Blue Whale Corp. v. Grand China Shipping Dev. Co., Ltd.

Citations: 722 F.3d 488; 2014 A.M.C. 145; 2013 U.S. App. LEXIS 14339; 2013 WL 3598839Docket: 13-0192-cv

Court: Court of Appeals for the Second Circuit; July 16, 2013; Federal Appellate Court

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Blue Whale Corporation (Blue Whale) appeals a January 11, 2013 order from the U.S. District Court for the Southern District of New York that vacated its Rule B maritime attachment order against HNA Group Company, Ltd. (HNA). Blue Whale and Grand China Shipping Development Company, Ltd. (Development), a Chinese company, are engaged in arbitration over a maritime shipping contract requiring Development to transport iron ore from Brazil to China. Blue Whale claims Development failed to pay 98% of the freight costs, leading to damages exceeding $1 million. To secure potential arbitration awards, Blue Whale sought to attach HNA's assets in New York, alleging HNA was an alter ego of Development. The district court found Blue Whale's alter-ego claim insufficient under Rule E(4)(f) and English law, as stipulated in the charter party's choice-of-law provision. However, the appellate court determined that Blue Whale's claim was collateral to the contractual dispute and that federal maritime conflicts-of-law analysis should apply instead. Consequently, the appellate court vacated the district court's order and remanded the case for reevaluation under federal common law. The case highlights the complexities of international maritime contracts and the legal standards for establishing alter-ego liability.

On March 26, 2012, Blue Whale initiated a complaint in the Southern District of New York to attach property belonging to HNA Group Company, Ltd. (HNA), claiming it was the alter ego of Development, the primary defendant, in anticipation of an arbitration award. Under Rule B of the Supplemental Rules for Certain Admiralty and Maritime Claims, plaintiffs can attach a defendant's property if the defendant is not found in the district at the time of filing. Blue Whale asserted that Development and HNA were effectively a single business entity, seeking to pierce the corporate veil to access HNA's assets, totaling approximately $1.3 million.

On May 17, 2012, the district court authorized the attachment of HNA's assets held by Pacific American Corporation, a subsidiary based in New York. HNA subsequently moved to vacate this attachment, arguing that English law, as per the charter party’s choice-of-law provision, applied and that Blue Whale had not sufficiently alleged a prima facie alter-ego claim. Blue Whale countered that federal common law should govern the issue since Rule B is procedural and federal courts in admiralty must apply federal law when assessing corporate identity.

The district court analyzed the two necessary elements for Blue Whale’s claim: the admiralty nature of the claim and its prima facie validity. The court determined that the admiralty question was procedural and thus governed by federal maritime law, affirming its jurisdiction. Conversely, it ruled that the prima facie alter-ego claim was subject to English law, concluding that Blue Whale had not made a sufficient allegation under that law, resulting in the vacatur of the attachment.

Additionally, the court found that HNA's registration to do business in New York post-attachment meant it could now be 'found' in the district, supporting the vacatur under Rule E. Consequently, the court denied Blue Whale’s request to stay the decision for further discovery or to amend its complaint. Both parties acknowledged that the district court erred in its determination that HNA’s registration undermined Blue Whale’s basis for the Rule B attachment.

Determining whether a defendant is "found" in a district occurs at the filing of a verified complaint for attachment, along with the required affidavit under Rule B(1)(b). Blue Whale is appealing a January 11, 2013 order from the district court that vacated a previous Rule B maritime attachment order against HNA. The appeal's primary focus is whether Blue Whale met its burden to plead a valid prima facie admiralty claim against HNA, which necessitates addressing two key questions: 1) whether the claim is admiralty-based, and 2) whether the claim is prima facie valid. The district court correctly applied federal maritime law to determine that Blue Whale’s claim arises from a maritime contract and thus sounds in admiralty. However, the court incorrectly applied English law to assess the claim's prima facie validity because the choice-of-law provision in the charter party did not apply to Blue Whale's alter-ego claim against HNA. Instead, maritime choice-of-law principles dictate that federal common law is applicable due to the claim's significant ties to the U.S. The case is remanded for the district court to reevaluate the prima facie validity of the alter-ego claim under federal common law. Additionally, there is a noted divide among district courts in the Southern District of New York regarding what law governs the assessment of a valid admiralty claim, with some courts asserting that federal law governs all aspects of Rule B attachment validity while others argue that substantive law is determinative for prima facie claims. Ultimately, the procedural question of whether a claim sounds in admiralty is governed by federal maritime law, while the substantive question of prima facie validity is subject to the relevant substantive law.

The validity of a maritime claim for a Rule B writ of attachment is contingent upon the applicable substantive law, specifically contract law. A plaintiff must demonstrate a valid prima facie claim under the governing substantive law, as established in Aqua Stoli. Admiralty law provides the remedy, while substantive law defines the right to that remedy. The evaluation of a claim's prima facie validity is a substantive inquiry governed by relevant substantive law, whereas determining whether a claim falls under admiralty jurisdiction is procedural and relates to the court's subject matter jurisdiction.

In this context, the district court acknowledged that prior decisions, such as Harley Mullion, often address whether a plaintiff has sufficiently alleged an admiralty claim, rather than the validity of a prima facie claim. It is determined that federal maritime law governs whether a claim is admiralty-based, while the relevant substantive law dictates the validity of the claim.

The issue of the substantive law applicable to Blue Whale’s alter-ego claim is complex, with three potential approaches: applying the charter party’s choice-of-law provision (English law), relying on federal common law due to corporate identity issues, or conducting a federal maritime choice-of-law analysis. The court finds that the choice-of-law clause does not control because the alter-ego claim is collateral to the charter party. The ruling cites Kalb, Voorhis & Co. v. American Financial Corp., asserting that choice-of-law clauses in underlying contracts are irrelevant for alter-ego claims, as the legal status of HNA as an alter ego of Development does not pertain to charter party obligations.

Furthermore, the court rejects the automatic application of federal common law for corporate identity analysis, clarifying that relevant cases primarily focus on admiralty jurisdiction rather than substantive law sources. The decision in Kirno Hill Corp. v. Holt is noted as a foundational case for the principle that federal common law governs corporate identity analysis, but subsequent interpretations vary, indicating a nuanced legal landscape regarding the piercing of the corporate veil in maritime contexts.

Courts must choose between state law and federal common law, with federal interests, particularly in admiralty law, taking precedence. In Rule B attachment cases involving foreign parties and disputes in foreign waters, while some district courts have used federal common law to assess collateral claims, a maritime choice-of-law analysis is necessary to determine the applicable law. The Supreme Court's decision in Lauritzen v. Larsen established that the federal court's choice-of-law analysis does not follow the forum state's doctrine in admiralty cases. In this instance, Blue Whale's claim to pierce the corporate veil against HNA involves U.S. law due to the strong connections to the United States, including the location of HNA’s property and the absence of a dominant foreign law. The district court must evaluate the prima facie validity of Blue Whale's alter-ego claim under federal common law, which ensures uniformity in admiralty law. Consequently, the district court's order is vacated and remanded for further consideration.