A freight ship like the ones involved in a jurisdictional decision by the Second Circuit. (DAmicoShip.com)
Federal courts have admiralty jurisdiction to enforce the judgment of a foreign, non-admiralty court if the claim underlying the judgment is maritime under federal law, the U.S. Court of Appeals for the Second Circuit said Thursday.
Overturning a lower court, the Second Circuit found that admiralty jurisdiction exists under 28 U.S.C. §1333 and reinstated a case seeking to enforce a plaintiff’s judgment over a contract for future ocean freight rates imposed in England.
Southern District Judge John Koeltl (See Profile) had dismissed the case after finding he lacked jurisdiction because the judgment on a derivative contract for future ocean freight rates was not imposed by an English admiralty court.
D’Amico Dry Limited had a forward freight agreement obligating Primera Maritime to pay D’Amico if the market freight rates on a specific route on future dates was lower than the price specified in the contract.
When that event occurred, D’Amico prevailed in the Commercial Court of the The Queen’s Bench Division of the High Court of Justice in London against Primera and several alter ego defendants in the amount of $1,766,278. The reason the case was not heard in the Admiralty Court was that the contracts at issue are not considered maritime contracts in England because they involve theoretical, rather than actual, shipment of goods by ship.
D’Amico then sued in New York to enforce the judgment. When Koeltl dismissed, D’Amico appealed to the Second Circuit, where oral argument was heard on Sept. 21, 2012.
Leval, writing for the court on Thursday, said the enforcement of foreign admiralty judgments through the admiralty jurisdiction of the U.S. federal court was as old as the nation, including the seminal case of Penhallow v. Doane’s Administrators, 3 U.S. (3 Dall.) 54 (1795) where the Supreme Court declared “a Court of Admiralty in one nation can carry into effect the determination of the Court of Admiralty of another.”
But Leval also said there was “recent, but scant, precedent supporting a related proposition that the federal admiralty jurisdiction provided by §1333 should also accommodate suits to enforce foreign judgments based on claims that are maritime in nature.”
Doing so, he said, “undoubtedly serves the purposes intended by the Penhallow rule,” which reflects a number of related policies—including “a preference for specialized admiralty courts … because of their expertise in the arcane rules, nomenclatures, and traditions of the sea.”
Leval said the Penhallow rule “promotes a desirable uniformity in matters of international trade,” and “international comity by facilitating the recognition of foreign judgments.” And it “reflects a constitutionally endorsed distribution of power between state and federal courts, which offers a forum for international disputes, which is—at least theoretically—less likely to be influenced by local bias.”
Together, he said, “these policies all tend to promote maritime commerce by facilitating the enforcement of the law of the sea” by “simplifying the enforcement of judgments … and protecting vulnerable parties such as foreign litigants and seamen.”
And all the policies “relate far more to the maritime character of the underlying dispute than to the classification of the court that rendered the judgment,” Leval wrote.
On remand, Leval said the lower court should consider in the first instance whether the underlying claims on a contract are maritime under the standards of U.S. law.
This was the second time in the last month that the Second Circuit has had the rare experience of tackling an admiralty case.
In May, the court rejected admiralty jurisdiction for an alcohol-driven marina brawl in Bridgeport, Conn. (NYLJ, May 22). Admiralty lawyer James Mercante, one of the attorneys in that case, but not involved in D’Amico case, said the Second Circuit got it right in D’Amico.
“This decision is 100 percent accurate in that our system of justice can’t rely, in determining admiralty jurisdiction, on whether a foreign court was sitting in admiralty or not,” said Mercante, a partner at Rubin Fiorella & Friedman.
“What guides us here in determining federal admiralty jurisdiction is the U.S. Constitution, congressional mandates thereafter and case precedent that follows,” he continued. “And there’s really only one other case, out of the Fourth Circuit that the court cited, so really, this is a case of first impression here.”
“It makes sense, just because someone chooses to sue in a commercial court, that shouldn’t decide the admiralty jurisdiction of the United States,” said Mercante, who writs an admiralty law column for the New York law Journal.
Thomas Tisdale of the Tisdale Law Offices, who argued for D’Amico Dry Limited, said the decision “clarifies an area of admiralty subject matter jurisdiction which, until now, has been confused due to earlier courts’ reliance on overly broad dicta.”
“Because the transitory nature of maritime business continues to expand, the recognition of foreign judgments in the United States has increased and will increase further in the near future. This decision will aide in the future enforcement of foreign judgments in the United States,” Tisdale said.
Alan Heblack argued for Primera and George Chalos of Chalos & Co. in Oyster Bay represented the other defendants.