Stemcor USA Inc. v. CIA Siderurgica Do Para Cosipar, No. 2018-CQ-1728
America Metals Trading L.L.P. (“AMT”) and South Korean trading company, Daewoo International Corp. (“Daewoo”) executed a series of agreements in May 2012 under which Daewoo purchased pig iron from AMT to deliver to New Orleans. Daewoo made payments under the agreements, but AMT never shipped the pig iron.
Daewoo sued AMT in the United States District Court for the Eastern District of Louisiana and sought an order to compel AMT to arbitrate the dispute under the terms of the agreement. Daewoo also sought a writ of attachment of AMT’s pig iron on board the M/V Clipper Kasashio under Louisiana Code of Civil Procedure (“La. C.C.P.”) article 3542, Louisiana’s non-resident attachment statute. The district court granted the writ and the U.S. Marshals served it on December 22, 2012.
Thyssenkrupp Mannex GMBH (“TKM”) also had multiple agreements with AMT for the purchase of pig iron. These six agreements called for TKM to purchase the pig iron from AMT between June 2010 and February 2011. After AMT did not deliver the pig iron to TKM, TKM filed a suit for damages in Louisiana state court. In that case, TKM sought a writ of attachment over the same pig iron that Daewoo had attached on December 22, 2012.
TKM then moved to intervene in Daewoo’s federal court action, and sought a federal writ of attachment over the same pig iron, which the court granted and had served on the cargo on January 11, 2013. The parties moved the district court on that same day to sell the pig iron, which the court granted. The funds from the sale were placed in the court registry. Daewoo and TKM both claimed that the pig iron sale proceeds were insufficient to satisfy AMT’s debt to either party.
On May 9, 2016, TKM moved to vacate Daewoo’s attachment, arguing that the attachment could not stand because La. C.C.P. art. 3542 does not allow attachment in aid of arbitration. The federal district court granted the motion and vacated Daewoo’s writ, explaining that Federal Rule of Civil Procedure 64 permits district courts to borrow state remedies for the seizure of property to secure a potential judgment, but state law determines when and how a provisional remedy is obtained. The district court then turned to La. C.C.P. art. 3542, which permits a party to obtain a writ of attachment in “any action for a money judgment, whether against a resident or a nonresident, regardless of the nature, character, or origin of the claim, whether it is for a certain or uncertain amount, and whether it is liquidated or unliquidated.” The district court determined that Daewoo’s suit was not an “action for money judgment” within the meaning of La. C.C.P. art. 3542.
The case was appealed to the Fifth Circuit. After initially vacating the district court’s order on appeal, then affirming the order on grounds unrelated to whether La. C.C.P. art. 3542 allows attachment in aid of arbitration, the Fifth Circuit ultimately agreed with the district court that a suit to compel arbitration is not directly an action for money judgment under La. C.C.P. art. 3542. However, the parties filed separate rehearing petitions, prompting the Fifth Circuit to certify the issue for decision by the Louisiana Supreme Court.
In a split decision, the Louisiana Supreme Court ruled that La. C.C.P. art. 3542 allows for attachment in aid of arbitration “if the origin of the underlying arbitration claim is one pursuing money damages and the arbitral party has satisfied the statutory requirements necessary to obtain a writ of attachment.” The court determined that the clause, “in any action for a money judgment,” as used in La. C.C.P. art. 3542, was “not clear and unambiguous,” given the “conflicting view of the parties, the split opinions of the federal courts, and the eventual admitted uncertainty of the federal appeals court regarding the precise meaning of” the clause. The court thus considered “secondary principles of interpretation” by looking at the statute’s purpose, the context of the language within the statute, and the “text of the law as a whole.” In keeping with these principles, the court ruled that the clause, “in any action for a money judgment,” is “broad enough to encompass a creditor’s suit to compel arbitration where the ultimate goal of the action is to obtain a money judgment against a debtor.”
The court explained that, although Daewoo’s suit to compel arbitration “does not directly seek the payment of a sum of money, at its core the suit against AMT seeks to recover money damages.” The court noted the allegation in Daewoo’s complaint that it paid AMT $14,479,638.87 under the parties’ contract, yet AMT failed to deliver the pig iron. The court also observed that Daewoo asserted that the parties agreed to submit all disputes out of their contract to arbitration, and Daewoo specifically sought an order of attachment to secure its anticipated arbitration award up to the amount of its total breach of contract damages. So the “objective of Daewoo’s suit is the same as that of the competing creditor, TKM—the recovery of damages from AMT for breach of contract.”
The court also emphasized that Daewoo “detailed its breach of contract claim in the suit, and set forth the precise amount of money damages it was seeking.” The court then reasoned that there was no meaningful difference in the substance of Daewoo’s and TKM’s claims. In the court’s view, the “suit to compel arbitration is simply the required first step in order for Daewoo to recover those damages.” The fact that “an arbitral party must engage in a different progression of steps and process to pursue [a] claim of indebtedness and obtain a money judgment does not bar application of Article 3542.” The court refused to confine the word, “action,” as used in La. C.C.P. art. 3542, to “civil action.” The court ruled that such a “restrictive literal meaning to the word ‘action’ in Article 3542” would “limit the attachment remedy to civil judicial proceedings when civil suits and arbitration proceedings both seek to enforce a legal right” contemplated in the attachment statute.
The court then addressed the writ of attachment remedy itself, recognizing it as a “provisional remedy designed to preserve property and maintain the status quo until judgment can be obtained.” The court stated that the ultimate goal of this remedy, “unquestionably,” is to “protect a creditor by enabling satisfaction of an eventual judgment through preservation of the debtor’s property.” According to the court, the “necessity of such relief is equally applicable in arbitral claims,” thus reinforcing the need to avoid a “hypertechnical” construction of La. C.C.P. 3542 to “deny benefits when a reasonable interpretation can be adopted which will not do violence to the plain words of the statute and which will carry out the legislative intent.” Reiterating its point that the “only distinction here between the two creditors is the sequence of pursuing relief,” the court stated that “Daewoo did not give up its right against AMT, but simply agreed to submit its claim to an arbitral forum rather than a judicial forum.” There is “no logical or rational basis to prohibit an arbitral party from pursuing the provisional remedy under Article 3542 to aid an arbitration.” And, the court said, to “exclude a creditor from seeking the protection of Article 3542 simply because its contract with the debtor mandated arbitration of the dispute would undermine our state’s policy favoring arbitration agreements.”
Finally, the court considered the legislative history of the Louisiana statute and determined that the “legislature clearly intended to give Article 3542 as broad an application as possible.” Also significant to the court was the language of the previous Louisiana law regarding attachment—”in all suits instituted in any of the courts of this state”—which was later changed in the current law to remove the reference to “courts” and say, instead, “in any action for a money judgment.”
The court thus concluded that the “statutory language of La. C.C.P. art. 3542 no longer specifically limits attachments to suits instituted in a Louisiana court and we find that statutory language sufficiently broad to include an arbitration claim for money damages.” The court’s judgment was then to be certified and sent to the Fifth Circuit.
A version of this post originally appeared in the September 2019 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.
Picture by Bobak Ha’Eri – Own work, CC BY 3.0, https://commons.wikimedia.org/w/index.php?curid=39977855