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North OffShore AS v. Rolv Berg Drive AS

November 29, 2007

NORTH OFFSHORE AS, PLAINTIFF,
v.
ROLV BERG DRIVE AS, DEFENDANT.



The opinion of the court was delivered by: Sidney H. Stein, U.S. District Judge.

MEMORANDUM OPINION

Defendant Rolv Berg Drive AS ("RBD") seeks countersecurity in the amount of $1.1 million from plaintiff North OffShore AS pursuant to Rule E(7) of the Supplemental Rules for Certain Admiralty and Maritime Claims. That motion was denied after oral argument in an Order dated November 6, 2007. This Memorandum Opinion sets forth in fuller measure the reasoning behind that Order.

I. BACKGROUND

On February 16, 2004, North Offshore entered into a three-year charter party with RBD for the ALDOMA, a vessel owned by non-party Arktikmorneftgazrazvedka ("AMNGR"), a Russian company. Disputes arose in connection with the February 2004 charter party and North Offshore brought various claims against RBD in binding arbitration proceedings that were held in Norway. In September 2006 and April 2007, the arbitration panel made two separate awards in favor of North Offshore, and RBD has since paid the monies owed pursuant to those awards to North Offshore. However, North Offshore has asserted additional claims against RBD in the amount of approximately $800,000 that also arise out of the February 2004 charter party; North Offshore intends to arbitrate those claims in additional proceedings in Norway.

In connection with North Offshore's outstanding claims against RBD -- as well as the portion of the arbitration awards which, at one point in the course of this litigation, had not yet been paid -- North Offshore initiated an action in this Court seeking an Order of Attachment pursuant to Rule B of the Supplemental Rules for Certain Admiralty and Maritime Claims. In April 2007, this Court authorized the attachment and garnishment of up to $532,051.08 of RBD's funds. In July 2007, the Court granted North Offshore's request to amend the Order of Attachment to authorize the attachment of up to $988,411.43 of RBD's funds. North Offshore attached approximately $400,000 of RBD's funds in September 2007.

Prior to the attachment of its funds, RBD filed an Answer and Counterclaim pursuant to Supplemental Rule E(7) in August 2007. In its counterclaim, RBD asserts that North Offshore breached a written "side agreement" dated March 5, 2004 between the two parties pursuant to which RBD had the option of extending the time charter for the ALDOMA. RBD contends that North Offshore rejected RBD's attempt in January 2007 to exercise that option, and RBD now seeks approximately $13 million in damages. North Offshore responds that a condition precedent to the exercise of RBD's option was the consent of AMNGR, the vessel's owner. Because AMNGR refused to provide that consent for various commercial reasons, North Offshore asserts that an extension of the time charter was not possible and that it therefore did not breach any side agreement with RBD.

II. DISCUSSION

RBD seeks $1.1 million in countersecurity pursuant to Supplemental Rule E(7). That provision provides in relevant part that:

When a person who has given security for damages in the original action asserts a counterclaim 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 counterclaim unless the court for cause shown, directs otherwise.

Supp. R. E(7)(a). Here, RBD asserts that it is entitled to Rule E(7) countersecurity because RBD has had approximately $400,000 of its funds attached as security for North Offshore's claims in the original action. RBD contends that because its counterclaim arises from the same "transaction or occurrence that is the subject of the original action," it is therefore entitled to security by right. Furthermore, RBD asserts that countersecurity should issue because its counterclaim satisfies the minimal pleading requirements for admiralty claims seeking security pursuant to Supplemental Rule B.

Indeed, the rule in the Second Circuit is that "an attachment should issue [pursuant to Rule B] if the plaintiff shows that 1) it has a valid prima facie admiralty claim against the defendant; 2) the defendant cannot be found within the district; 3) the defendant's property may be found within the district; and 4) there is no statutory or maritime law bar to the attachment." Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 445 (2d Cir. 2006). Furthermore, there is no "broader equitable inquiry" and the party seeking security need not show that the "the attachment is necessary to obtain jurisdiction over a defendant or to secure a potential judgment." Id. at 446.

However, the Aqua Stoli standard for a Rule B attachment is not the standard that applies to motions for countersecurity brought pursuant to Rule E(7). In particular, the language of Rule E(7) directing that security be granted "unless the court for cause shown, directs otherwise" makes it entirely clear that "the trial court possesses broad discretion in deciding whether to order countersecurity." Result Shipping Co. v. Ferruzi Trading USA Inc., 56 F.3d 394, 399 (2d Cir. 1995). In exercising that discretion, courts consider several factors but "the core purpose of the countersecurity rule is to place the parties on an even footing; if one party is deprived of the use of its property during the litigation but the adverse party is not, despite the pendency of reciprocal claims, the party with the security may have unfair leverage in the action." Finecom Shipping Ltd. v. Multi Trade Enters. AG, No. 05 Civ. 6695, 2005 U.S. Dist. LEXIS 25761, at *2 (S.D.N.Y. Oct. 24, 2005). See also Washington-Southern Navigation Co. v. Baltimore & Philadelphia Steamboat Co., 263 U.S. 629, 638-39, 44 S.Ct. 220, 68 L.Ed. 480 (1924) (construing former Admiralty Rule 53). Furthermore, the trial court must be guided by the essential and equitable purposes of the rule. In doing so, the court must weigh the importance of the security interest giving rise to the initial seizure, and the burden of posting countersecurity, against the potential injustice of requiring the defendant-counterclaimant to post security without affording reciprocal protection.

Result Shipping, 56 F.3d at 400. Nothing in the Second Circuit's decision in Aqua Stoli disturbs that approach or suggests that a motion for countersecurity pursuant to Rule E(7) need only meet the prima facie requirements of an admiralty claim brought pursuant to Rule B. Rather, motions for countersecurity remain -- even post-Aqua Stoli -- subject to the "broad discretion" of the court. See Clipper Shipping Lines Ltd. v. Global Transporte Oceanico S.A., No. 06 Civ. 15299, 2007 U.S. Dist. LEXIS 18827, at *3 (S.D.N.Y. Feb. 27, 2007).

Accordingly, whether to grant or deny RBD's motion for countersecurity is an equitable determination within the broad discretion of this Court. Several ...


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