Disputes arising from maritime transactions, which often cross both state and national boundaries and involve numerous related business entities, can present difficult challenges for creditors. The Federal Rules of Civil Procedure include provisions to assist plaintiffs in the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions (the “Supplemental Rules”). A recent New York court decision demonstrates the complexity of such transactions and the role of the Supplemental Rules. D’Amico Dry Ltd. v. Primera Maritime (Hellas) Ltd., No. 1:09-cv-07840, order (S.D.N.Y., Jul. 30, 2015). The case involved disputes ranging from Texas to England with 20 or more parties. The issues presented in D’Amico could be of particular interest to businesses involved in shipping in the Bay Area.
The Supplemental Rules address two common problems in maritime commercial claims. First, parties to a dispute may be located in different jurisdictions, either within the U.S. or across national borders, and any assets owned by a defendant may be highly mobile. Second, businesses engaged in maritime trade often use multiple shell businesses to protect assets, making the enforcement of existing judgments difficult.
Rule B of the Supplemental Rules allows a claimant to file an ex parte lawsuit to attach one or more assets owned by a defendant, if it states in a verified pleading that it cannot locate the defendant in the jurisdiction where the asset is located. This is a quasi in rem proceeding, which combines elements of both an in personam and an in rem lawsuit. The plaintiff’s claim is against an item of property, but in direct relation to a claim against its owner. In situations in which a plaintiff cannot locate assets owned by a defendant because other business entities hold title to all relevant assets, Rule B allows a plaintiff to assert a claim involving those other business entities if it can demonstrate that they operate as alter egos of the defendant.
In the D’Amico case, the plaintiff sought to enforce a judgment against the defendant from the English High Court of Justice, located in London. It filed a Rule B suit in New York in 2009 against the defendant and numerous companies it alleged were alter egos of the defendant. It also pursued the defendant in Rule B suits in two Texas courts. In 2010, it intervened in a lawsuit in the Eastern District of Texas that sought the attachment of a vessel owned by a different company, also alleged to be the defendant’s alter ego. It filed a lawsuit in the Southern District of Texas in 2015 against a company named in the New York lawsuit, again alleging that it was an alter ego. In both Texas cases, the plaintiff voluntarily dismissed its claims prior to judgment on the merits.
Sixteen of the alter ego defendants in the New York case moved to dismiss the lawsuit in 2015, arguing that the plaintiff’s claims were precluded by the two Texas cases. The court denied the motion, finding that the claims were not precluded for two reasons. Neither Texas case involved a final ruling, and the New York case generally involved different business entities from the Texas cases.
Since 1976, business litigation attorney James G. Schwartz has advocated for businesses and business owners in the Bay Area, fighting for their rights and interests across a broad range of transactional and litigation matters. To schedule a free and confidential consultation with an experienced and knowledgeable business advocate, contact us online or at (925) 463-1073 today.
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