Rule B Attachments and Shipbrokers

Peter Clark www.navlaw.com

The recently reported Harvey Mullion v. Caverton case, 2008 AMC 2361 (S.D.N.Y. 2008) raises a point of some importance to those engaged in the shipbrokerage business. The central issue was whether a claim for shipbrokerage commissions was a maritime claim under U.S. law that could form the basis for a maritime attachment within the meaning of Rule B of the Supplemental Rules of Certain Admiralty and Maritime Claims of the Federal Rules of Civil Procedure (commonly referred to as "Rule B").

By way of background, there are two methods for attaching property to secure maritime claims in the U.S. The first is to arrest the offending property (the ship). The claimant may then litigate the dispute and, if successful, have the vessel sold by the U.S. Marshal to satisfy the maritime claim.

The second method is the process of maritime attachment. This unique admiralty procedure predates the U.S. Constitution and permits federal courts to grant creditors ex-parte orders to obtain security for maritime claims against non-resident defendants over whom the court has no personal jurisdiction. This simple and relatively inexpensive method is permitted even when the merits of the dispute will be decided in a foreign forum.

Property of the defendant found within the judicial district will be attached if the defendant cannot be found within the district. The property may consist of cargo, charter hire, freights, sub-freight, etc. However, the property need not be maritime in nature. Bank accounts, chattels, credits, account receivables and real property are all attachable.

As most dollar wire transfers in international business transactions are cleared through New York City banks, the Rule B procedure permits claimants to garnish defendants’ funds electronically passing through these banks up to the value of the claims, plus costs, anticipated interest and attorney fees. The garnished property can be liquidated at a later date to satisfy a subsequent judgment.

The Supplemental Admiralty Rules do, however, afford defendants the opportunity to contest maritime attachments. The defendant is entitled to a prompt hearing at which the plaintiff must show why the attachment should not be vacated. The attachment must be vacated unless the plaintiff demonstrates that (1) he has a valid maritime claim; (2) the defendant cannot be found within the district; (3) the defendant’s property may be found within the district; and (4) there is no statutory or maritime law barring the attachment. In the Mullion case, plaintiff shipbrokers were seeking commissions from a defendant charterer for brokerage services rendered in connection with the fixture of a charter party. The shipbrokers asserted that the exchange of e-mails leading to the brokerage agreement was a maritime contract because a charter party brokerage agreement has maritime commerce as its principal objective.

In its motion to vacate, the charterer argued that a maritime claim is a pre-requisite for a Rule B attachment, and a claim for shipbrokerage commissions is not maritime under U.S. law. There was no allegation in plaintiffs’ complaint of any maritime activity being performed by plaintiffs, such as their utilizing the vessel. The court ruled that plaintiffs failed to establish a valid maritime claim under Rule B and vacated the attachment.

In rendering its decision, the Court relied heavily on the 1991 case of Exxon Corp. v. Central Gulf Lines, 500 U.S. 603 (1991)), wherein the Supreme Court instructed lower federal courts to look at the subject matter of a contract to determine whether the services performed were maritime in nature. The Mullion Court noted that besides acting as shipbrokers, the plaintiffs did not allege that they undertook any other obligations that could be considered maritime in nature.

Aside from holding that shipbrokers are not entitled to Rule B attachments to secure commissions, the Mullion case is instructive in that it illustrates how courts look primarily to the subject matter of a contract to determine whether the service performed is maritime. The general rule is that the contract must directly relate to the operation and/or navigation of a vessel. Yet, a review of case law indicates that this rule is flawed in that some contracts intimately related to shipping are non-maritime in nature. For example, a contract to repair a vessel is maritime, while a contract to build a ship is not. Other contracts that seem directly related to shipping have been held non-maritime and it remains to be seen if they will follow in the footsteps of the shipbrokers in the Mullion case and become focal points of future Rule B attachment disputes.