Court says a creditor’s inability to collect a judgment alone is insufficient to justify making the companies’ owner liable.
Eitzen Chemical A/S, a shipping company and its sister companies, said that in denying their attempt to pierce the corporate veil of a defendant, a “magistrate judge failed to apply the equitable principles called for in maritime cases because it effectively leaves Eitzen without a remedy, as there is no way for it to collect on its judgment.”
But the U.S. Court of Appeals for the 11th Circuit said while the trial in the lower court involved a breach of contract governed by maritime law “absent some other wrong or injustice that would result if the corporate veil is not pierced, a creditor’s inability to collect a judgment alone is insufficient to justify piercing the corporate veil.” (See: Eitzen Chemical (Singapore) PTE, Ltd., et al. v. Carib Petroleum, Inc., et al. 11th Circuit. No. 17-14697. Sept. 4.)
Eitzen operated tankers for transporting chemicals around the world. (Eitzen today is part of Team Tankers International Ltd., which has a fleet of 51 chemical tankers.)
The defendants in the case were Carlos Gamboa and two companies of which he was the individual owner and operator: Carib Petroleum, a Bahamian corporation (Carib-Bahamas), and Carib Petroleum Inc., a Florida corporation (Carib-Florida).
In December 2009, Carib Petroleum (no distinction was made during the chartering process as to whether it was the Bahamian or Florida Carib corporation) entered into a maritime contract with Eitzen Chemical A/S to have the tanker, Glen, transport 5,000 metric tons of a product described as Tecsol from Venezuela to the Dominican Republic. The court said Tecsol is a solvent or degreaser frequently used as a base for paint.
Discharge of the cargo was delayed in the Dominican Republic and Eitzen incurred additional costs. Carib challenged Eitzen’s ability to bring the suit since it did not own the ships, but was the commercial manager. The lower court said Eitzen was the bailee of the Glen and was entitled to pursue the claim.
The following summer, Carib Petroleum entered into a second contract to have an Eitzen-owned tanker, Sichem Challenge, transport Tecsol from Venezuela to the Dominican Republic. Again, the contract did not specify which Carib entity was the charterer.
On June 29, 2010, Sichem Challenge arrived in Puerto Cabello, Venezuela, and began loading the cargo the next morning. On July 2, 2010, the Venezuelan National Guard stopped the loading of the cargo. Samples of the cargo were taken, and the Sichem Challenge was detained under the authority of the Venezuelan prosecutor’s office.
A standard contract was used in both instances: a tanker voyage charter party form known as the “Asbatankvoy.” The form gets its name from the Association of Ship Brokers & Agents (U.S.A) Inc. The association notes it is “the most-used tanker charter party in the world” and while “designed for chartering of vessels for full cargoes of oil and petroleum products, it is also widely used in the chemical, vegoil and parcel tanker trade.”
The authorities gave no reason for the halting of the loading of the cargo on the Sichem Challenge, but the vessel’s crew was instructed not to leave the port.
Eitzen retained a correspondent from its protection and indemnity insurer to try to resolve the dispute.
His investigation revealed that the Venezuelan government claimed that tests of the cargo samples indicated that the cargo was not Tecsol but “national diesel fuel.” The Venezuelan government had export controls for certain products and the ability to regulate exports, including national diesel fuel.
Venezuela “initiated a smuggling investigation against the exporter, Tecnopetrol, and its principal, Javier Bertucci. As part of its investigation, the government detained the Sichem Challenge, believing it to be an asset of Bertucci or Tecnopetrol.” The trial court had said Tecnopetrol was responsible for obtaining the proper permits for the export of its cargo from Venezuela.
The court said over the next several weeks, Eitzen’s P&I representative attempted to convince Venezuelan officials that the Sichem Challenge was not such an asset and petitioned for release of the ship.
The prosecutor in Venezuela eventually ordered that the cargo be discharged, and the cargo was removed from the vessel between Aug. 27 and Sept. 2, 2010. Sichem Challenge left port the following day.
Thereafter, the Eitzen companies initiated a civil suit against Carib-Bahamas, Carib-Florida and Carlos Gamboa, in his individual capacity, for breach of contract based on the delay of unloading the cargo on the Glen and the detention of the Sichem Challenge.
Eitzen claimed in the trial court that both Carib companies owed demurrage under the charter agreements that they had entered into and that they “operated interchangeably and solely by Carlos Gamboa, without keeping any [corporate] form.”
In addition, Eitzen sought to hold Carlos Gamboa individually liable by piercing the corporate veil of the Carib defendants.
Eitzen sought demurrage in the amount of $10,659.72, plus interest, costs and attorneys’ fees for the breach of contract associated with the delay in unloading the cargo on the Glen and detention damages in the amount of $897,084.19 plus fees and costs for the breach of contract associated with the detention of the Sichem Challenge.
Eitzen also sought to pierce the corporate veil of Carib-Bahamas to hold Carib-Florida and Gamboa, in his individual capacity, liable for the breach of contract as “alter egos” of Carib-Bahamas.
A broker that arranged the charter of the Glen said there were multiple bills of lading that had varying descriptions of the cargo as “diesel,” “solvent” and “Tecsol,” but explained that this was of no concern to Eitzen as those were all products that the vessel was permitted to transport.
Gamboa testified that he is the principal of both Carib-Bahamas and Carib-Florida and that he controls both entities.
Based on the testimony and evidence presented during the bench trial, the magistrate judge found that Carib-Bahamas and Carib-Florida were separate, sister corporations with common ownership and that Carib-Bahamas was the entity that was a party to the underlying contracts, not Carib-Florida.
The trial court found that Eitzen had proven by a preponderance of the evidence that “the cargo loaded on the Sichem Challenge was Venezuelan national diesel that Carib-Bahamas was attempting to smuggle out of Venezuela without the proper permits.”
It also found that “Gamboa knew of the nature of the cargo he was exporting,” as evidenced by “his repeated instructions that the cargo should not be referred to as diesel; (2) his directions to change the description of the cargo on the Glen after it left Venezuela; and (3) the fact that he was responsible for selling the cargo and, therefore, would have had to know what he was selling and had purchased and sold the same cargo before.”
The trial court ruled that Carib-Bahamas was liable for the breach of contract damages and awarded Eitzen a total judgment of $1,110,276.99 against Carib-Bahamas.
Clause 19 of the Asbatankvoy provides an exception to liability for vessel, master or owner and charterer in the event of “any loss of damage or delay or failure in performing hereunder, arising or resulting from: act of God; act of war; perils of the sea; act of public enemies, pirates or assailing thieves; arrest of restraint of princes, rulers or people; or seizure under legal process provided bond is promptly furnished to release the vessel or cargo; strike or lockout or stoppage or restraint of labor from whatever cause, either partial or general; or riot or civil commotion.”
The defendants argued the “restraint of princes” exception in Clause 19 absolved them from liability, and the trial court agreed “a charterer such as Carib-Bahamas could be relieved of liability under the restraint of princes doctrine for damages not otherwise specified in the charter party if it proved that the damages resulted from the seizure of the cargo by a governmental authority, such as the Venezuelan government.”
But it held Carib-Bahamas could not “avail itself of this exception from liability since the evidence establishes that the restraint by the foreign government was the result of its own misconduct.”
“However, with respect to the veil-piercing claim, the trial court found that Eitzen had failed to prove by a preponderance of the evidence that Carib-Florida should be held liable as the alter ego of Carib-Bahamas. The trial court found that there was a lack of evidence in the record with respect to many of the alter ego factors.”
Although the companies “shared a common address, had common ownership and Carib-Florida was used to handle Carib-Bahamas’s financial transactions, the evidence established that the two entities maintained their separate corporate existences. Both entities had separate bank accounts, and there was no evidence regarding common business departments or whether the two entities filed consolidated financial statements or tax returns.
“Further, although all of Carib-Florida’s funds were derived from the business of Carib-Bahamas, there was no evidence regarding whether Carib-Bahamas used the property of Carib-Florida as its own or vice versa. The record was also silent as to whether the business records of the two companies were kept separate. Moreover, there was no evidence that Carib-Bahamas used Carib-Florida for any fraudulent purpose or to avoid its liabilities or that Carib-Florida engaged in any fraudulent transactions itself.”
The 11th Circuit said, “Accordingly, in light of the findings of fact, the trial court did not err in denying Eitzen’s veil-piercing claim.” The judgment of the trial court was affirmed.
Shippers’ Law: A stab at piercing the corporate veil
