On June 2, the U.S. Court of Appeals for the Third Circuit analyzed what constitutes a prima facie maritime claim sufficient to support attachment of property under Rule B of the Supplemental Rules of Admiralty of the Federal Rules of Civil Procedure. The court found that qualifying claims must be ready for adjudication and actually asserted; contingent or incomplete claims cannot be adjudicated and do not meet the requirements of a prima facie claim.
To secure a writ of maritime attachment over a defendant’s property pursuant to Rule B, a plaintiff must show that he has an in personam claim against the defendant, which is facially valid and cognizable in admiralty, that the defendant cannot be found in the district for purposes of establishing personal jurisdiction, and that the defendant’s property is, or will shortly be, located in the district. Property of the defendant within the district is then subject to seizure. Unlike arrest pursuant to Rule C (in rem), the property seized need not have an underlying connection to the plaintiff’s claim and need not be encumbered by a maritime lien. Property is defined broadly and includes traditional maritime assets, but also other tangible and intangible assets, including bank accounts, accounts receivable, and debts.
In this case, Tongli Shipping Pte. Ltd. (“Tongli”) time chartered the cargo ship M/V Orient Rise to Bunge S.A. (“Bunge”) in 2018; Bunge subsequently voyage chartered the vessel to ADM International Sarl (“ADM”). Under orders from the voyage charterer, the Vessel was to carry fertilizer from Saudi Arabia. ADM nominated the Mississippi River as the discharge port. When the Vessel arrived off the Mississippi River in February 2019, things went awry. The Vessel lost two anchors, had issues offloading cargo, and spent a significant amount of time at the repair berth. After the dock owner arrested the vessel, Tongli eventually settled the dispute with the dock owner paying $3.25 million. In July 2019, Tongli initiated London arbitration proceedings against time charterer Bunge seeking indemnification for the settlement. Bunge counterclaimed, claiming that Tongli owed Bunge money for its losses. Simultaneously, Bunge initiated its own London arbitration against voyage charterer ADM. If Bunge lost on Tongli’s claim or its own counterclaim, it would seek that money from ADM. Bunge argued that if it had to indemnify Tongli for the settlement, then ADM must indemnify it. And if Tongli did not pay Bunge for its losses, then ADM had to do so under a safe-port warranty in the voyage charter party.
Unsatisfied with the pace of arbitrations, Bunge filed a complaint in the District of Delaware against ADM. The complaint alleged breach of contract and sought to attach and garnish some of ADM’s funds under Rule B. The district court issued a writ of maritime attachment; but then, after a hearing, vacated the attachment. The district court reasoned that Bunge had not met its burden of showing a valid prima facie admiralty claim, because both of its claims were contingent on the outcome of its arbitration against Tongli. Bunge appealed.
On appeal, the Third Circuit analyzed what constitutes a valid prima facie admiralty claim sufficient to support attachment under Rule B. “[F]ederal 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,” citing Blue Whale Corp. v. Grand China Shipping Dev. Co., 722 F.3d 488, 495 (2d Cir. 2013). Both the time charter and the voyage charter selected the law of England to apply.
The court held that, for a valid prima facie admiralty claim, factual and legal sufficiency is required. Factual sufficiency requires application of a heightened pleading standard. Fed.R.Civ.P. Supp. R. E(2)(a). The court commented that the factual sufficient standard “is relatively clear,” citing Al Fatah Int’l Nav. Co. v. Shivsu Canadian Clear Waters Tech. (P) Ltd., 649 F.Supp.2d 295, 297-99 (S.D.N.Y. 2009) (explaining that a valid prima facie claim must be “facially sound”). Courts have had less occasion to rule on the legal sufficiency of a claim. The court held that, for a valid prima facie admiralty claim, (1) the claim must be ready to be adjudicated under the relevant law; and (2) the claimholder must have asserted the claim.
The court then undertook an analysis of Bunge’s claims under English law. Bunge’s first claim against ADM asserted that ADM was liable for Bunge’s possible payment to Tongli. The court found that, under English law, Bunge’s claim could be brought as a breach of contract claim, or, alternatively, as a claim for an implied indemnity – the court proceeded to analyze both. The court found that an English law cause of action for general indemnity is not complete until there has been payment to a third party. Because Bunge’s cause of action was not complete, it could not be adjudicated yet. Thus, the court found the indemnity claim was not a valid prima facie admiralty claim. However, because Bunge could bring the claim as a breach of the safe-port warranty, the court found there was a complete cause of action for breach of contract. A breach of contract claim arises from the date of the breach, regardless of whether the claimant has actually paid what he seeks to recover. Therefore, Bunge’s claim for breach of the safe-port warranty was found to be a complete cause of action under English law, ripe for adjudication. It had also been asserted by Bunge in arbitration. Thus, the court found the breach of contract claim to be a valid prima facie admiralty claim supporting attachment under Rule B.
Bunge’s claim for loss of hire against ADM, another breach of contract claim, did not constitute a valid prima facie admiralty claim because it was “explicitly, deliberately contingent.” Bunge’s arbitration complaint alleged Bunge would seek recovery from ADM “if and to the extent” its claims against Tongli were not upheld. Because the loss of hire claim cannot be adjudicated unless and until that takes place, the court held that such a claim – even if complete from the moment of breach – will not support Rule B attachment. The court commented that if this kind of claim were enough to support Rule B attachment, then claimants could tie up defendants’ property for years without ever pressing their claims, a rule which would invite abuse of the attachment remedy.
The Third Circuit’s decision acknowledges Rule B attachment as a powerful tool, and declines to extend its reach beyond those claims ready to be adjudicated and actually asserted.
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