Williamson v. Recovery Ltd. Partnership

A maritime attachment arising out of a contract action is appropriate where the underlying contract’s nature and character is one of maritime and not simply a non-competition agreement, the Second Circuit ruled recently in Williamson v. Recovery Ltd. Partnership, __ F.3d __, 2008 WL 3876570 (Aug. 22, 2008).

The plaintiffs in Williamson had assisted a recovery operation for the S.S. Central America, a steamship that sank off the coast of South Carolina in 1857. In return for a fraction of a percentage of any recovery, the plaintiffs had executed non-disclosure and non-competition agreements. After a successful recovery operation, defendants were able to sell the gold, silver, and valuable artifacts recovered from the S.S. Central America. But defendants never paid the plaintiffs their share, forcing the plaintiffs to bring a breach of contract action in Ohio State Court.

Defendants removed the State Court action to federal court, and plaintiffs then filed a maritime action in the United States District Court for the Southern District of New York, in which plaintiffs sought an attachment on the salvage from the S.S. Central America. After the district court resolved, among other things, an order to show cause on the attachment in favor of plaintiffs, defendants appealed.

On appeal before the Second Circuit, the defendants argued that plaintiffs’ non-compete agreements were not maritime contracts (and thus there was no federal jurisdiction and prejudgment interest), but instead only non-competition agreements. The Second Circuit disagreed, noting that the test for whether a contract sounds in maritime law is its nature and character, and whether the contracts “principle objective . . . is maritime commerce . . . .” Thus, because the principle objective of the non-competition agreements concerned maritime operations (a salvage recovery operation), the Second Circuit concluded that “[w]hile the Defendants may be correct in stating that these are just standard non-compete, nondisclosure, and lease contract agreements, they are incorrect in arguing that the contracts are therefore not maritime contracts.”

Accordingly, companies entering into non-competition and non-disclosure agreements regarding maritime commerce should expect those contracts to provide federal maritime jurisdiction as non-competition agreements and maritime contracts are not mutually exclusive.