Blue Whale Corp. v. Grand China Shipping Dev. Co.

• Court: U.S. Court of Appeals — Second Circuit
• Writing for the Court: WESLEY
• Citation: Blue Whale Corp. v. Grand China Shipping Dev. Co., 722 F.3d 488 (2nd Cir. 2013)
• Decision Date: 16 July 2013
• Docket Number: Docket No. 13–0192–cv.
• Parties: 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.

722 F.3d 488

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.

Docket No. 13–0192–cv.

United States Court of Appeals, Second Circuit.

Argued: April 17, 2013.

Decided: July 16, 2013.

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.

Before: POOLER, WESLEY, DRONEY, Circuit Judges.

WESLEY, 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 Liberianvessel. 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 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 filed. Fed.R.Civ.P. Supp. 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.” Fed.R.Civ.P. Supp. 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 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 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

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 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., 585 F.3d 58 (2d Cir.2009). If a plaintiff fails to make this showing when challenged under Rule E, a district court must vacate the prior order of attachment. Id.

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., 649 F.Supp.2d 295, 299 (S.D.N.Y.2009). Some district courts within this Circuit presume that “federal law governs all questions concerning the validity of a Rule B attachment.” Harley Mullion & Co. Ltd. v. Caverton Marine Ltd., No. 08–cv–5435 (BSJ), 2008 WL 4905460, at *2 (S.D.N.Y. Aug. 7, 2008) (assessing whether plaintiffs pled a valid maritime claim).⁵Other district courts reason that despite Rule B's “undoubted[ ]” status as a procedural rule, “Rule B itself does not provide the basis for determining the existence of a valid prima facie admiralty claim,” and instead, “the existence of a valid prima facie claim turns on substantive law.” Al Fatah, 649 F.Supp.2d at 300.⁶

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), 2009 WL 2223581, at *3 (S.D.N.Y. July 27, 2009). This question is inherently procedural by virtue of its relationship to the courts' subject matter jurisdiction and,...