Maritime commerce constitutes a major part of the economies of New York City and Northern New Jersey. Any type of business transaction involves a complex web of legal obligations and risks, and transactions involving interstate and international shipping can be the most complex of all. Legal claims arising from maritime disputes can be particularly difficult. The debtor/defendant might be based in a different jurisdiction—possibly a different country—from the creditor/plaintiff, and any assets might be located in yet another jurisdiction. The Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Action (the “Supplemental Rules”), part of the Federal Rules of Civil Procedure, provide methods for asserting claims over otherwise highly mobile assets in maritime disputes. This should be a last resort, of course, since carefully drafted contracts with dispute-resolution provisions often yield more satisfactory results in a shorter span of time.
Rule B of the Supplemental Rules enables plaintiffs to attach a defendant’s assets in an ex parte proceeding, provided they cannot locate the defendant in the same jurisdiction as the asset. The plaintiff files a quasi in rem lawsuit in the jurisdiction where the asset is located. Lawsuits typically proceed in personam, against a particular person, business, or organization; or in rem, against a particular item of property. A quasi in rem lawsuit combines elements of both types of suit, with a plaintiff asserting a claim over a piece of property in connection with a claim against its owner.
In maritime transactions, parties often do business using multiple corporate shells to protect assets and other interests. As a result, the record owner of an asset that could be subject to attachment under Rule B might not be the same as the business entity against which the plaintiff has a claim. Rule B allows a plaintiff to attach an asset owned by a different business entity if they can establish that the entity functions as an “alter ego” of the defendant. A New York court recently addressed this issue in a Rule B claim in D’Amico Dry Ltd. v. Primera Maritime (Hellas) Ltd., et al., No. 1:09-cv-07840, order (S.D.N.Y., Jul. 30, 2015).
The plaintiff in D’Amico filed suit in New York under Rule B in 2009 to enforce a judgment against the defendant issued by a court in England. The suit named the defendant and multiple other companies alleged to be the defendant’s alter egos. Sixteen of the alter-ego defendants moved to dismiss the suit, claiming that it was precluded by earlier lawsuits involving the plaintiff in two Texas federal districts.
In 2010, the plaintiff had intervened in a Rule B lawsuit seeking to arrest a vessel in the Eastern District of Texas, claiming that the vessel’s owner was an alter ego of the defendant. It later voluntarily dismissed its claim. The plaintiff filed a Rule B action in the Southern District of Texas in 2015, seeking to seize a vessel belonging to a company named as an alter-ego defendant in New York. The court granted that company’s motion to vacate the seizure, and the plaintiff voluntarily dismissed the complaint.
In July 2015, the New York court denied the alter-ego defendants’ motion to dismiss. It held that the claims were not precluded because neither Texas case involved a final ruling on the merits, and because the New York case involved different defendants.
Business transactions attorney Samuel C. Berger represents businesses and business owners in the New York City and Northern New Jersey region. We offer fixed-fee legal-service packages that cover a wide range of issues and needs. Contact us online, at (201) 587-1500, or at (212) 380-8117 today to schedule a confidential consultation with a member of our team.
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New Reporting Requirements Take Effect for U.S. Businesses with Foreign Investors, and Businesses that Invest Abroad, New York & New Jersey Business Lawyer Blog, March 5, 2015
Export Businesses Receive Compliance Assistance from U.S. Commerce Department Software, New York & New Jersey Business Lawyer Blog, January 1, 2015
Photo credit: Captain Albert E. Theberge, NOAA Corps (ret.) [Public domain], via Wikimedia Commons.