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Jaimie Shipping, Inc. v. Oman Insurance Co.

September 8, 2008

JAIMIE SHIPPING, INC., PUFFIN MARINE INVESTMENTS SA AND BANK MANDIRI : (EUROPE) LTD., UK, PLAINTIFFS,
v.
OMAN INSURANCE COMPANY DEFENDANT.



The opinion of the court was delivered by: John F. Keenan, United States District Judge

OPINION & ORDER

In this admiralty case, the Court entered an order granting a maritime attachment against Defendant Oman Insurance Company ("Oman" or the "Defendant") in favor of Plaintiffs Jaimie Shipping, Inc., Puffin Marine Investments SA, and Bank Mandiri (Europe), Ltd., UK (collectively, "Plaintiffs"), pursuant to Rule B of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions (the "Supplemental Rules"). Oman has moved by order to show cause, pursuant to Supplemental Rule E(5)(a), for an order compelling Plaintiffs to release the funds that have been attached and accept as substitute security an irrevocable letter of credit from Mashreq Bank, a bank of the United Arab Emirates. For the reasons that follow, Oman's motion is denied.

BACKGROUND

Plaintiffs are the foreign owners and mortgage-holders of two vessels, the M/V Canadian Challenger and the M/V Agate Islands. Plaintiffs obtained from Oman a total of $2.25 million in marine hull insurance for both vessels. In July 2006, while being towed from Cuba to India, the vessels encountered heavy weather, collided into each other, sustained severe hull damage, and later sank. Plaintiffs allege that Oman has failed to pay on the insurance policy. Pursuant to a forum clause in the insurance policy, Plaintiffs commenced proceedings in London's High Court for recovery of insurance that is allegedly due as a result of the loss of the M/V Canadian Challenger and anticipate commencing proceedings in the High Court for recovery of the insurance proceeds allegedly due as a result of the loss of the M/V Agate Islands.

On August 11, 2008, Plaintiffs filed a verified complaint in this Court, pursuant to Rule B of the Supplemental Rules, seeking to obtain jurisdiction over Oman and security for its claims in London in the amount of $3,558,738.50, comprising the amount of the insurance proceeds allegedly due to Plaintiffs plus anticipated interest and attorneys' fees. The same day, the Court issued an order of maritime attachment for the amount sought by Plaintiffs, who subsequently obtained an attachment in the full amount.

Oman has "offered to provide to plaintiffs an irrevocable letter of credit issued by Mashreq Bank as substitute security for the full amount of the attached funds which will fully protect plaintiffs' interest in this litigation." (Def. Mem. at 2-3.) Plaintiffs rejected the offer of substitute security. On August 22, 2008, Judge Crotty, sitting in the Emergency Relief Part, signed Oman's proposed order to show cause why the Court should not grant Oman's motion to compel Plaintiffs to accept the substitute security. The Court heard oral argument on September 4, 2008.

DISCUSSION

Supplemental Rule E(4)(f) provides for a "prompt hearing," after the issuance of a Rule B maritime attachment, at which the plaintiff must "show why the arrest or attachment should not be vacated or other relief granted consistent with these rules." Oman requests "other relief" in the form of an order compelling Plaintiffs to return the cash that was attached as security and accept instead the irrevocable letter of credit from Mashreq Bank. Supplemental Rule E(5)(a), which the parties agree is the applicable rule in this matter, provides in relevant part that "[w]henever process of maritime attachment and garnishment or process in rem is issued, the execution of such process shall be stayed, or the property released, on the giving of security, to be approved by the court or clerk, or by stipulation of the parties, conditioned to answer the judgment of the court or of any appellate court."

Although Supplemental Rule E(5)(a) does not define the form that the "security" posted by a defendant must take, Plaintiffs rightly observe that Rule 65.1.1(b) of the Local Rules of the United States District Courts for the Southern and Eastern Districts of New York (the "Local Rules") sets forth the requirements for the posting of a bond. The rule, entitled "Sureties," provides in relevant part as follows:

Except as otherwise provided by law, every bond, undertaking or stipulation must be secured by: (1) the deposit of cash or government bonds in the amount of the bond, undertaking or stipulation; or (2) the undertaking or guaranty of a corporate surety holding a certificate of authority from the Secretary of the Treasury; or (3) the undertaking or guaranty of two individual residents of the district in which the case is pending, each of whom owns real or personal property within the district worth double the amount of the bond, undertaking or stipulation, over all his or her debts and liabilities, and over all obligations assumed by said surety on other bonds, undertakings or stipulations, and exclusive of all legal exemptions.

Local Rule 65.1.1(b). As Judge Lynch recently observed in Pancoast Trading S.A. v. Eurograni S.r.l., No. 07 Civ. 8581, 2008 U.S. Dist. LEXIS 4224, at *4 (S.D.N.Y. Jan. 22, 2008), Local Rule 65.1.1(b) "provide[s] a firm guideline for what constitutes adequate security." In Pancoast, the plaintiff sought to post counter-security, pursuant to Supplemental Rule E(7), in the form of a letter of undertaking (an "LOU"). The defendant rejected the proposed LOU, claiming that it was "insufficient, constituting no more than an 'IOU' backed only by [plaintiff]'s promise to pay." Id. at *2. Judge Lynch found that Local Rule 65.1.1(b) controlled, noting that the plaintiff provides no persuasive reason -- and indeed no reason at all -- why security in the form demanded by the rule is not appropriate in this case. . . . [Plaintiff] has cited no case, and the Court has found none, in which such security [in the form proposed by plaintiff] has been ordered or ruled sufficient by a court where it is not accepted by the opposing party. Local Rule 65.1.1(b) identifies the kinds of undertakings, guarantees or deposits that constitute adequate security where security is required.

Id. at *5 (emphasis added). Accordingly, Judge Lynch refused to compel the defendant to accept plaintiff's proposed LOU as counter-security.

Oman protests that Pancoast is distinguishable from the present case because, in Pancoast, the court's rejection of the proposed LOU was predicated on the finding that the LOU was inadequate. Here, Oman contends, the proposed form of security is not merely an "'IOU' backed only by [Oman's] promise to pay," but rather a reliable letter of credit from an international bank, with offices in both London and New York and over $23 billion in assets. Thus, Oman asserts, in this case -- unlike Pancoast -- the adequacy of the proposed security is undisputed and the Court need not look to Local Rule 65.1.1 for guidance.

Contrary to Oman's argument, however, when an adverse party objects to a form of security, the dispositive question is not whether the proposed security carries the hallmarks of reliability; it is whether the form of security comports with the requirements of the Local Rule. In In re Compania Naviera Marasia S. A., 466 F. Supp. 900 (S.D.N.Y. 1979) (Haight, J.), which concerned the ex parte furnishing of security by a shipowner, pursuant to Supplemental Rule F in a limitation on liability action, the shipowner proposed that the court accept security in the form of an LOU from a British marine insurance company. Although there was no question regarding the adequacy of the proposed security, Judge Haight observed that Local Rule 65.1.1(b) (then General Rule 31*fn1 ) set forth the exclusive forms of security that were authorized when the parties did not stipulate as to an approved form. The shipowner's proposed surety was not executed by an authorized domestic surety company within the meaning of the local rule. The court acknowledged that it was customary to accept security in the form proposed by the shipowner because such "underwriters' letters are almost routinely exchanged in litigation between shipowners or cargo interests and shipowners, because the marine insurance world is a relatively small one, the parties, counsel and their underwriters know each other well, and are prepared to enter into such consensual arrangements so as to minimize inconvenience and expense." Id. at 902. The court found that there was no reason not to accept the foreign surety's undertaking in light of the early stage of the litigation and the absence of any protest by potential claimants. Id. However, Judge Haight directed that, in the event any claimant were to object to the form of security, the shipowner was required to "cause security to be posted in the form provided by General Rule 31 of this Court." Id. at 903. This was because claimants had "an absolute right" to demand security "in accordance with the requirements of General Rule 31 of this Court." Id; see also Akermanis v. Sea-Land Servs., No. 77 Civ. 6131, 1982 U.S. Dist. LEXIS 9292 (S.D.N.Y. Jan. 25, 1982) (Haight, J.) ("Unless plaintiff consents to do so--and here he does not--defendant cannot require him to accept security in a form other than called for by the [local] rule."). In Akermanis, the defendant, who had offered to provide plaintiffs with security in a form that did not comport with ...


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