Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-05117/USCOURTS-cand-3_05-cv-05117-6/pdf.json

Nature of Suit Code: 120
Nature of Suit: Marine Contract Actions
Cause of Action: 28:1333 Admiralty

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

GREGER LEASING CORP., a Nevada

corporation,

Plaintiff,

 v.

Barge PT. POTRERO, official number

523213, in rem, TED BUHL and JANE

DOE BUHL, individually, and the

marital community composed thereof;

BUHL DIVING & SALVAGE, a sole

proprietorship, in personam

Defendants. 

AND ALL RELATED ACTIONS

___________________________________

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No. C-05-5117 SC

ORDER RE: CLAIMANTS'

MOTION TO QUASH

ARREST OR IN THE

ALTERNATIVE FOR COSTS

SECURITY

AND

ORDER RE: DEFENDANTS'

MOTION TO STAY AND

COMPEL ARBITRATION 

 

I. INTRODUCTION

Claimants in this case, Riverview Equipment Company LLC and

Jerico Products, Inc. ("Claimants"), filed a motion seeking an

adversary hearing pursuant to Federal Rule of Civil Procedure

Supplemental Admiralty Rule E(4)(f) ("Supplemental Rule E(4)(f)")

and Local Admiralty and Maritime Rule 4-8 ("Local Maritime Rule 4-

8"). The Court held an adversary hearing on March 23 and 29, 2006

regarding the following limited issues: (1) whether the maritime

lien was properly transferred to Plaintiff Corporation; (2)

whether Plaintiff is estopped from enforcing its maritime lien;

and (3) whether Claimants are entitled to security for costs. 

Defendants Ted Buhl and Buhl Diving and Salvage ("Defendants" or

"Buhl") have also moved to stay the action and compel arbitration.

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United States District Court

For the Northern District of California

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For the reasons set forth herein, the Court hereby DENIES

Claimants' motion to quash the arrest and GRANTS Defendants'

motion to stay the action and compel arbitration. 

II. BACKGROUND

The facts surrounding the alleged maritime lien and the

arrest of in rem Defendant, the Barge Pt. Potrero ("Barge" or "in

rem Defendant"), have been set forth in previous Orders of this

Court, familiarity with which is presumed. For the purposes of

this Order, it is necessary to note only that Plaintiff filed a

verified Complaint on December 12, 2005, alleging that he held a

maritime lien on the Barge as a result of outstanding charges from

salvage and towing services Plaintiff provided in May and June

2005. Plaintiff first provided maritime services to Buhl pursuant

to an oral agreement, and subsequently entered into a written

contract titled "Towage Agreement, Terms and Conditions" ("Towage

Agreement"). 

After presenting Buhl with an invoice detailing allegedly

outstanding charges, Plaintiff sought and obtained an Order

arresting the Barge and transferring control of the vessel to a

substitute custodian. Claimants have since posted security for

the Barge, are in custody of the vessel, and have now moved for an

Order quashing the arrest, or, in the alternative, for costs

security. Defendants have joined Claimants in arguing that the

lien should be quashed, and have also separately moved this Court

to stay the action and compel the parties to arbitrate their

claims. Plaintiff has opposed these motions.

 

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28 3

III. LEGAL STANDARD

 A. Validity of the Lien

Under the Maritime Lien Act, 46 U.S.C. § 31342, an entity has

a lien on a vessel if they provide necessaries to the vessel on

the order of the owner or an individual authorized by the owner. 

A post-arrest adversary hearing under Rule E(4)(f) “is not

intended to resolve definitively the dispute between the parties,

but only to make a preliminary determination whether there were

reasonable grounds for issuing the arrest warrant.” Lion de Mer

v. M/V Loretta V, No. Civ. L-98-921, 1998 WL 307077 at *2 (D. Md.

Apr. 3, 1998). Thus, Plaintiff bears the burden of showing that

“probable cause” existed to arrest the vessel, which “translates

roughly to requiring that plaintiff show entitlement to a maritime

lien.” Newport News Shipbuilding and Dry Dock Company v. S.S.

Independence, 872 F. Supp. 262, 265 (E.D. Va. 1994).

B. Agreement to Arbitrate

Under the United States Arbitration Act, 9 U.S.C. §1 et seq.,

Federal Courts must order the parties to arbitrate a dispute that

falls within the purview of a valid and binding agreement to

arbitrate. Given the compulsory language of the Act, the Court's

inquiry on a motion to compel arbitration is necessarily a limited

one, and should involve examining only whether (1) there is an

agreement to arbitrate; (2) there are arbitrable claims; and (3)

whether there has been a waiver of the right to arbitrate by the

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moving party or other defense to arbitration. Schwarzer, Tashima

& Wagstaff, Federal Civil Procedure Before Trial, § 16.99 

(2004 ed.); see Chiron Corp. v. Ortho Diagnostic Systems, Inc.,

207 F.3d 1126, 1130 (9th Cir. 2000) .

IV. DISCUSSION

A. Claimants' Motion to Quash the Arrest 

In support of their position that the arrest of the Barge

should be quashed, Claimants first argue that Plaintiff Greger

Leasing Corp. cannot hold a lien on the Barge because that entity

did not exist at the time the salvage and towing services were

provided. See Claimants' Motion to Quash Arrest or in the

Alternative, for Costs Security at 7-9 ("Clmts.' Mot."). Rather,

those services were furnished by Ron Greger d/b/a Greger Leasing,

which was subsequently incorporated under the laws of the State of

Nevada, forming Greger Leasing Corp. Claimants argue that

Plaintiff has not proffered any evidence demonstrating that the

lien was formally transferred from the entity that provided the

services - Ron Greger d/b/a Greger Leasing - to the Plaintiff

Corporation. Id. at 8-9. 

However, Claimants' arguments in this respect are misguided. 

Not only has Plaintiff proffered a document that purports to

transfer all assets and liabilities from Greger Leasing to Greger

Leasing Corp., but Claimants have overlooked the fact that Nevada

law provides that all assets and liabilities of a predecessor

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business organization become the assets and liabilities of the

successor organization when a conversion from one form to another

takes place. See Nev. Rev. Stat. § 92A.250(3)(a)-(g). Such a

transfer occurs by operation of law, and does not depend on

execution of a formal assignment. Id. Accordingly, the right to

enforce a maritime lien, if held by Ron Greger d/b/a Greger

Leasing, passed to Plaintiff upon its incorporation. Claimants'

argument on this point is therefore entirely without merit.

Claimants also assert that, even if Plaintiff did possess a

lien, Plaintiff is estopped from enforcing that lien because he

allegedly remarked that the sum Buhl owed him for salvage and

towing services had been satisfied. See Clmts.' Mot. at 9-11.

Claimants assert that they relied on Plaintiff's representation to

that effect, and that their reliance has operated to their

detriment. Id. Accordingly, Claimants assert, Plaintiff is

estopped from enforcing the lien.

In response, Plaintiff disputes ever having made the alleged

remark, and appeals to the Court to consider the likelihood of

waiving security on a debt that Plaintiff claims is in excess of

$453,000.00. 

At the adversary hearing, Claimants proffered the testimony

of Aaron and Christian Lind, who claim that Plaintiff said that

the account between himself and Buhl was "all good." Interpreting

this to mean that Plaintiff would not assert a lien against the

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vessel, Claimants purchased the Barge from Buhl only to later

learn that Plaintiff intended on enforcing his lien by means of

arresting the vessel and proceeding in rem. 

In response, Plaintiff denied ever having said anything that

could be construed as a representation that Buhl's account had

been satisfied or that Greger would not assert a lien on the

vessel. 

While the Court does note that Plaintiff's explanation with

respect to the chronology and substance of important events in

this case is lacking in coherence and persuasiveness, there is

insufficient evidence to find that Plaintiff actually made the

purported statement, or that, even if made, it carried the legal

meaning that Claimants evidently ascribed to it. The alleged

utterance - that Plaintiff was "all good" with respect to Buhl's

account - was vigorously disputed by Plaintiff, is susceptible to

different interpretations, and appears to have been made in an

offhand manner, if actually made. Furthermore, the Court notes

that it would be truly extraordinary for a creditor to waive

security on a large debt merely upon oral representation by the

debtor that payment of the debt was forthcoming. Simply stated,

the Court finds that the evidence on this point is insufficient to

support a ruling that Plaintiff is estopped from asserting a

maritime lien, and, accordingly, Claimants' motion to quash the

arrest is DENIED. 

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Despite the repeated efforts of the parties to turn a limited

adversary hearing into a full-blown trial on the merits, the

Court's inquiry at this point remains focused on the narrow issue

of whether Plaintiff has demonstrated probable cause to believe a

lien exists. In this respect, the Court finds that Plaintiff has

succeeded. However, in so ruling, the Court expresses no opinion

as to the actual amount owed Plaintiff for the work performed, and

in no way endorses Plaintiff's theory that the full value of the

Barge is necessary to secure his purported account receivable. 

B. Motion for Costs Security

Claimants have also moved for an award of costs security

pursuant to Supplemental Admiralty Rule E(2)(b) and Admiralty

Local Rule 7-1. Supplemental Admiralty Rule E(2)(b) provides

that: 

the court may...require the plaintiff, defendant, claimant, or

other party to give security, or additional security, in such

sum as the court shall direct, to pay all costs and expenses

that shall be awarded against the party by any interlocutory

order or by the final judgment, or on appeal by any appellate

court. 

Admiralty Local Rule 7-1 directs that "[u]nless otherwise

ordered, the amount of security shall be $500."

 Claimants assert that the Court should order Plaintiff to post

a bond because good cause exists to question Plaintiff's ability

to satisfy an award of costs against him. Clmts.' Mot. at 13-14.

In support of this position, Claimants note that (1) Plaintiff is

an out-of-state corporation formed "solely for the purposes of

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prosecuting this action"; (2) Plaintiff corporation was formed

only recently, on October 18, 2005, and allegedly has no assets;

and (3) Greger "would hide behind the asset-less Greger Corp. to

avoid paying a judgment for costs." Id. Claimants aver that

their costs to date have reached at least $10,000.00, and that

future costs of $15,000.00 are reasonably anticipated. Id.

Claimants overlook the fact that the Court is limited by

Supplemental Admiralty Rule E(2)(b) to awarding security for costs

that will be awarded by this Court or upon appeal. However, there

is no basis for the presumption, necessary to Claimants' motion,

that an award of attorneys' fees will be forthcoming. Claimants

have not referred the Court to any law, rule of this Court, or

contractual provision that would entitle Claimants to an award of

attorneys' fees upon issuance of a judgment in their favor. 

Accordingly, the Court finds that to the extent that Claimants'

motion seeks security in excess of the $500.00 provided for by

Admiralty Local Rule 7-1, it is entirely unsupported by the law,

and therefore DENIES Claimants' motion for costs security. The

Court will grant Claimants an opportunity to renew their motion

for costs security in excess of $500.00, if Claimants present an

appropriate basis for such an increase in security. 

//

//

//

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1 The Towage Agreement, Paragraph 17, provides:

17. Arbitration: Any dispute between the Tower and Owner

arising out of this Agreement shall be arbitrated

at__________, in the following manner, One (1) arbitrator is

to be appointed by each of the parties hereto and a third by

the two (2) so chosen. In all respect [sic] the procedures

followed and the conduct of the arbitration shall be in

accordance with the Federal Arbitration Act (9 U.S.C. 1, et

seq.), and the decision of the arbitrators or any two (2) of

them shall be final and binding. For the purpose of enforcing

any award, this provision may be made a rule of the Federal

court sitting in the state where the arbitration is held. The

arbitrators shall, if possible, be commercial men or attorneys

possessing experience in matters and things to be arbitrated. 

The arbitrators are empowered to assess the cost and expense

of arbitration (including the arbitrator's fees) against the

losing party in whole or in part. 

9

C. Defendants' Motion to Stay and Compel Arbitration

Plaintiff has not contested that the Towage Agreement

contained a binding arbitration clause1, or that the claims

asserted by Plaintiff in his verified Complaint are arbitrable. 

Rather, Plaintiff contends that any claim Defendants might have

had to compel arbitration has been waived by Defendants'

participation in the litigation. This, Plaintiff asserts, is

inconsistent with a right to arbitration and would prejudice

Plaintiff should the Court grant Defendants' motion. See

Plaintiff's Opposition to Defendants' Motion to Stay Proceedings

and Compel Arbitration at 3-5 ("Pl.'s Opp."). 

To date, Defendants have filed an Answer, which contained

Defendants' compulsory counterclaims. Even without reference to

the long line of United States Supreme Court and Ninth Circuit

precedents that clearly outline a deferential posture for Courts

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considering enforceability of arbitration clauses, Plaintiff's

position on this issue is extremely weak. Not only have courts

held that merely filing an answer containing compulsory

counterclaims does not constitute action inconsistent with the

right to arbitrate, see Howard Fields & Assoc. v. Grand Wailea

Co., 848 F. Supp. 890, 898 (D. Haw. 1993), but also courts have

declined to find a waiver of the right to arbitrate even after 21

months elapsed between the filing of the Complaint and the motion

to compel arbitration. See China Union Lines v. American Marine

Underwriters, 458 F. Supp. 132 (S.D.N.Y. 1978); see also Tenneco

Resins, Inc. v. Davy Int'l AG, 770 F.2d 416, 420-21 (5th Cir.

1985) (finding that a party did not waive right to arbitration

where it asserted right to arbitration in its answer but did not

move to compel arbitration until eight months later and

participated in discovery); Carolina Throwing Co. v. S & E Novelty

Corp., 442 F.2d 329 (4th Cir. 1971) (holding that a delay of three

months and filing a counterclaim did not constitute a waiver of

arbitration). Furthermore, the Ninth Circuit requires a party

seeking to prove waiver of arbitration to show both acts

inconsistent with the right to arbitration and prejudice to the

party opposing arbitration resulting from the inconsistent acts. 

Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 694 (9th Cir.

1986).

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In this case, Defendant has consistently asserted the right

to arbitrate, see Answer at 10; Declaration of Cory Birnberg ¶¶ 5-

6, 8 Exhibits A, C, D, and has participated in the litigation only

by filing an Answer containing compulsory counterclaims. 

Discovery has not begun, and no trial date is set. Simply put,

Defendant's actions are not, as a matter of law, inconsistent with

the right to arbitrate, and Plaintiff will suffer no prejudice

from an order staying all proceedings in this matter and directing

Plaintiff and Defendants to proceed with arbitration as called for

by the Towage Agreement. Defendants' motion is therefore GRANTED. 

V. CONCLUSION

The Court finds that Plaintiff has demonstrated that it is

entitled to a lien on in rem Defendant in this matter. Claimants'

motion is therefore DENIED, except that Plaintiff is ORDERED to

post security in the amount of $500.00. Defendants' motion is

hereby GRANTED, all proceedings in this matter are hereby STAYED,

and Plaintiff and Defendants ORDERED to proceed to arbitration as

provided by the Towage Agreement. 

IT IS SO ORDERED.

Dated: April 5, 2006

 

UNITED STATES DISTRICT JUDGE

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