Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 05 Civ. 6929(JSR).

• Decision Date: 04 September 2005
• Docket Number: No. 05 Civ. 6929(JSR).,05 Civ. 6929(JSR).
• Citation: 384 F.Supp.2d 726
• Parties: AQUA STOLI SHIPPING LTD., Plaintiff, v. GARDNER SMITH PTY LTD., Defendant.
• Court: U.S. District Court — Southern District of New York

Page 726

384 F.Supp.2d 726

AQUA STOLI SHIPPING LTD., Plaintiff, v. GARDNER SMITH PTY LTD., Defendant.

No. 05 Civ. 6929(JSR).

United States District Court, S.D. New York.

September 4, 2005.

Patrick F. Lennon, Tisdale & Lennon, LLC, New York City, for Plaintiff.

Leroy Lambert, Healy & Baillie, LLP (New York), New York City, for Defendant.

OPINION AND ORDER

RAKOFF, District Judge.

This case presents a question that has taken on heightened significance because of recent developments in the hoary law of maritime attachments: whether a district court has the authority to vacate a maritime attachment that, while facially complying with the statutory requirements, does not meaningfully serve the purposes such attachments are meant to advance and/or creates harm to the attached party that substantially outweighs the benefits to the attaching party. The Court finds that a district court has such authority and that the exercise of that authority in this case requires the Court to vacate the order of attachment previously obtained by the plaintiff and dismiss the underlying complaint.

The pertinent facts are undisputed. Plaintiff Aqua Stoli Shipping Ltd. ("Aqua Stoli") is a company organized under the laws of Liberia solely for the purpose of owning and operating the vessel Aqua Stoli. Complaint ¶ 2; Declaration of Christopher Charles Morkane, 8/31/05 ("Morkane Decl."), ¶ 12. Defendant Gardner Smith Pty Ltd. ("Gardner") is an Australian company that has been in existence for more than 80 years and that last year had revenues exceeding $800 million. Morkane Decl. ¶¶ 2-3. By charter party dated April 11, 2005, plaintiff chartered its vessel to defendant for the carriage of a cargo of tallow from Brazil to Pakistan. Complaint ¶ 4. However, when the time came for the tallow to be loaded onto the Aqua Stoli, defendant rejected the vessel as unfit to carry its goods. Believing this repudiation to be wrongful, plaintiff, in accordance with a forum selection clause in the charter party, initiated an arbitration proceeding against defendant in London, claiming damages totaling about $1.45 million. Complaint ¶¶ 5-9. Defendant is counterclaiming in the London arbitration for similar damages. Morakane Decl. ¶ 4.

In June, shortly after the arbitration commenced, defendant, fearing that plaintiff intended to sell the Aqua Stoli, obtained an order in Singapore arresting the vessel and holding it there unless and until plaintiff posts $1.45 million in pre-judgment security. Id. ¶ 12. Plaintiff is contesting both the arrest and the requirement that it post the $1.45 million, and a hearing is expected in Singapore later this month. Id.

In response to these developments, plaintiff filed the instant action on August 4, 2005, together with an ex parte application for an order permitting it to attach any property held by defendant in this district up to the sum of $1.45 million. In accordance with the Supplemental Rules for Certain Admiralty and Maritime Claims ("Admiralty Rules"), Rule B(1)(b), the order was granted subject to being thereafter contested by defendant. The attachment order was then served on various New York City financial institutions, as a result of which plaintiff was able to attach certain electronic fund transfers (EFTs) to or from defendant that were being routed through financial institutions in New York on their way from one overseas institution to another.¹ On August 29, defendant, over which the Court otherwise would have no personal jurisdiction, made a general appearance and asserted its right to a hearing within three days to contest the attachment order. See Admiralty Rule E(4)(f); Local Admiralty Rule E.1, S.D.N.Y. Accordingly, the Court received submissions from each side and heard argument on September 2, 2005.

Maritime attachments have historically been much easier to obtain than other pre-judgment attachments, requiring only the very modest showing that the defendant whose assets are to be attached "is not found within the district." Admiralty Rule B(1)(a); compare, e.g., SG Cowen Sec. Corp. v. Messih, 224 F.3d 79, 81 (2d Cir. 2000) (describing New York state rules for pre-judgment attachments in non-maritime civil actions, which incorporate "equitable criteria traditionally required for the granting of preliminary injunctive relief," including likelihood of success on the merits and threat of irreparable harm). This is in recognition of the transient nature of vessels and other assets in the shipping business, and the special difficulties maritime plaintiffs consequently face in gaining jurisdiction over defendants and collecting any judgments won. See Seawind Compania, S.A. v. Crescent Line, Inc., 320 F.2d 580, 581-82 (2d Cir.1963) (stating that the two purposes of maritime attachments are "to obtain jurisdiction of the respondent in personam through his property [and] to assure satisfaction of any decree in libellant's favor").

Two developments in recent years have modified this situation. On the one hand, the extent of attachable assets has been extended far beyond the traditional paradigm of ships and cargo. Most notably, the Second Circuit has recently upheld the practice of attaching funds routed through New York, the financial capital of the world, no matter how ephemeral and serendipitous their brief "presence" in the district may be. See Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263, 273 (2d Cir.2002).

On the other hand, Congress in 1985 added a layer of due process to a procedure that historically required a plaintiff to do no more than obtain a piece of paper from the clerk of the court, without a judge's participation and without any notice (let alone a chance to respond) being given to the defendant. Id. at 269. While the attachment may still be obtained ex parte in the first instance, the plaintiff must submit his papers to a judge, who ensures that the plaintiff makes out a prima facie case of entitlement. Id. at 271-72; Admiralty Rule B(1)(b). More importantly for present purposes, Congress also added the provision that any person claiming an interest in the attached property is "entitled to a prompt hearing at which the plaintiff shall be required to show why the arrest or attachment should not be vacated or other relief granted consistent with these rules." Admiralty Rule E(4)(f). This provision, which brought other districts into conformity with a practice already adopted by the Southern District of New York, "is designed to satisfy the constitutional requirement of due process by guaranteeing to the shipowner a prompt post-seizure hearing at which he can attack the complaint, the arrest, the security demanded, or any other alleged deficiency in the proceedings." Id. advisory committee's note.

It is thus clear that the party obtaining the attachment order bears the burden at the subsequent hearing of justifying it. What is left unclear is the nature of the assessment that the Court must make at such a hearing. On plaintiff's view of the law, all it need show is that it meets the statutory requirements that this is a maritime claim and that the defendant is not found within the district. Defendant contends that, in addition, plaintiff must show that the attachment order would genuinely serve at least one of the two traditional purposes of obtaining jurisdiction over the defendant or securing payment of any plaintiff's judgment. Moreover, defendant argues that, even if these showings are made by plaintiff, a defendant can still defeat an attachment order by showing, e.g., that plaintiff's real purpose in obtaining the order is simply to gain a tactical advantage, or that the prejudice...