Seattle Maritime Lawyers & Attorneys : Mikkelborg Broz Law Firm : Collision and Salvage, Fisheries, Jones Act : Seattle, Washington

An earlier entry on the Seattle Maritime Law Blog reported the appeal in Consub Delaware, in which the defendant had requested that the Second Circuit Court of Appeals overturn its prior decision in Winter Storm v. TPI regarding Admiralty Rule B attachment of Electronic Fund Transfers (“EFTs”) to satisfy maritime claims. See Federal Appeals Court Considers Key Maritime Attachment Case (June 10, 2008).

The defendant in Consub Delaware argued that the Winter Storm court was incorrect in ruling that Rule B could be used to attach EFTs passing through New York banks, even if the claim had no relationship to New York and regardless of whether the defendant knew the funds would be passing through the jurisdiction. Consub Del. LLC v. Schahin Engenharia Limitada, 2008 U.S. App. LEXIS 20097 (2d Cir. N.Y. Sept. 23, 2008). The defendant also argued that the Winter Storm case was inconsistent with New York state law, which arguably provides that EFT payments are not the property of the sender or the recipient while in the hands of the intermediary bank. Id.

On September 23, 2008, the Second Circuit issued its decision in Consub Delaware, upholding Winter Storm and affirming the principle that EFTs can be attached while in the hands of intermediary banks, even when the underlying dispute has no relationship with either New York or with the funds being attached.  Holding that prior decisions should only be overruled  under certain narrow circumstances, the Consub Delaware court declined to overrule its prior decision and found that the Winter Storm case was correctly decided in any event. The court also held that New York law does not apply to Rule B actions, since federal law requires that the Admiralty Rules be applied uniformly and without regard to local law.

Interestingly, the Consub Delaware court stated in a footnote that “[w]e do not reach today the question of whether funds involved in an EFT en route to a defendant are subject to Rule B attachment.” 2008 U.S. App. LEXIS 20097 at p. *13 (emphasis in original). Although this suggests that the question remains open, prior Second Circuit cases have made clear that “EFTs to or from a party are attachable by a court as they pass through banks located in that court's jurisdiction." Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 436 (2d Cir. 2006) (citing Winter Storm, 310 F.2d at 263). Therefore, this footnote may pose somewhat of a puzzle for observers, but offers little hope to those who want future courts to hold that EFT payments from defendants are outside the scope of Rule B attachment suits.

While the Winter Storm rule will remain controversial, the Consub Delaware decision has made clear that this is the established law of the Second Circuit.  Since New York banks continue to play a prominent role in international business, those who may be involved in maritime claims should be aware of this rule and plan accordingly.

A link to the Second Circuit’s decision of Consub Delaware can be found here.

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The US Court of Appeals for the Ninth Circuit ruled that maintenance and cure payments are subject to withholding for child support, so long as those payments constitute income pursuant to applicable state law.  Specifically, the Court of Appeals affirmed the district court’s holding that state law controlled the issue and not maritime law, pursuant to 28 U.S.C. §1738B(h)(2). 

The court noted that seaman’s wages are subject to attachment for the support and maintenance of the spouse or minor children and could find no reasoned basis to distinguish between a seaman’s wages and a seaman’s maintenance and cure payments in this regard.  Aguilera v. F/V Alaska Juris, No. 07-35148 (9th Cir., August 4, 2008).

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Senator Cantwell introduced a bill (S. 3359) to amend the Internal Revenue Code of 1986 to repeal the shipping investment withdrawal rules in I.R.C. Section 955 and to provide an incentive to reinvest foreign shipping earnings in the United States.

A copy of the legislation is available at:  http://cantwell.senate.gov/issues/legislation.cfm

 

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The US Court of Appeals for the Fifth Circuit ruled that a maritime plaintiff is restricted to warranty remedies when a defective product damages only the product itself. In the instant case, plaintiff’s helicopter made an emergency landing in the Gulf of Mexico due to engine trouble.  The pilot and passenger escaped safety, but the helicopter inverted and was a total loss.  Evidence indicated that the problem was the result of a manufacturing defect on the part of the engine manufacturer.  The helicopter owner brought suit against the engine manufacturer and the helicopter manufacturer, alleging post-sale failure to warn of a pre-sale product defect.  The court held that, under US maritime jurisprudence, such economic loss, when not accompanied by damage to other property, is recoverable, if at all, only for breach of warranty.  Turbomeca, S.A. v. Era Helicopters LLC, No. 07-30885 (5th Cir., July 16, 2008).

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For the first time in U.S. jurisprudence, the Supreme Court Supreme Court has approved an award of punitive damages under maritime law.

The Supreme Court has established that as a general rule, punitive damages in general maritime law cases should be in the range of 0.65:1, with a maximum of 1:1. What will the impact be on other cases involving punitive damages and statutory causes of action under maritime law?

Interestingly, the Supreme Court was divided on the important issue of whether under maritime law, a ship owner may be vicariously liable for the acts of a managerial employee such as a vessel’s master. The Supreme Court’s opinion leaves the decision of the Ninth Circuit that there is such liability intact, but does not overrule contrary decisions in other circuits.

The Supreme Court's opinion may be read in full at:
http://www.supremecourtus.gov/opinions/07slipopinion.html

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The general rule, particularly as applied by courts in the Ninth Circuit, is that loss of use of a private pleasure boat is not a compensable item of damages under the General Maritime Law of the United States. The rule is predicated upon the unremarkable principle that one seeking damages must show an actual loss and a reasonable proof of the amount. The seminal case is The Conqueror, 166 U.S. 110, 17 S. Ct. 510, 41 L. Ed. 937 (1897). Continue Reading...

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All areas of the law, have their own lingo and their own insider ‘speak’.   The following is a list, of common fisheries acronyms, more on what they mean later, in a different post. 

ABC—acceptable biological catch

ACL—annual catch limit

ACT—annual catch target

AM—accountability measures

CCF—capital construction fund

CFQ—community fishing quota

EEZ—Exclusive Economic Zone

FMP—fishery management plan

GRT—Gross registered tonnage

IBQ—individual bycatch quota

IFQ—individual fishing quota

IMO—International Maritime Organization

MARAD—US Department of Transportation, Maritime Administration

MSA—Magnuson-Stevens Act

MSRA—Magnuson-Stevens Fishery Conservation and Management Reauthorization Act

NOAA—US Department of Commerce, National Oceanic and Atmospheric Administration

OFL—Overfishing limit

QS—quota share

SFA—Sustainable Fisheries Act

TAC—total allowable catch

USCG—United States Coast Guard

VMS—vessel monitoring system

WTO—world trade organization

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On May 15, 2008, the Second Circuit Court of Appeals in New York heard oral argument in the case of Consub Del. LLC v. Schahin Engenharia Limitada, 476 F. Supp. 2d 305 (S.D.N.Y. 2007). The Consub v. Schahin case is significant to maritime companies and their attorneys because the court is being asked to overturn its controversial 2002 decision of Winter Storm Shipping v. TPI, which gave maritime creditors powerful new rights in maritime claims.

Under Supplemental Admiralty Rule B, anyone making an admiralty or maritime claim can file suit in any federal district in which the defendant has property, so long as the defendant is not located in the district. Upon the filing of a Rule B action, the court obtains jurisdiction over the defendant, and has the power to attach any property in the district, regardless of whether the parties or property have any connection with that district. This Rule B process can be used even if the parties are also litigating the claim in another court or in private arbitration.

In the Winter Storm case, the defendant was a Thai company being sued by a Maltese plaintiff for breach of a charter to carry oil from Saudi Arabia to Thailand. To secure its claim, the plaintiff brought a Rule B action in the Southern District of New York, seeking to attach all of the defendant’s property, including an Electronic Fund Transfer (EFT) payment routed from Thailand to Scotland through New York bank. Even though the defendant had no bank account in New York, there was no connection with New York and the transfer was totally unrelated, the Winter Storm court held that the transferred funds could be frozen to satisfy the claim. Finding that EFTs passing through New York constituted “property” under Rule B, the court held that payments either to or from the defendant could be attached. Therefore, any payments passing through any New York bank would be frozen until the full amount claimed was reached.

The Winter Storm case is particularly significant because of its location. Most EFTs of payments involving U.S. dollars are routed through intermediary banks in New York. This happens automatically and often without the knowledge of the parties. Transactions having no connection to New York—or to the United States—may still pass through New York banks and are therefore subject to Rule B attachment. Thus, any company doing international business or dealing with a New York bank is vulnerable to attachment of any funds in, or passing through, New York banks to satisfy any maritime claim anywhere in the world. Many companies and banks have complained of the expense, risk and inconvenience of this rule, and the creation of a “cottage industry” of international claimants suing in New York courts.

The controversy following Winter Storm has come to a head in the Consub v. Schahin case, in which the appellant has asked the appeals court to overturn its 2002 decision. In requesting that Winter Storm be abandoned, the appellant argues that a broad rule allowing attachment of all EFTs to or from a defendant is not supported by Rule B itself or by the case law upon which Winter Storm relied.

It is difficult to predict how the Second Circuit will rule on this case, but it is certain that the outcome will be of critical importance to any maritime companies doing international business. We hope to hear from the court in the next few months, so stay tuned.

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