Earlier today, the U.S. District Court for the District of Maryland issued a decision vacating maritime attachments of a vessel on the grounds that the attachments were futile in view of the Vessel Owner's bankruptcy proceedings. In Evridiki Navigation v. The Sanko Steamship Co., Ltd., Civil No. JKB-12-1382 (ECF Doc. # 135)(D. Md. Jul. 27, 2012), a vessel had been attached in Baltimore, Maryland, by use of Rule B of the Supplemental Rules for Admiralty and Maritime Claims. The basis for the attachments were claims for unpaid hire relating to ships owned by the Attaching Plaintiffs that had been chartered to the Vessel Owner. Prior to the attachments, the Vessel Owner had deferred part of the hire due on those ships as the Vessel Owner attempted a voluntary reorganization process in Japan. Because of that situation, the Vessel Owner was not in a position to post security for the claims. At the time of the attachment, the vessel had cargo on board destined for New Orleans and Houston. The vessel's Time Charterer then intervened in the action and arrested the vessel based on a claim that the time charter had been breached. Subsequently, the Cargo Interests (i.e., the entities owning the cargo on board the vessel) also intervened and arrested the vessel asserting breaches of the various contracts of carriage. Ultimately, the Bank holding the mortgage on the vessel intervened in the action albeit the Bank refrained from arresting the vessel.
The Time Charterer filed a motion to vacate the original attachments on the grounds that the attachments were futile. That is, since the Time Charterer, Cargo Interests and the Bank held maritime liens against the vessel, if the vessel were sold at judicial auction, after the various maritime liens were satisfied the Attaching Plaintiffs would receive nothing since any and all maritime liens prime a maritime attachment. To substantiate the facts, the Court ordered that an evidentiary hearing be held. After that hearing and during the briefing process, the Vessel Owner filed a corporate reorganization proceeding in Japan and a concomitant proceeding in New York pursuant to chapter 15 of the U.S. Bankruptcy Code (chapter 15 being the U.S. enactment of the UNICTRAL Model Law on Cross-Border Insolvency). The Bankruptcy Court granted a temporary restraining order and later a preliminary injunction precluding any party from taking any action against the Vessel Owner's property in the U.S., although a "carve out" was allowed so that the motion to vacate could proceed in Baltimore.
The Maryland Court did not decide the motion to vacate on the grounds as originally advanced, i.e., that the quantum of the maritime liens were substantially greater than the (junior) maritime attachments of the Attaching Plaintiffs and thus the attachments were futile. Instead, the Court determined that under precepts of equity as applied in admiralty cases the attachments should be vacated as futile because of the pendency of the reorganization CONTACT US Brad Berman New York 212.513.3371 firstname.lastname@example.org Jim Hohenstein New York 212.513.3213 email@example.com Arthur Rosenberg New York 212.513.3482 firstname.lastname@example.org VISIT HKLAW.COM More publications are available on our website. CONNECT WITH US proceedings in Japan and the chapter 15 proceeding in New York. First, the Court recognized that it was now precluded from adjudicating the Attaching Plaintiffs' underlying claims against the Vessel Owner, as such claims would be part of the reorganization proceedings in Japan. Second, since the Court is now also precluded from directing the judicial sale of the vessel, maintaining the attachments will prevent the Vessel Owner from using the vessel during the reorganization process. The Court rejected the notion that the attachments had to be maintained to allow the Attaching Plaintiffs to assert the status of being a "secured creditor." The Court noted that any argument as to the Attaching Plaintiffs' "secured" status could be asserted in the context of the Japanese proceedings.