Applying choice-of-law principles of Restatement Second and governmental interest analysis in admiralty contract case, Eleventh Circuit rules that district court erred in applying United States law rather than law of Greece
Dresdner Bank AG in Hamburg, Kreditandstalt fuer Wiederaufbau, and Norddeutsche Landesbank Girozentrale (the Banks) filed a complaint in a Florida federal court in rem against the M/V OLYMPIA VOYAGER a 157.90 meter Blohm Voss GmbH motor vessel, Hull No. 961, her engines, tackle equipment, rigging, dinghies, furniture, appurtenances, etc., (the Vessel), a Greek flagged passenger cruise vessel, to foreclose a preferred ship mortgage on a foreign vessel. The Banks also filed an in personam suit against Olympic World Cruises (OWC), the Vessel's owner.
The district court entered a default judgment of foreclosure against the Vessel and ordered it sold. The court also signed an order to require the Banks to provide security for any claims found to be superior in priority to the preferred ship mortgage. Many parties later filed claims or motions to intervene to assert claims against the Vessel or the proceeds of its sale. In response, the court allowed the Banks to stand in the shoes of the Vessel to defend against all claimants asserting priority in claims.
Aktina Travel, S.A. (Aktina) is a Greek travel agency, which orally contracted with the operators of the Vessel to provide airline tickets for its crew members. They would use the tickets to travel to and from the United States, either before boarding or after disembarking the Vessel. The parties entered into the agreement in Greece, and Aktina provided the travel arrangements from Greece by telephone and other electronic means.
Having successfully moved to intervene in this action, Aktina claimed that it was entitled to a maritime lien under the Commercial Instruments and Maritime Liens Act (CIMLA), 46 U.S.C. Section 31301 et seq. CIMLA grants priority to creditors holding maritime liens for necessaries provided in the U.S. over those holding preferred mortgages on foreign vessels. See 46 U.S.C. Section 31326.
The court first determined that a conflict existed between U.S. law, which would afford Aktina a maritime lien, and Greek law, which would not. After doing a choice-of-law analysis, the court applied U. S. rather than Greek law. The court essentially rested this ruling on two factual findings: (1) that the U.S. was the place of contract performance and (2) that the subject matter of the contract consisted of airline tickets located in the U.S.
On January 13, 2005, the court entered a final judgment in favor of Aktina on its claim against the Vessel. The court found that Aktina was entitled to a maritime lien under CIMLA, and that this lien prevailed over the Banks' preferred ship mortgage. The court fixed the dollar amount of the lien at $146,787.52. The Banks noted an appeal. The U.S. Court of Appeal for the Eleventh Circuit reverses and remands.
Since the lower court correctly noted the conflict between U.S. and Greek law, the Circuit Court focuses on which law to apply here. "Generally, to determine which law to apply in an admiralty [tort] case, courts examine several factors, as outlined in Lauritzen v. Larsen, 345 U.S. 571, 583 92 (1953), and Romero v. Int'l Terminal Operating Co., 358 U.S. 354, 382 (1959). These factors include: (1) the situs of the claim; (2) the law of the flag of the vessel; (3) the allegiance of the seamen; (4) the allegiance of the shipowner; (5) the place of the contract; (6) the access to a foreign forum; and (7) the law of the forum making the choice of law. In Hellenic Lines Ltd. v. Rhoditis, 398 U.S. 306, 309 (1970), the Supreme Court added the additional factor of the shipowner's base of operations."
The Supreme Court, however, has not yet specifically adopted a choice-of-law approach in maritime contract cases. "Like the district court, we think that the Fifth Circuit's opinion in Gulf Trading & Transport Co. v. The Vessel Hoegh Shield, 658 F.2d 363, 366 68 (5th Cir.1981) (Unit A), provides the proper analysis for choice of law problems in maritime contract cases like this one, and we adopt it today as this circuit's approach."
"In Hoegh Shield, the Fifth Circuit distinguished Lauritzen and applied the Second Restatement of Conflicts of Law, Sections 6 (Choice of Law Principles) and 188 (Validity of Contracts and Rights Created Thereby), as well as governmental interest analysis, to hold that the proper choice of law in the contract dispute before it was the United States."
"To conduct a choice of law analysis based on the Restatement, the court must determine which sovereign entity has the "most significant relationship' with the transaction at issue. [Cite]. Section 6 of the Restatement outlines several general principles to be considered when making this determination. For a contract dispute such as this one, however, the Restatement provides more specific factors in Section 188 to effectuate the general choice of law principles outlined in Section 6. See Restatement (Second) Conflicts of Law Section 188(2). These factors are: (a) the place of contracting; (b) the place of negotiation; (c) the place of performance; (d) the locus of the subject matter of the contract; and (e) the domicile of the parties." [Slip op. 3]
"Here, the district court found that both the place of contracting (factor (a)), and the place of negotiation (factor (b)) were Greece, and this finding is not challenged on appeal. In addition, factor (e), the domicile of the parties, also points to Greek law because the domicile of Aktina is Greece, the domicile of OWC, the owner of the Vessel, is Liberia, and the domicile of the sole shareholder of OWC, Royal Olympic Cruises, is Greece. The Vessel also flew a Greek flag. None of these facts are in dispute, probably because the district court placed little importance on them. Instead, the court found that the most important factors were (c), the place of performance, and (d), the locus of the subject matter of the contract."
"As to the place of performance, the district court concluded that the services were "for the physical transport of crew members to and from the United States.' This factual conclusion is clearly erroneous, and it is the principal conclusion upon which the district court's ruling rests. The services provided by Aktina did not include the physical transport of any crew members. Aktina is not an airline it is a travel agent. The service that it provided was the purchasing of plane tickets. This service was entirely performed in Greece."
"And, the district court left out of its analysis other important aspects of performance, such as payment and breach. Aktina invoiced the cost of the tickets to OWC in Greece. OWC was to pay the invoices in euro, and OWC breached the contract in Greece by not paying the invoices. Thus, these aspects of performance bolster the conclusion that the place of performance was Greece."
"The district court's conclusion based on factor (d), the locus of the subject matter of the contract, is also questionable. The court characterized the subject matter of the contract as tickets, and said that these tickets were uniformly located in the United States. But it is clear from the record that roughly half of the tickets were not picked up in the United States, but in airports around the world primarily in Greece. This is because roughly half of the arrangements were made to ensure that crew members could travel to the United States and make arrangements on their own to join the Vessel there."
"The district court correctly found that each of the tickets was in the United States either at the beginning of a flight or at the end of it, but each ticket was also in another country most often Greece at the other end of each flight. To conclude, then, that the locus of the subject matter of the contract was solely the United States was erroneous."
"Once this error and the erroneous factual determination that the place of performance was the United States are corrected, the Section 188 factors point overwhelmingly to Greece. And, the Restatement states that, when one state is both the place of negotiation and the place of performance of a contract, that state's law should usually govern the contract. Restatement (Second) Conflicts of Law Section 188(3). In this case, Greece was both the place of negotiation and the place of performance, and in the absence of other significant factors pointing toward United States law, Greece's law should apply." [Slip op. 4].
"Section 6 of the Second Restatement of Conflicts of Law contains the general factors that courts should consider in any choice of law analysis. The parties have not briefed the application of these factors, and the district court did not rely on them. However, we briefly review them to determine whether they establish that the United States has a more significant relationship than Greece to the transaction at issue, despite our conclusion based on the Section 188 factors."
"The Section 6 factors are: (a) the needs of the international system; (b) the relevant policies of the forum (here, CIMLA); (c) the relevant policies of other interested states (here, Greece's maritime law that does not provide maritime liens for necessaries); (d) the protection of justified expectations; (e) the policy underlying the field of law in question; (f) the interest in predictability and uniformity; and (g) the ease in determining and applying the relevant law."
"Of these factors, three (a), (e), and (f) do not favor either nation's laws. Two (b) and (g) favor the application of United States law. The remaining two (c) and (d) favor the application of Greek law. Thus, after reviewing the Section 6 factors, we conclude that they do not establish that the United States has a more significant relationship than Greece to the transaction at issue here."
"In this case, as with the Section 6 Restatement factors, the parties have not argued that governmental interest analysis resolves the choice of law issue, and the district court did not conduct a governmental interest analysis. Nevertheless, consistent with Hoegh Shield, we review the competing interests of the United States and Greece as to the application of their laws to this transaction. We conclude from this review that Greece's interests outweigh those of the United States."
"The United States has an interest in ensuring that United States suppliers, and those supplying goods and services to ships in United States ports, are protected from the defaults of vessels after receiving their supplies or services. CIMLA supports this policy. However, similar to the United States's interest as to maritime transactions in its territory, Greece has a strong interest in ensuring that those who negotiate contracts in Greece will receive the benefit of their bargains. Greece also has an interest in determining the proper protections and priorities for Greek corporations and foreign vessel operators when they deal with each other."
"To apply United States law to what is almost completely a Greek transaction would violate Greece's interests in governing transactions within its borders, while it would do little to serve the United States's interests under CIMLA. Thus, governmental interest analysis favors the application of Greek law."
"[W]e hold that Greek law is the proper law to apply to the transaction between Aktina and the Vessel. The district court erred in applying United States law."[Slip op. 5]
"Once the proper choice of law is made, it becomes clear that Aktina is not entitled to a maritime lien superior to the Banks' preferred mortgage lien. No provision of Greek law provides for such a lien. Greek law establishes a statutory lien system, but statutory lien rights do not carry priority over preferred ship mortgages on foreign vessels. See 46 U.S.C. Section 31326. ... Accordingly, we reverse the district court's judgment as to Aktina and remand for entry of judgment in favor of the Banks on Aktina's claim." [Slip op. 6].
Citation: Dresdner Bank AG v. M/V OLYMPIA VOYAGER, 2006 WL 1133879 (11th Cir. May 1, 2006).
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