Flame S.A. v. Freight Bulk Pte. Ltd.

• Decision Date: 24 November 2015
• Docket Number: 15–1120.,Nos. 14–2267,s. 14–2267
• Citation: 807 F.3d 572
• Parties: FLAME S.A.; Glory Wealth Shipping PTE LTD., Plaintiffs–Appellees, and Vitol, S.A., Party–in–Interest, Noble Chartering Incorporated, Intervenor/Plaintiff, v. FREIGHT BULK PTE. LTD., Defendant–Appellant, and Industrial Carriers, Inc.; Vista Shipping, Inc. ; Viktor Baranskiy, Defendants. Flame S.A.; Glory Wealth Shipping PTE LTD., Plaintiffs–Appellees, and Vitol, S.A., Party–in–Interest, Noble Chartering Incorporated, Intervenor/Plaintiff, v. Freight Bulk PTE. LTD., Defendant–Appellant, and Industrial Carriers, Inc.; Vista Shipping, Inc. ; Viktor Baranskiy, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

807 F.3d 572

FLAME S.A.; Glory Wealth Shipping PTE LTD., Plaintiffs–Appellees,

and

Vitol, S.A., Party–in–Interest,

Noble Chartering Incorporated, Intervenor/Plaintiff,

v.FREIGHT BULK PTE. LTD., Defendant–Appellant,andIndustrial Carriers, Inc.; Vista Shipping, Inc. ; Viktor Baranskiy, Defendants.

Flame S.A.; Glory Wealth Shipping PTE LTD., Plaintiffs–Appellees,

and

Vitol, S.A., Party–in–Interest,

Noble Chartering Incorporated, Intervenor/Plaintiff,

v.Freight Bulk PTE. LTD., Defendant–Appellant,andIndustrial Carriers, Inc.; Vista Shipping, Inc. ; Viktor Baranskiy, Defendants.

Nos. 14–2267

15–1120.

United States Court of Appeals, Fourth Circuit.

Argued: Sept. 17, 2015.

Decided: Nov. 24, 2015.

ARGUED:Anthony J. Franze, Arnold & Porter LLP, Washington, D.C., for Appellant. William Robert Bennett, III, Blank Rome LLP, New York, New York; James H. Power, Holland & Knight LLP, New York, New York, for Appellees.ON BRIEF:Andrew G. McBride, Wiley Rein LLP, Washington, D.C.; John N. Nassikas III, R. Stanton Jones, Daniel F. Jacobson, Arnold & Porter LLP, Washington, D.C., for Appellant. Thomas H. Belknap, Jr., Alan M. Weigel, Lauren B. Wilgus, Nicholas R. Tambone, Blank Rome LLP, New York, New York, for Appellee Flame S.A. Robert T. Hicks, Samuel Spital, Michael J. Frevola, Marie E. Larsen, Stosh Silivos, Holland & Knight LLP, New York, New York, for Appellee Glory Wealth Shipping PTE LTD.

Before WILKINSON, AGEE, and HARRIS, Circuit Judges.

Affirmed by published opinion. Judge AGEE wrote the opinion, in which Judge WILKINSON and Judge HARRIS joined.

AGEE, Circuit Judge:

Industrial Carriers, Inc., ("ICI"), a defunct maritime shipping company, breached numerous contracts in the final months of its operation. Among ICI's creditors were FLAME S.A. ("Flame"), who obtained a foreign judgment against ICI for breach of four Forward Freight Swap Agreements ("FFAs"), and Glory Wealth Shipping Pte., Ltd. ("Glory Wealth"), who obtained a foreign arbitration award against ICI based on the breach of a charter party.

Both Flame and Glory Wealth sought a writ of maritime attachment under Supplemental Rule B of the Federal Rules of Civil Procedure to attach the vessel M/V CAPE VIEWER when it docked in Norfolk, Virginia. Freight Bulk Pte. Ltd. ("Freight Bulk") is the registered owner of the vessel, but Flame and Glory Wealth asserted that Freight Bulk was the alter ego of ICI, and that ICI had fraudulently conveyed its assets to Freight Bulk in order to evade its creditors. For that reason, they argued that the U.S. District Court for the Eastern District of Virginia could enforce their claims against ICI through Freight Bulk. Following a bench trial, the district court awarded judgment to Flame and Glory Wealth, ordered the sale of the M/V CAPE VIEWER, and confirmed the distribution of the sale proceeds to Flame and Glory Wealth.

Freight Bulk now appeals. Finding no merit to its claims, we affirm the judgment of the district court.

I.

A.

In 2008, Flame entered into four FFAs with ICI. After ICI defaulted on those contracts, Flame sued ICI in the High Court of Justice, Queen's Bench Division, Commercial Court, in London, England, alleging the breach and seeking monetary damages. The English court awarded judgment to Flame in the amount of $19,907,118.36 ("Flame's English judgment").

Flame had the English judgment recognized in the U.S. District Court for the Southern District of New York, and later registered the judgment in the U.S. District Court for the Eastern District of Virginia. It then sought and obtained the order of attachment against the M/V CAPE VIEWER.

Freight Bulk moved to vacate the order of attachment, contending the district court lacked subject matter jurisdiction because under either United States (federal) or English law, the FFAs were not maritime contracts. The district court denied Freight Bulk's motion and concluded it had admiralty jurisdiction, but certified the issue for interlocutory appeal. We granted Freight Bulk permission to file an interlocutory appeal.

We then held that federal law governed our jurisdictional inquiry, and that the FFAs were maritime contracts under federal admiralty law. Flame S.A. v. Freight Bulk Pte., Ltd., 762 F.3d 352 (4th Cir.2014) (the "Interlocutory Appeal"). Because the FFAs were maritime contracts, we concluded that "the district court had subject matter jurisdiction to adjudicate the matter before it." Id. at 363. We remanded the case to the district court for further proceedings.

B.

Separately, but also in 2008, Glory Wealth contracted for ICI to charter a vessel. After three installments, ICI stopped making payments under this agreement. Glory Wealth pursued arbitration against ICI in England and won an arbitration award (Glory Wealth's "English arbitration award"). Subsequently, Glory Wealth sought and obtained recognition of the arbitration award in the Southern District of New York. It did not register that judgment in the Eastern District of Virginia. Instead, Glory Wealth filed a complaint in the Eastern District of Virginia alleging that it was an ICI creditor who could maintain a maritime claim against ICI for breach of a charter party, as established by its English arbitration award.¹ It then sought and obtained an attachment order for the M/V CAPE VIEWER pursuant to Supplemental Rule B.

C.

While the Interlocutory Appeal in Flame's case was pending, the district court consolidated the Flame and Glory Wealth cases based on the common questions of law and fact. Both complaints named other defendants in addition to Freight Bulk and ICI. One such co-defendant was the beneficial owner of Freight Bulk, Viktor Baranskiy, who is the son of ICI's final Chairman of the Board of Directors. Baranskiy is also the sole, beneficial owner of co-defendant Vista Shipping Ltd. ("Vista"). In fact, Baranskiy is the sole owner of numerous maritime companies—now, collectively known as the Palmira Group—of which Freight Bulk and Vista are just two.

The basic theory underlying both complaints was that Baranskiy aided ICI in evading its creditors by funneling money and other assets into multiple entities he controlled, including Vista and Freight Bulk. Vista was formed in late 2008, around the same time as ICI's failure. Freight Bulk, on the other hand, was not formed until several years later. Consequently, the complaints relied on the interconnectedness of ICI with Vista and Vista with Freight Bulk to establish the requisite link showing Freight Bulk's responsibility as an alter ego for ICI's debts. The complaints alleged that Vista and Freight Bulk were both formed with funds that originated from ICI and that ICI fraudulently transferred those funds and other assets in order to avoid its creditors.

The district court, with the assistance of a magistrate judge, oversaw "many, many" motions during discovery. Flame S.A. v. Indus. Carriers, Inc. , 39 F.Supp.3d 769, 771 (E.D.Va.2014). Freight Bulk repeatedly sought to delay the proceedings by obfuscation, often challenging the meaning and scope of discovery orders with meritless claims. As a result of Freight Bulk's noncompliance, Flame and Glory Wealth obtained sanctions in the form of certain presumptions to be applied at trial.

The evidence adduced at trial and the district court's factual findings are discussed below in the context of Freight Bulk's sufficiency challenge. But as background to our review, we note that things did not bode well for Freight Bulk when, by the end of the first day of his testimony, Baranskiy had provided inconsistent and evasive explanations for many of the key relationships and transactions at issue in the case. Even so, the district court expressed its surprise when Baranskiy and Freight Bulk's lead trial attorney "abandoned the case on the second morning of his testimony by not appearing" and instead left the country. Id. at 776. Local counsel notified the court of Baranskiy and lead counsel's decision and did not present any further evidence.

Flame and Glory Wealth subsequently moved for judgment in their favor, which the district court granted. Id. at 790. In so doing, the court concluded that the evidence demonstrated that ICI, Vista, Freight Bulk, and Baranskiy were alter egos of one another. In addition, it found that ICI fraudulently transferred assets to Vista and related Palmira Group entities to avoid creditors, and that these latter entities had also fraudulently transferred funds to Freight Bulk. Accordingly, it held the defendants jointly and severally liable for ICI's debts, up to the value of the M/V CAPE VIEWER.² The court ordered the sale of the vessel, and later confirmed the sale and ordered distribution of the sale proceeds between Flame and Glory Wealth under a formula to which they had agreed.

Freight Bulk noted a timely appeal and we exercise jurisdiction pursuant to 28 U.S.C. § 1291.

II.

On appeal, Freight Bulk raises six discrete issues and multiple sub-arguments. While we have reviewed its arguments in detail, we will only address its primary contentions of error. Those are: (1) that under Fourth Circuit precedent, United States substantive law does not apply to this dispute, which means the district court lacked subject matter jurisdiction; (2) that under Supreme Court precedent, actions to shift liability do not state an independent cause of action to establish subject matter jurisdiction, nor can a plaintiff rely on a prior lawsuit's basis for the court's jurisdiction in a subsequent suit to shift liability; (3) that the district court erred in distributing proceeds of the M/V CAPE VIEWER's sale to Glory Wealth because Glory Wealth failed to register its New York default judgment against ICI in the U.S. District Court for the Eastern District of Virginia; (4) that the district court abused its discretion by imposing certain discovery sanctions; (5) that the evidence was insufficient to support the judgment as to both alter ego liability and fraudulent conveyance; and (6) that the district court judge exhibited...