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Leopard Marine & Trading, Ltd. v. Easy Street Ltd.

United States Court of Appeals, Second Circuit

July 13, 2018

LEOPARD MARINE & TRADING, LTD., Plaintiff - Appellee,
v.
EASY STREET LTD., Defendant - Appellant.

          Argued: February 16, 2017

         Leopard Marine & Trading, Ltd. seeks a declaratory judgment that a maritime lien held by Easy Street Ltd., a Cypriot fuel supply company, has been extinguished by laches. Easy Street contends that the court should dismiss the case on grounds of international comity because of a pending in rem proceeding in Panama regarding the lien that is the subject of this case. Easy Street also disputes that laches bars exercise of the lien. The United States District Court for the Southern District of New York (Rakoff, J.), sitting in admiralty, declined to abstain on grounds of international comity and issued a declaration that laches barred exercise of the lien.

         We determine, first, that the federal courts have jurisdiction to declare a maritime lien unenforceable, even where the vessel is not present in the district, so long as its owner consents to adjudication of rights in the lien. We then hold that abstention on the basis of international comity is not required in this case, and that the district court did not abuse its discretion in ruling that laches barred exercise of the lien.

         Affirmed.

          Appearing for Appellant: BRITON P. SPARKMAN (George M. Chalos, on the brief), Chalos & Co, P.C., Oyster Bay, NY.

          Appearing for Appellee: CHRISTOPHER H. DILLON, Burke & Parsons, New York, NY. David S. Bland, Julie Maria Araujo, Bland & Partners PLLC, New Orleans, LA

          Before: POOLER, PARKER, and LIVINGSTON, Circuit Judges.

          POOLER, CIRCUIT JUDGE.

         We decide here whether Easy Street Ltd., a Cypriot fuel supply company, has a valid maritime lien against a vessel, the M/V Densa Leopard (the "Vessel"). A maritime lien is "[a] lien on a vessel," given for one of several purposes, including "to secure the claim of a creditor who provided maritime services to the vessel." Black's Law Dictionary 1065 (10th ed. 2014). In this case, the Vessel's owner, Leopard Marine & Trading, Ltd., a Maltese company, sued for a declaratory judgment that Easy Street may not exercise the maritime lien because of laches. The United States District Court for the Southern District of New York (Rakoff, J.), sitting in admiralty, declined to abstain on grounds of international comity in deference to an ongoing suit in Panama in which Easy Street has attempted to exercise the lien. The district court then issued a declaration that laches has extinguished the lien.

         We determine that the federal courts have jurisdiction to declare a maritime lien unenforceable; that abstention on the basis of international comity is not required in this case; and that the district court did not abuse its discretion in ruling that laches extinguished the lien. We thus AFFIRM the district court's judgment.

         BACKGROUND

         I. Factual Background

         This case arises from an ocean vessel's unpaid fuel bill. In 2011, the Vessel's owner, Leopard Marine, chartered[1] the Vessel to Allied Maritime, Inc., thus allowing Allied to operate the Vessel for a period of time. As part of the chartering agreement, Allied gave Leopard Marine a cargo lien worth the amount owed for using the Vessel.

         On August 23, 2011, Allied bought fuel for the Vessel from Easy Street in Mejillones, Chile, at a price of $848, 847.60. Allied agreed to pay Easy Street for the fuel by September 26, 2011. By purchasing the fuel, a maritime lien arose on the Vessel in Easy Street's favor, which would allow Easy Street to seize the Vessel pursuant to the lien if the fuel bill went unpaid. See Itel Containers Int'l Corp. v. Atlanttrafik Exp. Serv. Ltd., 982 F.2d 765, 766 (2d Cir. 1992) ("A maritime lien is[] a special property right in the vessel, arising in favor of the creditor by operation of law as security for a debt or claim. The lien arises when the debt arises, and grants the creditor the right to appropriate the vessel, have it sold, and be repaid the debt from the proceeds."). Under American law, Allied, as the charterer of the Vessel, could give third parties such liens even without the Vessel's owner's consent. See 46 U.S.C.A. §§ 31341, 31342.

         Allied returned the Vessel to Leopard Marine on November 4, 2011, with significant fuel left in it. On December 2, 2011, Leopard Marine provided Allied a payment credit of $409, 853.10 for the fuel's value, and Allied made the final payment for use of the Vessel, which was set off in part by the fuel credit.

         Allied did not pay Easy Street-the fuel provider-when the fuel invoice was due, and Easy Street undertook efforts to recover the amount owed under the invoice. Demitrios Chasampalis, the only full-time employee of Easy Street in 2011, stated that he sent electronic notices and attended "about 100 meetings," "in person . . . [i]n Allied offices," between when the invoice was issued in 2011 and sometime in 2012. App'x at 240, 246-47. During the meetings, which occurred "almost every two [or] three days," he "demanded payment of the invoice," among other outstanding issues between the two companies. App'x at 249-50. He testified that he did not seek "a settlement" of the money that was owed, but instead demanded payment of the invoice in full. App'x at 249-50. On March 16, 2012 and April 20, 2012, evidently after scores of in-person meetings had already been held, Allied sent two written notices to Easy Street, each promising to pay within a month. App'x at 321-24. But Allied did not honor either of the notices, and ultimately never paid the fuel bill.

         On April 15, 2012, Allied entered into involuntary bankruptcy proceedings following a motion by third-party creditors. On November 6, 2012, a Greek court declared Allied bankrupt, and ruled that Allied was "considered (retrospectively) to have stopped payments to its creditors since [January 1, 2012]." App'x at 325. The parties agree that seeking recovery from the bankruptcy estate would be futile.

         Easy Street never considered suing Allied before its bankruptcy, at least in part because of the companies' strong ties to each other. Chasampalis stated that the relationship between Allied and Easy Street was "such that they had me like their son," and that he "believed in them." App'x at 254.

         It was also not until at least September of 2012, after Allied entered into involuntary bankruptcy proceedings, that Easy Street considered pursuing remedies against Leopard Marine, and began tracking the Vessel for arrest. Although there is some dispute as to when Easy Street first informed Leopard Marine that Allied's bill was unpaid, the earliest Easy Street claims to have done so was in October of 2013. In any event, Easy Street sent Leopard Marine an email on March 30, 2015, demanding payment of $1, 394, 807.76-the amount of the unpaid fuel bill plus interest and legal fees.

         During 2011 and 2012, the Vessel passed through a number of ports where Easy Street could have arrested it and exercised the maritime lien. Easy Street conceded in the district court that the Vessel was in the Port of Vancouver, Canada, from March 17, 2012 until March 22, 2012, in Panama from April 4, 2012 to April 5, 2012, and in Brazil from June 5, 2012 to June 12, 2012. The district court noted, and Easy Street does not dispute, that exercise of its maritime lien would have been legally possible-even if costly and protracted-in each of those ports.

         On April 19, 2015, Easy Street arrested the Vessel in Panama, exercising its maritime lien for the unpaid fuel in an in rem action there.[2] The next day, Leopard Marine commenced this action, seeking a declaratory judgment that Easy Street's lien is barred by laches, and also seeking attorneys' fees and costs.

         II. Proceedings Below

         This appeal reviews two orders entered by the district court. The first denied Easy Street's motion to dismiss, brought under two theories: international comity and lack of personal jurisdiction. Leopard Marine & Trading, Ltd. v. Easy St., Ltd., No. 15-cv-3064, 2015 WL 4940109 (S.D.N.Y. Aug. 6, 2015) (hereinafter "Motion to Dismiss Order"). Easy Street first argued that the Panamanian courts had already exercised jurisdiction over part of the proceedings, and so the district court should abstain from considering the case, either through dismissal or stay. The district court concluded that this case did not raise the "exceptional circumstances" necessary for abstention. The court also determined that it had personal jurisdiction because of a United States forum selection clause in the fuel supply contract between Easy Street and Allied, even though Leopard Marine was not a party to that contract. The court reasoned that, because American law allows a party chartering a vessel to bind the vessel's owner to contracts, Easy Street should have foreseen that Leopard Marine, the Vessel's owner, might later seek to enforce any favorable provision-including a choice-of-law provision-in a contract between Easy Street and Allied.

         The second order considered whether, on the basis of laches, Easy Street should be foreclosed from enforcing its maritime lien against the Vessel. Leopard Marine & Trading, Ltd. v. Easy St. Ltd., No. 15-cv-3064, 2016 WL 3144058 (S.D.N.Y. Apr. 8, 2016) ("Summary Judgment Order"). The court concluded that laches barred the exercise of the lien, as Easy Street had delayed exercising the lien and the delay prejudiced Leopard Marine. The court focused, in particular, on the fact that Easy Street waited until after Allied had gone bankrupt to exercise the lien, which eliminated a number of otherwise reasonable means of repayment. Had Leopard Marine known that Easy Street intended to enforce the lien on the Vessel to be repaid for the fuel, Leopard Marine could have exercised its own lien against Allied's cargo pursuant to the chartering agreement, or pursued an arbitration against Allied in London. But after Allied entered bankruptcy, these were no longer realistic possibilities.

         Easy Street appealed the district court's decisions not to abstain on grounds of international comity, and to bar exercise of the lien on grounds of laches.

         DISCUSSION

         I. Federal Jurisdiction

         While the parties did not raise any jurisdictional challenges in the district court, "[w]e have an independent obligation to consider the presence or absence of subject matter jurisdiction sua sponte." In re Quigley Co., Inc., 676 F.3d 45, 50 (2d Cir. 2012). To do so, we consider whether there is jurisdiction in admiralty over a suit brought under the Declaratory Judgment Act, 28 U.S.C. § 2201, to adjudicate maritime lien rights within an in personam action.[3]

         The Declaratory Judgment Act provides that "[i]n a case of actual controversy within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a). In enacting the Declaratory Judgment Act, "Congress enlarged the range of remedies available in the federal courts but did not extend their jurisdiction." Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950). Thus, "the requirements of jurisdiction-the limited subject matters which alone Congress had authorized the District Courts to adjudicate-were not impliedly repealed or modified." Id. at 672. Therefore, "if, but for the availability of the declaratory judgment procedure," there would be no jurisdiction over the issues involved in the suit, then "jurisdiction is lacking." Franchise Tax Bd. of State of Cal. v. Constr. Laborers Vacation Tr. for S. Cal., 463 U.S. 1, 16 (1983) (quotation marks omitted).

         To decide whether federal jurisdiction exists to entertain a claim for declaratory relief, courts follow Skelly Oil's approach to "conceptually realign the declaratory judgment parties and claims and analyze them as they would appear in a coercive suit." Garanti Finansal Kiralama A.S. v. Aqua Marine & Trading Inc., 697 F.3d 59, 67 (2d Cir. 2012); see also Skelly Oil, 339 U.S. at 672 ("If Phillips sought damages from petitioners or specific performance of their contracts, it could not bring suit in a United States District Court on the theory that it was asserting a federal right. . . . [S]uch a suit would 'arise' under the State law governing the contracts."). Thus, if the defendant in a declaratory suit could have sued in federal court, seeking non-declaratory relief on the same claims pressed in the declaratory suit, then federal courts have jurisdiction over the declaratory action. See Garanti Finansal, 697 F.3d at 68 ("[W]e have summarized the law as follows: a complaint seeking a declaratory judgment is to be tested, for purposes of the well-pleaded complaint rule, as if the party whose adverse action the declaratory judgment plaintiff apprehends had initiated a lawsuit against the declaratory judgment plaintiff." (internal quotation marks omitted)).

         Although the Skelly Oil "conceptual realign[ment]" heuristic originated in federal question jurisdiction, this Court recently applied it in assessing admiralty suits. Id. at 68-71. While noting that it is not perfectly tailored to the admiralty context, id., we explained that if "Skelly Oil's simple and effective analysis applied only to federal-question jurisdiction, many admiralty litigants (and judges hearing admiralty cases) would miss out on the salutary effects of the [Declaratory Judgment Act]." Id. at 70.

         In the present case, Leopard Marine, owner of the Vessel, sues seeking a declaration that Easy Street may not enforce its maritime lien. The precedents of Skelly Oil and Garanti Finansal teach that we must ask, to assure ourselves of jurisdiction, whether Easy Street could have brought a coercive suit in federal court to enforce its lien, i.e., to become owner of the vessel.[4]

         Authorities concur that a maritime lien may be enforced only through an action in rem-that is, by proceeding against the vessel itself. See, e.g., 8-VII Joshua S. Force & Steven F. Friedell, Benedict on Admiralty § 7.01 (2017) ("Maritime liens do not exist apart from their ability to be enforced in rem in admiralty."); The Rock Island Bridge, 73 U.S. 213, 215 (1867) ("The lien and the proceeding in rem are, therefore, correlative-where one exists, the other may be taken, and not otherwise."). Generally speaking, "[a]n action in rem . . . [t]o enforce [a] maritime lien" requires court officials to "arrest . . . the vessel or other property that is the subject of the action." Fed.R.Civ.P. Supp. Adm. R. C (1)(a), (3)(a)(i). Here, the question is whether the Vessel's absence from the district would have precluded a suit by Easy Street to exercise its lien, and, if so, whether we lack jurisdiction to consider the "realigned" suit brought by Leopard Marine seeking that the lien be declared unenforceable.[5]

         The Supreme Court has referred to in rem jurisdiction as a device of legal fiction intended to promote access to courts. "The fictions of in rem forfeiture were developed primarily to expand the reach of the courts and to furnish remedies for aggrieved parties . . . ." Republic Nat'l Bank of Miami v. United States, 506 U.S. 80, 87 (1992) (citations omitted). One "purpose[] of the fiction, among others, has been to allow actions against ships where a person owning the ship could not be reached." Continental Grain Co. v. The FBL-585, 364 U.S. 19, 23 (1960). As such, "a fiction born to provide convenient forums should not be transferred into a weapon to defeat that very purpose." Id. As discussed below, we conclude that our jurisdictional analysis squarely aligns with these principles.

         Courts often speak as though physical presence of the res within the territorial jurisdiction of the district court, along with the attachment of the res, is a hard-and-fast jurisdictional prerequisite for an action in rem, particularly in admiralty. See, e.g., In re Millenium Seacarriers, Inc., 419 F.3d 83, 94 (2d Cir. 2005) ("[S]ubject matter jurisdiction lies in the district court where the vessel or other res is located, but that jurisdiction does not attach until the vessel is arrested within the jurisdiction."); Dow Chem. Co. v. Barge UM-23B, 424 F.2d 307, 311 (5th Cir. 1970) ("Attachment subjecting the res to the jurisdiction of the court is a prerequisite to a finding of in rem liability."); The Resolute, 168 U.S. 437, 439 (1897) ("Jurisdiction . . . . [a]s applied to a suit in rem for the breach of a maritime contract . . . presupposes-First, that the contract sued upon is a maritime contract; and, second, that the property proceeded against is within the lawful custody of the court."). But significant authority clarifies an exception: that, "[i]f the res is absent from the district, this . . . jurisdictional defect can be waived if the owner of the res voluntarily appears" and "waive[s]" the "presence requirement." 29-704 Moore's Federal Practice - Civil § 704.02 (2017); Hapag-Lloyd Aktiengesellschaft v. U.S. Oil Trading LLC, 814 F.3d 146, 153-54 (2d Cir. 2016) ("To obtain jurisdiction . . . a court must either seize the res or obtain the consent of the owner or other person asserting a right of possession.").

         In Hapag-Lloyd, this court considered a complex interpleader suit, part of which resolved the validity of a number of maritime liens. 814 F.3d at 149. We held that the consent of a vessel's owner to the adjudication of rights in a maritime lien was sufficient for the court to exercise in rem jurisdiction, regardless of whether the vessel itself was present:

[The] argument-that both parties' consent is necessary in cases where the party initiating suit is the owner of the res that the lienholder seeks to arrest-relies on cases holding that where a lienholder brings a claim, both parties' consent is "sufficient" for a court to exercise in rem jurisdiction without seizure of the res. That is not inconsistent, however, with other cases indicating that only the owner's consent is necessary. In rem jurisdiction is "a customary elliptical way of referring to jurisdiction over the interests of persons in a thing." Shaffer v. Heitner, 433 U.S. 186, 207 (1977). To obtain jurisdiction over that interest, a court must either seize the res or obtain the consent of the owner or other person asserting a right of possession. This principle is demonstrated by the many cases in which in rem jurisdiction has been held waived without seizure when the owner appears without contesting jurisdiction. See, e.g., United States v. Republic Marine, Inc., 829 F.2d 1399, 1402 (7th Cir. 1987); Cactus Pipe & Supply Co. v. M/V Montmartre, 756 F.2d 1103, 1107-08 (5th Cir. 1985); cf. Continental Grain Co. v. The FBL-585, 364 U.S. 19, 22-27 (1960). By initiating an interpleader concerning certain in rem claims and posting adequate security for those claims, [the plaintiff] consented to the District Court's jurisdiction over its interests, which is sufficient to confer jurisdiction.

Id. (internal quotation marks and citations omitted; other citations abridged).

         There is admittedly some question as to whether the rule of Hapag-Lloyd applies here. That opinion largely discussed the interpleader statute-which created some of the controversy over jurisdiction in rem[6]-and the present case is unrelated to the interpleader mechanism. We nonetheless conclude that Hapag- Lloyd's rule applies in the present case for a number of reasons.

         To begin, although Hapag-Lloyd dealt heavily with interpleader issues, it stated specifically that it considered, for reasons other than just the interpleader requirements, whether in rem jurisdiction existed:

[The appellee] argues that [the appellant] conflates subject matter and in rem jurisdiction, which are distinct. While it is true that some elements of the arguments overlap, [the appellant] makes two arguments: first, the amount of the bond is insufficient under § 1335[, the interpleader statute, ] to confer subject matter jurisdiction . . . and second, even if it is sufficient under § 1335, it is insufficient to constitute a substitute res for the vessels themselves . . . .

814 F.3d at 153 n.20 (internal citations omitted). The Court also otherwise separated its resolution of the appellant's argument as to "the sufficiency of the District Court's in rem jurisdiction," id. at 153, from the resolution of the "principal argument" related to interpleader, see id. at 151. The Court's discussion of the in rem question thus resolved the argument, as the district court framed it, "that the Court could not adjudicate the in rem claims against the Vessels . . . because . . . the Vessels were never arrested or present in this jurisdiction and the [opposing parties] did not consent to substitute the amounts on deposit for the [vessels] that are the subjects of their maritime liens." UPT Pool Ltd. v. Dynamic Oil Trading (Singapore) PTE. Ltd., No. 14-CV-9262, 2015 WL 4005527, at *5 (S.D.N.Y. July 1, 2015), aff'd sub nom. Hapag-Lloyd Aktiengesellschaft v. U.S. Oil Trading LLC, 814 F.3d 146 (2d Cir. ...


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