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Eddie Steamship Co. v. P. T. Karana Line

June 29, 1984

EDDIE STEAMSHIP COMPANY LTD., PLAINTIFF-APPELLEE,
v.
P. T. KARANA LINE, DEFENDANT-APPELLANT



Appeal from an order of the United States District Court for the Southern District of New York, Richard Owen, Judge, enjoining defendant to release an attachment of a vessel in South Africa. Vacated and remanded. Judge Swygert dissents in an opinion to be filed in due course.

Kearse, Pierce, and Swygert,*fn* Circuit Judges.

Author: Per Curiam

Per Curiam:

Defendant-appellant P.T. Karana Line ("Karana") appeals from an order of the United States District Court for the Southern District of New York, Richard Owen, Judge, ordering it to cause the release of its attachment of the STEEL TRANSPORTER, a ship owned by plaintiff Eddie Steamship Company Ltd. ("Eddie") and located in Richards Bay, South Africa. On appeal, Karana contends, inter alia, that the district court lacked subject matter jurisdiction over the action, lacked personal jurisdiction over Karana, lacked the power to issue an injunctive order, applied the wrong body of substantive law, and abused its discretion in entering the order. Because we are not persuaded that the court had the power to grant the requested injunction, we vacate the order and remand to the district court.

BACKGROUND

Briefly summarized, the controversy has its origins in a fire that caused millions of dollars of damage to a ship owned by Karana, an Indonesian shipowner, and chartered to Eddie, a Chinese business entity, in 1981. As a result, Karana brought arbitration proceedings in New York against Eddie. In connection with the arbitration proceedings, in 1981 Karana attached certain assets belonging to Eddie as security for its claims in arbitration. Eventually, those attachments were vacated after Eddie was required by a federal court in Louisiana to post a bond in the amount of $3,150,000.

The arbitration proceedings have gone forward and have recently resulted in a partial final award of the arbitrators, ruling that Eddie is liable for the damages resulting from the fire; the amount of those damages remains to be determined. Karana claims that events and claims filed against it since the 1981 posting of security reveal that its losses from the fire will total nearly $5,000,000; and it asserts that various actions by creditors of Eddie have revealed Eddie to be in precarious financial condition. Accordingly, Karana caused the Supreme Court of South Africa to issue an order of attachment on the STEEL TRANSPORTER located in Richards Bay, South Africa, in order to obtain additional security for its losses.

Eddie commenced the present action, alleging that the attachment of the STEEL TRANSPORTER was wrongful and in violation of the 1981 order of the Louisiana federal court. Invoking the court's admiralty jurisdiction, Eddie requested principally an injunction requiring Karana to cause the attachment to be released. The district court, ruling that the new attachment conflicted with the purpose of the arbitration statute*fn1 and that Karana had not proven that special circumstances justified a new attachment, entered the injunction requested by Eddie.

Karana unsuccessfully moved in the district court for a stay pending appeal, and then sought such relief in this Court. In support of its motion here, Karana has stated in an affidavit that other creditors of Eddie have now attached the STEEL TRANSPORTER and have scheduled a judicial sale of the vessel for July 2, 1984. This Court granted a stay of the district court's order and expedited the appeal.

For the reasons below, we conclude that the district court lacked the power to enter the requested injunction, and we reverse and remand for such further proceedings as may be appropriate.

Discussion

The traditional view is that a court of admiralty has no power to issue injunctions. See, e.g., The Eclipse, 135 U.S. 599, 34 L. Ed. 269, 10 S. Ct. 873 (1890). That principle was modified in Schoenamsgruber v. Hamburg American Line, 294 U.S. 454, 79 L. Ed. 989, 55 S. Ct. 475 (1935), in which the lower court had stayed trial of the action pending arbitration, and the petitioner claimed that the stay was appealable as an interlocutory injunction. The Supreme Court dismissed the appeal, ruling that "while courts of admiralty have capacity to apply equitable principles in order the better to attain justice, they do not have general equitable jurisdiction and, except in limitation of liability proceedings, they do not issue injunctions." Id. at 457-58 (footnotes omitted). See also Swift & Co. Packers v. Compania Colombiana Del Caribe, 339 U.S. 684, 94 L. Ed. 1206, 70 S. Ct. 861 (1950) (court of admiralty has jurisdiction to determine an equitable issue -- the defense of fraudulent transfer of a vessel -- when the case was otherwise maritime in nature).

This Court has concluded that although the proscription against equitable relief stated in The Eclipse has been eroded by subsequent cases, "the power of an admiralty court to grant injunctive relief remains severely circumscribed. See Moran Towing & Transportation v. United States, 290 F.2d 660, 662 (2d Cir. 1961)." New York State Waterways Association, Inc. v. Diamond, 469 F.2d 419, 421 n.2 (2d Cir. 1972). The view that the equity powers of an admiralty court remain severely circumscribed was followed most recently in Tradax Limited v. M.V. Holendrecht, 550 F.2d 1337 (2d Cir. 1977).

Much of the reason for the original rule has vanished, see, e.g., G. Gilmore & C. Black, The Law of Admiralty ยง 1-14 (2d ed. 1975); Note, Admiralty Practice After Unification: Barnacles on the Procedural Hull, 81 Yale L.J. 1154, 1157-63 (1972), and some of our sister Circuits have held that in proper cases admiralty courts may issue injunctions, see Pino v. Protection Maritime Insurance Co., 599 F.2d 10 (1st Cir.), cert. denied, 444 U.S. 900, 62 L. Ed. 2d 136, 100 S. Ct. 210 (1979); Lewis v. S.S. Baune, 534 F.2d 1115 (5th Cir. 1976). Indeed, we may well join those circuits when we are confronted with an appropriate case. Given the record in the present case, however, we see no persuasive reason here to depart from the traditional principle. Although Eddie urges on appeal that the injunction is sought in aid of the arbitration in New York, the arbitration has proceeded apace and there is no indication that Karana seeks to avoid it. Indeed, Karana has received a favorable decision as to liability that makes Eddie liable for all damages resulting from the fire. Given that the attachment of the vessel seems to have no impact on the New York arbitration proceedings, the connection of the New York federal court with this controversy is quite tenuous. Both Eddie and Karana are foreign companies; the ship attached is in South Africa; and the order originally granting Karana security was ...


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