Superior Derrick Services L L C v. Lonestar 203 et al

Filing 88

MEMORANDUM RULING re 77 MOTION for an Order Requiring Plaintiff to Provide Counter-Security filed by Lonestar Drilling Nigeria Ltd. Signed by Magistrate Judge C Michael Hill on 2/5/10. (crt,Roaix, G)

UNITED STATES DISTRICT COURT W E S T E R N DISTRICT OF LOUISIANA

S U P E R I O R DERRICK SERVICES, LLC. VS. L O N E S T A R 203, ET AL.

* C I V I L ACTION NO. 6:09-0484 * M A G I S T R A T E JUDGE HILL * B Y CONSENT OF THE PARTIES

MEMORANDUM RULING REGARDING COUNTER-SECURITY A telephone status conference on the defendant's Motion to Provide CounterS e c u rity [rec. doc. 77] was held on December 14, 2009. A briefing schedule was set, and th e Motion was taken under advisement. The Court further advised that in the event that th is court found that counter-security is warranted, a hearing to determine the amount of s e c u rity would be set. [rec. doc. 84]. Having considered the defendant's Motion, the p la in tif f 's Opposition thereto [rec. doc. 83], and the defendant's Reply [rec. doc. 85], as w e ll as the evidence presented at the hearing on the defendant's Motion to Vacate W arran t for Arrest or Alternatively to Fix Security, the Court finds that on the record p re se n tly before the court, counter-security should be posted by plaintiff, Superior D e rric k Services, LLC ("Superior"). Accordingly, a hearing on the amount of counters e c u rity to be posted by Superior will be conducted on February 18, 2010 at 10:00 a.m. I. FACTS T h i s case arises out of the March 27, 2009 arrest of the drilling barges, L O N E S T A R 203 and LONESTAR 204. Plaintiff, Superior Derrick Services, LLC (" S u p e rio r" ) arrested these vessels, asserting a maritime lien against the vessels as a result

o f an alleged failure to pay sums due under Barge Refurbishment Contracts and a T u rn k e y Agreement entered into between Superior and Lonestar Drilling Nigeria, Ltd. (" L o n e s ta r" ) covering refurbishment work on the drilling barges. The sole purpose of the a rre st was to provide security for the original (main) demand. L o n e sta r and Intercontinental Bank, PLC, as operator and owners of the drilling b a rg e s, made a claim to the vessels and filed an Answer. Lonestar additionally filed a C o u n te rc la im against Superior. In its Counterclaim, Lonestar alleges that Superior has b re a c h e d the Barge Refurbishment Contracts and the Turnkey Agreement1 by failing to tim e ly complete work on the drilling barges by the contractually agreed upon date, April 2 6 , 2008. Accordingly, Lonestar alleges that it is owed stipulated damages set forth in th e Turnkey Agreement in the amount of $25,000.00 per day per barge, with the e x c ep tio n of twenty-two days where the delay was beyond Superior's control, for a total a s of March 27, 2009 of $15,650,000.00. Lonestar further seeks other damages resulting f ro m the delay, including unspecified damages for loss of two year drilling contracts for e a ch vessel and associated daily lost revenue, as well as demurrage charges of over $ 1 2 ,0 0 0 ,0 0 0 .0 0 on a heavy lift vessel which was waiting to transport the drilling barges to N ig e ria . [rec. doc. 11, Counterclaim, ¶ 2, 3 and 6]. Following an evidentiary hearing, this Court found that there were reasonable g ro u n d s for the issuance of an arrest warrant for the Lonestar vessels, and set security in

All three contracts are attached to Superior's Complaint, and were also entered into evidence during the A p r il 3, 2009 evidentiary hearing.

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a n amount sufficient to cover Superior's claim, fairly stated, in the amount of $ 7 ,2 1 3 ,5 0 3 .3 2 with interest. [rec. doc. 31]. Thereafter, Lonestar posted security in the am o u n t of $8,000,136.49, to secure release of the vessels. [rec. doc. 74]. L o n estar now moves under Admiralty Rule E(7)(a) for an Order of this Court re q u irin g Superior to post counter-security for the damages claimed by Lonestar in its C o u n te rc la im , in an amount at least equal to the amount of security posted by Lonestar. Superior opposes the Motion arguing that counter-security is not warranted in this c a se , given that Superior is a Louisiana corporation with substantial assets within this C o u rt's jurisdiction, and that, therefore, Lonestar suffers no insecurity with respect to s a tis f a c tio n of any judgment which may be awarded by this court in its favor. Superior further asserts that security on Lonestar's counterclaim should be denied b e c au s e Lonestar seeks stipulated damages for delays which resulted from new and a d d itio n a l work resulting from change orders issued by Lonestar between April 26, 2008 a n d February 2009, after the completion date set forth in the Turnkey Agreement, and f u rth e r seeks damages for demurrage fees which it could have avoided by permitting the h ea v y lift vessel to seek alternate employment during the delay in completion of the work o n the barges, as evidenced by the Verified Complaint filed by the heavy lift vessel o p e ra to r in this court. B y Reply, Lonestar counters that during the April 3, 2009 hearing, Mr. Tannehill (a Superior employee) admitted that the work under the Barge Refurbishment Contracts

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a n d the Turnkey Agreement was not only not unfinished on April 26, 2008, but was still n o t complete by April 3, 2009, the date of the hearing. Moreover, Lonestar asserts that Superior intentionally delayed completion of the w o rk in order to pressure Lonestar into waiving its claim against Superior. Finally, L o n e sta r asserts that on the record presently before this court, Superior has shown neither its ability to satisfy any judgment nor its inability to post security. Accordingly, there is no re a s o n for this court not to follow the dictates of Admiralty Rule E(7)(a). II. ANALYSIS A d m ir a lty Rule E(7)(a) provides as follows: W h e n a person who has given security for damages in the original action a ss e rts a counterclaim that arises from the transaction or occurrence that is th e subject of the original action, a plaintiff for whose benefit the security h a s been given must give security for damages demanded in the c o u n te rc la im unless the court for cause shown, directs otherwise. Proceedings on the original claim must be stayed until this security is given u n le ss the court directs otherwise. F R C P , Supp. Adm. Rule E(7)(a). As noted by the Fifth Circuit, the rule is straightforward. "When the defendant p o s ts security to guarantee payment of an adverse judgment ­ typically the posting of a b o n d to secure release of a vessel ­ the complainant may be required to furnish security f o r the satisfaction of a counterclaim." Titan Navigation, Inc. v. Timsco, Inc., 808 F.2d 4 0 0 , 403 (5 th Cir. 1987). However, "[a]lthough the language of the rule is automatic it is n o t absolute, for the original seizing complainant may be excused by the court `for cause

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s h o w n .'" Id. "Absent this relief by the court, the intent of the rule is manifest; it is `to p lace the parties on an equality as regards security.'" Id. citing Washington-Southern N a v ig a tio n Co. v. Baltimore & Philadelphia Steamboat Co., 263 U.S. 629, 638-39, 44 S .C t. 220, 223-24, 68 L.Ed. 480 (1924) (construing former Admiralty Rule 53). T h e determination of "for cause shown" is relegated to the sound discretion of the d is tric t court. Id. The court's "discretion, although broad, is significantly cabined in s o m e cases." Id. For example, courts have recognized that Seamen should not be forced to post counter-security. Id. (citations omitted). Moreover, "when a party is financially u n a b le to post counter-security, courts often dispense with the requirement of the rule . . . ." Id. citing The Beaumont, 8 F.2d 599 (4th Cir.1925)2 (other citations omitted). H o w e v e r, the Fifth Circuit has also "recognized the pertinency of this c o n sid e ra tio n by concluding that financial difficulties would not automatically excuse the c o u n te r-s e c u rity requirement." Id. at 404 citing Seaboard & Caribbean Transp. Corp. v. H a f e n -D a m p f sc h i ffa h r t, 329 F.2d 538 (5th Cir.1964). Finally, courts "should not require co u n ter-secu rity where the counterclaim is frivolous or so lacking in merit that the court

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In The Beaumont, the Fourth Circuit found: T h e rule never contemplated, ... that, where the parties to the original libel had established their r ig h ts and obtained security, this should be lost to them, because of their inability, arising from in s o l v e n c y or other good reason, to procure a bond to respond to a large claim asserted in the c r o s s -lib e l , and that as a result their libel should be dismissed. This would not only be unjust, but w o u ld in effect negative and nullify the provision of the rule giving to the trial court full discretion to act upon the very subject involved. 8 F.3d at 601.

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c a n only conclude that the counterclaim was advanced solely to secure a negotiating a d v a n ta g e over the complainant." Id. In this case, it is undisputed that Lonestar's counterclaim arises from the same tra n sa c tio n that is the subject of Superior's original action. It is further undisputed that L o n e sta r has provided a bond for security in the amount of $8,050.000.00. Thus, by its e x p re ss terms, Rule E(7)(a) is applicable. C itin g jurisprudence from the Western District of Washington, Superior argues th a t it should be relieved from the dictates of Rule E(7)(a) because it is solvent and has s u b s ta n tia l assets within this court's jurisdiction. Solvency, however, has not to date been re c o g n iz e d as a justification in the Fifth Circuit for this court to dispense with the re q u ire m e n t of the Rule. Even if there were such authority in this Circuit, there is in s u f f ic ie n t evidence in this record to make that determination now. The court reserves this issue for the hearing and additional briefing. The Court also finds Superior's argument as to the merits of Lonestar's claims eq u ally unavailing. On the present record, the Court cannot conclude that Lonestar's c o u n te rc la im is "frivolous or so lacking in merit that the counterclaim was advanced s o le ly to secure a negotiating advantage over" Superior. Titan Navigation, supra. To the c o n tra ry, while the record reveals that there were numerous change orders issued f o llo w in g the April 26, 2008 completion date (P9 and P15), the record also reveals a valid c o n tra c t containing a stipulated damage clause requiring the payment of $25,000.00 per

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d a y for each day the work was delayed as a result of the actions or inactions of Superior. At this time, on the record before this court, the Court cannot determine which p a r ty was responsible for the delays, or the number of days attributable to each, much less th e underlying reason which necessitated the issuance of each change order in the first in s ta n c e . These are determinations which will be made at the trial on the merits. Moreover, as noted by Lonestar, during the April 3, 2009 hearing, Mr. Tannehill admitted th a t as of that date, work covered by both the original Refurbishment Contracts and the T u rn k e y Agreement was "technically" not complete and further that no Certificate of D e liv e ry has ever been issued for either barge. Furthermore, to the extent that any portion of the delay in completion of the work contemplated under the Barge Refurbishment Contracts and the Turnkey Agreement is f o u n d attributable to Superior, Lonestar would also be entitled to recover damages for lost re v e n u es (from both lost drilling contracts and daily sums lost), as well as demurrage c h a rg e s for those periods, less any sums which could have been minimized or avoided by L o n e s ta r. In sum, on the record before this court, there is a basis in both law and fact for L o n e sta r's Counterclaim, and as such this court is not prepared to hold at this point that L o n e sta r's claim is frivolous or so lacking in merit such that it could be considered a d v a n ce d solely to secure a negotiating advantage over Superior, and on that basis, deny c o u n te r- s e c u ri ty.

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H a v i n g found no cause shown for this court to excuse Superior from the express d ic ta te s of Rule E(7)(a), on the record presently before this court, Superior will be re q u ire d to post counter-security in an amount that will be sufficient to put the parties on e q u a l footing, without forcing Superior to give up its claim against Lonestar. The Court notes, however, that while Superior alleges its ability to satisfy any J u d g m e n t rendered by this court, it has not submitted any evidence supporting these a lle g a tio n s ; it has not demonstrated that it has sufficient unencumbered assets to satisfy a n y adverse Judgment rendered against it. Thus, on the present record, the Court is u n a b le to properly "weigh the importance of the security interest giving rise to the initial s e iz u re , and the burden of posting counter-security, against the potential injustice of re q u irin g the defendant-counterclaimant to post security without affording reciprocal p ro te c tio n " as required by the Fifth Circuit. This court will also revisit the defense of " so lv e n c y" to the requirement of counter-security raised by Superior Titan Navigation, 8 0 8 F.2d at 404. The parties have previously been advised that in the event the Court finds that c o u n ter -se c u rity is warranted, a hearing to determine the amount of counter-security w o u ld be set. [rec. doc. 84]. Accordingly, that issue will be taken up at an evidentiary h e a rin g on February 18, 2010 at 10:00 a.m. In the event that the parties are able to agree o n an amount for security, they shall advise the Court immediately.

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I I I . CONCLUSION F o r the foregoing reasons, IT IS ORDERED that Lonestar's Motion to Provide C o u n t e r- S e c u r ity [rec. doc. 77] is GRANTED, reserving the Court's right to revisit the is s u e after receiving evidence of Superior's solvency and financial ability to post security. T h e Motion insofar as it seeks to set the amount of counter-security, is deferred, and will b e taken up at the hearing on February 18, 2010, if necessary. S ig n e d at Lafayette, Louisiana on February 5, 2010.

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