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

The US Court of Appeals for the Second Circuit upheld the equitable vacatur of a maritime attachment, even though all the requirements for the Rule B attachment had been met. In Proshipline v. Aspen Infrastructures, the plaintiff sought and obtained a Rule B attachment in the Southern District of New York, based on the (correct) assertion that defendant was not present in the District. Defendant moved to vacate the attachment, pointing out that the parties were engaged in a similar maritime lawsuit in the Southern District of Texas, where plaintiff had its corporate headquarters and where defendant was subject to personal jurisdiction. The District Court vacated the attachment because, among other things, the party that attached the funds and the party that owned the funds were present in another federal jurisdiction. Plaintiff appealed. In affirming the vacatur, the Appellate Court noted that equitable vacatur of writs of attachment, in contrast to vacatur for failure to comply with Rule B, turns not on the owner of attached funds’ relationship with the jurisdiction of attachment, but on both parties’ relationship with another jurisdiction. See ProShipLine v. Aspen Infrastructures, www.ca.2.uscourts.gov/decisions.

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An increasing number of clients have had difficulty with the Washington State Department of Revenue's interpretation of RCW 88.02, regarding the registration of pleasure vessels in the State of Washington.  Washington imposes an excise tax on vessels over 16 feet in length for the privilege of using Washington waters for their vessels or yachts.  Boat owners obtain a Washington decal which they obtain paying the excise tax, measured at .5% of the vessel's value.  However, owners with vessels documented with the U.S. Coast Guard have often been told by Washington State Department of Licensing that only a decal is needed, not the registration, which would imply that the excise tax is not required. 

This apparent interpretation problem could result in a variety of results which is always a problem when dealing with taxing authorities. 

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On October 16, 2009, the Second Circuit Court of Appeals issued its decision of The Shipping Corporation of India v. Jaldhi Overseas PTE, Ltd., reversing its controversial 2002 decision of Winter Storm, Ltd. v. TPI. The Winter Storm court had held that electronic fund transfers (EFTs) could be seized under Admiralty Rule B as they momentarily pass through intermediary banks on the way to their final destination. Because this case applied to New York's intermediary banks, which handle the vast majority of international dollar transactions, the Winter Storm case caused an explosion of Rule B claims being filed in New York courts and against New York banks, attempting to seize funds being sent to and from defendants all over the world. This in turn gave rise to a large "cottage industry" within New York maritime firms, who quickly mastered this Rule B process and used the Winter Storm rule to great advantage for their clients and for themselves.

Although the Jaldhi Overseas court recognized that it should not reverse prior precedents lightly, the court found that (1) the Winter Storm court had incorrectly concluded that prior case law in the circuit supported the finding that EFTs were attachable and (2) in the absence of controlling admiralty law precedent, the court should have used New York state law, which says that EFTs are not the property of the transferor or transferee while in transit. The court also cited the significant and negative consequences of Winter Storm on New York courts and banks as justification for changing the law of the circuit.

Assuming this ruling stands, it is not an exaggeration to say that this case will send a shock wave through the maritime law community, particularly in New York City. Since 2002, hundreds of plaintiffs and their attorneys have used the Winter Storm rule to massively increase the Rule B practice in New York federal courts. This has obviously resulted in a significant new line of business for many New York maritime firms. The Second Circuit’s reversal of Winter Storm will not only change the legal landscape in the circuit, but will also likely deal a blow to the balance sheets and employment prospects of many New York attorneys and firms. In the current economic climate, that will hardly be welcome news for the admiralty bar in the Big Apple.

A longer discussion and description of this decision, is available on our firm website.

You can also view a copy of the Jaldhi Overseas decision.

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The U.S. District Court for the Northern District of Florida has recently determined that, in the context of allision damage to a luxury yacht that was fully repaired, damages for diminution in value of yacht due to the stigma of having been involved in a casualty are not recoverable. Hatt 65 LLC v. Kreitzberg, 2009 AMC 1678 (N.D. Fl. 2009). As the court and the parties were unable to offer existing maritime precedence for the recovery of such damages, the court was unwilling to allow such damages on the grounds that doing so would interfere with the uniformity desired of federal admiralty law. The holding of the Florida court may be inconsistent with the general principal of damages for partial loss damage to a vessel, i.e. that the damaged party be fully compensated for his loss, and be put into the same pecuniary position that would have been enjoyed had the casualty not occurred. Recovery of damages for diminution in value, even when the vessel is fully repaired, also finds support in the Restatement of the Law, Second, Torts, Section 928, which provides:

When one is entitled to a judgment for harm to chattels not amounting to a total destruction in value, the damages include compensation for

(a) the difference between the value of the chattel before the harm and the value after the harm or, at his election in an appropriate case, the reasonable cost of repair or restoration, with due allowance for any difference between the original value and the value after repairs, and

(b) the loss of use.

Restatement of the Law, Second, Torts, Section 928, is frequently cited in Admiralty decisions as providing the basic measure of compensable damages for partial loss claims. See, e.g. Stevens v. F/V BONNIE DOON, 531 F. 2^nd 1433, 1985 AMC 363 (9^th Cir, 1984). Many yacht brokers would probably confirm that as between two otherwise identical yachts, one that has been damaged and extensively repaired, and the other having no history of damage, the former will command a considerably lesser price.   

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A few recent federal maritime decisions have shed further light on the boundaries of admiralty jurisdiction in the U.S. courts:

In Vasquez v. GMD Shipyard Corp., No. 08-4566 (2nd Cir., September 15, 2009), the Second Circuit Court of Appeals found that a tort claim arising out of a death at a shipyard "graving dock" was properly in admiralty, even though the dock had no water in it at the time of the incident.

In In re Complaint of Mission Bay Jet Sports, LLC, No. 08-56142 (9th Cir. June 24, 2009), the Ninth Circuit Court of Appeals found that a tort claim by passengers on a Sea-Doo watercraft who were injured while riding in San Diego's Mission Bay was subject to admiralty jurisdiction.

In New Hampshire Ins. Co. v. Home Sav. and Loan Co. of Youngstown, Ohio, No. 08-3902 (6th Cir. September 24, 2009), the Sixth Circuit Court of Appeals rejected the argument by an insurer that its policy, styled a "marine insurance policy," was sufficient to implicate federal admiralty jurisdiction in a declaratory judgment action, when a large number of the coverages in the policy were non-maritime.

Although none of these cases is ground-breaking or controversial, they do give lawyers valuable clues as to the positions the federal courts will take regarding admiralty jurisdiction with in certain common types of cases. 

Further description and commentary on these cases can be found here.

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Fish tender vessels transport fresh fish from the catcher vessels on the fishing grounds to processing facilities. Some fish tender vessels are specialized tenders, while others are vessels primarily engaged in other trades, such as crabbing, that supplement their annual income conducting fish tender operations. The agreement for the use of the tender vessel usually takes the form of a tender charter, under which the processor charters the exclusive use of the tender vessel for a term.

The terms most important to the tender vessel operators appear to be the daily charter hire rate, and the guaranteed minimum number of days of the charter. Equally important should be which . . .

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Investing in yacht construction can be risky business for owners and builders alike. Defaulting buyers can cause huge cash flow problems for builders, which spill over to impact other projects under construction. Buyers are concerned about their projects getting bogged-down by or absorbed into a builder’s insolvency.

When a builder files for bankruptcy, who owns the projects under construction is frequently an issue. At such times, owners holding title to what they have paid for can usually extricate those assets from the builder’s bankruptcy and move the project elsewhere for completion. Builders, on the other hand, often prefer to hold title to the yacht until they have been paid in full. Further complicating the issue may be sales tax concerns and the blurring of when and where the sale of the yacht occurred. If the builder holds title to the yacht until completion and delivery, the yacht, in its incomplete state, becomes an asset of the builder’s bankruptcy estate and is potentially available to pay the claims of creditors if the builder is in a liquidation proceeding (Chapter 7) or abandons the construction contract in a reorganization proceeding (Chapter 11).

Where the builder holds title until completion and delivery, the best way to protect the buyer is usually to have the builder grant the buyer a UCC security interest in the uncompleted hull and all materials purchased for the construction of the yacht. To properly protect their interests, buyers must properly perfect their security interest and ensure that all materials purchased for the construction of the yacht are promptly and properly identified (labeled) as being allocated to the project, and preferably segregated from other materials in the builder’s yard. But there are also additional means to protect a buyer’s interest in purchasing a yacht that are beyond the scope of this post.
 

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