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Petroleos Mexicanos Refinacion v. M/T King A

January 27, 2009

PETROLEOS MEXICANOS REFINACION, APPELLEE
v.
M/T KING A (EX-TBILISI), HER ENGINES, BOILERS, ETC., IN REM BY KING DAVID SHIPPING CO., LTD., APPELLANT



On Appeal from the United States District Court for the District of New Jersey (D.C. No. 02-cv-01215) District Judge: Honorable Dennis M. Cavanaugh.

The opinion of the court was delivered by: Aldisert, Circuit Judge.

PRECEDENTIAL

Argued September 11, 2008

Before: SLOVITER, FUENTES and ALDISERT, Circuit Judges.

OPINION OF THE COURT

In this admiralty case, the owner of a seagoing vessel appeals on behalf of its vessel in rem from a judgment of the United States District Court for the District of New Jersey denying its Supplemental Rule E(4)(f)application to vacate a warrant of arrest for the vessel, to cancel and discharge substitute security and to dismiss a complaint brought by a charterer of the vessel in a claim for cargo damages.*fn1 Although other issues are presented, we must first decide whether the one-year time-for-suit provision for cargo damage claims provided for in the Carriage of Goods by Sea Act ("COGSA"), 46 U.S.C. § 30701,*fn2 extinguished the maritime lien on the vessel. We decide that the running of the COGSA statute of limitations did extinguish the maritime lien on the vessel and that the District Court therefore lacked admiralty in rem jurisdiction to issue the warrant of arrest for the vessel. We therefore reverse the judgment of the District Court denying the motion to vacate the warrant of arrest and other requested relief.*fn3

I.

On November 19, 1992, Petroleos Mexicanos Refinacion ("Pemex") chartered a ship, the M/T TBILISI (now renamed M/T KING A), from Tbilisi Shipping Co., Ltd., pursuant to a contractual charter agreement. The vessel was to carry diesel oil and unleaded gasoline to several Mexican ports. During the discharge of the cargo at Guaymas, Mexico, it was discovered that the two cargoes had been cross-contaminated during their voyage on the M/T TBILISI. Tbilisi Shipping did not dispute its liability for the contamination. Pemex salvaged the contaminated cargoes, incurring a disputed amount of salvage costs and losses. Pemex withheld $530,320 of charter hire as security for its anticipated claim for damages.

In April 1993, Tbilisi Shipping demanded arbitration to recover the withheld hire. On May 18, 1993, Tbilisi Shipping's protection and indemnity ("P & I") club, Steamship Mutual Underwriting Association (Bermuda), Ltd. ("Steamship Mutual"), issued a Letter of Undertaking ("First LOU") to secure a possible arbitration award in Pemex's favor up to $530,320, inclusive of costs and attorneys' fees, plus interest up to $94,000. In return for the issuance of the First LOU, Pemex agreed to pay the withheld hire and to refrain from arresting the vessel, except to the extent that Pemex's claim exceeded the amount secured by the First LOU. The First LOU also stated that "[t]his letter is provided entirely without prejudice to any rights or defenses which the said M/V TBILISI and/or Tbilisi may have under applicable law." App. JA-111. As we will develop, it is this reservation-of-rights clause that triggers operation of the one-year statute of limitations that prevents the issuance of the warrant of arrest. See infra Part V.

In 1995, prior to Pemex presenting a claim to the arbitration panel, Tbilisi Shipping made an application to the arbitration panel for dismissal of Pemex's claim. Tbilisi Shipping contended that Pemex's claim was barred by the one-year statute of limitations for cargo damage claims provided for in COGSA. The arbitration panel found that Pemex's claim was not barred by the statue of limitations, but the arbitrators instructed Pemex to submit any claim it had against Tbilisi Shipping expeditiously. Pemex submitted a Statement of Claim on January 15, 1996. The claim was solely against Tbilisi Shipping, in personam.

Sometime during the arbitration, Pemex discovered that Tbilisi Shipping had sold the M/T TBILISI to King David Shipping Co. ("King David") and that the vessel had been renamed M/T KING A. In early 2002, Pemex discovered that the M/T KING A was scheduled to call at a terminal in New Jersey. In March 2002, Pemex filed its complaint in the District Court for the District of New Jersey naming the M/T KING A as an in rem defendant and the District Court issued the warrant of arrest for the vessel. King David was advised of the issuance of the warrant of arrest and was given the opportunity to avoid the arrest by posting additional security. Accordingly, King David's P&I Club, also Steamship Mutual, issued another LOU ("Second LOU") in the amount of $707,819.60, plus interest, costs and attorneys' fees.

On September 10, 2002, King David submitted an application in the District Court to vacate the warrant of arrest pursuant to Supplemental Rule E(4)(f).*fn4 Through the application, King David also sought to cancel and discharge the Second LOU and any bond demanded thereon and dismiss Pemex's complaint. The District Court determined that a valid maritime lien on the vessel existed, and that the warrant of arrest was properly issued. The District Court also determined that the complaint was not barred by the statute of limitations, and therefore the complaint need not be dismissed. On April 15, 2003, the District Court denied the application to vacate the warrant.

King David appealed the District Court's denial of its application to this Court. See Petroleos Mexicanos Refinacion v. M/T KING A (Ex-TBILISI), 377 F.3d 329 (3d Cir. 2004). This Court dismissed the action for lack of appellate jurisdiction as no final order from the District Court had been issued.

On August 9, 2006, a final arbitration award was issued against Tbilisi Shipping and in favor of Pemex in the amount of $950,413.18. Part of the award was satisfied by the First LOU. On July 26, 2007, Pemex and King David consented to entry of a final judgment in the District Court in the amount of $395,265.04, which represented the unpaid balance of the arbitration award. From this final judgment, King David appeals the merits of the District Court's 2003 denial of its application to vacate the warrant of arrest.*fn5

II.

A maritime lien and a proceeding in rem are correlative; "where one exists, the other can be taken, and not otherwise." The Rock Island Bridge, 73 U.S. 213, 215 (1867). Accordingly, any action in rem pursuant to Supplemental Rule C to enforce a maritime lien on a vessel must be premised on the existence of a valid maritime lien at the time that the action was filed. See Belcher Co. of Ala. v. M/V Maratha Mariner, 724 F.2d 1161, 1163 (5th Cir. 1984) ("a maritime lien on the vessel is a prerequisite to an action in rem"); Amstar Corp. v. S/S Alexandros T., 664 F.2d 904, 908 (4th Cir. 1981) ("[a] maritime lien is an essential predicate for the arrest of a vessel in a private in rem action"); Rainbow Line, Inc. v. M/V Tequila, 480 F.2d 1024, 1028 (2d Cir. 1973) ("in rem jurisdiction in the admiralty exists only to enforce a maritime lien.") (citations omitted).

Supplemental Rule C permits an action in rem "[t]o enforce any maritime lien." Rule C(1)(a), Supplemental Rules for Admiralty or Maritime Claims. Furthermore, Supplemental Rule E requires a party seeking a warrant of arrest to file a "complaint [that] shall state the circumstances from which the claim arises with such particularity that the defendant or claimant will be able, without moving for a more definite statement, to commence an investigation of the facts and to frame a responsive pleading." Id. Rule E(2)(a). "If the conditions for an in rem action appear to exist, the court must issue an order directing the clerk to issue a warrant for the arrest of the vessel or other property that is the subject of the action." Id. Rule C(3)(a)(ii)(A).

It is well settled that claims for breach of charter and cargo damage give rise to maritime liens. See Rainbow Line, 480 F.2d at 1027 ("The American law is clear that there is a maritime lien for the breach of a charter party . . . ."); RR Caribbean, Inc. v. Dredge "Jumby Bay", 147 F. Supp. 2d 378, 381 (D.V.I. 2001) (recognizing a maritime lien for breach of a partially executed charter party); Demsey & Assocs., Inc. v. S.S. Sea Star, 461 F.2d 1009, 1014 (2d Cir. 1972), abrogated on other grounds by Seguros Illimani S.A. v. M/V Popi P, 929 F.2d 89 (2d Cir. 1991) ("[e]very claim for cargo damages creates a maritime lien against the ship which may be enforced by a libel in rem"). In this case, the breach of the charter agreement through the contamination of the diesel oil and unleaded gasoline gave rise to a maritime lien. Pemex's verified complaint filed in the District Court requesting a warrant of arrest for the M/V KING A plainly asserts facts giving rise to a maritime lien. App. JA-60-65.

When a maritime lien exists, the district court has admiralty jurisdiction and it is proper for the district court to issue a warrant of arrest for the vessel pursuant to Supplemental Rule C(3)(a)(i). King David's contention that the District Court improperly issued the warrant of arrest is based primarily on its statute of limitations defense. King David argues that the expiration of the COGSA limitation period extinguished any lien that Pemex had on the vessel. Because no lien on the vessel existed when Pemex filed its complaint, King David argues, the District Court lacked the admiralty jurisdiction to issue the warrant of arrest.

It is undisputed that COGSA was incorporated into the parties' charter agreement and that the one-year statute of limitations applies. The following portions of COGSA assist us in the analysis of this case:

Sec. 1. Definitions

(a) The term 'carrier' includes the owner or the charterer who enters into a contract of carriage with a shipper.

Sec. 3. Responsibilities and liabilities of carrier and ship (2) Cargo

The carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.

(6) [L]imitation of actions

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.

Carriage of Goods by Sea Act §§ 1, 3, Historical and Statutory Notes to 46 U.S.C. § 30701.

The COGSA statute of limitations "is one which extinguishes the cause of action itself, and not merely the remedy." M.V.M., Inc. v. St. Paul Fire & Marine Ins. Co., 156 F. Supp. 879, 883 (S.D.N.Y. 1957), rev'd on other grounds sub nom, St. Paul Fire & Marine Ins. Co v. U.S. Lines Co., 258 F.2d 374 (2d Cir. 1958); Am. Hoesch, Inc. v. S.S. AUBADE, 316 F. Supp. 1193, 1194 (D.S.C. 1970) (recognizing that COGSA's time-for-suit provision extinguishes the cause of action and the remedy); cf. Midstate Horticultural Co. v. Penn. R.R., 320 U.S. 356, 363-364 (1943) (recognizing that the time-for-suit clause in the Interstate Commerce Act terminates a substantive claim and its corresponding remedy). Accordingly, if we determine that Pemex's in rem complaint was barred by the COGSA statute of limitations, it necessarily follows that the District Court ...


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