Summary
finding daily custodial costs of $1,500 to maintain cruise ship valued at about $12 million excessive
Summary of this case from BOLAND MARINE MFG. CO., LLC v. M/V A.G. NAVAJOOpinion
Civil Action No. 00-3805 c/w 00-3809, 01-70, 01-71 01-87 SECTION "N"
June 11, 2001
ORDER AND REASONS
Before the Court are Winchester Navigation's Motion for Reconsideration; Winchester Navigation's Motion to Stay; Kennedy Funding, et al.'s Motion to Confirm Sale Pursuant to LAR 64.6B(3); and Kennedy Funding, et al.'s Motion for Leave to Amend and Supplement Stipulation for Credit Bid. For the following reasons, Winchester's Motions are DENIED, Kennedy's Motions are GRANTED, and Kennedy is ORDERED to deposit the sum of $4,000,000.00 into the registry of the Court within 15 days of this order.
I. BACKGROUND
On April 5, 2001, Kennedy Funding, et al. ("The Mortgagees"), submitted the highest bid for the MN ENCHANTED CAPRI at a Court-ordered interlocutory sale. On April 10, 2001, for the first time, an entity calling itself "Winchester Navigation Limited" ("Winchester") appeared and filed a "Motion to Oppose Confirmation of Sale." By Order and Reasons entered May 22, 2001, the Court deferred ruling on Winchester's opposition arid the Mortgagees' Motion to Confirm the Sale to provide Winchester an opportunity to post a vessel release bond of $12 million. See Rec. Doc. 279. Ummpressed by Winchester's allegations of fraud, the Court nonetheless felt that it was appropriate to allow Winchester an opportunity to assert its purported ownership rights, which include an opportunity to post a release bond. See FED. R. CIV. P. SUPP. R. FOR CERTAIN ADMIRALTY AND MAR. CLAIMS E(5)(a).
This same opportunity earlier had been afforded Norsong Shipping, Ltd., the party which originally claimed ownership of the ENCHANTED CAPRI. See Rec. Doc. No. 207, Apr. 2, 2001 Minute Entry (requiring $8 million release bond).
II. MOTION FOR RECONSIDERATION
Rather than posting a release bond, Winchester filed a Motion for Reconsideration. Unfortunately, its Motion is replete with misunderstandings regarding the nature of the interlocutory sale process and the Court's May 22, 2001 Order and Reasons.First, Winchester is incorrect that the Court has conclusively resolved the issue of ownership. As the Supplemental Rules make clear, the sale presently at issue is an interlocutory sale. See Supp. R. E(9)(b) ("Interlocutory Sales"). By definition, an interlocutory event is "Something intervening between the commencement and end of suit which decides some point or matter, but is not a final decision of the whole controversy. An interlocutory order or decree is one which does not finally determine a cause of action but only decides some intervening matter pertaining to the cause, and which requires further steps to be taken in order to adjudicate the cause on the merits." BLACK'S LAWDICTIONARY 815 (6th ed. 1990). See also BLACK'S LAWDICTIONARY (7th ed. 1999) (defining interlocutory as "interim or temporary, not constituting a final resolution of the whole controversy"). Supplemental Rule E(9)(b)(i) does not require, or even mention, the resolution of the merits of any particular claim; instead, the Rule focuses entirely on avoiding the recognized complications associated with maintaining a vessel under arrest:
On application of a party, the marshal, or other person having custody of the property, the court may order all or part of the property sold — with the sales proceeds, or as much of them as will satisfy the judgment, paid into court to await further orders of the court — if:
(A) the attached or arrested property is perishable, or liable to deterioration, decay, or injury by being detained in custody pending the action;
(B) the expense of keeping the property is excessive or disproportionate; or
(C) there is an unreasonable delay in securing release of the property.
Thus, it is patently clear that the issue of ownership is unresolved and remains to be litigated. The Court merely found that Winchester had failed to carry its burden of demonstrating that the sale should be rejected, in part because of an inadequate presentation of proof of fraud at that time.
Even assuming that Winchester is the rightful owner of the CAPRI, and even assuming that its claim and answer were properly filed, the Court finds that an interlocutory sale remains warranted in light of the considerations set forth in Supplemental Rule E(9)(b)(i)(A)-(C). As thoroughly explained in the May 22, 2001 Order and Reasons, the Court's chief concern in ordering the interlocutory sale was the excessive cost of maintaining the ENCHANTED CAPRI under arrest due to its special nature as a cruise ship. For example, custodia legis costs alone continue to accrue in an amount in excess of $1500 each day in order to prevent the CAPRI from deteriorating. SUPP. R. E(9)(b)(i)(A)(B). Moreover, neither Norsong Shipping Ltd. ("Norsong") nor Winchester have been able to secure the release of the ENCHANTED CAPRI, and there is no indication that either will be able to do so. Supp. R. E(9)(b)(i)(C). Indeed, Winchester has expressly admitted that it has been unable to secure a release bond because of its troubled financial status. See Mem. in Supp. of Mot. for Recons. p. 23.
Winchester's argument that requiring a release bond "is not required or called for under any law or procedure, but is merely the Court's solution," Mem. in Supp. of Mot. for Recons. p. 23, is contradicted by several provisions within the Supplemental Rules. Most importantly, Supplemental Rule E(9)(b)(ii), provides:
In the circumstances described in Rule E(9)(b)(i), the court, on motion by a defendant or a person filing a statement of interest or right under Rule C(6), may order that the property, rather than being sold, be delivered to the movant upon giving security under these rules.
Thus, the Court is expressly authorized to require a release bond from Winchester, a party claiming an interest or right under Rule C(6), and, upon failure of that party to post such a bond, to order an interlocutory sale. Similarly, Supplemental Rule E(5)(a) provides in pertinent part:
whenever process of maritime attachment and garnishment or process in rem is issued the execution of such process shall be stayed, or the property released, on the giving of security, to be approved by the court or clerk, or by stipulation of the parties, conditioned to answer the judgment of the court or of any appellate court.
Winchester argues that the Court has unfairly set the amount of the release bond. Supplemental Rule E(5)(a) provides, in pertinent part:
The parties may stipulate the amount and nature of such security. In 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 plaintiffs claim fairly stated with accrued interest and costs; but the principal sum shall in no event exceed (i) twice the amount of the plaintiffs claim or (ii) the value of the property on due appraisement, whichever is smaller. The bond or stipulation shall be conditioned for the payment of the principal sum and interest thereon at 6 per cent per annum.
The parties to this litigation have been unable to stipulate to the amount of a release bond. In an earlier Minute Entry, the Court ruled that Norsong would be required to post an $8 million release bond, based on the appraisal amount used for purposes of the interlocutory sale. See Rec. Doc. No. 207, Apr. 2, 2001 Minute Entry. The Court required Winchester to post a $12 million bond based on Winchester's allegation that the CAPRI's "true value is at least $12 million." See May 22, 2001 Order and Reasons p. 10 (quoting Winchester). Even assuming that Winchester should only have been required to post an $8 million bond, Winchester has made it clear that it cannot post any bond. See Mem. in Supp. of Mot. for Recons. p. 23.
In addition, the Court notes that Winchester does not contend that the arrest should be vacated pursuant to Supplemental Rule E(4)(f). See Mem. in Supp. of Mot. for Recons. p. 2 (noting that it has waived its defenses to arrest under the Foreign Sovereign Immunities Act).
Finally, Winchester is entirely incorrect that the Court decided confirmation of the sale solely on the insufficiency of Winchester's proof of fraud, when it could only properly consider preserving confidence in judicial sales in making this decision. First, in addition to Winchester's fraud allegations, the Court thoroughly considered the adequacy of the interlocutory sale price in the May 22, 2001 Order and Reasons, concluding that the price appeared adequate in light of the appraisal value and that a resale was unlikely to produce a better result. See pp. 8-10 (concluding that the Mortgagees' bid "could be worth as much as $8.9 million" and that a re-sale was unlikely to attract more bidders or a higher bid price). Second, Winchester's argument that the Court could consider only the public's confidence in judicial sales in deciding whether to reject the Mortgagees' bid is contradicted both by Winchester's previous arguments and the authority it cites in support of its present argument, not to mention the law and common sense. As to Winchester's former argument, the Court noted in the May 22, 2001 Order and Reasons that
Winchester is correct that the Court has the ability to reject the highest sale bid in the unusual case where the circumstances, including the sale price, shock the conscience. See Wong Shing v. MN MARDIINA TRADER, 564 F.2d 1183, 1188 (5th Cir. 1977) ("Until confirmation, a sale in admiralty may be set aside at any time, but extreme caution should be used in such actions. The grounds recognized as justifying setting aside a sale include fraud, collusion, and gross madequacy of price.") (citations omitted). . . .
Pp. 7-8. As to Winchester's present argument, it quotes the following language from Dynamic Marine Consortium S.A. v. MN LATIINI, 120 F. Supp.2d 595, 602 (E.D. La.), appeal dismissed, 179 F.3d 278 (5th Cir. 1999):
Whether to accept or reject the bidder's offer "is within the sound discretion of the court, to be exercised with due regard to the special circumstances of the case and to the stability of judicial sales.'
At the risk of stating the obvious, the use of the conjunctive in this quotation contradicts Winchester's present position. Moreover, the May 22, 2001 Order and Reasons should make it abundantly clear that the Court thoroughly considered the "special circumstances" of the case at bar in reaching its decision. See, e.g., p. 2 ("From the outset, it was clear that the arrest of the ENCHANTED CAPRI would present difficulties to the Court. Most significant, cruise ships are much more expensive to operate and maintain than other kinds of vessels. In addition, and of almost equal significance, this particular cruise ship is the subject of a great multitude of maritime lien claims. Accordingly, it was paramount that the Court process the initial claims and potential interlocutory sale in as efficient and timely a manner as possible.").
In summary, because Winchester has been a party to this litigation since April 10, 2001, because it has been given the opportunity but has been unable to post a release bond, and because the conditions of Supplemental Rule E(9)(b) have been met, an interlocutory sale is warranted. The Court wishes to note that this conclusion does not depend on the timeliness or validity of Winchester's claim of ownership. The Court DENIES Winchester's Motion for Reconsideration.
II. MOTION TO STAY .
Winchester moves to stay the effect of confirmation pending reconsideration and appeal. "In order to obtain a stay pending appeal the moving party must demonstrate: (1) that it is likely to succeed on the merits; (2) that it would suffer irreparable injury if the stay were not granted; (3) that granting the stay would not substantially harm the other parties; and (4) that granting the stay would serve the public interest." National Treasury Employees Union v. Von Raab, 808 F.2d 1057, 1059 (5th Cir. 1987) (citing United States v. Baylor Univ. Med. Ctr., 711 F.2d 38, 39 (5th Cir. 1983), cert. denied, 469 U.S. 1189, 105 S.Ct. 958, 83 L.Ed.2d 964 (1985)).
The Court finds a stay improper. First, as discussed above, Winchester is unlikely to succeed on the merits, since the propriety of the interlocutory sale does not depend on the issues it wishes to appeal. Second, as thoroughly discussed in this Court's May 22, 2001 Order and Reasons, a stay will substantially harm the other creditors and will disserve the public interest by allowing the enormous costs of arrest to continue to mount. Indeed, staying confirmation of the sale will result in the exact problems Supplemental Rule E(9)(b) and this Court seek to avoid. Finally, Winchester will sustain no irreparable injury if the stay is not granted. Although Winchester disputes the propriety of this sale, it does not dispute the propriety of a sale in general and, in light of its inability to post a release bond, is unlikely to be able to outbid the Mortgagees at a resale. Thus, Winchester is likely to lose the right to possess the CAPRI irrespective of the granting of a stay. Moreover, as discussed above, the sale at issue does not involve a determination of ownership rights, which Winchester will be able to litigate in due course and as contemplated by Supplemental Rule E(9)(b). Winchester also may be able to pursue fraud claims against Norsong. Therefore, the Court DENIES Winchester's Motion to Stay.
Winchester is incorrect that "Kennedy stands alone as the sole creditor who opposes the re-sale. . . ." Mem. in Supp. of Mot. for Recons. p. 10. At oral argument, at least one creditor, Bender Shipbuilding, expressly opposed Winchester's opposition, essentially because of the same concerns described by this Court in the May 22, 2001 Order and Reasons.
By separate order, the Court has denied Kennedy, et al.'s motion for entry of default.
III. MOTION TO CONFIRM SALE .
As discussed at length in the Court's May 22, 2001 Order and Reasons, the Court is satisfied that the Mortgagees' bid at the April 5, 2001 interlocutory sale is adequate and concludes that a resale is highly unlikely to produce a better result. Accordingly, the Court GRANTS Kennedy, et al.'s Motions to Confirm Sale and for Leave to Amend and Supplement Stipulation for Credit Bid. Pursuant to the supplemental stipulation, the Court ORDERS Kennedy, et al. to deposit the sum of $4,000,000.00 into the registry of the Court within 15 days of this order.
The Court encourages anyparty wishing to appeal under 28 U.S.C. § 1292 (a)(3) to do so post haste in order to avoid any further cost and delay.
IV. CONCLUSION.
For the reasons set forth above,
IT IS ORDERED that:
1. Winchester Navigation's Motion for Reconsideration is DENIED;
2. Winchester Navigation's Motion to Stay is DENIED;
3. Kennedy Funding, et al.'s Motion to Confirm Sale Pursuant to LAR 64.6B(3) is GRANTED; and
4. Kennedy Funding, et al.'s Motion for Leave to Amend and Supplement Stipulation for Credit Bid is GRANTED.
IT IS FURTHER ORDERED that Kennedy Funding, et al. DEPOSIT the sum of $4,000,000.00 into the registry of the Court within 15 days of this order. New Orleans, Louisiana, this