16-3125-cv d'Amico Dry Ltd. v. Primera Mar. (Hellas) Ltd.

16‐3125‐cv d’Amico Dry Ltd. v. Primera Mar. (Hellas) Ltd.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

August Term 2016

(Argued: April 6, 2017 Decided: March 29, 2018)

No. 16‐3125‐cv

––––––––––––––––––––––––––––––––––––

D’AMICO DRY LIMITED,

Plaintiff‐Appellant,

‐v.‐

PRIMERA MARITIME (HELLAS) LIMITED AKA Primera Maritime Limited, SONIC FINANCE INC., MIRAGE FINANCE INC., NIKKA FINANCE INCORPORATED, HANDY FINANCE INC., PASHA FINANCE INC., MOVIDA FINANCE INC., ELEMENT FINANCE INC., CALDERA MARINE CO. LTD., ADALIA MARINE CO. LTD., SEASATIN NAVIGATION INC., ANNAMAR NAVIGATION INC., SEASAFE NAVIGATION INC., CHEMNAV INC., PAUL CORONIS, NIKOLAOS CORONIS AKA Nicholas Coronis, PRIMEBULK SHIPMANAGEMENT LTD., PRIMERA OCEAN SERVICES S.A., BULKNAV INC., J.P.C. INVESTMENTS S.A. AKA JPC Investments S.A., CHEMNAV SHIPMANAGEMENT LTD.,

Defendants‐Appellees.

––––––––––––––––––––––––––––––––––––

Before: KATZMANN, Chief Judge, JACOBS and LIVINGSTON, Circuit Judges.

1

Appeal from an August 15, 2016 judgment of the United States District Court for the Southern District of New York (Koeltl, J.), dismissing this case, after a bench trial, for lack of subject matter jurisdiction. After obtaining a judgment in an English court against the Defendant‐Appellee for failure to tender payment pursuant to a freight‐derivative contract, the Plaintiff‐Appellant, a shipping company, filed this lawsuit seeking enforcement of the English judgment and asserting admiralty jurisdiction under

(1). The district court held that admiralty jurisdiction did not exist because there was no proof that the Plaintiff‐Appellant entered the agreement underlying its claim to hedge the risk that specific vessels in its fleet would be underemployed. Considering the Plaintiff‐Appellant’s identity as a shipping business together with the substance of the agreement, we conclude that the agreement’s principal objective was to further the Plaintiff‐Appellant’s shipping business. The agreement is therefore a maritime contract subject to federal‐court jurisdiction under § 1333(1). Accordingly, the judgment of the district court is VACATED and the case is REMANDED for further proceedings.

THOMAS L. TISDALE, Tisdale Law Offices, LLC, New York, New York, for Plaintiff‐ Appellant.

JOHN J. REILLY, Squire Patton Boggs (US) LLP, New York, New York, for Defendant‐ Appellee Primera Maritime (Hellas) Limited AKA Primera Maritime Limited.

William R. Bennett, III, Blank Rome LLP, New York, New York, for Defendants‐ Appellees Sonic Finance Inc., Mirage Finance Inc., Nikka Finance Incorporated, Handy Finance Inc., Pasha Finance Inc., Movida Finance Inc., Element Finance Inc., Caldera Marine Co. Ltd., Adalia Marine Co. Ltd., Seasatin Navigation Inc., Annamar Navigation Inc., Seasafe Navigation Inc., Chemnav Inc., Paul Coronis, Nikolaos

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Coronis AKA Nicholas Coronis, Primebulk Shipmanagement Ltd., Primera Ocean Services S.A., Bulknav Inc., J.P.C. Investments S.A. AKA JPC Investments S.A., Chemnav Shipmanagement Ltd.

DEBRA ANN LIVINGSTON, Circuit Judge:

Plaintiff‐Appellant d’Amico Dry Limited (“d’Amico”) is a shipping

company and Defendant‐Appellee Primera Maritime (Hellas) Limited (“Primera”)

is a ship management company. In 2008, d’Amico sold a derivative financial

instrument known as a forward freight agreement (“FFA”) to Primera. Under

the FFA, d’Amico was obligated to pay Primera if the mean market rates for

shipping on certain types of vessels on certain routes during certain months

exceeded an agreed‐upon rate. In turn, Primera was obligated to pay d’Amico if

the market rate was less than the agreed‐upon rate. When Primera failed to pay

d’Amico as required under the agreement, d’Amico terminated the FFA and

obtained a judgment against Primera in an English court. Then, seeking to

enforce the judgment, d’Amico sued Primera and its alleged alter egos and

successors‐in‐interest in the United States District Court for the Southern District

of New York. D’Amico asserted subject matter jurisdiction under

(1), which empowers federal district courts to hear admiralty cases. The

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district court dismissed the case for lack of subject matter jurisdiction because the

judgment was rendered by a commercial (not admiralty) court and the underlying

claim was nonmaritime under English law. On appeal, this Court vacated the

dismissal and remanded for the district court to determine in the first instance

whether the underlying claim was maritime under U.S. law.

After a four‐day bench trial, the district court again dismissed the case for

lack of subject matter jurisdiction. The district court concluded that the

agreement between d’Amico and Primera was not a maritime contract falling

within § 1333(1)’s jurisdictional grant because d’Amico had not proven it made the

agreement to protect against the risk that specific vessels in d’Amico’s fleet would

be underemployed during the period of the FFA.

On appeal, d’Amico argues that the FFA was a maritime contract because,

on the facts found by the district court at trial, the agreement with Primera was a

hedge against another risk: d’Amico’s exposure to shifts in the market price for

shipping on certain routes. We agree: the combination of d’Amico’s identity as a

market participant with the substance of the agreement establishes that the FFA

was part of d’Amico’s shipping business. Because the FFA’s principal objective

was maritime commerce, it is a maritime contract and claims arising from it fall

4

within our admiralty jurisdiction. See Norfolk S. Ry. Co. v. Kirby,

, 23–

24 (2004). We therefore VACATE the judgment of the district court and

REMAND for proceedings consistent with this opinion.

BACKGROUND

I. Factual Background1

D’Amico, incorporated in Ireland, owns and operates dry bulk shipping

vessels. In 2008 and 2009, when the events underlying this lawsuit occurred,

d’Amico’s fleet included approximately thirty vessels—including ten to twelve

“Panamax” vessels. Panamax vessels have the maximum dimensions that can

traverse the Panama Canal. They transport commodities such as coal, minerals,

and grains to destinations all over the globe. D’Amico owned about half of its

fleet, and chartered the rest of its vessels long term. D’Amico employed the

vessels it controlled in various ways—in part through long‐term time charters, but

also on the spot market through single‐trip‐voyage or short‐duration charters.

As a shipping company, d’Amico is exposed to the ebbs and flows of

shipping prices, including the risk that the market rate for shipping on a route its

1 Unless otherwise noted, the factual background presented here is derived from the stipulated facts and uncontroverted evidence presented at trial.

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vessels ply will sink significantly. According to d’Amico’s 2008 Directors’

Report, the company used FFAs “to mitigate movements in the ‘physical market’”

that could harm its business. Joint App’x 739; see also id. at 751 (noting that

d’Amico “uses derivative financial instruments to partially hedge its exposure to .

. . market risks”). An FFA is a contract for the difference between a contract rate

and a settlement rate. The contract rate is a rate agreed upon by the parties. The

settlement rate is the market rate for freight carried by a certain type of vessel,

traveling a certain route (or group of routes), during a certain time period in the

future. Because FFAs are not commitments to perform shipping services, any

individual or entity (including one with no other tether to maritime commerce)

can trade in FFAs. FFAs are traded over the counter rather than on regulated

exchanges. In 2008, when the FFA at issue here was made, most FFAs were

concluded bilaterally rather than through a clearinghouse, so each party bore the

risk that its counterpart would fail to meet its obligations under the contract.

There was no general requirement that these transactions be secured, although a

prospective trader could request assurances from a potential counterparty.2

By contrast, today nearly all FFA trades are made through clearinghouses, under 2

circumstances which dramatically reduce counterparty risk.

6

In September 2008, d’Amico sold an FFA to Primera, a ship management

company incorporated in Liberia and operating in Greece (“the d’Amico‐Primera

FFA”). The d’Amico‐Primera FFA covered forty‐five days in the first quarter of

2009. The contract rate was $55,750 per day. The FFA was to be settled

monthly; the settlement rate was the mean of the daily published Baltic Panamax

Index (“BPI”) for all days of the pertinent month. The BPI is one of several indices

published daily by the Baltic Exchange, a London‐based organization that

provides maritime market information. The BPI, which is based on reports from

independent freight brokers about the freight market’s performance, incorporates

rates for shipping on standard routes travelled by Panamax carriers. For each

month that the settlement rate exceeded the contract rate, d’Amico, as seller, was

obligated to pay Primera, as buyer, the difference between the two rates. If

instead the contract rate exceeded the settlement rate, Primera would have to pay

the difference to d’Amico.

For the first month of the FFA, January 2009, the latter came to pass as the

late‐2008 financial crisis had sunk freight rates from historic crests in the mid‐

2000s. When Primera breached by failing to pay the amount due for January

2009, d’Amico terminated the contract and sued Primera in the English High Court

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of Justice, as provided for in the contract. On June 19, 2009, the English court

issued a judgment in favor of d’Amico for $ 1,766,278.54 plus costs.

II. Procedural History

In September 2009, d’Amico filed this lawsuit against Primera in the United

States District Court for the Southern District of New York, seeking enforcement

of the English judgment. The following December, d’Amico filed an amended

complaint adding several individual and entity defendants, which d’Amico

sought to hold liable for the English judgment as Primera’s alleged alter egos and

successors‐in‐interest.

In 2011, the defendants moved to dismiss the case for lack of subject matter

jurisdiction. The district court granted the motion, holding that it lacked

jurisdiction under the principle recognized in Penhallow v. Doane’s Adm’rs,

, 97 (1795), which permits admiralty courts to enforce judgments issued

by their foreign counterparts. D’Amico Dry Ltd. v. Primera Mar. (Hellas) Ltd., No.

09‐cv‐7840‐JGK,

, at *2–3 (S.D.N.Y. Mar. 28, 2011). According to

the district court, Penhallow did not apply because the English judgment was

neither rendered by an admiralty court nor based on a claim deemed maritime by

English law.

at *3–4. After judgment, d’Amico moved for reconsideration,

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arguing the district court had jurisdiction under

because the

d’Amico‐Primera FFA was a maritime contract under U.S. law. DʹAmico Dry Ltd.

v. Primera Mar. (Hellas) Ltd., No. 09‐cv‐7840‐JGK,

, at *4 (S.D.N.Y.

Aug. 1, 2011). The district court denied this motion, holding that a judgment

enforcement action is separate from the underlying substantive action, and that “a

suit to enforce a judgment rendered on a maritime claim is not itself maritime in

nature.”

On appeal, this Court vacated the district court’s judgment dismissing the

case, holding that “under § 1333, United States courts have jurisdiction to enforce

a judgment of a foreign non‐admiralty court if the claim underlying that judgment

would be deemed maritime under the standards of U.S. law.” D’Amico Dry Ltd.

v. Primera Mar. (Hellas) Ltd.,

(2d Cir. 2014). In the absence of

binding precedent on the question, we identified “strong theoretical and practical

reasons for assessing the maritime nature of the claim under U.S. admiralty

standards.”

. On the theoretical side, we emphasized the

constitutional (and statutory) policy of allowing U.S. federal courts to hear claims

deemed maritime by U.S. law, as well as traditional choice‐of‐law and

international‐comity principles.

at 160–61. On the practical side, we

9

expressed concern about the costly litigation that would result if subject matter

jurisdiction turned on the characterization of the claim under foreign law and we

emphasized the special need for certainty in light of § 1333’s exclusive

jurisdictional grant. Id. at 161–62. We therefore remanded the case for the

district court to determine in the first instance whether “the underlying claim on

the FFA is deemed maritime under the standards of U.S. law.” Id. at 162.

In May 2016, the district court held a four‐day bench trial during which it

received evidence on the remaining issues in this case, including whether the

d’Amico‐Primera FFA is a maritime contract under U.S. law.3 On this point, the

district court considered both documentary evidence and testimony from the

principals of d’Amico and Primera and an expert witness about d’Amico’s

purpose for entering the agreement.

D’Amico’s witness on this issue was Luciano Bonaso (“Bonaso”), d’Amico’s

general manager when the d’Amico‐Primera FFA was made. In that role, he

supervised the arrangement of employment for vessels as well as their

3 The other issues at trial were whether the district court should recognize the English judgment and order interest in accord with English law; if so, whether the non‐ Primera defendants were liable for the English judgment as alter egos or successors‐in‐ interest of Primera; and whether the district court should enter default judgments against non‐appearing defendants alleged to be alter egos or successors‐in‐interest of Primera.

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management and purchase. He maintained spreadsheets to keep track of both

the fleet’s physical commitments and d’Amico’s FFA trades. Bonaso testified

that to his best recollection, d’Amico’s “intention” for entering the d’Amico‐

Primera FFA was “to hedge” its physical position “against certain days” in the

opening months of 2009. Joint App’x 71. He explained that d’Amico sold an

FFA that was to be settled each month against that month’s mean BPI because the

FFA was made to hedge against risk d’Amico faced in the Panamax segment of its

business, on “routes that contribute to the index for the settlement,” which “was

consistent with the employment for [d’Amico’s] spot vessels . . . at the time.” Id.

at 70. Bonaso also testified that in 2008, d’Amico derived approximately “[t]wo

to three percent” of its revenue from FFAs, id. at 69, and d’Amico was not

“speculating in FFAs” although a separate entity, d’Amico Finance, was doing so,

id. at 75.4

4 As discussed infra, the district court refused to credit portions of Bonaso’s testimony—including, particularly, those concerning d’Amico’s purpose for selling the d’Amico‐Primera FFA—because there were inconsistencies among Bonaso’s testimony and his earlier statements, and because the statements were, in the district court’s view, inconsistent with d’Amico’s trading behavior. D’Amico Dry Ltd. v. Primera Mar. (Hellas) Ltd.,

, 405–07 (S.D.N.Y. 2016). On appeal, d’Amico does not challenge the district court’s credibility findings (or, for that matter, any of the district court’s factual findings).

11

Primera offered expert testimony from Karina Albers (“Albers”), a

consultant in the maritime‐freight field as evidence that the d’Amico‐Primera FFA

was nonmaritime. Albers testified that, based on her experience with the FFA

market, d’Amico’s FFA trading behavior in 2008 and 2009 did not support the

conclusion that it used FFAs to hedge its shipping business.

According to Albers, a vessel owner’s FFA qualifies as a hedge only if the

owner uses the FFA to protect against the underemployment of specific vessels at

specific times. Although she claimed that the specific vessels to be protected by

an FFA need not be recorded at the time of the trade for the trade to be a hedge,

she admitted that “for . . . an expert to testify” at a later date that the owner was

using a specific FFA as a hedge in this particular way, the specific vessels would

need to be documented somewhere. Joint App’x 323.

Albers testified that in addition to hedging specific assets, FFAs can be used

as a tool for “redistributing market risk” in general. Id. at 320. But she also

claimed that if a vessel owner sold FFAs because of concern about the risk of a

declining market, but “d[id]n’t have [a] specific vessel in mind and . . . d[id]n’t

connect the FFA with [a] specific vessel,” then the owner was “speculating,”—not

hedging. Id. at 323. Albers further acknowledged that “an owner [could] go

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into an FFA as a hedge and then change his mind,” but asserted that when the

owner “changes his mind and . . . closes it out, it’s not a hedge any longer.” Id. at

326.

In its post‐trial order, the district court acknowledged that the proper

inquiry was “whether the ‘principal objective’ of the contract is the furtherance of

maritime commerce.” D’Amico,

(quoting Kirby,

). The district court nonetheless adopted the view that an FFA was a maritime

contract only if the FFA was made to hedge against “market risks relating to the

employment“ of specific vessels. Id. at 411. Rejecting Bonaso’s testimony about

d’Amico’s reason for entering the agreement, id. at 405–06, and accepting Albers’s

characterization of d’Amico’s trading behavior as speculating rather than hedging,

the district court concluded that there was “no credible evidence that” the

d’Amico‐Primera FFA’s “principal objective . . . was to further maritime

commerce,” id. at 412.

The district court rejected as “not credible” Bonaso’s testimony about

d’Amico’s reasons for entering the FFA because, in its view, Bonaso’s trial

testimony was both “inconsistent” with his previous statements and “belied by

the actual facts” of d’Amico’s trading behavior. Id. at 405. Bonaso’s testimony

13

was “inconsistent,” in the district court’s view, because he had made conflicting

statements in his pretrial depositions and declarations. Id. at 405–06. For

example, Bonaso had incorrectly stated the number of days the d’Amico‐Primera

FFA concerned. Id. at 406. The district court deemed this error “significant”

because it undermined Bonaso’s claim that “he carefully calculated the number of

days that he wanted to cover with an FFA to protect against the underuse of his

fleet.” Id. In a deposition, Bonaso had also underreported the number of FFAs

d’Amico had entered into for the first quarter of 2009. Id. at 406, 412. According

to the court, Bonaso’s testimony was “belied by the actual facts” of d’Amico’s FFA

trading behavior, id. at 405, in two ways. First, despite Bonaso’s earlier statement

in a deposition that d’Amico only sold FFAs, the evidence revealed that d’Amico

bought them as well. Id. at 412. Second, Bonaso’s claim that he intended the

d’Amico‐Primera FFA to protect against the risk of underemployed vessels was

not credible because d’Amico closed its position two days later, securing its

earnings at that time and leaving “no financial protection for unemployed or

‘underemployed’ vessels or any vessels at all in the first quarter of 2009.” Id.

at 407; see also id. at 411. Disregarding Bonaso’s claims about the purpose behind

the d’Amico‐Primera FFA, the district court instead credited Albers’s testimony

14

that d’Amico’s “trading pattern was typical of a derivatives trader” rather than a

shipowner “hedging a physical position in the freight market.” Id. at 412.

Concluding d’Amico had failed to prove the d’Amico‐Primera FFA was a

maritime contract, the district court held that it lacked federal maritime

jurisdiction to enforce the English judgment. Id. at 412. Without reaching the

remaining issues, the district court dismissed the case. Id. D’Amico appealed.

During the pendency of the appeal, on September 14, 2016, Primera sent a

letter to d’Amico explaining that Primera believed this appeal to be frivolous, and

expressing its intent to move for sanctions if d’Amico failed to withdraw the

appeal. D’Amico held fast, and in February 2017 Primera moved for sanctions

against d’Amico for purportedly filing a frivolous appeal based on false testimony

and distortion of the relevant decisions. 5 D’Amico opposed the request for

sanctions. The motion was referred to our panel.

DISCUSSION

The district court acknowledged that, under Kirby, the appropriate inquiry

is whether the principal objective of the agreement is maritime commerce.

5 Primera moved for sanctions pursuant to Federal Rule of Appellate Procedure 38;

; and this Court’s inherent power to issue sanctions, see Chambers v. NASCO, Inc.,

(1991).

15

D’Amico,

(citing Kirby,

). But the court held

that, to establish the “principal objective” of the d’Amico‐Primera FFA, d’Amico

had to prove that its subjective purpose for entering the agreement was to hedge

against the underemployment of specific vessels in its fleet. Id. at 411.

We review de novo “[w]hether a suit falls within federal subject matter

jurisdiction,” D’Amico,

n.2, and we conclude that the district court

conceived of its maritime contract jurisdiction too narrowly. Despite the

extensive evidence presented at trial, the essential facts in this case are few: First,

d’Amico, a shipping company, sold a freight‐derivative valued by reference to

freight rates. And, second, the fluctuation of those rates was a risk inherent in

d’Amico’s shipping operations. Given the alignment between d’Amico’s identity

and the substance of the agreement, the d’Amico‐Primera FFA was plainly made

as part of d’Amico’s shipping business, and its principal objective is promoting

maritime commerce. Because the d’Amico‐Primera FFA was a maritime contract,

the district court erred by dismissing this case for lack of subject matter

jurisdiction.

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I

The U.S. Constitution extends the federal judicial power to “all Cases of

admiralty and maritime jurisdiction.” Art. III, § 2, cl. 1. By statute, Congress

has empowered federal district courts to hear “[a]ny civil case of admiralty or

maritime jurisdiction.”

(1). This grant provides for jurisdiction

over claims arising from maritime contracts. See Fireman’s Fund Ins. Co. v. Great

Am. Ins. Co. of N.Y.,

(2d Cir. 2016). The resolution of this appeal

turns, therefore, on a deceptively simple question: is the d’Amico‐Primera FFA a

maritime contract?

The question is clear, but the law is murky. There is no “clean line[]” of

demarcation “between maritime and nonmaritime contracts.” Kirby,

. Instead, general principles steer our “case‐by‐case approach” for determining

whether an agreement is a maritime contract. Folksamerica Reins. Co. v. Clean

Water of N.Y., Inc.,

(2d Cir. 2005). We consult “precedent and

usage [for] help[] insofar as they exclude or include certain common types of

contract.”

(brackets omitted) (quoting Kossick v. United Fruit Co.,

(1961)). But when our quest to categorize an agreement draws us into

uncharted waters, ultimately “the answer ‘depends upon the nature and character

17

of the contract,’ and the true criterion is whether it has ‘reference to maritime

service or maritime transactions.’” Kirby,

(ellipsis omitted)

(quoting N. Pac. S.S. Co. v. Hall Bros. Marine Ry. & Shipbldg. Co.,

(1919)). In other words, we ask whether the “principal objective” of the

agreement is “maritime commerce.” Id. at 25; see id. at 23–24. The Supreme

Court has cautioned that this inquiry is “conceptual” and not constrained by the

location of contract performance or a vessel’s involvement in the dispute. Id. at

24. Our beacon is “the purpose of the jurisdictional grant—to protect maritime

commerce.” Folksamerica,

(citing Exxon Corp. v. Cent. Gulf Lines,

Inc.,

(1991); Sisson v. Ruby,

(1990)).

We discern enough maritime flavor in the d’Amico‐Primera FFA to

conclude that there is federal subject matter jurisdiction over this case. Where

the identity of at least one party (here, d’Amico’s identity as a shipping business)

aligns with the substance of the agreement (here, the parties’ respective

estimations of the market rate for freight on vessels and certain routes integral to

at least one party’s business), the resulting agreement is distinctly briny. Thus,

when a party that is exposed to fluctuating shipping prices in its operations enters

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into an FFA to be settled against a future value of the market to which it is exposed,

the FFA is part of that party’s shipping business and a maritime contract.

Here, undisputedly, at least one of the contracting parties is primarily

engaged in the shipping business. Indeed, both fit this description: Primera is a

ship management company; d’Amico owns and operates vessels that ship

commodities worldwide. Bonaso, d’Amico’s general manager, testified that

trading FFAs generated just two or three percent of d’Amico’s revenue in 2008.

D’Amico’s primary business is shipping. Because of its participation in the

shipping industry, d’Amico is exposed to shifts in shipping prices.

The parties’ identities as shipping outfits provide further context for the

agreement. In particular, the collateral for the d’Amico‐Primera FFA was likely

vessels. As was ordinary at the time, no security was required for the agreement.

Each party bore the risk that its counterparty would default. But because the

parties to the contract owned vessels, the counterpart party could pursue the

shirker’s vessels for satisfaction of the debt—as apparently happened here. See

D’Amico,

(“Since 2009, vessels connected to the defendants

in this case were attached in the Central District of California, the Eastern and

Southern Districts of Texas, and the Eastern District of Louisiana.”).

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As to the substance of the agreement, the d’Amico‐Primera FFA not only

refers to maritime transactions generally, but also reflects the specific contours of

d’Amico’s shipping business. As already explained, the agreement concerns the

market price for shipping goods on certain types of vessels along certain routes

during certain months. The very vessels and routes referred to in the agreement

reflect a segment of d’Amico’s physical shipping business: the settlement rate is

the mean price for shipping via a type of vessel employed (Panamax vessels) and

a group of routes plied (the standard routes traveled by Panamax vessels) by

d’Amico at the time of the contract. Bonaso testified that he sold an FFA to be

measured against the BPI—as opposed to another of the several indices published

by the Baltic Exchange—because of this congruity. His explanation is consistent

with Albers’s testimony that a vessel owner shielding itself from price risk would

sell an FFA settled against the rate for shipping on routes travelled by its vessels.6

6 The district court found that Bonaso’s testimony supporting d’Amico’s claim that it used the d’Amico‐Primera FFA “not for simple financial speculations but rather as a means to hedge against the possible underuse of its fleet and, thereby, to promote maritime commerce” was “not credible.” D’Amico,

. We do not read the district court’s decision as finding all aspects of Bonaso’s testimony not credible. Indeed, the district court relied on Bonaso’s testimony for some of its findings of fact. See, e.g.,

at 402–03. Considering the record, we see no reason to conclude that the district court rejected Bonaso’s testimony about why this FFA was to be settled against the BPI.

20

These design choices support d’Amico’s claim that—as stated in d’Amico’s 2008

Director’s Report—d’Amico used FFAs like this one to temper its “expos[ure] to

movements in market prices arising from its operations.” Joint App’x 739.

Regardless of the district court’s conclusion that d’Amico did not use this

(or any) FFA to hedge risk in the manner endorsed by Albers, we are of the view

that d’Amico’s sale of an FFA valued against market shipping rates to which it

was exposed in its operations was directed toward managing risks inherent in its

shipping business. Said differently, as a component of d’Amico’s shipping

business, the FFA’s principal objective was facilitating maritime commerce. In

these circumstances, we have no doubt that the d’Amico‐Primera FFA was

“‘entered into in connection with [a] maritime commercial venture and [is]

therefore maritime in nature,’” Williamson v. Recovery Ltd. P’ship,

(2d Cir. 2008) (quoting Williamson v. Recovery Ltd. Pʹship, No. 06‐cv‐5724(LTS)(FM),

, at *2 (S.D.N.Y. Jan. 16, 2007)). Federal subject matter jurisdiction

therefore exists here.7

7 As should be clear from the foregoing analysis, even if d’Amico’s counterparty were not in the shipping business, the instrument would remain designed to function as a hedge against risks inherent in maritime commerce under our holding. This accords with the roughly analogous maritime insurance context (discussed herein), where the

21

This conclusion is consistent with our reasoning in the maritime insurance

context. On facts like those here, an FFA bears some resemblance to a maritime

insurance policy. Specifically, FFAs shield “against the vagaries of future

maritime price fluctuations,” Flame S.A. v. Freight Bulk Pte. Ltd.,

(4th Cir. 2014), just as maritime insurance policies protect against losses like

shipwreck or liability for discharging pollutants into the sea. We routinely

conclude that insurance policies covering marine risks fall within our maritime

jurisdiction. See, e.g., Fireman’s Fund Ins.,

(stating that insurance

“for pollution coverage for a [floating dry‐dock, a] structure used in vessel repair

and maintenance . . . directly implicate[d] the business of maritime commerce”);

Folksamerica,

(holding that an insurance policy covering a ship

tank cleaning company was a maritime contract). We see no compelling reason

to treat a contract designed to ameliorate the risks posed by a fluctuating market

differently from one drafted to protect against financial devastation from the

realization of physical risks.

inquiry is not whether the issuer writes only maritime policies, but instead what coverage the policy provides. See, e.g., Folksamerica, 413 F.3d at 314–15.

22

The only other circuit to resolve the question of whether an FFA may qualify

as a maritime contract reached a similar conclusion. See Flame S.A.,

. In Flame S.A., the plaintiff entered four FFAs, the counterparty breached,

and the plaintiff obtained a judgment against the counterparty from an English

court. Flame S.A. v. Indus. Carriers, Inc., No. 2:13‐cv‐658,

, at *1

(E.D. Va. Jan. 10, 2014). Then, the plaintiff sued in U.S. federal court and obtained

an attachment of a vessel belonging to the counterparty’s alleged alter ego.

A motion to vacate the attachment order on the ground that the district court

lacked subject matter jurisdiction was denied; the district court observed that the

FFAs were “singularly concerned with shipping routes,” and that the plaintiff had

apparently used them “primarily for hedging the risks inherent in [its] shipping

business.”

. Therefore, the dispute implicated the court’s admiralty

jurisdiction.

On interlocutory appeal, the Fourth Circuit affirmed. Flame

S.A.,

. The affirmance rested on two characteristics of the FFAs in

that case: First, both parties to the agreements were shipping businesses. See

at 362 & n.9. Second, it followed from the parties’ identities as shipping

businesses and the contents of the agreements that the parties “did not create the

FFAs as mere financial speculators, but as a component of their shipping

23

businesses.”

. In other words, the purpose of the FFAs was essentially

inferable from the identities of the parties and the substance of their agreements.

See

The court of appeals, therefore, easily affirmed the district court’s

conclusion that the purpose of the agreements was to hedge against the risks of

the shipping business. See

Here, the crux of the district court’s holding was that the d’Amico‐Primera

FFA did not satisfy the “principal objective” test because d’Amico failed to

establish that—subjectively—it made the agreement to protect against the

underemployment of specific vessels. See D’Amico,

.

The district court cast its holding in broad terms about the absence of evidence that

d’Amico used FFAs to hedge risk at all.

. But a closer examination

reveals that the district court based its holding primarily on its determination that

d’Amico’s “trading pattern” resembled the behavior of “a derivatives trader”

rather than of “a shipowner who was hedging a physical position in the freight

market.”

.

There are two key flaws in this analysis. First, as already explained, the

risks that a shipping company faces in the conduct of its business are not limited

to the risk that any particular vessel will remain docked. Shipping companies

24

like d’Amico are exposed to, among other things, broader shifts in shipping prices.

We see no reason to distinguish among instruments designed to mitigate these

related risks. Second, the north star for maritime contract jurisdiction is an

agreement’s relationship with maritime commerce, not its tie to any particular

vessel (or seaman, or shipment). Requiring a connection with a specific vessel is

in tension with Kirby’s express instruction that the existence of maritime contract

jurisdiction cannot be resolved by resort to questions like whether a vessel was

involved in the dispute or where the contract was made or meant to be performed.

543 U.S. at 23–24; see also Folksamerica, 413 F.3d at 323–24 (holding that an insurance

policy is a maritime contract even when it does not cover an identified vessel or

shipment).

Our approach also avoids the serious practical consequences of anchoring

subject matter jurisdiction to a party’s intent in making an FFA. The nature of a

party’s principal business and the substance of a contract can likely be ascertained

from relatively uncomplicated documentary evidence. Resting the question of

maritime contract jurisdiction on a party’s subjective intent in making an

agreement, however, invites a far more complex evidentiary showing. A district

court might be forced to hold a hearing (or receive evidence during trial) in nearly

25

every case before determining its jurisdiction. The record below illustrates this

problem perfectly: the district court heard extensive testimony from the respective

principals of d’Amico and Primera on their respective reasons for making the

agreement, as well as expert testimony interpreting d’Amico’s trading behavior.

The necessity for such a showing is not limited to this case because, as the district

court acknowledged, whether a party used an FFA to manage risk or to speculate

(or for any other purpose) is not apparent from the face of the agreement. See

D’Amico, 201 F. Supp. 3d at 404–05. Even where the record of a party’s trading

behavior initially appears to reflect what might be labeled speculative or risk‐

hedging behavior, the parties would likely seek to contradict that impression with

additional evidence, including live testimony. For example, a trade made with

the purpose of hedging in the manner required by the district court—that is, held

open for enough time to ensure vessel employment—would not necessarily

resemble such a hedge if, for example, the trader soon after changed his mind

about the tenor of the market. We are disinclined to promote expensive litigation

to resolve the threshold question of jurisdiction. See D’Amico,

(“[Q]uestions of subject matter jurisdiction should be amenable to quick and

relatively certain resolution.”).

26

Allowing subjective purpose to govern also risks rendering jurisdiction

unpredictable. Because the best evidence of a contracting party’s intent might be

testimony, the existence of jurisdiction could turn primarily on the credibility of a

witness (or witnesses)—as it did here. That credibility could be easily undermined

on cross‐examination, especially when witnesses are asked to explain their

motivations for decisions made years before.8

Another troubling implication of the district court’s position is that the

purpose behind a contract—and with it, the existence of federal jurisdiction—may

shift over the lifetime of the agreement. After all, Albers testified that an owner

selling an FFA “can go into a hedge, but when he changes his mind and if he closes

it out, it’s not a hedge any longer.” Joint App’x 326. Similarly, because a party

8 The timing of testimony is a key distinction between this context and another— diversity of citizenship—in which jurisdiction turns in part on a party’s intent and, potentially, credibility. Specifically, in the diversity jurisdiction context, “[a]n individual’s citizenship . . . is determined by his domicile” which is “‘the place where a person has his true fixed home and principal establishment, and to which, whenever he is absent, he has the intention of returning.’” Palazzo ex rel. Delmage v. Corio,

(2d Cir. 2000) (emphasis added) (quoting Linardos v. Fortuna,

(2d Cir. 1998)). But the intent‐to‐remain inquiry is likely less susceptible to manipulation because a party’s citizenship is analyzed at the time the suit is filed, Grupo Dataflux v. Atlas Glob. Grp., L.P.,

(2004), not at the time of a contract underlying the suit. Because the latter is in the more distant past, the memories of those with knowledge relevant to the jurisdictional inquiry may be less crisp and the truth harder to discern.

27

may close its position by making a new contract with a third party, the district

court’s position would allow a contract to be divested of its maritime character—

and federal courts divested of their jurisdiction over a claim arising from that

contract—by a separate, later‐in‐time agreement. Uncertainty is a particularly

acute concern in this context because Ҥ 1333 vests admiralty jurisdiction

exclusively in the federal courts,” which means “parties concerned about uncertain

federal jurisdiction cannot, as is generally the case, avoid the problem by bringing

suit in a state court of concurrent (and unquestionable) jurisdiction.” D’Amico,

. Moreover, a rule rendering jurisdiction readily manipulated or

ephemeral destabilizes contract enforcement, undermining the very purpose of

§ 1333’s jurisdictional grant, “‘the protection of maritime commerce,’” Exxon Corp.,

(quoting Sisson,

).

Finally, Primera argues that “it is significant that other [non‐U.S.]

jurisdictions have uniformly held that FFAs are not maritime contracts.”

Appellee’s Br. at 20. The last time this case was before us, we considered the

“general proposition” that there exists “widespread agreement throughout the

world” about which matters are maritime and concluded that it was not

controlling. D’Amico,

. Our analysis bears repeating here:

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[T]here is no assurance that some other nation might not define its own maritime jurisdiction more broadly, or more narrowly, than we do. It seems reasonable to assume that the Framers of the Constitution and Congress wanted to ensure that matters deemed maritime under our laws have access to our federal courts. There is no reason to suppose that the Founders or Congress would have wished to exclude from the admiralty jurisdiction matters that U.S. law deems maritime, merely because another nation does not consider them maritime.

In addition, it seems reasonable that our admiralty jurisdiction might sweep

more broadly than that of foreign jurisdictions in light of our federal system. Our

“touchstone” for the interpretation of maritime contracts “is a concern for the

uniform meaning of maritime contracts” throughout the United States. Kirby,

. For this reason, a maritime contract is governed by federal

substantive law unless the dispute is “inherently local.”

. Excluding

FFAs from our admiralty jurisdiction would require parties seeking to enforce

them in the United States to litigate in state courts, subject to varying state laws.

Primera’s position completely ignores the burden that litigating in the shadow of

such variation could impose on FFA investors involved in the shipping business.

In sum, we are persuaded that the d’Amico‐Primera FFA is a maritime

contract. One of the many threats to d’Amico’s shipping business was the risk

29

that shipping rates would decline. Through the agreement, d’Amico expressed

its view that the market rate for shipping in one of its business segments would

not exceed a certain rate. The agreement ensured that if market conditions meant

d’Amico chartered some of its vessels for less during the relevant period, it would

recover the difference between its prediction and the actual state of the market.

The absence of evidence that d’Amico used the FFA to hedge against the underuse

of specific vessels is irrelevant. D’Amico’s risks as a shipping business are more

generalized than the risk that a particular vessel is underemployed. In any event,

there is no requirement that a maritime contract concern a particular vessel,

seaman, or shipment. See, e.g., Flame S.A.,

(citing Kirby,

). Finally, the practical consequences of permitting a party’s subjective intent

to determine the maritime nature of a contract tug firmly against applying such a

rule. We therefore conclude that the d’Amico‐Primera FFA is a maritime

contract, over which the district court had admiralty jurisdiction pursuant to

§ 1333.9

Because we conclude that, even assuming the district court’s factual findings 9

were correct, its legal conclusion was erroneous, we have no occasion to consider d’Amico’s further contention that Albers’s testimony did not satisfy the requirements of Federal Rule of Evidence 702.

30

II

One final matter remains: Primera seeks sanctions against d’Amico, arguing

that this appeal is frivolous because it is based on Bonaso’s discredited testimony

and lacks any basis in law. Primera asks this Court to sanction d’Amico pursuant

to Federal Rule of Appellate Procedure 38;

; and our inherent

authority to manage the litigation before us, see Chambers v. NASCO, Inc.,

(1991). We have ordered sanctions not only where an appeal is “‘patently

frivolous’” but also where “the conduct of the sanctioned litigant or attorney

evinces bad faith or an egregious disrespect for the Court or judicial process.”

Ransmeier v. Mariani,

(2d Cir. 2013) (quoting Gallop v. Cheney,

(2d Cir. 2011)).

There is no basis for sanctioning d’Amico here. Primera’s first

contention—that d’Amico improperly relies upon Bonaso’s discredited testimony

about d’Amico’s purpose for entering the FFA—is incorrect. As already

explained, d’Amico’s argument (indeed, our holding) is that evidence about the

subjective purpose for entering into an FFA is irrelevant to the question of

admiralty jurisdiction. We disagree, moreover, with Primera’s claim that the

assertion for which d’Amico cited a snippet of Bonaso’s trial testimony—that

31

d’Amico “used the FFA in dispute as a component of its shipping business” and

used FFAs in its “shipping business . . . to manage . . . freight rate fluctuations,”

Appellant’s Br. at 33 (citing Joint App’x 68–69)—is inconsistent with the district

court’s conclusion that there was no credible evidence that d’Amico used the

d’Amico‐Primera FFA “to hedge its shipping business or to protect its physical

shipping positions,” D’Amico,

. As stated above, the district

court concluded merely that there was no evidence that d’Amico “hedged” in the

specific way described by Albers, a determination that is not relevant to our

conclusion.

In addition, we reject Primera’s claim that this appeal was frivolous. In the

first place, we found d’Amico’s claim to be meritorious. But even if we had

affirmed the district court’s decision, sanctions are inappropriate in an appeal—

such as this one—that presents a substantial question of first impression in this

Court. See Clarendon Nat’l Ins. Co. v. Kings Reins. Co., Ltd.,

(2d

Cir. 2001); Upton v. IRS,

(2d Cir. 1997) (per curiam).

CONCLUSION

For the foregoing reasons, we VACATE the district court’s judgment and

REMAND for further proceedings consistent with this opinion.

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