The collapse of marine fuel trader OW Bunker & Trading A/S (“OW Bunker”) and its affiliates, in November 2014, has resulted in a blizzard of legal proceedings in the United States. Bunker suppliers and creditors of insolvent OW Bunker entities have sought to secure their claims by arresting vessels or proceeding directly against vessel owners and operators who contracted with OW Bunker entities to supply their vessels with bunkers. Vessel owners and operators have commenced interpleader actions in the US District Court for the Southern District of New York (the “S.D.N.Y.”) to enjoin creditors from seeking to arrest their vessels and to force the relevant creditors to litigate their claims over alternative security deposited into court registries. As of 29 June 2016, 34 such interpleader and arrest actions have been filed and deemed “related” cases before US District Judge Valerie E. Caproni in the S.D.N.Y.
Additionally, physical suppliers of bunkers have commenced separate actions in US courts to arrest vessels to secure their maritime lien claims instead of proceeding against the insolvent OW Bunker purchaser in a bankruptcy proceeding. Most of the interpleader and arrest cases involving OW Bunker entities have been pending in the US courts for over a year.
The federal courts in the US - the bankruptcy court, the district courts and the appellate courts - have applied a firm hand to control litigation of these cases. The courts have employed anti-suit injunctions, interpleader proceedings and arrest procedures across the country. At least two district courts in the US have held that the physical suppliers are not entitled to summary judgment on their claims of maritime liens. See Valero Marketing and Supply Co. v. M/V ALMI SUN, Civil Action No. 14-2712, 2016 WL 475905 (E.D. La. Feb. 8, 2016), and O’Rourke Marine Services L.P., L.L.P. v. M/V COSCO Haifa, 15 Civ. 2992(SAS), 2016 WL 1544742 (S.D.N.Y. Apr. 8, 2016). Appeals are pending and more loom on the horizon. For example, the decision by the federal district court in Louisiana in Valero is now on appeal to the U.S. Court of Appeals for the Fifth Circuit. Additionally, the M/V COSCO Haifa case has since been transferred to the Hon. Judge Forrest of the S.D.N.Y., and the physical supplier has filed a motion for reconsideration of the decision.
At least one court of appeals, the Second Circuit in New York, has weighed in on preliminary issues raised by the complex interpleader and injunction issues. On February 24, 2016, the US Court of Appeals for the Second Circuit issued a key decision in Hapag-Lloyd Aktiengesellschaft v. U.S. Oil Trading LLC, 814 F.3d 146 (2d Cir. 2016), which affirmed the district court’s subject-matter jurisdiction under the Federal Interpleader Act over the interpleader commenced by Hapag-Lloyd Aktiengesellschaft (“Hapag”).
On appeal, physical supplier US Oil Trading LLC (“USOT”) argued that the district court lacked subject-matter jurisdiction over the interpleader since, unlike Hapag’s contractual counter-party OW Bunker Germany GmbH (“OW Germany”) and/or its alleged assignee ING Bank N.V. (“ING”), USOT had no contract with Hapag for the deliveries, and instead had asserted maritime lien claims against the vessels in rem pursuant to the US Maritime Commercial Instruments and Liens Act, 46 U.S.C. §§ 31301, et seq. (the “Lien Act”). The Lien Act authorizes maritime liens for necessaries supplied to any vessel on the order of the owner of the vessel or of a person authorized by the owner.
USOT argued that the obligations of Hapag in personam to OW Germany were separate and distinct from the obligations of Hapag’s vessels in rem to USOT under the Lien Act. In affirming the District Court’s subject-matter jurisdiction, the Second Circuit recognized that the case “presents, as the District Court aptly put it, ‘interesting and apparently novel questions regarding the interplay among the United States bankruptcy law, maritime law and the federal interpleader statutes.’” The Second Circuit, however, concluded that the competing claims by USOT, OW Germany and ING all related to the same enrichment to Hapag, i.e., the value of the bunkers delivered to the vessels, and thus were “inextricably related.” The Second Circuit further recognized that the Federal Interpleader Act contemplates competing claims with different legal origins, and thus found that the distinction between in personam and in rem liability was immaterial to the district court’s subject-matter jurisdiction under the Federal Interpleader Act.
Yet the Second Circuit then recognized that it “may be true” that a payment by Hapag to OW Germany under its contracts would not discharge the maritime liens held by USOT. The Second Circuit thus acknowledged the prospect that the in personam contractual claims by OW Germany and the in rem maritime lien claims by USOT are not mutually exclusive, and leaves the following key questions unanswered: How do the in personam claims by OW Germany and in rem claims by USOT constitute “competing” claims if Hapag could arguably be liable to both OW Germany in personam under its contracts and USOT in rem under the Lien Act? If the claims are not competing claims, then how does the S.D.N.Y. have subject-matter jurisdiction under the Federal Interpleader Act?
The Second Circuit’s decision in Hapag-Lloyd is also significant for its ruling that in rem jurisdiction exists. USOT had argued that the district court lacked authority to rule that the bond deposited by Hapag constituted the substitute res for the vessels since the vessels were never arrested or within the in rem jurisdiction of the S.D.N.Y. Rejecting this argument, the Second Circuit found that, by initiating the interpleader “concerning in rem claims and posting adequate security for those claims,” Hapag consented to the jurisdiction of the S.D.N.Y. The court found such consent sufficient to confer the S.D.N.Y. with in rem jurisdiction over the vessels.
The Second Circuit in Hapag-Lloyd remanded the S.D.N.Y.’s worldwide anti-suit injunction, in part, for determination of the proper scope of the injunction. USOT had argued that 28 U.S.C. § 2361 did not grant the district court the authority to issue a worldwide injunction since that statute expressly limits the scope of the injunction to any “State or United States court.” In determining that a limited remand was warranted, the Second Circuit agreed with USOT that an injunction under 28 U.S.C. § 2361 has no extraterritorial reach, and that “federal courts have long possessed the inherent power to restrain the parties before them from engaging in suits in foreign jurisdictions[,]” but that the district court had not considered this point. Accordingly, the Second Circuit instructed the district court on remand to consider the scope of the anti-suit injunction. On May 6, 2016, the district court issued an order finding that the worldwide scope of the anti-suit injunction is proper.
The practical effect of the decision in Hapag-Lloyd boils down to this: The Second Circuit has now endorsed the Federal Interpleader Act as the proper statute to resolve allegedly competing claims for payment by physical suppliers, the insolvent OW Bunker entities and their alleged assignee, ING. The Second Circuit’s decision also: (1) highlights the importance of U.S. law governing the statutory lien rights of suppliers of fuel and other services to vessels; and (2) clarifies the applicability of in rem jurisdiction in interpleader actions where the plaintiff consents to the jurisdiction of the court.
Approximately one year after the collapse of OW Germany and its affiliated OW Bunker group of companies, OW Germany’s bankruptcy Administrator commenced an action in the US Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) on 11 November 2015, seeking recognition of its German administration proceeding under the US Bankruptcy Code. See in re OW Bunker Germany GmbH, 15-13018 (SMB) (Bankr. S.D.N.Y. 2015). On 13 January 2016, the Bankruptcy Court granted recognition of OW Germany’s foreign administration proceeding in accordance with Chapter 15 of the U.S. Bankruptcy Code.
OW Germany then filed motions in five (5) of the related actions pending in the S.D.N.Y., requesting that the district court judge, Judge Caproni, confirm the automatic referral of the actions to the Bankruptcy Court according to the S.D.N.Y.’s Amended Standing Order of Reference (the “Referral Motions”). Hapag-Lloyd joined with physical suppliers USOT, NuStar Marine Services, N.V. (“NuStar”) and O’Rourke Marine Services L.P., L.L.P. (“OMS”) in opposing OW Germany’s Referral Motions. Hapag-Lloyd, USOT and NuStar also filed cross-motions asking Judge Caproni to withdraw the automatic reference and to maintain jurisdiction over the related interpleader actions in their entirety.
On 27 April 2016, Judge Caproni: (1) granted OW Germany’s Referral Motions for an order “confirming” the automatic reference of the related actions to the Bankruptcy Court; and (2) granted the cross-motions by Hapag-Lloyd, USOT and NuStar for an order withdrawing the automatic reference in its entirety. The court’s order sought to resolve yet another putative clash between U.S. maritime law and the jurisdiction of the Bankruptcy Court. The court’s order is significant since Judge Caproni has now ruled that the district judge, as the Article III judge with broad equitable powers, not the Bankruptcy Court, must adjudicate the parties’ claims. As a result, the court’s order blocks OW Germany from dragging Hapag-Lloyd and the physical suppliers into the jurisdiction of the Bankruptcy Court, which would generally constitute a more favorable forum for debtors such as OW Germany and would have resulted in a duplicative, extended and more costly proceeding.
The physical suppliers in four of the interpleader cases before Judge Caproni in New York, including the Hapag-Lloyd case, are in the process of briefing as “test” cases for summary judgment the question whether the physical suppliers have a maritime lien on the specific facts of each case. Briefing is scheduled to close on the summary judgment motions in all test cases on 22 July 2016, and the district will likely hear oral argument shortly thereafter. As a result, the battle continues on behalf of the interests of the vessel owners and operators, the physical suppliers, and the OW Bunker entities and their lenders, ING, respectively, as they seek court rulings on the ultimate question of which party is entitled to receive payment from the interpleader funds as a matter of U.S. law.
(Interpleader proceedings are brought by a plaintiff so that a court may determine the ownership rights of rival claimants to the same money or property which is held by the plaintiff. This civil procedure allows the plaintiff to compel two or more other parties to litigate a dispute. Under US law, interpleader actions may be commenced pursuant to the Federal Interpleader Act, 28 U.S.C. § 1335 (“statutory interpleader”), or to Federal Rule of Civil Procedure 22 (“rule interpleader”). Generally, statutory interpleader requires a plaintiff to deposit money or property into the registry of the court so the claimants may assert their claims against the res. Federal law authorizes the court to issue an anti-suit injunction in statutory interpleader cases restraining the competing claimants from prosecuting related claims in other jurisdictions. Both statutory and rule interpleader are designed to protect stakeholders facing multiple claims for a single obligation.)
Note: Clyde & Co New York currently act as counsel for a number of physical suppliers of bunker fuel in several of the interpleader actions pending in the US District Court for the Southern District of New York.