FLAME S.A. v. Freight Bulk Pte. Ltd.

762 F.3d 352, 2014 A.M.C. 2014, 2014 WL 3828075, 2014 U.S. App. LEXIS 15040
CourtCourt of Appeals for the Fourth Circuit
DecidedAugust 5, 2014
Docket14-1189
StatusPublished
Cited by19 cases

This text of 762 F.3d 352 (FLAME S.A. v. Freight Bulk Pte. Ltd.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fourth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
FLAME S.A. v. Freight Bulk Pte. Ltd., 762 F.3d 352, 2014 A.M.C. 2014, 2014 WL 3828075, 2014 U.S. App. LEXIS 15040 (4th Cir. 2014).

Opinions

Affirmed by published opinion. Judge AGEE wrote the opinion, in which Judge WILKINSON and Judge DIAZ joined. Judge WILKINSON wrote a separate concurring opinion.

AGEE, Circuit Judge:

Freight Bulk Pte. Ltd. (“Freight Bulk”) appeals from the district court’s order denying its motion to vacate a writ of maritime attachment previously issued in favor of Flame S.A. (“Flame”) under Supplemental Rule B of the Federal Rules of Civil Procedure (“Rule B”). Flame filed a verified complaint in the Eastern District of Virginia seeking attachment of a shipping vessel for purposes of satisfying an English judgment, the underlying basis of which was a claim for breach of certain Forward Freight Swap Agreements (“FFAs”). The district court denied Freight Bulk’s motion to vacate after concluding that its jurisdiction was determined by reference to federal, rather than English, law and that the FFAs are maritime contracts under federal law. For the reasons set forth below, we affirm the decision of the district court.

I.

In 2008, Flame, an integrated shipping and trading company organized under the laws of Switzerland and headquartered in Lugano, Switzerland, entered into four FFAs with Industrial Carriers, Inc. (“ICI”), a corporation organized under the laws of a foreign country and registered to do business in the state of New York.1

FFAs are similar to futures or hedging contracts tied to the spread between a specified rate and market shipping prices at a future date. To act as a diversification against the vagaries of future maritime price fluctuations, shippers like Flame may enter into FFAs with another party although any entity could be a contracting party even if unrelated to the maritime industry. The FFAs in this case identified particular shipping routes listed in a specified maritime freight index, the Baltic Panamax Index, which provides market freight rates for the maritime industry. The shipping services contemplated in an FFA would likely never be performed by the parties who would usually settle the contract by exchanging cash, as the parties intended in this case.

FFAs can be complicated financial transactions, but we found the Second Circuit’s description of how FFAs work in D’Amico Dry Ltd. v. Primera Maritime (Hellas) Ltd., No. 11-3473-cv, 756 F.3d 151, 2014 WL 2609648 (2d Cir. June 12, 2014), an easy to follow narrative of the type of agreement at issue here:

A major risk of an ocean carrier’s business is that a slowdown in worldwide commercial activity will lead to diminution in shipments of cargo, eaus-[355]*355ing vessels to make expensive voyages partially empty or, in more extreme circumstances, to lay idle. The rates carriers charge for carriage of goods fall during such slowdowns.... As a way of offsetting losses from its vessels being underemployed or idle during such a slowdown, [a carrier may] enter[] into futures contracts on international shipping rates. These contracts, sometimes called “forward freight agreements” or “FFAs,” specify a base rate (the “contract rate”) for a hypothetical shipment of specified goods over specified routes and future dates for comparison of the contract rate with the market rates on such future dates. If on a specified future date the market rate is above the contract rate, then the party that took the downside of the agreement must pay the other party the difference. If on the future date the market rate is below the contract rate, the party that took the upside of the contract must pay the other party the difference. Profits realized from such contracts as rates fall will increase [the carrier’s] revenues when demand is low, counteracting its losses from underemployment. Conversely, the losses on such contracts will decrease [the carrier’s] net revenues when demand is high and rates rise.

D’Amico, 756 F.3d at 153-54, 2014 WL 2609648, at *1.

In September 2008, freight rates in the international shipping market entered a steep decline, causing ICI to become financially distressed. In October 2008, ICI voluntarily petitioned for bankruptcy in Greece, which constituted an Event of Default under the terms of the FFAs. Under the FFAs, ICI owed Flame a substantial amount based on the difference between the contract and market rates.

In November 2010, Flame brought suit against ICI in the High Court of Justice, Queen’s Bench Division, Commercial Court in London, England (the “English Court”), alleging breaches of the FFAs and seeking monetary damages. The English Court entered judgment against ICI on December 13, 2010 in the amount of $19,907,118.36 (the “English judgment”).

After obtaining the English judgment against ICI, Flame moved for recognition and enforcement of that judgment in the United States District Court for the Southern District of New York.2 ICI appeared before the district court and moved to dismiss for failure to state a claim, arguing that it did not have notice of the action in the English Court. The district court denied ICI’s motion. ICI’s counsel subsequently filed a motion to withdraw as counsel, which the district court granted. When granting the withdrawal motion, the district court warned ICI that it must obtain new counsel or face a default judgment. ICI failed to obtain substitute counsel, and the court entered default judgment on October 4, 2011,3 recognizing the English judgment in favor of Flame.

On October 17, 2013, Flame registered the judgment of the Southern District of New York in the United States District Court for the Eastern District of Virginia [356]*356pursuant to 28 U.S.C. § 1963. Flame then filed a verified complaint seeking an Order of Attachment against the shipping vessel M/V CAPE VIEWER (the “CAPE VIEWER”), docked at Norfolk, Virginia, pursuant to Rule B. Flame sought attachment of the CAPE VIEWER, which is owned by Freight Bulk, on the theory that Freight Bulk is the alter ego of ICI. The district court issued an attachment order, which was timely served on Freight Bulk.

Freight Bulk then appeared and moved the district court to vacate the Order of Attachment pursuant to supplemental Rule E(4)(f), arguing that the court lacked subject matter jurisdiction to enter the order. In particular, Freight Bulk contended that (1) the district court should apply English law in determining whether the FFAs are maritime contracts; and (2) regardless of the court’s choice of law, FFAs are not maritime contracts. Because Flame invoked only the court’s maritime jurisdiction in its complaint, Freight Bulk argued that in the absence of a valid maritime claim the district court lacked subject matter jurisdiction and had no authority to enter the Rule B Order of Attachment.

After several hearings on Freight Bulk’s motion to vacate, the district court denied that motion with respect to Freight Bulk’s jurisdictional arguments.4 Specifically, the district court concluded that it had properly exercised its admiralty jurisdiction over the case because federal law, rather than English law, controlled that issue. The district court determined that FFAs are maritime contracts under federal law. “However, considering the complexities and uncertainties involved ...

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762 F.3d 352, 2014 A.M.C. 2014, 2014 WL 3828075, 2014 U.S. App. LEXIS 15040, Counsel Stack Legal Research, https://law.counselstack.com/opinion/flame-sa-v-freight-bulk-pte-ltd-ca4-2014.