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CASINO v. M/V ROYAL EMPRESS

August 19, 1998

BAY CASINO, LLC., Plaintiff, against M/V ROYAL EMPRESS, her engines, boilers, tackle, etc., in rem, and SEACO LTD., CGG LTD. # 1 and BELAIR FINANCIAL SERVICES, INC., in personam, Defendants.


The opinion of the court was delivered by: JOHNSON

AMENDED MEMORANDUM & ORDER

 Introduction

 This matter is currently before the Court on Defendants' application, pursuant to Rule E(4)(f) of the Supplemental Rules for Certain Admiralty and Maritime Claims ("Supplemental Rules"), to vacate the arrest and attachment of the M/V ROYAL EMPRESS, and to allow Defendants to post a $ 200,000 bond instead. Defendants have also moved this Court pursuant to Supplemental Rule E(7) to require Plaintiff to post a $ 1,069,000 bond as security for their proposed counter- and cross-claims. On April 2, 1998, the Court conducted an evidentiary hearing and directed the parties to submit proposed findings of fact and conclusions of law. The following constitutes the Court's findings of fact and conclusions of law. For the reasons discussed below, the warrant of arrest and process of maritime attachment and garnishment are upheld and Defendants' motion to vacate is DENIED.

 FINDINGS OF FACT

 A. The Parties

 1. Plaintiff Bay Casino, LLC ("Bay Casino" or "Plaintiff" or "Charterer") is a limited liability company organized under the laws of the State of Delaware with its office and principal place of business located at 3202 Emmons Avenue, Brooklyn, New York 11235. Verified Complaint at P 2. Bay Casino has been granted a shipboard gambling license by the New York City Gambling Control Commission.

 2. Defendant CGG Ltd. # 1 ("CGG") is a Florida limited partnership having its principal place of business at Tampa, Florida. Joint Venture Agreement between CGG and Belair Financial Services, Inc.("Joint Venture Agreement"); Plaintiff's Hearing Exhibit 1.

 3. Defendant Belair ("Belair") is a Delaware corporation having its principal place of business located at Fort Lauderdale, Florida. Joint Venture Agreement at p.1.

 4. Defendant SeaCo Ltd ("SeaCo" or "Defendant" or "Owner") is a joint venture and unincorporated business association with its office and principal place of business located at Tampa, Florida. SeaCo is comprised of CGG and Belair ("Defendants"). Joint Venture Agreement at p.1; Hearing at 21 - 22. The Joint Venture Agreement is dated January 15, 1998, is signed by Buddy Levy, and one of its general purposes was to acquire the M/V Royal Empress -- the vessel at issue in the instant case. Id.

 5. The M/V ROYAL EMPRESS (the "Vessel") is a passenger vessel owned by SeaCo and registered under the laws of St. Vincent and the Grenadines currently within the jurisdiction of this Court and subject to a warrant of arrest and process of maritime attachment and garnishment pursuant to the Supplemental Rules. Verified Complaint P 3; Warrant of Arrest filed 3/27/98; Process of Maritime Attachment and Garnishment filed 3/27/98; Joint Venture Agreement at p.1; Claim of Owner filed by Seaco April 3, 1998. SeaCo purchased the Vessel in January of 1998 for five million dollars with the purpose of placing it at Sheepshead Bay with Bay Casino in order to operate it as a gaming ship. Hearing at 23 - 24. The Vessel was certified by the Florida office of the United States Coast Guard to carry 896 passengers. Hearing at 46. The Vessel is not certified in New York. Hearing at 47, 51.

 6. At all relevant times, Buddy Levy was the Manager of Defendant SeaCo and at the same time, until his termination on March 27, 1998, the Chief Executive Officer of Plaintiff Bay Casino. Levy is also the President of Coastal Gaming Group, Inc. ("CGGI") -- a general partner of CGG. Levy testified before the Court at the Hearing and also submitted an affidavit sworn to April 1, 1998. ("Levy Aff."). In connection with the charter, Levy made six trips to New York from Tampa, Florida between January and April of 1998. Hearing at 37.

 7. Joseph Kelleher is Executive Vice President of Plaintiff Bay Casino. He also testified at the Hearing and he submitted two affidavits sworn to April 1, 1998 and April 9, 1998, respectively. ("Kelleher Affs.").

 8. Gold Star Casinos Inc. ("Gold Star") is a Florida company that is involved in the shipboard management of casinos. Hearing at 33. On December 17, 1996, Bay Casino had entered into an exclusive contract with Gold Star at the inception of the Liberty I cruises. Kornblum Affidavit P 13.

 B. Background

 9. Commencing in or about December, 1996, Plaintiff Bay Casino began operation of shipboard gambling cruises on board the vessel Liberty I departing from a pier leased by Plaintiff in Sheepshead Bay, Brooklyn. Hearing at 7. The pier facility is zoned at two hundred passengers pursuant to a New York City zoning ordinance. Id. Originally, the Liberty I sailed with two hundred passengers. However, between July 2, 1997 and November 3, 1997 when its operations were suspended, the boat sailed with four hundred passengers per cruise. Id. at 7 - 8. The Liberty I was able to increase its passenger capacity after a permanent floatable barge was employed by Plaintiff. This barge brought the vessel outside the pier headline and excluded it from being covered by the zoning ordinance. Id.

 10. On or about June 26, 1997, in response to "cruises to nowhere" that operate from New York City locations, the Council of the City of New York passed a Local Law amending the administrative code of the City of New York which, in part, established the New York City Gambling Control Commission and established licensing procedures and regulations for applicants seeking to conduct shipboard gambling businesses. Defendants' Exhibit 4 to Proposed Findings.

 11. On January 8, 1998, Bay Casino filed a Shipboard Gambling Business License Application ("Shipboard Gambling Application") with the New York City Gambling Control Commission. The Shipboard Gambling Application was signed by Levy as Chief Executive Officer of Bay Casino. Hearing at 23 and Defendants' Exhibit 5 to Proposed Findings.

 12. On or about February 11, 1998, SeaCo filed a Key Vendor Application for License ("Key Vendor Application") with the New York City Gambling Control Commission. The Key Vendor Application was signed by Levy as General Manager of SeaCo. Defendants' Exhibit 6 to Proposed Findings.

 13. SeaCo's Key Vendor Application, signed by Levy, lists "Applicant's [defendant SeaCo] business address within New York City" as 3202 Emmons Avenue, Brooklyn, NY 11235, which is Bay Casino's address, and also lists two Brooklyn telephone numbers for SeaCo. One of the Brooklyn telephone numbers listed on SeaCo's Key Vendor Application (718-368-9000) is identical to a telephone number listed on the Shipboard Gambling Application filed by Bay Casino. Defendants' Exhibit 5 to Proposed Findings at 2; Defendants' Exhibit 6 to Proposed Findings at 2.

 14. SeaCo's Key Vendor Application, signed by Levy, lists Levy as the designated agent for service of process and his address for service of process as 7439 E. Hillsborough Avenue, Tampa, Florida, 33610. Defendants' Exhibit 6 to Proposed Findings at 4.

 C. The Bare Boat Agreement

 15. Pursuant to an agreement entitled "Bare Boat Charter Party" dated January 29, 1998 (hereinafter "Bare Boat Agreement"), SeaCo as Vessel "Owner agrees to let and demise and Charterer agrees to hire the passenger vessel Royal Empress . . . to be renamed Liberty II" for an initial term of 3 years. Bare Boat Agreement P 1; 5.1. The Bare Boat Agreement was signed by Levy, Manager of SeaCo, as "Owner" on February 10, 1998 and by Joseph Kelleher, COO of Bay Casino, as "Charterer" on February 8, 1998. Id. at p. 15.

 16. Pursuant to the Bare Boat Agreement, Levy was appointed Chief Executive Officer of Bay Casino while at the same time continuing in his role as the "exclusive" Manager of defendant SeaCo. Hearing at 23.

 17. The Vessel was to be delivered to and accepted by the Charterer no later than February 17, 1998 -- in which event Charterer could terminate Charter at its option. Id. P 2. The Vessel was to be complete with mechanical and cosmetic upgrades, fully operable in class, and Coast Guard Certified for New York City use. Id. PP 3, 7.1. Acceptance of the Vessel by Charterer was to be conclusive proof as to the Vessel's compliance with the Charter, subject to latent defects. Id. P 3.

 18. Charterer was to have posted in a conspicuous place on the Vessel a notice reading in relevant part: THIS VESSEL IS OWNED BY SEACO, LTD. AND IS UNDER DEMISE CHARTER TO BAY CASINO, LLC. Id. P 9.

 19. Charterer was to have "full use and exclusive possession and control of the vessel . . . ." Id. P 4. Charterer was to man, supply, equip, upkeep, navigate, and operate the Vessel at its own expense. Id.

 20. The provision for "charter hire" required that Bay Casino as Charterer pay the sum of $ 5,500 per day to SeaCo commencing "on and from the day and hour of her initial revenue voyage . . . ." Id. P 3; Hearing at 18. Bay Casino's failure to pay "charter hire" would not be deemed a default under the Bare Boat Agreement until only after the first 12 months that charter hire was due. Bare Boat Agreement P 3; Hearing at 41 - 42.

 21. The Vessel never undertook any "revenue voyages" as defined under the Bare Boat Agreement and no charter hire was ever earned or paid. Hearing at 19.

 22. Under the Agreement, Charterer would have been paid a monthly "Dock Fee" of $ 7.50 for each revenue passenger. Bare Boat Agreement PP 16.3; 17(b).

 23. The Bare Boat Agreement required SeaCo to "advance certain funds and credits for the benefit of Charterer" as follows:

 
A "bank" for casino operations in the amount of $ 250,000 (P 15.8(a)(1));
 
A cash advance "sufficient to cover all working capital requirements of the Charterer's operations, including the Casino operation, Charter Hire and dock fee . . . in the amount of $ 100,000 as an advance of initial working capital and in the amount of $ 150,000 as an additional advance due February 13, 1998." (P 15.8(a)(2));
 
As "Special Advances" against dock fees, $ 150,000 in cash, and upon execution of the Bare Boat Agreement, an additional $ 150,000 cash advance, and on February 13, 1998, a further $ 200,000 advance, totaling $ 500,000. (P 15.8(a)(3). These Special Advances were to be repaid to owner in 36 monthly installments, provided the vessel was on hire. (P 17).

 24. The Bare Boat Agreement also provided that SeaCo would share in the profits by being paid a "Consulting Fee" based on 75% of the Net Operating Revenue, calculated by subtracting Operating Expenses and Dock Fees from Gross Revenues. "Gross Revenues" were defined to include revenue from shoreside operations, such as cash machines, and a possible gift shop. Bare Boat Agreement PP 16.1-16.2, 16.4; Hearing at 19, 41 - 42.

 25. Additionally, the Bare Boat Agreement required that Plaintiff, as Charterer, at its sole cost and expense, obtain and pay for all insurance on the Vessel. Bare Boat Agreement P P 10.1; 11.

 26. SeaCo was to provide casino consulting services by designating two of the four Casino Management Committee members. Id. P 15.2(b)(1). However, Bay Casino was to nominate the Casino Manager and all other Casino personnel. Id. P 15.2(a). SeaCo was to make available to Bay Casino certain services relating to the recruiting and recommendation for hiring suitable employees for food and beverage services, or alternatively, at Bay Casino's request, was to identify and recruit a suitable concessionaire to provide those services. SeaCo was also permitted to negotiate a food and beverage concession agreement. Id. P 15.4.

 27. SeaCo also was to "recruit and recommend for hiring suitable employees for all terminal operations and other shoreside services," was empowered to "identify and recruit" a suitable contractor to provide such services, and was authorized to "negotiate a services agreement ...


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