Opinion ID: 2505
Heading Depth: 2
Heading Rank: 3

Heading: Reducing the Amount of an Attachment

Text: Since the Supplemental Rules were adopted in 1966, our circuit has not addressed how a court should determine the amount of plaintiff's claim fairly stated when it releases attached property under Rule E(5)(a) in exchange for the posting of a security. Neither have we addressed the circumstances in which a district court may find good cause to reduce a security under Rule E(6). Thus, here we are called on to give meaning to those phrases. As in Aqua Stoli, we must consider to what extent the district court may require a showing by the plaintiff beyond the simple fact that the textual requirements of Rule B have been met, Aqua Stoli, 460 F.3d at 438, in order to sustain the full amount of an attachment in a Rule E(5) or (6) proceeding. Plaintiffs argue that the same standard should apply to motions under Rule E(5) or (6) that apply to a Rule E(4)(f) motion. But our analysis in Aqua Stoli was focused specifically on the provisions of Rule E(4)(f) and its historical antecedents and purpose. Our conclusions regarding Rule E(4)(f) do not apply necessarily to the provisions of Rule E(5) and (6), which have distinct historical pedigrees and implicate differently the purposes of maritime attachment. Nonetheless, a similar framework of analysis is appropriate. Whereas Rule E(4)(f) was added to the Supplemental Rules in 1985 in response to a specific concern that the prior practice was not consistent with due process principles, the provisions of Rule E providing for the setting and reducing of a security for attached property were included in the Supplemental Rules adopted in 1966. See Fed.R.Civ.P. Supp. Rule E (1966). And those provisions are, in substance, a consolidation of provisions of the 1844 and 1920 Admiralty Rules. See Fed.R.Civ.P. Supp. Rule E, advisory committee's note (1966 adoption). As the Advisory Committee's notes on the 1966 rules explained: The ... limited objective [of the Supplemental Rules] is to carry forward the relevant provisions of the former [Admiralty] Rules ..., modernized and revised to some extent but still in the context of history and precedent. Accordingly, these Rules are not to be construed as limiting or impairing the traditional power of a district court, exercising the admiralty and maritime jurisdiction, to adapt its procedures and its remedies in the individual case, consistently with these rules, to secure the just, speedy, and inexpensive determination of every action. Fed.R.Civ.P. Supp. Rule A, advisory committee's note (1966 adoption). Specifically, the Advisory Committee's notes explained that [Rule E(5)] restates the substance of Admiralty Rule 5, [3] and that Rule E(6) was [a]dapted from Admiralty Rule 8. [4] Fed.R.Civ.P. Supp. Rule E, advisory committee's note (1966 adoption). Because Rule E(5) and (6) were intended to adopt and continue the prior practice, the historical practice and precedent are particularly important to our interpretation of these provisions.
Before the 1966 Supplemental Rules, a court deciding how to set a security [5] often made a preliminary assessment of the reasonableness of the plaintiff's claimed damages. This practice is especially evident in two district court cases from New York where the district court considered the extent to which its discretion to set a security was limited by a statutory provision (the precursor to § 2464) obliging the marshal to discharge arrested property on the receiving of a bond in an amount double the claimed by the libelant. In Peru v. The North America, the district court concluded that it was not obliged under 9 Stat. 181 [6] to set bail at twice the amount claimed by the libelant, noting that [the] statute does not assume to interfere with the powers of a court of admiralty to regulate the execution of its process, and the [bail] it is authorized to take, conformable to general principles of procedure in those courts, on the particular equities of each case. 19 F. Cas. 309, 309 (S.D.N.Y.1853) (No. 11017A). Addressing another statutory precursor to § 2464, [7] the district court reached a similar conclusion in Haakonsen v. Lotosland Corp. (The Lotosland), 2 F.Supp. 42, 43 (E.D.N.Y.1933) (citing The North America, 19 F. Cas. 309). The court observed that it would work inestimable hardship on the owner of any vessel if the statute were interpreted to permit the release of an attached vessel only if it were secured by a bond double the amount claimed by the libelant. Id. Such an interpretation, the court stated, would make necessary, for instance, in a libel involving a personal injury case, by setting forth damage in any ridiculous figure whatsoever, the filing of a stipulation or bond in double the amount, no matter how slight the actual injury or damage might have been. Id. The court concluded that [s]uch, certainly, could not have been the intention of the framers of the section; and, accordingly, it is not surprising to find, as was held in [ The North America ], that this section does not abridge the power of a court of admiralty in a suit in rem to accept bail for less than double the amount of the libelant's demand. Id. It appears that Rule E(5) adopted this approach to § 2464. Citing to The Lotosland, the Advisory Committee's notes explain that 28 U.S.C., [sic] § 2464 is incorporated with changes of terminology, and with a substantial change as to the amount of the bond in Rule E(5). Fed.R.Civ.P. Supp. Rule E, advisory committee's notes (1966 adoption); see also Grant Gilmore & Charles L. Black, Jr., The Law of Admiralty 796-97 (2d ed.1975) (describing the interaction of § 2464 and Rule E(5)). Having rejected the argument that the security must be set at twice the amount claimed by the libelant, the courts in The North America and The Lotosland turned to setting the security. In The North America, the government of Peru was claiming breach of a charter party and damages of $50,000 and upwards, but the charter party included a liquidated damages provision setting damages at $20,000. The North America, 19 F. Cas. at 309 (internal quotation marks omitted). The defendants argued that Peru's recovery would be limited to $20,000 and that the bond should be set accordingly. After considering the liquidated damages provision and applicable case law, the court found it ambiguous whether Peru's recovery would be limited to $20,000. Thus, the court concluded that it was appropriate to set bail according to the amount claimed by Peru, ordering the vessel to be discharged on $50,000 bail. Id. at 310. When fixing the amount of the bond in The Lotosland, the district court considered both whether the claimed damages were available to the plaintiff as a matter of law and whether the claimed damages were reasonable based on the facts. The Lotosland, 2 F.Supp. at 43 (noting the claim for care and maintenance cannot be disregarded under the relevant case law but observing that [t]he reasonableness of the amount of the claim is ... another matter). Ultimately, the court set the security at $50,000, noting that [i]t seems to me that the libelant will be amply protected if a stipulation or bond in the amount of $50,000 is furnished. Id. The court did not set the bond at the amount sought by plaintiff because, on the basis of verdicts and awards recorded in other cases, the conclusion is inescapable that the amount sought by this libelant is wholly disproportionate to those heretofore obtained. Id. The court reached that conclusion despite its observ[ation] that the measure of damages resulting in [this type of claim] is always troublesome because of the numerous uncertain factors involved. Id. Other cases from the mid- and late-1800s also suggest that it was the practice under the Admiralty Rules for a district court setting a security for the release of attached property to assess preliminarily whether the plaintiff's damages claim was reasonable. See Young v. The Cherokee (The Monarch), 30 F. 283, 284 (D.S.C. 1887) (Had the stipulation been executed under an order emanating from this court,... I would feel no hesitation in looking into the amount demanded, and in reducing it if the facts justified me in so doing.); The City of Hartford, 11 F. 89, 90 (S.D.N.Y.1882) (The power to ... abat[e] exorbitant security[] has long been recognized as one of the incidental powers of the court in regulating its practice and proceedings.); Forbes v. The Merrimac, 9 F. Cas. 413, 414 (E.D.N.Y.1866) (No. 4927) (This court will always promptly reduce the stipulation for value required in any case, to such sum as shall seem to be reasonable security for the claim as presented in the libel. ...). But see The Archer, 1 F. Cas. 1087, 1088 (S.D.N.Y. 1878) (No. 507) (I am referred to no statute, rule, or decision which authorizes the bonding of property ... for less than its actual value. ... However plain [the claimant's] apparent equity may be, it should not be determined on this motion. The ... fact that [the libelant] seems to have much more than sufficient security[] is no reason for depriving him of any part of it.). There are also more recent examples under the Admiralty Rules of courts assessing preliminarily the reasonableness of a plaintiff's damages claim when deciding how to set a security. The district court took such an approach in The Fairisle, 76 F.Supp. 27, 32 (D.Md.1947), affirmed sub nom., Waterman S.S. Corp. v. Dean, 171 F.2d 408 (4th Cir.1948). In that case, [a]fter hearing the contentions made on behalf of the respective parties, the Court concluded that libellants' figures were absurdly excessive, and ruled that a bond or stipulation in the amount of $25,000 was adequate under the circumstances as they appeared to the Court, in advance of a trial on the merits. Id. The $25,000 bond ordered was substantially less than the $1,000,000 that plaintiffs sought. And just a few years before the Supplemental Rules were adopted, our Court reviewed a district court's decision to release attached property worth $1,660,000 on the posting of a $250,000 bond. Konstantinidis v. Denizcilik Bankasi T.A.O., 307 F.2d 584, 585 (2d Cir.1962) (per curiam). The district court had fixed the amount of the bond based on the apparent availability in Turkey of assets of the respondent sufficient to meet any award made to the libellant in arbitration proceedings pending there and on affidavits of the proctors for both parties concerning negotiations between them for a release of the attachment. Id. On appeal, plaintiffs argued that these were inappropriate considerations in determining what was a `fair and equitable' amount for the bond. Id. We found no merit in the argument and affirmed the order setting the bond. Id. Finally, treatises describing the practice under the Admiralty Rules confirm that district courts assessed preliminarily the reasonableness of plaintiff's damages claim when setting bail for an attached vessel. See, e.g., Erastus C. Benedict, The American Admiralty 290 (4th ed. 1910) (The stipulation of bail in a suit in rem is given to procure the discharge of the property proceeded against. ... It is only necessary, therefore, that he give security to pay what the libellant may recover. ...); see also Gilmore & Black, supra, at 797-98 (explaining that in case of disagreement between the parties as to the award that could be made in that case, it was the practice under the former Admiralty Rules that the judge w[ould] set the stipulation at what seems to him a fair figure). As Conkling's treatise from 1857 described: As the sole object of the security is the attainment of justice between the parties, the court is bound so to regulate the exercise of the right to exact it, as to prevent its abuse as well as its abridgment; and as ... it is in the power of the libellant, by making an exorbitant demand, to compel the defendant to give excessive bail, or submit to imprisonment for want of it, it is the duty and the practice of courts of admiralty to listen to applications for the reduction of the amount of the bail. ... This practice is accordingly sanctioned and expressly affirmed by rule sixth of the Rules of Admiralty Practice. ... [8] 2 Conkling, supra, at 112-13.
As in Aqua Stoli, the historical purposes of maritime attachment are an important consideration in defining the standard that applies to a Rule E(5) or (6) motion. In Aqua Stoli, we found those purposes to be served by a rule that allowed courts only limited discretion to vacate an attachment where a valid prima facie admiralty claim had been stated and the requirements for an attachment had been fulfilled. We are not persuaded that similarly curtailing the district court's discretion to set or reduce a security serves those purposes. Moreover, limiting a district court's discretion to set or reduce a security in the same way that we have limited its discretion under Rule E(4)(f) creates a substantial and unnecessary risk that plaintiffs will abuse the maritime attachment power. Allowing district courts to assess preliminarily whether the damages claim is reasonable when setting a security under Rule E(5) or weigh this and other equitable considerations when reducing a security under Rule E(6) would not frustrate the purpose of maritime attachments in the same way that such inquiries in a Rule E(4)(f) proceeding would frustrate the purpose of maritime attachments. Maritime attachments serve two purposes: first, to gain jurisdiction over an absent defendant; and second, to assure satisfaction of a judgment. Aqua Stoli, 460 F.3d at 437. The first of these purposes would be undermined were a court to have broad discretion over whether to grant or vacate an attachment. But there is an important distinction between vacating an attachment and reducing the security for attached property such that a court's discretion in the former is troubling, but not in the latter. In maritime attachment cases, the court has jurisdiction because the defendant's res is within its jurisdiction. Winter Storm, 310 F.3d at 268 (The jurisdiction conferred by a maritime attachment is characterized as quasi in rem. ). Thus, when a court either refuses to issue or vacates an attachment, the court deprives itself of jurisdiction. Such a problem does not exist where the court merely reduces the value of the res within its jurisdiction. The second purpose of maritime attachments is served by a rule that allows courts to set the security at an amount that fairly reflects the plaintiffs' likely recovery. This purpose does not require that property in excess of the amount necessary to ensure satisfaction of the judgment be attached. [9] Absent district court discretion to set a security based on a preliminary assessment of a plaintiff's claims or to reduce the security based on a weighing of the equities, there would be no mechanism to ensure that maritime plaintiffs do not abuse the attachment procedure by claiming damages that have no basis in reality. Although we might tolerate such a risk to ensure that attachments may be obtained with a minimum of litigation, Aqua Stoli, 460 F.3d at 443, there is no need to tolerate the risk of abuse to ensure that a security in excess of the plaintiff's likely recovery may be maintained. As the district court observed in The Lotosland, it would work inestimable hardship on the defendant if a plaintiff could obtain an attachment for any amount it claimed in damages, no matter how exaggerated. 2 F.Supp. at 43. Finally, we are not persuaded by TNT's argument that if the scope of the permissible inquiry under Rule E(5) or (6) is broader than the inquiry under Rule E(4)(f), district courts could in virtually every case circumvent Aqua Stoli by ... reducing [the security] to a mere nominal sum. Appellant's Br. at 22. This argument is premised on a presumption that district courts would not apply the law faithfully, setting or reducing a security in a way that is not warranted by the circumstances. We assume that district court judges apply the law faithfully and we will not interpret the Supplemental Rules based on a contrary assumption.
Prior to our decision in Aqua Stoli, [10] district courts and circuit courts consistently concluded that a district court had discretion to make a preliminary assessment of the reasonableness of plaintiff's claimed damages when setting a security and to weigh this and other equitable considerations when reducing a security. See, e.g., Shakit v. M/V Forum Trader, 14 F.3d 5, 8 (5th Cir.1993) (concluding that the district court's order setting the release bond at $150,000 [despite plaintiffs' $6 million claim] is ... an exercise of the district court's discretion to value the plaintiffs' claims); Dongbu Express Co. v. Navios Corp., 944 F.Supp. 235, 238-39 (S.D.N.Y. 1996) (reducing attachment pursuant to Rule E(6) where plaintiff's claim was oversecured by virtue of a partially duplicative attachment in Korea); Angad v. M/V Fareast Trader, No. G-89-221, 1989 WL 201605, at  (S.D.Tex. Aug.23, 1989) (finding the bond properly fixed where affidavits showed the amount of the plaintiff's claim fairly stated exceeded the value of the vessel); Whitney-Fidalgo Seafoods, Inc. v. Miss Tammy, 542 F.Supp. 1302, 1304-05 (W.D.Wash.1982) (assessing value of plaintiff's claim and concluding that security is not clearly excessive so no reduction in the security is warranted); Techem Chem. Co. v. M/T Choyo Maru, 416 F.Supp. 960, 970-72 (D.Md.1976) (observing that the record justifies equitable relief  requiring plaintiffs to post a counter-security  where the amount claimed in the complaint was unjustified and the vessel's arrest had imposed substantial expense on defendant). In 20th Century Fox Film Corp. v. M.V. Ship Agencies, Inc., 992 F.Supp. 1429 (M.D.Fla.1997), relying largely on the text of the rule and a citation to Moore's Federal Practice and Procedure, the district court observed: While guiding standards are sparse ... when parties cannot agree on a bond amount, affidavits as to the amount of plaintiff's claim fairly stated have been considered in setting bonds under Supplemental Rule E(5)(a). The Court may look beyond the four corners of the claim in setting the bond. . . . . [[T]he `fairly stated' provision of Rule E(5)] indicates that the court is not bound by any monetary amount set forth in the complaint, but can look behind the complaint to ascertain the amount actually in controversy. ... Where the claim is unliquidated and the parties cannot agree as to the amount of the bond, it will be incumbent upon the court to make some effort to place a reasonable value on the claim. Id. at 1430-31 (citations and internal quotation marks omitted). In order to determine whether to reduce the amount of an attachment in Rolls Royce Industrial Power (India) v. M.V. Fratzis M., No. 95 Civ. 2630, 1995 WL 846690, at -11 (S.D.N.Y. July 24, 1995), the district court considered each of plaintiffs' damages claims and evaluated the reasonableness of the claimed damages. As to one category of damages, the court could not determine, on the available record, whether defendants' factual assertions were accurate. The court concluded, therefore, that the proper course is to refrain from disturbing the present attachment. Id. at  11. But the court went on to note specifically that at any time when the facts become more clear, the defendants may apply for a reduction under Rule E(6). That is what Rule E(6) is for. Id. As to the plaintiffs' claim for punitive damages, the court concluded that there is no reasonable basis, in fact or in law, to factor that amount into the attachment. I do not undertake this afternoon to say, as a matter of law, that the plaintiffs will not, at the end of the case, be able to recover punitive damages. But I am asked to take that particular element into account and give it a value of $500,000 for the purpose of continuing a restraint upon the defendants' economic situation. So, I must give some preliminary consideration to whether punitive damages are recoverable in a case such as this. And it seems to me that the authority in this circuit is so clearly against the plaintiffs that it would not be right to include that element, even at this preliminary stage. Id. at .