4

Views

Sufficient to Defeat Rule B in California

Mere Registration & Appointment of Corporate Reg. Agent
In Flame S.A. v. Pasha Finance, Inc. (July 2010), a case of first impression in the Central District of California, a defendant was able to defeat a Rule B attachment by being “found within the district” through merely registering a company and appointing a registered agent for service of process. The company was registered in California one week before its vessel arrived at the port of Long Beach, and was obviously formed for the specific purpose of defeating a Rule B attachment.

Facts re Complaint
Flame filed a complaint for breach of maritime contract (a freight forward swop agreement, known as an FFSA) alleging that Pasha, registered owner of the m/v Cape Talara, was the “alter ego” of Primera Maritime (Hellas) Ltd., the actual party to the FFSA with Flame, and the Coronis family via Paul or Nikolaos Coronis.

Flame previously obtained a judgment from a U.K. commercial court relating to the FFSA for over $6 million against Primera and domesticated it in the SDNY as a foreign judgment.

The court issued a warrant of attachment under Admiralty Rule B for the vessel at the port of Long Beach, but Pasha immediately moved to vacate the attachment at a Rule E(4)(f) hearing, which was granted by a magistrate judge (not the judge appointed to the case).

Ruling by Magistrate Judge
Other than a conclusory declaration stating the company consented to the court’s jurisdiction “in this and all other [future] matters,” the defendant did not show “minimum contacts” with the forum state i.e. it presented no evidence it had or would have any office, employees, physical address, telephone & fax numbers, website listing etc. within the district. (It would not be surprising if the company did not follow through on doing business in California or bring any assets into California to satisfy a judgment.)

The magistrate judge seemed to ignore applicable California law (federal courts look to state law on whether personal jurisdiction requirements are met), where mere registration or appointment of a registered agent is not sufficient to provide personal jurisdiction over a defendant.

Motion for Reconsideration before Judge
The judge confirmed that California had no case on point establishing what constituted “found in the district” for Rule B purposes. Citing “out of state” precedent, he determined that a defendant was only found if it (1) could be served with process; and (2) was subject to personal jurisdiction:

Re 1: Pasha could easily be served with process through its registered agent.

Re 2: The question of personal jurisdiction was not as simple, as it could not be conferred by mere registration with the California Secretary of State. While registration formed part of the equation, there had to be more substantial “minimum contacts.” But the judge was persuaded by defendant’s declaration – filed AFTER the vessel was attached – which stated Pasha intended to transact business in California and that California was to be a regular stopover for its vessels.

Flame contended (without success) that Pasha had circumvented the system by setting up a sham registration in California to avoid attachment and then retroactively tried to fix the personal jurisdiction problem via a declaration regarding its future intent.

Impressions
The judge was sympathetic to Flame and stated he might have come to a different result than the magistrate judge’s decision, but was bound by the applicable standard of review (“clearly erroneous” or “contrary to law”). And while he did not agree with the decision that Pasha was “found in the district” to avoid a Rule B attachment, he could not affirmatively rule it was clearly erroneous or contrary to law.

The judge suggested a stay of proceedings to file an immediate appeal, as he thought the 9th Circuit might have reached a different result under de novo review (but Flame declined the offer).

As a result, this ruling might be open to attack in future California Rule B actions.

Left for another day was whether an FFSA (as opposed to a freight forward agreement, or FFA) is a “maritime contract” sufficient for admiralty jurisdiction, or whether it is merely a financial instrument/derivative that allows parties to hedge against a future rise in the freight market.

Finally, Flame could have included a Rule 64 action with its Rule B (applying California state law attachment remedies to seize property to secure satisfaction on a potential judgment), which would have required it to put up a bond but apparently Flame did not want to do so.

Biography
Neil Klein is a partner at McKasson & Klein LLP in California. He was a solicitor in South Africa, immigrated to the US and was admitted to the California Bar in 1989.

His practice focuses on maritime & commercial litigation, with an emphasis on vessel arrests and attachments, maritime liens, charter party disputes, bunker claims, and bills of lading issues. He is a frequent speaker at seminars & conferences, and has published articles on international disputes, choice of law, Rules B, C & D issues, forum selection clauses and anti-suit injunctions.

He has been an expert witness on U.S. “choice of law issues" before the Beijing First Intermediate Court and the Supreme Court of the Bahamas. He is a member of the International Bar Association (Maritime & Transport Law Section), and a Proctor member of the U.S. Maritime Law Association.