texas

By Stephen Hanemann

Providing much needed clarity to an ambiguous and precedent-sparse arena of federal admiralty law, the U.S. Fifth Circuit Court of Appeal relied on Texas common law when recently upholding a district court’s denial of a Motion to Vacate Attachment under Supplemental Admiralty Rule B. In Malin v. Int’l Ship Repair & Drydock, Inc. v. Oceanografia, 2016 WL 1161215 (5th Cir. March 23, 2016), the principal dispute involved a Texas-based shipyard, Malin, suing a Mexican corporation, Oceanografia, for the balance of unpaid work invoices. To obtain jurisdiction for its claim against Oceanografia under Supplemental Admiralty Rule B, Malin attached fuel bunkers aboard the M/V KESTREL, a vessel chartered by Oceanografia. Oceanografia took delivery of the vessel on October 15, 2012, under a Bareboat Charter Agreement with the vessel’s owner. Malin attached the vessel’s fuel bunkers only two weeks later on October 29, 2012.

Supplemental Admiralty Rule B permits attachment of a defendant’s “tangible or intangible personal property – up to the amount sued for – in the hands of garnishees named in the process.” The validity of a Rule B attachment depends entirely on the determination that the thing attached be the property of the named defendant at the moment it is attached. See Shipping Corp. of India, Ltd. v. Jaldhi Overseas Pte., Ltd., 585 F.3d 58, 69 (2d Cir. 2009). But neither Rule B, nor federal maritime jurisprudence provide guidance as to what specific type of property interest is attachable. And, federal admiralty jurisprudence is equivocal as to whether a mere possessory interest is attachable under Rule B.

The Fifth Circuit needed only to decide whether the fuel bunkers constituted Oceanografia’s tangible or intangible personal property at the time of the attachment. The Court entertained, but was not persuaded by, Oceanografia’s argument that the attachment of the bunkers was improper under Supplemental Rule B because the bunkers were not its property. Oceanografia claimed that it had neither paid nor received an invoice for the bunkers at the time of their attachment. Affirming the district court’s holding that Oceanografia’s possessory interests in the bunkers constituted an attachable interest under Rule B, the Fifth Circuit offered a logically-premised conclusion: title to property unquestionably serves as an attachable interest under Supplemental Rule B. The next issue then was whether title for the bunkers passed to Oceanografia by the time of the attachment.

Finding the legal precedent so thin, the Court exercised its option to consider state law more directly on point. The charter party between the vessel’s owner and Oceanografia specified that Texas law should apply when federal maritime law was silent. Thus, the Court looked to Texas law for guidance. The charter party further provided that Oceanografia “shall purchase the bunkers at the time of delivery.” But the charter party, which created Oceanografia’s obligation to purchase the vessel’s bunkers, did not specifically condition passage of title on payment. The agreement was actually silent as to when payment was due or when title to the bunkers would pass to Oceanografia.

Since the charter party evidenced that Oceanografia was not expected to pay for the bunkers at the time of delivery, Texas law classified the sale as a credit transaction and title passed to Oceanografia on delivery of the “goods.” Because delivery of the vessel occurred before Malin attached the bunkers, Oceanografia held title to the bunkers at the time of the attachment. Consequently, Malin’s attachment was legally valid.

This decision confirms a heightened responsibility of charterers, vessel operators, and owners pro hac vice to be mindful of the proposition that even a contemplated sale, or credit-sale transaction, may suffice to give rise to an attachable possessory interest under Supplemental Rule B, especially if a federal court decides that Texas common law governs the otherwise maritime action.