Risks Attendant to U.S. Rule B Alter-Ego Vessel Seizures

Keith B. Letourneau

A recent wave of vessel seizures premised on alter-ego theories has swept through various U.S. federal courts. These cases present significant risks for vessel owners and ship managers, even if the underlying claims are ultimately defensible. Plaintiffs employ Supplemental Admiralty Rule B as the procedural device to seize vessels as an asset of the target defendant. Rule B requires a prima facie showing that the defendant is not present within the district to satisfy the existence of general-personal jurisdiction. The Supreme Court’s general jurisdiction ruling in Daimler AG v. Bauman, 134 S.Ct. 746 (2014), has made it much easier to meet Rule B’s requirement because such jurisdiction is now predicated upon proof that the defendant’s systematic and continuous contacts render it essentially at home within the district, effectively requiring its principal place of business to lie within the district. Given the peripatetic existence of merchant ships and their ownership—often by single ship-owning companies incorporated within flag-of-convenience countries—satisfying Rule B’s “presence within the district” standard now is nearly automatic.

Plaintiff Strategies

Plaintiffs couple Rule B’s easy compliance with alter-ego allegations that the ship manager or ship-owning group are dominated and controlled by a single individual or entity to the disadvantage of the plaintiffs and that the target defendant is but a corporate extension of the company with whom the plaintiffs’ real dispute exists (and that dispute may have absolutely no connection with the United States). Supplemental Admiralty Rule E(4)(f) permits a defendant whose property has been seized to an immediate post-seizure hearing. While the federal courts are not aligned as to the standard that applies at such a hearing, it is fair to say that plaintiffs are required, at minimum, to meet the probable-cause test, which equates to reasonable grounds for supposing the allegations are well founded.

Continue reading “Risks Attendant to U.S. Rule B Alter-Ego Vessel Seizures”

Mainbrace Live: U.S. Maritime Litigation Trends

Blank Rome’s internationally recognized Maritime & International Trade practice group presents a new series of informative webinars covering hot topics in the shipping industry and key insights into 2021 and beyond. Sessions will cover:

    • Sanctions and international trade
    • Offshore wind developments
    • Shipping litigation
    • Maritime regulation
    • Ship finance
    • And more!

For the third webinar in our Mainbrace Live series, Blank Rome LLP attorneys William R. Bennett, IIILauren B. WilgusJeremy A. HerschaftZachary J. Wyatte, and Noe S. Hamra presented “U.S. Maritime Litigation Trends” on Tuesday, May 18, 2021.

Bill, Lauren, Jeremy, Zach, and Noe discussed:

    • 1782: Purpose and criteria 
    • Judgment enforcement: Arrest, attachment, and more 
    • Timeline of a federal case: From complaint to trial, discovery, etc. 
    • Spill investigations: Practical “boots on the ground” information

MODERATOR

PRESENTERS

To watch a recording of this webinar, please go to the webinar on-demand registration page here.

Offshore Wind Will Need Support Vessels – What Form Are You Going to Use?

Keith B. Letourneau and Douglas J. Shoemaker

As the United States develops offshore wind capacity, the need for vessels to support the industry for installation and maintenance will rapidly expand. While it may seem perfectly logical for the industry to adopt the BIMCO WINDTIME form, the SUPPLYTIME 2005 form is more common and generally known to the U.S. service and supply-vessel industry. In any case, we wholly expect that there will be a good deal of modifications to any form or perhaps use of bespoke agreements as the work comes online. We review here the various forms available and look at particular terms and issues we expect to be the subject of specific negotiation and modification.

SUPPLYTIME: Then and Now

The SUPPLYTIME form was first developed in 1975 to meet the rising demand for specialty vessels to support offshore oil and gas exploration and production. This form and its progeny became the leading time-charter terms for offshore-support vessels, and its use has spread beyond the oil and gas industry to include cable and pipe laying, seismic work, anchor handling, surveying, ROV and dive support, and other offshore and near-shore construction work. While there is a 2017 version of the SUPPLYTIME, it hasn’t been widely adopted in the United States, particularly since it came out after the substantial decrease in offshore oil and gas activity. (Interestingly, the drafting committee that developed the WINDTIME form differed from the SUPPLYTIME 2017 committee, and the difference is noticeable.) As for the U.S. offshore marine service and support industry, it appears that the SUPPLYTIME 2005 version remains prevalent at this time. (Obviously, any SUPPLYTIME form used with respect to the offshore wind industry would need to be logically amended to change oil and gas industry references to the appropriate wind-industry terms. For example, the term “offshore unit” in the SUPPLYTIME 2017 form is defined as “any vessel, offshore installation, structure and/or mobile unit used in offshore exploration, construction, pipe-laying or repair, exploitation or production.” There are also repeated reference to the defined term “well”.)

At the heart of the SUPPLYTIME form since the 1989 version came into play is a “knock-for-knock” indemnity provision, allocating liability regardless of fault with each party indemnifying the other for the injury or death of its personnel and for the loss of or damage to its property—without recourse. Initially, this was a difficult concept to accept in the United States—the idea that a party must indemnify another for a loss even though the loss was caused solely by the fault of the other party was a hard pill to swallow. However, in practice, the industry found it far more efficient for the parties to provide insurance for their own people and their own property and simply name the other party as an additional assured, rather than litigate every loss with each party claiming the other was at least partially to blame. The knock-for-knock indemnity concept is particularly efficient where a project involves a number of offshore contractors and all the parties agree to the same allocation of liability.

SUPPLYTIME vs. WINDTIME

The WINDTIME form, introduced in 2013, was primarily intended for offshore wind farm personnel transfer and support vessel services and was largely adopted from the SUPPPLYTIME 2005. Key differences from the SUPPLYTIME 2005 include:

  • the WINDTIME form expressly encompasses an indemnitee’s gross negligence, as well as simple negligence in the knock-for-knock indemnity obligations, but excludes intentional or willful misconduct, while the SUPPLTIME 2005 form only expressly addresses the indemnitee’s negligence;
  • the SUPPLYTIME 2005 form is more owner-friendly concerning cancellation with no provision for the recovery of damages; and
  • the WINDTIME form includes a broader waiver of consequential damages encompassing subcontractors.

It has been reported that the committee drafting the WINDTIME form initially considered, but quickly abandoned, the idea of including contract terms appropriate for installation vessels. We understand that industry practices for installation vessels were considered too varied and complex to reach consensus. Thus, the better option for installation vessels may be a SUPPLYTIME 2005 particularly modified to allocate liabilities and responsibilities, or a bespoke contract. Continue Reading

Analyzing Maritime (or Non-Maritime) Contracts and Practical Considerations for Litigation Strategy

William R. Bennett, III, Charles S. Marion, and Anthony Yanez

In many civil disputes, the application of choice of law principles as well as the jurisdiction in which the lawsuit is filed can have a significant impact on the outcome of a case. This is especially true where one of the parties conducts business in the maritime industry and the other does not. Some parties may prefer that state law be applied to the dispute because of a favorable state statute (such as a statute of limitations) or because the state’s courts have rendered decisions that support the parties’ position on a substantive issue. Others may prefer that federal law apply where it is more advantageous to a party given the facts of the case. Of course, some parties prefer to litigate in federal court rather than state court, or vice versa, for cost or other reasons.

There is a small subset of cases in which the question of whether maritime or admiralty law should be applied arises. One of the most significant decisions addressing that question is Norfolk Southern R. Co. v. James N. Kirby Pty, Ltd., 543 U.S. 14 (2004). In Kirby, the U.S. Supreme Court held that the liability of a rail carrier that transported over land cargo that was brought to the United States from Australia on board ships, through bills of lading calling for carriage from Australia to Huntsville, Alabama, via the Port of Savannah, Georgia, for damage to the cargo that occurred during that leg of the journey should be determined by applying maritime law, because the entire contract of carriage, and not just the ocean segment of it, constituted a maritime contract. More specifically, the court in Kirby determined that the default liability rule in the Carriage of Goods by Sea Act (“COGSA”) ($500 per package) applied to a train wreck that allegedly caused $1.5 million in damages. Continue reading “Analyzing Maritime (or Non-Maritime) Contracts and Practical Considerations for Litigation Strategy”

Anatomy of a Marine Casualty Investigation

William R. Bennett III and Lauren B. Wilgus

Blank Rome’s maritime attorneys have represented clients in some of the largest maritime casualties in the last 20 years, including the Staten Island Ferry allision with a maintenance pier in New York, the blow out and eventual loss of the Deepwater Horizon drilling rig in the Gulf of Mexico, the sinking of the El Faro during Hurricane Joaquin, and the collision between the Navy Destroyer USS John S. McCain and the tanker ALNIC MC in the Singapore Strait. These casualties have resulted in the catastrophic loss of life, significant personal injuries, damage to the environment, and property damage.

Our experience investigating and providing legal representation for clients because of these casualties has shown that, despite decades of implementing international safety protocols, advancements in ship design, and an industry-wide focus and dedication to improved safety, marine casualties will continue to occur; maybe not as often, but they will happen. And following all the safety protocols put in place may not be enough to avoid a casualty. Simply put, large vessels transiting the world’s oceans subjects them to influences beyond their control and creates the inherent risk of a casualty occurring.

Obviously, the shipping industry’s primary goal should always be to have zero lost days due to accidents. But, equally, the industry should also always be prepared to immediately respond to and investigate unfortunate events when they occur. In this regard, it is critical to understand the investigative process that occurs when there is a significant marine casualty.

First, it is important to note that although not required, it is not unusual for the National Transportation Safety Board (“NTSB”) and the United States Coast Guard (“USCG”) to coordinate, in part, their efforts to investigate and establish the root cause of a marine casualty. The process by which the NTSB and USCG investigate a casualty are similar in many ways, but different in some key areas. And recommendations made by the NTSB and/or the USCG, if any, following the conclusion of their respective investigations, differ in scope. Continue reading “Anatomy of a Marine Casualty Investigation”

U.S. Supreme Court Issues Safe Berth Warranty Decision

Jeffrey S. Moller

The final decision in the ATHOS I saga has recently been issued by the U.S. Supreme Court, upholding the decision of the U. S. Court of Appeals for the Third Circuit to the effect that a plain reading of the language found in the ASBATANKVOY charter form creates a warranty of safety rather than merely a duty of due diligence.

OPERATIVE FACTS

The facts were these: the voyage charterer of the fully laden tanker ATHOS I was also the owner of the refining complex in Paulsboro, New Jersey, which the vessel was approaching when its (single skin) hull was torn open by an anchor that had been lost/abandoned by some unknown vessel. The anchor was lying on the bottom of a federally-maintained anchorage ground through which the ship had to transit on its way to the berth from the federally-maintained ship channel. The anchor, which had not been previously discovered or removed by the U.S. Army Corps of Engineers, had evidently laid on the bottom with its flukes down for at least three years, during which time many ships had passed over it without incident. But, at some time prior to the ATHOS’ arrival, the anchor was somehow flipped over so that its flukes could be in position to rake the ATHOS I’s hull and tear open a number of its cargo tanks. ATHOS I’s cargo was Venezuelan heavy crude oil, which the charterer/wharfinger was importing to use in making asphalt. Because the anchorage was maintained by the federal government, the charterer/wharfinger had never expected that the anchorage would have obstructions within it so, although passage through the anchorage en route the berth commonly involved passage through the anchorage, the charterer/wharfinger never took steps on its own to conduct sonar surveys. An estimated 263,000 gallons of Venezuelan crude oil was released into the Delaware River when ATHOS I was punctured, giving rise to enormous (U.S. $180 million+) cleanup and business interruption expenses.

The vessel was the subject of two charter parties. The first was a time charter between the vessel’s owner and a fleet operating entity under which the latter agreed to exercise “due diligence” to ensure that the vessel was only sent to “safe places.” The time charterer then subchartered the vessel under a voyage charter to the operator of the Paulsboro refinery on the ASBATANKVOY form, which contained a “safe berth” or “safe berth” warranty that was not expressly limited to the exercise of due diligence. The owner of the ship was not a direct party to this subcharter. The owner of the ship remained its operator and was therefore the responsible party for the consequences of the oil spill under the Oil Pollution Act of 1990.

The origin of the anchor being unknown, the shipowner sued the charterer/wharfinger for breaches of both the contractual “warranty of safe berth” (Charterer “shall select . . .always safely afloat”) found in the ASBATANKVOY charter party and of the maritime law duty of care to properly maintain its berth and the approach(es) thereto. The United States was a party to the suit both for recovery of funds from the national Oil Spill Liability Trust Fund, which had made partial reimbursement payments to the innocent ATHOS I and her underwriters, and as the subject of a counterclaim for having failed to properly maintain the anchorage.

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Arbitrating Maritime Disputes

Thomas H. Belknap, Jr. and Douglas J. Shoemaker

When parties negotiate and draft maritime contracts, they inevitably consider whether, and if so, how, to define the process for dispute resolution. While arbitration is practically universal in “blue-water” charterparties, it is also common in other maritime agreements, such as vessel sale, construction and repair, supplies, commodity sale, towing, stevedoring, and terminal agreements, among many others. Even though some parties and lawyers generally oppose arbitration, the “pros” often outweigh the “cons,” and most specific concerns can be resolved by careful drafting of the arbitration provision. As stated by the U.S. Supreme Court, arbitration “is a matter of consent, not coercion.” Stolt–Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 681 (2010). Parties may structure their arbitration agreements as they see fit.

Efficiency and Flexibility

Perhaps the most important consideration for any commercial party is that an arbitration is (or should be) more efficient than litigation. Arbitrations tend to be quicker and less costly. While it is true that the parties must pay for the arbitrators’ time, this is offset by the streamlined and more flexible process. Unlike some of the broader international arbitration organizations (such as the International Chamber of Commerce and American Arbitration Association), the established maritime arbitration organizations (e.g., the Society of Maritime Arbitrators (“SMA”) of New York and the Houston Maritime Arbitration Association (“HMAA”)) do not impose administrative fees. Continue reading “Arbitrating Maritime Disputes”

Gulf Coast Update: Applying Doiron for Assessing Maritime Contracts Outside the Oilfield Services Arena

David G. Meyer

Whether a particular contract is “maritime” is a legal question that can often arise in disputes subject to potential adjudication in the U.S. court system. There can be several reasons for this. One concerns determining whether a civil action can be heard in federal court versus state court. If a maritime contract is at issue, a case might be litigated in federal instead of state courts, and/or a plaintiff might have the ability to file an action in federal court for a pre-judgment arrest or attachment of a vessel or other property of a defendant.

While a seemingly simple question, courts and litigants have long struggled with assessing whether or not a particular contract is a maritime one. In 2004, in an effort to provide clarity and guidance on the issue, the U.S. Supreme Court issued its decision in Norfolk v. Kirby in which it held:

“To ascertain whether a contract is a maritime one, we cannot look to whether a ship or other vessel was involved in the dispute, as we would in a putative maritime tort case. Nor can we simply look to the place of the contract’s formation or performance. Instead, the answer depends upon … the nature and character of the contract, and the true criterion is whether it has reference to maritime service or maritime transactions.1

The Fifth Circuit Court of Appeals’ Test for Assessing Whether a Contract Is Maritime

The U.S. Fifth Circuit Court of Appeals’ jurisdiction includes the states that generate the majority of oil and gas drilling, exploration, and production activities in the United States’ inshore and offshore waters off the Gulf of Mexico (Texas, Louisiana, and, to a lesser extent, Mississippi and Alabama). It is common practice in that industry for service contracts to contain provisions assigning defense, indemnity, and additional insured obligations between the contracting parties for casualties that occur in the course of work under the contract. Continue reading “Gulf Coast Update: Applying Doiron for Assessing Maritime Contracts Outside the Oilfield Services Arena”

Enforcing and Challenging Maritime Arbitral Awards in the United States

Thomas H. Belknap, Jr.

When we speak of maritime arbitral awards in the United States, we could mean one of three kinds: 1) “domestic” awards, 2) “nondomestic” awards, or 3) “foreign” awards. This distinction is important, because it controls what law applies to matters of recognition and enforcement. To understand the source and importance of these distinctions, we must start with the Federal Arbitration Act (“FAA”).[1]

The FAA and the New York Convention

The FAA is in three chapters. Chapter 1 is titled “General Provisions,” and it applies generally except where there is a conflict with a provision of one of the other applicable chapters. Chapter 2 is titled “Convention on the Recognition and Enforcement of Foreign Arbitral Awards” and is the implementing legislation for the international treaty of the same name (also called the “New York Convention”), to which the United States is a party.

Chapter 1 of the FAA expressly defines “maritime transactions” to mean “charter parties, bills of lading of water carriers, agreements relating to wharfage, supplies, furnished vessels or repairs to vessels, collisions, or any other matters in foreign commerce which, if the subject of controversy, would be embraced within admiralty jurisdiction.” Section 2 of the FAA states that a “written” arbitration agreement “in any maritime transaction or a contract evidencing a transaction involving commerce…shall be valid, irrevocable, and enforceable” on the same basis as any other contract term. Continue reading “Enforcing and Challenging Maritime Arbitral Awards in the United States”

Removal of Maritime Claims: Is There Still a Conflict?

Noe S. Hamra

In the United States, state and federal courts operate on a dual track, with the difference that state courts are courts of “general jurisdiction” (i.e., hearing all cases not specifically reserved to federal courts), while federal courts are courts of “limited jurisdiction” (i.e., hearing cases involving “diversity of citizenship” or raising a “federal question”). In some cases, however, a defendant found in state court can transfer the case to federal court (also known as “removal”).

Until recently, it was well established that general maritime claims could not be removed from state court based solely on the federal court’s admiralty jurisdiction under 28 U.S.C. § 1333. Section 1333(1), also known as the saving-to-suitors clause, provides “[t]he district courts shall have original jurisdiction, exclusive of the courts of the States, of: (1) Any civil case of admiralty or maritime jurisdiction, saving to suitors in all cases all other remedies to which they are otherwise entitled….” Continue reading “Removal of Maritime Claims: Is There Still a Conflict?”