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Fall/Winter 2010 Newsletter

Dear Friends and Colleagues:

Welcome to the second edition of our e-mail newsletter, the goal of which is to provide semi-regular updates on developments of note in U.S. maritime law.

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We hope that you find these items of interest:

New Multilateral Iranian Trade Sanctions Imposed

On July 1, 2010, the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, P.L. 111-195 (“CISADA”) was signed into law. The primary purpose of CISADA was to support and comply with United Nations Security Council Resolution (“UNSCR”) 1929 (2010), which was adopted on June 9, 2010, and introduced a broad new set of sanctions against Iran.

The passage of UNSCR 1929 and CISADA has led to a flurry of further rulemaking by the President, the Department of the Treasury, as well as the Council of the European Union and other national governments. As part of our coverage of this area, we have prepared a PowerPoint presentation providing a comprehensive overview of the Iranian trade sanctions, which can be accessed here.

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Virginia Federal Court Interprets Piracy Statute for First Time in 190 Years

On August 17, 2010, in United States v. Said, 2:10-cr-00057-RAJ-FBS (E.D. Va. Aug. 17, 2010), a Virginia court dismissed piracy charges which had been brought against alleged Somali pirates who were captured after firing an AK-47 at the USS ASHLAND from a small skiff in the Gulf of Aden this past April.

The ASHLAND had returned fire, destroying the skiff and killing one of the alleged pirates, before any attempt to board the vessel could be made. Thus, when the survivors were charged in the Eastern District of Virginia with, among other things, “committing the crime of piracy as defined by the law of nations” in violation of 18 U.S.C. § 1651, they moved to dismiss the piracy count, arguing that they had not committed piracy because they did not board or take control of the ASHLAND, or obtain anything of value from it.

The Government responded by arguing that piracy, as defined by customary international law, does not require the taking of property, and that the defendants’ armed assault on the high seas constituted piracy under § 1651.

The court’s decision relied heavily upon the U.S. Supreme Court’s decision in U.S. v. Smith, 18 U.S. (5 Wheat.) 153 (1820), where piracy under the law of nations was defined as “robbery on the sea.” After reviewing the source of both definitions, the court determined that the definition of piracy in Smith had been consistently applied by U.S. courts since 1820, and that the more expansive definition of piracy provided under customary international law was unsettled and therefore, would deprive the defendants of their due process rights by rendering § 1651 unconstitutionally vague.

As a result, the court dismissed the § 1651 count of the indictment against the defendants, finding that because the defendants had not committed robbery at sea, they had not committed piracy.

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Setback for Spanish Government in the PRESTIGE Litigation

A new decision, Reino de España v. The American Bureau of Shipping, Inc., 2010 U.S. Dist. LEXIS 78402 (S.D.N.Y. Aug. 3, 2010), has closed another chapter in the long running saga involving the 2002 sinking of the M/T PRESTIGE off the coast of Spain. The case had been remanded to the District Court by the Second Circuit to address the issues of whether the Spanish Government could recover against ABS on a theory that the PRESTIGE had been recklessly certified as being within class, and if so, what law would apply.

Judge Swain agreed with Spain that U.S. law would apply, but granted ABS’ motion for summary judgment, finding that there was no precedent for imposing liability on a classification society for recklessly classifying vessels, and further holding that it would be inequitable to transfer the shipowner’s obligation to provide a seaworthy vessel to a classification society in light of its comparatively small fee and limited involvement.

Ultimately, the court’s ruling was based primarily on its belief that the rule proposed by Spain - that classification societies owe duties to all coastal states that could foreseeably be harmed by failures of classified ships - was far too broad an expansion of tort liability under U.S. maritime law.

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Supreme Court Protects Shipping Companies From Unintended Class Arbitration

A recent U.S. Supreme Court decision has strongly reasserted the principle that the scope of arbitration clauses are to be strictly construed. In Stolt-Neilsen S.A. v. Animalfeeds Int'l Corp., 130 S. Ct. 1758 (2010), a shipper had brought an anti-trust class action suit against a number of carriers alleging price fixing. Following a Second Circuit ruling, the parties agreed that the suit was subject to an arbitration clause that was silent regarding whether class arbitration was permitted.

The issue of whether class arbitration was permitted under the clause was thus, submitted to the New York arbitration panel, which held that class arbitration was permitted on policy grounds. The District Court vacated the award for being in “manifest disregard” of the law and the Second Circuit reversed, leading the carriers to appeal the decision to the Supreme Court.

In reversing the Second Circuit’s decision, the U.S. Supreme Court relied heavily upon the Federal Arbitration Act’s central purpose, which is to ensure that private agreements to arbitrate are enforced according to their terms. Accordingly, the Supreme Court ruled that parties cannot be compelled to submit to class arbitration under the FAA unless they have actually agreed to do so. Because the parties in Stolt-Nielsen had not agreed to class arbitration, they could not be forced to submit to it.

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California Court Vacates Rule B Attachment Based on Registration to Do Business

In Flame S.A. v. Pasha Finance, Inc., CV10-5245-GW (C.D. Cal. July 27, 2010), a Central District of California judge granted a motion to vacate a Rule B attachment of the M/T CAPE TALARA, a vessel owned by defendant Pasha Finance, Inc. on the grounds that Pasha could be “found within the district” due to its registration to do business in California and appointment of a California agent for the service of process.

In applying for the attachment order, the plaintiff had specifically requested that the court disregard Rule B-1 of the Local Rules for the Central District, which specifically defines “not found within the district” to mean that the defendant cannot be served with the summons and complaint as provided in Federal Rule of Civil Procedure 4(e).

This was necessary because Pasha had previously registered to do business in the State of California and appointed CT Corporation in Los Angeles as its agent for the service of process, and thus, had arguably become “found within the district.”

In opposing the motion to vacate the attachment, the plaintiff noted that under California case law mere appointment of a California agent for service of process had been found to be an insufficient basis for finding consent jurisdiction over a defendant. The court rejected the California cases finding that they were distinguishable since they all involved defendants that were contesting the exercise of jurisdiction, in contrast with Pasha’s express consent to jurisdiction.

The court found further support in Second Circuit case law for its holding that Pasha’s express consent, as evidenced by a declaration, coupled with registration and appointment of an agent for service of process, constituted “presence” for purposes of Rule B attachment.

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