Kulberg Finances Inc. v. Spark Trading D.M.C.C.

• Decision Date: 18 June 2009
• Docket Number: No. 09 Civ. 00792.,09 Civ. 00792.
• Citation: 628 F.Supp.2d 510
• Parties: KULBERG FINANCES INC., Plaintiff, v. SPARK TRADING D.M.C.C., Cairo Three A for Trading, Cairo Three A for Trading S.A.E., and Cairo Three A Import & Export S.A.E., Defendants.
• Court: U.S. District Court — Southern District of New York

628 F.Supp.2d 510

KULBERG FINANCES INC., Plaintiff, v. SPARK TRADING D.M.C.C., Cairo Three A for Trading, Cairo Three A for Trading S.A.E., and Cairo Three A Import & Export S.A.E., Defendants.

No. 09 Civ. 00792.

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

June 18, 2009.

COPYRIGHT MATERIAL OMITTED

Brown Gavalas & From LLP, by: Peter Skoufalos, Esq., New York, NY, for Plaintiffs.

Blank Rome LLP, by: Jeremy J.O. Harwood, Esq., New York, NY, for Defendants.

OPINION

SWEET, District Judge.

Defendants Spark Trading, Cairo Three A for Trading, Cairo Three A for Trading S.A.E., and Cairo Three A Import & Export S.A.E. (collectively "Spark" or "Defendants") have moved pursuant to Rules E(4)(f) and 12(b)(1) of the Federal Rules of Civil Procedure to vacate the maritime attachment obtained by plaintiff Kulberg Finances ("Kulberg" or "Plaintiff") for lack of subject matter jurisdiction. For the reasons set forth below, the existence of subject matter jurisdiction has been established, but the attachment is vacated for failure to state a valid maritime claim under English law.

The underlying dispute arises out of a contract for the sale of Ukranian feed barley by Kulberg to Spark. Under the terms of the contract, Kulberg was responsible for the delivery by cargo ship of the barley to Spark, who was then responsible for the timely discharge of the cargo. Kulberg alleges that Spark exceeded the contractual time for discharge, thereby incurring a demurrage¹ charge of $232,452.56, for which Spark is liable to Kulberg.

PRIOR PROCEEDINGS

On January 27, 2009, Kulberg filed its complaint in the Southern District of New York. On January 29, 2009, an Order of Attachment was signed in the amount of $337,924.50, which included the demurrage charge, interest, and legal costs. On May 29, 2009, Spark moved to vacate the attachment on the ground that the Court lacked subject matter jurisdiction over Kulberg's claims. The motion was marked fully briefed on June 8, 2009.

THE FACTS

On August 30, 2008, the parties entered into Contract No. 532.080830 for the sale and delivery of 7,000 metric tons of Ukranian origin feed barley to the port of Tartous, Syria ("the Contract"). The Contract contains numerous provisions regarding the terms of the sale, including the characteristics of the grain to be purchased, guarantees of quality, and payment terms. See Exh. 1 to the Declaration of Robert Andrew Jardine-Brown ("Jardine-Brown Decl.") (Contract # 532.080830).

In addition to the terms and conditions of sale, the Contract contains several clauses relating to ocean transportation and the discharge of the cargo. "Discharge conditions" found in the Contract include the following provisions:

• Buyers guarantee a discharging rate of 1500 metric per [weather working day] of 24 consecutive hours, Fridays, Saturdays, Holidays excluded, even if used for vessel of 7,000 tons with 10% tolerance more or less for cargo intake.

• Time to start counting as from 8:00 hours next working day after valid Notice Of Readiness has been tendered during usual office hours, [whether in berth or not, whether in free pratique or not, whether customs cleared or not].

• Time from Thursday (or day preceding a Holiday 14:00 hours till Sunday (or next working day) 08:00 hours not to count as lay-time, even if used.

"Special conditions" for the voyage include the following provisions:

• Demurrage-/dispatch-rate as per Charter Party, free dispatch. Seller to present copy of charter party/valid fixture recap to Buyers upon request.

• Buyers' agent at discharge port.

• Vessel to be single-decker, bulk-carrier, suitable for grab-discharge, classified by Lloyd's Al or equivalent, have valid ISM certificate and be fully covered by respectable P & I club.

• Max. Age of the vessel is 30 years.

• Sellers to ensure that Ship-owners have no right nor any reason to exercise any lien over the cargo in respect of freight, dead-freight, demurrage or damages for detention and Sellers shall indemnify and hold harmless the Buyers in respect of any loss, damage or delay caused to the Buyers by the Ship-owners exercising any such lien in this regard.

Id. The Contract therefore specified that Defendants were responsible for the timely discharge of the barley upon the vessel's arrival to Tartous as well as any demurrage charges resulting from their failure to discharge the cargo within the allotted lay-time.

In addition, the Contract incorporated the form contract of the Grain and Feed Trade Association ("GAFTA") which provides for arbitration before GAFTA of disputes arising under the Contract:

Conditions: All other terms, rules and conditions, not conflicting with the contents of this contract are as per GAFTA Nr. 100.

• Arbitration, in London, as per GAFTA Nr. 125.

Id. GAFTA Nr. 100 provides that the contract "shall be deemed to have been made in England and to be performed in England, notwithstanding any contrary provision, and this contract shall be construed and take effect in accordance with the laws of England." Exh. 1 to the Declaration of Vladyslav Markelov ("Markelov Decl.") (Gafta No. 100). The charter party agreement between Kulberg and the ship owners similarly directs that English law govern any disputes. Jardine-Brown Decl. Exh. 2 (Charter Party dated 4/9/2008) ("ARBITRATION/GENERAL AVERAGE IN LONDON AS PER ENGLISH LAW."). Neither party challenges the application of English law as the substantive law of the Contract.

Based on the cargo quantity of 6,926.8 metric tons, Defendants were permitted a laytime of 4 days, 15 hours, and 50 minutes to offload the purchased barley. According to Plaintiff, Defendants exceeded the allotted laytime by 31 days, 18 hours, and 55 minutes.

On November 24, 2008, Plaintiff demanded that Defendants pay all sums due and owing for demurrage at the port of discharge. In response to Defendants' refusal to pay, Plaintiff initiated arbitration proceedings, pursuant to the Contract's arbitration clause, before GAFTA in London seeking payment of the demurrage costs. An arbitration decision is currently pending.

Plaintiff subsequently commenced the present action seeking an order of maritime attachment pursuant to Supplemental Rule B of the Federal Rules of Civil Procedure as a means of securing Spark's assets in anticipation of a favorable arbitration decision. Defendants move to vacate the attachment on the grounds that this Court lacks subject matter jurisdiction over Plaintiff's claims.

DISCUSSION

I. MARITIME ATTACHMENTS AND ADMIRALTY JURISDICTION OF THE COURTS

A. Background

"The use of the process of attachment in civil causes of maritime jurisdiction by courts of admiralty ... has prevailed during a period extending as far back as the authentic history of those tribunals can be traced." Atkins v. The Disintegrating Co., 85 U.S. 272, 303, 18 Wall. 272, 21 L.Ed. 841 (1873). "Maritime attachments arose because it is frequently, but not always, more difficult to find property of parties to a maritime dispute than of parties to a traditional civil action." Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 443 (2d Cir.2006). Thus, the traditional rule of maritime attachments has been to permit attachments wherever the property of the defendant may be found, and not require a plaintiff "to scour the globe" to find a proper forum where defendant possesses sufficient property to satisfy a judgment. Id.

The present rules for obtaining a maritime attachment are found in the Federal Rules of Civil Procedure Supplemental Rule B, which was promulgated under the Rules Enabling Act, 28 U.S.C. § 2071. To obtain an attachment, plaintiff must file a verified complaint seeking attachment and an affidavit stating that, to the best of the plaintiff's knowledge, the defendant cannot be found within the judicial district. Fed.R.Civ.P. Supp. R. B(1). Plaintiff must also demonstrate that it has a valid prima facie admiralty claim against the defendant. Aqua Stoli, 460 F.3d at 445. Thereafter, Rule E(4)(f) provides 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." Fed.R.Civ.P. Supp. R. E(4)(f). During the vacateur hearing, plaintiff bears the burden of establishing that the attachment should not be vacated. Aqua Stoli, 460 F.3d at 445. At the hearing the defendant "can attack the complaint, the arrest, the security demanded, or any other alleged deficiency in the proceedings." Fed.R.Civ.P. Supp. R. E(4)(f), Advisory Committee's Note.

B. The Dispute Falls Within the Court's Admiralty Jurisdiction

1. United States Law Determines the Court's Admiralty Jurisdiction

The threshold issue to be addressed is the law to be applied in determining whether subject matter jurisdiction exists over Plaintiff's claim. Defendants assert that the determination of the Court's admiralty jurisdiction turns on whether a valid maritime claim exists under the applicable substantive law. Defendants argue that because English law governs the Contract, and English law does not recognize Plaintiff's claim as "maritime," this Court lacks subject matter jurisdiction over the complaint and the attachment must be vacated.

"Neither Rule B nor any other of the supplemental Rules create a valid prima facie admiralty claim. Rather, the Supplemental Rules fashion procedures by which a valid maritime claim may form the basis for a writ of maritime attachment." Sonito Shipping Co. Ltd. v. Sun United Mar. Ltd., 478 F.Supp.2d 532, 536 (S.D.N.Y.2007). Because Rule B constitutes a procedural remedy for maritime claims, United States maritime law, and not the applicable substantive law of England, governs the determination of this Court's subject matter jurisdiction. See Tennessee Coal, Iron & R.R. Co. v. George, 233 U.S. 354, 360, 34 S.Ct. 587, 58 L.Ed. 997 (1914) ("[J]...