New York Court Expands Maritime Jurisdiction

The U.S. District Court for the Southern District of New York has derailed well-settled law to hold that contracts for the sale of a vessel are maritime contracts, in Kalafrana Shipping, Ltd. v. Sea Gull Shipping Co. Ltd., thereby greatly expanding the reach of federal maritime jurisdiction and the availability of maritime remedies.

Rejecting long-standing precedents that vessel-sale agreements do not support maritime jurisdiction, the court held that the Supreme Court’s 2004 decision in Norfolk Southern Railway Co. v. Kirby, and the Second Circuit’s subsequent 2005 decision in Folksamerica Reinsurance Co. v. Clean Water of New York, Inc., had changed the analysis of what constitutes a maritime contract. The court noted that those decisions had clarified that whether a contract falls under the federal maritime jurisdiction is determined by the “nature and character of the contract.” A contract for the sale of a “launched ship that has been plying the seas for some time,” the court concluded, “has a distinctly salty flavor, for the purpose of a ship is to sail.”

The court further asserted that the “petrified rule” that vessel-sale contracts are not maritime, articulated in the 1918 Second Circuit case, The Ada, no longer makes sense under the current understanding of maritime jurisdiction. Since “the fundamental interest giving rise to maritime jurisdiction is the protection of maritime commerce,” the court reasoned, no justification exists for including contracts for sailors and fuel within maritime jurisdiction, while excluding contracts for the ships that use them.

The Kalafrana case arose in the context of yet another garnishment of assets in New York under Rule B of the Supplemental Maritime and Admiralty Rules of Civil Procedure. The parties had agreed that Sea Gull was to sell, and Kalafrana to buy, a cargo vessel named the “Assil.” Kalafrana alleged a breach of the agreement, arbitration in London ensued, and Kalafrana won an award. Kalafrana thereafter sought the maritime attachment of Sea Gull’s property in New York. Sea Gull sought to vacate the attachment, noting the well-settled law that a contract for the sale of a ship is not a maritime contract, and therefore asserting that Kalafrana’s claim was not a maritime one as required to sustain a Rule B attachment. However, the court held that the recent Kirby and Folksamerica decisions regarding the scope of maritime contract jurisdiction “support the demise” of that prior rule.

The Kalafrana decision appears to stand alone in extending maritime jurisdiction to contracts for the sale of a vessel at least so far. If affirmed by the Second Circuit, or accepted by other courts, the decision could lead to a further expansion of the reach of maritime remedies, such as the garnishment of electronic fund transfers, as matters that have until now been the province of state courts and arbitrations are brought under federal maritime jurisdiction.

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