Independent Bank of Texas v. M/V JANICE RUTH II, Official Number 1118444 et al

Filing 66

Report and Recommendation

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA

INDEPENDENT BANK OF TEXAS,
Plaintiff,
vs.
M/V JANICE RUTH II, Official No.
1116444, her engines, gear, tackle,
and appurtenances, In Rem, and
THE MARTHA REYNOLDS TRUST,
In Personam,

3:11-cv-00128-TMB-JDR
RECOMMENDATION
REGARDING
MOTION FOR DEFAULT
JUDGMENT IN REM
(Docket No. 65)

Defendants.

The Plaintiff, Independent Bank of Texas, filed a Motion and
Memorandum for Entry of Judgment In Rem at Docket 65. Prior to the filing of this
Motion, the Clerk of the Court entered Default in favor of Plaintiff.1

1

Judgment in a Civil Case, Docket 52.

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Plaintiff

previously moved the Court for an entry of Default Judgment against the In Rem and
In Personam Defendants.2 The Magistrate Judge recommended entry of Default
Judgement In Rem and a delay in the entry of the In Personam judgment until/unless
a deficiency judgment was sought following the sale of the Vessel.3
In an Order at Docket 51 The District Court Judge stated:
Having reviewed Magistrate Judge Roberts’ Report and
Recommendation on Plaintiff’s Motion for Default
Judgment in Rem and Order of Sale (Docket No. 47) the
Court hereby adopts and accepts the Report and
Recommendation in its entirety. Consequently, Plaintiff’s
Motion for Default Judgment as to M/V Janice Ruth II,
Official Number 1116444 in Rem and The Martha
Reynolds Trust in personam and Order of Sale (Docket
40) is GRANTED.4
Since the Order issued at Docket 51 was incongruous with the Recommendation
entered at Docket 47, Plaintiff now seeks an order clarifying the Order entered at
Docket 51 and specifically addressing the issue of default judgment In Rem. Plaintiff
has also asked this Court for an order for the sale of the Vessel and permission to
enter an offset/credit bid at the sale. In order to do so, Plaintiff believes an order
clarifying the issue of default judgment In Rem is necessary.5

2

Motion and Memorandum for Entry of Judgment In Rem and In Personam,
Docket 40.
3

Recommendation Regarding Motion for Default Judgment In Rem and In
Personam, Docket 47.
4

Order From Chambers, December 6, 2011.

5

See Docket 65.

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For the reasons addressed below, the magistrate judge hereby
recommends the court grant Plaintiff’s Motion for Entry of Default Judgment.
I. Factual History
Since the Plaintiff’s first motion for entry of default judgment In Rem, the
facts of this case have significantly evolved. As such, a recitation of key facts is
important to contemplate the current posture of the case.
Independent Bank of Texas (IBT) filed its Verified Complaint to
Foreclose Preferred Marine Mortgage In Rem and In Personam and for Other Relief
in June of 2011.6 In the normal course for admiralty matters, Plaintiff moved for and
the Court arrested the Vessel and appointed a substitute custodian.7
Larry Reynolds filed a Motion to Dismiss Case at Docket 13 on July 11,
2011. The Plaintiff then filed a Notice with the Court indicating that Larry Reynolds,
on behalf of the Martha Reynolds Trust, filed a Bankruptcy Petition in the District of
Alaska.8 Plaintiff also attached to its notice Valdez Police reports indicating that
someone removed the notices of arrest which were affixed to the Vessel. Witnesses

6

Docket 1.

7

Motion and Memorandum for Order Authorizing Clerk to Issue a Warrant for
Arrest Pursuant to Supplemental Admiralty Rule C(3), Docket 3; Motion and
Memorandum for Order Appointing Substitute Custodian, Docket 4; Order
Authorizing In Rem Warrant for Arrest of Vessel, Docket 8; Order Appointing Marine
Lender Services, LLC, Substitute Custodian, Docket 9.
8

Docket 10.

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reported that Mr. Reynolds was the person who removed the notices.9 The notices
were affixed to the Vessel by the U.S. Marshal pursuant to Supplemental Admiralty
Rule E(4)(b).10 In the Court’s Order at Docket 15, the Marshal was order to re-affix
the notices and this action was stayed pending the resolution of the Bankruptcy
matter.
The Court addressed Mr. Reynolds’ Motion to Dismiss in a Minute Order
issued on July 19, 2011.11 Therein the Magistrate Judge noted that the signatory to
all paperwork signed regarding the Marine Mortgage for the Martha Reynolds Trust
was Janice R. Reynolds, not Larry Reynolds. In accordance with Federal Rule of
Civil Procedure 17(a)(1)(E), the Court noted that it was unclear what authority Mr.
Reynolds had to act on behalf of the Trust. Therefore, the Court ordered Mr.
Reynolds to file information regarding standing with the Court before the Court would
cosier the Motion at Docket 13.12
By way of a notice filed by IBT, the Court learned that the Bankruptcy
Court for the District of Alaska dismissed Mr. Reynolds’ Petition.13 At Docket 26 the

9

Id.

10

See Order Regarding Posting of Notice of Arrest; Notice of Filing of a
Petition in Bankruptcy; and Staying Action, Docket 15.
11

Docket 16.

12

Id.

13

Docket 18; Docket 18-1.

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Magistrate Judge recommended that the Court deny the Motion to Dismiss as Mr.
Reynolds did not have proper standing to file the Motion. The Court did so at Docket
31.
Upon motion by the Plaintiff, the Clerk of Court entered Default as to the
Martha Reynolds Trust at Docket 29. Upon motion by the Plaintiff, the Clerk then
entered Default as to the M/V Janice Ruth II at Docket 39. Following the filing of the
Motion for Default Judgment and the Court’s Order discussed above, the Court
considered the Plaintiff’s Motion and Memorandum for Sale of the Defendant Vessel
and Authority for a Credit Bid.14 The Magistrate Judge granted the Motion at Docket
46. It appeared that the case was finally moving forward.
Then, on December 5, 2011, the Plaintiff filed a Motion and
Memorandum to Cancel Sale of Vessel indicating that the Defendant Vessel sank
on November 30, 2011.15 She was moored in the Valdez harbor at the time she
sank.16 The Magistrate Judge entered an order at Docket 49 granting the Motion to
cancel the sale.
Through a series of court-ordered Status Reports, the Plaintiff made the

14

Docket 45.

15

Motion and Memorandum to Cancel Sale of Vessel, Docket 48.

16

Status Report, Docket 53.

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Court aware of the events which followed the sinking of the Vessel.17
IBT is the holder of a preferred marine mortgage for the Vessel. After
the Vessel sank, IBT filed a claim of loss with its insurer, St. Paul Insurance.18 St.
Paul Insurance raised the Vessel, pumped the water out and transported her to
shore for storage.19 St. Paul also conducted an investigation into the cause of the
sinking and determined the Vessel sank due to freeze damage which resulted from
an open valve allowing water to enter the sea strainers. Expansion caused by
freezing ruptured the sea strainer housings and water flowed into the Vessel, sinking
her.20
St. Paul denied IBT’s insurance claim because the policy had an
exclusion for damage caused by ice or freezing.21 IBT then pursued a claim against
the Substitute Custodian, Marine Lender Services, LLC (MLS), and the company’s
managing member, Buck Fowler. MLS maintained an insurance policy in order to
protect IBT and in order to protect itself in the event of an incident while acting as

17

Docket 53; Status Report, Docket 55; Status Report, Docket 57; Status
Report, Docket 59; Status Report, Docket 61; Status Report and Notice of Pending
Motion for Sale, Docket 63.
18

Docket 61, p. 4.

19

Id.

20

Id. at 4-5.

21

Id. at 5.

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substitute custodian.22
Following St. Paul’s denial of coverage, IBT made a claim to MLS for
the loss in value of the Vessel. The MLS insurance carrier conducted its own
investigation into the matter.23 The insurance carrier for MLS denied the claim but
has continued to work with IBT in order to conduct discovery and resolve the issue.24
Both agree it is necessary to sell the Vessel at this time.25 As such, IBT filed a
Motion and Memorandum for Entry of Judgment In Rem, Sale of the Defendant
Vessel and Authority for an Offset/Credit Bid at Docket 64. The Court notified
Plaintiff that the Motion would be deemed a Motion for Sale of the Vessel and that
Plaintiff should re-file its request for Default Judgment in a separate motion. Plaintiff
did so at Docket 65.
II. Application of Law
Local Admiralty Rule (c)-4 governs Default Judgment in admiralty
cases.26 As noted in the Magistrate Judge’s Recommendation at Docket 47, the

22

Id.

23

Id. at 6.

24

Id. at 6-7.

25

Id. at 7.

26

(c)-4 Entry of Default and Default Judgment in Actions in Rem
(a) Entry of Default.
(1) After the time for filing an answer has expired, the plaintiff may move for
entry of default under Rule 55(a), Federal Rules of Civil Procedure.
(2) Default will not be entered unless it is shown that:
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Plaintiff filed a Verified Complaint setting forth the terms and conditions of the
Promissory Note and the Preferred Ship Mortgage, which provides security for the
Note.27 This Court previously made an Entry of Default In Rem at Docket 39 and
default was entered against The Martha Reynolds Trust at Docket 29.

The

Magistrate Judge has reviewed the Motion and Memorandum filed at Docket 40 and
the affidavits of S. Richard Shook, Steven J. Shamburek and Randyl Meigs, filed at
Dockets 41, 42 and 44, respectively.
The Magistrate Judge is satisfied that the Plaintiff has met its notice
requirements for service under Local Rule (c)-3. The Plaintiff published notice of the
arrest of the Vessel in the Anchorage Daily News on September 14, 2011 and
published the same in The Valdez Star on September 21, 2011.28 Additionally, the
Plaintiff has filed proof that the Trustee for the In Personam Defendant, The Martha
Reynolds Trust, was served with the Summons and Complaint.29
The Plaintiff is seeking a judgment which includes the principal sum

and filed an answer or other responsive pleading.
(b) Entry of Default Judgment.
(1) The plaintiff may move for default judgment under Rule 55(b), Federal
Rules of Civil Procedure, at any time after default has been entered.
(2) Any person who has appeared and does not join in the motion for default
judgment must be given seven (7) days notice of the motion.
27

See Promissory Note, Docket 1-1; Preferred Ship Mortgage, Docket 1-2.

28

See Affidavit in Support of Entry of Default, Docket 38; Publication of Notice
of Arrest, Docket 32.
29

See Affidavit in Support of Entry of Default, Docket 28.

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owed, totaling $748,542.00, accrued interest totaling $101.668.74 (through October
21, 2011), continued interest accruing at a rate of $374.27 per day (after October 21,
2011), late fees totaling $1,120.05, costs in the amount of $14,772.08, in custodia
legis expenses of the U.S. Marshal totaling $3,508.00, and Plaintiff’s attorneys’ fees
in the amount of $37,107.50. These sums, interest, costs and fees are due in
accordance with the terms of the Promissory Note and Mortgage.30
III.

Conclusion

The Magistrate Judge hereby recommends the Court find the In Rem
Defendant liable for the following amounts and grant Plaintiff’s Request for entry of
Judgment In Rem: the principal sum of $748,542.00; accrued interest totaling
$101,688.74 (through October 21, 2011); continued interest accruing at a rate of
$374.27 per day (after October 21, 2011); late fees and costs as outlined above and
those costs and fees to which Plaintiff is entitled which continue to accrue. As costs
and fees will continue to accrue throughout the pendency of the case, final costs and
fees should be determined by the Clerk of Court at the close of the case.
//
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30

See Docket 1-1; 1-2.

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In the interest of justice, and in order to expedite the business of the
court, this Recommendations shall be deemed a Final Recommendation. This
matter shall now be forwarded to the assigned District Court Judge.

DATED this

31st

day of July, at Anchorage, Alaska.

/s/ John D. Roberts
JOHN D. ROBERTS
United States Magistrate Judge

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