U.S. Imposing Harsh Financial Sanctions on Russia in Response to Invasion of Ukraine

On February 21, 2022, President Biden issued Executive Order 14065, entitled “Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to Continued Russian Efforts to Undermine the Sovereignty and Territorial Integrity of Ukraine” in response to Russian actions against Ukraine.  The U.S. had previously issued Executive Order 14024, entitled “Blocking Property with Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation” to assist in targeting specific bad actors in Russia seeking to harm properly elected democratic institutions.  The U.S. is utilizing both Executive Orders to impose harsh financial sanctions on the Russian government and officials.  The sanctions are focused on targeting the Russian financial system to make it difficult for Russia to bear the costs associated with maintaining its military action in Ukraine.

The U.S. Department of Treasury has issued a series of four (4) directives aimed at targeting the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, the Ministry of Finance of the Russian Federation, as well as entities and individuals close to Vladimir Putin and Russian leadership.  The newly issued directives prevent U.S. banks and U.S. persons from processing transactions, maintaining correspondent bank accounts or payables through accounts for Russian banks, providing new debt with a majority date longer than fourteen (14) days, and participating in the ruble bond market.

The Department of Treasury has also identified and targeted specific banks including State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB), VTB Bank Public Joint Stock Company, Public Joint Stock Company Bank Financial Corporation Otkritie, Promsvyazbank Public Joint Stock Company, Sovcombank Open Joint Stock Company, Joint Stock Commercial Bank Novikombank, and several of the financial institutions’ subsidiaries.  As a result of the targeted blocking directives, all property and interest in property of these entities in the possession or control of U.S. persons and U.S. financial institutions are blocked and must be reported to the Office of Foreign Asset Control (“OFAC”).  The U.S. government officials believe the coordinating targeting of the Russian financial system through heavy sanctions (and support from the European Union, Great Britain, and Japan, among others), will disrupt Russia’s attempts to prop up its depreciating currency and restrict the ability of Russia to sustain its military action against Ukraine.  On Saturday, February 26, 2022, Russian Banks were removed from the international SWIFT program, which restricts the ability of financial institutions to send and receive funds globally beyond the borders of Russia.

In addition, the U.S. Department of Justice announced that it would be forming an interagency law enforcement task force, KleptoCapture, charged with seizing assets of Russian oligarchs in the U.S. in an effort to enforce the current sanctions.

President Biden and U.S. members of Congress have promised that further and harsher sanctions against Russia will continue in an effort to halt Russia’s military action against Ukraine, including the announcement on March 2, 2022 that sanctioning the Russian oil and gas industry could be next.  We will continue to monitor the dynamic and evolving landscape as new sanctions are announced and imposed.

If you have any questions as to how the newly imposed sanctions may impact you, contact us at info@chaloslaw.com.

To Read a Copy of Executive Order 14065 Click Here.

To Read a Copy of Executive Order 14024 Click Here.

To Read a Copy of Directive IA Click Here.

To Read a Copy of Directive 2 Click Here.

To Read a Copy of Directive 3 Click Here.

To Read a Copy of Directive 4 Click Here.

To Read a Copy of the Department of Justice Press Release Click Here.

Rules For Thee And Not For Me – U.S. Government Not Liable For Oil Spill Damages

On February 8, 2022, the U.S. Court of Appeals for the 11th Circuit issued a decision affirming the district court’s dismissal of admiralty claims brought by a vessel owner against the United States for oil-removal damages for a spill caused by the U.S. Army Corp. of Engineers (the “Army Corps”). See Savage Servs. Corp. v. United States, Slip Op. No. 21-10745 (11th Cir. Feb. 8, 2022).  The 11th Circuit held that as a matter of statutory construction, the Oil Pollution Act of 1990 (“OPA”), 33 U.S.C.S. § 2701 et. seq., does not authorize a claim against the federal government, and because Congress intended through its enactment of OPA’s comprehensive remedial scheme to displace the government’s generally broad sovereign immunity waiver afforded through the Suits in Admiralty Act of 1920 (“SAA”), the Plaintiffs common law admiralty claims against the government could not survive. Id.

The facts of the dispute are straightforward.  On September 8, 2019, the M/V SAVAGE VOYAGER, a vessel owned by Plaintiffs Savage Services Corp. and Savage Inland Marine LLC, was pushing two tank barges along the Tennessee-Tombigbee Waterway, a manmade system of canals, locks, and dams linking the Tennessee River in Mississippi with the Tombigbee River in Alabama. The Plaintiffs alleged that as the vessel was entering one of the locks, the lock master began de-watering the lock chamber without proper notice to the crew and without ensuring that the tug and tow were fully secured within the miter walls.  The boat lift in the lock was at all times operated by the Army Corps.  As a result, the vessel incurred damage (including the puncture of a cargo tank), crude oil was released into the lock channel, and expensive removal operations were undertaken which Plaintiffs claimed led to nearly $4 million in damages.

The Plaintiffs filed suit in the U.S. District Court for the Southern District of Alabama and alleged admiralty jurisdiction. Specifically, Plaintiffs sought to hold the government responsible for the damages and removal costs on the basis that the Army Corps was solely responsible for the incident.  In support of the claim of subject matter jurisdiction, the Plaintiffs argued that the incident involved a vessel on the navigable waters of the United States and as such, invoked the court’s admiralty and maritime jurisdiction.  Plaintiffs alleged that since its claim arose under admiralty, the government was a proper defendant due to its waiver of sovereign immunity for admiralty claims pursuant to the SAA.

The government moved to dismiss the claim for spill removal cost, arguing that the OPA statute exclusively controlled in oil spill-recovery actions and that the United States has not waived its sovereign immunity under OPA. In granting the motion to dismiss, the district court held that because OPA was enacted by Congress specifically to ‘assign responsibility’ for oil-spill cleanup costs and did not contain any waiver of sovereign immunity, there was no ability to sue the government under SAA as a side-step to OPA’s exclusivity.  In comparing the statutes, the Court held that Congress through OPA (which was enacted some seventy (70) years after the SAA), had effected an “implied repeal of the general sovereign immunity provision in the SAA as it pertains to oil-spill cleanup damages.”

The 11th Circuit agreed and affirmed the decision below. The Court ruled that the plain language of the OPA makes clear that the United States was not an entity against which a contribution claim could be brought, holding that there was no mention of the United States in the list of “persons” responsible under OPA.  Furthermore, other statutes such as the Comprehensive Environmental Response, Compensation, and Liability Act and the Clean Water Act used explicit language waiving the government’s sovereign immunity and subjecting the United States to civil liability in those statutes.  The omission in OPA was further evidence that the government had not waived its sovereign immunity.  Finally, the 11th Circuit found that where there was a conflict between the broad waiver under the SAA and the narrower OPA, the OPA’s comprehensive remedial scheme displaced the waiver provision in the SAA.  The OPA was, as other courts had found, a party’s exclusive remedy for claims for clean-up costs related to oil spills.  The Court observed that, for purposes of interpretation, detailed statutes generally pre-empt more general ones.  This was especially true, the Court reasoned, because OPA was the more recent statute and, by its language, was intended to take precedence over preexisting legislation on the same subject. Although OPA did not repeal the older, more general SAA, the Court held that it did create a discrete exception to it. Id. at 46.

The government’s immunity from responsibility from its own oil spills or spills which it causes third parties to have is directly at odds with the United States’ pursuit of environmental compliance and enforcement worldwide.  This lack of accountability is especially contrary to the prosecution (both civilly and criminally) of vessel owners, operators, and seafarers under various statutes and enforcement regimes such as the Clean Water Act, Clean Air Act, and the Act to Prevent Pollution from Ships (APPS – 33 U.S.C. § 1901, et seq.).

Although it would seem the 11th Circuit’s ruling means that the government can never be liable for causing an oil spill (or the damages incurred in removing/remediating a spill), the 1st Circuit Court of Appeals has held that OPA has not completely supplanted the more general SAA.  As it relates to claims against the United States for common law negligence under the general admiralty law of the United States, the 1st Circuit held that such claims could be pursued against the government for spills caused by a public vessel.  Ruling that OPA is explicit in leaving all claims and causes of action which are not specifically addressed by the statute intact in the case Ironshore Specialty Ins. Co. v. United States, the Court permitted a claim for negligence against the government for a spill from a public vessel. Id.  871 F.3d 131, 139-140, 2017 AMC 2138 (1st Cir. 2017). The 1st Circuit explained that under “Admiralty and Maritime Law,” the OPA states: “Except as otherwise provided in this Act, this Act does not affect . . . admiralty and maritime law.” 33 U.S.C. § 2751(e). The 1st Circuit reasoned that since public vessels lie outside the sweep of OPA liability, any preexisting admiralty and maritime law that applied to public vessels before the OPA’s passage survives its enactment, including the SAA.

To read a copy of Eleventh Circuit’s opinion in Savage, click here.

To read a copy of the First Circuit’s opinion in Ironshore, click here.

For more information about these decisions and how they may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com.

Chalos & Co’s Principal & Founding Member, George M. Chalos Esq. featured in TradeMaker Magazine

Chalos & Co, P.C. is pleased to share that following an exclusive interview with Nishit Doshi, Chief Editor of TradeMaker Magazine, Mr. Chalos appeared as the featured cover story for the January 2022 issue of the world-wide publication.  Click here to read the article summarizing the interview titled, “There are Many Parallels Between Sports and Practicing Law.”

For more information, please contact us at info@chaloslaw.com.

New York Commercial Division Now Requiring Mandatory Settlement Conferences

New York State Chief Administrative Judge Lawrence K. Marks has ordered the implementation of new Commercial Division Rule 30 which requires the scheduling of mandatory settlement conferences.   The Commercial Division Advisory Council (CDAC) advocated heavily for requiring mandatory settlement conferences.

Parties will now be required to appear for a settlement conference after the note of issue is filed.  In New York State Court actions, the filing of the note of issue signifies to the Court that all discovery has been completed and the matter is ready for trial.  The previous rule encouraged the parties to attend voluntary settlement conferences, but it was not required.  Now, a settlement conference is mandatory and may be held by the assigned judge, a judicial hearing officer, special referee, a neutral selected from the Court’s neutral roster, or through a private mediator agreed to by the parties.

The new rule took effect on February 1, 2022.   The Commercial Division is hopeful that the implementation of the new settlement conference requirement will encourage resolution without the parties having to incur the significant costs associated with proceeding to trial.  To read a copy of the new rule, click here.

For more information about the new rule, please do not hesitate to contact us at info@chaloslaw.com

3rd Circuit Court of Appeals Deals US Government a Blow in Finding Ship Owners’ Statutory and Contract Claims for Damages to Proceed Before US District Court

On November 16, 2021, the Third Circuit Court of Appeals issued a precedential landmark ruling in Nederland Shipping Corporation v. United States of America, No. 20-2269 reversing the district court’s dismissal of damage claims against the government for lack of subject matter jurisdiction and remanding the matter to the U.S. District Court for the District of Delaware for further proceedings.  The NEDERLAND REEFER (the “Vessel”) arrived at the Port of Wilmington, Delaware on February 20, 2019 to discharge a cargo of refrigerated bananas from Chile. Following a shipboard inspection on February 21-22, 2019; a US Coast Guard Captain of the Port Notice Letter dated February 22, 2019 was issued advising that the Vessel’s departure clearance was being withheld and the Vessel was being detained pursuant to 33 U.S.C. § 1908(e) of the Act to Prevent Pollution from Ships (APPS – 33 U.S.C. § 1901, et seq.).  The Owner and Operator of the Vessel acceded to the government’s demands for an “Agreement on Security” to get the vessel back in service and provided, inter alia, a surety bond totaling $1,000,000 which was answerable for any claims in rem against the Vessel; agreed to continue to employ, house, feed, insure and pay total wages of the thirteen (13) detained sailors; agreed to waive personal jurisdiction defenses; and agreed the security would stand in place of the res.  In exchange, the United States agreed to allow the Vessel to depart and agreed to not arrest, seize, or attach the Vessel or any other property of the ship owner or operator.

Despite the Owner and Operator promptly meeting all the obligations in the Agreement on Security, the government unreasonably delayed the release of the Vessel for thirty-six (36) days.  Nederland Shipping Corporation (“Nederland”) commenced an action in the District of Delaware seeking to hold the government liable for breach of the Agreement on Security and seeking an award for damages as set out at 33 U.S.C. § 1904(h), which provides: “A ship unreasonably detained or delayed by the Secretary acting under the authority of this chapter is entitled to compensation for any loss or damage suffered thereby.”

The government moved to dismiss the lawsuit for lack of subject matter jurisdiction.  District Judge Andrews agreed, ruling that there was no subject matter jurisdiction over the dispute, because the Agreement on Security was not a maritime contract and 33 U.S.C. 1904(h) did not include a waiver of sovereign immunity.  The district court further found that any cause of action, whether brought as a breach of contract or statutory claim must be brought in the Federal Court of Claims pursuant to the Tucker Act. Nederland Shipping Corp. v. United States, 456 F. Supp. 3d 584, 2020 U.S. Dist. LEXIS 76072, 2020 WL 1989166 (D. Del. April 27, 2020).

Nederland appealed the decision to the Third Circuit Court of Appeals.  In reversing the district court, the Third Circuit succinctly summarized the issues: “The fight over the contract claim is thus whether it is a maritime claim and so properly subject to admiralty jurisdiction. As to the APPS statutory claim, the fight is whether 33 U.S.C. § 1904(h) waives sovereign immunity.” p. 10.  The Third Circuit answered both questions affirmatively and reversed the district court on both causes of action.

Specifically, the Third Circuit ruled that the Agreement on Security is a maritime contract with the primary objective being to return the vessel to her maritime trade.   The Court summarized, “the essential character and purpose of the Agreement was not to secure the Vessel and crew in port; that was already done. The primary objective of the Agreement was rather to set the Reefer free to pursue maritime commerce.” (p. 13) (emphasis added).   The Court went on to explain that the Agreement has a “genuinely salty flavor.”

The Circuit Court further found that Nederland Shipping is entitled to pursue its statutory cause of action under 33 U.S.C. §1904(h) in the district court, as the statute waived sovereign immunity as Congress provided a cause of action available for any ship unreasonably delayed or detained by the government  (stating “[N]o other actor could logically be held liable. The federal government causes the unreasonable detention, and the federal government thus provides compensation for the resulting loss or damage.”).

The Third Circuit rejected the government’s argument that the claims were to be exclusively heard by the Federal Court of Claims under the Tucker Act (28 U.S.C. § 1491(a)(1)).  “Claims premised upon statutes that provide for independent causes of action and that waive the government’s sovereign immunity need not be channeled through the Tucker Act.”  The Third Circuit held that the after-the-fact remedy provided by 33 U.S.C. 1904(h) is such a statute that provides an independent cause of action and therefore jurisdiction for the claim exists in the district court.

George M. Chalos, Briton P. Sparkman, and Chalos & Co, P.C. represent Nederland Shipping Corporation in this matter.  George M. Chalos presented oral argument the panel for the Third Circuit Court on April 14, 2021.  To listen to the oral argument, click here.

To read a copy of the Third Circuit’s Opinion, click here.

For more information about the Court’s decision and how it may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com.

Department of Justice Announces “Renewed Focus” on Corporate Crime and Enforcement

On October 28, 2021, U.S. Deputy Attorney General Lisa O. Monaco (“Monaco”) gave the keynote address at the American Bar Association’s 36th National Institute on White Collar Crime. Deputy Attorney General Monaco addressed the U.S. Department of Justice’s (“DOJ”) renewed focus on corporate crimes in the department’s mission to “enforce the criminal law that govern corporations, executives, officers and others, in order to protect jobs, guard, savings and to maintain [their] collective faith in the economic engine that fuels [the] economy.”

Deputy Attorney General Monaco listed three (3) actions the DOJ is taking to strengthen enforcement and the department’s response such crimes. First, the DOJ’s main priority will remain individual accountability.  The DOJ will mandate that for a corporation to receive any cooperation credit, the company must provide “all non-privileged information about individuals,” regardless of their position, status or seniority, involved and/or responsible for the misconduct.  So that DOJ can know the “cast of characters” and will not allow the corporation to control which individuals are investigated and/or charged.

Second, Deputy Attorney General Monaco has confirmed that there is an intense focus on a company’s prior misconduct, which will guide and affect the DOJ’s charging decisions.  The DOJ has issued new guidance for prosecutors highlighting that any past misconduct of a company should be considered, including not only prior criminal history, but also the civil and regulatory records of a company, when deciding what type of resolution is appropriate.  DOJ prosecutors are to take a “holistic approach” and consider all misconduct by a corporation, including the corporation’s “parent, divisions, affiliates, subsidiaries, and other entities within the corporate family.” Deputy Attorney General Monaco stated that, “[t]aking the broader view of companies’ historical misconduct will harmonize the way [the DOJ] treat[s] corporate and individual criminal histories, as well as ensure that we do not unnecessarily look past important history in evaluating the proper form of resolution.”  For shipping companies that are held out in the commercial market as part of a group or large fleet, this focus by DOJ will undoubtedly lead to expansive and comprehensive investigation(s) of the fleet and any affiliated owners or operators (even if owned by different stakeholders and/or trading under a separate Document of Compliance).

Finally, Deputy Attorney General Monaco confirmed that the standards, policies, and procedures for evaluating corporate monitors has been revised to ensure uniformity and clarity in post-judgment monitoring of corporate compliance after an incident.  The DOJ will assess the need for corporate monitors on a case-by-case basis and consider (1) the potential benefits of the corporate monitor; and (2) the cost of monitor and its impact on the corporation’s operations. As the shipping industry is very familiar, the DOJ Environmental Crimes Section has long utilized a comprehensive Environmental Compliance Plan (“ECP”) as part of negotiated plea agreements which is implemented during probation by an Independent Consultant/Third Party Auditor and overseen by a Court Appointed Monitor.  These roles are filled by third-parties which must be paid for by the corporate defendant(s). The cost of successfully implementing the required ECP can easily reach $25,000 – $50,000 per ship, per year.

The announced policies and focus are unlikely to materially change the DOJ’s investigation and prosecution of foreign-flagged shipping companies for alleged violations of the Act to Prevent Pollution from Ships, 33 U.S.C. § 1901, et seq.   (i.e. the U.S. implementation of MARPOL 73/78).  However, it is reasonable to expect that these announced actions, especially the demand for assistance in investigating individuals and the DOJ’s inquiry into group or affiliate company activities, will be utilized to pressure companies into making quick and expensive plea agreements, as well as the extraction of heavy fines and even more onerous ECPs.

To read the full Deputy Attorney General Lisa O. Monaco’s Keynote Address, please click here. To read the Deputy Attorney General Monaco’s Corporate Crimes Memorandum, please click here.

For more information on MARPOL, APPS, or other white-collar crimes, please do not hesitate to contact us at info@chaloslaw.com.

Are Attorneys Allowed to Attend an Independent Medical Examination?

The U.S. District Court for the Southern District of Texas (“SDTX”) recently addressed the question of whether a plaintiff’s attorney is permitted to attend a Federal Rule of Civil Procedure (F.R.C.P) 35 independent medical examination (IME) with his client in a personal injury matter. See In re Callan Mar., Ltd., No. 4:21-cv-01938, 2021 U.S. Dist. LEXIS 169812 (S.D.T.X Sept. 8, 2021).  The Court held that the injured Plaintiff was not allowed to have his attorney present in the examination room as he had not demonstrated that there were “special circumstances” that warranted allowing the attorney to be present.

The Court noted that a number of other Federal Courts have refused to allow a lawyer to attend his client’s medical examination because allowing a third person to be present at a medical examination “would subvert the purpose of Rule 35, which is to put both the plaintiff and defendant on an equal footing with regard to evaluating the plaintiff’s medical status. In other words – where one party has been examined by his or her doctors outside the presence of others… – the other party should be given the same equal opportunity.” See Ornelas v S. Tire Mart, LLC, 292 FRD 388 (SDTX 2013).  The court reasoned that the presence of an attorney has a high probability of causing adverse effects on the examination, carries the possibility of making the attorney a witness, and may result in disruption of the examination. The court noted that an attorney’s presence for moral support and guarding against improper conduct on the part of the physician are not “special circumstances” justifying the presence of plaintiff’s counsel at the examination.

The U.S. District Court for the Southern District of New York (SDNY) has a similar stance on not allowing attorneys to be present for an IME. See Edwina Rance & Westchester Residential Opportunities v Jefferson Vil. Condominium No. 5, 2019 U.S. Dist. LEXIS 238432, at *12 (SDNY Sep. 23, 2019).  SDNY Judges have held that the presence of an attorney at the examination frustrates its purpose by impairing its effectiveness and rendering it adversarial.  See Hirschheimer v Associated Mins. & Mins. Corp., 1995 US Dist LEXIS 18378 (SDNY Dec. 12, 1995). Moreover, when an attorney who is present at an examination becomes a potential witness in the client’s trial it naturally raises conflict of interest problems.

While Federal Courts in New York and Texas are firmly against allowing an attorney to be present at an IME, state courts sitting in New York have held that Plaintiffs are entitled to have a representative present at their physical examinations as long as the representative does not interfere with the examination conducted by defendants’ designated physician and does not prevent defendants’ physician from conducting a meaningful examination.” See Guerra v McBean, 127 A.D.3d. 462 (1st Dept 2015).

To read a copy of the SDTX decision, click here.

For more information please do not hesitate to contact us at info@chaloslaw.com.

Michael G. Chalos Presents at Gallagher Marine Systems 2021 North American Regulatory Seminar

Michael G. Chalos of Chalos & Co, P.C. attended and presented at the Gallagher Marine Systems (GMS) 2021 North American Focus Training and Regulatory Seminar on August 19, 2021 in Galloway, New Jersey. Mr. Chalos presented on the best practices for voluntary reporting of potential non-compliance issues and the consequences of failing to do so.  enactment and enforcement of IMO 2020 in the United States.

To learn more about GMS, please visit their website at https://www.gallaghermarine.com/.

For more information on vessel compliance and voluntary reporting in the United States (and elsewhere), please do not hesitate to contact us with any questions at  info@chaloslaw.com.

Updated COVID-19 Courthouse Protocols in New York

Due to the recent uptick in COVID-19 cases in the U.S., both State and Federal Courthouses are continually updating their protocols to ensure safe access to the Courts.  We briefly summarize the current procedures being implemented in New York.

Both the Southern District of New York (“SDNY”) and New York state courts continue to prohibit entry to each courthouse for individuals who have flu-like symptoms; have recently tested positive for COVID; have been directed to quarantine, isolate or self-monitor at home; had close contact with a person testing positive for COVID; or have returned from international travel within the last 10 days (unless you returned 8-10 days ago and took a viral COVID test 3-5 days after  return).  While each Court is maintaining stringent guidelines if potentially exposed to COVID-19, the requirements for those that are vaccinated vary.

  • Southern District of New York:
    • If unvaccinated, visitors are required to have their temperature taken and answer questions related to potential exposure to COVID-19 to determine if the visitor may be allowed to enter.
    • All those in the courthouse are required to wear a face mask regardless of vaccination status.
    • Testifying witnesses and attorneys speaking from semi-enclosed podiums outfitted with HEPA filters may be allowed to remove their face mask at the discretion of the presiding Judge.
    • Everyone must adhere to safe social distancing rules, by standing or sitting at least six (6) feet away from other individuals, and abide by all health and hygiene signage throughout the courthouses, including signage regarding masks, social distancing, occupancy restrictions, and hand washing.
  • New York State Courts:
    • Beginning on September 7, 2021, all non-vaccinated court employees will have to submit to weekly COVID-19 testing. Vaccinated staff will not be tested and are able to obtain a special card which verifies their vaccination status.
    • To enter the Court, one will need to show proof of vaccination or wear a mask.
    • Vaccinated visitors are not required to wear a face mask.  Unvaccinated Court Users are required to submit to a temperature screening and a COVID-19 risk assessment inquiry before entering a court facility and will be required to wear a mask, maintain social distancing, and follow the health and safety instructions of court personnel.
To read a copy of the SDNY Ninth Amended Standing Order, please click here.

To read a copy of the SDNY Bankruptcy Court’s General Order, please click here.

To watch Chief Judge DiFiore’s most recent video message, please click here. For a transcript of the message, click here.

If you have any questions, contact us at info@chaloslaw.com

Failure to follow Service Requirements Leads to Vacatur of Default Judgment

Petitioner Commodities & Minerals Enterprise Ltd. (“Commodities & Minerals”) entered into a Transfer Management Contract with CVG Ferrominera Orinoco, C.A. (“CVG”) to manage and operate CVG’s iron ore transfer system.  CVG is a Venezuelan state owned company responsible for the exploration of iron ore.  Following allegations of breach of the underlying Transfer Management Contract, Commodities & Minerals commenced arbitration pursuant to the contract.  Commodities & Minerals won a final award against CVG in the amount of $188 million dollars in damages, plus interest.

On December 19, 2019, Commodities & Minerals filed a petition in the Southern District of Florida to recognize and confirm the award as a judgment of the Court.  Petitioner served CVG with a copy of the petition, but did not serve a summons issued by the Clerk of the Court.  CVG never appeared in the action and the Court entered an Order confirming the award and granting default judgment against CVG on or about September 23, 2020.  Shortly thereafter, Respondent CVG filed a motion to vacate the Order and final judgment on the grounds that Commodities & Minerals failed to properly serve the petition with a summons as required by the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. §1608.  Commodities & Minerals argued in response that service was properly effectuated because: (1) service of the petition complied with the Federal Arbitration Act (“FAA”), (2) CVG had actual notice of the action, and (3) service was proper under FSIA.

District Judge Darrin P. Gayles of the United States District Court for the Southern District of Florida rejected Petitioner’s arguments and vacated the judgment.  The District Court held that since the FAA does not provide any guidance on how to serve an instrumentality of a foreign state, the proper procedural rule to consult for compliance with service requirements is Fed. R. Civ. P. Rule 4.   Pursuant to Rule 4(j), a party must serve an instrumentality of a foreign state in accordance with 28 U.S.C. §1608, which requires that a summons be served on a party with the complaint (i.e., petition). The Court concluded that Commodities & Minerals failed to comply with a material requirement of FSIA by its failure to serve the petition with a summons. Furthermore, the District Court found that under FSIA, actual notice must be accompanied by substantial compliance with the statute, simply giving ‘notice’ or ‘potential notice’ of the action cannot substitute for the statutory requirement to serve a summons with the petition. The Court held that Commodities & Minerals’ failure to serve CVG with a summons was fatal to its position and vacated its prior Order and Default Judgment.  Judge Gayles also pointed out that in a related action between the parties, service of process in a similar manner been held insufficient by District Judge Goodman due to a failure by Commodities & Minerals to obtain and serve a summons on CVG in that action.

As of July 20, 2021, Commodities & Minerals has re-filed its petition against CVG to recognize and enforce the arbitration award and has obtained a summons issued by the District Court Clerk to effectuate service in compliance with Rule 4 and the FSIA.

To read a copy of the Order, please click here. For more information on the Recognition and Enforcement of Arbitration Awards, please do not hesitate to contact us at info@chaloslaw.com.