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Decided: November 24, 2015

The Fourth Circuit affirmed the ruling of the district court.

Industrial Carriers, Inc. (“ICI’) breached numerous contracts during its last few months of operation. Among those contracts breached were Plaintiffs, Flame S.A. (“Flame”) and Glory Wealth Shipping Pte. Ltd. (“Glory Wealth”). Flame obtained a foreign judgment against ICI for the breach of four Forward Freight Swap Agreements (“FFAs”), and Glory Wealth obtained a foreign arbitration award against ICI for the breach of a charter party. Both Plaintiffs sought a writ of maritime attachment to attach to the vessel M/V Cape Viewer when it docked in Norfolk, Virginia. Defendant Freight Bulk Pte. Ltd. (“Freight Bulk”) is the legal owner of the vessel, but Plaintiffs assert that Freight Bulk was the alter ego of ICI, and that ICI fraudulently conveyed its assets to Freight Bulk to evade its creditors. On trial in district court, the Plaintiffs argued that the court could enforce their claims against ICI through Freight Bul. The district court agreed and awarded judgment to Flam and Glory Wealth, ordered the sale of the M/V Cape Viewer, and confirmed the distribution of the sale proceeds to Flame and Glory Wealth.

On appeal, Defendants had six separate arguments. (1) Defendant argued that under Fourth Circuit precedent, United States substantive law should not apply to this dispute, therefore the district court lacked subject matter jurisdiction. The Fourth Circuit disagreed, holding that both Flame and Glory Wealth had claims arising within federal admiralty jurisdiction, per 28 U.S.C. § 1333. (2) Defendants argued that under Supreme Court precedent, in Peacock v. Thomas, Flam and Glory Wealth’s allegations of alter ego and fraudulent concealment did not independently provide the district court subject matter jurisdiction, and that a plaintiff cannot rely on a prior lawsuit’s basis for the court’s jurisdiction in a subsequent suit to shift liability. The Court disagreed; recognizing Supreme Court precedent that a district court’s admiralty jurisdiction extends to claims to enforce foreign admiralty judgments. Therefore, because the district court had admiralty jurisdiction under § 1333, the district court also had authority to consider the questions of alter ego and fraudulent conveyance. 3) Defendants further argued that the district court erred in distributing funds from the sale of M/V Cape View to Glory Wealth because Glory Wealth failed to register its New York default judgment with the district court. The Court declined to consider the substance of this argument, noting that Freight Bulk did not raise this argument to the district court, and therefore, the issue was not properly preserved for appeal. (4) The district court abused its discretion by imposing certain discovery sanctions. The Court concluded that it need not go into the details of this argument, because even if the district court abused its discretion, its error was harmless. (5) The Defendants argued that there was insufficient evidence as to both the alter ego liability and fraudulent conveyance. As to alter ego liability, the Court found that the district court properly applied Fourth Circuit case law to the facts presented. Similarly, the Court found that there was sufficient evidence to support the judgment against Freight Bulk as to the fraudulent conveyance claim. (6) Finally, Defendants argued that the district court judge had a personal bias against Defendants’ Ukrainian nationality. The Court noted that Freight Bulk did not challenge the district court judge’s impartiality to hear the case at any time throughout the proceedings. As such, Freight Bulk failed to preserve this claim for appellate review. Further, the Court found that no exceptional or extraordinary circumstances exist in this case to justify reviewing it on the merits.

Accordingly, the Court affirmed the district court’s ruling in favor of Flame and Glory Wealth.  

Full Opinion

Meredith Weisler