Ministry Oil of the Republic of Iraq v. 1,032,212 Barrels of Crude Oil Aboard the United Kalavrvta & the Ministry of Natural Res. of the Kurdistan Reg'l Governate of Iraq

• Court: U.S. District Court — Southern District of Texas
• Writing for the Court: Gray H. Miller United States District Judge
• Decision Date: 25 August 2014
• Docket Number: CIVIL ACTION G-14-249
• Citation: Ministry Oil of the Republic of Iraq v. 1,032,212 Barrels of Crude Oil Aboard the United Kalavrvta, CIVIL ACTION G-14-249 (S.D. Tex. Aug 25, 2014)
• Parties: MINISTRY OF OIL OF THE REPUBLIC OF IRAQ, Plaintiff, v. 1,032,212 BARRELS OF CRUDE OIL ABOARD THE UNITED KALAVRVTA AND THE MINISTRY OF NATURAL RESOURCES OF THE KURDISTAN REGIONAL GOVERNATE OF IRAQ, Defendants.

MINISTRY OF OIL OF THE REPUBLIC OF IRAQ, Plaintiff, v. 1,032,212 BARRELS OF CRUDE OIL ABOARDTHE UNITED KALAVRVTA AND THE MINISTRYOF NATURAL RESOURCES OF THE KURDISTANREGIONAL GOVERNATE OF IRAQ, Defendants.

CIVIL ACTION G-14-249

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS GALVESTON DIVISION

August 25, 2014

MEMORANDUM OPINION & ORDER

Pending before the court are two motions: (1) a motion to vacate an order to seize cargo, Dkt. 8, filed by defendant Ministry of Natural Resources of the Kurdistan Regional Government of Iraq ("Kurdistan"); and (2) a motion to strike an appendix attached to the motion to vacate, Dkt. 12, filed by plaintiff Ministry of Oil of the Republic of Iraq ("Iraq").¹ After considering the motions, responsive briefing, record evidence, oral arguments of counsel, and applicable law, Kurdistan's motion to vacate (Dkt. 8)² is GRANTED, and Iraq's motion to strike (Dkt. 12) is DENIED AS MOOT. Before explaining the reasoning for its decision, the court briefly reviews the genesis and evolution of the instant dispute.

I. BACKGROUND

A Factual Background³

The disputed cargo at issue in this case (which is also named as an in rem defendant) is 1,032,212 net barrels of crude oil, weighing over 143 million metric tons and valued at over $100 million. Dkt. 7 at 3 ¶ 10. Iraq alleges that the oil was extracted by wells situated in Kurdistan, and not from any other Iraqi region. Id. at 4 ¶ 11. Iraq claims a proprietary interest in the cargo, citing its own constitution, which states that "[o]il and gas are owned by all the people of Iraq in all the regions and governorates." See Article 111, Doustour Joumhouriat al-Iraq [The Constitution of the Republic of Iraq] of 2005; Dkt. 7-2 (declaration of Laith Al-Shaher), Ex. 1 at 1.⁴ Iraq also claims that under its law the Ministry of Oil has the "exclusive authority to export, manage and market the oil resources of the Republic of Iraq." Dkt. 7-2 at 2 ¶¶ 4-5 (citing Article 110, Section 1, Doustour Joumhouriat al-Iraq [The Constitution of the Republic of Iraq] of 2005 (stating that the "federal government shall have exclusive authorities in . . . [f]ormulating foreign policy and . . . foreign sovereign economic and trade policy"); Organization of the Ministry of Oil Law No. 101, art. 5(1), of 1976 (Iraq) (stating that "[t]he Ministry of Oil is in charge of the management of the oil sector [including] exploration, drilling and extraction of oil and gas, [and] the transportation and marketing of crude oil, gas and their products . . . .")). The Ministry has delegated the exclusive authority to export Iraqi oil to its State Oil Marketing Organization ("SOMO"). Dkt. 7-2 at 2 ¶ 5.

Against this legal background, Iraq alleges that in December 2013, without the authorization of the Ministry of Oil, "a division, agency or instrumentality of the Kurdistan Regional Governmentbegan pumping the illegally produced crude oil through a pipeline originating in Iraq and running to Ceyhan in Turkey, known as the 'Iraq-Turkey Pipeline' or 'ITP.'"⁵ Dkt. 7 at 4 ¶ 11. Upon learning of this oil delivery, Iraq instructed the Turkish government and its pipeline operator, the BOTAS Petroleum Pipeline Corporation ("BOTAS"), to hold the cargo for Iraq's account. Id.

BOTAS allegedly rejected Iraq's instructions and transferred the cargo to Kurdistan's possession by loading it on the UNITED KALAVRVTA (the "vessel")⁶ in the navigable waters off of Ceyhan, Turkey, on or about June 22, 2014. Id. at 4 ¶ 12. Iraq argues that an act of conversion occurred upon this oil transfer to Kurdistan. Id. According to Iraq, Kurdistan "is not the owner of the oil nor does it have any title to the oil, which has been illegally misappropriated." Id. Laith Al-Shaher, the Chief Legal Officer of the Ministry of Oil, states that Kurdistan's actions are unlawful and avers as follows:

[T]he crude oil aboard the United Kalavrvta is owned by the people of the Republic of Iraq, not [Kurdistan], and [Kurdistan] did not have the right to load the crude oil for export or to market or sell it without the authorization of the Ministry of Oil. No such authorization has been granted. [Kurdistan] violated Iraqi law by exporting this crude oil without the participation of SOMO.

Dkt. 7-2 at 2-3 ¶ 7.

On June 23, 2014, the vessel departed Turkish waters with the cargo. Dkt. 7 at 4 ¶ 13. Kurdistan concurrently caused a bill of lading to be issued, specifying that the cargo was "to be delivered . . . unto order" of Kurdistan. Id. (citing Dkt. 7, Ex. B (bill of lading)). While the cargowas en route, Iraq alleges that additional "acts of conversion may have occurred." Id. at 4 ¶ 14. The ship changed destinations several times, and the cargo now sits in international waters off the coast of Galveston, Texas, where it has remained since late July. See id. at 4-5 ¶ 14.

B. Procedural Background

On July 28, 2014, Iraq filed an original complaint in admiralty and requested that the court seize the cargo, claiming that it had been converted by Kurdistan. Dkt. 1. Iraq alleged that the vessel and cargo were, or soon would be, within the Southern District of Texas and within the court's jurisdiction. Id. at 2 ¶ 4. Later that evening, Magistrate Judge Nancy K. Johnson issued an order directing the United States Marshal to seize the cargo and allow the plaintiff to move the oil, under the Marshal's supervision, to a storage facility for safekeeping. Dkt. 2 at 1-2. The following day, on July 29, Judge Johnson held a status conference in the case, at which time Iraq informed the court that the vessel was situated more than 60 miles off the coast of Galveston, outside U.S. territorial waters. Dkt. 6. Judge Johnson acknowledged that the cargo could not be seized until it came within the court's jurisdiction. Id.

On August 1, 2014, Iraq amended its complaint. Dkt. 7. Iraq clarified in its live pleading that the issues of ownership over the cargo should be heard and determined by competent courts within the Republic of Iraq. Id. at 5 ¶ 15. To that end, Iraq initiated proceedings in the Iraqi Supreme Court in Baghdad in July 2012, seeking to stop Kurdistan's unauthorized export of crude oil, which would naturally include the cargo at issue in this case. Id. at 5-6 ¶ 17-18 ("The Supreme Court was requested, inter alia, to order [Kurdistan] to [follow] the Constitution and the relevant laws by ceasing its illegal crude oil exports."). However, according to Iraq, Kurdistan has not accepted service of process or responded to summonses to appear and present its case to the federal Supreme Court. Id. at 6 ¶ 18. This refusal has essentially frozen Iraq's constitutional case, as there "is noprocedural mechanism to obtain a default judgment in a case before the [Iraqi] Supreme Court." Id. at 6 ¶ 19. Iraq therefore filed the instant case in support of its local proceedings. Id. at 8 ¶ 23. "Specifically, the purpose of the attachment is to secure satisfaction of the judgment that may ultimately be entered against [Kurdistan]." Id.

Iraq's amended complaint asserts three causes of action, under Rules B, C, and D of the supplemental admiralty rules. Id. at 8-10 ¶¶ 24-35. On August 4, 2014, Kurdistan filed a motion to vacate Judge Johnson's seizure order. Dkt. 8. Kurdistan's argument boils down to a single issue, namely whether admiralty jurisdiction is present to sustain Iraq's causes of action under the admiralty rules. See FED. R. CIV. P. SUPP. A(1)(A) ("These Supplemental Rules apply to the procedure in admiralty and maritime claims within the meaning of Rule 9(h). . ."). Kurdistan also attached, as an appendix to its motion, a "Statement of [Kurdistan] on Iraq's Claims" that presents allegations of law and fact contradicting Iraq's complaint. Dkt. 8, Ex. A.

Iraq responded to the motion with detailed arguments regarding Kurdistan's alleged maritime tort committed on June 22, 2014, when the cargo was transferred from Turkish possession in Ceyhan to the vessel on navigable waters in the Mediterranean Sea. Dkt. 13. Iraq also filed a motion to strike Kurdistan's appendix, alleging that it was an unsworn declaration submitted outside the court's normal procedures and constituted inadmissible hearsay. Dkt. 12.

The parties filed a reply and surreply regarding the motion to vacate, Dkts. 16-1, 18-1, and the court held an oral hearing on the motion on August 22, 2014. Dkt. 19. The motions are ripe for disposition.

II. LAW & ANALYSIS

Kurdistan's motion to vacate raises two primary issues: (1) whether it is premature for the court to hear vacatur arguments before an arrest of the cargo; and, if not, (2) whether the court has admiralty jurisdiction to sustain the order of seizure under the supplemental admiralty rules. The court considers each issue in turn.

A. Prematurity & Rule E(4)(f)

Kurdistan states in its motion to vacate that "[t]he Cargo has not yet been transshipped and brought into U.S. territory, but the KRG expects that it will enter the territorial jurisdiction of the Southern District of Texas in the near future." Dkt. 8 at 6. Iraq argues that because the cargo remains outside the court's jurisdiction and has not yet been arrested or seized, Kurdistan's motion to vacate is premature under Rule E(4)(f). Dkt. 13 at 6-8.

Rule E(4)(f) provides, in pertinent part:

Whenever property is arrested or attached, any person claiming an interest in it 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 or other relief granted consistent with these rules.

FED. R. CIV. P. SUPP. E(4)(f) (emphasis added). The court agrees that the language of Rule E(4) suggests that a motion to vacate is cognizable only upon an arrest or attachment. See Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 438 (2d Cir. 2006) (explaining that "the defendant has an opportunity under Rule E(4)(f) to . . . contest the attachment once its property has been restrained") (emphasis added), overruled on...