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United States District Court, S.D. New York

October 3, 2005.


The opinion of the court was delivered by: NAOMI BUCHWALD, District Judge


On August 12, 2005, Daeshin Shipping Co. ("plaintiff" or "Daeshin") was granted an order of attachment pursuant to Rule B of the Supplemental Rules for Certain Admiralty and Maritime Claims of the Federal Rules of Civil Procedure. As a result of this order, $1,894,778.89 belonging to Meridian Bulk Carriers Ltd. ("defendant" or "Meridian") was restrained at The Bank of New York and at American Express Bank.

The underlying claims of the parties are subject to arbitration in London. However, a brief summary of the dispute is useful to place the attachment issues in context. Plaintiff sub-chartered a vessel, M/V WISDOM C, from STX PanOcean ("PanOcean"), which had chartered the ship from the vessel owners. Plaintiff then sub-chartered the ship to defendant. Defendant ultimately sub-chartered the vessel to yet another party, Al Kahlejia. The thrust of plaintiff's claim is that defendant breached the charter party by returning the vessel prior to the time specified in the contract. Defendant has counterclaimed that plaintiff breached the charter party because the vessel was not delivered in the physical condition warranted by the sub-charter agreement.

  On September 15, 2005, defendant filed a motion to reduce the amount of security attached by plaintiff and to obtain counter-security from plaintiff. A hearing was held on September 26, 2005 and post-hearing submissions were received from both parties.


  I. Motion for Reduction in the Amount of Security

  Under Rules E(4) (f) and E(6) of the Supplemental Rules for Certain Admiralty and Maritime Claims, any person claiming an interest in an attached property may challenge the attachment. When security is taken and a motion made, security may be reduced for "good cause shown" under Rule E(6). Defendant advances two primary arguments to support its contention that the amount of security should be reduced. First, defendant argues that plaintiff's claim for lost profits is "grossly exaggerated." Second, defendant argues that it should not be forced to post security for claims related to vessel damage that might be asserted against plaintiff by either PanOcean or the owners of the vessel.

  When a motion is made challenging an attachment, the burden is on the plaintiff "to show why the arrest or attachment should not be vacated" under Rule E(4) (f). However, the plaintiff is not required to "prove its damages with exactitude." Dongbu Express Co. Ltd. v. Navios Corp., 944 F. Supp. 235, 237 (S.D.N.Y. 1996).

  Plaintiff's estimate of its claim has been revised since the filing of the Verified Complaint. In the Complaint, plaintiff calculated a total claim of $1,952,445 in the following way: $1,436,909 for combined "balance of charter hire" and "damages resulting from wrongful repudiation of the charter"; $215,536 in interest at 5% per year over 3 years; and $300,000 in estimated legal and arbitral fees. See Verified Complaint. Plaintiff's original estimate assumed a daily charter market rate of $8,000 for mitigation calculation purposes. Plaintiff's counsel has since revised its estimate of the principal claim to include: $543,150 in lost profits; $455,559.98 in unpaid hire; $350,000 for damage to vessel claims advanced by head owners and PanOcean.*fn1 See Unger Aff., Ex. 3. The revised calculation is based upon the claims PanOcean has asserted against Daeshin. Specifically, PanOcean utilized a daily market rate of $13,000 instead of $8,000 to calculate its lost profits and claims $350,000 for physical damage to the vessel. The latter claim of $350,000 is now asserted against Meridian by Daeshin as an indemnity claim.

  A. Lost Profits Claim

  Defendant argues that plaintiff has failed to introduce sufficient support for the market rate used to calculate its lost profit claim*fn2 and argues, without any legal support, that we should deviate from general contract damage principles and apply an alternative method for calculating damages. After reviewing the evidence in the record, including post-argument submissions, we believe that $13,000 is a reasonable, although not exact, estimate of the prevailing market charter rate during the period in question. We also decline to apply defendant's proposed method for calculating damages.

  Plaintiff now calculates its lost profit claim by subtracting an estimated daily charter rate ($13,000), i.e. the recharter mitigation rate, from the charter rate defendant was to pay plaintiff ($23,650). The difference between the two rates ($10,650) multiplied by 51 (days) yields a total of $543,150. The use of a market rate of $13,000 instead of $8,000 reduces plaintiff's original principal claim by $88,199. When the amount of plaintiff's damage to vessel claims, estimated legal/arbitration costs*fn3 and interest*fn4 is added to the amount of lost profits and balance of hire claims, the total is $1,851,016.36.*fn5 As plaintiff has succeeded in attaching the amount of $1,894,778, but only provided sufficient evidence to justify attaching $1,851,016.36, any funds in excess of this amount must be released.

  B. Physical Damage to Vessel Claim

  Defendant also argues that plaintiff's revised principal claim improperly includes $350,000 for damage to vessel claims that may be asserted by PanOcean or the head owners against plaintiff. Defendant contends that this claim is speculative and premature because neither PanOcean nor the head owners of the vessels have initiated a lawsuit against the plaintiff. The parties have also informed the Court that Points of Claim have not yet been formally exchanged in the London arbitration.*fn6

  However, the record indicates that arbitrators have already been appointed to resolve the disputes involving the head owners, PanOcean, Daeshin and Meridian*fn7 and that correspondence has been circulated among the various parties asserting specific damage claims. In particular, defendant has submitted exhibits including correspondence from head owners asserting claims against PanOcean, as well as correspondence indicating that PanOcean appears to be asserting claims against plaintiff, for physical damages to the vessel in the amounts of $70,000 (replacement cost of slewing ring) and $280,000 (expenses at repair yard including deviation). See Unger Aff. Ex. 3.*fn8 Thus, this case is distinguishable from Greenwich Marine, Inc. v. S.S. ALEXANDRA, 339 F.2d 901 (2d Cir. 1965), relied on by Meridian, because in that case there was little indication that the damage claim would actually be passed through a chain of charter parties and asserted against the plaintiff. After reviewing the record, we find that it is not unduly speculative to assume that the physical damage claims are being asserted down the chain of charter parties and that plaintiff has a reasonable belief that it faces potential liability totaling $350,000 for those damages. Id. We therefore find it appropriate to include this claim in the total amount that plaintiff is entitled to attach as security.

  II. Motion for Counter-Security

  Defendant also argues that it is entitled to counter-security for the counterclaims it has asserted against plaintiff. We agree. Rule E(7) of the Supplemental Rules for Certain Admiralty and Maritime Claims states that a plaintiff "must give security" for counterclaims arising out of the same transaction "unless the court for cause shown, directs otherwise." While the District Court clearly has discretion on this issue, see, e.g., Result Shipping Co. Ltd. v. Ferruzzi Trading USA, Inc., 56 F.3d 394, 399-400 (2d Cir. 1995), we are mindful that this discretion should be guided by two principles: (1) the purpose of this provision is to place the parties on a equal footing as regards security; and (2) the provision is not intended to impose costs that would prevent plaintiff from bringing suit. See id. The counterclaims asserted by defendant do not appear to be frivolous and they clearly arise from the same transaction or occurrence as plaintiff's claims. Moreover, plaintiff has not claimed that it is financially unable to post counter-security or that posting the counter-security would impair its ability to pursue its claim in arbitration. While plaintiff has broadly asserted that defendant has not adequately supported the amount of its counter-security, plaintiff has not proffered any specific challenge to the amount sought. Therefore, the defendant is entitled to counter-security from the plaintiff in the amount of $873,884.43.*fn9

  III. Request for Stay of London Arbitration Proceedings

  Defendant has also requested that we enjoin plaintiff from pursuing its claims in the London arbitration until such time as it posts the counter-security. We have not found significant case law to assist us in resolving this issue, but the language of Rule E(7) (a) provides that "[p]roceedings on an original claim must be stayed until this security is given unless the court directs otherwise." Clearly, staying Daeshin's arbitral claims will provide an incentive to post counter-security promptly so that the London arbitration that is in its earliest stages can proceed.


  For the foregoing reasons, we grant defendant's motion to reduce the security to the extent that the amount of funds that can be attached is limited to $1,851,016.36. Any amount restrained in excess thereof, must be released. We also grant defendant's application for counter-security in the amount of $873,884.43 and enjoin the plaintiff from pursuing its claims against defendant in the London arbitration until the counter-security is posted.



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