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Karo Mumessillik Ve Dis Tiscaret Ltd. STI v. Napoli Chemicals KS

August 3, 2009

KARO MUMESSILLIK VE DIS TISCARET LTD. STI, PLAINTIFF,
v.
NAPOLI CHEMICALS KS AND MARNAVI S.P.A., DEFENDANTS.



The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge

OPINION & ORDER

Plaintiff Karo Mumessillik Ve Dis Tiscaret Ltd. STI ("Plaintiff" or "Karo") filed its Verified Complaint against Defendants Napoli Chemicals KS ("Napoli") and Marnavi S.P.A. ("Marnavi") (collectively, "Defendants") in this proceeding on April 2, 2009. An Ex Parte Order granting a maritime attachment and garnishment was entered on April 3, 2009 (the "Rule B Attachment Order"). Napoli and Marnavi filed the instant motions on May 4, 2009 and May 8, 2009, respectively, seeking vacatur of the Rule B Attachment Order. Each Defendant makes arguments unique to its respective position, but they also share the common argument that the Rule B Attachment Order should be vacated because at least a portion (if not the entirety) of Karo's claim is not a valid prima facie admiralty claim, and even if it is, Karo is already sufficiently secured. Napoli has also moved for damages due to Karo's alleged bad faith in bringing its complaint in this matter. Oral argument on Defendants' motions was held on June 25, 2009. For the reasons that follow, Defendants' motions to vacate are granted, and DefendantNapoli's motion for damages is denied.

I. FACTUAL BACKGROUND

This case concerns the alleged contamination of cargo that was the subject of a charter party and bill of landing by and among Karo, Marnavi and Napoli. In approximately July 2007, Karo contracted to purchase, receive and take delivery of a cargo of Base Oil from Marnavi; the cargo was loaded onto the M/V IEVOLI GOLD (the "Vessel"), owned by Napoli, which Marnavi had chartered to deliver the cargo from Italy to Turkey, and a bill of lading issued. See Affidavit of Rahul Wanchoo ("Wanchoo Aff.") Ex. A (Bill of Lading dated August 21, 2007). Upon arrival at the port of discharge, it was discovered that the cargo had been contaminated by salt water.

According to the Verified Complaint, Karo brought suit against both Defendants*fn1 in the Court ofFirst Instance in Turkey. Pursuant to an order of the Turkish court, Karo arrested the Vessel and obtained security for the entire value of the cargo, which is alleged to amount to US $2,185,118.46. See Wanchoo Aff. Ex. B (Turkish decree, dated August 29, 2007). Karo was then able to resell the damaged cargo to a third party at a salvage sale for a reduced price of approximately $1.7 million, thereby mitigating its damages. See Wanchoo Aff. Ex. C-2 (Sale invoice dated September 4, 2007). Karo subsequently applied to the Turkish court to reduce the security to account for this mitigation of damages, attesting that the difference in sale price caused by the alleged contamination was $412,263.61, and that its lost profits were an additional $327,767.76, for a total damage claim of $740,031.37. Based on Karo's representations, the Turkish court released the Vessel and reduced the security owed Karo to $800,000. Accordingly, Napoli provided Karo with an irrevocable bank letter of guarantee in the amount of $800,000. See Wanchoo Aff. Ex. D (bank letter of guarantee).

Subsequently, on September 10, 2007, Karo received a letter from the third-party buyer of the salvaged cargo stating that, despite the fact that the buyer had known there was some water damage to the cargo, which it thought could be dealt with through refining, further examinations showed that the cargo was in fact contaminated with salt water that had affected the chemical structure of the oil. See Declaration of Rifki Baslamisli ("Baslamisli Decl.") Ex. 4. Accordingly, the buyer advised that the cargo could no longer be used, and notified Karo that it was holding Karo "liable for [its] economic losses and [it] will take all legal steps to secure and compensate rights." Id. Karo has presented no further evidence of correspondence from the third-party buyer, nor any proceedings initiated against it by the third-party buyer. Karo likewise did not alert the Turkish court of any need to increase its security to account for an additional potential claim against it by the third-party buyer.

Ultimately, the Turkish court dismissed the matter due to the arbitration clause in the bill of lading specifying that all claims must be pursued in arbitration in London. That decision is currently on appeal before the Supreme Court of Appeals in Turkey. Subsequently, to preserve its claim prior to the running of the statute of limitations, Karo submitted the dispute to arbitration in London as to Defendant Napoli.*fn2 The arbitration proceedings are stayed pending the appeal of the Turkish court's dismissal of Karo's case.

II. PROCEDURAL HISTORY

On April 2, 2009, Karo filed its Verified Complaint alleging breach of maritime contract against Napoli and Marnavi for an aggregate claim of $3,715,338.84, including a principal claim of $2,572,854.85*fn3 as well as interest and estimated attorneys' fees and arbitration costs and expenses. On April 21, 2009, Marnavi filed an Order to Show Cause why Karo should not be compelled to accept an undertaking in lieu of an order of attachment pursuant to Rule E(5)(a) of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions of the Federal Rules of Civil Procedure and Rule E.1 of the Local Admiralty and Maritime Rules for the Southern and Eastern Districts of New York. On April 28, 2009, this Court entered an Order approving the undertaking as substitute security (the "Bond Order") fixing the amount of the bond to be filed by Marnavi at $2,765,338.80. Marnavi promptly posted a bond in this amount provided by the surety, International Fidelity Insurance Company. Subsequently, Napoli and Marnavi filed separate motions to vacate the Rule B Attachment Order on May 4, 2009 and May 8, 2009, respectively.

III. DISCUSSION

A. Motions to Vacate the Rule B Attachment Order

The power to grant an attachment in maritime actions "is a unique aspect of admiralty jurisprudence that has deep historic and constitutional roots." Williamson v. Recovery Ltd. P'Ship, 542 F.3d 43, 48 (2d Cir. 2008). The attachment power "is an inherent component of the admiralty jurisdiction given to federal courts under Article III of the Constitution." Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 437 (2d Cir. 2006) (citing U.S. Const. art. III, § 2). The purpose of this power has been recognized as being twofold: "first, to gain jurisdiction over an absent defendant; and second, to assure satisfaction of a judgment." Id.

Rule B of the Supplemental Rules for Certain Admiralty and Maritime Claims governs the process by which a plaintiff may attach an absent defendant's assets. Rule B provides, in relevant part, that "[i]f a defendant is not found within the district . . . a verified complaint may contain a prayer . . . to attach the defendant's tangible or intangible property -- up to the amount sued for -- in the hands of garnishees named in the process." Fed. R. Civ. P. Supp. R. B(1)(a).

Here, Defendants offer many and varied arguments in support of their respective motions to vacate, some of which are unique to their positions, and some of which are common to both Defendants. Napoli's arguments in support of vacatur of the Rule B Attachment Order are relatively straightforward. It contends that Karo's principal claim of approximately $2.5 million can be segregated into two claims -- $800,000 for its damages to the cargo, as mitigated by its sale to the third-party buyer (the "contamination claim"); and approximately $1.7 million for an indemnity claim in the event it should be held liable to the third-party buyer of the cargo for damages due to the contamination (the "indemnity claim") -- neither of which, Napoli contends, is a valid prima facie claim arising in admiralty. Specifically, Napoli argues that the $800,000 claim for damage to the cargo arises out of a contract for the sale of goods, which is not a maritime contract, and that becausethe $1.7 million claim is based on a potential future liability that Karo may owe to a third-party at some unknown time in the future, it is a premature or "unripe" contingent indemnity claim upon which no Rule B Attachment Order may issue. Napoli further contends that, in the event the Court should find that the contamination claim does arise in admiralty, Karo is adequately secured for that claim by ...


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