United States District Court, S.D. New York
GOLDEN HORN SHIPPING CO. LTD., Plaintiff,
VOLANS SHIPPING CO. LTD. and NORVIK BANKA, Defendants.
OPINION AND ORDER
J. PAUL OETKEN, District Judge.
Plaintiff Golden Horn Shipping Company Limited ("Golden Horn") brings this admiralty action against Defendants Volans Shipping Company Limited ("Volans") and Norvik Banka ("Norvik") alleging breach of a charter agreement for the M.V. Apus ("the Vessel"). Pursuant to Supplemental Rule B of the Federal Rules of Civil Procedure, Golden Horn attached $3, 960, 693.20 from Norvik's correspondent account at Garnishee Deutsche Bank in Manhattan. Norvik moves to vacate the attachment under Supplemental Rule E(4). For the reasons that follow, Norvik's motion is denied.
In the summer of 2013, Norvik approached Golden Horn about chartering the Vessel, which was owned by Norvik's subsidiary, Volans, a Belizean corporation. Volans was represented in the negotiations by Jelena Churko, a senior attorney at Norvik. Eventually, the negotiations resulted in two agreements that constitute a "bareboat charter" between Volans and Golden Horn. ( See Dkt. No. 1, Complaint at ¶ 26.) The charter allowed Golden Horn to use the Vessel to transport frozen fish in the Sea of Okhotsk and the Bering Sea in exchange for $47, 917 per month plus insurance. Defendants were supposed to deliver the Vessel to Golden Horn sometime between August 15 and August 25, 2013.
The Vessel, it turned out, had serious mechanical problems. Defendants missed the initial delivery date. Golden Horn agreed to extend the deadline several times. It continued to wait for the Vessel, which it believed was at a shipyard in Klaipeda, Lithuania, undergoing repairs. But in January of 2014, Norvik revealed that it had delivered the Vessel to another shipping company. Three months later, on March 28, 2014, Golden Horn served Deutsche Bank with a writ of attachment for Norvik's correspondent account and filed suit against Defendants. This Court granted Golden Horn's request for the attachment.
Norvik moves to vacate the attachment of its assets on two grounds. First, it argues that the money belongs to its customers and is therefore not subject to attachment. Second, it argues that Golden Horn has failed to make a prima facie case that Volans is Norvik's alter ego.
A. Legal Standard
When a defendant challenges an attachment pursuant to Rule E(4), the burden is on the plaintiff to establish that the requirements of Rule B have been met. See Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 445 (2d Cir. 2006), abrogated on other grounds by Shipping Corp. of India Ltd. v. Jaldhi Overseas Pte Ltd., 585 F.3d 58 (2d Cir. 2009); see also Blue Whale Corp. v. Grand China Shipping Dev. Co., 722 F.3d 488, 493 (2d Cir. 2013). Under Rule B, a plaintiff must show that: "(1) it has a valid prima facie admiralty claim against the defendant; (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 bar to the attachment." Blue Whale, 722 F.3d at 493. Norvik challenges the first and third requirements. It challenges the first requirement only on the ground that Golden Horn does not state a valid prima facie alter ego claim. Norvik concedes that the claim properly sounds in admiralty. It challenges the third requirement only on the ground that the money in the Deutsche Bank account does not belong to Norvik. It concedes that all other requirements have been met.
Although extraneous evidence may be considered on a motion to vacate an attachment, "plaintiffs in a Rule E(4)(f) proceeding should not be required to prove their case." Wajilam Exports (Singapore) Pte. Ltd. v. ATL Shipping Ltd., 475 F.Supp.2d 275, 279 (S.D.N.Y. 2006) (Lynch, J.) (citing Japan Line, Ltd. v. Willco Oil Ltd., 424 F.Supp. 1092, 1094 (D. Conn. 1976) (Newman, J.)); see also Transportes Navieros y Terrestes, S.A. de D.V. v. Fairmount Heavy Transport N.V., 07-CV-3076, 2007 WL 1989309, at *4 (S.D.N.Y. July 6, 2007) ("maritime plaintiffs are not required to prove their cases at this stage of a Rule E(4) hearing."). Instead, "a plaintiff seeking a maritime attachment need not provide any supporting evidence; its complaint should suffice." C. Transp. Panamax, Ltd. v. Kremikovtzi Trade E.O.O.D., No. 07-CV-893 (LAP), 2008 WL 2546180, at *3 (S.D.N.Y. June 19, 2008). This rule makes sense in light of the requirement that the plaintiff in an attachment case present a verified complaint signed by counsel. Id. By asserting facts in its complaint, a plaintiff's counsel exposes herself to liability if those facts turn out to be false. Id. Thus, the Court may consider the extraneous evidence presented by the parties, but Golden Horn does not have a burden to present any such evidence apart from its verified complaint.
Federal common law governs a plaintiff's attempt to hold a parent company liable in an admiralty case. See Blue Whale, 722 F.3d at 488 (citing Lauritzen v. Larsen, 345 U.S. 571 (1953)). Under federal common law, shareholders are not ordinarily liable for the obligations of the corporations they own. "Under the doctrine of limited liability, a corporate entity is liable for the acts of a separate, related entity only under extraordinary circumstances, commonly referred to as piercing the corporate veil." Arctic Ocean Int'l, Ltd. v. High Seas Shipping Ltd., 622 F.Supp.2d 46, 53 (S.D.N.Y. 2009) (quoting Dolco Invs., Ltd. v. Moonriver Dev., Ltd., 486 F.Supp.2d 261, 271 (S.D.N.Y. 2007)). Federal common law in the Second Circuit provides two ways to pierce the corporate veil. The plaintiff can show that the defendant used its alter ego "to perpetrate a fraud or [that it] ha[s] so dominated and disregarded [its alter ego's] corporate form" that the alter ego was actually carrying on the controlling party's business instead of its own. Kirno Hill Corp. v. Holt, 618 F.2d 982, 985 (2d Cir. 1980) (emphasis added). Golden Horn argues only an alter ego theory; it does not allege fraud.
Notwithstanding the persistent dictum that a plaintiff should be able to pierce the corporate veil on an alter ego theory only in extraordinary circumstances, plaintiffs in this district commonly survive Rule E(4) motions by piercing corporate veils. E.g., Clipper Wonsild Tankers Holding A/S v. Biodiesel Ventures, LLC, 851 F.Supp.2d 504, 508 (S.D.N.Y. 2012); Classic Mar. Inc. v. Limbungan Makmur SDN BHD, 646 F.Supp.2d 364, 371 (S.D.N.Y. 2009); C. Transp. Panamax, 2008 WL 2546180, at *3; Wilhelmsen Premier Marine Fuels AS v. UBS Provedores Pty Ltd., 519 F.Supp.2d 399, 410 (S.D.N.Y. 2007); Wajilam Exports (Singapore) Pte. Ltd. v. ATL Shipping Ltd., 475 F.Supp.2d 275, 282 (S.D.N.Y. 2006); SPL Shipping Ltd. v. Gujarat Cheminex Ltd., 06-CV-15375, 2007 WL 831810, at *4 (S.D.N.Y. Mar. 15, 2007); Brave Bulk Transp. Ltd. v. Spot On Shipping Ltd., No. 07-CV-4546 (CM), 2007 WL 3255823, at *6 (S.D.N.Y. Oct. 30, 2007); Route Holding, Inc. v. Int'l Oil Overseas, Inc., 06-CV-3428 [Dkt. No. 24] (S.D.N.Y. October 17, 2006). Shipping companies frequently own each vessel through a separate corporation but conduct operations exclusively through a parent company. While veil piercing as a general matter might be appropriate only in extraordinary circumstances, maritime cases appear to present those circumstances-at least sufficiently to survive a motion to vacate an attachment-relatively frequently.
"Veil piercing determinations are fact specific and differ with the circumstances of each case." Thomson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773, 777-78 (2d Cir. 1995) (internal quotation marks and citation omitted). As such, the alter ego determination must be made in view of "the totality of the facts." United States v. Funds Held in the Name or for the Benefit of Wetterer, 210 F.3d 96, 106 (2d Cir. 2000). There are several factors relevant to determining whether one entity is the "alter ego" of another. These include:
(1) disregard of corporate formalities; (2) inadequate capitalization; (3) intermingling of funds; (4) overlap in ownership, officers, directors, and personnel; (5) common office space, address and telephone numbers of corporate entities; (6) the degree of business discretion shown by the allegedly dominated corporation; (7) whether the dealings between the entities are at arms' length; (8) whether the corporations are treated as independent profit centers; (9) payment or ...