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“Alter Ego” liability is easy to allege, but so difficult to prove!

“Alter Ego” liability is easy to allege, but so difficult to prove! But it can be done with some creative thinking, good old-fashioned footwork, and a bit of luck. 

In Bunge S.A. v. Pacific Gulf Services (Singapore) Pte. Ltd. (April 2020), Bunge sued “PGS-Singapore” to domesticate and enforce a London arbitration award in the District of Oregon under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and, at the same time, sued related entity “PGS-Marshall Islands” under a “single business enterprise” alter ego theory. The underlying action in London was for breach of a charter party.

So far so good, but this was a deliciously complicated scenario.

PGS-Marshall Islands had previously filed a Rule B maritime attachment action in the District of Oregon against certain Vigorous defendants, also based on alter ego, and had obtained security for its own London arbitration award. 

The question was, could Bunge enforce its award v. PGS-Singapore against the security posted in favor of PGS-Marshall Islands in the separate Oregon action? To prevail, Bunge had to clear two hurdles: 

First, Bunge had to establish that PGS-Singapore and PGS-Marshall Islands were alter egos of one another, so that property belonging to PGS-Marshall Islands was also property of PGS-Singapore. This was the difficult part. But with some sleuthing, a world-wide investigation, and a thorough review and analysis of records in various US federal court cases, Bunge was able to provide evidence demonstrating the PGS entities were part of a single business enterprise commonly owned, operated and controlled by Masood Tariq Baghpatee and Faisal Baghpati. The District of Oregon agreed and found they were alter egos of one another. 

Second, Bunge had to establish the court had quasi-in-rem jurisdiction over PGS-Singapore (a sub-set of personal jurisdiction that required a valid arbitration award + property of the defendant in the forum).

The 9th Circuit had ruled in a prior New York Convention enforcement action that there was quasi-in-rem jurisdiction over a defendant based on his “property in the jurisdiction.” Bunge’s was a case of first impression, since the “property” of the defendant was an alter ego’s chose in action – the security obtained by PGS-Marshall Islands in its Vigorous action! The court agreed that the presence of alter ego PGS-Marshall Island’s chose in action in Oregon (and the security thereon) supported quasi-in-rem jurisdiction over PGS-Singapore. 

Having cleared both hurdles, the court granted default judgment in Bunge’s favor against the PGS entities.

In the meantime, the Vigorous defendants obtained summary judgment in PGS-Marshall Island’s case, on the basis PGS-Marshall Island could NOT sufficiently establish defendants were alter egos (PGS-Marshall Islands unsuccessfully relied on a “dominion and control” alter ego theory). The case is now on appeal to the 9th Circuit. So does PGS-Marshall Island’s potential loss of its security mean the Bunge court no longer has quasi-in-rem jurisdiction?

No, the court agreed jurisdiction over the PGS entities was determined as of the time Bunge filed its complaint, and not on the current status of PGS-Marshall Island’s case (otherwise, a defendant could simply move its assets from state to state and force a plaintiff to refile anew, possibly multiple times).

The fight is not over. PGS-Marshall Islands succeeded in keeping the security in place pending its appeal to the 9th Circuit. If PGS-Marshall Islands can get back in the game and ultimately prevail against the Vigorous defendants, Bunge will be waiting in the wings to enforce its award against the security! 

McKasson & Klein (Neil Klein & Rocio Ashby), well assisted by local Oregon counsel Larkins Vacura Kayser (Julie Vacura & Kelsey Benedick) represented Bunge in its successful action. 

See Findings & Ruling by the Magistrate Judge, and Final Ruling by the Judge attached.