Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_03-cv-02892/USCOURTS-cand-3_03-cv-02892-0/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

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

NOVAMAR INTERNATIONAL SCARL,

Plaintiff,

v

NOBLE AMERICAS CORP,

Defendant. /

No C-03-2892 VRW

ORDER

This case in admiralty is about a shipping voyage whose

scheduling went very wrong.

Defendant, a chemical supplier, contracted with

plaintiff, a chemical parcel tanker operator, to transport a cargo

across the Pacific Ocean from Malaysia and Taiwan to the United

States. The vessel, the ISOLA BLU, was late arriving at the Port

of San Francisco, missing a scheduled opportunity to unload her

cargo. She had to sit at anchorage in San Francisco Bay from June

2, 2003, the date of her arrival, until June 22, when facilities

became available to unload the cargo. For this delay, plaintiff

seeks demurrage of $18,000 per day, $334,517.32 all told. Compl

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United States District Court

For the Northern District of California

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(Doc #1) at 2. To secure the release of its cargo, defendant

posted a $500,000 bond (representing the demurrage claim plus about

50% to secure plaintiff’s costs and fees). Bond (Doc #12).

Defendant answered and counterclaimed, alleging that

plaintiff botched the scheduling for the vessel’s arrival in Asia

and had failed to prepare the vessel adequately to receive the

cargo, thereby delaying her departure from the Asian ports, and in

turn delaying her arrival at San Francisco, causing defendant to

incur costs and liabilities to the receivers for the late-arriving

cargo. Answer (Doc #14). Defendant now moves the court to order

plaintiff to post countersecurity of $227,850, representing,

defendant asserts, the principal amount in controversy in the

counterclaim, plus 50% for costs and fees. Def Mot (Doc #32). 

Plaintiff opposes, arguing that (1) defendant’s motion for

countersecurity is untimely; (2) the underlying counterclaim is

frivolous and so does not require countersecurity; and (3)defendant

does not genuinely suffer insecurity as to its claim because

plaintiff (although in voluntary liquidation) will have sufficient

assets to pay any arbitral award.

Supplemental Admiralty Rule E(7)(a) provides in relevant

part:

When a person who has given security for

damages in the original action asserts a

counterclaim that arises from the transaction

or occurrence that is the subject of the

original action, a plaintiff for whose benefit

the security has been given must give security

for damages demanded in the counterclaim unless

the court for good cause shown, directs

otherwise.

The intent of this requirement is “to place the parties on an

equality as regards security.” Washington-Southern Navigation Co v

Case 3:03-cv-02892-VRW Document 43 Filed 05/18/05 Page 2 of 8
United States District Court

For the Northern District of California

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Baltimore & Philadelphia Steamboat Co, 263 US 629, 638-39 (1924). 

Thus, Rule E(7)(A) creates a presumption in favor of ordering

countersecurity on a counterclaim when security has been ordered on

an original claim.

Plaintiff first contends that defendant’s motion is

untimely. Defendant’s answer and counterclaim was filed on July

29, 2003, and it was some twenty months later, on March 25, 2005,

that defendant first applied to the court for countersecurity. 

Moreover, defendant’s principal claim (relating to its liability to

its receivers for the late arrival of the cargo) accrued several

months before the counterclaim was filed, yet defendant did not

seek to arrest the ISOLA BLU while she was delayed at San

Francisco. Defendant offers two persuasive responses. First, it

notes that plaintiff delayed for nearly two years before issuing a

demand for arbitration. The court concurs; there was a series of

case management conferences in late 2004 and early 2005 during

which the court had to cajole plaintiff into issuing its demand for

arbitration or proceeding with the litigation.

Second, defendant asserts that it recently learned of

what it terms plaintiff’s “precarious financial position.” Because

of this defendant has both subjective insecurity, and, the court

finds, objectively reasonable insecurity. See Ramos Decl (Doc #33)

¶6 (“[Defendant] has learned that [plaintiff] is in financial

difficulty. Persons claiming to be liquidators acting on behalf of

[plaintiff] contacted [defendant] regarding this claim. Those

people have advised [defendant] that [plaintiff] is subject to

liquidation proceedings in Italy.”); Bernardini Decl (Doc #38) ¶2

(“[Plaintiff] is presently in voluntary receivership. The company

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United States District Court

For the Northern District of California

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is undergoing a voluntary liquidation of assets.”). It is quite

reasonable for defendant to have had no desire to obtain

countersecurity (and expose itself to liability for a bond premium

as a taxable cost) in the past, but then change its position given

the pending liquidation proceeding. This change of circumstances

is more than enough to excuse defendant’s delay.

Plaintiff’s second argument in opposition is that the

counterclaim is frivolous. It is well established that “the court

should not require countersecurity where the counterclaim is

frivolous or so lacking in merit that the court can only conclude

that the counterclaim was advanced solely to secure a negotiating

advantage over the complainant.” Titan Navigation, Inc v Timsco,

Inc, 808 F2d 400, 404 (5th Cir 1987). This principle seems to be

invoked most often when a seaman of limited means proceeds against

a vessel in rem and is confronted with a counterclaim for which he

cannot post security; if countersecurity is required, but cannot be

posted, the seaman could be forced to abandon him affirmative

claim. See, e g, Washington-Southern Navigation, 263 US at 634-35;

Titan Navigation, 808 F2d at 404-05. This situation does not seem

to apply to plaintiff -- at least, plaintiff does not argue that it

will be unable to post security, and affirmatively argues (see

below) that it is in no financial peril. Furthermore, there is no

evidence that defendant’s counterclaim was “advanced solely to

secure a negotiating advantage.” Id at 404.

Nonetheless, assuming arguendo that it is proper to

consider whether a claim is frivolous absent economic inequality

and evidence that procedural fencing is afoot, the court does not

find defendant’s counterclaim to be frivolous. Plaintiff makes a

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superficially appealing argument: On the facts as alleged by

defendant, even if the vessel had arrived at the Asian ports on

schedule, and even if it had been ready to load cargo, it still

would not have made San Francisco in time to deliver the cargo to

defendant’s receivers as required by defendant’s contract with its

receivers. As such, plaintiff argues, defendant has no one but

itself to blame for being unable to serve its receivers on time.

Plaintiff’s argument misses the mark. The viability of

defendant’s claim turns not on what its original contract with its

receivers was, but on what defendant’s reasonable expectation was

with respect to delivering its performance to its receivers. 

Indeed, defendant offers evidence that it amended its contract with

its receivers twice in the weeks following the date when

performance was originally due. See Ramos Decl (Doc #40) ¶9 & Ex

3. Whether defendant would have had to enter into the same

contract amendments had the ISOLA BLU arrived without the

incremental delay caused by plaintiffs seems to be a question of

proof to be put before the arbitrator. In other words, plaintiff’s

actions allegedly delayed the vessel’s delivery; if through that

delay defendant incurred incremental liability to its receivers, it

would appear that defendant has a nonfrivolous argument for

recovery from plaintiff.

Plaintiff also asserts, in essence, that the charter

party does not give defendant an enforceable right to have the

vessel arrive at the originating port in a timely fashion. Without

entering the fray on the merits, it strikes the court as highly

unlikely that a party aggrieved by a late-arriving vessel would

have no damage remedy whatsoever. And in any event, plaintiff’s

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argument effectively seeks a determination of the merits of

defendant’s claim, something that must be left to the arbitrator. 

Cf United Steelworkers of America v American Manufacturing Co, 363

US 564, 567-68 (1960) (“The function of the court is very limited

when the parties have agreed to submit all questions of contract

interpretation to the arbitrator.”). Accordingly, the court cannot

say that the claim is frivolous on its face.

Finally, plaintiff argues in opposition to defendant’s

motion that defendant suffers no genuine insecurity. According to

plaintiff’s former directors, plaintiff is “in voluntary

receivership,” in Italy, which is “not an insolvency proceeding.” 

Bernardini Decl (Doc #38) ¶¶2-3; Pesce Decl (Doc #37) ¶¶2-3. 

Plaintiff provides no details about what this receivership entails

or what its financial state during receivership is. Essentially,

plaintiff asks the court and defendant to trust that funds will be

available to satisfy any arbitral judgment. But a mistrust of

parties who say “trust me” is the very foundation for a requirement

that security be posted. If Rule E(7)(a) requires the posting of

countersecurity between normally situated commercial parties, then

a fortiori countersecurity should be required of a foreign

corporation undergoing liquidation under foreign law.

Having rejected plaintiff’s attempts to overcome the

presumption in favor of requiring countersecurity, the court turns

to the question of how much security to require of plaintiff. 

Defendant seeks countersecurity based on “the price adjustment made

for [its receivers] [$81,900] and for attorneys’ fees [$50,000] and

costs [$20,000], including the bond premium [on the security bond

already posted].” Def Mot (Doc #32) at 9. Defendant puts this at

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$151,900, and seeks 150% of this figure ($227,850) in actual

security. Rule E(5)(a)(i) authorizes security up to “twice the

amount of [defendant’s] claim,” but the balance of the Rule implies

that the “claim” does not include interest or costs. See Rule

E(5)(a) (“[T]he court shall fix the principal sum of the bond * * *

at an amount sufficient to cover the amount of the plaintiff’s

claim fairly stated with accrued interest and costs.”). The Rule

does not classify attorney fees. Defendant has cited no authority,

nor has the court located any, that holds attorney fees to be part

of a claimant’s “claim.” Moreover, the computation of plaintiff’s

claim for bond purposes -- approximately 18 days, 14 hours of

demurrage at $18,000 per day pro rata -- excluded any claim for

attorney fees. Finally, as explained below, excluding attorney

fees from the “claim” under Rule E(5)(a)(i) will not work a

hardship on defendant.

Hence, defendant’s actual claim is not $151,900; rather,

it is the $81,900 that it rebated to its receivers to compensate

for the delay in delivery. See Def Mot (Doc #32) at 3:21-24. 

Accordingly, the most security the court can order on this motion

is two times $81,900, or $163,800. Taking as true defendant’s

representations of the fees and costs it has incurred, this amount

will leave defendant fully secured, at least for the time being. 

And in some sense, defendant is better secured than plaintiff: 

While defendant has posted security of only about 150% of

plaintiff’s claim, the court is ordering plaintiff to post

proportionately greater countersecurity of 200% of defendant’s

claim.

Accordingly, defendant’s motion for countersecurity (Doc

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#32) is GRANTED. Plaintiff shall post countersecurity in the

amount of $163,800 on or before June 1, 2005. If plaintiff fails

to do so, defendant may move for the release of its security.

IT IS SO ORDERED.

 

VAUGHN R WALKER

United States District Chief Judge

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