United States District Court, S.D. New York
August 9, 2004.
INSPECTRONIC CORPORATION, INTERNATIONAL UNDERWATER CONTRACTORS, INC., AND I.U.C. INTERNATIONAL, INC., Plaintiffs,
DEEP SEA INTERNATIONAL, Defendant. DEEP SEA INTERNATIONAL, Third-Party Plaintiff, v. ROYAL INSURANCE COMPANY OF AMERICA, Third-Party Defendant.
The opinion of the court was delivered by: FRANK MAAS, Magistrate Judge
REPORT AND RECOMMENDATION TO THE HONORABLE KIMBA M. WOOD
This case is one of two related actions presently pending
before Your Honor. The first filed case is Royal Insurance
Company of America ("Royal") v. Deep Sea International ("Deep
Sea"), No. 02 Civ. 3175, in which Royal seeks a declaratory
judgment that it need not provide any insurance coverage under an
insurance policy that it issued to Deep Sea. In that action (the "DJ Action"), Royal moved
(1) for partial summary judgment that New York law governs the
coverage dispute between Royal and Deep Sea; (2) to dismiss the
Third through Thirteenth Counterclaims in Deep Sea's Answer to
Royal's Second Amended Complaint on the ground that they fail to
state claims upon which relief can be granted; and (3) to strike
Deep Sea's demand for a jury trial. On March 15, 2004, I issued a
Report and Recommendation ("Report") which recommended that all
three of Royal's motions be granted, and which is incorporated
herein by reference.
In the present action, Royal has moved, pursuant to
Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss the
third-party complaint brought against it by Deep Sea. For the
reasons that follow, I recommend that Royal's motion be denied
without prejudice to its renewal after the DJ Action has been
resolved. I further recommend that any further proceedings in
this action be stayed as between Royal and Deep Sea, but that
discovery be permitted to proceed as between the plaintiffs
Inspectronic Corporation, International Underwater Contractors,
Inc., and I.U.C. International, Inc. (collectively,
"Plaintiffs"), and Deep Sea.
II. Factual Background
On February 7, 2002, the R/V ALOHA ("ALOHA"), a research vessel
owned by Deep Sea, sank while seeking to salvage sunken treasure.
(Compl. ¶ 5; Third-Party Compl. ¶ 8). The vessel and all
equipment on board were lost. (Compl. ¶ 6; Third-Party Compl. ¶ 8). The Plaintiffs leased certain scientific equipment
to Deep Sea for use on the ALOHA; they allege that they sustained
damages due to the loss of the equipment when the vessel sank.
(Compl. ¶¶ 4, 6, 8; Third-Party Compl. ¶¶ 10-11).
Although the Plaintiffs are corporations owned by members of
the Galerne family (the same family that owns Deep Sea), (see
Report at 4), they allege that the ALOHA sank "due to the
negligence or other fault" of Deep Sea, and that the loss of the
Plaintiffs' equipment was "a breach of [Deep Sea's] obligation
and responsibility as a bailee of the equipment." (Compl. ¶ 7).
The Plaintiffs seek a $2 million judgment against Deep Sea for
the value of the lost equipment, and interest, costs and fees.
(See id. ¶ 9). Deep Sea, in turn, has brought a third-party
complaint against Royal which contains thirteen claims that are
substantially similar to the counterclaims interposed by Deep Sea
in the DJ Action. Among other things, Deep Sea seeks to recover
"the insurance proceeds under the research and scientific
equipment policies of insurance in effect at the time of the loss
of the [ALOHA] and its various equipment and appurtenances in an
amount to be determined at trial but not less than U.S. $2.4
million." (Third-Party Compl. ¶ 22).
On May 13, 2003, Royal moved to dismiss Deep Sea's third-party
complaint in this action. Thereafter, on or about May 20, 2003,
fact discovery in this action was stayed pending the resolution
of Royal's motion, but expert discovery was permitted to proceed.
(See 02 Civ. 3175, Docket No. 71). Your Honor then referred Royal's motion in this action to me for a Report and
Recommendation on March 1, 2004. (See 03 Civ. 730, Docket No.
In its motion papers, Royal advances two arguments. The first
relies on Rule 14(c) of the Federal Rules of Civil Procedure,
which provides that a defendant named in a maritime claim may
bring in a third-party defendant and seek judgment in favor of
the plaintiff, in which event "the action shall proceed as if the
plaintiff had commenced it against the third-party defendant as
well as the third-party plaintiff." In the Report, I recommended
that New York law be applied in the DJ Action because New York
has the most substantial contacts with the Royal policy. (See
Report at 8-15). Relying on New York law, Royal contends that the
third-party claims in this action are improper, because direct
actions against marine insurers are not permitted. (See Royal
Mem. of L. at 6-14). Additionally, Royal contends that, because
the third-party claims advanced against Royal by Deep Sea are
"virtually identical" to the counterclaims asserted by Deep Sea
in the DJ Action, "[j]udicial economy and the comprehensive
disposition of litigation warrants that the Court dismiss the
Third-Party Complaint as duplicative of claims asserted by Deep
Sea in the [DJ Action]." (Id. at 15-16).
Not surprisingly, Deep Sea disagrees with both branches of
Royal's motion. (See Deep Sea Mem. of L. at 3-12). However,
even if Deep Sea is correct, it is apparent that a final decision
by Your Honor regarding the recommendations in my earlier Report will resolve many of the issues presented by Deep Sea's
third-party claims against Royal in this action. For this reason,
I recommend that Royal's motion to dismiss Deep Sea's third-party
complaint be denied without prejudice to its renewal after the DJ
Action is finally resolved. I further recommend that any further
proceedings in this action as between Deep Sea and Royal be
stayed during this period. The only parties potentially
prejudiced by such a stay are the Plaintiffs, which have not yet
had an opportunity to take any discovery regarding their claims
against Deep Sea. To ensure that the Plaintiffs are not
prejudiced (assuming that they actually have an interest in
pursuing their claims against a family company), discovery
related to the claim that the Plaintiffs have brought against
Deep Sea should not be stayed. Furthermore, if Deep Sea recovers
any money under the research scientific equipment coverage
furnished by Royal, the funds should be paid into the registry of
the Court until the Plaintiffs' rights have been determined in
For the foregoing reasons, I recommend that (a) Royal's motion
to dismiss be denied without prejudice; (b) any further
proceedings in this action as between Royal and Deep Sea be
stayed pending a final disposition of the DJ Action; (c)
discovery in this action as between the Plaintiffs and Deep Sea
should be permitted to proceed; and (d) any money recovered under
the scientific equipment coverage of the Royal policy be paid
into the registry of the Court until this action is resolved. V. Notice of Procedure for Filing of Objections to this Report
The parties are hereby directed that if they have any
objections to this Report and Recommendation, they must, within
ten (10) days from today, make them in writing, file them with
the Clerk of the Court, and send copies to the chambers of the
Honorable Kimba M. Wood and the chambers of the undersigned, at
the United States Courthouse, 500 Pearl Street, New York, New
York 10007, and to any opposing parties. See
28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(e), 72(b). Any requests for an
extension of time for filing objections must be directed to Wood.
Any failure to file timely objections will result in a waiver of
those objections for purposes of appeal. See Thomas v. Arn,
474 U.S. 140 (1985); 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a),
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