Jeremy A. Herchaft and Lauren B. Wilgus
Restraining maritime property ex parte within the district of a United States federal court represents a challenging and “high stakes” area of admiralty practice for the American maritime litigator. Given the significance of this unique type of litigation and its inevitable impact on maritime commerce, two preliminary questions are almost always asked by our foreign colleagues at the outset of conflict. First, once an arrest or attachment occurs, can the defendant respond with a wrongful arrest or attachment claim against the initiating plaintiff? Second, what is “counter-security,” and is it available in the United States to the defendant whose property has just been attached or seized? Both of these important questions will be addressed below.
The Opening Salvo: U.S. Maritime Attachment (“Rule B”) and Arrest (“Rule C”) Actions
One of the principal advantages of U.S. admiralty jurisdiction is the opportunity to utilize the distinctive U.S. maritime procedural devices of the “Rule B” attachment and “Rule C” arrest procedures. Rules B and C are the principal ways to restrain maritime property in the United States and, in turn, later serve as the basis for a potential wrongful arrest/attachment claim and counter-security demand. A brief explanation of each procedure is outlined below.
Rule B codifies the U.S. maritime attachment practice and allows the plaintiff to assert jurisdiction over property of a defendant who “cannot be found within the district” of a particular federal court by attaching her property that is coincidentally located in the district. Such property can be tangible (often a ship or cargo) or intangible (perhaps funds in a bank account). There are generally three reasons to attach property via Rule B: 1) to acquire jurisdiction in respect of claims against an absent defendant; 2) to obtain security for a claim; and 3) to seize property in connection with the enforcement of a foreign judgment. Ultimately, any Rule B judgment is limited to the value of the attached property, unless the defendant appears in the action.
In order to secure a writ of maritime attachment under Rule B, four prerequisites must be met: (1) the plaintiff must have a maritime in personam1 claim against the defendant; (2) the defendant cannot be found within the district in which the action is commenced; (3) property belonging to the defendant is present or will soon be present in the district; and (4) there must be no statutory or general maritime law prohibition to the attachment. If satisfied, the plaintiff will file a verified ex parte complaint with the court to attach the property at issue. In the event the court grants the ex parte attachment, the plaintiff will be required at the outset to post funds on deposit with the U.S. Marshal to cover their costs in effectuating the attachment and maintaining the property thereafter.2
Rule C codifies the U.S. maritime arrest practice and can only be used by a plaintiff who has a maritime lien on a defendant’s maritime property. There are many types of claims that give rise to maritime liens under U.S. law, and thus many causes of action that trigger the availability of the Rule C in rem arrest action. Like Rule B, the property must be within the district of the federal court at the time of the Rule C arrest.
The process for asserting the Rule C action is very similar to the Rule B description outlined above—the plaintiff will submit a verified ex parte complaint to the court in the district where the property is located, and will otherwise be required to post funds to cover the U.S. Marshal’s costs for arresting the property and maintaining custody of same thereafter. At the conclusion of the trial, the seized property may ultimately be sold at auction to satisfy the lien.
Returning Fire: The Defendant’s Potential Claim for “Wrongful” Arrest/Attachment
A claim for wrongful arrest or attachment was succinctly outlined almost 80 years ago in the landmark Fifth Circuit Court of Appeals decision of Frontera Fruit Co., v. Dowling.3 In that case, the plaintiff acted on the advice of counsel and arrested a vessel based upon an alleged maritime lien. The suit was dismissed for various reasons, and the party later arrested the vessel for a second time (again upon the advice of counsel) where it was subsequently determined that the plaintiff did not have a maritime lien on the ship. The defendant vessel interests sued the arresting plaintiff for wrongful arrest.
Upon review of the case, the Fifth Circuit held “the gravamen of the right to recover damages for wrongful seizure or detention of vessels is the bad faith, malice, or gross negligence of the offending party.”4 The court said the rationale for awarding damages in such cases was “analogous to those in cases of malicious prosecution.” Indeed, the Frontera court recognized that even though the plaintiff counsel’s advice had proven to be erroneous, the arrest action itself was not asserted against the defendant in bad faith and that “the advice of competent counsel, honestly sought and acted upon in good faith is alone a complete defense to an action for malicious prosecution.”5 Thus, the bar for asserting a successful wrongful arrest claim was set very high by the Frontera court—a defendant’s commercial annoyance with the arrest or sincere frustration ex post facto that its asset has been seized will not rise to the level of “wrongful” without corollary evidence of bad faith, malice, or gross negligence on the part of the arresting party.6 In sum, a plaintiff does not wrongfully restrain maritime property by asserting a bona fide claim “to protect its interest.”7
Numerous courts, including courts in the Second and Fifth Circuits, have interpreted and applied the Frontera rationale, and the current state of U.S. maritime law provides for a claim of wrongful arrest/attachment in only limited instances upon the heightened showing of bad faith, malice, or gross negligence, with corresponding damages, which may include a claim for attorneys’ fees.8 The burden of proof in asserting a wrongful arrest claim lies with the party alleging the wrongful arrest.9 If proven, a wrongful arrest or attachment will be vacated by the court and provable damages may be awarded to the defendant whose property has been wrongfully restrained. Courts will specifically infer bad faith where there is a total lack of probable cause for a plaintiff’s arrest, although the “probable cause” standard itself has not been defined with perfect clarity.10 As such, legitimate disputes between the parties about the underlying maritime claim will probably not be enough to pass over the heightened “wrongful” arrest threshold.
The Parting Shot: “Counter-Security” in the U.S. Maritime Litigation
The word “counter-security” has different meanings throughout the maritime legal world, which may cause confusion to foreign counsel and clients when appreciating the U.S. meaning of that term in the context of a maritime arrest/attachment. In some foreign jurisdictions, counter-security is understood to mean a deposit of funds that the plaintiff must provide to the court before the arrest occurs to cover potential liabilities for a wrongful arrest. However, U.S. courts do not require the arresting plaintiff to post pre-attachment or arrest funds to cover against a potential future wrongful arrest/attachment claim. All that is required of the U.S. plaintiff at the start of the Rule B or Rule C action is to provide the U.S. Marshal with funds to cover the administrative costs of the arrest or attachment until such time as a substitute custodian can be appointed or the matter is resolved.
Where the defendant has a separate, but related cause of action against the arresting plaintiff, for example, where a defendant claims that the plaintiff herself breached a maritime contract that forms the underlying basis of the dispute and arrest, the defendant may assert a “counterclaim” against the plaintiff. Under Supplemental Admiralty Rule E(7), if a defendant asserts a counterclaim against a plaintiff arising out of the same “transaction or occurrence” as the original claim, the plaintiff must give “counter-security” for the damages demanded in the defendant’s counterclaim unless the court, for cause shown, directs otherwise. Courts, however, have generally held that a claim for wrongful arrest does not arise out of the same “transaction or occurrence” as the original claim and, therefore, countersecurity is not required. In sum, this procedural illustration demonstrates that the U.S. version of counter-security is unique; it speaks to the defendant’s separate counterclaim against the plaintiff and is posted by the plaintiff (if at all) after the arrest/attachment occurs in response to the defendant’s counterclaim.
Whether you act on behalf of the sword or stand in defense via the shield, it is important to appreciate how maritime wrongful arrest and attachment actions and “counter-security” are specifically addressed in U.S. maritime courts. A working knowledge of both concepts will assist the client and foreign lawyer alike when they find themselves (and their or their adversary’s valuable maritime property) in troubled American waters.
1. In personam refers to courts’ power to adjudicate matters directed against a party, as distinguished from in rem proceedings over disputed property.
2. The initial amount that is required to cover the U.S. Marshal’s costs for a Rule B action in the Southern District of Texas is $10,000, which must be replenished in equal increments depending on the length of the action as funds are drawn down by the Marshal — all unused funds are eventually returned to the arresting party. The $10,000 deposit is also required for a Rule C arrest, discussed below.
In the Southern District of New York, the U.S. Marshal requires an initial deposit of $2,000 for Rule B attachments and Rule C arrests. This initial fee covers the U.S. Marshal’s fee for the day and the fee for liability insurance, which must be replenished as the funds are drawn down. In addition, if the arresting/attaching party does not appoint a substitute custodian, the U.S. Marshal requires an additional deposit of $6,000 per week.
3. 91 F. 2d 293, 297 (5th Cir. 1937); see Result Shipping Co. v. Ferruzzi Trading USA, Inc., 56 F.3d 394, 402 n.5 (2d Cir. 1995) (citing Frontera Fruit Co., v. Dowling with approval); see also Sea Trade Mar. Corp. v. Coutsodontis, 2011 U.S. Dist. LEXIS 80668 (S.D.N.Y. July 25, 2011).]
4. Emphasis supplied.
5. Id.; see Sea Trade Mar. Corp., 2011 U.S. Dist. LEXIS 80668 at *29 citing Markowski v. S.E.C., 34 F.3d 99, 105 (2d Cir. 1994)(“To invoke an advice of counsel defense in the Second Circuit, a party must ‘show that he made a complete disclosure to counsel, sought advice as to the legality of his conduct, received advice that his conduct was legal, and relied on that advice in good faith.’”)
6. See, e.g., Parsons, Inc. v. Wales Shipping Co., 1986 U.S. Dist. LEXIS 20710, 1986 WL 10282, at *3 (S.D.N.Y. Sept. 9, 1986) (dismissing a counterclaim for wrongful attachment due to counterclaimant’s failure to demonstrate bad faith).
7. Cardinal Shipping Corp., v. M/S Seisho Maru, 744 F. 2d 461, 475 (5th Cir. 1984); see also Yachts for All Seasons, Inc. v. La Morte, 1988 U.S. Dist. LEXIS 15399 (E.D.N.Y. Dec. 30, 1988) (“In order to collect attorneys’ fees, the party must prove that the seizing party acted in bad faith, with malice or with a wanton disregard.” citing Cardinal Shipping Corp., 744 .2d 461 at 474).
8. Cardinal Shipping Corp., 744 F.2d at 474; see Allied Mar., Inc. v. Rice Corp., 2004 U.S. Dist. LEXIS 20353 (S.D.N.Y. 2004) (court denied request for attorney’s fees because there has been no showing that plaintiff acted in “bad faith”).
9. Id.; see Result Shipping Co. v. Ferruzzi Trading USA, Inc., 56 F.3d 394, 402 n.5 (2d Cir. 1995).
10. See El Paso Prod. Gov., Inc. v. Smith, 2009 WL 2990494 (E.D. La. Apr. 30, 2009).