April 1, 2009
Maritime Alter Ego Liability in the 21st Century – You Can Run, But You Can't Hide: Obtaining Security and Enforcement
ABA Tort Trial & Insurance Practice Section, Admiralty and Maritime Committee Newsletter
Maritime Partners Michael Frevola and Christopher Nolan authored an ABA Tort Trial & Insurance Practice Section, Admiralty and Maritime Committee Newsletter article titled, "Maritime Alter Ego Liability in the 21st Century – You Can Run, But You Can't Hide: Obtaining Security and Enforcement."
It is well-accepted that "it is frequently…more difficult to find property of parties to a maritime dispute than of parties to a traditional civil action. Maritime parties are peripatetic, and their assets are often transitory." As such, piercing the corporate veil has often been an important consideration in the maritime industry. Today, the reality of alter ego relationships have taken on added significance. It is a mistake to consider a maritime company as similar to companies in other industries. Unlike large traditional companies with many appreciable assets in different locations, maritime companies may be a single corporation established for each distinct vessel to shield the ultimate owner from substantial liability. There are also numerous paper companies that enter into time charter chains where they do not own the vessel, but charter it to another entity who then charters it to yet another entity and so on. When one of these links in the charter chain fails, what happens to the damaged party?
In the United States, the aggrieved party has two options worth considering: (1) the popular trend is for a plaintiff to file an action pursuant to Rule B of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions against the primary defendant and its alter-ego(s). The relief sought is an order or writ of attachment of the primary defendant and its alleged alter-ego's assets in support of a legal proceeding (often times an arbitration); or (2) the traditional avenue of obtaining an arbitration award against the primary defendant, confirming said award against the primary defendant by reducing it to a judgment, and finally seeking to enforce the judgment against any assets of the primary defendant or alter ego defendant. Both options merit careful consideration based on the specific factual circumstances of the legal dispute.
It is well-accepted that "it is frequently…more difficult to find property of parties to a maritime dispute than of parties to a traditional civil action. Maritime parties are peripatetic, and their assets are often transitory." As such, piercing the corporate veil has often been an important consideration in the maritime industry. Today, the reality of alter ego relationships have taken on added significance. It is a mistake to consider a maritime company as similar to companies in other industries. Unlike large traditional companies with many appreciable assets in different locations, maritime companies may be a single corporation established for each distinct vessel to shield the ultimate owner from substantial liability. There are also numerous paper companies that enter into time charter chains where they do not own the vessel, but charter it to another entity who then charters it to yet another entity and so on. When one of these links in the charter chain fails, what happens to the damaged party?
In the United States, the aggrieved party has two options worth considering: (1) the popular trend is for a plaintiff to file an action pursuant to Rule B of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions against the primary defendant and its alter-ego(s). The relief sought is an order or writ of attachment of the primary defendant and its alleged alter-ego's assets in support of a legal proceeding (often times an arbitration); or (2) the traditional avenue of obtaining an arbitration award against the primary defendant, confirming said award against the primary defendant by reducing it to a judgment, and finally seeking to enforce the judgment against any assets of the primary defendant or alter ego defendant. Both options merit careful consideration based on the specific factual circumstances of the legal dispute.