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

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-1189
FLAME S.A.,
Plaintiff - Appellee,
v.
FREIGHT BULK PTE. LTD.,
Defendant - Appellant,
and
INDUSTRIAL CARRIERS, INC.; VISTA SHIPPING, INC.; VIKTOR
BARANSKIY; GLORY WEALTH SHIPPING PTE LTD.,
Defendants.
Appeal from the United States District Court for the Eastern
District of Virginia, at Norfolk. Robert G. Doumar, Senior
District Judge. (2:13-cv-00658-RGD-LRL)
Argued: May 14, 2014 Decided: August 5, 2014
Before WILKINSON, AGEE, and DIAZ, Circuit Judges.
Affirmed by published opinion. Judge Agee wrote the opinion, in
which Judge Wilkinson and Judge Diaz joined. Judge Wilkinson
wrote a separate concurring opinion.
ARGUED: Charles Alan Rothfeld, MAYER BROWN, LLP, Washington,
D.C., for Appellant. William Robert Bennett, III, BLANK ROME
LLP, New York, New York, for Appellee. ON BRIEF: Carmine R.
Zarlenga, Richard Caldarone, Paul W. Hughes, MAYER BROWN LLP,
Washington, D.C., for Appellant. Alan M. Weigel, Lauren B.
Wilgus, Nicholas R. Tambone, BLANK ROME LLP, New York, New York,
for Appellee.
2
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
3
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, 2014 WL 2609648 (2d Cir. June 12, 2014), an easy to follow
narrative of the type of agreement at issue here:
1
Three of the FFAs specified Flame as the seller and ICI as
the buyer. The fourth was the reverse, with ICI as seller and
Flame as the buyer. The record reflects only that ICI was a
foreign corporation, but does not identify its country of
origin.
4
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, causing 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, 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
5
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
2
No federal statute provides for the recognition of foreign
judgments. Instead, federal courts generally recognize judgments
of foreign courts out of comity. See Hilton v. Guyot, 159 U.S.
113, 163–64, 202–03 (1895).
6
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 pursuant 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
3
The United States District Court for the Southern District
of New York entered default judgment in recognition of the well-
established rule that “‘a corporation may appear in the federal
courts only through licensed counsel.’” See In re Under Seal,
749 F.3d 276, 290 n.17 (4th Cir. 2014).
7
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 . . . and the importance of clarifying the procedural
issues presented,” the district court certified the matter for
expedited appeal to this Court. Flame S.A. v. Industrial
Carriers, Inc., No. 2:13-cv-658, 2014 WL 108897, at *4 (E.D. Va.
4
In its Rule E(4)(f) motion to vacate, Freight Bulk also
asserted that Flame’s Complaint failed to set forth a legally
sufficient basis upon which to pierce Freight Bulk’s corporate
veil. The district court withheld ruling on this separate issue
of whether Flame properly pled that Freight Bulk is the
corporate alter ego of ICI. As that question was not decided by
the district court, it is not before us on appeal, and we offer
no opinion on the issue.
8
Jan. 10, 2014). Freight Bulk then sought permission to file an
interlocutory appeal, which this Court granted. 5
II.
This case presents two distinct issues on appeal, both of
which concern the court’s subject matter jurisdiction. First, we
must determine whether federal law or foreign law controls our
jurisdictional inquiry. Second, we must consider whether the
FFAs at issue in this case are maritime contracts under the
controlling law, establishing whether the district court could
properly exercise admiralty jurisdiction in this case. We review
the district court’s legal conclusions regarding its own subject
matter jurisdiction de novo. See Vitol, S.A. v. Primerose
Shipping Co., 708 F.3d 527, 533 (4th Cir. 2013). “We review the
district court’s factual findings with respect to jurisdiction
for clear error.” Velasco v. Gov’t of Indon., 370 F.3d 392, 398
(4th Cir. 2004).
5
Section 1292(b) of 28 U.S.C. allows for the interlocutory
appeal of an otherwise unappealable order when a district court
judge certifies that the order “involves a controlling question
of law as to which there is substantial ground for difference of
opinion and that an immediate appeal from the order may
materially advance the ultimate termination of the litigation.”
9
III.
A.
“The judicial Power [of the United States] extend[s] . . .
to all Cases of admiralty and maritime Jurisdiction.” U.S.
Const. art. III, § 2. In addition to this constitutional grant
of original jurisdiction to the federal courts over admiralty
matters, Congress has made plain the federal courts’ exclusive
authority over admiralty cases first with the Judiciary Act of
1789 and presently in 28 U.S.C. § 1333. That statute provides
that “The district courts shall have original jurisdiction,
exclusive of the courts of the States, of: (1) Any civil case of
admiralty or maritime jurisdiction, saving to suitors in all
cases all other remedies to which they are otherwise entitled.”
28 U.S.C. § 1333; see Judiciary Act of 1789, § 9, Ch. 20, 1
Stat. 73, 76–77.
Since the Founding, the Supreme Court has made clear the
authority and primacy of the federal courts in matters of
admiralty particularly as relates to the recognition of foreign
admiralty judgments.
It is well recognized that federal
courts in the United States possess
jurisdiction in admiralty over claims to
enforce a foreign admiralty judgment. See,
e.g., 1 Benedict on Admiralty § 106
(“[A]dmiralty jurisdiction in the United
States may be broadly stated as extending to
... any claim to enforce a judgment of a
foreign admiralty court.”). Even in the
10
earliest days of the Republic, the Supreme
Court *534 confirmed that the courts of the
United States possess jurisdiction to
recognize the admiralty decrees of foreign
admiralty courts. See Penhallow v. Doane's
Adm'rs, 3 U.S. (3 Dall.) 53, 97, 1 L. Ed.
507 (1795) (Iredell, J.) (“It was clearly
shown at the bar, that a Court of Admiralty,
in one nation, can carry into effect the
determination of the [C]ourt of Admiralty of
another.”).
Vitol, 708 F.3d at 533–34.
To proceed on a request for a Rule B writ of maritime
attachment, the plaintiff must have a claim against the
defendant that is cognizable in admiralty. See Vitol, 708 F.3d
at 533–34 (considering whether the court had admiralty
jurisdiction over a request for attachment under Rule B). In the
case before us, the initial issue is whether United States
courts apply the law of the foreign jurisdiction that rendered
the judgment to determine if the claim is cognizable in
admiralty or whether the maritime law of the United States
determines the admiralty status of that claim.
As the district court recognized, the distinction between
English and American law is determinative in the case at bar.
It is apparent to the Court that under
English law the [FFAs] would not be maritime
contracts and as a result the English
judgment in this matter would not be an
admiralty judgment. Therefore, if English
law were used in addressing this Rule B
attachment, no admiralty jurisdiction would
exist.
11
Under federal law, however, it appears
that the [FFAs] in question would certainly
be maritime contracts.
Flame, 2014 WL 108897, at *3. Thus, the district court concluded
“if federal law is applied, then this Court has admiralty
jurisdiction. If English law is applied, there is no admiralty
jurisdiction.” Id. at *1.
Both before the district court and on appeal, Freight Bulk
has argued that a claim to enforce a foreign judgment falls
within a federal court’s admiralty and maritime jurisdiction
only if the claim underlying the foreign judgment would be
considered a maritime claim under the laws of the foreign
jurisdiction that rendered the judgment. The district court
rejected Freight Bulk’s argument and concluded that the maritime
nature of a claim to enforce a foreign judgment must be
determined under the laws of the United States. The district
court characterized the issue as “a question of choice of law on
a procedural issue” and noted that “[g]enerally, procedural
questions in federal court are governed by federal law,” which
led it to its ultimate conclusion that “federal law should
inform this Court’s determination of whether it has admiralty
jurisdiction.” Flame, 2014 WL 108897, at *2, *3.
The district court determined that there was no directly
applicable Fourth Circuit precedent on the issue despite Freight
Bulk’s argument that our prior decision in Vitol dictated a
12
result in its favor. In the absence of controlling authority,
the district court looked to analogous precedent from the
Supreme Court in Norfolk Southern Railway v. Kirby, 543 U.S. 14(2004), and the Second Circuit’s opinion in Blue Whale Corp. v.
Grand China Shipping Development Co., 722 F.3d 488 (2d Cir.
2013). In our review of the district court’s decision and the
arguments presented to us, we first examine the impact of Vitol
and then consider the application of other precedent.
B.
Freight Bulk contends that our prior opinion in Vitol
requires holding that a claim’s characterization under foreign
law controls our jurisdictional inquiry. We disagree. Freight
Bulk’s reliance on Vitol is misplaced.
In Vitol, we considered whether a district court’s Rule B
attachment order to enforce a foreign admiralty judgment was
properly issued. 708 F.3d at 533. The defendants-appellees in
Vitol (the companies owning or controlling the vessel) argued
that the district court lacked admiralty jurisdiction because
the plaintiff-appellant (the company seeking Rule B attachment
and judgment holder) elected to pursue its cause of action in
the English Commercial Court rather than the Admiralty Court
(both part of the English High Court of Justice). In the Vitol
appellants’ view this choice of forum in England made the
13
foreign judgment obtained a non-admiralty judgment. 6 Id. at 534.
We rejected that argument:
[The appellee ship owners] ask this Court to
hold that the choice of forum in England,
not the subject matter of the underlying
claim, is dispositive of whether
jurisdiction lies with the district court
pursuant to 28 U.S.C. § 1333. In other
words, [appellees] contend that [the] choice
of forum in the English Commercial Court for
an otherwise valid admiralty claim there
divests any resulting judgment of its
admiralty character in this country so it
can no longer be considered as an admiralty
matter. We find this argument unpersuasive
and unsupported.
The approach advocated by [appellees],
which looks purely to form at the expense of
substance, is unsupported by citation to any
case as authority for its position. Indeed,
the dispositive question is not whether the
English Judgment issued from an “admiralty
court,” but rather, whether the claim itself
is maritime in nature.
Id. at 535 (emphasis added).
The issue Freight Bulk now raises, whether federal or
foreign law applies when characterizing a foreign judgment as an
admiralty judgment for purposes of federal jurisdiction, was not
an issue in Vitol. As the Second Circuit recognized in D’Amico:
the Vitol decision did not constitute a
precedent on the question whether the
maritime character of the claim under U.S.
6
The parties in Vitol did not dispute that the claim at
issue was a maritime claim under either federal law or English
law or that the English court had jurisdiction to render its
judgment. See Vitol, 708 F.3d at 533–35.
14
law is pertinent, both because the Vitol
court never considered the question whether
U.S. law should be consulted, and because
the answer would have been the same under
either British or U.S. law, as the
underlying claim (breach of the warranty of
seaworthiness) is maritime in both nations.
Vitol never considered whether the maritime
character of the underlying claim under U.S.
law standards justifies the exercise of
federal admiralty jurisdiction.
2014 WL 2609648, at *6. Vitol resolved the isolated issue raised
in that case and no more. Freight Bulk’s argument to the
contrary is without merit.
C.
Supreme Court precedent strongly indicates that federal law
should control our determination of whether a claim, such as the
FFA dispute in this case, sounds in admiralty. Although the
Supreme Court has not directly addressed the issue, its opinion
in Kirby offers guidance.
In Kirby, the Supreme Court considered whether federal or
state law governed the interpretation of two maritime contracts.
543 U.S. at 22–23. The Court concluded that “[w]hen a contract
is a maritime one, and the dispute is not inherently local,
federal law controls the contract interpretation.” Id. In
reaching this conclusion, the Supreme Court explained that
Article III’s purpose in granting admiralty jurisdiction to the
federal courts was to provide for the uniformity of maritime law
15
throughout the country, including the uniform interpretation of
maritime contracts. Id. at 28.
It certainly could not have been the
intention [of Article III] to place the rule
and limits of maritime law under the
disposal and regulation of the several
States, as that would have defeated the
uniformity and consistency at which the
Constitution aimed on all subjects of a
commercial character affecting the
intercourse of the States with each other or
with foreign states.
Id. at 28–29; see also Ins. Co. v. Dunham, 78 U.S. (11 Wall.) 1,
24 (1870) (holding that “the admiralty and maritime jurisdiction
of the United States is not limited either by the restraining
statutes or the judicial prohibitions of England, but is to be
interpreted by a more enlarged view of its essential nature and
objects”). As the district court observed, based upon the
constitutional principle of uniformity in the maritime context,
“it could not have been the intention of Article III’s grant of
admiralty jurisdiction to place the rules and limits of maritime
law under the disposal and regulation of foreign states.” Flame,
2014 WL 108897, at *2 n.2.
This conclusion was bolstered by the Second Circuit’s
opinion in Blue Whale, which is instructive in part. While
seemingly on point, the Blue Whale decision discusses the
similar, but ultimately distinct, issue of whether a plaintiff
“has a valid prima facie admiralty claim” for purposes of
16
satisfying the four-factor test for issuing a Rule B attachment
adopted in Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd.,
460 F.3d 434 (2d Cir. 2006). Blue Whale, 722 F.3d at 493. The
Second Circuit split its inquiry into two parts: (1) whether the
plaintiff alleged a claim sounding in admiralty, and (2) whether
that claim is prima facie valid. Id. Recognizing a “split of
authority” in the Southern District of New York, the Second
Circuit reached the choice-of-law issue even though “[n]either
party disputed that [the plaintiff] had alleged a claim sounding
in admiralty and that the court had maritime jurisdiction.” Id.
at 491. The court explained:
Despite the divide, what is clear is that
federal law controls the procedural inquiry,
namely, whether a plaintiff’s claim sounds
in admiralty. This question is inherently
procedural by virtue of its relationship to
the courts’ subject matter jurisdiction and,
thus, is controlled by federal maritime
law. . . . We hold that federal maritime law
governs whether a claim sounds in admiralty.
Id. at 494–95. 7 Thus, while helpful, the Second Circuit’s
treatment of the issue in Blue Whale is only analogous
precedent.
After briefing and oral argument in the case at bar, the
Second Circuit decided D’Amico which does directly address the
jurisdictional question before us. In D’Amico, the holder of an
7
The court then proceeded to the second part of its
inquiry, which is not relevant to this case.
17
English judgment sought attachment under Rule B invoking the
district court’s admiralty jurisdiction. 2014 WL 2609648, at *1.
The district court concluded that it lacked jurisdiction because
“the maritime nature of [a] claim must be determined by
reference to the law of the nation that rendered the judgment,”
and under the laws of England, “the claim underlying the
judgment was not deemed maritime in English law.” Id. at *2.
The Second Circuit vacated the judgment of the district
court, holding that “a suit to enforce a foreign judgment may be
heard in the federal admiralty jurisdiction under § 1333 if the
claim underlying the judgment would be deemed maritime under
U.S. law.” Id. at *9. In a thorough analysis, the D’Amico court
persuasively concluded that choice of law principles support
using federal law because “[t]he question whether a claim
belongs in one or another court is jurisdictional and
procedural,” and “[u]nder choice of law principles, the law of
the forum state is used for such a question.” Id. at *8. 8
The Second Circuit in D’Amico reached the same conclusion
that Kirby leads us to: that by extending federal jurisdiction
to “all Cases of admiralty and maritime Jurisdiction,” “the
Framers of the Constitution and Congress wanted to ensure that
8
In the district court and before us, Freight Bulk relied
on the decision from the Southern District of New York in
D’Amico. Now that the Second Circuit has reversed that decision,
Freight Bulk is left with scant authority for its argument.
18
matters deemed maritime under our laws have access to our
federal courts.” Id. at *7. As the D’Amico court explained:
The policy of the United States to place
maritime matters in the federal courts is so
strong that § 1333 makes federal court
jurisdiction exclusive. Although, as a
general proposition, there is widespread
agreement throughout the world which kinds of
matters are maritime and which are not, there
is no assurance that some other nation might
not define its own maritime jurisdiction more
broadly, or more narrowly, than we do. It
seems reasonable to assume that the Framers
of the Constitution and Congress wanted to
ensure that matters deemed maritime under our
laws have access to our federal courts. There
is no reason to suppose that the Founders or
Congress would have wished to exclude from
the admiralty jurisdiction matters that U.S.
law deems maritime, merely because another
nation does not consider them maritime. The
fact that some nation, unlike ours, does not
reserve a special jurisdiction for maritime
matters, or classify maritime matters as
subject to a discrete body of laws, does not
derogate from the policies of our law to
provide for the adjudication of matters we
regard as maritime in our federal courts.
Id. at *7.
Based on the Supreme Court’s reasoning in Kirby and the on-
point and persuasive opinion in D’Amico, we hold that federal
law, rather than foreign law, controls the procedural inquiry
into whether a foreign judgment is a maritime judgment. Thus, a
claim to enforce a foreign maritime judgment is within the
admiralty subject matter jurisdiction of United States courts
19
when the claim underlying the judgment would be an admiralty or
maritime claim under federal law.
IV.
A.
Having determined that federal law controls our
jurisdictional inquiry, we must now consider whether the FFAs at
issue in this case are maritime contracts under federal law. If
the FFAs are not maritime contracts, then the district court’s
admiralty jurisdiction could not be invoked.
“The boundaries of admiralty jurisdiction over contracts—as
opposed to torts or crimes—being conceptual rather than spatial,
have always been difficult to draw.” Kossick v. United Fruit
Co., 365 U.S. 731, 735 (1961). Whether a contract is maritime
depends not upon “whether a ship or other vessel was involved in
the dispute.” Kirby, 543 U.S. at 23. “Instead, the answer
‘depends upon . . . the nature and character of the contract,’
and the true criterion is whether it has ‘reference to maritime
service or maritime transactions.’” Id. at 24; see 1-XII
Benedict on Admiralty § 182 (providing that “a contract relating
to a ship in its use as such, or to commerce or navigation on
navigable waters, or to transportation by sea or to maritime
employment is subject to maritime law and the case is one of
admiralty jurisdiction”).
20
In consideration of this question, the district court
stated, “Under federal law, it is clear that the question of
whether the [FFAs] are maritime contracts is answered in the
affirmative,” citing a number of decisions holding that certain
FFAs are maritime contracts. Flame, 2014 WL 108897, at *3. Thus,
the district court seemingly made a broad holding that all FFAs
are maritime contracts under federal law.
However, other language in the district court’s opinion
indicates that its holding is more nuanced and specific to the
FFAs in this case. For example, the district court observed that
“Flame’s use of [FFAs] appears to have been primarily for
hedging the risks inherent in their shipping business” and that
“the [FFAs] in question would certainly be maritime contracts,”
which Freight Bulk also challenges. Id. (emphasis added). The
district court then seemed to express a case-specific holding
that “the FFAs in question (and Flame’s underlying claim) are
maritime contracts.” Id.Ultimately, we need not resolve whether all FFAs are
maritime contracts as a matter of law or remand the case for
further consideration. Instead, because the district court made
factual findings limited to the FFAs involved here, we affirm
the district court’s judgment with respect to the FFAs at issue
in this case. We leave to another case the issue of whether all
FFAs are maritime contracts as a matter of law.
21
B.
On appeal, Freight Bulk argues that the FFAs cannot be
maritime contracts because they have no connection to any
particular vessel or to the transport of any particular cargo.
Freight Bulk points out that the FFAs at issue in this case
could be settled only with cash and not by delivery (i.e.,
performance of an actual shipment across the designated route).
And Freight Bulk posits that FFAs cannot be maritime contracts
because they are nothing more than financial bets on the
direction of the freight shipping market.
First, with respect to Freight Bulk’s argument that the
FFAs have no connection to any particular vessel or shipment,
the Supreme Court has directly held that a maritime contract
need not refer to any particular vessel. See Kirby, 543 U.S. at
23 (“To ascertain whether a contract is a maritime one, we
cannot look to whether a ship or other vessel was involved in
the dispute.”). Nor do maritime contracts need to refer to any
particular shipment. See generally Folksam. Reinsurance Co. v.
Clean Water of N.Y., Inc., 413 F.3d 307 (2d Cir. 2005) (holding
that an insurance contract providing coverage for losses
sustained to vessels while undergoing repairs is a maritime
contract). In fact, several district courts have concluded that
FFAs are maritime contracts regardless of the fact that they do
not refer to any particular vessels or shipments because “the
22
purpose of the [FFA] is to facilitate maritime commerce.” Flame
S.A. v. M/V Lynx, No. 10-00278, 2010 U.S. Dist. LEXIS 145880, at
*9 (E.D. Tex. June 22, 2010); see Transfield ER Futures Ltd. v.
Deiulemar Shipping S.P.A., Nos. 11-00099, 11-00754, 2012 WL
123286, at *3 (E.D. La. Jan. 17, 2012) (concluding that “the
very essence of these FFAs concerns commitments to perform
shipping services in the future” and that the FFA contracts,
like those at issue in this case, provided “contract routes,
contract months, contract quantity, the date upon which payment
was due for such services and contract rates that would govern
each particular contract”). Thus, the fact that the FFAs in this
case did not refer to a particular vessel or a particular voyage
is not dispositive.
Second, the fact that the FFAs could be settled only with
cash also does not defeat the conclusion that these FFAs are
maritime contracts. Again, marine insurance contracts are
usually maritime contracts as a matter of law. See Dunham, 78
U.S. (11 Wall.) at 30-36. Marine insurance contracts cover risks
inherent in maritime transportation, and, like the FFAs in this
case, marine insurance contracts call for the payment of cash
rather than the execution of a maritime shipment. See Int’l Sea
Food Ltd. v. M/V Campeche, 566 F.2d 482, 485 (5th Cir. 1978); 16
Williston on Contracts § 49:28 (4th ed. 2014 supp.). Thus, that
23
the FFAs call for cash settlement does not preclude the
conclusion that they are maritime contracts.
Lastly, as Freight Bulk points out, while in some cases
financial speculators could enter into an FFA on either side of
the transaction, we need not resolve the global issue of whether
all FFAs are maritime contracts. In this case, there is no
dispute that both Flame and ICI are shipping companies
principally engaged in maritime commerce. It thus follows, as
the district court found, that Flame and ICI did not create the
FFAs as mere financial speculators, but as a component of their
shipping businesses. The district court expressly found that the
parties entered into the FFAs “primarily for hedging the risks
inherent in their shipping business,” a finding that Freight
Bulk fails to demonstrate is clearly erroneous. 9 Flame, 2014 WL
108897, at *3.
We therefore hold that the district court did not err in
concluding that the FFAs at issue in this case are maritime
9
Freight Bulk contests this finding by arguing that Flame
was listed as the seller on some of the FFAs and thus could not
have been using the FFAs as a hedge. However, Freight Bulk does
not contest that the FFAs listing Flame as the seller were used
by the parties as hedges in their shipping businesses or that
both Flame and ICI are chiefly engaged in the business of
international shipping. Thus, consistent with the district
court’s finding, all of the FFAs here were used “primarily for
hedging the risks inherent in” international shipping regardless
of which party was listed as the buyer or seller on each
instrument.
24
contracts. Accordingly, the district court had subject matter
jurisdiction to adjudicate the matter before it. 10
V.
For the foregoing reasons, we affirm the district court’s
decision.
AFFIRMED
10
We note that our holding is consistent with that of a
number of out-of-circuit district courts that have considered
whether similar FFAs are maritime contracts under federal law.
See Transfield, 2012 WL 123286, at *3; Flame, 2010 U.S. Dist.
LEXIS 145880, at *12; Primera, 2010 WL 481075, at *2; Brave Bulk
Transport Ltd. v. Spot On Shipping Ltd., No. 07 Civ. 4546(CM),
2007 WL 3255823, at *2 (S.D.N.Y. Oct. 30, 2007).
25
WILKINSON, Circuit Judge, concurring:
I readily concur in Judge Agee’s fine opinion in this case.
Notwithstanding my respect for English law, and in full
agreement with the majority opinion, I write to underscore my
conviction that the availability of federal admiralty
jurisdiction simply must be determined by domestic, rather than
foreign, law.
First, applying the law of the forum -- here, federal court
-- accords with basic choice-of-law principles. In Blue Whale
Corp. v. Grand China Shipping Development Co., 722 F.3d 488, 494
(2d Cir. 2013), the Second Circuit held that the question of
whether a claim “sounds in admiralty” is “inherently procedural
by virtue of its relationship to the courts’ subject matter
jurisdiction,” that jurisdiction being, in the Second Circuit’s
view, a procedural matter. Because courts generally apply their
own procedural law, the jurisdictional issue “is controlled” by
the law of the forum: federal maritime law.
In fact, the argument for applying domestic law is even
stronger than the Second Circuit suggested. Rules of
jurisdiction are conceptually distinct from rules of procedure;
the former determine whether a court is competent to hear a
particular case, whereas the latter govern how the court is to
hear it. See Bowles v. Russell, 551 U.S. 205, 210-11 (2007);
26
Scott Dodson, In Search of Removal Jurisdiction, 102 Nw. U. L.
Rev. 55, 59-60 (2008).
Therefore, a court could theoretically import foreign
procedure, just as it might use foreign substantive law as its
rule of decision. Strictly speaking, however, it is incoherent
to speak of adopting foreign law to decide the jurisdictional
question. Jurisdiction is the sovereign grant of authority to
make legally binding rules or determinations in a particular
situation. To allow foreign law to dictate the availability of
subject-matter jurisdiction would be to divest the Constitution
and Congress of their sovereign authority to decide the extent
of the power of the judicial branch. In other words, federal
courts would no longer be acting as courts of the United States,
since their power would be exercised pursuant to a grant of
authority from a different sovereign -- here, the foreign
jurisdiction. It would, as Justice Story recognized in a
related context, “annihilate the sovereignty and equality of the
nations,” and violate the principle that “every nation must
judge for itself, what is its true duty in the administration of
justice.” Joseph Story, Commentaries on the Conflict of Laws
§§ 32, 34 (1834).
Second, considerations of administrability counsel in favor
of using domestic, rather than foreign, law to determine
subject-matter jurisdiction. Even if we limit ourselves to the
27
many major maritime commercial powers, that would still require
courts seeking to determine jurisdiction to analyze a different
body of foreign law every time a contract with a different
choice-of-forum or -law clause or every time a judgment from a
different rendering jurisdiction came before them. See D’Amico
Dry Ltd. v. Primera Maritime (Hellas) Ltd., No. 11-3473-cv, 2014
WL 2609648, at *8 (2d Cir. June 12, 2014). To make matters
worse, other countries may not have the same conceptual
frameworks for determining jurisdiction or maritime status as we
do. This will often make asking whether a contract or judgment
is maritime under their law for the purposes of our requirements
of subject-matter jurisdiction anything but an apples-to-apples
analysis, if not entirely meaningless.
Not only would this inquiry be incongruous, it would also
impose an immense administrative burden on the judicial process.
Our own law distinguishing maritime from non-maritime contracts
has frequently been pilloried as opaque and arbitrary. See,
e.g., Charles L. Black, Jr., Admiralty Jurisdiction: Critique
and Suggestions, 50 Colum. L. Rev. 259, 264 (1950) (“The attempt
to project some ‘principle’ is best left alone. There is about
as much ‘principle’ as there is in a list of irregular verbs.”).
To force courts and litigants down the rabbit hole of
incorporating the law of various foreign countries at the
jurisdictional stage would only make matters worse. See
28
D’Amico, 2014 WL 2609648, at *8. Limiting the inquiry to the
maritime status of a contract or judgment under domestic law is
the best and most administrable option.
Third, applying domestic law in this case accords with the
Constitution’s and Congress’s vesting of admiralty jurisdiction
in federal courts. Imagine what would happen if we held that
foreign law controlled the jurisdictional inquiry here. The
federal court would lack admiralty jurisdiction and appellee
would likely thus have to file suit in state court. (The same
situation would occur if the parties were U.S. but non-diverse.)
Thus, the state court would probably be the only available forum
to hear the claim and the special procedures associated with
federal admiralty jurisdiction might not be available.
None of this is to say that state courts are incapable of
properly adjudicating maritime issues. But it does fly in the
face of the Constitution’s vesting of subject-matter
jurisdiction in Article III courts over “all Cases of admiralty
and maritime Jurisdiction,” U.S. Const. art. III, § 2, cl. 1
(emphasis added), and Congress’s grant to federal district
courts, virtually unchanged since the Judiciary Act of 1789, of
subject-matter jurisdiction over “[a]ny civil case of admiralty
or maritime jurisdiction,” 28 U.S.C. § 1333(1) (emphasis added).
Whether to promote greater uniformity in maritime law or to
ensure the vindication of American maritime interests, the
29
Framers clearly wanted federal courts to possess admiralty
jurisdiction over those cases that the courts believed to be
maritime in nature. See D’Amico, 2014 WL 2609648, at *7.
Allowing foreign law to control the jurisdictional inquiry would
subvert this goal and constrict the space that federal courts,
already sandwiched between foreign and state law, possess to sit
in admiralty.
Fourth and finally, applying domestic rather than foreign
law in determining subject-matter jurisdiction advances the
national policy goals of the Constitution’s grant of admiralty
jurisdiction to federal courts: the “advantages resulting to the
commerce and navigation of the United States.” DeLovio v. Boit,
7 F. Cas. 418, 443 (C.C.D. Mass. 1815) (No. 3776) (Story, J.);
see also Sisson v. Ruby, 497 U.S. 358, 367 (1990) (“The
fundamental interest giving rise to maritime jurisdiction is the
protection of maritime commerce . . . .”) (internal quotation
marks omitted). This is because, in determining what counts as
advancing the United States’ maritime interests, we must by
necessity refer to our own conception of what counts as
“maritime”; after all, “we have a maritime law of our own.” The
Lottawanna, 88 U.S. 558, 574 (1874). Although this particular
contract is between two non-U.S. parties engaging in a private
financial transaction, the United States still has an interest
in providing a forum for this type of contract, especially since
30
U.S. parties to a similar arrangement would benefit from being
able to seek enforcement.
Appellant argues that international comity requires us to
use foreign law to determine subject-matter jurisdiction. See
Appellant’s Br. at 18 & n.6. It notes that, in the interests of
international comity, federal courts exercise admiralty
jurisdiction over judgments issued by foreign tribunals sitting
in admiralty, even if the judgments would not otherwise be
treated as maritime under U.S. law. See Int’l Sea Food Ltd. v.
M/V Campeche, 566 F.2d 482, 485 (5th Cir. 1978); see also Vitol,
S.A. v. Primrose Shipping Co., 708 F.3d 527, 536 & n.4 (4th Cir.
2013).
Appellant would have us extend this rule and declare that
federal courts must refuse to assert admiralty jurisdiction over
contracts or judgments characterized as non-maritime by their
rendering forums. Neither logic nor comity dictates this
result. Just because we accept the foreign characterization of
a dispute for the purpose of exercising admiralty jurisdiction –
- a jurisdictional expansion -- does not mean that we must also
accept it for the purpose of refusing to hear a case in
admiralty -- a jurisdictional contraction. The former
accommodation is supported by considerations of international
comity; the latter is not.
31
Comity is satisfied as long as one court enforces the
judgment of another court. Thus, it should not matter to the
rendering court under what technical head of jurisdiction its
judgment is ultimately enforced, at least where, as here, there
is no indication that the rendering forum intended its judgment
to be effectuated in only a particular way. See D’Amico, 2014
WL 2609648, at *8. It is hard to fathom the British High Court
of Justice caring what jurisdictional subclause of Article III,
Section 2 the federal court invokes to enforce the judgment. It
should be enough that a plaintiff in possession of a favorable
English judgment is given the maximum constitutionally
permissible freedom to choose his preferred forum -– here, a
federal court sitting in admiralty. If anything, such a rule
enhances, rather than diminishes, comity. It may also make it
easier for U.S. parties to enforce contracts such as the one
here in foreign maritime courts.
To be sure, foreign law is not irrelevant to the
determination of whether federal admiralty jurisdiction exists.
The status of the contract or judgment under foreign law informs
the inquiry in important ways. The question of whether a legal
issue is maritime in nature is not an exercise in logic chopping
wholly internal to the conceptual schemas of American
jurisprudence; instead, it asks whether, as a practical matter,
the “principal objective of [the] contract is maritime
32
commerce.” Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 25 (2004).
The reasoned judgments of experienced jurists, foreign or
domestic, on this issue are due respectful consideration by
federal courts. Additionally, whether other countries
characterize a contract as maritime might have collateral
consequences that may affect its real-world impact on maritime
commerce -- for example, in terms of how the contract is
interpreted overseas or what procedures its interpretations are
afforded.
Nevertheless, the ultimate question of whether a contract
or judgment is maritime for the purpose of supporting federal
admiralty jurisdiction must, for the reasons explained above, be
answered by reference to domestic rather than foreign law.
While foreign law may or may not be instructive under the
circumstances, it cannot determine the subject matter
jurisdiction of an American court. And, as ably demonstrated in
Judge Agee’s majority opinion, the contract here has a
“genuinely salty flavor.” Kossick v. United Fruit Co., 365 U.S.
731, 742 (1961). Thus, federal admiralty jurisdiction properly
lies.
33