The opinion of the court was delivered by: Barry Ted Moskowitz, Chief Judge United States District Court
ORDER ADOPTING MAGISTRATE JUDGE'S ORDER VACATING ATTACHMENT AND DENYING INTERNATIONAL MATERIALS INC.'S MOTION FOR LEAVE TO INTERVENE
Pending before the Court is Plaintiffs' Objections and Application for Review of the Magistrate Judge's Order Vacating Attachment (Doc. 57). For the reasons set forth herein, the Court adopts Magistrate Judge Gallo's order, but stays the order pending further proceedings before this Court. Also pending before the Court is International Materials Inc.'s Motion for Leave to Intervene (Doc. 33). The Court denies this motion.
The following overview of the facts in this case proceeds in two parts. The first part reviews the facts leading up to Plaintiffs' request for a writ of attachment. The second part reviews events occurring after the commencement of this lawsuit, up through the entry of Magistrate Judge Gallo's March 26, 2012 order vacating the attachment.
a. Events leading up to the present action
Plaintiff Kite Shipping LLC ("Kite Shipping") is the owner of the M/V Kite, a vessel (the "Kite"). Plaintiff chartered the Kite to Defendant San Juan Navigation Corporation ("SJN"), pursuant to a 2006 time charter party agreement. Plaintiff alleges that in 2010, during the term of its 2006 agreement, SJN caused damage to the Vessel's engines, resulting in financial losses to Plaintiff. Plaintiff has commenced arbitration in London, claiming roughly $1.25 million in damages to the engine, wrongfully withheld hire payments, estimated interest on the principal claim, and estimated attorneys' fees. The action before this Court is an ancillary proceeding brought to attach and garnish assets of SJN in aid of the London arbitration.
In March of 2011, SJN chartered the M/V Mandarin Fortune (the "Mandarin Fortune"), a vessel owned by Mandarin Fortune Shipping PTE ("MFS") (now a defendant in this action). Subsequently, SJN sub-chartered the Mandarin Fortune to International Materials Inc. ("IMI") (now a putative intervenor in this action). The Mandarin Fortune was scheduled to arrive at the Port of San Diego on November 19, 2011 (during the period of IMI's subcharter of that vessel from SJN). On November 17, 2011, Plaintiff Kite Shipping commenced the present action, seeking to attach all of SJN's property located on the Mandarin Fortune (or payment therefore) pursuant to Rule B of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions ("Rule B"). SJN's property on the Kite consisted mainly of bunker fuel ("bunkers").
b. Overview of present litigation
On November 17, 2011, Magistrate Judge Gallo ordered the Clerk to issue process directing the United States Marshal to attach all bunkers on board the Mandarin Fortune belonging to SJN and garnish all other tangible and intangible property on board under the custody or control of SJN, its sub-charterers, or its agents (Doc. 5).
On November 18, 2011, Cardinal Shipping Limited ("Cardinal") moved for leave to intervene as a matter of right (Docs. 7 and 8). Cardinal claimed that SJN owed it $172,787.58 in unpaid hire pursuant to a charter party entered between Cardinal and SJN in 2009, that the dispute between Cardinal and SJN had been submitted to arbitration in London, and that the disposition of this matter absent Cardinal would impair Cardinal's ability to satisfy its claim against SJN. Magistrate Judge Gallo entered orders that day permitting Cardinal to intervene (Doc. 10) and authorizing issuance of process of maritime attachment and garnishment for the benefit of Cardinal (Doc. 12). Cardinal is now a plaintiff in this action.
The Mandarine Fortune did not arrive at the Port of San Diego on November 19, 2011, as scheduled. Rather, it loitered off the California Coast from November 18, 2011, until the morning of November 21, 2011, at which time it arrived at port and the United States Marshal executed service. See Doc. 15 (certificate of service dated 21 November 2011); Doc. 21, Ex. 2 (emails dated 18-20 November 2011). On that same day, Plaintiffs and MFS entered into an agreement pursuant to which MFS placed $300,000 into an escrow account to secure the release of the bunkers onboard the Mandarin Fortune. See Pl. Br. (Doc. 57) at 2, Def. Br. (Doc. 58) at 1 n.1.
On December 9, 2011, MFS moved for an order to vacate the attachment (Doc. 17), arguing that at the time of service of the writ of attachment, SJN was neither the owner nor possessor of the attached bunkers. With respect to ownership, MFS stated that SJN ordered the bunkers on October 10, 2011, for an agreed purchase price of $609,982.58. On November 11, 2011, SJN notified MFS by letter that it was going out of business and was ceasing operations immediately. See Doc. 17-3, Ex. 3 (Letter dated 11 November 2011). The letter attempted to arrange a novation pursuant to which IMI, the current "voyage charterer" of the Mandarin Fortune (pursuant to a sub-charter agreement with SJN), could substitute in for SJN as the direct charterer of the vessel. The letter also assigned to MFS all interests in the bunkers on board the vessel, as well as the balance owed to SJN by IMI. (Id.) On November 17, 2011, MFS paid the entire invoice amount of $609,982.58 on the bunkers. See Doc. 17-3, Ex. 4 (Invoice dated 17 November 2011). Thus, according to MFS, by November 21, 2011, MFS owned all the bunkers onboard the Mandarin Fortune. With respect to possession of the bunkers, MFS stated that it terminated its time charter with SJN on November 20, 2011, and therefore SJN neither owned nor possessed the bunkers at the time of service. See Doc. 17-3, Ex. 3 (Email dated 20 November 2011).
Plaintiffs Kite Shipping and Cardinal (collectively, "Plaintiffs") filed their opposition to the motion to vacate (Doc. 20) on January 6, 2012. In addition to arguing against the evidence showing that MFS--not SJN--owned the bunkers, Plaintiffs contended that MFS and SJN are alter egos. Plaintiffs supported their alter ego theory with allegations that: (a) MFS payed for the bunkers on SJN's behalf; (b) there is no formal agreement memorializing the transfer of possession of the bunkers from SJN to MFS; and (c) MFS ordered the Mandarin Fortune to loiter off the California coast between November 18 and November 20, 2011, presumably because SJN had warned MFS of the order of attachment and MFS wanted to terminate the charter party with SJN before bringing the Mandarin Fortune into the Port of San Diego. (Doc. 20 at 9-10.) Plaintiffs also sought broad jurisdictional discovery on their alter ego theory.*fn1
On January 10, 2012, before MFS filed its reply, Plaintiffs filed their Amended Verified Complaint (Doc. 25), in which they repeated their allegation that "at all material times, there existed such unity of ownership and interest between Defendant SJN and Defendant MFS, that no separation exists between them . . . ." (Doc. 25 at ¶ 37.) In addition to the factual allegations contained in their opposition to the motion to vacate, Plaintiff's alleged in the Amended Verified Complaint that SJN directed IMI (the ...