Sikousis Legacy Inc. v. B-Gas Limited a/k/a Bepalo LPG Shipping Ltd.

Background

The Court had authorized the maritime attachment of the vessel M/T Berica under Rule B of the Supplemental Rules for Certain Admiralty or Maritime Claims. Bergshav Aframax, Ltd. (Aframax), the vessel’s owner and the only defendant that appeared, made a restricted appearance and moved under Rule E to vacate the attachment, which was represented by substitute security posted for the vessel’s release.

Sikousis Legacy Inc. and Plaintiffs-in-Intervention Bahla Beauty Inc. and K Investments Inc. opposed the motion. They were arbitration award-creditors under three London maritime arbitration awards against B-Gas Limited, then known as Bepalo LPG Shipping Ltd. The awards arose from B-Gas’s repudiation of a bareboat charter-party contract. Plaintiffs sought to recover from Aframax on an alter-ego theory, arguing that Bepalo and Aframax were part of a group of related corporate entities and that the group had transferred Bepalo’s assets to other entities before Bepalo became insolvent.

The Court permitted limited discovery focused on two issues: Bepalo’s relationship with Bergshav Shipholding AS and Aframax’s relationship to the alleged fraud. After discovery, both sides filed supplemental briefs. Plaintiffs also filed an additional supplemental reply that the Court had not authorized.

Legal standard

For a Rule B maritime attachment, a plaintiff must show a valid initial admiralty claim, that the defendant cannot be found in the district, that the defendant’s property can be found there, and that no statutory or maritime rule bars attachment. Under Rule E, the plaintiff bears the burden of showing why the attachment should not be vacated.

The Court applied a probable-cause standard, which it described as requiring evidence showing a fair or reasonable probability that Plaintiffs would prevail on their alter-ego theory. The Court emphasized that it was not deciding the ultimate merits of the alter-ego claim. Under federal maritime common law, an alter-ego showing requires evidence of such unity of interest and ownership that the entities no longer have separate personalities, together with fraud or injustice that would result from recognizing their separate identities. The Ninth Circuit also requires domination and control, resulting injustice, and fraudulent intent or an intent to avoid legal obligations. The entity whose separate status is disregarded must itself have been involved in misuse of the corporate form.

Court’s analysis

Bepalo’s relationship to its parent. The Court concluded that Plaintiffs had not shown that Bepalo was dominated and controlled by Bergshav Shipholding AS. Aframax presented evidence that Bepalo had minority shareholders, minority-appointed directors, and shareholder-agreement protections requiring a supermajority vote for certain actions. A minority shareholder’s declaration stated that the company’s board had acted unanimously after considering the effects of the Covid pandemic and available business options. Plaintiffs did not take depositions of Bergshav Group representatives, did not develop the minority shareholders’ rights through written discovery, and addressed Bepalo’s independence only briefly in their supplemental brief.

The Court found that the new evidence supported Aframax’s position that Bepalo was independent in its practical operation. It therefore held that Plaintiffs had failed to establish the first and most critical link in their proposed alter-ego chain: treating Bepalo as the alter ego of its parent so that Bepalo’s debt could be collected from another entity in the group.

Aframax’s relationship to the alleged fraud. The Court also found that Plaintiffs had not shown Aframax’s involvement in the alleged asset stripping from Bepalo. Plaintiffs presented evidence concerning transfers of funds to Aframax, accounting treatment for intercompany transfers, funding provided to Aframax, and commitments made for Aframax’s debts. The Court stated that this evidence might bear on domination and control, but it did not establish that Aframax was involved in the alleged fraud.

The Court noted that Plaintiffs expressly did not contend that Aframax participated in stripping Bepalo’s assets. Evidence that other entities transferred Bepalo’s assets or planned to isolate Bepalo’s liabilities did not show that Aframax itself misused the corporate form. The Court rejected Plaintiffs’ argument that allegations about conduct by Aframax’s parent and other Bergshav entities were enough to establish Aframax’s involvement.

The Court also rejected Plaintiffs’ arguments that it could examine an allegedly fraudulent transfer in connection with enforcing an admiralty decree and that the Bergshav Group operated as a single business enterprise. The Court held that federal maritime law governed the alter-ego analysis and that the proposed single-business-enterprise theory was inconsistent with the maritime requirements of domination and control and use of the corporate form for a fraudulent purpose.

Disposition

The Court granted the motion to strike Plaintiffs’ unauthorized supplemental reply. It then held that the Berica could not be attached to recover Bepalo’s debt and granted Aframax’s motion to vacate. The Court stayed that order for 30 days so Plaintiffs could seek a further stay from the Ninth Circuit Court of Appeals.