Fifth Circuit Reverses Its Decision Allowing Pre-Arbitration Seizure – Finding Company Failed to Meet Procedural Requirements

Following a rare grant of petition for rehearing, the Fifth Circuit Court of Appeals reversed its earlier decision allowing Daewoo International Corp. to seize an iron shipment prior to arbitrating a contract dispute. In a 2-1 decision, the Fifth Circuit held that Daewoo failed to meet certain procedural requirements required by the Louisiana non-resident attachment statute and therefore the attachment was properly vacated by the district court.

Daewoo International Corporation (“Daewoo”) and Thyssenkrupp Mannex GmbH (“Thyssenkrupp”) separately contracted with America Metals Trading LLP (“AMT”) to purchase pig iron. AMT never delivered the pig iron under either contract. In response to the breaches of contract, Daewoo sued AMT in federal court, and Thyssenkrupp sued AMT in Louisiana state court. In 2012, both companies obtained attachments of AMT’s pig iron, which was located within the Eastern District of Louisiana. In 2013, Thyssenkrupp intervened in the federal proceedings and obtained a federal writ of attachment over the pig iron. Several months later, Thyssenkrupp successfully sought to vacate Daewoo’s attachment in federal court. After the vacatur, the only valid remaining writ was from the state court, to Thyssenkrupp. Daewoo appealed.

The Fifth Circuit originally held that Daewoo could seize the pig iron prior to commencing arbitration against AMT, leaving in place Daewoo’s attachment as security for a potential future arbitration award. Thyssenkrupp argued that the Fifth Circuit panel wrongly concluded that Daewoo could rely on the Louisiana attachment statute to obtain security. Article 3542 of the Louisiana Code of Civil Procedure allows attachments in aid of any “action for a money judgment.” The panel agreed to rehear the case, and ruled 2-1 that a suit to compel arbitration is not an action for a money judgment. Critically, Daewoo did not file a suit to confirm an arbitral award, instead it filed suit to compel arbitration. “A motion to compel arbitration seeks an order requiring a party to take an action – namely to arbitrate the dispute. Accordingly, a suit seeking to compel arbitration is not an ‘action for a money judgment,’ and Daewoo’s suit seeking to compel arbitration cannot underlie a Louisiana non-resident attachment writ.”

Daewoo could have rectified this under Article 3502, if it met the requirements and for good cause shown. Article 3502 of the Louisiana Code of Civil Procedure allows, in limited circumstances, for attachments to be issued before the suit underlying the attachment is brought. The Fifth Circuit held that Daewoo had not met these requirements. “[B]ecause attachment is a ‘harsh’ remedy, the Louisiana statutes ‘providing for a Writ of Attachment . . . must be strictly and literally complied with,” and that “failure to do so renders a granted writ a ‘nullity’ . . . The record does not disclose that Daewoo strictly and literally complied with Article 3502’s requirements.” Daewoo did not invoke Article 3502 when it sought a writ, and the district court did not grant Daewoo permission to file a petition on “the first judicial day after the issuance of the writ.”

In the dissent, Circuit Judge James E. Graves, Jr. said the suit to compel arbitration is “clearly” an action for a money judgment, and that he would vacate the district court’s judgment.

To read the full opinion of the Fifth Circuit, please click here.

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