Establish Jurisdiction Before Beginning to Argue Over Middle Eastern Oil in US Courts

Establish Jurisdiction Before Beginning to Argue Over Middle Eastern Oil in US Courts

By: Forrest Guedry

Edited by: Tiffany Morales

Ministry of Oil of the Republic of Iraq v. 1,032,212 Barrels of Crude Oil Aboard the UNITED KALAVRVTA, 2014 WL 4215357, 2014 U.S. Dist. LEXIS 118249 (S.D. Texas Aug. 24, 2014)

At the center of this dispute are over one million barrels of crude oil, valued at more than $100 million. It is alleged that the barrels of oil were illegally extracted from wells situated in Iraq by the Kurdistan Regional Government. In an attempt to regain ownership of the oil, the Iraqi Ministry of Oil instituted these proceedings. Initially the cargo was attached under Rule E(4)(f) and moved to an onshore storage facility. However, the Kurdistan Regional Government challenges the admiralty jurisdiction of the District Court to sustain Iraq’s cause of action under the admiralty rules. In challenging the court’s jurisdiction, the Kurdistans filed a motion to vacate the seizure order previously granted. The court must consider two issues when determining whether or not to grant the Kurdistan’s motion to vacate the seizure order. First, whether the motion to vacate argument can be heard prior to the cargo actually being arrested. Second, if the motion cannot be heard, whether the court has admiralty jurisdiction to enforce the order of seizure the supplemental admiralty rules allow.Iraq claims ownership of oil that was pumped out of Iraq and into Turkey through the Iraq-Turkey Pipeline. Iraq alleges that, as early as December of 2013, the Kurdistans began to illegally produce crude oil. These operations took place without the approval of the Ministry of Oil, which holds the “exclusive authority to export, manage, and market the oil resources of the Republic of Iraq.” Once Iraq learned of the illegal operations, they ordered the Turkish government and their pipeline operators to cease the pumping and hold the produced oil for Iraq to retrieve. The Turkish government rejected their demands and instead loaded the oil onto the UNITED KALAVRVTA on June 22, 2014. The next day the UNITED KALAVRVTA left Turkish waters on a journey to various destinations before coming to rest off the coast of Galveston, Texas. Iraq claims that an act of conversion occurred when the oil was transferred to Kurdistan. To support their conversion claim, Iraq cites their own constitution stating, “[o]il and gas are owned by all the people of Iraq in all the regions and governates.”First, the court considers the issue of whether they can hear arguments concerning the motion to vacate when the cargo has yet to be seized. At the time Kurdistan filed their motion to vacate the previously ordered seizure of the cargo, the UNITED KALAVRVTA was still outside of United States’ territorial water and therefore out of the court’s jurisdictional grasp. Iraq’s opposition of the motion to vacate is supported by the clear language of Federal Rule of Civil Procedure Supplement E(4)(f), which states in pertinent part, “[w]henever property is arrested or attached, any person claiming an interest in it shall be entitled to a prompt hearing at which the plaintiff shall be required to show why the arrest or attachment should not be vacated.” While the court agrees that the language of the rule requires an arrest or attachment prior to the hearing on the motion to vacate, the court finds the rule to be at odds with logic in this scenario. The court opines that it would be illogical and inconsistent to wait until an arrest or attachment is made before reviewing a jurisdictional concern. Thus, the court allowed the Kurdistan’s motion to vacate to be treated as a jurisdictional challenge that can be heard prior to the arrest of the cargo.Next, Kurdistan argues that the court lacks admiralty jurisdiction, which is typically limited to contract or tort claims. Current admiralty tort jurisdiction requires the tort claim to satisfy both the location test and a substantial connection with traditional maritime activity. Here, the court only considered the location prong, which Iraq ultimately failed to satisfy. The location element is met if either the tort occurs on a navigable waterway or if the injury suffered on land was caused by a vessel on a navigable waterway. To determine if the tort occurred on a navigable waterway, the court concentrates on where the consequence of the alleged action was felt, not necessarily where the conduct happened. In determining where the tort occurred based on these facts, the court first looked at the definition of conversion, the tortious act alleged by Iraq. The court defines conversion as occurring “when, wrongfully and without authorization, one assumes and exercises control and dominion over the personal property of another, either inconsistently with or to the exclusion of the owner’s rights.” Here, the Kurdistans assumed control and dominion of the crude oil once they extracted it from the wells and pumped it through the pipeline into Turkey. The fact that the Kurdistans later transported the oil onto the UNITED KALAVRVTA does not create a maritime claim for conversion, rather it only supports Iraq’s claim of a regular tort claim. Despite Iraq’s effort to argue that they met the locality prong, the case law they cite to is distinguished by the court. Specifically, Iraq argues the outer parameters of admiralty jurisdiction over torts by citing Doe v. Celebrity Cruises, Inc. 394 F.3d 891 (11th Cir. 2004). In Doe, the Eleventh Circuit found that a passenger, who was raped by a cruise ship crewmember on land near the ship during their stop at a port-of-call and shortly before their departure, satisfied the location prong necessary for admiralty tort jurisdiction. However, the present facts are easily distinguishable from the facts of Doe. Here, the alleged tort of conversion concerning the crude oil happened seven months before the oil was even loaded onto the UNITED KALAVRVTA. Therefore, the court found the tort of conversion took place on land and did not satisfy the location prong necessary for admiralty tort jurisdiction.Although the court found that they could hear the motion to vacate arguments prior to the cargo being arrested, Iraq failed to satisfy the elements necessary to establish jurisdiction over their alleged tort claims.