New York Appeals Court Issues Important Rule B and Maritime Corporate Veil-Piercing Decision

Michael J. Frevola and Warren Gluck are Partners in our New York office Michael Gaba is a Partner in our Washington D.C. office

Lenient U.S. Maritime Law Veil-Piercing Standard Should Continue to Apply in Most Instances

For the past sixty years, and until January 11, 2013, U.S. federal courts routinely have applied the comparatively expansive (and potentially creditor-friendly) "maritime law of veil piercing" when examining veil-piercing and/or alter ego claims in Rule B maritime attachment (i.e., security) proceedings and maritime judgment enforcement cases. Courts applied the U.S. maritime veil-piercing standard regardless of whether the claim or dispute arose from a charter party or other agreement specifying a particular law would apply to disputes, such as, as often is the case, English law.

As a result of a significant ruling by the U.S. Court of Appeals for the Second Circuit yesterday, it is likely that U.S. maritime veil-piercing/alter ego law will continue to apply in most maritime veil-piercing/alter ego cases. The Second Circuit held that where a multinational shipping dispute implicates several potential sources of law, none of which have a "particularly strong connection" to the dispute, the United States has the strongest "'points of contact' with this claim by virtue of the location of [the defendant]'s property [in the United States]."

An Unprecedented Approach

In the matter of Blue Whale Corp. v. Grand China Shipping Development Co. et al.,1Doc. No. 13-0192-cv (2d Cir. July 16, 2013), the plaintiff brought a Rule B action in New York seeking to attach property of a Chinese entity located in New York on the theory that the entity was the "alter ego" of another Chinese entity, as well as to "pierce the corporate veil."

After its property had been attached by the plaintiff, the alleged alter ego moved to vacate the attachment. It argued that the English law of veil-piercing should apply because the dispute arose out of a charter party that contained an arbitration clause that specified English law and that, under the more stringent English veil-piercing law, the plaintiff's allegations were insufficient to state a claim under English law. The district court accepted the alleged alter ego's argument in the absence of authority presented to the contrary and ruled that English law governing veil-piercing applied to the Rule B dispute. The plaintiff appealed.

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