Opinion ID: 149303
Heading Depth: 2
Heading Rank: 3

Heading: In Rem Interest

Text: The district court denied Plaintiffs' post-judgment motion to increase the amount of the letter of undertaking to $5,690,000 to permit recovery of post-judgment interest pursuant to 28 U.S.C. § 1961. The district court found that language in the letter limiting recovery to $5.5 million inclusive of interests and costs constituted waiver of in rem recovery of post-judgment interest. Plaintiffs cross-appealed this order. Pursuant to Rule E(5) of the Supplemental Rules for Admiralty and Maritime Claims, release of an arrested vessel may be effected upon posting of a special bond to cover the amount of the plaintiff's claim fairly stated with accrued interest and costs. Rule E(5)(a) provides two avenues to effect such a release. First, the parties may stipulate the amount and nature of such security. Second, [i]n the event of the inability or refusal of the parties so to stipulate the court shall fix the principal sum of the bond or stipulation at an amount sufficient to cover the amount of the plaintiff's claim fairly stated with accrued interest and costs. If fixed by the court, the principal sum should be the lesser of the value of the vessel or twice the amount of plaintiff's claim. However, whether fixed by the parties or by the court, [t]he bond or stipulation shall be conditioned for the payment of the principal sum and interest thereon at 6 per cent per annum. Defendants claim that Plaintiffs' in rem recovery of both damages and interest is capped at $5.5 million by the letter's provision limiting liability to a sum certain inclusive of interests and costs. This language, they argue, constitutes waiver of Plaintiffs' statutory right to a bond or stipulation conditioned on payment of the principal sum plus 6 percent interest per annum. Plaintiffs argue that the letter was not a stipulation as to the principal sum, pointing to language permitting increase or decrease in the security by agreement of the parties or order of the district court. The letter of undertaking did not waive Plaintiffs' right to condition the letter of undertaking on accrual of Rule E(5) interest, they argue. Considering how common letters of undertaking are in the vessel seizure context, there are surprisingly few cases interpreting them. The few that do apply standard contract principles and specifically enforce their provisions. See, e.g., Chiquita Int'l Ltd. v. Liverpool & London Steamship Prot. & Indem. Ass'n Ltd., 124 F.Supp.2d 158 (S.D.N.Y.2000). Applying such principles, we cannot agree that the inclusive of interests and costs provision of this letter constitutes a waiver of Rule E(5) interest on a letter of undertaking. As the district court found in ¶ 69 of its findings of fact, the letter of undertaking contains no definitive stipulation of value. In fact, the parties disagreed vigorously as to the value of the vessel and eventually left it to the court to determine value and set the principal sum. The inclusive of interest and costs language in the letter is consistent with the Rule E(5) mechanism allowing the district court to set the principal sum at an amount sufficient to cover Plaintiffs' claim with interest and costs accrued to date, but not exceeding the value of the vessel. By rule, once this amount is set and the vessel is released by a letter of undertaking, that letter shall be conditioned for the payment of interest at 6 percent per year. This provision constitutes a gap-filling provision in any bond or letter of undertaking issued to secure the release of an arrested vessel. Regardless of whether this provision of Rule E(5) can be waived by consent of the parties, it was not waived here. We hold that the letter of undertaking in this case is conditioned on the payment of 6 percent interest per annum. What complicates this case is that Plaintiffs asked for the wrong relief. Plaintiffs moved the district court to increase the value of the letter of undertaking to $5,690,000, an amount sufficient to permit in rem recovery of post-judgment interest. The district court properly denied this request, because the security provided by a letter of undertaking cannot exceed the value of the vessel, and a district court ordinarily should not increase the amount of security absent fraud, mistake, or misrepresentation, none of which are present here. See Moore v. M/V ANGELA, 353 F.3d 376, 385-86 (5th Cir. 2003). But there was no need to increase the value of the letter of undertaking, because by operation of Rule E(5), the letter is conditioned on the payment of 6 percent interest per annum and has been since it was memorialized on September 12, 2005. Out of the present value of this letter of undertaking, Plaintiffs can recover their damages, plus the pre-judgment interest awarded by the district court, plus the post-judgment interest to which they are entitled pursuant to 28 U.S.C. § 1961. Their recovery is limited, however, to the present value of the letter of undertaking; that is, Plaintiffs cannot recover a sum greater than the principal sum plus Rule E(5) interest accrued since September 12, 2005. Accordingly, we remand the case to the district court to (1) determine the present value of the letter of undertaking, which is the principal sum of $5.5 million plus interest accrued on that amount at 6 percent per annum since September 12, 2005; (2) determine the present value of Plaintiffs' judgment, which is their damages, plus pre-judgment interest awarded by the district court, plus post-judgment interest pursuant to § 1961; and (3) based on these calculations, enter an order setting the total amount of recovery Plaintiffs can recover in rem, which is the amount calculated in (2), subject to the maximum calculated in (1).