Alter Ego Liability In Supplemental Rule B Admiralty Actions: The Winds are Favorable

JURIST Guest Columnist Charles Moure of Harris & Moure, pllc argues that the recent expansion of Rule B actions by various courts serves an important purpose in regulating the international shipping industry by responding appropriately to the fleeting nature of offshore shipping charter companies.

Shipping is risky business. Commercial shipping carries substantial inherent dangers, and the transient and international nature of the industry heightens the risk of financial loss due to unpaid debts and judgments. Recognizing this, some jurisdictions still permit quasi in rem maritime attachment and garnishment actions in admiralty under Rule B of the Supplemental Rules for Certain Admiralty and Maritime Claims ("Rule B").

Federal courts have original jurisdiction over admiralty and maritime suits under 28 U.S.C. ¨ 1333. Rule B was originally approved by the US Supreme Court in 1825 in Manro v. Almeida. The rule codifies the traditional maritime attachment rule, allowing a plaintiff to attach the property of a foreign defendant where the defendant's only connection to the jurisdiction is the presence of its property. Traditionally, Rule B has three primary purposes: 1) To acquire jurisdiction over a defendant who cannot be found within the district; 2) To provide security for the plaintiff's underlying claim; and 3) To seize property to enforce a judgment. Rule B actions are in personam actions against the debtor, allowing the claimant to seize the debtor's property within the district. Seizing the debtor's property may include garnishing property or seizing other assets owned by the debtor, but which is held by a third party. Rule B actions contrast with Rule C actions, which authorize a plaintiff with a maritime lien to seize the property against which the lien is asserted (in rem).

Here Today, Gone Tomorrow: The Case of the Disappearing Defendant

To commence a Rule B action, a plaintiff must file a verified complaint praying for an attachment with an affidavit stating that the defendant cannot be found in the district. Cases such as Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd. illustrate that the plaintiff must make a prima facie showing of the following elements:

1) The plaintiff has a valid admiralty claim against the defendant;
2) The defendant cannot be found within the district;
3) Property of the defendant can be found within the district (or will soon be within the district); and
4) There is no statutory or maritime law bar to the attachment.

But what if the original defendant no longer exists? Entities involved in the shipping industry — particularly vessel owners and charterers — can dissolve overnight. The ephemeral nature of these entities raises new challenges to the application of Rule B. Consider the following example: a vessel owner and charterer enter into a charter party agreement. The charterer defaults on a payment to the vessel owner. The vessel owner subsequently invokes the arbitration clause of the charter agreement and obtains a favorable arbitration award. The vessel owner attempts to collect the debt owed and discovers the charterer has since dissolved without a trace. Shortly thereafter, the vessel owner discovers a separate company which appears to be almost identical to the dissolved company (for example, the two may have very similar corporate identities). Can this entity be held responsible for the dissolved company's breaches in a Rule B action?

Arguably, alter ego questions go to the first three elements of a Rule B action having to do with the defendant. Constituent courts of the US Court of Appeals for the Ninth Circuit may be trending toward upholding Rule B actions where the defendant held liable for the debt is determined to be the alter ego of the defendant debtor. This appears to be true even though the definition of alter ego remains in flux within the Ninth Circuit.

Alter Ego Factors

Admiralty courts generally apply federal common law when examining issues of corporate identity. The Ninth Circuit has not enumerated specific factors that must be present to warrant piercing the corporate veil. The Second Circuit, however, has described factors that are indicators of an alter ego in Wm. Passalacqua Builders v. Resnick Developers South, Inc. However, the Ninth Circuit in Chan v. Society Expeditions stated that "[d]isregard of corporate separateness 'requires that the controlling corporate entity exercise total domination of the subservient corporation, to the extent that the subservient corporation manifests no separate corporate interests of its own.'" The Chan court also stated that disregarding the corporate form is proper where a corporation "so dominates and disregards its alter ego's corporate form that the alter ego was actually carrying on the controlling corporation's business instead of its own." At least one court has interpreted Chan to permit alter ego liability when the corporate form is used to further a fraudulent activity or when a corporate entity shows complete control over the subservient entity. However, Chan clarifies that mere common ownership is not sufficient cause to disregard the corporate form.

Charting a Course to Expanding Rule B Maritime Claims

A recent US District Court for the Western District of Washington case introduces an unusual twist to the traditional quasi in rem Supplemental Rule B proceeding, where the property subject to the plaintiff's maritime attachment was allegedly owned not by the defendant debtor, but by the defendant debtor's alter ego, added as a co-defendant to the lawsuit.

In that case, plaintiff and defendant, entered into a Voyage Charter agreement in which the defendant agreed to charter plaintiff's vessel for $337,452.94. Defendant eventually breached the agreement by failing to pay the fee agreed upon by the parties. An arbitration clause in the agreement caused the parties to submit to arbitration in London. Both parties appeared with counsel, and the tribunal issued a final arbitration award in favor of plaintiff for $220,882.09, plus pre- and post-award interest, and plaintiff's fees and costs (including the arbitration fee of $17,679.27) and interest. Within several months of the arbitration award, the defendant defaulted on its payment of its annual fees to the British Virgin Islands Financial Services Commission Registry and was declared dissolved. Defendant never paid plaintiff the arbitration award.

Plaintiff's complaint alleged structural, management, and governance similarities between the two co-defendants sufficient to plead an alter ego theory: the same company owned and controlled all of the shares of both companies while they were both still operating; the two defendant companies had the same beneficial owner; co-defendant [redacted] made freight payments to plaintiff to charter plaintiff's vessel through their common shareholder; and the co-defendants shared bank accounts, office space, employees, and addresses. Plaintiff also alleged that the vessel chartered by co-defendant [redacted], which was (or would be shortly) in the district, carried fuel owned by [redacted co-defendant]. In other words, the property subject to maritime attachment was the fuel on the vessel chartered by defendant debtor's alter ego, [redacted].

Plaintiff's complaint alleged three causes of action: enforcement of the Maritime Arbitration Award, Alter Ego, and Supplemental Admiralty Rule B Attachment. In this manner, plaintiff was able to demonstrate:

1) A contractual breach and corresponding expectation damages;
2) That the co-defendants were effectively one and the same and each responsible for the debts and liabilities of the other; and
3) For Rule B attachment purposes, property (fuel on a vessel) of defendant [redacted] was in fact the property of its alter ego, co-defendant debtor [redacted].

The court's order authorized attachment of the defendants' assets (the fuel contained on the chartered vessel) held within the district and issued an Order authorizing a Rule B attachment of assets. Within a week, the court also issued an Order permitting the deposit of funds with the court and the releasing of the attachment and arrest. The lawsuit settled before going to trial. Upon settlement, the court ordered disbursement of the $650,000 in funds previously deposited into the court's registry to satisfy the parties' terms of settlement. Under that order, plaintiff received $267,500 without interest or charges from the original bond amount. The balance of $382,500 from the bond (plus accrued interest) was returned to co-defendant.


The preservation and expansion of Rule B actions in the manner described above serve an important purpose in regulating the international shipping industry. The expansion of Rule B attachment scenarios reflects and responds appropriately to the fleeting nature of shipping charter companies organized offshore. The result is significant — now, two foreign parties, compelled to arbitrate under their charter party in a country foreign to them both, may still be subject to Rule B attachment in the US — even if one of the parties has dissolved post-arbitration and has set up as a new foreign entity. The next development we might expect to see in the Ninth Circuit is a clarification of the corporate alter ego elements used in these actions.

Charles Moure is an attorney in Seattle, Washington who specializes in international maritime law. Charles has been interviewed by Fox News regarding international extradition and by PBS regarding maritime piracy and international criminal law.

Suggested citation: Charles Moure, Alter Ego Liability In Supplemental Rule B Admiralty Actions: The Winds are Favorable, JURIST - Sidebar, July 26, 2013,

This article was prepared for publication by Theresa Donovan, an Associate Editor with JURIST's Professional Commentary Service. Please direct any questions or comments to her at

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