Shipping Financial Services Corp. v. Drakos, Docket No. 97-7034

Citation140 F.3d 129
Decision Date20 March 1998
Docket NumberDocket No. 97-7034
PartiesSHIPPING FINANCIAL SERVICES CORPORATION, Plaintiff-Appellant, v. William J. DRAKOS, Duke Petroleum Transport Corporation and OMI Petrolink Corporation, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Frederick A. Lovejoy, Lovejoy & Associates, Westport, CT (Steven P. Calkins, Steven P. Calkins & Associates, P.C., New York City, of counsel), for Plaintiff-Appellant Shipping Financial Services Corporation.

James P. Rau, New York City (Cardillo & Corbett, New York City, of counsel), for Defendants-Appellees William J. Drakos and Duke Petroleum Transport Corporation.

Simon Harter, New York City (Susan Emma Olick, Healy & Baillie, LLP, New York City; John W. Wall, Healy & Baillie, Stamford, CT, of counsel), for Defendant-Appellee OMI Petrolink Corporation.

Before: CARDAMONE, LEVAL, Circuit Judges, and KOELTL, * District Judge.

CARDAMONE, Circuit Judge:

Shipping Financial Services Corporation (Shipping Services), a maritime brokerage company, appeals from a judgment of the United States District Court for the District of Connecticut (Dorsey, C.J.) dismissing its complaint for lack of subject matter jurisdiction. The complaint asserted federal maritime jurisdiction over an alleged breach of a charter party brokerage contract.

Drafting a complaint to come within the harbor of admiralty jurisdiction requires careful navigation. Historically, charter party brokerage contracts have been barred entry to this port by the preliminary contract doctrine, a per se rule providing that contracts for services leading up to the formation of a maritime contract are not entitled to maritime jurisdiction. The Supreme Court recently decided that another historical per se rule, the exclusion for agency contracts from admiralty jurisdiction, should no longer be applied, while leaving open the future of the preliminary contract doctrine. While the continued viability of this doctrine may ultimately need to be decided, this case does not call for such resolution because regardless of the status of the doctrine, plaintiff has failed to establish how the charter party brokerage contract at issue is maritime in nature. Hence, we affirm the district court's dismissal of plaintiff's complaint.


The contract at the center of this legal storm relates to the subchartering of a vessel named the M/V RICH DUKE. In 1984 LQM Associates acted as brokers between the Japanese owners of that vessel and defendant Duke Petroleum Transport Corporation (Duke Petroleum). As a result of these services, Duke Petroleum signed a 12-year charter party, i.e., an agreement to charter the vessel. One of the conditions of the agreement obligated Duke Petroleum to purchase the M/V RICH DUKE at the expiration of the charter party in mid-1998. The price was set in the contract at $2 million. Fortunately for Duke Petroleum, the parties now anticipate that the aptly named vessel will be worth between $20 and $25 million in 1998. What is good news for Duke Petroleum is distressing news to the owners who, according to plaintiff, have engaged in activities aimed at frustrating Duke Petroleum's operation of the M/V RICH DUKE and encouraging Meanwhile, one of the principals of LQM Associates formed plaintiff Shipping Services as a ship brokerage outfit. In 1994 plaintiff is alleged to have helped defendant William J. Drakos (Drakos) obtain a 50 percent interest in the M/V RICH DUKE charter. Due to the difficulties they encountered in operating the vessel, defendants Duke Petroleum and Drakos are alleged to have contacted Shipping Services to request that it find a subcharter for the remaining years of the original charter. Plaintiff believed the Gulf of Mexico lighterage trade offered the best prospects. In June 1995, with the authority of both defendants, plaintiff contacted defendant OMI Petrolink Corporation (OMI), which operates lightering vessels in the Gulf, regarding the possibility of entering into a subcharter. After requesting and receiving information regarding the M/V RICH DUKE, OMI told plaintiff it was not interested in chartering the vessel. While plaintiff continued to explore other subchartering options, OMI entered into a subcharter with defendants Duke Petroleum and Drakos through OMI's broker, causing Shipping Services to lose an anticipated commission.

the vessel's return to them prior to the 1998 expiration of the charter.

As a result, on February 21, 1996, plaintiff filed this breach of contract suit in federal court, claiming admiralty jurisdiction pursuant to 28 U.S.C. § 1333. The complaint, which alleged both breach of contract and unjust enrichment causes of action, named Duke Petroleum and Drakos as defendants. The complaint also alleged a cause of action for tortious interference with a business relationship/business opportunity against defendant OMI. The district court ruled that the charter party brokerage agreement allegedly formed between plaintiff and defendants Duke Petroleum and Drakos did not come within admiralty jurisdiction because the preliminary contract doctrine precluded such jurisdiction. Following defendants' successful motions to dismiss the complaint on that basis, plaintiff brought this appeal.

I Standard of Review

A ruling that admiralty jurisdiction does not exist is subject to de novo review. See Atlantic Mut. Ins. Co. v. Balfour Maclaine Int'l Ltd., 968 F.2d 196, 198 (2d Cir.1992). When considering a motion to dismiss for lack of subject matter jurisdiction or for failure to state a cause of action, a court must accept as true all material factual allegations in the complaint. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). But, when the question to be considered is one involving the jurisdiction of a federal court, jurisdiction must be shown affirmatively, and that showing is not made by drawing from the pleadings inferences favorable to the party asserting it. Norton v. Larney, 266 U.S. 511, 515, 45 S.Ct. 145, 147, 69 L.Ed. 413 (1925).

II Agency Contracts and the Exxon Decision

Before reaching the merits, we must first review the history of agency contracts in maritime law and changes in that law brought about by the Supreme Court's decision in Exxon Corp. v. Central Gulf Lines, Inc., 500 U.S. 603, 111 S.Ct. 2071, 114 L.Ed.2d 649 (1991). Admiralty jurisdiction is afforded under 28 U.S.C. § 1333(1), granting district courts original jurisdiction over "[a]ny civil case of admiralty or maritime jurisdiction...." With no more guidance than that, federal courts have been left to interpret the extent to which maritime jurisdiction includes contract claims.

Well over a century ago, the Supreme Court decided in Minturn v. Maynard, 17 How. (58 U.S.) 477, 15 L.Ed. 235 (1854), that admiralty jurisdiction did not extend to what was essentially the demand of an agent for the payment of sums owed by its principal. The Court believed there was nothing maritime in a suit over "money paid, laid out, and expended ... in paying for supplies, repairs, and advertising of [a] steamboat." Id. at 477. Minturn was subsequently interpreted in this Circuit to mean that agency contracts were per se excluded from admiralty jurisdiction. See, e.g., Admiral Oriental Line v. United States, 86 F.2d 201, 203 (2d Cir.1936); Peralta Shipping Corp. v. Smith & Johnson (Shipping) Corp., 739 F.2d 798, 803 (2d Cir.1984) Exxon, which came to the Supreme Court from this Circuit, overruled Minturn and eliminated the per se exclusion. At issue in the case was jurisdiction over a marine fuel requirements contract in which Exxon agreed to supply fuel to a corporation's vessels, either directly at ports where Exxon had its own supplies, or by contract at those ports where Exxon had to rely on local suppliers. See Exxon, 500 U.S. at 605, 111 S.Ct. at 2073. When Exxon sued for payment under the contract, the district court for the Southern District of New York permitted Exxon's claim as direct supplier to come under admiralty jurisdiction. But it denied jurisdiction over the claim involving Exxon as agent, citing Peralta and that opinion's reliance on Minturn. See Exxon Corp. v. Central Gulf Lines, Inc., 707 F.Supp. 155, 159-61 (S.D.N.Y.1989). After the district court denied a rehearing, 717 F.Supp. 1029 (S.D.N.Y.1989), we summarily affirmed the limitations on admiralty jurisdiction. See Exxon Corp. v. Central Gulf Lines, 904 F.2d 33 (2d Cir.1990). The Supreme Court thereupon granted certiorari.

, cert. denied, 470 U.S. 1031, 105 S.Ct. 1405, 84 L.Ed.2d 791 (1985).

In an opinion written by Justice Marshall, the Court stated first that the "fundamental interest" giving rise to admiralty jurisdiction is "the protection of maritime commerce." Exxon, 500 U.S. at 608, 111 S.Ct. at 2074-75. It then analyzed the underlying rationales of Minturn to determine their validity in light of this fundamental interest. Two explanations were identified: (1) a demand for payment of monies owed could be heard readily at common law but not under admiralty jurisdiction; and (2) the vessel owners in Minturn had not pledged the vessel as security for the balance of accounts between the agent and principal and therefore the contract could not be deemed maritime in nature. See Exxon, 500 U.S. at 609, 111 S.Ct. at 2075.

The Court then turned to subsequent case law and found that each of these rationales had since been discredited. See id. at 610, 111 S.Ct. at 2075-76. Concluding that Minturn was no longer good law, the Court stated that "the trend in modern admiralty case law ... is to focus the jurisdictional inquiry upon whether the nature of the transaction was maritime." Id. at 611, 111 S.Ct. at 2076. It expressed a preference for a "nature and subject-matter" approach as being the "crucial consideration" in determining whether admiralty jurisdiction exists, and warned that "[i]t is...

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