Expanded Scope of Maritime Contract Jurisdiction

Thursday, October 09, 2008

A fundamental requirement in asserting a Rule B maritime attachment action is that the underlying claim is within the federal court’s maritime jurisdiction.1 This principle makes perfect sense as the very purpose of maritime attachments are rooted in the unique and mobile nature of maritime commerce.2

Vessel Sales Contracts

For decades, it has been a basic principle of U.S. admiralty law that contracts for the sale of a vessel are not within the maritime jurisdiction.3 While the principle has been criticized,4 nonetheless it is still considered black letter law.

In a decision issued last week, a judge of the U.S. District Court for the Southern District of New York, the Honorable Shira A. Scheindlin, has held that a contract for the sale of a vessel is within the maritime jurisdiction and thus supports the mainte­nance of a Rule B attachment action.5

In Kalafrana, an aspect of the sales agree­ment concerned repairs to the vessel. A dispute over the repairs led to a arbitration and award. The New York Rule B action was based on the award. While Judge Scheindlin certainly recognized and acknowledged the traditional precedent, the Court held that more recent U.S. Supreme Court and appellate decisions supported the “demise” of the traditional rule.6

This decision is extraordinary in that it weakens a bedrock principle in admiralty jurisdiction (always a lead­ing light in maritime jurisprudence). The ruling is likely to have an immediate and wide-reaching impact on New York Rule B actions.

Whether or not Kalafrana itself is appealed, the issue will undoubtedly come up in other cases which will be subject to appellate review.

Kalafrana also placed emphasis on the fact that the dispute involved a “launched ship that has been plying the seas for some time” – particularly repairs to the vessel being made under the sales contract.7 While the decision is broad enough at least to enable other parties to argue, in good faith, that a straightforward ship sales contract is within the maritime jurisdiction, the fact that the vessel was already in operation is a key point to consider. Because newbuilding vessels are sometimes sold before even leaving the shipyard, the traditional rule is still significant.

As the other judges of federal courts are not bound by Kalafrana8 this issue portends further extensive litigation.

Finally, whatever one’s opinion concerning the rationale of the traditional view, it is worth noting that Kalafrana is consistent with general principles of international maritime law.

James H. Hohenstein

Michael J. Frevola

Francesca Morris

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