World Wide Supply OU v. Quail Cruises Ship Management

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 14-14838
Non-Argument Calendar
________________________
D.C. Docket No. 1:12-cv-22435-PAS
WORLD WIDE SUPPLY OU,
Plaintiff–Appellant,
versus
QUAIL CRUISES SHIP MANAGEMENT,
f.k.a. Happy Cruises, S.A.,
JEWEL OWNER LTD.,
INTERNATIONAL SHIPPING PARTNERS,
Defendants–Appellees,
HAINAN CRUISE ENTERPRISE, S.A.,
Interested Parties–Appellees.
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________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(September 30, 2015)
Before TJOFLAT, WILSON and JULIE CARNES, Circuit Judges.
PER CURIAM:
This appeal concerns an attachment of property made pursuant to
Supplemental Admiralty Rule B. The money at issue arose from the legal
settlement of a dispute over the purchase of a cruise ship featured on ABC
Television Network’s long-running series, The Love Boat. The plaintiff below,
and appellant here, has advanced a novel interpretation of Rule B. The district
court was unpersuaded, as are we. Accordingly, we affirm the court’s order
vacating the attachment.
I. BACKGROUND
This appeal has a complicated background, involving multiple lawsuits in
federal district courts, Florida state court, and a Spanish bankruptcy court. The
common denominator of these suits is Quail Cruises Ship Management (“Quail”),
from which multiple parties, including participants in this appeal, have tried to
collect money that they believe Quail owes them.
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Plaintiff–Appellant World Wide Supply OÜ (“Plaintiff”) entered into a
contract with Quail for Plaintiff to supply provisions for the M/V Gemini, a vessel
owned by Jewel Owner Ltd. (“Jewel”). When Quail stopped making payments to
Plaintiff for those provisions, Plaintiff sought a prejudgment attachment of Quail’s
property to recover the unpaid €123,122.28 balance. Specifically, on January 29,
2014, Plaintiff filed in the district court below an emergency motion for a Rule B
attachment of what it contended to be Quail property: a sum of money Quail was
to receive from Agencia de Viagens CVC Turlimitada (“Viagens”), pursuant to a
settlement agreement between the two. It is that attachment, and its subsequent
vacation by the district court below, that gives rise to the present appeal.
Years before, Quail had sued Viagens in the Southern District of Florida “for
fraud based on the purchase of what was, at one point, the boat . . . that appeared in
the show, The Love Boat.” In an unrelated lawsuit, ongoing at the time of the
Quail–Viagens suit, Quail and Jewel agreed to a settlement under which any
recovery, up to €3,395,519.45, from Quail’s suit against Viagens would be paid to
Jewel to settle its unrelated claim. Despite this agreement with Jewel, on
November 30, 2011, Quail finalized with Viagens a secret settlement agreement
whereby Viagens would pay $5,000,000 to Quail’s parent corporation, Quail
Travel, which was then in bankruptcy proceedings in Spain. Of course, if kept
undisclosed, this would mean that Jewel would be cheated out of the approximate
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€3.4 million to which it was entitled under its own settlement with Quail. But
learning of the secret agreement between Quail and Viagens, Jewel filed a motion
to intervene in the Quail–Viagens suit and also filed a petition in the Circuit Court
of Miami-Dade County against Quail and Viagens to prevent any transfer of the
settlement proceeds, asserting theories of constructive trust and equitable lien.
Meanwhile, Hainan Cruise Enterprise, S.A. (“Hainan”), which had prevailed
against Quail in yet another lawsuit in the Southern District of Florida, obtained a
writ of garnishment against Viagens under Rule B, seeking to recover its own
judgment from this same, now not-so-secret, $5,000,000 settlement agreement.
At this point, Quail Travel filed for Chapter 15 bankruptcy in the Southern
District of Florida and claimed, as its own property, this same $5,000,000 “secret”
settlement fund that Quail had promised to Jewel and that Hainan now claimed.
Thus, there were three parties with claims to the settlement funds that Viagens was
to pay to Quail: Jewel, Hainan, and Quail Travel. The district court overseeing
Quail Travel’s bankruptcy proceedings determined that Quail and Quail Travel
each held an undivided 50% interest in the settlement proceeds. Quail’s
$2,500,000 portion, the district court ruled, was subject to Jewel’s constructive
trust and Hainan’s Rule B attachment.
In compliance with that order, Quail, Jewel, Hainan, and Viagens verbally
agreed to a settlement, under which Viagens would transfer Quail’s $2,500,000
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share of the settlement to a trust fund account held by Quail’s counsel, Holland &
Knight. Holland & Knight would, in turn, disburse $1,500,000 to Hainan and
$1,000,000 to Jewel. Viagens’ transfer to Holland & Knight was to be made in
two equal installments made 30 days apart; Holland & Knight was to distribute
each installment to Hainan and Jewel after it had been received.
On January 3, 2014, the first installment was made, with Viagens
transferring $1,250,000 to Holland & Knight, after which Holland & Knight
distributed $500,000 to Jewel and $750,000 to Hainan. However, just before the
second transfer by Viagens, on January 29, 2014, Plaintiff filed the above-
referenced emergency motion to attach and garnish the funds that were about to be
transferred in the second distribution. Representing Plaintiff in this action was
Moore & Company, P.A., which had also represented Viagens in the Quail–
Viagens lawsuit and had represented Viagens in the distribution of the settlement
funds as recently as one week before filing the emergency motion on behalf of
Plaintiff. In Plaintiff’s view, once Holland & Knight received the funds that had
been attached in Hainan’s Rule B motion, the funds were no longer protected by
the Rule B attachment because, under Rule B(3)(a), the funds had to either remain
“in the garnishee’s hands or [be] paid into the registry of the court.” Having left
Viagens’ hands, Plaintiff argued, the funds would become subject to Plaintiff’s
own new Rule B attachment.
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In opposition to Plaintiff’s motion, Jewel and Hainan (“Appellees”) and
Holland & Knight raised various arguments. First, they argued that the funds
Plaintiff was attempting to attach were still subject to Hainan’s prior Rule B
attachment and Jewel’s constructive trust. Second, they argued that Plaintiff’s
“emergency” motion represented no emergency at all because Plaintiff’s counsel
had served as counsel for Viagens during the negotiations leading to the verbal
settlement, and therefore was well aware of when and how the funds would be
transferred. Plaintiff therefore had been dishonest in its representations to the
district court in support of its Rule B attachment. They similarly argued that
Plaintiff, because of this knowledge, should have intervened earlier in the
proceedings, rather than wait until the eleventh hour to manufacture an emergency.
Finally, Appellees argued that Quail’s interest was only in receiving the
$2,500,000 owed to it from Viagens and it had no claim on any funds that had
already been transferred to third parties, including the funds being held by Holland
& Knight.
After hearing from the parties, a magistrate judge issued a report and
recommendation suggesting that Plaintiff’s Rule B attachment should be vacated.
The district court adopted the magistrate judge’s report and recommendation,
giving three key reasons in support of its decision to vacate Plaintiff’s attachment.
First, the court held, Plaintiff was relying on a narrow, unpersuasive reading of
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Rule B(3)(a), under which an attachment was lost as soon as the res left the hands
of the garnishee or the court’s registry. Second, the motion was not an
“emergency,” as Plaintiff had characterized it, because Moore & Company had just
represented Viagens in the secret settlement negotiations and therefore knew
exactly what was planned and when the distributions would take place. Third, the
language in the settlement agreement pertaining to the transfer and disbursement of
the funds did not leave those funds open to attachment. Quite simply, the funds
were no longer the property of Quail at the time Plaintiff sought to attach them.
Thus, Plaintiff’s attachment was invalid and must be vacated.
Plaintiff had argued in its objections to the magistrate judge’s report and
recommendation that its interpretation of Rule B(3)(a) was not too broad. For the
most part, Plaintiff admitted that money does not become subject to a new
attachment simply because it has left the garnishee’s hands. Nonetheless, Plaintiff
argued, the money does become available for a new attachment if it is sent to “a
third party non-garnishee found in this District and the property remains that of the
debtor.” But, as the district court noted, Plaintiff failed to object to the magistrate
judge’s finding that the money was no longer the property of debtor Quail at the
time that Plaintiff sought to attach the funds. Because Plaintiff failed to contest
that finding in its objections to the report and recommendations, and it was not
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clearly erroneous, the district court accepted the findings and rejected Plaintiff’s
argument.
The district court issued its order vacating Plaintiff’s Rule B attachment on
September 23, 2014, and Plaintiff filed this appeal from that order.
II. MOTION TO DISMISS AS MOOT
After the filing of this appeal, Jewel and Hainan filed a joint motion to
dismiss Plaintiff’s appeal as moot, asserting that once the district court vacated
Plaintiff’s Rule B attachment of the funds, Holland & Knight distributed those
funds to Jewel and Hainan, who then transferred them out of the district through
their ordinary course of business. Plaintiff had made no request that the funds be
held pending the outcome of the appeal, and no court had ordered that the status
quo be maintained. Because the funds were no longer in the district,1 Appellees
argued that the district court lacked in personam jurisdiction over Quail, and thus
the question whether the district court erred in vacating Plaintiff’s Rule B
attachment was moot.
Plaintiff countered that, with a Rule B attachment, in personam jurisdiction
existed over the defendant—as opposed to in rem jurisdiction over the res itself—
and therefore the fact that the property had left the district did not moot the appeal
1
Jewel and Hainan provided affidavits to support their assertion that the funds had indeed left
the district.
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because the district court would again have personal jurisdiction over Quail if the
attachment were reinstated. Plaintiff further argued that the removal of the money
from the district was premature because Hainan and Jewel were required to wait 14
days following the entry of judgment, which they had not done. 2 See Fed. R. Civ.
P. 62(a).
“If events that occur subsequent to the filing of a lawsuit or an appeal
deprive the court of the ability to give the plaintiff or appellant meaningful relief,
then the case is moot and must be dismissed.” Al Najjar v. Ashcroft, 273 F.3d
1330, 1336 (11th Cir. 2001). “The burden of establishing mootness rests with the
party seeking dismissal.” Beta Upsilon Chi Upsilon Ch. at the Univ. of Fla. v.
Machen, 586 F.3d 908, 916 (11th Cir. 2009).
Rule B attachments are known as “quasi-in-rem” proceedings, because they
are not actions directly against the res as a fictitious person, as is the case in in rem
actions, but are actions against a party who is not personally present in the district
but whose property is present. The Fifth Circuit has explained Rule B attachments,
as follows:
An in personam admiralty or maritime claim is instituted by a
complaint which may contain a prayer for process to attach the
defendant’s property found within the district. Whenever property is
attached any person claiming an interest therein is entitled to a prompt
hearing at which the plaintiff is required to furnish evidence
2
Hainan and Jewel have not responded to this last argument.
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supporting the attachment or other appropriate relief. It is sometimes
inaccurately stated that the writ of attachment gives the district court
quasi-in-rem jurisdiction over the defendant. A more precise
understanding is that a good-faith allegation in the complaint that the
res is present within the geographical jurisdiction of the court is the
jurisdictional fact which gives the court in personam jurisdiction over
the defendant purported to own the res.
Great Prize, S.A. v. Mariner Shipping Party, Ltd., 967 F.2d 157, 159 (5th Cir.
1992) (footnotes omitted).
Whether the subsequent departure of the res from a district in which it was
originally present thereby deprives the court of jurisdiction is a question that is not
entirely settled. Generally, however, “[s]tasis is not a . . . prerequisite to the
maintenance of jurisdiction. Jurisdiction over the person survives a change in
circumstances . . . .” Republic Nat’l Bank of Miami v. United States, 506 U.S. 80,
88 (1992). Noting that a civil forfeiture proceeding under 21 U.S.C. § 881 should
“conform as near as may be to proceedings in admiralty,” the Supreme Court has
held that an appeal in an in rem forfeiture action is not mooted, and “the Court of
Appeals is not divested of jurisdiction, by the prevailing party’s transfer of the res
from the district.” Id. at 84, 88–89. Other circuits have applied this holding to
Rule B attachments, determining that the departure of the attached res does not
destroy jurisdiction. See Stevedoring Servs. of Am. v. Ancora Transp., N.V., 59
F.3d 879, 882 (9th Cir. 1995) (“We read . . . the Court’s holding to eliminate any
requirement on a party seeking to institute a maritime attachment to obtain a stay
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or post a supersedeas bond to preserve the district court’s jurisdiction over the
garnished funds while it appealed the release of the garnished funds.”); Vitol, S.A.
v. Primerose Shipping Co., Ltd., 708 F.3d 527, 540–41 (4th Cir. 2013) (same); see
also 2 Thomas J. Schoenbaum, Admiralty and Maritime Law § 21-2, at 521 (5th
ed. 2011) (“Even if the res is released [in a Rule B attachment action], the court
retains jurisdiction.”).
Therefore, even though this Court has not directly confronted the question of
whether the Republic National Bank of Miami principle extends to Rule B
attachments, the above persuasive authority leads us to assume that a Rule B
attachment is not mooted simply by the fact that the res has left the district.
Indeed, even in a maritime in rem action, where the action is directly against the
res, the departure of the res from the district does not necessarily moot the case.
Republic Nat’l Bank of Miami, 506 U.S. at 84 (“[T]he Government relies on what
it describes as a settled admiralty principle: that jurisdiction over an in rem
forfeiture proceeding depends upon continued control of the res. We, however,
find no such established rule in our cases.”); see also United States v. One Lear Jet
Aircraft, Serial No. 35A-280, Registration No. YN-BVO, 836 F.2d 1571, 1579
(11th Cir. 1988) (en banc) (Vance, J., dissenting) (“As the doctrine of
personification of the ship loses force, so should the rules which rest on it. Among
the many such rules which courts have begun to jettison is the rule that the
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presence of the res within the jurisdiction of the court is an absolute prerequisite to
the court’s jurisdiction.” (citations omitted)). 3
Rather, the departure of the res moots the case only if further proceedings
would be “useless,” and as the Supreme Court made clear, the “enforceability of
judgments” does not “depend[] absolutely upon the continuous presence of the res
in the district.” Republic Nat’l Bank of Miami, 506 U.S. at 87–88. The purpose of
a Rule B attachment, as the Second Circuit has explained, is two-fold: “first, to
gain jurisdiction over an absent defendant; and second, to assure satisfaction of a
judgment.” Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434,
437–38 (2d Cir. 2006), overruled on other grounds by Shipping Corp. of India Ltd.
v. Jaldh: Overseas Pty Ltd., 585 F.3d 58 (2d Cir. 2009). If an absconding res does
not necessarily undermine the enforceability of a judgment, nor revoke the court’s
personal jurisdiction over the defendant, then mootness does not result. This
interpretation, moreover, makes good sense, because it removes an incentive for
defendants or garnishees to remove the res from the district. See Stevedoring
Servs. of Am., 59 F.3d at 882–83 (“Maintaining a continuous-control requirement
3
The majority of this Court in One Lear Jet held that in an in rem forfeiture action jurisdiction
was lost because the res was removed from the district after the district court’s final judgment,
but before the appeal was heard. 836 F.2d at 1573 (“Where an appellant fails to file a stay of
judgment or a supersedeas bond, and the res is removed from the court’s territorial jurisdiction,
the appellate court does not have in rem jurisdiction.”). One of our subsequent applications of
that holding, however, was reversed by the Supreme Court in Republic National Bank of Miami,
which cited Judge Vance’s One Lear Jet dissent approvingly. See Republic Nat’l Bank of
Miami, 506 U.S. at 83–84, 88.
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in quasi in rem proceedings would preserve an advantage for prevailing parties
eliminated and criticized in the in rem context, the opportunity to shield a district
court victory from review.”).
It is apparent that a favorable judgment for Plaintiff on this appeal would not
be a “useless” judgment for precisely the reason that Plaintiff articulates. It would
allow Plaintiff to maintain the district court’s personal jurisdiction over Quail
because Plaintiff would then arguably have a valid Rule B attachment. See Puerto
Rico Ports Auth. v. BARGE KATY-B, O.N. 606665, 427 F.3d 93, 102 (1st Cir.
2005) (pertaining to in rem action but indicating that the departure of the res did
not deprive court of jurisdiction because a favorable judgment “could serve as a
basis either for re-arresting the barge at any American port or for an in personam
action against the barge’s owner.”). Should Plaintiff subsequently succeed in an
action against Quail for the unpaid balance on the provisions it provided, the fact
that it might not immediately be able to execute the judgment does not make such a
judgment useless, because Plaintiff could seek to enforce it in another district
where Quail could be found. See Republic Nat’l Bank of Miami, 506 U.S. at 87–
88.
Thus, Appellees have not established mootness, and their motion to dismiss
the appeal for mootness is DENIED. We thus proceed to the merits of the appeal.
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III. STANDARD OF REVIEW
We review a district court’s order vacating a maritime attachment for abuse
of discretion. See Shipping Corp. of India Ltd. v. Jaldhi Overseas Pte Ltd., 585
F.3d 58, 66 (2d Cir. 2009). A district court abuses its discretion if it fails to apply
the proper legal standard or follow proper procedures in reaching its determination,
or if it makes a finding of fact that is clearly erroneous. Ass’n of Disabled
Americans v. Neptune Designs, Inc., 469 F.3d 1357, 1359 (11th Cir. 2006).
IV. WAS THE RULE B ATTACHMENT PROPERLY VACATED?
Under Rule B:
If a defendant is not found within the district when a verified
complaint praying for attachment and the affidavit required by
Rule B(1)(b) are filed, a verified complaint may contain a prayer for
process to attach the defendant’s tangible or intangible personal
property—up to the amount sued for—in the hands of garnishees
named in the process.
Fed. R. Civ. P. B(1)(a); see also Dresdner Bank AG v. M/V OLYMPIA VOYAGER,
463 F.3d 1233, 1238 (11th Cir. 2006). Rule B therefore requires, as a precondition
to its application, that the defendant not be present in the district, but that the
defendant’s property must be present there. Process is then served on the person in
possession of the property, who becomes the garnishee. Fed. R. Civ. P. B(1)(a).
That garnishee has certain responsibilities:
The garnishee shall serve an answer, together with answers to any
interrogatories served with the complaint, within 21 days after service
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of process upon the garnishee. Interrogatories to the garnishee may be
served with the complaint without leave of court. If the garnishee
refuses or neglects to answer on oath as to the debts, credits, or effects
of the defendant in the garnishee’s hands, or any interrogatories
concerning such debts, credits, and effects that may be propounded by
the plaintiff, the court may award compulsory process against the
garnishee. If the garnishee admits any debts, credits, or effects, they
shall be held in the garnishee’s hands or paid into the registry of the
court, and shall be held in either case subject to the further order of
the court.
Fed. R. Civ. P. B(3)(a) (emphases added).
Plaintiff’s argument that its attachment was improperly vacated comes down
to its reading of the last sentence of Rule B(3)(a). Plaintiff contends that this
sentence opens a window for its own Rule B attachment because the settlement
funds were neither deposited into the district court’s registry nor, once Viagens had
transferred the funds to Holland & Knight, a non-garnishee, held by the garnishee.
Moreover, according to Hainan’s motion to release the funds, they were to remain
the “property of Quail” throughout the process. In short, Plaintiff argues that when
it sought the writ of attachment, the funds were still Quail’s property and were held
in the district by a party that was not a garnishee. Because this was contrary to the
command of Rule B(3)(a), Hainan’s writ of attachment lapsed and Plaintiff
contends it could then seek its own Rule B attachment.
In their joint response, Appellees argue that the funds were not the property
of Quail—they were being held in trust for Hainan and Jewel—and therefore they
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were not available for attachment by Plaintiff. Appellees further argue that the
funds remained under the authority of federal courts during the two-stage
disbursement process and that the Hainan Rule B attachment was never vacated.
Plaintiff cites no authority in support of its position that, under these
conditions, a Rule B attachment lapses or a party may assert a new Rule B
attachment. Nor can this Court find any legal support for this novel view. The text
of Rule B(3)(a) nowhere says that an attachment lapses if the court orders the res
transferred to a non-garnishee for distribution to the ultimate recipients. Moreover,
although the text of Rule B(3)(a) does state that the funds should be held in the
court’s registry or by the garnishee, it immediately afterwards says that that is
“subject to the further order of the court.” That is precisely what was done here,
with Viagens holding the funds until the court ordered them distributed, first to
Holland & Knight, then to Hainan and Jewel. Plaintiff’s reading of Rule B(3)(a)
therefore holds no water, either as a stand-alone interpretation or as applied to this
case.
Further, the record undermines Plaintiff’s factual characterization of the
case. In its motion to the district court, Hainan stated:
Hainan does not wish to dismiss the subject action until it has received
full payment of the portion it is due under the Chapter 15 settlement.
[Viagens] does not wish to violate the Federal Attachments and
therefore will not commence any of the transfers outlined above
without authority from this Honorable Court. Accordingly, the parties
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have agreed and hereby request that the Court issue an Order
authorizing [Viagens] to initiate the transfer outlined above
notwithstanding the Federal Attachments.
Thus, Hainan proposed that “[u]pon Hainan’s receipt of full payment of its portion
of the $2.5 Million that is the property of Quail . . . , this action shall be dismissed
with prejudice . . . .” The district court signed Hainan’s proposed draft order,
which stated:
2. [Viagens] will transfer $2.5 million that is the property of Quail
. . . to the [Holland & Knight] Account.
3. [Viagens] will transfer $2.5 million that is the property of Quail
Travel to the Quail Travel Account.
4. Upon Hainan’s receipt of the full payment of its portion of the
$2.5 million that is the property of Quail . . . , the parties shall
forthwith file a stipulation of dismissal with prejudice, with
each party to bear its own attorney’s fees and costs.
It is clear that, in context, the reference to “the property of Quail” is meant to
distinguish the $2,500,000 earmarked for Hainan and Jewel from the same amount
of money that was to go to Quail Travel. There is no plausible rationale for
Plaintiff’s interpretation that Hainan wanted to make sure that the funds remained
Quail’s property throughout the process.
For these reasons, we conclude that the Hainan Rule B attachment remained
in effect until after the receipt of the funds by Hainan and Jewel. Contrary to
Plaintiff’s assertions, it is irrelevant that the funds were transferred to non-
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garnishee Holland & Knight for disbursement because the Hainan Rule B
attachment remained in effect until the funds had been received by Hainan and
until the parties thereafter filed their stipulation of dismissal with prejudice.
V. CONCLUSION
The district court did not err in vacating Plaintiff’s Rule B attachment
because the funds Plaintiff sought to attach were at that time still subject to the
prior Hainan Rule B attachment.
AFFIRMED.
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