Opinion
06 CV 2805 (GBD).
December 20, 2006
MEMORANDUM DECISION AND ORDER
Defendant Star Grain Ltd. moves to vacate the ex parte maritime attachment and garnishment order issued by this Court pursuant to Supplemental Rule B of the Federal Rules of Civil Procedure on the grounds that this Court lacks admiralty or maritime jurisdiction. The motion is granted and the order is vacated.
In support of its ex parte application, plaintiff alleged an admiralty and maritime "claim for breach of a maritime contract for the charter of a vessel." Verified Complaint ("Compl.") ¶ 1.
Plaintiff Aston Agro-Industrial AG ("Aston") entered into two separate contracts with Star Grain, dated ten days apart, under which Star Grain agreed to purchase from Aston certain amounts of Russian wheat. Declaration of Nancy R. Peterson in Support of Defendant's Motion to Vacate the Attachment (Peterson Decl.) ¶ 2. The contracts specified that delivery would be made by ship. Memorandum of Law in Support of Defendant's Motion to Vacate the Attachment ("Motion to Vacate") at 2. The contracts also contained certain clauses relating to the conditions under which the shipment and unloading of the wheat should occur. Peterson Decl. Ex. 1 2. One of the contract clauses was labeled "Demurrage." Id. The demurrage clause does not, on its face, assign demurrage liability to either party; rather, it merely sets forth how the demurrage rate would be calculated and the time within which any demurrage claims should be settled:
"`Demurrage' is remuneration of the shipowner for the detention of its vessel beyond the number of days allowed by the charter-party." Transatlantic Shiffahrtskontor GMBH v. Shanghai Foreign Trade Corp., 204 F.3d 384, 386 n. 2 (2d Cir. 2000) (citing Black's Law Dictionary 432 (6th ed. 1990)).
SHIPMENT CONDITIONS Id
. . . . DEMURRAGE THE CHARTER PARTY RATE FOR DEMURRAGE AND DISPATCH SHALL BE DECLARED UPON OFFICIAL VESSEL NOMINATION WITH FRACTIONS CALCULATED IN PROPORTION. POSSIBLE CLAIMS SHALL BE SETTLED WITHIN 14 DAYS FROM RECEIPT OF A CLAIM SUBSTANTIATED BY SOF AND CLAIMANT'S INVOICE. . Aston entered into separate charter parties with the owners of two vessels for the shipment of the wheat to Star Grain. Motion to Vacate at 2. The wheat purchased was shipped to the agreed upon destination in Egypt. Compl. ¶¶ 3-4. But because of water damage, the Agricultural Authority in Egypt would not let the damaged cargo be discharged, and Star Grain would not let the damaged goods be re-exported until it had received full payment for the damage. As a result, the ships were held in port with the cargo on board for approximately two months until cash payment was made by the shipowners to Star Grain for the damaged cargo. GAFTA Arbitration No. 13-282 ("GAFTA Opinion") at 10. There is no evidence that Aston was ever held liable for payment of demurrage to the shipowner. Despite due demand by Aston, Star Grain refused to compensate Aston for demurrage in accordance with the contract. The parties subsequently arbitrated their dispute before the Grain and Feed Trade Association ("GAFTA") pursuant to the arbitration clauses in the contracts. Compl. at ¶ 8. In framing the issue to be decided as "Are sellers entitled to demurrage even if they are not liable themselves for demurrage under the relevant charterparties?," GAFTA Opinion at 12, the tribunal noted that:
The question is whether the Shipment Conditions where [sic] intended as an indemnity on which the Sellers could only rely if they themselves were held liable by the shipowners or whether it was in the Parties' contemplation to set up a self-contained time counting and liquidated damages regime which would apply on its own disregarding whether the Sellers are liable under the charterparty.Id. at 16. The tribunal found in favor of Aston, concluding that it was Star Grain's behavior in insisting on the fact that the vessel should not sail until cash was received in their hands that was the reason for the delay in discharge. The tribunal held:
the Buyers' liability for demurrage as liquidated damages can be established without reference to the charterparty terms. It follows that the contracts on their true construction intended to award the Sellers demurrage on the basis of the sale terms independent of any demurrage payable under the charterparty. The charterparty rates are only imported to express the demurrage liability established under the sale terms in monetary sums.Id. at 18. Aston was thus awarded $187,829.84 plus compounded interest at the rate of 5%. Compl. ¶ 9. Star Grain appealed. On appeal, the award in the amount of $187,829.84 was upheld, plus 4% compounded interest, fees and costs. Id. at ¶ 10.
Seeking to recover on its judgment, Aston sought and obtained from this Court an ex parte maritime attachment order for seizure pursuant to Rule B of the Supplemental Rules for Certain Admiralty and Maritime Claims of the Federal Rules of Civil Procedure. Star Grain then filed the present motion to vacate the attachment, arguing that this Court lacks subject matter jurisdiction because the sales contracts giving rise to Aston's claims in the underlying arbitration are not maritime contracts. In opposition to Star Grain's motion, Aston maintains that, following the standards set forth by the United States Supreme Court inNorfolk Southern Railway Co. v. Kirby, 543 U.S. 14 (2004), maritime jurisdiction exists because the maritime transportation of the wheat was integral to the contracts between the parties. Moreover, Aston argues, jurisdiction exists under the "mixed-contract doctrine," notwithstanding Kirby. Since this Court lacks maritime jurisdiction under either approach, the ex parte maritime attachment is vacated.
Both parties question whether the "mixed-contract doctrine" has survived the United States Supreme Court's Kirby decision. But inFolksamerica Reinsurance v. Clean Water of NY, Inc., 413 F.3d 307 (2d Cir. 2005), the Second Circuit interpreted Kirby as only augmenting the "incidental to" exception for mixed contracts to the general rule that maritime jurisdiction applies only to contracts that are "wholly" or "purely" maritime. Id. at 314-15. According to Folksamerica then, when deciding whether a mixed contract falls into this exception, a court must determine whether the contract's "principle objective" is the accomplishment of a maritime transaction, not whether the non-maritime portions of the contract are "merely incidental" to the maritime ones. Id. Thus, and contrary to Star Grain's assertion, the other exception for mixed contracts — where the maritime portions of a contract are separable from the non-maritime ones — remains a valid basis for a federal court to exercise maritime jurisdiction over a claim arising in contract.
Federal District Courts have original jurisdiction over "[a]ny civil case of admiralty or maritime jurisdiction. . . ." 28 U.S.C. § 1331(1). Absent the requisite admiralty or maritime jurisdiction, a Rule B maritime attachment is void. Sea Transport Contractors v. Industries Chemiques Du Senegal, 411 F.Supp.2d 386, 392 (S.D.N.Y. 2006) (citation omitted); see also Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 236, 268 (2d Cir. 2002) (stating that to warrant the issuance of a maritime attachment, "the plaintiff's claim must be one which will support a finding of admiralty jurisdiction under 28 U.S.C. § 1333") (citation omitted). This jurisdictional grant extends to contracts "which relate to the navigation, business, or commerce of the sea."Sirius Ins. Co. (UK) Ltd. v. Collins, 16 F.3d 34, 36 (2d Cir. 1994) (citations omitted). Yet "the boundaries of admiralty jurisdiction over contracts — as opposed to torts or crimes — being conceptual rather than spatial, have always been difficult to draw." Kirby, 543 U.S. at 23 (alteration omitted); see also Folksamerica, 413 F.3d at 311 ("Unfortunately, there are few clean lines between maritime and non-maritime contracts.") (citation and quotation marks omitted). Lower courts are to make a case-by-case judgment of such a contract based upon "the subject matter of the . . . contract" and "the services performed under the contract." Exxon Corp. v. Central Gulf Lines, Inc., 500 U.S. 603, 612 (1991). The ultimate determination turns on "the nature and character of the contract" and whether the contract has "reference to maritime service or maritime transactions."Kirby, 543 U.S. at 24.
In Kirby, the seller of machinery entered into two bills of lading with a freight forwarding company to arrange for the transportation of that machinery from Australia to Alabama. Id. at 18. The journey from Australia to Alabama consisted of both a sea and land leg, with the land leg being the final, shorter portion of the trip. Id. at 19-20. During the land leg, the train carrying the machinery derailed and the machinery was destroyed; lawsuits followed. Id. at 21. The Court initially had to decide whether the bills of lading were maritime contracts because, if they were, federal, not state law, would apply to the underlying claims. Id. at 22-23. Looking to the "nature and character of the [bills of lading]," the Court held that they were maritime contracts "because their primary objective [wa]s to accomplish the transportation of goods by sea from Australia to the eastern coast of the United States." Id. at 24.
In this case, the contracts are not maritime contracts because their primary objective was not the transportation of goods by sea. Instead, their primary objective was, undoubtably, the sale of wheat. That the wheat was transported on a ship does not make the contracts maritime contracts any more than it would make them aviation contracts had the wheat been shipped via airplane. Nor were they contracts between a seller and a shipper. In fact, Aston entered into two separate charter parties to accomplish the shipment of the wheat, and it was the primary maritime objective of those contracts to transport the wheat by sea. Thus, the charter parties between the seller and the shipper, like the bills of lading in Kirby, are maritime contracts, see, e.g. Asoma Corp. v. SK Shipping Co., Ltd., ___ F.3d ___, 2006 WL 3017982 *5 (2d Cir. October 24, 2006) ("Charter parties and bills of lading are interpreted using the ordinary principles of maritime contract law."). The contracts for the sale of wheat are not.
Nor can maritime jurisdiction be exercised under an exception to the general rule that maritime jurisdiction "arises only when the subject-matter of the contract is `purely' or `wholly' maritime in nature." Hartford Fire Ins. Co. v. Orient Overseas Containers Lines (UK) Ltd., 230 F.3d 549, 555 (2d Cir. 2000) (citations omitted); see also Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., A Division of Ace Young Inc., 109 F.3d 105, 109 (2d Cir. 1997) (stating that "mixed" contracts "that contain both admiralty and non-admiralty obligations [are] usually not within admiralty jurisdiction"). Under the first exception, "a federal court can exercise admiralty jurisdiction over a `mixed' contract if the claim arises from a breach of maritime obligations that are severable from the non-maritime obligations of the contract." Folksamerica, 413 F.3d at 314 (citations and alteration omitted). Second, admiralty jurisdiction can be exercised "where the non-maritime elements of a contract are `merely incidental' to the maritime ones." Id.
Since the Second Circuit has indicated that the "incidental to" exception is now more appropriately a "principle objective exception," Folksamerica, 413 F.3d at 315, when considering whether a contract is a maritime contract under this exception, a court should do so under the rubric of Kirby. Id. at 314-15.
Here, invoking the first exception, Aston contends that maritime jurisdiction exists because the particular claims at issue involve only the maritime portions of the contracts. The contracts create no maritime obligations on Star Grain, however, let alone any maritime obligations that are severable from the non-maritime obligations. Rather, Star Grain's only obligations under the contracts were to pay the agreed-upon price pursuant to the stipulated payment terms, and to begin discharging the wheat when the ships arrived in port even if the ships arrived before the bills of lading were received. There is nothing uniquely maritime about these obligations necessitating "a neutral federal forum and uniform body of law to adjudicate rights and liabilities as they relate to the trafficking of sea-faring vessels." Atlantic Mut. Ins. Co. v. Balfour Maclaine Int'l Ltd., 968 F.2d 196, 200 (2d Cir. 1992) (noting the purpose behind the creation of maritime jurisdiction) (citations omitted). Rather, all that was required in adjudicating the underlying claims here was the straight-forward interpretation of contracts for the sale of goods.
Moreover, the specific clauses of the contracts that Aston enforced, the so-called "demurrage clauses," do not explicitly contain any obligation on either party to compensate the other for demurrage owed to the vessel. Instead, these clauses merely set forth the rate at which any demurrage charge would be calculated should it occur. Therefore, the GAFTA panel had to determine whether Aston was even entitled to recover demurrage from Star Grain, considering that Aston was not seeking reimbursement for any demurrage liability it incurred to the shipowner. And while the panel found that Star Grain was in fact liable to Aston, it did so not because Star Grain breached any maritime obligation under the contracts or because Star Grain caused the demurrage, but only because the contracts were on C.I.F. Free Out terms. GAFTA Opinion at 11-12. When a contract for the sale of goods is on C.I.F. terms, the risk of loss passes to the buyer at the point of shipment. See, e.g., 18 Williston on Contracts § 52:31 (4th ed.); William D. Branson, Ltd. v. Tropical Shipping Const. Co., Ltd., 598 F.Supp. 680, 681 (C.D.Fla. 1984) ("[T]itle and risk of loss under a C.I.F. shipment contract passes to the buyer upon shipment if the seller has properly performed all his obligations with respect to the goods."). Consequently, Star Grain, as the buyer, assumed the risk of shipping damages and consequential delay once Aston, the seller, delivered the wheat into the carrier's custody.
It is also noteworthy, as Star Grain points out, that the contracts provided for arbitration before GAFTA, and not maritime arbitration as would have been customary had the contracts truly been maritime in nature.
A price on C.I.F. terms means that the price includes the cost of the goods, the insurance, and the freight to the named destination. 18 Williston on Contracts § 52:13 (4th ed.).
Therefore, the GAFTA panel held that, because any loss due to damage to the wheat was at Star Grain's risk, and because it was the damage to the wheat that caused the delay, Star Grain was liable under the contracts' demurrage provisions. GAFTA Opinion at 12. Aston's demurrage claim turned on whether Star Grain bore the risk of loss to the goods under a pricing provision in the contracts, and not whether Star Grain breached any maritime obligations. The tribunal ruled that "It it is generally accepted in the trade that parties to a sale for shipment in the sales terms may deviate from the terms of the underlying charterparty. In the Tribunal's experience the sale discharge provisions usually are independent of the charterparty." GAFTA Opinion at 16. The tribunal held that in determining the buyers liability for demurrage, all ingredients for a complete laytime calculation are contained in the sale terms" without reference to the charterparty. Id. at 18.
The tribunal also stated that "Alternatively the seller, although not themselves charterers, might have contracted to buy the goods from others who were charterers, on the terms similar to those in the contract notes. A further possibility, of course, is that the sellers were not liable to anybody for demurrage, and merely wished to make an adventitious profit from their contract with the buyers." GAFTA Opinion at 17.
In interpreting the sales contracts, the tribunal held that "The distinction normally would depend on how much of the original charterparties laytime provisions were imported into the sale contract. If laytime can properly be calculated without reference to the charterparty laytime provisions the sales terms must take precedent." GAFTA Opinion at 17.
This Court lacks maritime jurisdiction over this case. The enforcement of this foreign arbitration award, where the underlying claim is not maritime in nature, may not be pursued under this Court's maritime jurisdiction. Star Grain's motion to vacate the ex parte order of attachment issued by this Court is GRANTED. The ex parte attachment order is VACATED.
SO ORDERED: