Shelter Cove Marina, LTD. v. M/Y Isabella

Filing 23

ORDER Granting 20 Motion for Interlocutory Vessel Sale and Authorization to Credit Bid. Signed by Judge Gonzalo P. Curiel on 11/29/17. (dlg)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 SHELTER COVE MARINA, LTD., a California Limited Partnership, 15 16 17 18 ORDER GRANTING MOTION FOR INTERLOCUTORY VESSEL SALE AND AUTHORIZATION TO CREDIT BID Plaintiff, 13 14 Case No.: 3:17-cv-01578-GPC-BLM v. M/Y ISABELLA, U.S.C.G. Official No. 1192004, an 81.6-Foot, 1952 Feadship Motor Yacht, AND ALL OF HER ENGINES, TACKLES, ACCESSORIES, EQUIPMENT, FURNISHINGS AND APPURTENANCES, in rem, [ECF No. 20] Defendant. 19 20 21 Before the Court is Plaintiff Shelter Cove Marina’s (“Shelter Cove”) motion for 22 interlocutory vessel sale and authorization to credit bid. (ECF No. 20.) The motion is 23 unopposed. For the reasons set forth below, the Court GRANTS Shelter Cove’s motion. 24 25 I. Background This is an in rem action against the vessel S/V Isabella, U.S.C.G. Official Number 26 1192004 (“Defendant Vessel”), which is—according to the verified complaint—owned 27 by Ocean Bay Charters, LLC. (ECF No. 1 at 2 ¶ 3.) The President of Ocean Bay 28 Charters is Tom Kelley. (Id.) On September 15, 2015, Kelley executed a wharfage 1 3:17-cv-01578-GPC-BLM 1 contract with Shelter Cove. (Id. at 2 ¶ 5.) Under the agreement, Shelter Cove provided 2 wharfage services for Defendant Vessel. (Id.) Since November 2016, however, no one 3 has paid the accruing wharfage fees resulting from Shelter Cove’s services to Defendant 4 Vessel. (Id. at 2 ¶ 6.) On February 21, 2017, Shelter Cove sent a letter to Kelley 5 demanding payment and threatening to cancel the contract; no payment was offered in 6 response, and as a result, Shelter Cove terminated the contract. (Id. at 3 ¶¶ 7–8.) At the 7 time Shelter Cove filed its complaint, the account for Defendant Vessel stood in arrears 8 by as much as $37,209.88. (Id. at 3 ¶ 10.) 9 In light of this nonpayment, Shelter Cove filed this action on August 4, 2017, 10 asserting claims of breach of a maritime contract, trespass, and quantum meruit. (See 11 generally id.) On August 14, 2017, the Court authorized the arrest of Defendant Vessel 12 and substituted Shelter Cove as custodian. (ECF No. 5.) Because no pleadings were 13 filed in response to Shelter Cove’s complaint, and upon Shelter Cove’s motion, the Clerk 14 of Court entered default against Defendant Vessel on October 18, 2017. (ECF No. 19.) 15 In the pending motion, Shelter Cove asks the Court to order the United States 16 Marshal Service to sell Defendant Vessel at public auction so as to satisfy Shelter Cove’s 17 maritime liens resulting from Defendant Vessel’s account arrearage. Shelter Cove also 18 seeks authorization to credit bid on Defendant Vessel. 19 II. Legal Standards 20 “The interlocutory sale of a vessel is not a deprivation of property but rather a 21 necessary substitution of the proceeds of the sale, with all of the constitutional safeguards 22 necessitated by the in rem process.” Cal. Yacht Marina—Chula Vista, LLC v. S/V 23 OPILY, No. 14-cv-1215-BAS-BGS, 2015 WL 1197540, at *2 (S.D. Cal. Mar. 16, 2015) 24 (quoting Ferrous Fin. Servs. Co. v. O/S Arctic Producer, 567 F. Supp. 400, 401 (W.D. 25 Wash. 1983)). The Federal Rules of Civil Procedure’s Supplemental Rule for Certain 26 Admiralty and Maritime Claims E(9)(a)(i) states: 27 28 On the application of a party, . . . the court may order all or part of the property sold—with the sales proceeds, or as much as will satisfy the 2 3:17-cv-01578-GPC-BLM 1 2 3 4 judgment, paid into court to await further orders of the court—if: (A) the attached or arrested property is perishable, or liable to deterioration, decay, or injury by being detained in custody pending the action; (B) the expense of keeping the property is excessive of disproportionate; or (C) there is an unreasonable delay in securing release of the property. 5 As indicated by the disjunctive nature of Rule E(9)(a)(i), Shelter Cove need show just 6 one of these criteria to obtain an interlocutory sale. See Cal. Yacht Marina—Chula Vista, 7 2105 WL 1197540, at *2. 8 9 10 11 12 13 14 15 16 As for Shelter Cove’s request for authorization to submit a credit bid, this Court’s Local Civil Rule E.1(e)(2) states: When the court determines on the merits that a plaintiff or plaintiff in intervention has a valid claim senior in priority to all other parties, that plaintiff in intervention foreclosing a properly recorded and endorsed preferred mortgage on, or other valid security interest in the vessel may bid, without payment of cash, certified check or cashier’s check, up to the total amount of the secured indebtedness as established by affidavit filed and served on all other parties no later than seven (7) days prior to the date of sale. III. Discussion 17 A. Interlocutory Sale of Defendant Vessel 18 i. Liability to Deterioration 19 Shelter Cove contends that the Court should grant the interlocutory sale of 20 Defendant Vessel because the vessel’s condition is deteriorating by sitting idle. 21 Shelter Cove offers the declaration of Ray Jones, a professional yacht broker, who 22 states that the inevitable deterioration of a vessel “is exacerbated when vessels (as 23 in this case) sit idle for extended periods in a salt water environment.” (ECF No. 24 20-3 at 2 ¶ 2.) “[W]hile an arrested vessel sits idle, her engines, generators and 25 other equipment are not operated under load (if at all), and . . . such disuse can 26 detrimentally impact the condition and value of such vessel.” (Id.) After 27 reviewing pictures of Defendant Vessel, Jones asserts that he “believe[s] that if 28 [Defendant Vessel] is permitted to lay idle without routine maintenance and 3 3:17-cv-01578-GPC-BLM 1 without proper lay-up preparations, the vessel’s engines might (even if now 2 operational) rust and freeze up, necessitating costly overhaul.” (Id. at 2 ¶ 3.) 3 According to Jones, the longer Defendant Vessel sits idle, “the greater the 4 deterioration will be,” and as a result, “in the interest of preserving the value of the 5 Defendant Vessel, she should be sold as soon as possible.” (Id.) In light of Jones’s analysis—the veracity of which the Court has no reason to 6 7 doubt—the Court finds that Defendant Vessel is liable to deterioration or injury if 8 it remains arrested during the pendency of this action. See Cal. Yacht Marina— 9 Chula Vista, 2015 WL 1197540, at *3. 10 ii. Unreasonable Delay in Securing Release 11 Under Supplemental Admiralty Rule E(4)(f), a person claiming an interest in 12 arrested property is entitled to a prompt hearing. But, as Shelter Cove notes, in this case 13 “no person or entity has answered or otherwise responded to the Verified Complaint, 14 posted or sought to post security for the release of the Defendant Vessel, or requested a 15 prompt hearing” under Rule E(4)(f). (ECF No. 20-2 at 6.) As a result, the Court agrees 16 with Shelter Cove that there is little chance anyone will, at this point, seek to secure the 17 release of Defendant Vessel. (See id.) Before granting an interlocutory sale, however, the Court must permit “defendants 18 19 sufficient time to provide a bond to secure the vessel’s release.” Cal. Yacht Marina— 20 Chula Vista, 2015 WL 1197540, at *4. The Court finds that sufficient time for anyone 21 with an interest in Defendant Vessel to provide such a bond has passed. This Court 22 issued the order granting the arrest of Defendant Vessel on August 14, 2017 (ECF No. 5), 23 and the warrant was returned executed on August 18 (ECF No. 7). Nearly four months 24 have now passed since Defendant Vessel’s arrest. Courts in this circuit have found four 25 months to be adequate in this context. See, e.g., Vineyard Bank v. M/Y Elizabeth I, No. 26 08-cv-2044, 2009 WL 799304, at *2 (S.D. Cal. Mar. 23, 2009). The Court therefore 27 finds that there has been an unreasonable delay in securing Defendant Vessel’s release. 28 // 4 3:17-cv-01578-GPC-BLM 1 iii. Excessive or Disproportionate Maintenance Expense 2 Shelter Cove also asserts that maintaining Defendant Vessel imposes 3 excessive and disproportionate expense. “Maintenance expenses of several 4 thousand dollars per month, particularly where a defendant has made no attempt to 5 answer the complaint or secure the vessel’s release, are excessive and 6 disproportionate.” Cal. Yacht Marina—Chula Vista, 2015 WL 1197540, at *4. 7 That is the case here. Jones states in his declaration that Defendant Vessel’s fair 8 market will not exceed $62,500. (ECF No. 20-3 at 2 ¶ 4.) In light of the Court’s 9 setting a rate of $243 per day1 compensation for maintenance services, the 10 substitute custodian fees to date since Defendant Vessel was arrested exceed 11 $18,000. (See ECF No. 20-2 at 8.) Assuming Jones’s valuation is correct, the 12 maintenance expenses so far amount to almost 30 percent of Defendant Vessel’s 13 total value. (See id. at 8.) In light of the fact that these expenses will continue, and 14 there is no reason to believe Defendant Vessel will increase in value in the future, 15 the Court finds that the maintenance expenses are excessive and disproportionate 16 to Defendant Vessel’s value. Cf. Cal. Yacht Marina—Chula Vista, 2015 WL 17 1197540, at *4; Vineyard Bank, 2009 WL 799304, at *2. 18 B. Credit Bid 19 According to Shelter Cove, no party other than Shelter Cove has asserted a 20 maritime lien claim against Defendant Vessel. (ECF No. 20-2 at 9.) As the only 21 claimant, Shelter Cove is therefore the senior-most claimant, and is entitled, under Local 22 Admiralty Rule E.1(e)(2), to bid an amount up to its lien amount. Shelter Cove’s lien 23 24 25 26 27 28 1 It appears that in its August 14, 2017 order, the Court miscalculated the services fees applicable for Shelter Cove’s care of Defendant Vessel. After setting respective rates of $2.50 and $0.50 per foot of the vessel length for wharfage and custodial services, the Court erroneously indicated that Defendant Vessel was 87 feet, and therefore calculated the wharfage and custodial fees to be $217.50 and $43.50 per day. (ECF No. 5 at 8.) Defendant Vessel is, however, 81 feet. (ECF No. 1 at 2 ¶ 3.) As a result, the appropriate wharfage service fee is $202.50 per day ($2.50 x 81 feet = $202.50), and custodial service fee $40.50 per day ($0.50 x 81 feet = $40.50). Together, these fees add up to $243.00 per day. 5 3:17-cv-01578-GPC-BLM 1 consists of the $37,209.88 arrearage attested to in its verified complaint (ECF No. 1 at 3 ¶ 2 10), plus “actual and demonstrable costs of suit, including U.S. Marshal, substitute 3 custodian and other custodia legis expenses” as specified by this Court’s August 14 4 order, “to be calculated through the date of the vessel sale” (ECF No. 20-2 at 10). Shelter 5 Cove does not request to include in its credit bid its attorneys’ fees. (Id.) 6 Provided that Shelter Cove complies with Local Admiralty Rule E.1(e)(2) by 7 establishing the total amount of the secured indebtedness by affidavit, and filing 8 and serving on all other parties such an affidavit no later than seven (7) days prior 9 to the date of the sale, the Court GRANTS Shelter Cove authority to credit bid at 10 11 12 13 14 the auction of Defendant Vessel. IV. Conclusion For the reasons discussed above, Shelter Cove’s motion for interlocutory sale and authorization to credit bid (ECF No. 20) is GRANTED. IT IS HEREBY ORDERED that: 15 1. Consistent with Supplemental Admiralty Rule E(9)(B) and Local Admiralty Rule 16 E.1(e) the United States Marshal be and hereby is directed and empowered to sell 17 said DEFENDANT VESSEL and her engines, tackle, accessories, equipment, 18 furnishings and appurtenances, as is, where is, at public sale at the first available 19 time and date, after having first caused notice of said sale to be published daily in a 20 newspaper of general circulation within the City of San Diego, California for at 21 least seven days immediately before the date of sale; 22 23 2. Such public notice specify the date, time and location for the sale of the DEFENDANT VESSEL; 24 3. Consistent with Local Admiralty Rule E.1(e)(2), such public notice specify that the 25 last and highest bidder at the sale will be required to deposit with the U.S. Marshal 26 a certified check or a cashier’s check in the amount of the full purchase price not to 27 exceed $500, and otherwise $500 or ten percent (10%) of the bid, whichever is 28 greater, and that the balance, if any, of the purchase price shall be paid by certified 6 3:17-cv-01578-GPC-BLM 1 check or cashier’s check before confirmation of the sale or within three days of 2 dismissal of any opposition which may have been filed, exclusive of Saturdays, 3 Sundays and legal holidays; 4 4. Any proceeds of said sale shall be held by it or deposited by the United States 5 Marshal in the Registry of this Court, pending further Order of this Court; 6 5. Shelter Cove, having a secured maritime lien interest in the Defendant Vessel 7 pursuant to the Commercial Instruments and Federal Maritime Lien Act (46 U.S.C. 8 section 31301, et seq.) and being the only claimant in this action asserting a 9 maritime claim against her, is authorized pursuant to Local Admiralty Rule 10 E.1(e)(2) to credit bid at the auction of the DEFENDANT VESSEL, without 11 payment of cash, a sum equal to its secured interest in the Defendant Vessel, 12 consisting of the lien amount specified in Shelter Cove’s Verified Complaint 13 ($37,209.88), plus its actual costs of suit through the date of the sale, including 14 U.S. Marshal and other custodia legis expenses, with such costs and expenses to be 15 calculated at the rates specified and authorized in the Order Appointing Substitute 16 Custodian and Authorizing Movement of Defendant Vessel. However, as 17 Plaintiff’s maritime necessaries lien interest in the DEFENDANT VESSEL does 18 not, as a matter of law, include attorneys’ fees, such fees are not to be included in 19 any credit bid Plaintiff makes; and 20 6. Pursuant to Local Supplemental Admiralty Rule E.1(e)(2), that if within three days 21 of the auction date, exclusive of Saturdays, Sundays, and legal holidays, no written 22 objection is filed, the sale shall stand confirmed as of course, without the necessity 23 of any affirmative action thereon by a judge, except that no sale shall stand 24 confirmed until the buyer has complied fully with the terms of the purchase. 25 26 27 28 7 3:17-cv-01578-GPC-BLM 1 2 IT IS SO ORDERED. Dated: November 29, 2017 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 3:17-cv-01578-GPC-BLM

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