Summary
In Allied Maritime. Inc. v. The Rice Corp., No. 04 Civ. 7029, 2004 WL 2284389 (S.D.N.Y. Oct. 12, 2004), the Court vacated a Rule B attachment against TRC precisely because the attachment was not needed. The court explained: "TRC is more than capable of satisfying any judgment [the petitioner] might win. TRC is one of the largest rice trading companies in the world, with more than $575,000,000 in sales in 2003."
Summary of this case from Swift Splash LTD v. Rice CorporationOpinion
No. 04 Civ. 7029 (SAS).
October 12, 2004
Micheal E. Unger, Esq., Lawrence J. Kahn, Esq., Freehill, Hogan Mahar, L.L.P., New York, New York, for Plaintiff.
Keith B. Dalen, Esq., Hill, Rivkins Hayden, L.L.P., New York, New York, for Defendant.
OPINION AND ORDER
On September 1, 2004, Allied Maritime, Inc. ("Allied") moved this Court on an ex parte basis for the attachment of funds owned by The Rice Corporation ("TRC") and held in various banks in New York. On the same day, upon the filing of a verified complaint, the Court ordered that funds up to the sum of $2,111,948 be attached, pursuant to Rule B of the Supplemental Rules of Civil Procedure for Certain Admiralty and Maritime Claims ("Supplemental Rules").
At the same time, Allied sought to attach funds in Minnesota. Allied withdrew the Minnesota action shortly after discovering that TRC had no funds in Minnesota.
Supp. R. Fed.R.Civ.P.B.
Since September 1, 2004, funds totaling $454,558.58 have been attached, and are now held in an escrow account at Citibank. TRC having answered, the process of attachment has stopped. TRC now moves to vacate the attachment, and for counter-security and expenses. The Court held a post-attachment hearing on September 24, 2004, and a subsequent hearing on October 6, 2004. For the following reasons, the attachment is vacated, and TRC's motions for expenses and counter-security are denied.
The facts are taken from the submissions of the parties and are undisputed unless otherwise noted.
A. The Parties' Dispute
TRC is a trader in agricultural commodities. The dispute between Allied and TRC arises out of the transportation of a cargo of rice to Chile aboard the M/V PROGRESO DOS. TRC chartered this vessel from Allied. On the vessel's arrival in Chile, the receiver of the cargo, TRC Chile S.A. ("TRC Chile"), claimed that the rice was damaged and brought suit against Allied in the Chilean courts. TRC Chile caused the vessel to be arrested in Chile. Allied secured the release of the vessel by posting a bank guarantee in the amount of $550,000.
Allied then initiated arbitration proceedings against TRC in London. In those proceedings, Allied seeks indemnification for TRC Chile's claims, alleging that the rice was damaged as a result of improper stowage by TRC, and damages allegedly caused by the detention of the vessel in Chile, as a result of TRC's improper stowage. The total value of these claims is $2,111,948.
B. Allied's Attempts to Obtain Security
As security for these claims, on August 5, 2004, Allied obtained an order of attachment from the Chilean court for the rice still on the vessel. The value of the rice is approximately $1,048,880. The rice remains in Chile. It is depreciating in value; Allied alleges that the rice has a shelf life of approximately 18-24 months. The rice is also incurring storage costs. TRC has offered to conduct a sale of the rice in Chile and escrow the proceeds in Chile as security for Allied's claims. Allied has rejected this offer, arguing that the rice would not be sold at a fair price in Chile, and that it would be prejudiced by having the proceeds held in a Chilean institution.
Counsel for Allied has claimed that Chilean law does not permit the sale of the rice, but has offered no support for this assertion.
TRC has offered Allied alternative security, in the form of a letter of undertaking ("LOU") from its insurer, the Raetsclub, guaranteed by the Raetsclub's owner, Fortis. Allied refuses to accept this LOU. Allied argues that an LOU from the Raetsclub is insufficient security, because the Raetsclub lacks reinsurance, and is not a member of the International Group of Protection and Indemnity Clubs, a group of insurers that have agreed to insure each other in the event of a default by any member. Allied has offered to accept the Raetsclub's LOU on the condition that Allied would have a direct claim against Fortis for payment of the LOU, but this condition has not, so far, been met.
II. LEGAL STANDARD
Supplemental Rule B authorizes, in admiralty and maritime cases, attachment on an ex parte basis of a defendant's assets, provided the defendant cannot be "found within" the federal district in which the assets are sought to be attached. Supplemental Rule E(4)(f) provides for a prompt post-attachment hearing, "at which the plaintiff shall be required to show why the arrest or attachment should not be vacated or other relief granted consistent with these rules."
Supp. R. Fed.R.Civ.P. B(1).
Supp. R. Fed.R.Civ.P. E(4)(f).
The purpose of Supplemental Rule B is to enable the plaintiff both to acquire jurisdiction over the defendant and obtain security for any resulting judgment. The plaintiff may therefore show that the attachment should not be vacated by demonstrating either that the attachment is necessary for the plaintiff to obtain jurisdiction in a convenient district, or that the plaintiff needs the security of the attachment to satisfy any judgment it may win in the underlying suit. If the plaintiff cannot show that either of these purposes applies, the attachment may be vacated as "unfair." A plaintiff may show a legitimate need for security if it can demonstrate that the defendant is financially insecure, but must "present evidence to support its allegations of [defendant's] insecurity."
See Swift Co. Packers v. Compania Colombiana Del Caribe, S.A., 339 U.S. 684 (1950).
See Royal Swan Navigation Co. v. Global Container Lines, 868 F. Supp. 599, 604-05 (S.D.N.Y. 1994).
Id. at 604 (citing Integrated Container Service, Inc. v. Starlines Container Shipping, Ltd., 476 F. Supp. 119, 124 (S.D.N.Y. 1979) (finding that attachment was not unfair because plaintiffs' need for security was real, the defendant having "ceased operations altogether"). See also Central Hudson Gas and Elec. Corp. v. Empresa Naviera Santa, S.A., 845 F. Supp. 150, 153 (S.D.N.Y. 1994) ("The Rule was not abused, inasmuch as there was a substantial risk that [plaintiff] would not be able to locate sufficient assets to satisfy its claims.") (citations omitted).
Universal Africa Line v. EDF Man Cocoa, No. Civ. A. 96-1653, 1996 WL 179983 at *3 (E.D. Pa. Apr. 15, 1996).
III. DISCUSSION
Allied cannot and does not claim that the attachment is necessary to obtain jurisdiction over TRC. The dispute between Allied and TRC is governed by an arbitration clause, and arbitration proceedings in London have already begun. Therefore, Allied can only justify the attachment by a showing that it needs the attachment for purposes of security. Allied has failed to make this showing.
See West of Eng. Ship Owners Mut. Ins. Ass'n v. McAllister Bros., 829 F. Supp. 125, 127 (E.D. Pa. 1993) (holding that an attachment may still be proper even when arbitration proceedings have already begun, because the attachment procedure serves the purpose of providing security as well as obtaining jurisdiction).
Allied argues that the attachment should be maintained because it is unsure of TRC's ability to satisfy any judgment awarded in the London proceedings. However, the Court has reviewed the affidavit of TRC's Vice President and Treasurer, which shows that TRC is more than capable of satisfying any judgment Allied might win. TRC is one of the largest rice trading companies in the world, with more than $575,000,000 in sales in 2003. TRC has a profit margin of two per cent — a narrow margin, but not remarkably so, for a business with such a high volume of sales. TRC has maintained offices in Roseville, California since 1993.
See Affidavit of Xavier Vespieren, Vice President and Treasurer of TRC, ¶ 2.
See id. ¶ 12.
See id. ¶ 2. See also Royal Swan, 868 F. Supp. at 606 (noting, as a sign of stability, that the defendant had maintained offices continuously in one location for ten years).
Allied's only response to this demonstration of TRC's size and stability is to raise the hypothetical possibility that TRC might no longer be solvent in three years' time, when the arbitration is expected to conclude. However, Allied offers no reason to suppose that TRC is at any greater risk of insolvency than any other defendant. TRC "has not resisted arbitration nor given any other indication that it is attempting to avoid adjudication of the dispute, a factor that might lead a plaintiff to suspect the need for security." Moreover, at the hearing on September 24, TRC alerted Allied to the presence of substantial assets in California, more than enough to satisfy Allied's claims. In the two weeks following that hearing, Allied has taken no steps to investigate TRC's assets, either to find some alternative source of security, or to demonstrate that TRC is incapable of satisfying a judgment against it. In these circumstances, it appears that Allied "does not need security for its claim any more than the typical plaintiff might," and the attachment must therefore be vacated.
Similarly, Allied's only explanation for its refusal to accept the offered letter of understanding from the Raetsclub as security is the purely hypothetical possibility that the Raetsclub might become insolvent.
Royal Swan, 868 F. Supp. at 606.
See id. at 606; see also Signet Shipping Co. v. Southern Hardwoods, Inc., 108 F. Supp. 2d 649, 650 (E.D. La. 2000) ("[W]hile plaintiff clearly would be less secure in the absence of the attachment, it would suffer no prejudice if the attachment were vacated. Indeed, its position would be no worse than that of any other plaintiff in a civil action.").
TRC also seeks attorney's fees and costs, on the ground that Allied's attachment was solely a "tactic of harassment." Because there has been no showing that Allied acted in "bad faith," TRC's request must be denied. TRC has not shown that Allied acted for any purpose other than to obtain security — and, while I find that the attachment is not necessary to give Allied sufficient security, this was a proper motive.
Memorandum of Law in Support of TRC's Motion to Vacate at 8.
U.S. Express Lines, Ltd. v. Higgins, 281 F.3d 383, 392 (3d Cir. 2002) (holding that award of attorney's fees and costs for wrongful attachment is appropriate only on a showing of "bad faith") (citing Furness Withy (Chartering), Inc., Panama v. World Energy Sys. Assocs., Inc., 772 F.2d 802 (11th Cir. 1985); Ocean Ship Supply, Ltd. v. MV Leah, 729 F.2d 971 (4th Cir. 1984); Frontera Fruit Co., Inc. v. Dowling, 91 F.2d 293 (5th Cir. 1937)).
Finally, TRC seeks counter-security under Supplemental Rules E(7) and E(2)(b). Because the attachment is vacated, this request is moot.
IV. CONCLUSION
TRC's motion to vacate the Rule B attachment is granted. TRC's motions for counter-security and expenses are denied. The Clerk of the Court is directed to close this motion and this case.
SO ORDERED.