plaintiff has alleged a valid prima facie claim. We use substantive law to assess the prima facie validity of a plaintiff’s claim because substantive law supplies the relevant measure for deciding whether or not the claim is legally sufficient. Of course, this means that courts must apply the correct substantive law – i.e., the law which defines the rights and responsibilities of the parties to the dispute. This introduces the more difficult question in this case: what substantive law controls the validity of Blue Whale’s alter-ego claim?
II. Federal Maritime Choice-of-Law Analysis Determines the Relevant Substantive Law
There are three approaches for evaluating what law governs Blue Whale’s alter-ego claim in this case: invoking the charter party’s choice-of-law provision, which specifies English law; automatically applying federal common law because the court is “examining corporate identity”; or engaging in a federal maritime choice-of-law analysis. Because we find that the charter party’s choice-of-law clause does not govern this collateral alter-ego claim, we hold that federal maritime choice-of-law principles dictate the proper controlling substantive law. In this case, a maritime choice-of-law analysis yields federal common law as the relevant governing law by virtue of the claim’s connection to the United States.
A. The Contractual Choice-of-Law Clause Does Not
Control Because the Alter-Ego Claim Is Collateral
First, we reject HNA’s contention, and the district
court’s conclusion, that the charter party’s choice-of-law
clause requires applying English substantive law to govern
this dispute.
Kalb, Voorhis & Co. v. American Financial
Corp
.,
In considering the choice of law in this diversity case, we determined that it was appropriate to apply the choice-of-law principles of the forum state (New York) rather than relying on the choice-of-law clause in the debentures. Id. We noted that “[t]he choice of law provisions in the debentures [were] irrelevant [because t]he issue is the limited liability of shareholders of a corporation – not Circle K’s obligations under the debentures.” Id.
Similarly, here the issue is HNA’s legal status as an
alter ego of Development, not the obligations under or
*18
subsequent alleged violations of the charter party between
Development and Blue Whale. Blue Whale’s claim against HNA
sounds in admiralty because it arose from this maritime
contract – however, the substance of the attachment claim
concerns whether HNA is an alter ego of Development. This
corporate identity inquiry is indeed distant from the
dispute over the charter party’s provisions regarding the
transport of iron ore. For this reason, we find that “the
issue of piercing the corporate veil is collateral to the
contract, and thus this Court is not bound by the choice of
law provision.”
United Trade Assocs. Ltd. v. Dickens &
Matson (USA) Ltd., Inc
.,
Second, we reject the proposition advanced by Blue Whale and White Rosebay that federal common law automatically governs the alter-ego claim. Blue Whale and Amicus Curiae White Rosebay cite numerous cases for the proposition that
courts in this Circuit have consistently held . . . [that] ‘[f]ederal courts sitting in admiralty must apply federal common law when examining corporate identity.’
Clipper Wonsild Tankers Holding A/S v. Biodiesel Ventures,
LLC
,
[8]
See also Constellation Energy Commodities Grp. Inc. v.
Transfield ER Cape Ltd.
,
cited more broadly in support,
[9]
are focused principally on
the scope of courts’ admiralty jurisdiction, rather than on
the source of substantive law. Admiralty jurisdiction and
federal maritime law need not go hand–in-hand,
see
,
e.g.
,
Lauritzen v. Larsen
,
It appears that this Court’s decision in
Kirno Hill
Corp. v. Holt
,
Subsequent cases citing
Kirno Hill
for the proposition
that federal common law dictates whether or not a maritime
plaintiff has sufficiently pled a claim to pierce the
corporate veil tend to proceed along one of two lines.
First, there are cases like
Clipper Wonsild Tankers Holding
A/S v. Biodiesel Ventures, LLC
,
Second, there are Rule B attachment cases in which district courts must grapple with foreign parties’ disputes that arose (or sometimes sank) in foreign waters. In Arctic Ocean International, Ltd. v. High Seas Shipping Ltd. , 622 F. Supp. 2d 46 (S.D.N.Y. 2009), for example, a Russian plaintiff-company secured a Rule B attachment order in the Southern District of New York against a Marshall Islands defendant-company and an alleged alter-ego Canadian defendant-company. Id. at 47-48. In evaluating the alleged alter ego’s attack on the attachment order, [10] the district court assessed the prima facie validity of plaintiff’s alter-ego claim under federal common law. Id. at 53-56. The district court applied federal common law instead of Russian law, Marshall Islands law, Canadian law or English law (which was specified by the charter party’s arbitration choice-of-law provision, id. at 48) because “federal courts sitting in admiralty have tended to apply federal maritime common law,” id. at 53 (citing In re Holborn , 774 F. Supp. at 844).
*23 Although the district court may well have reached the correct result in Arctic Ocean , we do not believe that Kirno Hill (or its progeny) compels courts “examining corporate identity” to apply federal common law. That said, we recognize that district courts frequently have found value in using federal common law to evaluate the validity of collateral claims in Rule B attachment proceedings. Our aim today is to clarify that the decision of which body of law to apply should be the product of a maritime choice-of-law analysis.
C. Maritime Choice-of-Law Analysis Shows that Federal
Common Law Controls Because United States Law Has the
Strongest Connection to the Relevant Transaction
The Supreme Court first announced the maritime
conflicts-of-law test in
Lauritzen v. Larsen
,
In
Lauritzen
, a Danish seaman brought suit in the
Southern District of New York under the Jones Act, 46 U.S.C.
§ 688, alleging that he was negligently injured aboard a
ship of Danish flag and registry while in Havana harbor.
Recognizing that “[m]aritime law . . . has attempted to avoid or resolve conflicts between competing laws by ascertaining and valuing points of contact between the transaction and the states or governments whose competing laws are involved,” id. at 582, the Supreme Court laid out a multi-factor choice-of-law test, [11] “[t]he purpose of [which] *25 is to assure that a case will be treated n [sic] the same way under the appropriate law regardless of the fortuitous circumstances which often determine the forum,” id. at 591. In Lauritzen , the balance of factors clearly pointed to application of Danish law: the injured seaman had minimal contacts with the United States beyond the intangible – his desire to invoke this nation’s more favorable maritime tort law. Id. at 592.
Here, by contrast, Blue Whale initiated this proceeding in the United States, and specifically in the Southern District of New York, because that is where HNA owns property. Blue Whale did not invoke the Southern District of New York’s admiralty jurisdiction by serendipity – the presence of HNA’s property enabled this action and, along with it, the application of federal maritime law.
Furthermore, the basic tenet upon which Lauritzen is premised will be satisfied here by using federal common law because its application reflects an implicit “resol[ution of] conflicts between competing laws by ascertaining and valuing points of contact between the transaction and the states or governments whose competing laws are involved.” Id. at 582.
As is often the case in admiralty, we deal here with
multi-national foreign parties locked in dispute as the
result of an alleged breach of an international shipping
contract. Indeed, part of the reason we authorize maritime
attachment is the “peripatetic” nature of maritime parties,
the “transitory” status of their assets,
Aqua Stoli
, 460
F.3d at 443, and the need for parties to obtain security
“[i]n a world of shifting assets, numerous
thinly-capitalized subsidiaries, flags of convenience and
flows of currencies,”
Navalmar (U.K.) Ltd. v. Welspun
Gujarat Stahl Rohren, Ltd.
,
This particular case arose from a charter party between a Chinese company, Development, and another foreign company, Blue Whale, to ship iron ore from Brazil to China on a Liberian vessel. This narrative yields several potential sources of law; none have a particularly strong connection to the transaction. The facts here contrast strongly with the facts in Lauritzen , where all parties, the ship, and the contract itself exhibited strong ties to Denmark. 345 U.S. at 573.
Importantly, however, the relevant “transaction” in this case is not Development’s alleged failure to comply with the charter party – it is Blue Whale’s claim to pierce the corporate veil. The district court in this Rule B action is charged only with determining whether Blue Whale stated a prima facie valid alter-ego claim against HNA in furtherance of its motion to attach HNA’s property in New York. Accordingly, United States law has the strongest “points of contact” with this claim by virtue of the location of HNA’s property, Blue Whale’s corresponding choice of forum and the unavailability of an alternative forum, and the absence of a dominant foreign choice of law.
On a final note, we recognize the value of simplifying
the judicial process required for Rule B attachments and
Rule E motions to vacate when feasible.
See generally Aqua
Stoli
,
Conclusion
For the foregoing reasons, the order of the district court is hereby VACATED and REMANDED.
Notes
[1] Throughout this litigation, Blue Whale is identified only as a “foreign corporation.” We note that Blue Whale lists a business address in Monrovia, Liberia, on a freight invoice issued to Defendant-Appellee Grand China Shipping Development Company, Ltd., and that at least one of Blue Whale’s vessels is registered in Liberia.
[2] Apparently, neither party raised the issue of whether HNA
(a non-signatory to the charter party between Blue Whale and
Development) could be bound by the English choice-of-law clause.
As the district court noted, there are cases that speak to this
issue and find that courts may force non-signatories to adhere to
choice-of-law clauses.
See
,
e.g.
,
FR 8 Singapore Pte. Ltd. v.
Albacore Maritime Inc.
,
[3] The district court also made an alternative ruling
supporting vacatur. Under Rule B, attachment is impermissible if
a defendant can be “found” within the district. F ED . R. C IV . P.
S UPP . R. B(1)(a);
see also Aqua Stoli Shipping Ltd. v. Gardner
Smith Pty Ltd.
,
[5]
See also Emeraldian Ltd. P’ship v. Wellmix Shipping Ltd.
,
No. 08 Civ. 2991 (RJH),
[6]
See also Indagro S.A. v. Bauche S.A.
,
[7] There are a number of cases that indicate that had Blue Whale prevailed at the London arbitration proceeding in advance of bringing an action for attachment or enforcement in the United States, federal common law and not English law would govern the court’s evaluation of HNA’s alleged alter-ego status. See , e.g. , Bridas S.A.P.I.C. v. Gov. of Turkmenistan ,345 F.3d 347 , 353,
[9]
See Swift & Co. Packers v. Compania Colombiana Del Caribe,
S.A.
,
[10] The alleged alter-ego defendant moved to dismiss the complaint under Rules 12(b)(2) and 12(b)(6) rather than challenging the attachment under Rule E(4)(f) because no property had actually been attached in the approximately eleven months that the Rule B order had been in force. Arctic Ocean , 622 F. Supp. 2d at 50. However, as the district court recognized, defendant’s arguments “would have similar force at a Rule E(4)(f) hearing.” Id.
[11] Supplemented by subsequent case law, the non-exhaustive
list of factors includes: “(1) the place of the wrongful act;
(2) the law of the ship’s flag; (3) the domicile of the injured
party; (4) the domicile of the shipowner; (5) the place of the
contract; (6) the inaccessibility of the foreign forum; (7) the
law of the forum; and (8) the shipowner’s base of operations.”
Carbotrade S.p.A. v. Bureau Veritas
,