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S.R. Galves Participacao, Importacao & Exportacao Ltda v. Natural Source International

May 21, 2007



Defendants Natural Source International, Ltd ("Natural Source") and The Beljanski Foundation move pursuant to Local Rule 54.2 for a bond as security for court costs. Natural Source also moves for an order requiring plaintiff, S.R. Galves Participacao, Importacao & Exportacao Ltda ("Galves"), to post a bond pursuant to Fed. R. Civ. P. 65 to secure the payment of storage fees for the goods at issue and for their destruction. Galves opposes those motions and moves for dismissal of Natural Source's counterclaim for tortious interference with potential business relationships.


In August 2004, Natural Source, a promoter and seller of dietary supplements, began placing purchase orders with Galves, a Brazilian corporation, for shipments of Pao Pereira tree bark to Newark, New Jersey. Natural Source extracts material from the bark to use in some of its dietary supplements.

Natural Source paid the first four purchase orders in full. Four other shipments (identified as P29, P30, P31, and P22) were ordered between January 2006 and May 2006. Natural Source did not accept those shipments because it says the bark arrived moldy, wet, and unfit for human consumption. Upon placing the purchase orders for P29, P30, and P31, Natural Source paid for one-half the amount of each order. It has not paid the remaining balance. Natural Source paid order P22 in full, although it argues that the bark arrived one year late and in a moldy, wet condition.

The bark from the shipments at issue is currently being stored in a warehouse in Kenilworth, New Jersey. Natural Source argues that Galves expressly directed it to store the bark rather than destroy it, and that Galves assured Natural Source that it would reimburse it for the storage costs. On February 8, 2007 Galves's counsel informed defendants that the tree bark could be destroyed, but the parties did not come to an agreement on the terms of the bark's destruction. Natural Source cannot stop payment of the storage fees because it has an ongoing business relationship with the warehouse storing the bark. Natural Source has been paying $3,036 per month to store the bark, for a current total of $39,664, and it obtained a quotation of $17,299.50 for the bark's destruction.

Galves and Natural Source are both currently subject to a restraining order of a Brazilian court that prohibits them from exporting or importing any Pao Pereira tree bark from or to Brazil. The parties are attempting to have the restraining order lifted.


New York C.P.L.R. § 8501(a) provides: ...upon motion by the defendant without notice, the court or a judge thereof shall order security for costs to be given by the plaintiffs where none of them is a domestic corporation, a foreign corporation licensed to do business in the state or a resident of the state when the motion is made.

Therefore, if Galves had brought this action in a New York state court, it would be required to post a bond for costs. The Federal Rules of Civil Procedure do not have a provision for ordering a party to post security for costs, but this federal court's Local Rule 54.2 states that "[t]he court, on motion or its own initiative, may order any party to file an original bond for costs or additional security for costs in such an amount and so conditioned as it may designate."

"In diversity actions, federal courts are 'not bound to follow state rules on security for costs where a federal local rule granting discretion is applicable,' although they may look to state rules for guidance." Atlanta Shipping Corp., Inc. v. Chemical Bank, 818 F.2d 240, 251 (2d Cir. 1987), quoting Rapol v. Henry R. Jahn & Son, Inc., 84 F.R.D. 42, 45 (S.D.N.Y. 1979).

Galves is a Brazilian corporation without assets in New York. Its financial situation is questionable (Galves sent e-mails to Natural Source stating that she is in debt and declaring herself "desperate" and "broke"). Defendants' April 16, 2007 Reply Memorandum of Law 4. Taking guidance from New York law, the Court will require Galves to post a bond for costs, because the circumstances justify it and had Natural Source been sued in state court, the bond would have been mandatory. However, Galves argues that the amount defendants seek, $22,500, is excessive.

Defendants seek $1,000 for document translation, $2,000 for translators and reporters used during depositions, and $1,000 for a trial translator. Local Rule 54.1(c)(4) designates the reasonable fee of a translator as a taxable cost if the translated document is used or received in evidence and if the fee of the witness involved is taxable. Those amounts will be allowed.

Defendants ask for $2,500 for trial transcripts for five days of trial. Trial transcripts are taxable as costs under Local Rule 54.1(c)(1). However, the parties' scheduling order anticipates a trial lasting three to four days. Therefore, Galves will only be required to post $2,000 for trial transcripts for four days of trial.

Defendants ask that Galves post $500 for the use of a reporter at the deposition of Galves's expert. Under Local Rule 54.1(c)(2) costs for depositions are taxable if they are used or received in evidence at trial, or used by the court in ruling on a dispositive substantive motion. Costs are not taxable for depositions taken solely for discovery. Since the uses of Galves's ...

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