When multiple parties seek the attachment of the same cargo via both federal and state courts, the first to serve proper papers wins

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In Stemcor USA Inc v America Metals Trading LLP, the District Court for the Eastern District of Louisiana recently considered the attachment of 9,000 tons of pig iron by five competing interests. This case is significant because it illustrates the nuances when multiple parties attempt to attach the same property in two different courts. Understandably, a brief summary of the parties and their respective procedural histories is necessary to appreciate the result.

The parties and pertinent procedural history

Both Stemcor USA, Inc. (“Stemcor”) and Daewoo International Corporation (“Daewoo”) filed separate legal actions in the US District Court for the Eastern District of Louisiana on December 14, 2012. Both alleged breaches of their respective maritime contracts with American Metals Trading, LLP (“AMT”) for failure to deliver certain cargoes of pig iron. Orders for corresponding writs of maritime attachment were signed on December 14.th

On December 21st, Clipper, on behalf of vessel interested, intervened in the Daewoo action, alleged claims for unpaid freight, deadfreight, and demurrage, and also obtained a writ of attachment against AMT.

Before any writs of attachment had been served, Daewoo amended its complaint to add a claim under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and had an additional writ of attachment issue under Louisiana’s non-resident attachment statute. The Stemcor and Daewoo attachments were served on the pig iron cargo aboard the M/V CLIPPER KASASHIO on December 22, 2012.

These two legal actions in US District Court were eventually consolidated on December 27th. The next day, ABN AMRO intervened in the actions and alleged claims that AMT had defaulted under the terms of a loan agreement that was secured by a pledge of pig iron inventory. ABN AMRO obtained a writ of attachment under Louisiana state law.

Following a dispute over the ownership of the subject pig iron cargo, Clipper’s arrest papers were modified, reissued, and served on the cargo on December 29th at 8 am. ABN AMRO’s attachment was served on January 3, 2013.

Concurrently, ThyssenKrupp/Mannix (“TKM”) filed suit in Louisiana state court. TKM also sought to attach the pig iron cargo aboard the M/V CLIPPER KASASHIO and its seizure papers were served on the cargo on December 29th at 7:52 am, a few minutes before Clipper’s papers. Ultimately, the pig iron cargo was sold, and the proceeds were paid into the registry of the District Court pending resolution of the competing claims.

The resolution of the competing claims

In resolving the competing claims and corresponding attachments, the District Court considered three basic legal theories:

(1) Rule B attachments must be based on “maritime” claims – Rule B itself states that the remedy is available only for “maritime” claims. The District Court reaffirmed that, in order for a breach to give rise to a “maritime claim” within a court’s admiralty jurisdiction, the underlying contract must relate to a ship in its use as such, or to commerce or navigation on navigable waters. Simply referring to a ship or the transportation of goods by a ship is not enough. Since the allegedly breached Stemcor and Daewoo contracts were essentially sales contracts requiring ocean transport of the purchased cargo, the District court determined that mere references to ocean transportation was not sufficient, and these contracts were not “maritime” because their primary objective was the sale of the pig iron.

Under these circumstances, the reasoning in the US Supreme Court case Norfolk Suffolk Railroad Co. v. Kirby – so long as the purpose of the contract is to effectuate maritime commerce, the contract is maritime – did not apply. Nor was admiralty jurisdiction found to arise under the “mixed contracts” doctrine – contracts that contain both maritime and non-maritime obligations can be separated and tried independently. Instead, the Stemcor and Daewoo contracts were for the sale of goods and not “maritime.” Therefore, they could not be the basis for Rule B attachments.

(2) Attachment under the Convention – Daewoo sought to justify its presence in federal court by arguing that the Convention provided the District Court with a basis for jurisdiction and corresponding attachment under state law. The District Court first recognized that the Federal Arbitration Act, which implements the Convention in the United States, explicitly confers jurisdiction on the federal courts to hear disputes arising under the Convention. Then, after considering the split in the federal authority as to whether the Convention allows attachment for purposes of obtaining security and to compel arbitration, the District Court opted to follow those cases allowing an attachment as a provisional remedy under the Convention.

But, upon further analysis, Daewoo still lost. With respect to seizure of property, the Rules of Procedure in the Federal Courts allow use of state court procedures. Here, Daewoo had invoked Louisiana law as one basis for the attachment. However, the District Court held that under the applicable state law, attachment of property could not be used to compel arbitration or obtain security for such a proceeding. Thus, Daewoo’s attachment had to be vacated.

(3) Prior Exclusive Jurisdiction – Since Stemcor and Daewoo’s December 22nd maritime attachments were dismissed for lack of maritime claims and Daewoo’s December 22nd state law attachment was dismissed as being an unavailable remedy, the District Court turned its attention to TKM’s December 29th attachment under state law. In doing so, the District Court considered the doctrine of “prior exclusive jurisdiction.” Based on longstanding precedent, “when one court exercises in rem jurisdiction over a res, a second court will not assume in rem jurisdiction over the same res. Accordingly, the District Court held that TKM’s seizure of the property triggered the doctrine and control, i.e., the moment of attachment / seizure, of the property marked the onset of the initial court’s jurisdiction. Moreover, as a consequence, all federal attachments and arrests that post-dated TKM’s December 29th state law attachment must be vacated.

Finding that TKM’s attachment via the state court was the first valid seizure, the District Court then ordered that the funds be transferred, as per the parties’ prior agreement, to the state court for further proceedings there. Having been served a few minutes late, Clipper’s attachment was legally invalid, and all subsequently served federal attachments suffered the same fate.

Conclusion

While this decision does not make any new law, it thoroughly analyzes each point, capturing much significant law in one opinion, and in the process provides much in the way of guidance to the parties and lawyers wrestling with these issues. Put simply, attachments under Federal Rule B must be based on valid “maritime” claims, and a sales contract merely calling for ocean transportation does not give rise to the requisite “maritime” claims. The Convention on Recognition and Enforcement of Foreign Arbitral Awards can be the basis for establishing federal court jurisdiction and does allow provisional remedies under state law in connection with arbitral disputes subject to the limits of state law. And, most importantly, the first valid seizure of property invokes the doctrine of “prior exclusive jurisdiction,” reserving the property seized to the court out of which the first valid seizure came and to the exclusion of other courts.

In the end, the moral of the tale is – BE THE FIRST TO SEIZE – because possession is indeed the whole of the law.