Blank Rome Wins Lloyd’s List 2016 Maritime Legal Services Award

Mainbrace | June 2016 (No. 3)

Blank Rome was recognized as the winner of the Lloyd’s List 2016 North American Maritime Award for Maritime Services – Legal” at the Lloyd’s List awards ceremony held on May 19, 2016, at Pier Sixty, in New York, NY. The maritime services award, as stated by Lloyd’s List, is awarded “for exceptional achievement or contribution to any service sector of the North American maritime industry by a company, individual or organisation.”

“We are very proud that for the second year, Lloyd’s List has honored us for the legal services we provide to our clients. In selecting Blank Rome for this highly prestigious award, Lloyd’s List’s panel of judges recognized that we offer a range and breadth of shipping knowledge to clients that is unmatched among U.S.-based law firms,” said John D.  Kimball, co-chair of the Firm’s maritime practice group.

 “We continue to be most grateful to Lloyd’s List for this recognition two-years in a row. We are delighted that our efforts to build and maintain a team-oriented national practice to handle all of the needs of our clients has been high- lighted again,” added maritime co-chair Jonathan K. Waldron.

This year’s annual awards event attracted more than 300 maritime industry representatives and celebrated the success of the North American maritime industry. For a full list of winners, please visit http://ibiawards.com/north-america/.

Former U.S. Energy Secretary & DOE Chief of Staff Join Blank Rome Government Relations

Mainbrace | June 2016 (No. 3)

Blank Rome Government Relations LLC (“BRGR”) is pleased to announce that the Honorable Spencer Abraham, former U.S. Secretary of Energy and former U.S. Senator from Michigan, and Joseph P. McMonigle, former Vice-Chairman of the International Energy Agency and former Chief of Staff at the U.S. Department of Energy, have joined Blank Rome Government Relations as Principals in the Washington, D.C., office. Continue reading “Former U.S. Energy Secretary & DOE Chief of Staff Join Blank Rome Government Relations”

Meet Blank Rome’s Government Contracts Practice

Mainbrace | June 2016 (No. 3)

Government contracting can be a maze. We’ll be your guide.

David M. Nadler and Brian S. Gocial

Regular readers of Mainbrace know that Blank Rome LLP has the largest and most comprehensive maritime legal practice in the United States, providing unparalleled knowl- edge and counsel to our maritime industry clients. With the recent addition of more than 100 attorneys from Dickstein Shapiro LLP’s New York and Washington, D.C., offices, Blank Rome now offers our maritime clients a nationally recog- nized, full-service government contracts practice with a deep bench of dedicated professionals who can assist our maritime clients in navigating the increasingly competitive world of contracting with the U.S. government. From bid protests, claims, dispute resolution, and litigation, to cyber- security, government audits and investigations, False Claims Act cases, mandatory disclosure issues, and suspension and debarment, Blank Rome’s attorneys can assist our maritime industry clients with the complex regulatory matters facing government contractors today in all aspects of government contracts, from contract formation through close-out.

Our Team and Multidisciplinary Capabilities

Led by Practice Chair Dave Nadler, a former Navy lawyer, Blank Rome’s government contracts practice features more than 20 attorneys focused on government contracts law and litigation who regularly deal with the U.S. Navy’s Military Sealift Command, U.S. Army’s Military Surface Deployment and Distribution Command, United States Coast Guard, Defense Logistics Agency Land and Maritime, United States Maritime Administration, Environmental Protection Agency, and other government agencies. Our government contracts team works closely with Blank Rome’s maritime and complementary national practices, including government relations, insurance coverage, labor and employment, white collar defense and investigations, and mergers and acquisitions, providing a broad base of knowledge and full range of experience to serve the maritime industry.

Our collective pool of talent encompasses a wide variety of backgrounds, including former U.S. Coast Guard and Navy officers, representatives and senior staff from  congressional committees, and high-level officials of the U.S. Maritime Administration, U.S. Customs and Border Protection, U.S. Securities and Exchange Commission, and the National Oceanic and Atmospheric Administration. Our government contracts attorneys understand the interplay between law and politics, and coordinate strategies with  Blank Rome Government Relations LLC to help clients anticipate and take advantage of the issues and opportunities that affect the maritime industry. Our team approach focuses on bringing the right resources and counsel to resolve our clients’ issues, whether it be advising on a new regulatory development or guiding a client through a bet- the-company government investigation.

Our Recent Noteworthy Representations

Most recently, our government contracts team represented a leading provider of ship repair and maintenance services on Guam, filing a bid protest at the Government Accountability Office after the U.S. Coast Guard awarded a multimillion dollar contract to a competitor for drydock repairs. As a result of our protest, the Coast Guard took corrective action, resulting in a contract award to our client.

Our government contracts attorneys also worked closely with our corporate lawyers to assist a leading middle-market private equity firm focused on the maritime sector in its acquisition of a leading provider of scaffolding systems and environmental containment solutions for the maintenance, repair, and overhaul of U.S. government vessels.

We also successfully resolved a False Claims Act case on behalf of the largest container shipping company in the world related to detention changes for cargo shipped to Iraq and Afghanistan. Currently, our government contracts team represents a shipowner in Federal District Court con- testing the default termination of a military charter.

Government Contracting Today

Government contracting in today’s marketplace presents both great opportunities and challenges. Government contractors face heightened risks presented by ever-changing regulations and aggressive enforcement. Blank Rome’s maritime and government contracts attorneys, combined with the Firm’s full-service commercial and corporate legal capabilities and significant litigation experience, allow us to offer our maritime clients a highly sophisticated set of legal solutions for maritime contractors both large and small, experienced government contractors, and those seeking to enter the government marketplace for the first time.

U.S. Export Controls Pose Risks for Offshore Energy Companies’ Return in Iran

Mainbrace | June 2016 (No. 3)

Matthew J. Thomas

In March, Blank Rome co-hosted a breakfast seminar in Dubai with Fichte & Co Legal Consultancy to discuss with local shipping and energy professionals the real risks and opportunities presented by the rollback of international sanctions on Iran. We were awed by the warm reception we received, the huge turnout (well over 250 clients and friends), and by the insightful questions and contributions of those who joined us. Continue reading “U.S. Export Controls Pose Risks for Offshore Energy Companies’ Return in Iran”

New China-Liberia Maritime Bilateral: Savings on Port Fees Just One Element of Broader Trade Cooperation

Mainbrace | June 2016 (No. 3)

Matthew J. Thomas

In a November 2015 state visit in Beijing, the leaders of the People’s Republic of China and the Republic of Liberia signed a historic bilateral maritime agreement offering significant benefits to Liberian ship- owners. Headlines on the bilateral highlighted the immediate economic impact of the agreement: a 28 percent discount on tonnage dues in Chinese ports, putting Liberian ships on parity with Chinese vessels, and potentially saving $75,000 to $150,000 in annual port costs for capesize, VLCC, and large container vessels. Less well-understood, however, are the reasons behind this new alliance, and where the relationship appears to be headed in the future. Continue reading “New China-Liberia Maritime Bilateral: Savings on Port Fees Just One Element of Broader Trade Cooperation”

DOJ Announces FCPA Pilot Program in an Effort to Incentivize Companies to Self-Report Misconduct

Mainbrace | June 2016 (No. 3)

Shawn M. Wright, Carlos F. Ortiz, Steven J. Roman, Ariel S. Glasner, and Mayling C. Blanco

 

 

 

On April 5, 2016, the chief of the Fraud Section for the U.S. Department of Justice’s (“DOJ”) Criminal Division issued a memorandum related to the DOJ’s prosecution of violations of the Foreign Corrupt Practices Act (“FCPA”). The memorandum highlighted the DOJ’s efforts to intensify its prosecution of FCPA violations by (1) increasing the Fraud Unit’s stable of prosecutors devoted to FCPA issues by 50 percent and creating teams of special FBI agents focused solely on FCPA matters, and (2) strengthening the DOJ’s collaboration with its foreign counterparts in order to combat bribery schemes worldwide. The memorandum also announced the start of a one-year pilot program designed to incentivize companies to voluntarily self-disclose FCPA-related misconduct. Continue reading “DOJ Announces FCPA Pilot Program in an Effort to Incentivize Companies to Self-Report Misconduct”

The Right to Countersecurity from a Debtor in Bankruptcy

Mainbrace | June 2016 (No. 3)

Thomas H. Belknap, Jr. and Michael B. Schaedle

United States maritime law offers a maritime plaintiff two principal means of obtaining security for its claims: Rule B attachment in respect of maritime claims, and Rule C arrest in respect of maritime liens. These rules are superficially similar, but each has different criteria and serves a different purpose. Each also gives the defendant the opportunity to obtain countersecurity on related counterclaims. But what happens when the plaintiff is in bankruptcy, subject to a bankruptcy court’s automatic stay of proceedings against it? Can a debtor be compelled to give countersecurity in such a case? This article discusses a recent decision from a bankruptcy court in Colorado (of all places) that helps answer this question.

The Admiralty Rules of Arrest and Attachment

First, the rules: maritime attachment and arrest remedies in the United States are as old as the general maritime law, which predates the Constitution, but in present times the applicable rules are contained in special maritime rules that supplement the Federal Rules of Civil Procedure. Rule B of those rules pertains to maritime attachment, which is available where a plaintiff has an in personam maritime claim against a party. Rule B allows the plaintiff to attach property belonging to that party in any district where the party is not subject to jurisdiction, but where its property can be found. (This quirky jurisdictional rule arises from the notion that Rule B is intended to serve twin aims: allowing a party to obtain jurisdiction over a defendant at least to the extent of property attached, and also to obtain security for its claim. Thus, it is only available in jurisdictions where the defendant is not otherwise subject to the court’s in personam jurisdiction.) Establishing a right to a Rule B attachment is quite simple: the plaintiff must show (1) that it has a prima facie maritime claim, i.e., a claim within the court’s admiralty and maritime jurisdiction; (2) that the defendant can- not be “found” in the district; (3) that the defendant has property within the district; and (4) that no statute bars maritime attachment in the circumstances.

Rule C of the Supplemental Admiralty Rules governs maritime arrest, which arises where a party seeks to enforce a maritime lien against an in rem defendant. This is most commonly a vessel, but a maritime lien can arise against cargo and other maritime property as well. Maritime liens are themselves a creature of U.S. maritime law and arise, for instance, in cases of maritime tort such as collision or crew injury, salvage, breach of certain maritime contracts such as charter parties, and for nonpayment for “necessaries” provided to a vessel.

Rules B and C are augmented by Supplemental Rule E, and the three rules together set out the procedures governing maritime attachment and arrest actions. Rule E is essentially a “mechanics” rule that governs such issues as when and how a party may challenge an arrest or attachment, how and in what amount alternate security may be posted to obtain release of attached or arrested property, and when property may be sold by interlocutory sale before judgment, such as when the attached or arrested property is perishable.

Rule E also grants the defendant the right to seek counter- security. Specifically, Rule E(7)(a) provides as follows:

When a person who has given security for dam- ages in the original action asserts a counterclaim that arises from the transaction or occurrence that is the subject of the original action, a plaintiff for whose benefit the security has been given must give security for damages demanded in the counterclaim unless the court, for cause shown, directs otherwise. Proceedings on the original claim must be stayed until this security is given, unless the court directs otherwise.

The premise of Rule E(7) is to place the parties on equal footing with respect to disputes arising out of the same “transaction or occurrence,” and though the rule does allow the district court some discretion where the plaintiff can show “cause” why it should not be required to post countersecurity (or why countersecurity should be posted in some amount other than the full amount of the counter-claims), an order directing countersecurity is very much the rule rather than the exception.

The Scenario: A Plaintiff in Bankruptcy

Now, back to our issue: suppose a dispute arises between an owner and a time charterer of a vessel, where the char- ter is governed by U.S. maritime law. The charterer has various breach of charter claims, but the owner also has a counterclaim for non-payment of hire. Further suppose the charterer files a petition for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, thereby invoking the automatic stay provisions under Section 362 of the Bankruptcy Code. That section bars creditors from pursuing claims or process against the debtor and its estate outside the bankruptcy case, including seeking security from the debtor without authorization under the Bankruptcy Code.

Further assume that the charterer, after commencement of the Chapter 11 case, avails itself of the right under Section 365 of the Bankruptcy Code to reject the charter. That section allows a debtor to exercise its business judgment to determine that an executory contract is burdensome to the estate and of no value. Rejection is treated under the Bankruptcy Code as a repudiation of the con- tract, returning the vessel to the owner’s service and giving the owner an accelerated prepetition damages claim for the balance of the charter period.

Then, following rejection, the charterer arrests the vessel, asserting its maritime lien claim and pressing for a judicial sale. Faced with this whipsaw, the owner wants to pursue countersecurity for its counterclaim, but can it do so in the face of the bankruptcy court’s automatic stay?

Those are the basic relevant facts in In re Haimark Line Ltd., 15-22180-JGR (Bankr. Col. 2015), a Chapter 11 bankruptcy case pending in the Bankruptcy Court for the District of Colorado. After commencing its Chapter 11 case, the charterer arrested the vessel in Florida, and Blank Rome’s maritime and bankruptcy groups worked together to assist the owner in pursuing the right to seek countersecurity in the Florida arrest action.

The Arguments on Owner’s Motion for Relief from the Automatic Stay

To pursue countersecurity, the owner first had to obtain relief from the bankruptcy court’s automatic stay. In its motion for such relief, the owner argued that Rule C and Rule E are part and parcel of the same remedy of maritime arrest and that the charterer, having knowingly invoked that remedy, should not be allowed to hide behind the bankruptcy court’s automatic stay to avoid the litigation “cost” associated with the arrest right—namely, the obligation to give countersecurity. The charterer countered by arguing that allowing the owner to obtain countersecurity on its claim would unfairly elevate the claim in status from an unsecured claim to a secured claim, thereby prejudicing other creditors of the bankruptcy estate.

The Ruling

The bankruptcy court granted the owner’s motion in an oral ruling on March 16, 2016, (transcript at Dkt No. 220). In rejecting the charterer’s arguments, the judge observed as follows:

Even if it’s found somehow that by allowing the stay to be lifted to allow the request for counter-security to be made and counter-security to be ultimately ordered, even if somehow that does convert some sort of unsecured claim to a secured claim, the Court finds that it’s difficult for the debtor to make that argument when the pursuit of the Florida [arrest action] was due to its own business judgment.

The debtor initiated the action. And in this Court’s view, it’s unfair to cut off [Owner’s] rights to defend itself in any manner provided by law, especially when the asset seized is a four-million-dollar vessel. [Tr. at pp. 13-14.]

The charterer thereafter filed a motion for reconsideration, contending that the court misconstrued the nature of the counterclaims and the countersecurity sought. In an (as yet) unpublished written ruling dated April 15, 2016, (Dkt. 246), the bankruptcy court denied the charterer’s motion, holding as follows:

The Debtor’s present motion is premised upon the argument that this Court held a fundamental misapprehension of “esoteric maritime law concept of countersecurity.” The Debtor, in effect, argues that while it [is] proper for this Court to allow the Arrest Action initiated by the Debtor to proceed, the District Court should be prevented from considering whether countersecurity is required. The Court respectfully disagrees.

***

The automatic stay under 11 U.S.C. § 362(a) should not be used to unilaterally deny [Owner] the benefit of traditional maritime security devises to which it may be entitled.

Conclusion

This holding—which appears to be a ruling of first impression in the United States—represents an important clarification of the scope of protection that should (or should not) be afforded a debtor by the Bankruptcy Code’s  automatic stay when, post-petition, it seeks to pursue claims against parties who also hold claims against the bankruptcy estate. Any debtor should take this ruling into account when deciding whether to pursue arrest or attachment actions where the target is also a creditor of the estate on a related counterclaim, and any such creditor may take heart that the bankruptcy stay is not an automatic bar to obtaining countersecurity in such circumstances.