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Louis Dreyfus Company Freight Asia Pte Ltd. v. Uttam Galva Metallics Limited

United States District Court, S.D. New York

June 26, 2017



          JED S. RAKOFF, U.S.D.J.

         On May 16, 2017, this Court vacated an ex parte order of maritime attachment entered against defendant Uttam Galva Steels Limited ("Steels") and in favor of plaintiff Louis Dreyfus Company Freight Asia Pte Ltd ("Louis Dreyfus"). See Order dated May 16, 2017, ECF No. 20. This Opinion explains the reasons for that ruling, and, in particular, joins those district courts that have held that, while an ex parte maritime attachment can be granted solely on the basis of well-pleaded allegations, the attachment, once attacked by the party whose property is attached, cannot continue to be maintained prior to trial unless it is supported by evidence showing reasonable grounds to maintain the attachment.[1]

         Louis Dreyfus instituted this action on April 6, 2017, seeking to attach property in this district belonging to defendants Steels and Uttam Galva Metallics Limited ("Metallics") to obtain security for its breach of contract claims against Metallics that are proceeding in an overseas arbitration. See Complaint, ECF No. 1. On April 12, 2017, upon plaintiff's ex parte application, the Court issued an order of maritime attachment against Steels and Metallics. See Order dated April 12, 2017, ECF No. 8. However, as it turns out, Metallics has no property in this district to attach. Because only Steels' property was attached, Steels alone appeared in this action to protest the order of attachment.

         On April 28, 2017, Steels filed the instant motion seeking vacatur of the attachment.[2] On May 4, 2017, Louis Dreyfus opposed the motion.[3] The Court heard oral argument on May 5, 2017, see of liability, see Amended Complaint, ECF No. 21, that dismissal must now be vacated. Whether Louis Dreyfus may obtain a second Transcript dated May 5, 2017, ECF No. 22, at which time the Court permitted Louis Dreyfus to take limited discovery and granted the parties an opportunity to submit additional evidence. Louis Dreyfus and Steels made their supplemental filings on May 10 and May 12, 2017, respectively, [4] and, as noted, the Court granted Steels' motion on May 16, 2017.

         To defend an ex parte order of attachment that has issued in its favor, the plaintiff has the burden to 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.

ProShipLine, Inc. v. Aspen Infrastructures, Ltd., 585 F.3d 105, 113 (2d Cir. 2009); see also Fed.R.Civ.P. Supp. E(4)(f) ("Whenever property is arrested or attached, any person claiming an interest in it shall be entitled to a prompt hearing at which the plaintiff shall be required to show why the arrest or attachment should not be vacated . . . ."). In this case, there is no dispute that Steels cannot be found in this district, that Steels' property can be found in this district, [5] and that there is no statutory or maritime law bar to the attachment. The only dispute is whether Louis Dreyfus has a "valid prima facie admiralty claim" against Steels.

         The Second Circuit has not explained in detail how a plaintiff satisfies this element, and district courts are split on whether it is a pleading standard or an evidentiary standard. Compare Ronda Ship Mgmt. Inc. v. Doha Asian Games Organising Comm., 511 F.Supp.2d 399, 404 (S.D.N.Y. 2007) ("The prima facie standard in the maritime attachment context is a pleading reguirement, not an evidentiary standard . . . ."); with Wajilam Exps. (Sing.) Pte. Ltd. v. ATL Shipping Ltd., 475 F.Supp.2d 275, 278-79 (S.D.N.Y. 2006) ("Supplemental Rule E does not restrict review to the adeguacy of the allegations in the complaint. A court also may consider any allegations or evidence offered in the parties' papers or at the post-attachment hearing." (internal quotation marks omitted)). According to one court's count, as of 2008 a majority of courts in this district applied the pleading standard. See Glory Wealth Shipping Serv. Ltd. v. Five Ocean Corp. Ltd., 571 F.Supp.2d 531, 534 (S.D.N.Y. 2008); see also Ronda Ship Mgmt., 511 F.Supp.2d at 403 (collecting cases). These courts reason that a pleading standard best accords with "the Second Circuit's conception of the Rule B attachment process as a limited inquiry designed toAbe obtained with a minimum of litigation.'" Glory Wealth Shipping, 571 F.Supp.2d at 534 (quoting Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 443 (2d Cir. 2006), overruled in part on other grounds by Shipping Corp. of India Ltd. v. Jaldhi Overseas Pte. Ltd., 585 F.3d 58 (2d Cir. 2009)).

         By contrast, courts in the other camp demand that the plaintiff "demonstrate that reasonable grounds exist for the attachment, " a standard that has been likened to the familiar probable cause standard. Wajilam Exps., 475 F.Supp.2d at 278 (internal quotation marks omitted). The reasonable grounds standard involves "review not only of the adequacy of the allegations in the complaint, but also of any evidence submitted by the parties." Id. at 279. However, "[a]lthough review of extraneous evidence is appropriate, plaintiffs in a Rule E(4)(f) proceeding should not be required to prove their case." Id.; cf. N. of Eng. Protecting & Indem. Ass'n v. M/V NARA, No. Civ. A. 99-0464, 1999 WL 33116416, at *2 (E.D. La. Feb. 26, 1999) ("A rule E(4)(f) hearing is not intended to definitely resolve the dispute between the parties, but only to make a preliminary determination of whether there are reasonable grounds for issuance of the arrest warrant . . . ."). Moreover, while the Second Circuit has not squarely resolved this issue, it has held that a district court does not abuse its discretion in considering evidence beyond the complaint. See Williamson v. Recovery Ltd. P'ship, 542 F.3d 43, 53 (2d Cir. 2008).

         After careful consideration of the conflicting authorities, the Court concludes that a plaintiff seeking to defend an ex parte order of maritime attachment entered in its favor must show that reasonable grounds for the attachment exist. An order of attachment can seriously interfere with the garnishee's business and property, and the severity of the remedy demands a more meaningful (though still modest) standard than mere well-pleaded allegations. It is no answer to say, as some courts have suggested, that the Second Circuit has explained that an initial (usually ex parte) order of attachment "may be obtained with a minimum of litigation." See Aqua Stoli, 460 F.3d at 443. That follows from the inherently transitory nature of maritime property; the ship may sail. But after the attachment has been accomplished, this concern no longer applies. At the Rule E(4) (f) hearing, the issue becomes whether an order of attachment obtained on little more than the plaintiff's say-so should be maintained, and it makes little sense to sustain such an order on the same minimal basis as it took to obtain one ex parte. Indeed, courts in this district have long been aware of the "possibility for abusive use of the maritime remedy, " see, e.g., Integrated Container Serv., Inc. v. Starlines Container Shipping, Ltd., 476 F.Supp. 119, 124 (S.D.N.Y. 1979), and limiting review to the face of the complaint might well encourage abusive filings. The Court will, accordingly, apply a modest evidentiary standard of reasonable grounds.

         Turning to whether the plaintiff has met this standard, Louis Dreyfus defends the attachment against Steels' property solely under an alter ego theory of liability. There is no dispute that Louis Dreyfus has a valid prima facie admiralty claim against Metallics, against which Louis Dreyfus is arbitrating alleged breaches of two contracts of affreightment ("COAs"); but, as noted, Metallics has no property of its own in this district. The dispute is whether, as Louis Dreyfus alleges, Metallics is Steels' alter ego, such that Louis Dreyfus has a valid admiralty claim against Steels as well.

         Lois Dreyfus's alter ego allegations are, in principle, sufficient to support a valid prima facie admiralty claim against Steels. See Pink Goose (Cayman) Ltd. v. Sunway Traders LLC, No. 08-cv-2351 (HB), 2008 WL 4619880, at *2 (S.D.N.Y. Oct. 17, 2008) ("[A]lter-ego theories of liability are prima facie admiralty claims so long as the underlying claim arose in admiralty."); Calchem Corp. v. Activsea USA LLC, No. 06-cv-1585 (CPS), 2007 WL 2127188, at *2 n.10 (E.D.N.Y. July 25, 2007) ("Maritime jurisdiction extends, among other things, to contracts of affreightment .... (internal quotation marks omitted)). The issue, therefore, is whether there are reasonable grounds to conclude that Metallics is, in fact, Steels' alter ego.

         Under federal common law, [6] veil-piercing is permissible where an entity uses its alter ego "to perpetrate a fraud" and where one entity "so dominate[s] and disregard[s]" its alter ego's corporate form that the controlling entity is primarily transacting its own business through its alter ego. SeeWilliamson, 542 F.3d at 53. Louis Dreyfus concedes that there is no fraud, see Transcript dated May 5, ...

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