Louisiana Allows Attachment of Cargo in Aid of Arbitration
On May 8, 2019, the Supreme Court of Louisiana held that attachment “in aid of arbitration” is available under Louisiana law if the purpose of the underlying arbitration claim is to pursue money damages. The Court’s ruling in Stemcor USA Inc. v. CIA Siderurgica Do Para Cosipar, 2018-1728 (La. 05/08/19) 2019 La. LEXIS 1350, 2019 WL 2041826, permits Louisiana creditors to seek a writ of attachment in a suit to compel arbitration of claims against a resident or nonresident debtor. In other words, the decision allows attachment “in aid of arbitration” even before the arbitration proceedings commence.
The case arose out of disputes of international trade and the proper attachment (or seizure) of goods to secure breach of contract claims, whether asserted in court or in arbitration. The case was previously before the US Fifth Circuit Court of Appeals, which tasked the Supreme Court of Louisiana with resolving the certified question of whether a suit seeking to compel arbitration is an “action for money judgment” in which a writ of attachment may be issued under Louisiana Code of Civil Procedure Article 3542.
In this case, Daewoo International Corp., now known as Posco International Corp., (“Daewoo”) entered into a series of contracts with America Metals Trading L.L.P. (“AMT”) for the purchase of pig iron to be delivered by AMT to New Orleans. The sales contracts between Daewoo and AMT contained arbitration clauses. Daewoo made payments under the contracts, but AMT never delivered the pig iron. As a result, Daewoo filed suit against AMT in the US District Court for the Eastern District of Louisiana seeking an order compelling AMT to arbitrate the contract dispute and seeking a writ of attachment of AMT’s pig iron under the Louisiana attachment statute, La. C.C.P. art. 3542. The writ of attachment was granted and served on the cargo on December 22, 2012.
Thyssenkrupp Mannex GMBH (“TKM”) also entered into contracts with AMT for the purchase of pig iron, but AMT failed to deliver the pig iron to TKM. Accordingly, TKM filed suit for damages against AMT in the 24th Judicial District Court for Jefferson Parish, Louisiana, and sought a writ of attachment over the pig iron. TKM’s writ of attachment over the pig iron was also granted and served on January 11, 2013. TKM and Daewoo subsequently moved to sell the pig iron in federal court. The funds from the sale were deposited in the registry of the court, but TKM and Daewoo maintained that the funds from the sale were insufficient to satisfy the debt owed to either party.
TKM moved to vacate Daewoo’s attachment on the grounds that attachment in aid of arbitration is not permitted under Article 3542 of the Louisiana Code of Civil Procedure. Article 3542 provides that “[a] writ of attachment may be obtained in any action for a money judgment, whether against a resident or nonresident, regardless of the nature, character, or origin of the claim, whether it is for a certain or uncertain amount, and whether it is liquidated or unliquidated.” La. C.C.P. art. 3542 (emphasis added). TKM argued that Daewoo’s suit to compel arbitration against AMT was not an “action for a money judgment” as the suit did not seek immediate recovery of money damages or decide the merits of the case. The federal district court ruled in favor of TKM and vacated the attachment on the grounds that a suit to compel arbitration is not an action for a money judgment. In its opinion, the district court reasoned that a “petition to compel arbitration resembles a declaratory judgment action” that simply determines whether the parties must arbitrate the dispute as opposed to whether a party is immediately entitled to monetary relief.
On appeal, the US Court of Appeals for the Fifth Circuit initially vacated the district court’s order. The Fifth Circuit agreed that “a suit seeking to compel arbitration is not an ‘action for a money judgment,’” but found that Daewoo’s writ was valid on other grounds. On rehearing, however, the Fifth Circuit reversed its ruling and vacated Daewoo’s attachment. After the parties filed rehearing petitions, the Fifth Circuit tasked the Supreme Court of Louisiana with answering the certified question of whether Article 3542 allows for a writ of attachment in a suit to compel arbitration if the underlying arbitration claim pursues money damages.
The Supreme Court of Louisiana found that an “action for a money judgment” under Article 3542 encompasses a suit to compel arbitration “where the ultimate goal of the action is to obtain a money judgment against the debtor.” The Court explained that a suit to compel arbitration “is simply the required first step” in order for Daewoo to pursue recovery of damages for AMT’s breach of contract. In that way, the Court considered the objective of Daewoo’s suit to be the same as TKM’s action, even if the competing creditor’s pursuit of relief involved a different procedural sequence and forum.
The Court found that such an interpretation of Article 3542 aligns with Louisiana Revised Statute § 9:4249, enacted as part of Louisiana’s adoption of the UNCITRAL Model Law on International Commercial Arbitration. Section 9:4249 provides that “[i]t is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant the measure.” Because a writ of attachment functions as a creditor’s “interim measure of protection,” the Court concluded that Louisiana law reasonably permits attachment “in aid of arbitration” and in a suit to compel arbitration of the dispute, so long as the underlying claim seeks money damages and the statutory requirements for obtaining a writ of attachment have been satisfied.
The Louisiana Supreme Court’s decision cements a powerful right for creditors seeking to obtain security in aid of arbitration where traditional admiralty rules of attachment may not apply.