Opinion
CIVIL ACTION NO. 03-343, SECTION "L"(4).
May 19, 2003.
ORDER REASONS
Before the Court is the defendant's Motion to Vacate Attachment or Alternatively Set Security, to Set Counter-Security and Alternatively to Allow Discovery. Having considered the arguments of the parties and the applicable law, the Court makes the following rulings.
I. FACTS
This case arises out of the arrest and attachment of defendant Cable Shipping, Inc.'s, ("Cable") vessel, the M/V MIDNIGHT HUNTER. Plaintiff Torch Offshore, L.L.C. ("Torch") arrested the vessel, asserting claims for misrepresentation of the charter agreement between Torch and Cable and repudiatory breach of a fundamental term of the charter. The dispute concerns whether Cable misrepresented the clear deck space of the vessel in the charter agreement. The sole purpose of the arrest was to provide security for the underlying dispute, which will be resolved by arbitration in London, England in accordance with the charter agreement.
Cable moves the Court to vacate the arrest of the MIDNIGHT HUNTER, or set the security necessary for release of the vessel, and to set counter-security for Cable's claims against Torch Offshore, and to permit discovery regarding the reasonableness of damages.
II. ANALYSIS
Where a party seeks to vacate the arrest and attachment of a vessel, the burden is on the arresting party to show "reasonable grounds" for the arrest. See In re Murmansk Shipping Co., 2001 WL 699530, at * 2 (E.D. La. Jun. 18,2001); FED. R. CIV. P. Supplemental Rule E(4)(f) (providing that "[w]henever property is arrested or attached, any person claiming an interest in it shall be entitled to a prompt 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."). Since the defendant argues that the plaintiffs complaint fails to state a cause of action upon which relief can be granted, this Court will analyze the case under the standard set forth for Civil Procedure Rule 12(b)(6). See Murmansk, supra, 2001 WL 699530, at * 2.
Cable argues that it made no guarantee in the charter agreement as to vessel specifications, stating only that the details were given in good faith. Torch, however, asserts that its claims are not solely for breach of the charter, but also for misrepresentation and repudiatory breach of the charter, both of which are causes of action under English law. Both parties have attached memoranda from English counsel as to the basis for such claims. The parties' dispute is not whether such claims are recoverable as a matter of law, but whether the facts of this case warrant such recovery. However, it is not this Court's responsibility to judge the merits of the parties' position. Rather, it is only to determine if the plaintiffs allegations, if taken as true, assert a cause of action for which relief can be granted. The Court finds that the plaintiff has carried its burden of showing as much, and finds further that the plaintiff had reasonable grounds to arrest the vessel. The defendant's motion to vacate the arrest is DENIED.
Having resolved the issue of the reasonableness of the arrest, the Court next turns to the issue of security. Supplemental Admiralty Rule E(5)(a) provides that the Court may fix the principal sum of the bond "at an amount sufficient to cover the amount of the plaintiffs claim fairly stated with accrued interest and costs; but the principal amount 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." FED R. CIV. P. Supplemental Rule E(5)(a).
At present, Torch asserts that the principal amount of security owed is $2,176,325.97, plus 25% to cover interest, costs and expenses, bringing the total to $2,720,407.46. Cable asserts that this figure is unsubstantiated and inflated and should be reduced to $267,131.10. Torch responds that it would not have incurred the costs sought had Cable not misrepresented the vessel specifications in the charter agreement. Having reviewed the documentation provided by Torch to support its damages claims, the Court finds that the claims are supported and "fairly stated." Accordingly, the Court orders that security for release of the M/V MIDNIGHT HUNTER be set at $2,720,407.46.
The Court next addresses Cable's demand that Torch be required to post counter-security to cover its claims for breach of the charter agreement. Supplemental Rule E(7)(a) provides:
When a person who has given security for damages in the original action asserts a counter-claim 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 counter-claim unless the court for cause shown, directs otherwise.
FED. R. CIV. PROC. Supplemental Rule E(7)(a).
Cable has not filed a counter-claim in this case, but has made a demand in arbitration in London for Torch's alleged breach of the charter agreement. Cable asserts that it has complied with the rules and that to file a counter-claim would violate the arbitration provisions of the charter agreement. The Court finds that this is not the case. The plain language of Rule E(7)(a) provides that counter-security is appropriate only where the person seeking counter-security has filed a counter-claim. An arbitration proceeding is not a counter-claim as that term is understood in the Federal Rules of Civil Procedure. Accordingly, Cable's request for counter-security is DENIED.
Finally, Cable requests that the Court permit a limited window of time within which to conduct discovery relevant to Torch's damage claims. Torch opposes such request contending that the merits of the case will be resolved in arbitration and that this is not the forum to conduct discovery with respect to those claims. The Court agrees with Torch. In Republic of Kazakhstan v. Biedermann International, 168 F.3d 880 (5th Cir. 1999), the Fifth Circuit held that federal courts should not assist in the discovery of matters relating to foreign arbitration disputes. Id. at 883. Further, in North of England Protecting and Indemnity Ass'n Ltd. v. M/V NARA, 1999 WL 33116417 (E.D. La. Aug. 13, 1999), this Court held that where a vessel was arrested for the sole purpose of obtaining security for arbitration, the Court could not compel discovery concerning the merits of the dispute. Id. at * 2-3. In the instant case, Cable seeks discovery concerning Torch's damages claims. This is a matter for the London arbitrator, not this Court, to resolve. The defendant's request for discovery is denied.
III. CONCLUSION
For the foregoing reasons, IT IS ORDERED that the defendant's Motion to Vacate Attachment, or Alternatively Set Security, to Set Counter-Security, and Alternatively to Allow Discovery is GRANTED IN PART AND DENIED IN PART. The motion is GRANTED insofar as it seeks to set security. As to all other relief sought, the motion is DENIED. Accordingly, IT IS ORDERED that the security for release of the M/V MIDNIGHT HUNTER be set at $2,720,407.46.