O.W. Bunker Litigation in the United States: maritime liens, interpleaders, and liquidation

March 4, 2016

Types : Alerts

Physical Supplier Denied Maritime Lien

A federal court in the United States recently held that a physical supplier of bunkers was not entitled to a maritime lien against a vessel.  Valero Marketing and Supply Co. v. M/V ALMI SUN, No. 14 Civ. 2712 (NJB) (E.D. La. decided Dec. 28, 2015 and Feb. 8, 2016).  The Order was the first to apply United States law and directly address the issue in the context of O.W. Bunker’s bankruptcies.

A few weeks prior to O.W. Bunker’s sudden collapse, an agent acting for the owner of the M/V ALMI SUN ordered 200 metric tons of bunkers from O.W. Malta.  O.W Malta, in turn, purchased the bunkers from O.W. USA, who purchased the bunkers from Valero.  Valero physically delivered the bunkers to the vessel – and then O.W. Bunker collapsed.

According to Valero, O.W. USA advised that it would not make payment. Valero arrested the vessel and filed a motion for summary judgment.  Valero argued that it was entitled to a maritime lien under the Commercial Instrument and Maritime Liens Act, 46 U.S.C. § 31342, et seq. (“CIMLA”).  Valero further argued that, despite the absence of any direct contract between Valero and the vessel, it was entitled to a maritime lien under CIMLA primarily because the order originated from the vessel’s owner or charterer (i.e. persons authorized to bind the vessel) and also because, among other things, the vessel’s crew ultimately confirmed Valero’s maritime lien by accepting the bunkers and signing Valero’s bunker delivery note.  The court denied Valero’s motion and in so doing, stated that “neither … the Bunkering Certificate, nor the Vessel’s acceptance of Valero’s bunkers, could create a maritime lien ….”  Valero Marketing and Supply Co. v. M/V ALMI SUN, No. 14 Civ. 2712 (NJB) (E.D. La. decided Dec. 28, 2015).

After the court denied Valero’s motion for summary judgment and identified as the key issue whether O.W. Malta was the vessel’s agent, Valero took the corporate deposition of the vessel’s owner and filed a motion for reconsideration.  Valero argued new evidence revealed that, prior to the bunker supply, the vessel knew O.W. Malta could not physically deliver the bunkers and agreed that Valero would be the physical supplier (Valero was expressly identified as “supplier” on O.W. Malta’s sales order confirmation to the vessel).  However, the court found that, while these facts might have established that the vessel was aware that Valero would be the physical supplier, they did not establish the key elements that the vessel specifically “directed” O.W. Malta to select Valero as the physical supplier.  The court, therefore, denied Valero’s motion and, in contrast, granted the vessel’s cross motion for summary judgment.  Valero Marketing and Supply Co. v. M/V ALMI SUN, No. 14 Civ. 2712 (NJB) (E.D. La. decided Feb. 8, 2016).

Although the court entered judgment in favor of the vessel, the judgment did not resolve all claims relating to the bunker supply. Notably, O.W. Malta, O.W. USA, and ING Bank were not parties to the litigation. Therefore, the court did not directly address the issue of whether contract or intermediary bunker suppliers, or their assignees, are entitled to maritime liens against vessels or payments pursuant to their contracts.  The court noted that O.W. Malta and ING Bank made claims for payment which remain the subjects of pending arbitration proceedings in London.

Interpleader Jurisdiction Affirmed

The United States Court of Appeals for the Second Circuit recently affirmed interpleader jurisdiction in the context of O.W. Bunker’s bankruptcies. Hapag-Lloyd Aktiengesellschaft v. U.S. Oil Trading, No. 15-97 (2d Cir. decided Feb. 24, 2016).

After O.W. Bunker’s sudden collapse, vessels which purchased bunkers from O.W. Bunker received competing claims for payment from O.W. Bunker, physical suppliers, and ING Bank.  Although vessels were “happy” to pay for the bunkers, they did not want to pay more than once.  Therefore, many vessels invoked United States federal court jurisdiction based on 28 U.S.C. § 1335 (the “Interpleader Statute”) or Federal Rule of Civil Procedure 22 (the “Interpleader Rule”), both of which are designed to protect stakeholders facing multiple claims for a single obligation.  More than thirty related interpleader cases are now pending before United States District Judge Valerie E. Caproni in the United States District Court for the Southern District of New York.

Under the Interpleader Statute, generally, a plaintiff may deposit money or property to the court’s registry and defendants then make competing claims against that deposited money or property.  Pursuant to a corresponding statute, 28 U.S.C. § 2361, the court may issue an order restraining the competing claimants from commencing or prosecuting claims related to the subject matter of the interpleader case in other forums.  Yet, the underlying circumstances of the O.W. Bunker-related interpleader cases raised unprecedented issues concerning United States bankruptcy law, maritime law, and interpleader law.  Some physical suppliers questioned, under these unique circumstances, whether the courts had subject matter jurisdiction and whether the courts could issue restraining orders.

In Hapag-Lloyd Aktiengesellschaft v. U.S. Oil Trading, No. 14 Civ. 2712 (VEC) (S.D.N.Y. filed Dec. 17, 2014), for example, Hapag commenced an interpleader case and identified O.W. Germany, O.W. USA, US Oil, and ING Bank as competing claimants.  Upon Hapag’s deposit of a bond to the district court’s registry, Judge Caproni issued an order restraining the competing claimants from instituting or prosecuting any proceedings or actions “anywhere” against Hapag and its vessels. US Oil filed a motion to vacate the restraining order, but the district court denied the motion.

On appeal, US Oil primarily argued that Hapag did not satisfy the Interpleader Statute’s requirements because US Oil’s in rem maritime lien claims were separate and distinct from other competing claimants’ in personam contract claims.  The court of appeals, although it acknowledged that the competing claims might have different legal origins, found that the difference was not material to interpleader.  The court of appeals further explained that in order to prove its in rem maritime lien claim under CIMLA, US Oil must show that it provided bunkers “on the order of the owner or a person authorized by the owner” which necessarily requires an analysis of the chain of contractual relationships which form the other competing claimants’ in personam contract claims.  The court of appeals ultimately held that all of these competing claims were so “inextricably intertwined” that the district court had subject matter jurisdiction pursuant to the Interpleader Statute.

Although the court of appeals affirmed the district court’s holding that the district court had subject matter jurisdiction, the court of appeals remanded, in part, to the district court to reconsider the geographic scope of the corresponding restraining order.  The court of appeals acknowledged that United States “federal courts have long possessed the inherent power to restrain the parties before them from engaging in suits in foreign jurisdictions.”  Therefore, instead of vacating the restraining order and potentially causing races to judgment in multiple United States and foreign forums, the court of appeals remanded this specific issue to the district court for the purpose of performing the proper analysis and creating a sufficient record.

O.W. North America and O.W. USA Enter Liquidation

On December 15, 2015, the United States Bankruptcy Court for the District of Connecticut confirmed O.W. North America’s and O.W. USA’s First Modified Liquidation Plans (the “Plan”). The Plan went effective on January 4, 2016, forming the O.W. North America Liquidating Trust and the O.W. USA Liquidating Trust.  Pursuant to the Plan’s terms, O.W. North America, O.W. USA, and ING Bank each transferred all of their respective rights and interests to certain outstanding bunker supply receivables to the two liquidating trusts.  The liquidating trusts are continuing efforts to collect outstanding bunker supply receivables.

A team of Montgomery McCracken Walker & Rhoads LLP bankruptcy and maritime attorneys led by Natalie D. Ramsey, Richard G. Placey , Davis Lee Wright, Mark A. Fink, Robert E. O’Connor, and Kaspar Kielland represent O.W. North America, O.W. USA, and the liquidating trusts in the bankruptcy cases and related maritime cases.


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