Oldendorff Carriers GmbH & Co. KG v. Grand China Shipping (Hong Kong) Co Ltd et al

Filing 73

ORDER ADOPTING MEMORANDUM AND RECOMMENDATIONS re: granting 56 Sealed Event, adopting 63 Memorandum and Recommendations (Signed by Judge Nelva Gonzales Ramos) Parties notified.(lcayce, )

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION
OLENDORFF CARRIERS
GMBH & CO., KG,
Plaintiff,
v.
GRAND CHINA SHIPPING
(HONG KONG) CO., LTD.,
GRAND CHINA LOGISTICS
HOLDING (GROUP) COMPANY LTD.,
OFFSHORE HEAVY TRANSPORT AS,
OHT EAGLE AS, and
HNA GROUP CO. LTD.,
Defendants.

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CIV. CASE NO. 2:12-CV-00074
ADMIRALTY
FED. R. CIV. P. 9(h)

ORDER ADOPTING MEMORANDUM AND RECOMMENDATION

Before the Court is Defendants Offshore Heavy Transport AS and OHT Eagle AS’s
Amended Motion to Dismiss and to Vacate Attachment. (D.E. 56, Sealed Doc.) On March 28,
2013, Magistrate Judge Brian L. Owsley issued a memorandum and recommendation to dismiss
this action and vacate the attachment. (D.E. 63.) Plaintiff filed objections (D.E. 65) and is
entitled to a de novo disposition of the objected-to portions of the memorandum and
recommendation. FED. R. CIV. P. 72(b); 28 U.S.C. § 636(b)(1); Koetting v. Thompson, 995 F.2d
37, 40 (5th Cir. 1993). For the reasons set forth below, Plaintiff’s objections are overruled, and
Defendants’ Amended Motion to Dismiss and to Vacate Attachment (D.E. 56) is GRANTED.
BACKGROUND
Plaintiff Oldendorff Carriers GMBH & Co., KG initiated this action to attach the vessel
M/V Eagle pursuant to Rule E(4)(f) of the Supplemental Rules for Admiralty or Maritime

Claims and Asset Forfeiture Actions to obtain security for an arbitration proceeding pending in
London against Defendant Grand China Shipping (Hong Kong) Co., Ltd. (GCS). (D.E. 1.)
In the arbitration proceeding, Plaintiff seeks to recover losses stemming from Defendant GCS’s
alleged repudiatory breach of a charter party agreement for the vessel M/V K Daphne. Plaintiff
alleges that Defendants Grand China Logistics Holding (Group) Company Limited (GCL),
Offshore Heavy Transport AS (OHT), OHT Eagle AS (OHT Eagle), HNA Group Co. Ltd.
(HNA), and GCS are alter egos of each other and in actual fact constitute a single business
enterprise; as such, Plaintiff argues that they may be held jointly liable for the damages sustained
by Plaintiff as a result of the breach. (D.E. 51 ¶¶ 26–83.)
On March 7, 2012, Plaintiff submitted a motion to seize the specialized heavy lift vessel
M/V Eagle, which was owned by Defendant OHT Eagle and then present within the territorial
jurisdiction of this Court. (D.E. 3.) The following day, the Magistrate Judge held an evidentiary
hearing on the seizure, and finding reasonable grounds for attachment, issued an Order for the
Issuance of Maritime Attachment and Garnishment. (D.E. 7.) The Magistrate Judge set security
for the release of the vessel at $3,470,551.95 to be paid by OHT Eagle. (D.E. 13.) OHT Eagle
provided a Special Release Bond (D.E. 16), and Plaintiff consented to the release of the vessel
(D.E. 17).
Defendants OHT and OHT Eagle filed a motion to dismiss and vacate attachment on
May 20, 2013. (D.E. 27.) After reviewing the motion, the Court ordered the parties to engage in
jurisdictional discovery, including the bases for Plaintiff’s veil-piercing theories. (D.E. 48.) The
Court additionally granted Plaintiff leave to file an amended complaint. (Id.) Plaintiff filed an
Amended and Supplemental Verified Complaint (D.E. 51), and Defendants OHT and OHT Eagle
filed an Amended Motion to Dismiss and to Vacate Attachment (D.E. 56). The Magistrate Judge

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then issued a Memorandum and Recommendation to Grant Defendants Amended Motion to
Dismiss and to Vacate Attachment. (D.E. 63.)
Plaintiff raises three objections to the memorandum and recommendation. (D.E. 65.)
First, Plaintiff objects that the Magistrate Judge failed to follow the Court’s precedent established
in its recent White Rosebay decision.

Second, Plaintiff objects that the Magistrate Judge

erroneously applied a preponderance of the evidence standard. And third, Plaintiff objects that
the Magistrate Judge improperly applied the reverse corporate veil piercing remedy in assessing
the formal adequacy of the attachment. Each of these objections is considered in detail below.
ANALYSIS
A.

Post-Jurisdictional Discovery Standard
In his memorandum and recommendation, the Magistrate Judge concludes that “Plaintiff

can only survive a Rule E motion to vacate by showing by a preponderance of evidence that it is
entitled to attachment.” (D.E. 63 at 5.) Plaintiff argues that the Magistrate Judge should have
applied a probable cause standard. (D.E. 65 at 10.)
Several district courts, including courts for the Southern District of Texas, have applied a
preponderance of the evidence standard to Rule E motions to vacate after providing the party
asserting jurisdiction an opportunity for discovery and an evidentiary hearing. See Hawknet Ltd.
v. Overseas Shipping Agencies, No. 07 Civ. 5912(NRB), 2009 WL 1309854, at *2 (S.D.N.Y.
May 6, 2009) (“after an evidentiary hearing, post-discovery, the party asserting jurisdiction must
demonstrate it by a preponderance of the evidence”); Vinmar Int’l Ltd. v. M/T Clipper Makishio,
No. H-09-3829, 2009 WL 6567104, at *1 (S.D. Tex. Dec. 9, 2009); Seatrade Group N.V. v.
6,785.5 Tons of Cement, No. H-05-2771, 2005 WL 3878026, at *2 (S.D. Tex. Dec. 6, 2005).

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Preponderance of the evidence is the level of proof required for Plaintiff to carry the day
at trial. Thus, at some point, Plaintiff must prove the jurisdictional facts of its case by a
preponderance of the evidence, either at the Rule E hearing or at trial. Credit Lyonnais Securities
(USA), Inc. v. Alcantara, 183 F.3d 151, 154 (5th Cir. 1999). While a plaintiff initially need only
make a prima facie showing that a defendant is amenable to suit, Nuovo Pignone, SpA v.
Storman Asia M/V, 310 F.3d 374, 378 (5th Cir. 2002), when a district court permits jurisdictional
discovery and conducts a full evidentiary hearing on the issue of jurisdiction, the plaintiff must
then prove its jurisdictional facts by a preponderance of the evidence. Kwik-Kopy Corp. v. Byers,
37 Fed. App’x 90 (5th Cir. 2002); Felch v. Transportes Lar-Mex SA DE CV, 92 F.3d 320, 326
(5th Cir. 1996); DeMelo v. Toche Marine, Inc., 711 F.2d 1260, 1271 n. 12 (5th Cir. 1983);
Maersk, Inc. v. Neewra, Inc., 687 F. Supp. 2d 300, 336 (S.D.N.Y. 2009).
In the case at hand, after the Court ordered the parties to engage in jurisdictional
discovery, the Magistrate Judge held an evidentiary hearing on the issue of attachment pursuant
to Rule E(4)(f). (See Order for Discovery, D.E. 48; Hrg. Tr., D.E. 68.) Plaintiff had ample time
to conduct discovery, there were no requests made to extend the time for discovery, and the
Magistrate Judge did not limit the parties in the evidence they could present at the hearing.
Plaintiff’s counsel argued that they were unable to depose a key witness, the Chairman of GCL
and OHT, Jia Hongxiang, despite a subpoena requiring him to appear. (See Second Evidentiary
Hrg. Tr. 33:23–38:22, D.E. 68; Gaitas Decl. ¶ 4, D.E. 58-1 at 2; Subpoena to Testify, D.E. 58-1
at 131–37.) However, Plaintiff failed to file a motion seeking additional discovery or a motion to
compel. (Hrg. Tr. 37:4–21.) The Court therefore finds that the Magistrate Judge’s conclusion
that Plaintiff was required to prove its jurisdictional facts by a preponderance of the evidence
was not erroneous. Plaintiff’s objection is OVERRULED.

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B.

Court’s White Rosebay Opinion
Plaintiff further argues that the Magistrate Judge’s memorandum and recommendation is

erroneous because he failed to follow this Court’s precedent established in White Rosebay
Shipping S.A. v. HNA Group Co., Ltd., No. 2:12-cv-00096, 2013 WL 44104 (S.D. Tex. Feb. 5,
2013). (D.E. 65 at 7–8.)

However, as stated in the Court’s White Rosebay opinion, the

defendants in that case did not request a post-attachment hearing, and there was no evidence
presented for the Court’s consideration. Id. at *3. In White Rosebay, the Court specifically
limited its analysis to the allegations of the complaint, and based on the allegations of the
complaint, the Court concluded that the plaintiff pled sufficient facts to maintain the maritime
attachment. Id. at *5. The present case is procedurally different from White Rosebay. Here, the
Court permitted jurisdictional discovery, and the Magistrate Judge held two separate evidentiary
hearings on the issue of attachment. Plaintiff’s objection is therefore OVERRULED.
C.

Insufficient Grounds to Pierce the Corporate Veil
Finally, Plaintiff asserts that the Magistrate Judge improperly applied the reverse

corporate veil piercing remedy in assessing the formal adequacy of the attachment, focusing
solely on corporate formalities and failing to take into account the totality of the circumstances.
(D.E. 65 at 11–16.) Plaintiff argues that the evidence shows that HNA and GCL dominate and
control their undercapitalized subsidiaries and comingle assets between themselves in order to
shield their assets from creditors, and furthermore, that GCL and Arne Blystad, the majority and
minority shareholders of OHT, engaged in a series of orchestrated maneuvers that resulted in a
gratuitous transfer of $150 million in assets to Blystad designed to evade creditors. Id.
With respect to Plaintiff’s allegations that HNA and GCL dominate and control their
subsidiaries and comingle their assets, discovery produced little, if any, evidence to support these

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allegations.

Plaintiff cites to the PowerPoint presentation and press release in its original

complaint. (Ex. 6 to Amend. Compl., D.E. 51-2 at 1–35; Ex. A to Boxall Decl., D.E. 51-1 at 58.)
Plaintiff also cites to e-mails indicating that GCL settled claims or provided security to its
subsidiaries for payment of such claims in order to assist the subsidiaries in getting their vessels
released. (D.E. 51-3 at 30–34.) Furthermore, Plaintiff points to contracts in which GCL served
as a joint lessee with its subsidiaries. (D.E. 51-3 at 1–4.) OHT was not a party to any of these
contracts or e-mails. In the end, the evidence does not demonstrate the kind of domination and
control of OHT by its parent, nor the kind of improper comingling of assets that Plaintiff alleges
in the Amended Complaint. (See, e.g., Am. Compl., D.E. 51 ¶ 41, alleging that companies’
“ownership and control is so intertwined and fused that they are distinct from one another only in
a pro forma manner.”)
Plaintiff additionally presented evidence of OHT’s actions post-seizure, arguing that
Defendants’ actions were designed to thwart the claims of creditors. (See Am. Compl., D.E. 51
¶¶ 75, 81, alleging that Defendants’ actions amounted to “deliberate and planned manipulation,
complete control and domination of [OHT], that left it a diminished, virtually empty shell
company, stripped of its assets.”) After the seizure of the M/V Eagle and other vessels as
security for the unpaid debts and obligations of HNA, GCL, and GCS, OHT’s Board of Directors
realized that these seizures were impacting its business and would make it difficult for the
company to obtain financing. (See Board of Directors minutes, May 4, 2012, D.E. 51-5 at 8–12;
May 11, 2012 Letter from OHT CEO Jon Syvertsen, D.E. 58-1 at 139–41.) To address the
situation, OHT’s Board of Directors looked into refinancing its $225 million Term Loan Facility
that it had with Credit Agricole Corporate and Investment Bank (Credit Agricole). (Blystad
Tr. 40:14–44:14.) Additionally, OHT considered a shareholder restructuring in which Songa

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(Blystad’s company and the minority shareholder of OHT) would increase its ownership from
40% to 70% in exchange for forfeiting some of the value of Songa’s approximate $100 million
put option. (Blystad Tr. 45:11–50:20, 57:4–25.) It was thought that a restructuring and reduction
of GCL’s interest in the company would enable OHT to more easily obtain financing; however,
the deal never materialized.
As default came nearer, Credit Agricole offered an extension on its loan in return for
enhanced security in the form of a pledge by OHT to Credit Agricole of all the shares for the
company’s subsidiaries. (D.E. 62-1.) The OHT subsidiaries owned the heavy lift vessels which
OHT leased and operated. Under the agreement, Credit Agricole would take ownership of the
subsidiaries and their vessels in the event of default. (Pledge Agreement, D.E. 51-5 at 14–24.)
With no alternative financing available, and OHT facing immediate foreclosure and a loss of its
vessels, OHT’s Board of Directors agreed to the terms of the offer. (See Board of Directors
minutes, May 4, 2012, D.E. 51-5 at 8–12.) Despite the extension, OHT soon defaulted on its
Term Loan Agreement, and Credit Agricole foreclosed, taking ownership of the vessels and
subsidiaries. (Blystad Tr. 55:11–20.) Another company owned by Blystad, named Albatross,
then purchased all the shares of OHT’s subsidiaries from Credit Agricole for $10 million. (Share
Purchase Agreement, D.E. 51-5 at 26–35; Blystad Tr. 71:9–13.)

Plaintiff argues that this

transaction constituted a fraudulent scheme orchestrated by HNA and GCL to shift assets away
from the parent companies and avoid their creditors; however, there is no evidence to support
this conclusion in the record.
Undoubtedly, the transaction resulted in a windfall for Albatross and Blystad. (D.E. 58
at 20–21.) Yet, there is no evidence that HNA, GCL, or any of their subsidiaries had an interest
in Albatross, that they controlled Albatross, that they financed Albatross, that they benefited

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from the purchase of the subsidiaries’ shares by Albatross, or that Albatross was in any way
acting in the interest of HNA, GCL, or their subsidiaries.

To the contrary, the evidence

demonstrates that Albatross, Songa, and Blystad operated independently of Defendants, and that
the stock purchase was an arm’s length transaction.

Indeed, Blystad and Songa recently

commenced arbitration proceedings against GCL based on GCL’s failure to honor Songa’s put
option. (D.E. 56-2 at 131–32; Blystad Tr. 72:16–73:9.) Thus, considering the record before it,
the Court finds that Plaintiff failed to demonstrate by a preponderance of the evidence
circumstances warranting the reverse-piercing of OHT’s corporate veil.
Moreover, the Court finds that, even applying a probable cause standard, Plaintiff failed
to demonstrate reasonable grounds for reverse-piercing OHT’s corporate veil. Probable cause is
less than a preponderance of the evidence; and it has been described as a practical, common
sense determination whether, given the totality of the circumstances, there is a “fair probability”
that a claim is valid. Illinois v. Gates, 462 U.S. 213, 238 (1983). Rule E(4)(f) permits the Court
to look beyond the complaint, and the burden is on Plaintiff to demonstrate through its
allegations and evidence a prima facie admiralty claim. See Naftomar Shipping and Trading Co.
v. KMA Int’l S.A., No. V-11-2, 2011 WL 888951, at *2–3 (S.D. Tex. Mar. 10, 2011) (Rainey, J.);
Maersk, Inc. v. Neewra, Inc., 443 F. Supp. 2d 519, 527 (S.D.N.Y. 2006) (concluding that court
“may consider any allegations or evidence offered in the parties’ papers or at the post-attachment
hearing”); Linea Navira de Cabotaje, C.A. v. Mar Caribe de Navegacion, C.A., 169 F. Supp. 2d
1341, 1358 (M.D. Fla. 2001) (“Court has the discretion to consider additional evidence at the
post-attachment hearing”); A. Coker & Co., Ltd. v. Nat’l Shipping Agency Corp., 1999 WL
311941, at *1 (E.D. La. May 17, 1999); Newport News Shipbuilding and Dry Dock Co. v. S.S.
Independence, 872 F. Supp. 262, 265 (E.D. Va. 1994).

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Plaintiff’s primary argument in favor of continuing the vessel’s seizure is the foreclosure
by Credit Agricole and subsequent purchase of the OHT subsidiaries by Albatross. Plaintiff
argues that the “yield of discovery” on this issue factually bears out Plaintiff’s allegations with
regard to reverse-piercing the corporate veil of OHT. (D.E. 65 at 5.) The Court disagrees. The
evidence simply does not bear out Plaintiff’s allegations of control, domination, and assetshifting. Furthermore, to pierce the corporate veil, there must be some evidence of an abuse of
the corporate form to commit a fraud or injustice. Bridas S.A.P.I.C. v. Gov’t of Turkmenistan,
447 F.3d 411, (5th Cir. 2006). There is no evidence that Albatross’s purchase of the OHT
subsidiaries was done to benefit Defendants; rather, the common sense determination that the
Court draws from the evidence is that Blystad recognized a good business deal and acted in his
own best interests. Nothing in Blystad’s 120-page deposition transcript or elsewhere in the
record demonstrates that an alter ego relationship or fraudulent scheme to hide assets existed
between Blystad and Defendants. Accordingly, Plaintiff’s objection that the Magistrate Judge
improperly applied the reverse corporate veil-piercing remedy is OVERRULED.
CONCLUSION
For the reasons set forth above, the Court adopts the Magistrate Judge’s memorandum
and recommendation. Defendants OHT and OHT Eagle’s Amended Motion to Dismiss and
Vacate Attachment (D.E. 56) is GRANTED.
ORDERED this 30th day of July 2013.

_______________________________
NELVA GONZALES RAMOS
UNITED STATES DISTRICT JUDGE

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