Pleading Insanity in Piercing the Corporate Veil: Supplemental Rule E’s Heightened Pleading Standard Protects Polluting Shipowners in the Fourth Circuit

James K. Dumont | Note

In 2005, Vitol, S.A., obtained a $6.1 million judgment from the English High Court of Justice, Queen’s Bench Division, Commercial Court, against Capri Marine, Ltd., stemming from breached warranties of seaworthiness that caused an oil spill from the ALAMBRA, an oil tanker, in an Estonian port in September 2000.Vitol filed suit to attach the vessel M/V THOR in the United States District Court for the District of Maryland, seeking to enforce the English High Court’s judgment, which then totaled over $9 million with accrued interest. Vitol argued that the M/V THOR was dominated, owned, and operated by an alter ego of Capri Marine–namely the Kalogiratos Groupand its subsidiaries. The M/V THOR was released when its owner, Spartacus Navigation Corporation (Spartacus), and its manager, Primerose Shipping Company (Primerose), posted a $9 million security bond as substitute collateral.Shortly thereafter, Spartacus and Primerose moved to vacate the attachment under Federal Rule of Civil Procedure Admiralty Supplemental Rule E and to dismiss Vitol’s complaint under Rule 12(b)(6). The district court granted both motions, finding that although it had jurisdiction over a foreign case sounding in admiralty, Vitol had failed to state a claim upon which relief could be granted under Rule 12(b)(6).In early 2011, Vitol was granted leave to amend its complaint and thereafter filed an amended verified complaint to stay the release of the $9 million bond.

Vitol’s amended complaint contained more than thirty pages detailing how Spartacus and Primerose were merely alter egos of Capri Marine hiding behind a corporate veil controlled by the Kalogiratos Group. Vitol alleged that the Kalogiratos Group, as owner of Starlady Marine Limited (Starlady), Capri Marine’s parent company, caused the ALAMBRA to be sold to Aurora Maritime, another Kalogiratos Group holding, for a “fair market” scrap value of $2 million before being sold to a bona fide third party for approximately $3 million.Vitol further alleged that the extra $1 million in the proceeds from the sale should have been put towards repayment of the English judgment but were instead used to incorporate Primerose under the purported ownership of Nicholas Velliades.Vitol’s complaint claimed, among other things, that Primerose and Starlady shared office space, telephone numbers, and e-mail addresses; commingled funds; and gave each other “undocumented, uncollateralized, and unrepaid loans.” Vitol alleged that Spartacus, nominally controlled by Velliades, did not actually put up any funds for the substitute collateral of the M/V THOR to have it released from attachment. The district court granted the defendants’ motions to vacate and dismiss after finding that Vitol had likely established Capri Marine as an alter ego of Kalogiratos, but Vitol had not sufficiently established in the complaint that Spartacus and Primerose were alter egos of Kalogiratos and/or Capri Marine. On appeal, the United States Court of Appeals for the Fourth Circuit agreed with the district court that the plaintiff had not sufficiently pleaded its claim to plausibly establish that either Spartacus or Primerose were alter egos of Kalogiratos or its related entities.The court held that the plaintiff’s amended verified complaint failed to plead sufficient facts supporting its alter ego claims to allow Spartacus and Primerose to frame a responsive pleading and that the district court’s vacatur and dismissal was proper based on the plaintiff’s failure to state a claim upon which relief could be granted. Vitol, S.A. v. Primerose Shipping Co., 708 F.3d 527, 548-49, 2013 AMC 648, 678 (4th Cir. 2013).