Update on O.W. Bunker Maritime Lien Litigation
As we reported in March, numerous cases are pending across the country with competing maritime lien claims by physical fuel suppliers and now-bankrupt O.W. Bunker entities and/or their assignee, ING Bank. In general, purported lienholders are seeking payment for the same fuel supply. In an effort to avoid the risk of double payment, vessel interests in several instances have filed interpleader actions in which they sought to deposit their payment into the registry of the court for the court to decide to whom it is owed. We take this opportunity to update you on two recent rulings affecting this nationwide litigation.
In Hapag-Lloyd Aktiengesellschaft v. U.S. Oil Trading, LLC, 2016 AMC 305 (2nd Cir. 2016), the United States Court of Appeals for the Second Circuit held that an interpleader action filed by a vessel owner was proper under the circumstances presented. On the same day Hapag-Lloyd Aktiengesellschaft, the vessel owner, filed an interpleader in the United States District Court for the Southern District of New York, U.S. Oil Trading, LLC filed in rem actions in the United States District Courts for the Western District of Washington and the Central District of California seeking to arrest the vessels. The Southern District of New York halted the seizures before they were effectuated, which U.S. Oil Trading, LLC argued was improper.
In upholding the Southern District of New York's decision, the Second Circuit reasoned that the interpleader statute is to be construed liberally and is intended to prevent two recoveries against the interpleader plaintiff for the same enrichment, which is precisely what the vessel owner in this case sought to prevent in this case. The court held that while ING's claim and the supplier's claim may have different origins (if it is later determined that ING's claim is one in contract and the supplier's is based on a maritime lien), they are "inextricably intertwined." The court held that it had jurisdiction over the vessel because the vessel owner consented to jurisdiction by filing the interpleader. Finally, the court held that the interpleader action could enjoin foreign suits involving the same parties for which the determination in this case would be dispositive if one of five factors was met: (1) frustration of a policy in the enjoining forum; (2) the foreign action would be vexatious; (3) a threat to the issuing court's in rem or quasi in rem jurisdiction; (4) the proceedings in the other forum prejudice other equitable considerations; or (5) adjudication of the same issues in separate actions would result in delay, inconvenience, expense, inconsistency, or a race to judgment. This issue was partially remanded to be considered by the district court, which had not properly considered the aforementioned factors.
The Second Circuit's decision may deter similar challenges to pending interpleader actions in the many district court cases within the Second Circuit. It may also have far-reaching effects as a persuasive, but not binding, precedent in other circuits for courts facing similar challenges to pending interpleader actions before them.
In Bunker Holdings, Ltd. v. M/Y YM SUCCESS, C.A. No. 14-6002 (W.D. Wash. June 6, 2016), the United States District Court for the Western District of Washington addressed the merits of a physical supplier's lien claim and rejected an attempt by the physical supplier to enforce a maritime lien against a vessel for bunkers ordered by an O.W. entity.
In that case, the physical supplier filed an in rem action against the vessel, which was owned by Yang Ming Liberia Corp. ("Yang Ming"), seeking to enforce a maritime lien for the supply of necessaries. In October 2014, O.W. Far East engaged the physical supplier to supply fuel to Yang Ming's vessel while it was calling at a Russian port. The physical supplier had previously provided fuel to other Yang Ming vessels, including five supplies arranged by O.W. Far East. The physical supplier arrested Yang Ming's vessel in the United States after Yang Ming refused to pay the physical supplier directly.
At issue in this litigation, like the dozens of pending cases across the country, was whether the physical supplier had a valid maritime lien against the vessel. The district court held that the physical supplier did not have a valid maritime lien for necessaries because Yang Ming did not order bunkers directly from the physical supplier and O.W. Far East was not authorized to bind the vessel or her owner. The court's decision turned on the third prong of the test to establish a maritime lien under federal statute, namely whether supplies were furnished "on the order of the vessel's owner or a person authorized by the owner." 46 U.S.C. §31342(a).
In rejecting the physical supplier's claim, the district court noted the well-accepted rule that "a general contractor does not have the authority to bind a vessel." An exception to the rule exists when a general contractor acts as an agent at the direction of the owner to engage specific contractors. The court found that the physical supplier failed to establish that O.W. Far East and Yang Ming had an agency relationship whereby O.W. Far East could act on Yang Ming's behalf. Further, the district court declined to find that O.W. Far East had implied authority to bind the vessel or that Yang Ming directed, authorized, or was involved in the selection of the physical supplier. Accordingly, the court dismissed the physical supplier's lien claim.