Ninth Circuit Affirms Dismissal of Veil-Piercing Case Against Defendants Blue Wall Shipping Ltd. and Vigorous Shipping & Trading S.A.

April 7, 2021

On March 29, 2021, in Pacific Gulf Shipping Co. v. Vigorous Shipping & Trading S.A., et al., the Ninth Circuit Court of Appeals affirmed the district court’s partial dismissal and partial summary judgment in favor of defendants Blue Wall Shipping Ltd. and Vigorous Shipping & Trading S.A., in an action alleging successor and alter-ego liability claims against those entities. Bruce G. Paulsen and Brian P. Maloney acted as counsel for Blue Wall Shipping Ltd. at the trial court and on appeal to the Ninth Circuit. The Ninth Circuit’s decision vindicates the district court’s conclusion that, following discovery Plaintiffs had “come back largely empty handed” and had insufficient evidence to support their alter-ego / corporate veil-piercing claims. The Ninth Circuit also dismissed the successor liability claim asserted in the complaint as groundless, because there was no allegation that the supposed predecessor had transferred any assets (let alone all or substantially all of its assets) to Blue Wall or Vigorous. As a result, the $9,500,000 deposited as security for Plaintiffs’ claims in the Court’s registry by Blue Wall’s subsidiary Vigorous may now be released, because the Court of Appeals has confirmed that Plaintiffs’ claims are without merit.

The opinion is notable in at least two respects. First, it sets forth the Ninth Circuit’s position on the scope of successor liability claims, in which the Court held that “maritime law. . .requires a transfer of all or substantially all of the predecessor’s assets to the alleged successor before successor liability will be imposed on that alleged successor.” Second, the decision helps to clarify the federal common law of corporate veil piercing claims in the shipping industry, where vessels are commonly held by ship-owning subsidiaries, but may have overlapping relationships with technical or commercial managers that handle day-to-day operations suggesting some measure of control. In the case, the Court found that such overlaps are insufficient to pierce the corporate veil, because without evidence to suggest (1) a showing of fraudulent intent or an intent to circumvent statutory or contractual obligations, (2) a showing of injustice occasioned by the corporate form, and (3) a showing of “total dominion” by the controlling corporate entity to the extent that a subservient entity manifests no separate corporate interests of its own, alter-ego claims of the type asserted by Plaintiffs are subject to summary disposition.

Despite the intensely factual nature of this inquiry, including the production of well over 100,000 pages of documents and a dozen depositions, the Court of Appeals found that Blue Wall and Vigorous Shipping had met their burden to show an absence of evidence to support the elements of Plaintiffs’ alter-ego claims, and that Plaintiffs had not produced sufficient evidence to identify a genuine dispute of fact for trial.

If you have any questions on this recent ruling, please contact Bruce G. Paulsen (212-574-1533) or Brian P. Maloney (212-574-1448).