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Vessel Arrests, Attachments and Seizures

Russia’s unprovoked attack on Ukraine has opened yet another realm of the maritime world to public view – that of vessel seizures. To date, Western governments have seized more than a dozen Russian oligarch mega-yachts, more like small passenger ships really. In the United States, such seizures flow from civil-forfeiture-enforcement actions initiated against persons or entities linked to criminal activity. These actions are in addition to sanctions imposed by the U.S. Treasury’s Office of Foreign Assets Control (OFAC), which have the effect of directing financial institutions and corporations not to engage in certain commercial activities with persons or entities on the Specially Designated Nationals and Blocked Persons (SDN) List. In pursuing civil forfeiture, the Government must first find the assets, which is easier said than done because ownership is often hidden through myriad and complex corporate structures. In Russia’s case, the Administration created a KleptoCapture task force for the purpose of piercing these corporate veils to identify property targets. Pursuing a civil-forfeiture action requires the Government to file a complaint in federal court, obtain a seizure order, seize the property, and prove by a preponderance of the evidence that a crime has been committed and a substantial connection exists between the property seized and the crime (for example, that the property was used in the commission of the crime itself, or was obtained with proceeds from the criminal act).

Yet, civil-forfeiture proceedings are only the tip of the iceberg when it comes to seizing vessels.  In the United States, vessels hold a unique status under maritime law–each possesses its own persona that subjects it to potential arrest even in the absence of jurisdiction over its owners.  Maritime law recognizes that maritime liens arise against a vessel for breach of a maritime contract or the commission of a maritime tort.  For example, if a tanker spills oil into U.S. navigable waters, adversely affected parties can arrest it in rem under Admiralty Supplemental Rule C and seek the recovery of pollution response costs and natural resource damages. Other maritime torts that give rise to a maritime lien include collisions, personal injuries, and allisions (that is, the striking of a stationary object like a dock, pier or bridge piling). The Commercial Instruments and Maritime Liens Act (CIMLA) also provides that a maritime lien can arise for the failure to pay for necessaries provided to the vessel on the order of the owner or a person authorized by the owner. Necessaries are goods and services that are essential to the vessel’s operation like bunker fuel for propulsion, food and water (provisions) for the crew, and hull, engine and equipment repair services. Whether the necessaries are provided on the order of the owner, or a person authorized by the owner was the subject of protracted litigation in the OW Bunker series of cases where American physical suppliers were often denied a maritime lien because they did not contract directly with the owner or charterer, even though Congress enacted CIMLA to protect American materialmen.

A further basis exists to arrest a vessel under Rule C for beach of a preferred-ship mortgage. In the event of a foreclosure action, CIMLA creates a maritime lien in favor of a preferred-mortgage holder when the mortgage is properly registered, executed and recorded in accordance with the law where the mortgage is filed. Because multiple parties may pursue various forms of maritime liens against a vessel, maritime law generally ranks them according to the following priority:  (1) costs of custodia legis (that is, the costs incurred to seize and maintain a vessel while under seizure–technically not a maritime lien because liens cannot be created after a judicial seizure but afforded priority nonetheless); (2) seaman’s liens for wages and maintenance and cure (meaning food/lodging and medical care for injured or ill seamen); (3) salvage and general average; (4) maritime torts; (5) preferred-ship mortgages; (6) necessaries; and (7) state law attachment liens of a maritime nature. Unlike land-based liens, within the same class of maritime lien, later liens rank higher in priority over earlier ones (last in time–first in right).

As well, Admiralty Supplemental Rule B permits a plaintiff asserting a maritime claim to attach a vessel if the owner is not “found” within the district.  Such an attachment has the effect of creating in personam jurisdiction over the owner subjecting the owner to the court’s personal jurisdiction, even if the owner is based in a foreign country, which is often the case. “Found” within the district depends upon whether the owner is subject to service of process (that is, has a resident agent for service of process) and personal jurisdiction in the district.  Personal jurisdiction may be premised upon either specific or general jurisdiction. Specific jurisdiction exists when acts or omissions of the defendant in the district give rise to the claim. After the Supreme Court’s decision in Daimler AG, general jurisdiction now only exists in the district where the corporation is incorporated or has its principal place of business. For all practical purposes, no foreign corporation is “found” within a U.S. district-court’s boundaries, and thus Rule B is available in virtually every case involving a foreign vessel when specific jurisdiction does not exist. The Federal Rules of Civil Procedure also permit the enforcement of state-law pre-judgment attachment remedies in federal court.

Creative plaintiffs have used Rule B to attach foreign vessels even when a direct corporate relationship does not exist between the vessel seized and the ostensibly offending defendant.  In these cases, plaintiffs allege the existence of an alter-ego relationship between the offending defendant and the vessel’s actual owner. These cases present a pernicious problem for vessel owners because oftentimes the contractual claim presented does not fall within the owner’s protection and indemnity (P&I) cover, which then requires the owner to post substitute security in the amount of the vessel’s appraised value to obtain its release. In a quirk of the law, the standard to vacate the attachment only requires the plaintiff to prove the existence of probable cause to believe that an alter-ego relationship exists, rather than proof by a preponderance of the evidence. The net effect is that this relatively low evidentiary hurdle enables plaintiffs to keep the vessel (or its substitute security) under seizure and pursue incredibly expensive discovery even though both Rule B pre-judgment attachment and alter-ego relief are measures supposedly reserved for extraordinary circumstances. Bear in mind that when substitute security is not available, a plaintiff may seek the vessel’s judicial sale (so as to minimize accruing custodia legis expenses incurred during a vessel’s seizure, which has the effect of reducing the amount of the vessel’s value available to respond to a plaintiff’s claim) and thereafter deposit the sales proceeds into the court’s registry pending the dispute’s outcome.

The foregoing measures only address those available in the United States. Other nations also permit vessel seizures under a variety of circumstances, including South Africa and Spain, but generally none go so far as the United States in permitting a vessel arrest, attachment, or seizure to secure pending claims.

“Vessel Arrests, Attachments and Seizures,” by Keith Letourneau was published in Texas Lawyer on May 20, 2022.

Reprinted with permission from the May 20, 2022, edition of Texas Lawyer © 2022 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.