FLAME S.A. v. FREIGHT BULK PTE. LTD., NO. 14-1189

Decided: August 5, 2014 

The Fourth Circuit held that the district court did not err in denying Flame S.A.’s (“Flame”) motion to vacate a writ of maritime attachment issued in favor of Freight Bulk Pte. Ltd. (“Freight Bulk”) under Supplemental Rule B of the Federal Rules of Civil Procedure (F.R.C.P.).

Flame, an integrated shipping and trading company, entered into four Forward Freight Swap Agreements (“FFAs”) with Industrial Carriers, Inc. (“ICI”). ICI defaulted on the contracts after a steep decline in freight rates, and a default judgment was entered against ICI. Flame brought an action seeking attachment of a shipping vessel to satisfy an English judgment against Freight Bulk, as the alter ego of ICI. The district court issued the attachment order. On appeal, Freight Bulk challenged the subject matter jurisdiction of the district court to issue this order.

The Fourth Circuit first addressed whether U.S. federal law or foreign law controlled the jurisdictional inquiry. The Court recognized that under English law the FFAs would not be maritime contracts, and under U.S. federal law the FFAs would be maritime contracts. Thus, if English law applied, then the district court did not have jurisdiction over the matter. After reviewing relevant precedent, the Court concluded that “U.S. Supreme Court precedent strongly indicates that federal law should control [its] determination of whether a claim, such as the FFA dispute . . . sounds in admiralty.” Accordingly, the Court held that federal law, rather than foreign law, controlled the procedural inquiry into whether a foreign judgment is a maritime judgment. Thus, the district court had admiralty subject matter jurisdiction under federal law.

The Court next considered whether FFAs are maritime contracts under federal law to determine if the district court properly exercised admiralty jurisdiction in the case. The Court first concluded that maritime contracts need not refer to any particular vessel or any particular shipment. Also, despite Freight Bulk’s claim, the Court concluded that the fact that the FFAs call for cash settlement does not preclude the conclusion that these FFAs are maritime contracts. Here, the FFAs were between two shipping companies engaged in maritime commerce, and as the district court determined, the companies created the FFAs as a component of their shipping businesses. Accordingly, the Court held that the district court did not err in concluding that the FFAs at issue were maritime contracts, and thus, that the district court had subject matter jurisdiction to hear the matter. Importantly, the Court noted that its holding did not resolve the issue of whether all FFAs are maritime contracts as a matter of law.

Full Opinion

Abigail Forrister

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