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ADMIRALTY LAW - ANOTHER WAY IN: SECOND CIRCUIT GRANTS ADMIRALTY JURISDICTION TO FORWARD FREIGHT AGREEMENTS - d'Amico Dry, Ltd. v. Primera Mar. (Hellas), Ltd.

In the same stroke as it created the Supreme Court, Congress granted original subject matter jurisdiction to the courts to hear all maritime disputes. (1) Courts have consistently answered the question of whether or not a maritime contract is enforceable in the United States under admiralty jurisdiction. (2) The prima question before the Second Circuit in d'Amico Dry, Ltd. v. Primer a Mar. (Hellas), Ltd.? centered around the enforceability of a non-maritime contract as it pertained to two shipping entities. (4) The Second Circuit held that the Forward Freight Agreement (FFA) between the parties was subject to admiralty jurisdiction and thus a case on the merits should be heard by the Southern District Court of New York. (5)

At the time leading up to and during the litigation between these two parties, the plaintiff-appellant, d'Amico Dry, Limited (Plaintiff), was involved primarily in the dry bulk shipping market. (6) The defendant-appellee, Primera Maritime (Hellas) Limited (Defendant), is a ship management company incorporated in Liberia. (7) In September 2008, the parties entered into a FFA (d'Amico/Primera FFA) in order to potentially profit from fluctuation in the freight futures market. (8) The FFA market is essentially based on an index (BPI) published by the Baltic Exchange in London, and trades on the market do not necessarily involve any actual maritime activity. (9)

According to the decision in the original suit, the district court concluded that the FFA between the parties was a derivatives agreement and had no direct bearing on either company's actual maritime business. (10) The 2008 financial crisis caused a significant aftershock that affected numerous financial markets, including the FFA derivatives and futures market. (11) Specifically, the 2008 crash left Defendant insolvent, and thus they were forced to default on payments owed to Plaintiff. (12) As a result, without any possible recourse from a third-party clearinghouse, Plaintiff sought and received a judgment from the High Court of Justice in England. (13) Following the English judgment, Plaintiff then sought to enforce the d'Amico/Primera FFA in the Southern District of New York, which was denied for lack of subject matter jurisdiction. (14) Plaintiff then appealed the decision to the Second Circuit Court of Appeal, and the Second Circuit then vacated the decision of the district court and remanded for further proceedings. (15)

From a historical perspective, the Judiciary Act of 1789 significantly narrowed the jurisdiction of admiralty courts. (16) The Supreme Court initially limited the application of admiralty jurisdiction to cases specifically citing some type of injury incurred on the water or in specific reference to a vessel. (17) Traditionally, admiralty cases revolved around disputes where the potential damages were physical vessels or cargo. (18) Despite this focus on physical aspects of maritime activities, the early federal admiralty courts often entertained contract disputes, but were primarily focused on criminal actions that had occurred on the ocean or on waterways of some variation. (19)

Federal courts typically limited application of admiralty jurisdiction to tortious or criminal claims that occurred in the course of maritime activities. (20) It is well settled that the grant of admiralty authority stems from both Article III of the United States Constitution as well as Title 28 of the United States Code [section] 1333(f). (21) It is a far more simple analysis in the case of a maritime tort case to determine whether or not the United States can enforce a foreign judgment. (22) In contrast, where the dispute centers around a breach of contract claim, the analysis then turns to whether or not the agreement in question was maritime in nature. (23)

Following this proposition, courts analyzing these types of dispute have attempted to develop tests in order to determine the nature of the agreement as it relates to maritime commerce. (24) This jurisdictional focus delineated a departure from the normal "form" analysis of maritime contract disputes and choice of law selection litigation. (25) Courts are indeed trending away from requiring a showing of tangible connections to real maritime activity and more so determining maritime jurisdiction based off of the purported benefit to the actor's maritime commercial interests. (26) Furthermore, courts have disregarded the fact that some of these financial instruments involve third parties that have no role in the shipping or maritime industries. (27)

In d'Amico Dry, Ltd. v. Primera Mar. (Hellas), Ltd., the Second Circuit construed the d'Amico/Primera FFA as subject to maritime jurisdiction due to an analysis of the character and nature of the agreement. (28) The Court repeatedly highlighted the language from precedent dictating that the principal objective of the constitutional grant was to protect maritime commerce. (29) In support of this line of reasoning, the Court noted that within the d'Amico/Primera FFA itself, and in prior proceedings between the parties that a multitude of vessels had been attached as collateral. (30) Following this logic, the Court suggested that this fact alone creates an inference that the contract was subject to maritime jurisdiction. (31) The Court further bolstered its position by analogizing similar past decisions granting federal maritime jurisdiction to maritime insurance contracts. (32) The primary concern with the district court's ruling centered around its inconsistency, as an FFA could be used for hedging and additional valid purposes. (33) Furthermore, the Second Circuit starkly disagreed with the proposition that the contract or company involved had to mention specific effects on actual shipping vessels to qualify for maritime jurisdiction. (34)

The decision in d'Amico Dry, Ltd. v. Primera Mar. (Hellas), Ltd. significantly broadened the umbrella of maritime jurisdiction by construing the d'Amico/Primera FFA as subject to maritime jurisprudence. (35) This decision signaled an important furthering of precedent, allowing a foreign judgment not made under maritime law to be enforced in a United States court under maritime jurisdiction. (36) The subsequent litigation will likely be increased given the range of agreements that could potentially fall under the umbrella of admiralty law. (37)

Despite the departure from older precedent construing FFAs, the Second Circuit followed the spirit of maritime jurisprudence by allowing enforcement of generally land-based contracts. (38) In large part, this decision follows logically, although in a strict reading of the d'Amico/Primera FFA mentions little to nothing in reference to physical aspects of the shipping industry. (39) It does have an indirect but vital effect on the shipping industry at large, as well the individual parties involved. (40)

The holding in this case demonstrates a real departure from precedent not only in its construction of FFAs but also in a departure from the "case-by-case" analysis used in prior decisions. (41) The Court also highlighted Plaintiffs identity as an active member of the shipping industry to further its characterization of the agreement. (42) Instead of an analysis on the putative benefits to the physical shipping market aspects, now the analysis will turn on relation to the effect on maritime commerce. (43) The primary issue at hand in this case was the enforcement of a foreign judgment in the American court system under maritime jurisdiction. (44) The Second Circuit's decision in d'Amico Dry, Ltd. was appropriate given the natural progression of maritime jurisprudence as being inclusive of most any contract relating to the maritime industry. (45)

In closing, the Second Circuit has correctly concluded that admiralty jurisdiction should be applied to this case. Maritime jurisdiction has traditionally been applied to all claims either based on maritime laws, or arising out of a principal objective to further maritime commerce. This was clearly the primary purpose of the d'Amico/Primera FFA, therefore, granting admiralty jurisdiction to FFAs was proper.

(1.) See U.S. CONST, art. Ill, [section] 2, cl. 1 (granting power to courts to hear cases regarding maritime disputes). Article III, [section] 2 states in pertinent part:
The judicial Power shall extend to all Cases, in Law and Equity,
arising under the Constitution, the Laws of the United States, and
Treaties made, or which shall be made, under their Authority;--to all
Cases affecting Ambassadors, other public Ministers and Consuls;--to
all Cases of admiralty and maritime Jurisdiction;--to Controversies to
which the United States shall be a Party;--to Controversies between two
or more States;--between a State and Citizens of another
State;--between Citizens of different States;--between Citizens of the
same State claiming Lands under Grants of different States, and between
a State, or the Citizens thereof, and foreign States, Citizens or
Subjects.


Id. See also Penhallow v. Doane's Adm'rs., 3 U.S. 54, 54 (1795) (holding admiralty courts have authority to enforce judgments issued by foreign counterparts). The dispute in Penhallow centered around a judgment awarding damages due to a ship that had been captured by licensees, privateers, of the United States government. Id. The judgment was enforced by the New Hampshire District Court, which had recently been granted admiralty jurisdiction by Congress. Id. at 56-57. When the jurisdictional authority of the district court was called into question, the Supreme Court accepted the case to reinforce the authority of the newly formed district court. Id. The complainants had no other capable remedy available to them, and thus a court sitting in admiralty was the appropriate venue. Id. See also S. Pac. Co. v. Jensen, 244 U.S. 205, 215-16 (1917) (holding all federal admiralty courts should apply admiralty laws uniformly). The holding in Jensen restated the general rule in admiralty jurisdictional questions, that federal admiralty jurisdiction served the purpose of promoting consistency and uniformity in the application of maritime laws. Id.

(2.) See 28 U.S.C. [section] 1333(1) (granting federal courts subject matter jurisdiction over maritime contract disputes). The statute dictates that original jurisdiction is granted to the district courts to review "[a]ny civil case of admiralty or maritime jurisdiction, 'saving to suitors in all cases all other remedies to which they are otherwise entitled.'" Id. See also Walter M. Schey, Note, Federal Jurisdiction and Admiralty: Federal Jurisdiction of Equitable Maritime Claims, 47 CAL. L. REV. 948, 951 (1959) (describing historical background of maritime jurisdiction in United States). Entry into the federal court system can be achieved in a number of ways. Id. at 949-50. In some older cases, the federal courts made use of federal question jurisdiction instead of maritime law to resolve disputes seeking equitable relief. Id. The crux of the issue turns on the scope of the grant in Article III of the U.S. Constitution in contrast with the grant in 28 U.S.C. [section][section] 1331 and 1333. Id. See also Phillip Michael Powell, The Mixed Up Exercise of Admiralty Jurisdiction Over Mixed Contracts, Namely Umbrella Insurance Policies Covering Shore Side and Sea Side Risks, 20 OCEAN & COASTAL L.J. 1, 4-5 (2015) (outlining differences between English and American admiralty jurisdiction). According to English admiralty law, the determinative factor in extending maritime law to a contract turns upon whether or not the agreement was made on the sea and was to be performed on the sea. Id. at 10. American admiralty jurisdiction instead turns on a more conceptual approach, far less concerned with the form of the agreement. Id. The American thought process is more concerned with the subject matter of the agreement and its relation to maritime activity or commerce. Id. Over the years, the test has grown from the stringent requirements of its English predecessor, to a rather tenuous connection to shipping aspects. Id. at 11. Powell references the Supreme Court's holding in Kossick v. United Fruit Co., 365 U.S. 731 (1961), where the Court expanded the scope of admiralty jurisdiction to transactions that in any way related to ships or vessels some aspect of maritime commerce. Id.

(3.) 886 F.3d 216 (2nd Cir. 2018) (holding due to nature of agreement and Plaintiffs status as shipping company, admiralty jurisdiction applied).

(4.) See d'Amico, 886 F.3d at 220 (concluding that sufficient proof existed for Plaintiff to assert admiralty jurisdiction). Contracts between the parties centered around hedging the risk of a substantial fluctuation on the spot market for individual shipping contracts with third parties. Id. The District Court for the Southern District of New York held that there was insufficient evidence to conclude that the contract was maritime in nature. Id. The judgment that the Plaintiff secured in England was based off of non-maritime theories of law, thus tending toward a conclusion that the agreement was non-maritime in nature. Id. at 219. See also Flame S.A. v. Freight Bulk Pte. Ltd., 762 F.3d 352, 352 (4th Cir. 2014) (construing Forward Freight Agreement dispute subject to maritime law). In 2008, Flame S.A. and a subsidiary of Freight Bulk, Industrial Carriers, Inc. entered into an Forward Freight Agreement. Id. at 355. Shortly after, in October 2008, Industrial Carriers, Inc. voluntarily petitioned for bankruptcy in Greece. Id. In November 2010, Flame S.A. secured a judgment against Industrial Carriers, Inc. in England. Id. After obtaining this judgment, Flame S.A. initiated proceedings in district court in the United States. Id. Then, Flame S.A. attempted to attach a vessel belonging to Industrial Carriers, Inc. as an in rem action which was denied by the district court on the grounds that maritime jurisdiction did not apply. Id. at 356. The Fourth Circuit disagreed, and held that Forward Freight Agreements were subject to maritime jurisdiction, and thus the vessel could be attached. Id.

(5.) See d'Amico, 886 F.3d at 218 (vacating judgment of Southern District of New York remanding for further proceedings). The Court decided to rule specifically on the matter of jurisdiction. Id. After construing the Forward Freight Agreement (FFA) as being subject to maritime jurisdiction, the Court then remanded proceedings back to the Southern District of New York to decide if the judgment should be enforced. Id. The Southern District stated that because the judgment in the English court was not of a maritime nature, they could not enforce it under authority of maritime jurisdiction. Id. at 219. See also Flame S.A., 762 F.3d at 352 (holding FFAs between shipping companies were maritime contracts). In this particular dispute, the two entities involved had entered into an FFA prior to 2008. Id. Industrial Carriers, Inc. began to feel the pressure of the global financial crisis in September of 2008, forcing them to default on the FFA with Flame S.A. Id. at 355. Industrial Carriers, Inc. had voluntarily petitioned for bankruptcy in Greece in October of 2008, precipitating the eventual default on the FFA. Id. In November 2010, Flame S.A. then moved for and successfully received a judgment against Industrial Carriers, Inc. in an English court. Id. Following the judgment in the English court, Flame S.A. then initiated proceedings against Industrial Carriers, Inc. in the Southern District of New York and the Eastern District of Virginia. Id. Flame S.A. had filed a verified complaint seeking an Order of Attachment for a vessel owned by Industrial Carriers, Inc. to satisfy the judgment. Id. at 356. The district court denied this motion on the grounds that English law would determine the jurisdictional inquiry, and resulted in a determination that FFAs were not maritime contracts and thus the court did not have the authority to attach the vessel. Id. The Fourth Circuit construed the forward freight swaps as pertaining to and in furtherance of maritime transactions. Id. In 2008, Flame S.A. was a shipping company but also involved in the FFA market to hedge against the risk in price fluctuation on the spot market. Id. at 354. Additionally, the Fourth Circuit specifically references the Second Circuit's first decision in d'Amico Dry, Ltd., v. Primera Mar. (Hellas), Ltd., 756 F.3d 151,153-54 (2d Cir. 2014). Id. In doing so, the Fourth Circuit agreed with the Second Circuit's definition of an FFA swap as a maritime contract and subject to maritime jurisdiction. Id.

(6.) See d'Amico Dry Ltd., v. Primera Mar. Ltd., 201 F. Supp. 3d 399 (S.D.N.Y. 2016) (describing nature of plaintiff-appellant's, d'Amico Dry Limited (Plaintiff), operation). Plaintiff is a wholly owned subsidiary of d'Amico International S.A., which is also a subsidiary of d'Amico Societa di Navigazione SpA. Id. at 402. Plaintiff owned approximately thirty dry bulk vessels, while also contracting for ten-year long-term charter for approximately twenty additional ships. Id. See also Ron Wilson, The Principles of the Dry Bulk FFA Market, SING. MGMT. U. (2013) (describing different types of cargo vessels). The types of different vessels employed in the shipping industry differ based on the type of cargo being carried. Id. at 8. For instance, Iron Ore is typically exported from Brazil, Australia, Canada, South Africa, and India. Id. at 13. Iron Ore is carried by Valemax, Cape Size, and Panamax ships. Id. There are normally only two other materials shipped by dry bulk carriers, coal and grains. Id. at 8. These are all relevant factors in determining the pricing or values shipping rates for FFA values. Id. at 16. Shippers determine pricing by valuating the daily costs of hiring vessels as well as the freight applied to carrying cargo from a discharge port to its destination. Id. at 19. After this calculation, companies enter into a 'Contract of Affreightment' typically a charterer and owners of the cargo involved at an agreed upon rate and terms. Id.

(7.) See d'Amico, 201 F. Supp. 3d at 402 (stating defendant-appellee, Primera Maritime Limited (Defendant), status at time prior to parties entering agreement). A major consideration when evaluating whether or not a contract is maritime in nature is an analysis of the parties' involvement or lack thereof in maritime commerce. Id. at 408. See also d'Amico Dry, Ltd., 886 F.3d at 218 (holding FFA between Plaintiff and Defendant maritime in nature due to roles in maritime industry). The two parties involved in this dispute entered into an FFA towards the end of 2008, eventually resulting in Defendant defaulting on the agreement. Id. The Second Circuit was convinced that the principal of the FFA was to further Plaintiff's shipping business. Id. Using the principal objective test, the Second Circuit concluded that the FFA was a maritime contract and thus subject to federal jurisdiction. Id. As a result of this holding, the Court then vacated the previous ruling from the district court, and remanded the case back for an additional hearing not inconsistent with their ruling. Id.

(8.) See d'Amico, 201 F. Supp. 3d at 404 (detailing nature of FFA between parties). The actual agreement (d'Amico/Primera FAA) between the parties provided that Plaintiff would sell freight futures to Defendant for 45 days within January, February, and March 2009. Id. The settlement price was calculated to, "[USD]55,750 per day and was measured against the Baltic Panamax Index Average for certain routes." Id. In the case that the freight rates dropped below the Baltic Panamax Index Average, Defendant would have to pay Plaintiff the difference between the Baltic Panamax Index rate at the time of the settlement and the contract price. Id. See also Mary Hall, How Companies Use Derivatives to Hedge Risk, INVESTOPEDIA (Mar. 5, 2018, 10:38 AM), https://www.investopedia.com/trading/using-derivatives-to-hedge-risk (explaining basics of hedge strategies). The basic hedge strategy is to offset risk of spot market price fluctuation. Id. Hedging by use of a derivatives swap, an entity can essentially "lock in" a price for the duration of the agreement. Id. By doing this, an entity prevents the potential loss from the price in their particular market going down. Id.

(9.) See d'Amico, 201 F. Supp. 3d at 403 (describing intricacies of FFAs). An FFA is essentially a paper swap with a fixed price, quantity and time period. Id. The agreements are comprised of either a specific route or a grouping of routes, and speculate as to the future rates as proffered by a specific index or indices. Id. There is no requirement that an FFA contain any physical maritime activity, in actuality there is often only an attenuated relation to a physical ship or management thereof. Id. See also Donald J. Kennedy & Richard T. Califano, Freight Derivatives Explained, OLYMPIC VESSELS, http://www.olympicvessels.com/derivatives.php (last visited Sept. 20, 2018) (explaining derivatives market and associated strategies). There are two variations of FFAs, futures and derivatives. Id. The futures market is promulgated by a clearinghouse, and thus protects the parties to the agreement in the event that a party defaults on payment. Id. A derivatives FFA contains less liquidity and renders the counterparty at risk in the case of default. Id. Derivative FFAs are also referred to as "swaps," and are negotiated privately at arms-length between two parties, loosely regulated by the International Swaps and Derivatives Association Master Agreement and Schedule. Id. The International Swaps and Derivatives Association Master Agreement essentially developed a standard format for these private agreements and the associated negotiations that are included in such an agreement to provide some guidance for these types of transactions, commonly referred to as "over the counter" swaps. Id. See also Wilson, supra note 6, at 43 (describing various points of emphasis in relation to FFAs). The Baltic Panamax Index (BPI) comes out every business day reporting the physical freight rates for the specific voyage or time charter routes. Id. The Index compiles the average prices by accepting submissions from various established shipping members on an independent basis, meaning no individual shipper has a vested interest in submitting misleading prices. Id.

(10.) See d'Amico, 201 F. Supp. 3d at 404-05 (describing minutia of agreement as it pertains to maritime activity). According to the opinion authored by Justice Koeltl, the d'Amico/Primera FFA was an "over the counter" derivative contract without any reference to a ship, charter, or cargo of any kind. Id. The d'Amico/Primera FFA was comprised of a group of Panamax routes, with the rates determined by the Baltic Exchange and governed by English law. Id. See also Wilson, supra note 6, at 47-48 (describing motives behind entering into FFA). According to Wilson, the most common use of an FFA is to hedge against price fluctuations in the dry bulk freight market. Id. at 47. Dry bulk shipping companies frequently take on individual charters, and once physical delivery has occurred, are open to losses based on potential drops in the market prices. Id. Shipping companies, therefore, decide to enter into a FFA in order to mitigate some of that potential loss and not pay out of pocket for that cost. Id. Another purpose for entering into an FFA contract is for speculation. Id. This approach is done by either buying or selling a contract based on projected rates in the future. Id. Most commonly, speculators are participants that lack physical freight in the market place to cover potential losses. Id. at 48. Participants that have physical freight assets are more commonly going to hedge instead of speculating. Id. See also Jean-Paul Rodrigue, Gustaaf De Monie & Theo Notteboom, Economic Cycles in Maritime Shipping and Ports: The Path to the Crisis of 2008, RESEARCHGATE (Jan. 2009), https://www.researchgate.net/publication/229045634_Economic_Cycles_in_Maritime_Shipping_and_Ports_The_Path_to_the_Crisis_of_2008 (explaining factors leading to global financial crisis). There were a few macroeconomic events that occurred between 2008 and 2009 and culminated in the resulting economic crisis. Id. at

7. One such event was that the United States had incurred a massive amount of debt, which weakened the American dollar to a dangerous level. Id. In response to this devaluation, the United States became an attractive option for foreign financial institutions seeking to obtain some of that debt, which could not in reality be paid. Id. at

8. An other trigger in the global financial crisis was the sub-prime mortgage bubble, and the subsequent collapse. Id. The United States government also promulgated several recession delay tactics, causing a misleading temporary boom. Id. This temporary boom encouraged overstocking with the expectation that prices would inflate; however, this of course did not occur, due to the real estate bubble bursting, and resulted in drastic effects on global markets. Id.

(11.) See d'Amico, 201 F. Supp. 3d at 404-05 (stating "[Defendant] suffered financially in 2008"). The financial crisis in 2008 collapsed the freight market, and subsequently caused the FFA market to crash as well. Id. at 405. Defendant was thus unable to collect on moneys it was owed, nor was it able to pay settlement prices on subsequent FFA derivatives. Id. See also Rodrigue, De Monie & Notteboom, supra note 10, at 5 (detailing connection between 2008 global financial crisis and shipping derivatives). Initially, the relationship between the financial and shipping worlds related primarily to obtaining the capital necessary to build and maintain ships. Id. With increasing globalization as well as increasing competition came the need to hedge against the risk of market volatility. Id. at 6. Shipping derivatives have become attractive instruments in the global financial market due to their inherent volatility. Id. This intertwinement between financial markets and the physical freight market created significant issues for shippers during and after 2008. Id. Oversimplified, the United States accrued a massive imbalance of debt, and to mitigate some of that debt they sold it to foreign financial institutions under the premise the real estate market would inflate and allow repayment. Id. at 8. Instead, the sub-prime loans deflated the real estate market, and forced foreign banks to reprice the underlying debt assets purchased from the United States, causing many to become insolvent. Id. See also Eric Helleiner, Understanding the 2007-2008 Global Financial Crisis: Lessons for Scholars of International Political Economy, 14 ANN. REV. POL. SO. 67, 71-73 (2011) (describing precipitant events leading to financial collapse). In large part, the global financial crisis was owed to mortgage-backed securities that were extremely popular in the United States in the early 2000s. Id. at 70. Mortgage-backed securities were securities comprised of large groups of subprime loans, when those loans suddenly and simultaneously defaulted, the mortgage-backed securities market behind it also collapsed. Id. Around the same time that these mortgage-backed securities were being converted into Collateralized Debt Obligations, there was a significant influx of foreign capital into the U.S. market structure. Id. at 77. A multitude of countries in Asia, Europe, and the Middle East had experienced capital surpluses, and were attracted to the debt in existence in the United States. Id. This inflow of foreign capital allowed U.S. financial institutions to keep the cost of credit down, and essentially mask the impending crash. Id.

(12.) See d'Amico, 201 F. Supp. 3d at 401 (describing Defendant's commencing liquidation proceedings in 2010). The court highlights Defendant's filing for bankruptcy to illustrate that Defendant was unable to pay the outstanding debt it owed to Plaintiff. Id. As result of the default, Plaintiff then pursued various assets of Defendant in order to settle the judgment. Id. See also AMIR ALIZADEH, KONSTANTINA KAPPOU, DIMITRIS TSOUKNIDIS, & ILLIAS VISVIKIS, Liquidity Effects and FFA Returns in the International Shipping Derivatives Market, LOGISTICS & TRANSP. R. (2015) (outlining liquidity and FFA returns). Within the dry bulk FFA market, there are essentially two types of agreements entered into. Id. at 8. Parties that enter into such agreements do so either at arms-length "over the counter" or through a clearing house. Id. Prior to the global financial crisis, nearly all FFAs were executed as "over the counter" agreements. Id. After 2009, nearly 99.5% of all FFA transactions were executed through a third-party clearing house. Id. Executing these agreements through a clearing house allows for more certainty in the transaction. Id. Conversely, FFAs executed as "over the counter" agreements are less reliable as individual parties would then be responsible for collecting moneys owed in the event of a default. Id.

(13.) See d'Amico, 201 F. Supp. 3d at 401 (explaining procedural posture of case). In September 2009, Plaintiff received a judgment from the High Court of Justice in England for Defendant's breach of the d'Amico/Primera FFA. Id. It is integral to the holding in the New York case that the judgment issued in England was based on contract law principals and not under admiralty nor maritime law. Id. See also William R. Casto, The Origins of Federal Admiralty Jurisdiction in an Age of Privateers, Smugglers, and Pirates, 37 AM. J. OF LEGAL HIST. 117, 120 (1993) (outlining relevant distinctions in obtaining maritime jurisdiction). There is a simple analysis when a movant seeks to attach the value of a ship or cargo vessel to a case and does not seek an in personam remedy. Id. at 141. The typical analysis of whether or not to extend maritime jurisdiction to a particular case turns in part on the type of legal recourse sought by the moving party. Id. The primary concern in the early admiralty courts had little to do with a dichotomy between in personam and in rem, rather the relative exclusive right of the federal courts to hear admiralty cases, both civil and criminal. Id. at 143.

(14.) See d'Amico, 201 F. Supp. 3d at 401 (holding Plaintiff's complaint lacked sufficient grounds for admiralty jurisdiction). The Southern District Court of New York was unpersuaded by Plaintiff's argument that the FFA was a maritime contract due to its principal objective of hedging against risks inherent to shipping industry. Id. See also Wilson, supra note 6, at 16 (describing various points of emphasis in relation to FFAs). The primary reason to enter into either an FFA futures or derivatives contract is to hedge. Id. at 47. The need to hedge in the dry bulk market stems from the likely results after a cargo agreement comes to its completion date. Id. For instance, if there was a year-long agreement for cargo shipping, the price for the duration of that year would be locked in. Id. When that agreement terminates or completes, that individual shipper is then subjected to the fluctuation in market prices. Id. Thus, it becomes necessary to either buy or sell FFAs in order to mitigate some of the potential losses inherent due to the market price fluctuations. Id. In simple terms, a shipping company (meaning a company that owns ships) would likely want to sell an FFA in case individual shipping contracts go down during a pre-established period of time. Id. at 48. Conversely, the shipment managers or charter firms would look to buy FFAs in the case that the market price increases to a disadvantageous rate. Id. See also Hall, supra note 8 (explaining basics of hedge strategies). To properly mitigate losses due to a price increase in a variable commodity, or foreign exchange rate, entities will participate in the use of a derivative swap or trade. Id. The hedge operates by setting a contract price with a third-party for a set period of time. Id. If the price of said commodity decreases over the period, the entity seeking to hedge will "win" by receiving revenue from the future locked-in rate in the contract, instead of the now decreased price. Id. Of course, this type of instrument does run the risk of the price increasing, and thus a portion of their revenue would then be designated to pay the counterparty the remaining balance. Id. Hedging presents a way for entities in certain industries to manage their risk of price fluctuation. Id. It is important to note that derivatives or futures are not free, and will still cost the company money, but will function to prevent against major or devastating losses. Id.

(15.) See d'Amico, 886 F.3d at 216 (holding due to nature of agreement and Plaintiff's status as shipping company, admiralty jurisdiction applied). Despite the facts as determined by the district court, the Second Circuit construed the FFA as having to do with the shipping activities of both parties and thus sufficient for admiralty jurisdiction under 28 U.S.C. [section] 1333(1). Id. at 218. Prior to and during the underlying events that precipitated this lawsuit, Plaintiff had approximately thirty vessels under its auspices. Id. at 218. Included in this total were approximately 12 "Panamax" vessels. Id. at 218-19. These Panamax ships are dubbed so because they consist of the maximum dimensions allowed in the Panama Canal. Id. "According to [Plaintiffs] 2008 Directors' Report, the company used FFAs 'to mitigate movements in the 'physical market' that could harm its business." Id. at 218. See also ROBERT FORCE & NIELS F. JOHNSEN, ADMIRALTY AND MARITIME LAW 9-10 (Kris Markarian ed., Fed. Jud. Ctr. 2d ed. 2013) (1999) (describing various requirements for obtaining admiralty jurisdiction). There are two essential elements required to obtain maritime or admiralty jurisdiction. Id. The first requirement is that the incident in controversy must have occurred on or in navigable waters. Id. at 6. The following requirement relates to whether or not the incident had a substantial effect on maritime commerce. Id.

(16.) See Casto, supra note 13, at 120 (explaining origins of Admiralty jurisdiction). According to Casto, the individual primarily responsible for the original construction of the purview of admiralty jurisdiction was Edmund Randolph. Id. at 118. Randolph had issued a report shortly following the Judiciary Act of 1789 construing Admiralty jurisdiction as being limited to four distinct areas; condemnation of lawful prizes during times of war, criminal sea law, water taxes, specific performance claims for seamen's wages etc. Id. at 120. See also Federal Judiciary Act of 1789, [section] 9, 1st Cong. (1st Sess. 1789) (granting exclusive maritime jurisdiction to federal courts). Stating in relevant part:
And be it further enacted, That the district courts shall have,
exclusively of the courts of the several States ... and shall also have
exclusive original cognizance of all civil causes of admiralty and
maritime jurisdiction, including all seizures under laws of impost,
navigation or trade of the United States, where the seizures are made,
on waters which are navigable from the sea by vessels of ten or more
tons burthen, within their respective districts as well as upon the
high seas; saving to suitors, in all cases, the right of a common law
remedy, where the common law is competent to give it; and shall also
have exclusive original cognizance of all seizures on land, or other
waters than as aforesaid, made, and of all suits for penalties and
forfeitures incurred, under the laws of the United States.


Id. Section 9 of the Judiciary Act created several areas of concurrent and sole jurisdiction for federal and state admiralty courts. Id. The "saving to suitors" clause in this section allowed for moving parties to obtain a common law remedy in an admiralty court if said area of common law were more applicable to remedy the issue at bar. Id.

(17.) See Penhallow v. Doane's Adm'rs, 3 U.S. 54, 80 (1795) (affirming authority of admiralty court). The Supreme Court left the decision to the states as to whether to apply admiralty law to a dispute. Id. The fact pattern is rather difficult to follow but essentially amounts to an award of a ship as damages for violation of an agreement. Id. at 81. The real crux of this case is that it allowed for an admiralty court to enforce foreign judgments in American courts. Id. at 54. The lengthy procedural history is owed to the termination of certain courts and their replacement by several acts of Congress. Id. at 54-55. The facts preceding litigation arose due to a captain of a ship owned by Penhallow under the authority of Congress captured a ship. Id. at 81. The action ensued when owners of the captured ship sought to recover said ship claiming that the New Hampshire District Court had no authority to grant such an award to the captors. Id. at 81-82. The Supreme Court eventually got hold of the case and decided that Congress had duly authorized the ship and the creation of the new admiralty courts, and thus admiralty jurisdiction was correctly applied in this case. Id. at 86-87.

(18.) See Casto, supra note 13, at 120 (1993) (detailing "Founding Generation's" fixation on nature of remedy sought by moving party). In the early years of Admiralty jurisdiction, the key distinction between whether state admiralty courts or federal admiralty courts would hear a case had to do with in rem versus in personam process. Id. at 122. "In contrast, every piece of surviving evidence indicates that the Founding Generation's overriding concern was with the substance of the underlying dispute." Id. at 145 (emphasis added). As Casto notes here, the original motivation for admiralty jurisdiction stemmed from procedural concerns and less with the overarching maritime commercial process. Id. at 122. Somewhere along the line, the focus on the dichotomy began to burgeon, and issues of concurrent common law jurisdiction began to blend even further. Id. at 143. In cases of private maritime claims, certain scholars concluded that this jurisdiction should be vested on the basis of in rem jurisdictions, meaning attaching to property of the parties involved. Id. The 'saving to the suitors' clause still allowed for individual claimants to seek a remedy in state court, regardless of concurrent jurisdiction between federal and state courts. Id. at 140. After the enactment of the Judiciary Act, the thought was that cases of a major national interest would be reserved for the federal courts. Id. As aforementioned, the suitor's clause still allowed for claimants to pursue these claims in state admiralty courts. Id. at 156.

(19.) See Casto, supra note 13, at 150 (detailing significant majority of maritime cases heard in federal courts were criminal in nature). Casto addresses the contrast between the private civil litigation in federal admiralty courts and the number of criminal actions. Id. "These cases ran the gamut from assault and battery to piracy." Id. The bulk of the caseload in the federal admiralty courts dealt with prize cases in the years following the French Revolution. Id. These courts did also hear a number of civil cases for lost wages from seamen looking to collect from their respective captains. Id. at 150-51. Casto goes as far to imply that the author of the Judiciary Act of 1789 did in fact limit the scope of exclusive federal admiralty jurisdiction. Id. at 144. Casto states that the authors of the Act designated all crimes and issues dealing with prizes from capture to the federal courts. Id. at 121. Casto does note that this language is not found expressly in the Act itself, however it is integral to the implementation of admiralty jurisdiction into the federal court system. Id. See also Penhallow, 3 U.S. at 54 (affirming New Hampshire District Court's decision in admiralty case). The challenge in this particular case was to the capability of a New Hampshire District Court to hear an admiralty prize case. Id. at 54-55. The Supreme Court affirmed the award of the prize (a ship) holding that the district court had exercised a proper authority of federal admiralty jurisdiction. Id. at 120.

(20.) See Norfolk Southern Ry. v. James N. Kirby, Pty Ltd., 543 U.S. 14, 23 (2004) (providing dictum determining whether federal district courts had admiralty jurisdiction). In this case, a freight forwarder issued a "bill of lading" requiring shipment of goods by sea to be finished on land. Id. The shipment company then issued an additional bill of lading to a railroad company to finish the delivery of the goods inland. Id. Both "bills of lading" established limitations of liability should the cargo be lost or damaged. Id. At some point during the shipment period, the train derailed, causing the cargo to be lost. Id. The Supreme Court stated that maritime law applied to this case even though a significant portion of the agreement was to be performed on land. Id. To some degree, maritime law controlled enough aspects of either bill of lading and thus could serve as a basis for upholding the limited liability of the freight forwarder. Id. The Second Circuit relied on the dictum in the Kirby decision, most notably the analysis of whether the disputed contract was either maritime or nonmaritime. Id. The Kirby court explicitly dictates that there does not exist a clear line rule on maritime or nonmaritime contracts as opposed to tortious or criminal claims. Id. See also Powell, supra note 2, at 2-4 (2015) (describing transitions in admiralty jurisdiction jurisprudence). Prior to the ruling in Kirby, there was a two-part test to extending admiralty jurisdiction to a "mixed contract." Id. at 2. The first analysis was to determine if the nonmaritime aspect of the contract was merely incidental to the overall agreement. Id. The second analysis was to determine if nonmaritime portion of the contract could be separated from the maritime aspect. Id. This analysis was pushed to the side in the Kirby case, where the Court decided to extend admiralty jurisdiction to a mixed contract where the maritime aspects were a substantial part of the agreement. Id. The dispute involved portions of the contract that called for transportation of goods over sea and then transported by train over land. Id. at 3. Powell argues that the Supreme Court should have opted to construct a bright line rule for geographic determinations in admiralty jurisdiction. Id. The Court should have limited its ruling in Kirby to apply simply to mixed contracts that extend service to on land considerations by virtue of "bills of lading." Id. at 14. Powell further argues that umbrella insurance policies that cover aspects of both land and sea should also receive admiralty jurisdiction under the theory that these policies are also mixed contracts. Id.

(21.) Compare U.S. CONST, art. III, [section] 2, cl. 1 (granting power to courts to hear admiralty disputes) with 28 U.S.C. [section] 1333(1) (2012) (granting original admiralty jurisdiction to federal courts). The United States Constitution grants a very broad power to the federal courts to hear cases based on admiralty law or maritime claims. U.S. CONST, art. III, [section] 2, cl. 1. See also Schey, supra note 2, at 951 (describing difference between art. III, [section] 2, cl. 1 and 28 U.S.C. [section] 1333(1) (2012)). The grant over maritime disputes from Article III was actually interpreted as broader than the Constitutional grant from [section] 1333. Id. The article discusses the various ways that a maritime dispute can enter the federal court system. Id. Federal question jurisdiction under [section] 1331 is a possibility when the dispute would not be controlled by admiralty law principals. Id. If maritime law is necessary to resolve the dispute, the Plaintiffs best course of action is to seek admiralty jurisdiction. Id.

(22.) See Kirby, 543 U.S. at 23 (describing difference between tortious and criminal admiralty claims as opposed to contract claims under maritime law). The Court in this case held that two separate bills of lading had substantial connections to maritime commerce to warrant application of maritime jurisdiction to the inquiry. Id. Crimes committed on or in international waters settle subject to admiralty jurisdiction. Id. In addition to criminal cases occurring in the maritime context, tortious claims stemming from maritime transactions or operations also are relatively simple to resolve under admiralty jurisdiction. Id. at 23. In contrast, when the contract in question contains some aspect of land and sea, the inquiry becomes more clouded. Id.

(23.) See id. at 23-24 (detailing test for maritime commercial activity). The Court construed admiralty jurisdiction as pertaining to any contract referencing nearly any aspect of maritime commercial activity. Id. at 23-24. "To ascertain whether a contract is a maritime one, we cannot look to whether a ship or other vessel was involved in the dispute, as we would in a putative maritime tort case." Id. at 23. See also North Pacific S. S. Co. v. Hall Bros. Marine Ry. & Shipbuilding Co., 249 U.S. 119, 123-29 (1919) (requiring reference to maritime transaction for admiralty jurisdiction to attach). In this case, a shipbuilder initiated a lawsuit to recover unpaid balance on materials and services rendered to a steamship company. Id. at 221. The steamship company challenged the suit on the grounds that maritime jurisdiction was inapplicable because the repairs occurred on land and not on the ocean. Id. at 221-22. The Supreme Court disagreed with this narrow construction, holding that the agreement was maritime in nature as it had some connection to physical aspects of maritime commerce, including a vessel that was to be repaired, regardless of whether the repairs took place on land or in the sea. Id. See Kirby, 543 U.S. at 23. The Court in Kirby utilizes the distinction between nonmaritime transactions and maritime transactions to establish a separate basis for federal jurisdiction independent of federal question or diversity jurisdiction. The Court states that there is no necessity to determine if a physical ship was actually involved in the dispute. Id. The Court also declined to utilize the place of contract formation nor the performance as controlling to the disposition. Id.

(24.) See Kossick, 365 U.S. 731, 732-41 (1961) (holding agreement for medical costs was maritime in nature). The issue in this case turned on an oral agreement between a seaman and the owner of the vessel the seaman worked on. Id. at 732-33. The Circuit Court applied New York's statute of frauds to invalidate the agreement. Id. at 733. The Supreme Court held that maritime law applied to the case because of the marine aspects, and thus could apply admiralty law which has no provision requiring that a contract for a certain amount had to be in writing. Id. at 741-42. In Kossick, the Supreme Court expanded the umbrella of maritime jurisdiction to include a contract that was essentially dealing with payment of medical services on land. Id. at 737. The Court developed a more comprehensive two-part test to determine whether a contract dispute should be resolved by maritime law. Id. at 735. First, the Court would determine if there was relative to an aspect of maritime activity, and secondly would application of state law disturb the uniformity of admiralty law. Id. In this particular case, the Supreme Court answered both questions in the affirmative. Id. The Court was critical of the Second Circuit's narrow interpretation of the agreement at dispute, stating, "[w]ith respect to the learned judges below, we think that is too narrow a view on the matter." Id. at 737. The principal portion of the Court of Appeals decision that Justice Harlan took issue with was the characterization of the agreement as being based solely on land. Id. Indeed, the obligation to furnish health care by way of a master's certificate to gain admittance to a public hospital transpired entirely on land. Id. The arrangement on a larger scale stemmed from the seaman's role as an employee to a ship owner and thus clearly centered around a maritime transaction. Id. The contract between employer and employee was originally executed and terminated during the seamen's capacity as a participant in maritime commercial activity and thus this dispute could be resolved my maritime law and admiralty jurisdiction. Id.

(25.) See Exxon Corp. v. Cent. Gulf Lines, Inc., 500 U.S. 603, 605-10 (1991) (noting trend towards jurisdictional inquiry into substance over form of contract). The dispute involved in Cent. Gulf Lines, Inc. centered around a requirements contract that Central Gulf Lines eventually defaulted on due to bankruptcy reorganization. Id. at 605. The Court specifically held that a per se bar on agency contracts in terms of admiralty jurisdiction was too narrow an application, and instead instructed lower courts to look to subject matter of the agreement to determine its status. Id. at 60810. The Court in Cent. Gulf Lines, Inc. most importantly overturned the holding in Minturn v. Maynard, 58 U.S. 477 (1855), that held a per se bar on agency contracts on admiralty jurisdiction. Id. at 608. The Court in Minturn considered agency contracts to not be in furtherance of maritime commercial interests and thus not subject to maritime jurisdiction. Id. at 609. The Court in Cent. Gulf Lines, Inc. specifically stated that this holding was in error, and that agency contracts having connection with maritime commercial interests could be considered under maritime jurisdiction. Id. The "fundamental interest giving rise to maritime jurisdiction is 'the protection of maritime commerce.'" Id. (citing Sisson v. Ruby, 497 U.S. 358, 367 (1990)). This oftquoted statement is proffered in the Cent. Gulf Lines decision as well as others as justification for expanding the purview of admiralty jurisdiction to contracts that further maritime commercial interests. Id. The Court in this case was concerned primarily with extending federal jurisdiction to cases that involved aspects of maritime commerce. Id. The issue in Cent. Gulf Lines centered primarily around whether or not certain types of agency contracts were barred from consideration by federal courts under admiralty jurisdiction. Id. at 611. The Court disagreed sharply with past precedent on this matter, concluding that all analyses of maritime contracts should be considered on the basis of subject matter and not merely the form of the contract. Id. The Court specifically held that a per se bar on specific types of agency contracts illserved the basic premise behind the grant of admiralty jurisdiction. Id.

(26.) See Flame S.A., 762 F.3d at 355-61 (holding specific disputed FFAs subject to admiralty jurisdiction). The question posited before the Fourth Circuit in this case stemmed from a judgment won by Plaintiffs in England, and their subsequent attempt to enforce said judgment on solvent American subsidiaries. Id. at 355. Defendants challenged the decision of the lower courts to enforce the judgment action due to the FFA having no relation to delivery of cargo, and could only be settled by an exchange of cash. Id. at 361-62. The court rejected this argument and affirmed the district court's interpretation of the FFAs as not being speculative but rather as a hedge against inherent risks in their shipping businesses. Id. at 362. Perhaps more important to the analysis, is the Court's holding that federal law, rather than foreign law, shall be outcome determinative as to whether or not admiralty jurisdiction is applicable to enforcement of foreign judgments. Id. This would mean that in order to analyze a FFA as being subject to admiralty jurisdiction, federal law will be applied. Id.

(27.) See id. at 354 (stating FFAs contain parties not involved in maritime businesses). Although the court acknowledged that there are aspects of FFAs that contain non-maritime aspects, this particular agreement contained enough maritime commercial aspects to be considered under admiralty jurisdiction. Id. See also Rodrigue, De Monie, & Notteboom, supra note 10, at 6 (explaining factors leading to global financial crisis). FFA futures agreements are typically serviced by a clearing house such as BPI. Id. As the popularity of these instruments has grown, volatility has been introduced and attracted previously disinterested investors from non-shipping markets. Id. See also Kirby, 543 U.S. at 23 (describing Court's determination contracts were maritime in nature). The Court in Kirby reasoned this due to the parties' desire to hedge the inherent risks in their shipping business. Id. at 361. See also Amir Alizadeh et al., Liquidity Effects and FFA Returns in the International Shipping Derivatives Market, LOGISTICS & TRANSP. R. (2015), available at http://centaur.reading.ac.uk/39474/l/Dry%20Bulk%20FFA%201iquidity.pdf (describing broader aspects of global FFA market and development over time). In the FFA market, participants in shipping industry and other third parties commonly utilize FFAs to hedge against shipping market volatility. Id. at 2. By grouping future freight rates into "baskets" shipping entities are able to effectively hedge inherent risks in their capacity as shipping companies by speculating on fluctuation of these baskets at rates set by various third-party exchanges. Id. FFAs were not always proffered through clearinghouses, in fact in their infancy, nearly 90% of all FFA transactions occurred at armslength or over-the-counter. Id. at 8. In response to increased regulation in the global market, including but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act in the U.S., clearinghouses gained a strong foothold in the FFA derivatives market. Id. Resulting in nearly all but 1% of FFA transactions occurring through clearinghouses. Id. This significantly reduced counterparty risk of a default in the transaction, although there were still various liquidity risks involved. Id.

(28.) See d'Amico, 886 F.3d at 224 (holding Southern District of New York's construction of maritime jurisdiction was too narrow). The Court construes the FFA as facilitating maritime commerce, and thus subject to maritime jurisdiction. Id. The primary objective or purpose of an FFA is to hedge against inherent risks in spot freight price fluctuation. Id. Without entering into a hedging contract, it would subject Plaintiff to significant risks in the open market for freight shipping rates. Id. See also Kirby, 543 U.S. at 24-25 (stating that the ultimate inquiry is into the "nature and character" of the agreement). Even more on point, the Court in Kirby was also concerned with the contract's relation to maritime service or maritime transactions. Id. at 25. The dispute in this case centered around an agreement between the captain of a ship and an employee. Id. The contract required some payment of medical services in the result of an injury in the context of the employee's duties on board. Id. The Court concluded that admiralty jurisdiction was still applicable even though the contract or services required were rendered at a hospital on land. Id.

(29.) See d'Amico, 886 F.3d at 222-26 (restating goal of inquiry is to protect maritime commerce). The Court reviewed Folksamerica Reins. Co. v. Clean Water of N. Y., Inc., 413 F.3d 307, 311 (2d Cir. 2005) to illustrate that precedent had already laid the groundwork for their eventual decision. Id. at 223. In holding that the FFA should be treated as maritime in nature, the Court utilized this concept to illustrate that the principal object of the agreement is controlling in such a case. Id. at 224. See also Folksamerica, 413 F.3d at 311 (stating insurance policy fell under maritime jurisdiction). In Folksamerica, a worker was injured while cleaning an oil tanker that was moored. Id. at 309. The insurer filed suit for a declaration that it had no duty to pay because the work had been subcontracted. Id. The Eastern District of New York held that maritime jurisdiction did not apply, and dismissed the case. Id. at 309. The Second Circuit on appeal stated that that the primary purpose and objective of the insurance contract was to protect against maritime risks and provided full marine insurance. Id. at 323-34. In light of this construction, it was error to dismiss the action for lack of admiralty jurisdiction. Id. See also Powell, supra note 2, at 8-10 (2015) (suggesting courts extend admiralty jurisdiction to cover mixed contracts). Powell references the extension in admiralty jurisdiction to mixed contracts, specifically insurance policies that cover both land and sea aspects. Id. Powell notes distinct advantages in landing a case into a federal court applying admiralty law. Id. at 8-9. First, the availability of federal admiralty law means that the statute of frauds does not apply, allowing a larger breadth of oral agreements to be considered in the litigation. Id. Other advantages of an admiralty approach include the ability to attach certain unrelated properties, mainly ships, to the particular judgment, as well as the ability to be heard by just a judge and not have to try the case in front of a jury. Id.

(30.) See d'Amico, 886 F.3d at 223-24 (stating collateral for agreement was most likely vessels). For the usual FFA, a typical collateral would be some combination of real property or shipping vessels. Id. See Kennedy & Califano, supra note 9 (explaining details of freight derivatives market and relevant effects on shipping industry). The actual effect of FFAs has no practical aspect involving ships or vessels therein. Id. Instead, the agreements are structured around the future performance of a predetermined grouping of freight rates. Id. The contracts are cash-settled, at the time end of the "contract period." Id. The basic premise behind entering into such an agreement is to hedge against a decrease in freight rates. Id. By either selling or purchasing FFA derivatives contracts, individual freight companies can mitigate losses from market fluctuation. Id. The FFA market has become more volatile over the years, which in turn has attracted a good number of outside financial institutions. Id. Volatility attracts these third-parties because while volatility does present more risk, it also presents the opportunity for large rewards. Id. Entering into an FFA provides entities with the opportunity to lock in a freight price over a specified period of time, granting some stability at least for the duration of the agreement. Id. In response to the increased activity and need for uniformity in the FFA market, the Forward Freight Agreement Brokers Association formulated a standard template for FFAs. Id.

(31.) See d'Amico, 886 F.3d at 224 (furthering this point by explaining both parties owned vessels capable of being attached). The Court acknowledges that it is customary in FFAs to not require any form of security. Id. at 219. "Each party bore the risk that its counterparty would default." Id. The Court then noted that in separate actions between these parties, Plaintiff had attached vessels to fulfill the debt owed by Defendant. Id. See also Kennedy & Califano, supra note 9 (describing typical standards in FFAs). FFAs are also referred to as 'paper swaps' meaning that there is rarely a physical aspect to the agreements, merely a shuffling of papers. Id. The connection between the FFA and the physical freight market is only tacitly so. Id. The agreements state a group of predetermined freight routes at a predetermined price, and then the parties "bet" on which way the price will go during the contract period. Id. In reality, there is no physical aspect to the agreement, merely a gamble of sorts on the price fluctuation within the basket of freight rates whose prices are set by an index or exchange such as the BPI. Id.

(32.) See d'Amico, 886 F.3d at 225 (holding in regard to FFAs similar to maritime insurance cases). To explain, the Court reasoned that since other circuits had construed maritime insurance contracts as being maritime in nature, so should FFAs. Id. Since the nature of an FFA is to hedge against risks in maritime freight rates, the Court posited that FFAs operate similarly to an insurance policy in mitigating risk of losses. Id. See also Flame S.A., 762 F.3d at 354 (holding FFAs protect maritime commercial interests). The court specifically stated that FFAs serve, "[t]o act as a diversification against the vagaries of future maritime price fluctuations." Id. The analysis of FFAs is similar to the analysis of insurance contracts in that it hedges against inherent risks. Id. See also Wilson, supra note 6, at 16 (describing various points of emphasis in relation to FFAs). Specifically, the real purpose of a shipping company entering into an FFA is to hedge against potential future fluctuations in market prices. Id. By entering into an FFA, a shipping entity mitigates potential losses by setting a locked in price during the period of the FFA. Id. A shipping company that owns a large amount of physical ships would look to sell FFAs as they are long in ship assets and need to offset risk of market fluctuation by making money on selling FFAs. Id. Conversely, shipping managers who own little to none of their own ships, might look to purchase FFAs to buffer a potential loss should the spot freight market prices increase past what they can offer individually. Id. FFAs are traded in months, quarters, and calendars. Id. A calendar is a fixed period of 360 days, quarters are ninety days, and a month being thirty days to streamline the mathematics required. Id. at 60. The basic strategy to a hedge for a shipping entity would be to select a market that the entity is exposed in, like the BPI. Id. Next up is to select a time period for the length of the FFA, then choose a volume or number of days. Id. Finally, the price is set at the market price at the time that the FFA is entered into. Id.

(33.) See d'Amico, 201 F. Supp. 3d at 412 (holding Plaintiff failed to demonstrate purpose of d'Amico/Primera FFA). The Southern District of New York was not convinced that the d'Amico/Primera FFA served the interest of protecting maritime commerce. Id. The court stated that because Defendant did not physically employ ships in the dry or wet bulk shipping market, this agreement could not be considered maritime for admiralty jurisdictional purposes. Id.

(34.) See d'Amico, 886 F.3d at 216 (holding no requirement for participation in physical shipping market for maritime jurisdiction). See also Kennedy & Califano, supra note 9 (explaining details of freight derivatives market and relevant effects on shipping industry). At the inception of the FFA market, the only participants were entities who already participated directly in the shipping industry. Id. As the market expanded, it eventually attracted previously disinterested third parties into the market on a speculative basis. Id. Experts involved in analyzing the FFA market expect the paper value of the FFA market will surpass the value of the physical market it relies upon for said speculation. Id.

(35.) See d'Amico, 886 F.3d at 216 (stating d'Amico/Primera FFA is maritime contract). Taking the identity of Plaintiff as an entity in the shipping business and Defendant as a shipping manager, the purpose of an FFA to hedge, the Court aptly concluded that maritime jurisdiction applied. Id. See also FORCE & JOHNSHN, supra note 15, at (describing requirements for obtaining admiralty jurisdiction). In the case of tort actions, there are two requirements for obtaining maritime jurisdiction. Id. at 5. First, is the "locus" requirement, stating that the particular incident must have "occurred on navigable waters." Id. at 6. Second is the "maritime nexus" requirement, itself broken into two parts. Id. The nexus requires that the incident have a potential to disrupt maritime commerce while also being substantially linked to maritime activities. Id. at 7. This differs from the discourse on admiralty jurisdiction as it applies to contract claims. Id. at 10. When it comes to mixed contracts, meaning those pertaining to aspects of both land and sea, the courts of old held these were not maritime contracts. Id. at 12. In 2004, the Supreme Court departed from this distinction and accepted the contract in Kirby as being subject to maritime jurisdiction. Id. In that case, cargo had been contracted to be shipped by way of a sea vessel and then transferred to a train, an accident that was the underlying incident in the litigation occurred during the train portion. Id. This decision began a departure from the somewhat limited nature of maritime jurisdiction as it applied to mixed contracts. Id. See also Kirby, 543 U.S. at 27 (extending maritime jurisdiction to mixed contract). The Court in Kirby is critical of the lower court's interpretation of maritime jurisdiction as being geographically limited. Id. The Court explains that a good portion of the contract in question called for the goods to be delivered by sea, but specified a separate final destination that was substantially further inland. Id. Thus, the shipping entity could not have possibly fulfilled their duties under the contract by simply delivering the goods to the port and heading on their way. Id. This analysis makes near impossible the separation of the two tasks involved, and thus if part of the contract would necessarily be considered in furtherance of maritime commerce, then the additional aspects of the agreement should also be subject to admiralty jurisdiction concurrently. Id. See also Kossick, 365 U.S. at 735 (holding that agreement between seaman and employer was maritime in nature). The Court in Kossick made the distinction that in an attempt to determine whether or not a contract was maritime or not, it is a conceptual rather than spatial, and a difficult line to draw. Id. The Court disagreed with the holding of the Court of Appeals, stating their ruling was too narrow. Id. at 736. Even though the performance of the agreement was to take place on land, it was still in furtherance of maritime commerce and when analyzed conceptually, functions as a maritime contract. Id. See also Flame S.A., 762 F.3d at 362 (granting maritime jurisdiction to an FFA). The court reasoned that an FFA was indeed subject to admiralty jurisdiction based on the fact that the primary objective of such an agreement is in furtherance of maritime commerce. Id. See also Kennedy & Califano, supra note 9 (outlining details of FFA markets). FFAs have aspects of both land and sea in their subject matter. Id. The actual significance of the agreement has little do with physical freight markets, however the market prices integral to the agreements themselves are indeed directly affected by the performance of certain baskets of freight rates. Id.

(36.) See Flame S.A., 762 F.3d at 362 (granting maritime jurisdiction to judgment after default on FFA). The mere fact that FFAs are normally cash-settled agreements does not automatically preclude them from maritime jurisdiction. Id. See also d'Amico, 201 F. Supp. 3d at 412 (refusing to recognize foreign judgment). The district court refused to enforce the foreign judgment because it was gained under a breach of contract theory in a nonmaritime court in England. Id. See also Rodrigue, De Monie & Notteboom, supra note 10, at 6 (outlining growth in FFA derivatives market). The volatility typically involved in the shipping market has encouraged the attraction to paper swaps in this specific derivatives market. Id. Another factor in the increased popularity of these complex financial transactions, was the relative increase in global financial transactions. Id. Global trade has opened up what had previously been a more so closed market. Id. Shipping derivatives had been previously utilized for a long time by shipping entities in order to mitigate or hedge against risk. Id. With increased globalization, typically disinterested financial firms became heavily involved in trading these shipping derivatives swaps. Id.

(37.) See d'Amico, 886 F.3d at 227 (stating no need to discern between specific hedging instruments). The Court here specifically states that distinguishing between specific types of financial instruments in the maritime industry for jurisdictional purposes would be futile. Id. The Court also highlights the tension between the district court's holding and recent precedent dictating a lack of a requirement for the agreement to mention specific vessels or physical aspects of maritime commerce. Id.

(38.) See Casto, supra note 13, at 120 (outlining origins of admiralty jurisdiction). Casto notes that original admiralty courts were concerned merely with disputes that arose out of events or occurrences on the water. Id. By an analysis of available data from the early decisions of admiralty court, nearly all cases heard were in relation to piracy or privateering business. Id. See also Penhallow, 3 U.S. at 86-89 (1795) (holding that foreign admiralty judgment could be enforced by American admiralty courts). The holding in this case is different from the holding in d'Amico in the sense that the Court in d'Amico was attempting to determine the validity of a non-maritime foreign judgment. Id.

(39.) See d'Amico, 201 F. Supp. 3d at 406-08 (describing details of d'Amico/Primera FFA). There is no actual reference to physical vessels or tangible aspects of shipping industry in the agreement. Id. Rather, this agreement centers on speculation about a basket of freight route prices over the future as determined by the BPI. Id.

(40.) See Alizadeh et al., supra note 27, at 3 (describing emergence of broader FFA market). The liquidity risks involved in trading FFAs has necessitated evolvement of separate clearing houses to provide some structure and minimize risk of defaults. Id. Prior to the emergence of the clearing houses, the FFA market was nearly entirely based on arms-length transactions. Id. This meant that parties were ultimately at the mercy of their counterparty to come through on payments, and if there was a default the only legitimate recourse was to sue in court. Id. As an example, prior to 2007, approximately less than twenty percent of all FFA transactions occurred through third party clearinghouses. Id. at 8. This means that the overwhelming majority of freight derivatives were being traded as "over the counter" transactions. Id. The Baltic Exchange reported that from 2003 to 2008, the number of dry bulk FFAs traded increased dramatically, with approximately 2.3 million lots traded in 2007. Id. With this growth came increased interest from the world outside the physical dry bulk shipping market. Id. Financial institutions like hedge funds, banks, and trading houses previous unrelated to the shipping industry began to enter into this market and trade FFAs. Id. See also Kennedy & Califano, supra note 9 (describing emergence of clearing houses in FFA market). There are technically two separate types of freight derivatives available. Id. One such type is labeled as futures, and the main difference between "over the counter" swaps and futures are that futures are funneled through various clearing houses to provide security. Id. "Over the counter" derivatives are dealt at arms-length between two parties and settled in cash without being as heavily regulated. Id. These types of agreements present significantly more risks towards counterparty default, but slightly higher returns and liquidity rates. Id.

(41.) See Kirby, 543 U.S. at 23 (holding agreements involved were maritime in nature). The Court specifically stated that the boundaries have always been difficult to draw in terms of what is or is not to be included in maritime jurisprudence. Id. See also d'Amico Dry, Ltd., 886 F.3d at 223. (stating question involved in case was murky and unclear). The Court states there is no clean line to demarcate between maritime and non-maritime contracts. Id. The Court also reiterates a past "case-by-case" approach, but states this determination will instead rest on the principal objective of the courts to protect maritime commercial interests. Id.

(42.) See d'Amico Dry, Ltd., 886 F.3d at 223 (describing identity of Plaintiff). The Court contrasted with the district court in stating that at the very least there was one party in the dispute that was active in maritime commerce. Id. The Court once again took this opportunity to reiterate that Plaintiff utilized the d'Amico/Primera FFA to hedge their risks as a shipping entity. Id.

(43.) See id. (determining principle objective is to protect maritime commerce). In following precedent, the Court set out to decipher the parties' principle objective of the d'Amico/Primera. Id. After determining the FFA was utilized to hedge against the inherent risks in the shipping industry, the Court determined that the principal objective was in furtherance of maritime commerce. Id.

(44.) See id. at 228 (holding d'Amico/Primera FFA was maritime contract). The Court was convinced that the FFA in question was a maritime contract. Id. The Court rejected the position of the district court that there needed to be a specific hedge for underuse of a specific vessel outlined in the agreement for it to fall under the authority of maritime law. Id. The fact that was of most significance to the Court was that the FFA was utilized to protect against risks in price fluctuation in the general business of Plaintiff, and thus necessarily was maritime in nature. Id.

(45.) See id. (holding FFAs need consideration under federal law). The Court finalizes its argument by reiterating the principal of uniformity for maritime law. Id. If maritime disputes involving FFAs were barred from federal admiralty courts, parties would then have to litigate in state court, creating massive amounts of confusion and uncertainty. Id.
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Author:Woods, Dylan
Publication:Suffolk Transnational Law Review
Date:Jan 1, 2019
Words:11943
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