Veiled Threats: Will the Second Circuit Hamstring Alter-Ego Claims by Applying Foreign Law?

David R. Maass | Note

Blue Whale Corporation (Blue Whale) entered into a charterparty with Grand China Shipping Development Company (Grand China), a Chinese company, in May 2011. The charterparty provided that Blue Whale would transport 250,000 metric tons of iron ore from Brazil to China on Blue Whale’s Liberian-registered vessel. Blue Whale alleged that Grand China failed to pay the agreed freight and held the vessel and its cargo, pending payment. The carrier further alleged that it suffered more than $1 million in damages as a result. Blue Whale submitted its claim against Grand China to London arbitration according to the charterparty’s arbitration clause.

In March 2012, Blue Whale filed a complaint in the United States District Court for the Southern District of New York. As security for its expected arbitration award, Blue Whale sought to attach the property of another Chinese company, HNA Group Company (HNA), which Blue Whale alleged was Grand China’s corporate alter ego. The district court issued an order authorizing the attachment of HNA’s assets, and HNA moved to vacate the order. The district court held that English law applied because of the charterparty’s choice-of-law provision and that Blue Whale’s alter-ego claim failed under English law; therefore, the district court vacated the attachment order. Blue Whale appealed. The United States Court of Appeals for the Second Circuit reversed and held that under maritime choice-of-law principles, federal common law applied to Blue Whale’s alter-ego claim. Blue Whale Corp. v. Grand China Shipping Development Co., 722 F.3d 488, 498-500, 2014 AMC 145, 152-61 (2d Cir. 2013).