Blue Harvest, Quinn Fisheries file lawsuit to advance sale of Carlos Rafael vessels

Blue Harvest and Quinn Fisheries have filed a lawsuit alleging that the trustee of Carlos Rafael’s fishing fleet and three arbitrators have blocked a multimillion-dollar transaction that would have seen Blue Harvest receive multiple vessels and fishing permits.

The lawsuit – initially filed in Bristol County Superior Court and later transferred to the U.S. District Court of Massachusetts – alleges that the sale, which was supposed to take place on 16 April, has been blocked by the Rafael trustee. The transaction would have had Quinn convey “certain vessels and permits to Blue Harvest,” and Quinn would in turn “purchase certain fishing vessels and permits from Blue Harvest,” the lawsuit states.

According to the lawsuit, the companies have already made arrangements with the bank that holds interests in the vessels and permits.

“The assets to be conveyed by the Quinn Entities are subject to existing senior and perfected first-priority mortgages and security interests in favor of a non-party bank, and existing and perfected junior mortgages and security interests in favor of the Rafael Trust, of which [Lloyd] MacDonald is trustee,” the lawsuit states. “The proposed substitution of assets as part of the transaction between the Quinn Entities and Blue Harvest would not significantly dilute or otherwise jeopardize the security and resources of the Rafael Trust. In other words, after the proposed transaction is complete, the mortgages held by the bank and trust will continue to be adequately secured by permits and vessels, albeit different permits and vessels than before the transaction.”

The bank, the lawsuit states, has agreed to the substitution of collateral and has agreed to the transaction, but Rafael’s trust has not, thus blocking the sale.

According to the lawsuit before that transaction could be carried out, MacDonald received a letter from Rafael’s attorney, John Markey, enclosing two orders from the arbitration panel – made up of three individuals also named in the lawsuit – “purporting to impose restrictions on the trustee’s exercise of his fiduciary duties.”

The letter, according to South Coast Today, cites an arbitration order, and Markey asked MacDonald "please 'do not transfer, spend, distribute, invest, or otherwise change the present status'" of a promissory note. According to the same letter, that note is currently held for a total of USD 23 million (EUR 19.1 million).

However, the lawsuit by Blue Harvest and Quinn Fisheries states that neither the companies, nor the trustee “are parties to the underlying arbitration and are not bound by the arbitration panel’s rulings and interim award.”

The companies are hoping to complete the sales transaction as the commercial fishery permits in question are for the current fishing year, and “include both limited access Atlantic sea scallop permits the season for which is set to commence on June 1, 2021 and multi-species permits the season for which is set to commence on 1 May, 2021,” the lawsuit states. The fact the sale has not gone through because of the trustee “will result in serious and irreparable financial harm to both the Quinn Entities and Blue Harvest.”

A recent order by Judge Patti B. Saris on a motion requesting a temporary restraining order and a preliminary injunction by the plaintiffs – Blue Harvest and the Quinn Entities – decided that “The issues are too complex to determine whether there is a likelihood of success or irreparable harm by 1 May, 2021 when the season starts.” The order tasks the defendants with filing briefs on the matter by 10 May, 2021.

This is the second time that Blue Harvest has had difficulties purchasing former Rafael vessels. In late 2019 and into 2020, the Buyers and Sellers Exchange (BASE) of New Bedford, Massachusetts, U.S.A., held up the sale of multiple Rafael vessels to Blue Harvest.

BASE had requested and received the right of first refusal to the vessels in 2018 from the Northeast Fishery Sector Inc. Rafael pleaded guilty in 2017 to falsifying fish quotas, tax evasion, and conspiracy, and later settled a civil case with NOAA that required him to permanently stop all commercial fishing except for scalloping by 31 December, 2019, and to cease scalloping by 31 March, 2020. In addition, he has been required to sell all limited access federal fishing permits and vessels he owns and controls.

Blue Harvest was planning to purchase 15 of Rafael’s vessels for USD 19.3 million (EUR 16 million) before BASE blocked the sale and made its own offer. Ultimately, BASE withdrew its right of first refusal, clearing the way for Blue Harvest to acquire the vessels in February 2020.

Blue Harvest could not be reached for comment on the lawsuit.  

Photo courtesy of Charles Lewis/Shutterstock