Summer 2014

FIRM REPRESENTS NIKOL H, STUCK IN QUAGMIRE IN DELAWARE RIVER
Photo credit: Clem Murray, Philadelphia Inquirer
Partner Alfred Kuffler  represents Orient Shipping, the time-charterer of general cargo vessel NIKOL H, which has currently been anchored in the Delaware River for more than 16 weeks, with 20 crew on board whose visas have expired and whom are not permitted ashore. The ship is caught in a quagmire between U.S. Coast Guard demands for operational repairs and an owner who has not paid bills incurred since April. The Nikol H, which is registered in the Marshall Islands, needs additional repairs before sailing, and the owners allegedly owe as much as $1.2 million, which prompted vendors and others to sue to recover costs for providing fuel, food, and supplies while the ship has been in the Delaware River.

Several articles about the matter have appeared, including in the  Philadelphia Inquirer. 

WHEN NEITHER THE CONTAINER NOR THE AUTOS SHIPPED IN IT QUALIFY AS COGSA "PACKAGES," UNIT USED TO CALCULATE FREIGHT WILL DETERMINE LIMITATION  


Although the $500 per "package" or per "customary freight unit" limitation that protects ocean carriers has been the law since passage of the U.S. Carriage of Goods by Sea Act (COGSA) in 1936, courts continue to struggle with the meaning of "package" and "customary freight unit."


 

Part of this is due to the changes in methods of shipping cargo: the bag, box or barrel which were shipped individually are now often shipped on pallets or in bundles or in large shipping containers that are supplied by the carrier but filled with cargo and sealed by the shipper. Read the full article.
  MARITIME INTERMODAL CARRIER WHO SUBCONTRACTS RAIL SEGMENT IN USA IS NOT SUBJECT TO CARMACK AMENDMENT

 

--Ocean Carrier's Bill of Lading Extends COGSA $500 Limitation to Rail Carrier--

 

When an ocean carrier issues a through or intermodal bill of lading, including land segments by rail in the USA, the overall carriage is still subject to maritime law. The Supreme Court ruled in 2010 that the Carmack Amendment, which usually applies to rail carriage, is preempted for the sake of uniformity of maritime law in intermodal carriage.

 

The Carmack Amendment, which applies to "receiving" and "delivering" land carriers in the USA, is much stricter than the U.S. Carriage of Goods by Sea Act that applies to all maritime carriers that carry goods to and from the USA. For example, the COGSA $500 per package limitation that protects maritime carriers is not found in the Carmack Amendment. Furthermore, the Himalaya Clause contained in most ocean bills of lading contractually extends the ocean carrier's defenses to all agents, servants and subcontractors of the maritime carrier.

 

The railway company issues its receipt or bill of lading to the ocean carrier. Thus, if a train derails causing heavy damage to cargo shipped by an ocean carrier, the cargo owner will find out that the railway carrier, as well as the ocean carrier who issued a bill of lading, are both protected by all the defenses listed in the ocean bill of lading and in the Carriage of Goods by Sea Act. American Home Assurance v. A.P. Moller Maersk (S.D.N.Y. March 31, 2014) .   

EVEN A CARRIER STEALING CARGO WOULD NOT BE AN "UNREASONABLE DEVIATION" IN THE SECOND CIRCUIT COURT OF APPEALS

 

The Second Circuit Court of Appeals in New York has been steadfast in not extending the old maritime law doctrine of "Unreasonable Deviation." Recently it ruled that even assuming arguendo that an ocean carrier played a part in the theft of two autos delivered to it for shipment that would not constitute an "unreasonable deviation" that would nullify bill of lading defenses, including the COGSA $500 package limitation.

 

The doctrine grew out of maritime insurance law long before COGSA was passed, and it has been narrowly applied by the Second Circuit to only a few specific scenarios: First, a geographic deviation that increases the risk of damage to cargo. Second, unauthorized deck stowage that increases risk of loss or damage to cargo. Third, issuing an "On Board" bill of lading for cargo that is not actually loaded.

 

The Second Circuit has refused to extend the doctrine even where a carrier is alleged to have committed criminal acts, such as accepting bribes to deliver cargo to an unknown party.

 

Fair Opportunity to Declare Higher Value

 

In the same case, the Appeals Court ruled that where a bill of lading clearly states that in order to avoid the $500 limitation, a shipper may declare a higher value and pay a higher freight, the bill of lading form does not have to provide a special space in which to declare the higher value - although providing such a space would be better. This is especially true in a case like this where the shipper made frequent shipments with the same carrier and, in fact, had declared higher value for some previous shipments. His claim that he had not been given "a fair opportunity" to declare higher value was rejected. OOO "Garant-S" v. Empire United Lines Co., Inc. (2nd Cir. Feb. 8, 2014).

NEW YORK FEDERAL COURT DECLINES TO RECOGNIZE TORT OF "FINANCIAL UNSEAWORTHINESS"

 

Although over several decades a handful of decisions from District Courts around the country recognized under certain circumstances a maritime tort of "financial unseaworthiness," only one Court of Appeals, the Fifth Circuit, has endorsed it. The Southern District Court in New York noted this recently and refused to recognize such a tort in Maritime Law.

 

An importer in New York asserted tort claims of financial unseaworthiness to recover alleged losses resulting from a three- month delay in shipping cargo from Turkey, due to arrest of the vessel by creditors. During the course of the voyage, the vessel was seized at Baltimore, and it took more than 90 days before the owner put up security. Read the full article. 

INTERNATIONAL MARITIME LAW SEMINAR TO BE HELD IN LONDON OCTOBER 16  

 

The International Maritime Law Seminar will hold its ninth annual event on October 16, 2014 at Gibson's Hall, 13 Bishopsgate, in London. Montgomery McCracken continues to sponsor the event with 13 other maritime firms from around the world. This year, the event will focus on "Recent Developments in Maritime Law."

Eugene O'Connor, a recent addition to the Maritime and Transportation practice group at Montgomery McCracken, will be speaking on behalf of the firm about new legislation concerning sulfur emissions by the U.S. Environmental Protection Agency as they relate to vessels.

The seminar will start at noon and will be followed by a cocktail party in the evening. If you are interested in attending the complimentary event,  please email Vincent DeOrchis. Vince has helped organize the event from its inception. More information about the seminar and its speakers can be found at internationallawseminar.com.

STEPPED UP ENFORCEMENT IN THE NORTH AMERICAN ECA 

 
--This article by partners Timothy Bergère and Eugene O'Connor and associate Robert O'Connor appeared in the June 2014 issue of the UK P&I Club 's Legal Briefing  newsletter.--
 
In a new enforcement initiative, the United States Environmental Protection Agency ("EPA"), in cooperation with the United States Coast Guard ("USCG"), has boarded vessels to collect bunker samples to determine whether the vessels' fuel sources meet the 1.0% fuel oil sulphur limit applicable within the North American Emissions Control Area ("ECA"). 
Read the full article. 

FULL STEAM AHEAD: VETERAN TEAM JOINS FIRM'S MARITIME PRACTICE  




Eugene O'Connor
Timothy Semenoro
Robert O'Connor

The one constant in life is change. After having practiced as a team for the last decade, Eugene O'Connor, Timothy Semenoro, and Robert O'Connor have joined forces with Montgomery McCracken's Maritime and Transportation practice group. But how much has really changed? As a team, they continue to represent vessel owners, operators, charterers, P&I Clubs, and hull underwriters; they still handle large scale marine casualties, marine pollution and natural resource damage cases in a proactive and efficient manner; and they still are capable and likable maritime lawyers, who can play a decent round of golf from time to time.

 

The real change has been in terms of depth. The O'Connors and Semenoro now add their combined experience representing clients in some of the largest vessel pollution incidents, groundings, and casualties in the last decade to a practice group that already has such notable maritime attorneys as Vincent DeOrchis, Alfred Kuffler and John Levy. As part of the Montgomery McCracken team, they can now offer their clients a wider range of services in both maritime and non-maritime areas of law. On every level, the team, the practice group, the firm and (most importantly) the clients benefit.  

 

Get the full details in our announcement and check out the press coverage:

"ALL RISK" MARINE INSURANCE POLICY COVERS ALL FORTUITOUS LOSSES UNLESS SPECIFICALLY EXCLUDED

 

Marine insurance policies are usually subject to Admiralty jurisdiction of federal courts and are governed by Federal maritime law. However, if there is no controlling rule of maritime law regarding a specific term of the policy, the court can look to State law in interpreting the marine policy.

 

In May of this year, the 11th Circuit Court of Appeals decided a case in which the insured vessel owner claimed an "all risk" marine policy covered all accidental and fortuitous losses, including breakdown of an engine by a stuck valve. The District Court ruled that the assured had to go further and prove the precise cause, i.e., why the valve got stuck.

 

The Appeals Court reversed, finding that the assured had presented expert testimony on the cause of the engine's failure, i.e., the stuck valve, and had established that the unexplained loss occurred well before the end of the engine's projected life. The Court said that an assured under the "all risk" marine policy did not have to prove "the cause of the cause."

 

The Court ruled that the burden of proving a fortuitous loss under an "all risk" marine policy is "not an onerous one," and that if the insurance company wanted to exclude losses resulting from the negligence of third parties, it could have done so very readily. Lamadrid Miami Yacht Charters, LLC v. National Union Fire Insurance Company of Pittsburg, PA (11th Cir. May 22, 2014) 

SEAMEN STILL ENJOY ANCIENT "WARDS OF THE COURT" STATUS TODAY DESPITE HISTORICAL CHANGES

 

--U.S. Maritime Law Preempts Law of Seaman's Own Country--  

 

Seamen have always been treated with special solicitude by U.S. courts and are given more protection than shoreside employees, even those employed in maritime trade, such as longshoremen. Injured seamen have more rights than the passengers they serve on cruise ships. Maritime law has historically afforded seamen fervent protection based on the ancient doctrine that seamen are "Wards of the Court," the same as orphans in need of a guardian.

 

As Justice Story of the Supreme Court put it in an 1823 case:

 

Every court should watch with jealousy any encroachment upon the rights of seamen, because they are unprotected and need counsel, because they are thoughtless and require indulgence, because they are credulous and complying, and are easily overreached. They are emphatically the wards of the admiralty; and though not technically incapable of entering into a valid contract, they are treated in the same manner, as courts of equity are accustomed to treat young heirs, dealing with their expectancies, wards with their guardians...

Maritime courts today still quote Justice Story, although he was referring to the situation of seamen two hundred years ago. Others wonder whether the ancient doctrine should apply equally today to modern seamen with their strong unions.

 

Nevertheless, the "Wards of the Court" theory continues today to protect even a foreign seaman who is injured while employed on a foreign vessel while it is docked in a U.S. port. Read the full article. 

OIL RIG MOORED TO SEA FLOOR IS NOT A MARITIME "VESSEL"

 

--Has No Practical Possibility for Transportation on Water--

 

You would think that by now the maritime industry would know what a "vessel" means since vessels are involved in most maritime case and are the basis for Admiralty Jurisdiction. The latest dispute reached the Fifth Circuit Court of Appeals, and the issue was whether a floating oil and gas production facility moored to the sea floor is a "vessel" subject to the Maritime Liens Act.

 

A company that supplied tools and services to an oil rig brought an in rem suit against the facility after the owner declared bankruptcy and had not paid the plaintiff's bills. The supplier sought declaratory judgment that the moored facility was a maritime vessel and could be sued in rem under admiralty jurisdiction and a lien obtained against it to satisfy the bills unpaid by the owner.

 

The U.S. Maritime Liens Act states that a person providing necessaries to a "vessel" has a maritime lien and may file a civil action in rem to enforce the lien. A vessel is defined as "every description of watercraft or any other contrivance used, or capable of being used, as a means of transportation, regardless of its primary purpose or state of transit at a particular moment." The appellate court said the dispositive question was, "Whether the watercraft's use as a means of transportation on water is a practical possibility or merely a theoretical one." The Court agreed with the District judge that the floating facility did not constitute a "vessel" for Admiralty jurisdiction.  Read the full article. 

"ALTER EGOS" AND "PIERCING THE CORPORATE VEIL" IN MARITIME LAW   

 

When someone, even a corporation, sets up a dummy corporation just to avoid personal liability and goes on doing business the same way they did before, a maritime court may "pierce the corporate veil" and find the individuals or corporations involved are "alter egos" of the paper corporation and hold them personally liable for breach of contract, although the contract is signed only for the dummy corporation.

 

A case decided this year by the 11th Circuit Court of Appeals involved the theft of three sea shipping containers full of computer monitors from a marine storage facility leased by the defendant, Inter-Florida Container Transport, Inc. After a non-jury trial, the District Court found that Inter-Florida was liable for the loss in excess of $500,000, but it also held liable two other defendants, Leonard Diaz and 10997 Project, Inc., who were using Inter-Florida as a front.

 

The court found that Inter-Florida and 10997 Project shared overlapping directors, and Diaz was 50 percent owner and President of 10997 Project. He also served as director, vice president, secretary and treasurer of Inter-Florida. His wife was the owner and President of Inter-Florida. The two companies ignored formalities, including holding of board meetings, and both companies were grossly undercapitalized.

 

The Appeals Court listed the factors that courts consider when deciding whether to pierce the corporate veil. These include, among others, (1) common directors and officers between corporations; (2)inadequate capitalization; (3)one corporation's use of another corporation's property and assets as its own; (4) informal intercorporate loan transactions; (5) overlapping decision making between corporations; (6) failure to observe formal legal requirements, and (7) "existence of fraud, wrongdoing or injustice to third parties." LIG Insurance Co. Ltd. v. Inter-Florida Container Transport, Inc., 10997 Project, Inc. and Leonel Diaz (11th Cir. May 1, 2014).

VALIDATION PRINCIPLE MAY INCREASE NUMBER OF FUTURE ARBITRATIONS

--Please note: This article by partner Vincent DeOrchis and legal clerk
Matteo Bonnuzi originally appeared in Mealey's International Arbitration Report and is reprinted here with permission.--

 

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention")  is directed to contracting States' courts, and not to arbitral tribunals. Arbitrators have, nonetheless, adopted its rules when deciding on the validity of the arbitration agreement. 

 

Article V of the New York Convention lists the "procedural defenses" against enforcement of arbitral awards within contracting States. Subsection 1(a) provides that recognition and enforcement may be denied if the parties were under some incapacity "under the law applicable to them". In applying this rule, courts have repeatedly offered different interpretation as to which law has to be considered governing the issue of the validity of the arbitration agreement. While courts in the United States have tended to apply forum law to this purpose, courts in foreign countries have opted to favor the law of the place of arbitration. Another group of courts have considered applicable the law chosen by the parties as the law governing the contract, or, in absence of an express clause, the law that would apply to the contract under a conflict of law analysis. Lastly, there is also who promotes the use of anational law like the lex mercatoria as it would reduce fragmentation of the law and possibility of conflicting decisions. 

 

This plurality of jurisdictional orientations leads to a significant degree of uncertainty for the practitioner that faces the task of representing a party in an arbitration proceeding in which jurisdiction and the validity of the arbitration agreement are contested. The interim award on jurisdiction reported below, offers an example of the application of the "validation principle," a legal theory that purports to solve the problem at least in part. Read the full article.   

INTERN TRAINEE PROGRAM

The firm is pleased to announce that it will continue its trainee program, which has afforded more than 110 foreign lawyers (and a few P&I Club claims handlers) an opportunity to observe firsthand the practices of maritime and transportation law in the United States. The program is designed to allow graduate law students or attorneys from outside of the United States to be involved in transportation cases, including, when possible, the attendance at court hearings, trials, arbitrations, depositions and settlement conferences in court, while receiving informal instruction on American law and procedure, as well as an opportunity to improve their English skills.  

 

If you or someone you know may be interested in the program, please send an email with the subject line: "[Your Name] - MMWR- Trainee Program." Please attach a copy of the applicant's resume and indicate the time period when you would like to participate in the three-month program. Emails should be sent to

Vincent DeOrchis or Kaspar Kielland. For additional details on the program, please visit mmwr.com.

MATTEO BONUZZI ENGAGED AS LAW CLERK IN FIRM'S MARITIME PRACTICE

 

Matteo Bonuzzi, who has been with Montgomery McCracken for the past six months through the firm's trainee program, has been engaged  as a Law Clerk to assist the firm's Maritime and Transportation practice group.

 

Matteo was previously a fellow at the Complex Litigation Center within the Philadelphia Court of Common Pleas. He clerked  for the Hon. Judge Arnold L. New, primarily with respect to mass tort and medical malpractice cases. Prior to that, Matteo had been a Junior Research Scholar at New York University School of Law and a trainee in the Italian firm Bacigalupo & Gotelli, dealing with aviation finance and petroleum contracts.

 

Matteo holds a law school degree from University of Genoa School of Law,  as well as an LL.M. from New York University School of Law. He is admitted to practice in the New York State Courts, and he is expected to sit for the last part of the Italian bar exam later this year.


Montgomery McCracken's Maritime and Transportation practice serves all sectors of the maritime industry including ship owners, charterers, pilots, cargo owners, shipyards, terminals, commodities traders, non-vessel operators and non-vessel operating common carriers. The multifaceted practice includes cargo and products claims; bankruptcy and restructuring; corporate and finance matters; sustainable growth; and defense of criminal investigations, including corporate compliance matters.

This newsletter was made possible by the scholarly contributions of M.E. DeOrchis. Currently retired and residing in Del Ray Beach, Fla., Mr. DeOrchis received his law degree from Columbia University and a Master of Laws degree from New York University before launching a long and illustrious career practicing admiralty law.

For additional information, please contact any of the attorneys within the firm's  Maritime and Transportation  practice group.

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