Bennett Brothers Yachts, Inc. v. S/V KELLY GIRL et al

Filing 22

MEMORANDUM OPINION. Signed by Judge George Jarrod Hazel on 11/9/2017. (jf3s, Deputy Clerk)

FILED
U S. 0I-STRICT COURT
IN THE UNITED STATES DISTRICT COURT DISTNCT 3.1 MARYLAN2
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FOR THE DISTRICT OF MARYLAND
Southern Division

2011 NOV P 214
,

BENNETT BROTHERS YACHTS, INC.,
Plaintiff,

Case No.: G.TH-l7-1871

V.

ALLAN LESSER, et a/.,
Defendants.

MEMORANDUM OPINION
This maritime litigation follows a dispute between Plaintiff Bennett Brothers Yachts, Inc.
("Bennett Brothers" or "Plaintiff') and Defendant Allan Lesser regarding a service contract for
Plaintiff to repair and refit Defendant's vessel, S/V KELLY GIRL. Now pending before the
Court is Defendant's Motion to Compel Countersecurity, ECF No. 17. No hearing is necessary.
Loc. R. 105.6 (D. Md. 2016). For the following reasons, Defendant's motion is granted, in part,
and denied, in part.
I. BACKGROUND
Plaintiff brought a maritime lien foreclosure action pursuant to the Commercial
Instruments and Maritime Liens Act ("CIMLA"), 46 U.S.C. §§ 31301, et seq. against the Sailing
Vessel "KELLY GIRL," in rem, and against Defendant, in personum. The parties entered into a
service contract for Plaintiff to repair and refit the vessel in 2015, but, prior to completion,
Defendant removed the vessel from Plaintiffs service yard on or around June 25, 2017. ECF No.
1 If 18. Plaintiff alleges that Defendant failed to pay an outstanding balance of $40,225.58 for
work performed by Plaintiff under the service contract. Id. IT 16. Following the Court's Order For
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Issuance of Process In Rem (Warrant) for the Arrest of the Sailing Vessel on July 7, 2017, ECF
No. 6, Defendant posted security of $70,000 and the Clerk of the Court released the vessel to
Defendant's control. ECF No. 11. Defendant filed an Answer to Plaintiff's Complaint and
brought counterclaims alleging breach of contract, negligence, breach of warranty, and violation
of North Carolina's Unfair Trade Practices Act related to work performed under the service
contract. ECF No. 14. The counterclaims allege damages in the amount of at least $251,218.41.
ECF No. 14 ¶ 50. Defendant then filed the instant motion, requesting the Court to compel
countersecurity in the amount of $425,000. ECF No. 17-1 at 11.1
II.

DISCUSSION
Federal Rule of Civil Procedure Admiralty Rule E(7) provides:
When a person who has given security for damages in the original action asserts a
counterclaim that arises from the transaction or occurrence that is the subject of the
original action, a plaintiff for whose benefit the security has been given must give
security for damages demanded in the counterclaim unless the court for cause shown,
directs otherwise. Proceedings on the original claim must be stayed until this security is
given unless the court directs otherwise.
The purpose of the counter security rule is "to place the parties on an equality as regards

security." Spriggs v. liqffstot, 240 F.2d 76, 79 (4th Cir. 1957) (citing Washington-Southern
Navigation Co. v. Bait. & Phila. S.S. Co., 263 U.S. 629, 638 (1924) (discussing Rule E(7)'s
predecessor)). However, "equality of treatment does not result always in equality of amount [of
countersecurity]," and it is not always necessary for the plaintiff to post countersecurity in an
amount matching defendant's posted security or defendant's counterclaim. Spriggs, 240 F.2d at
79 ("When the rule gives the cross-libellant a right to 'security in the usual amount,' his bond
need not necessarily be in the exact amount of the original libellant's bond; nor is it necessarily in

I Pin cites to documents filed on the Court's electronic filing system (CM/ECF) refer to the page numbers generated
by that system.
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the amount of the cross-claim") (internal citation omitted). Rather, the amount of the
countersecurity is left to the discretion of the district court. Id.
As the parties note, the Eleventh and Second Circuits have elaborated on the Fourth
Circuit's guidance in Spriggs. In Afram Lines Inern., Inc. v. M/V Capetan Yiannis, 905 F.2d 347
(11th Cir. 1990), the Eleventh Circuit held that the district court abused its discretion in ordering
the plaintiff to post countersecurity in an amount equivalent to defendant's counterclaims. In
doing so, the Eleventh Circuit set forth the following considerations guiding countersecurity
determinations:
First, the court should be reluctant to order countersecurity if the plaintiff does not, by the
posting of countersecurity, seek to release its property from the counterplaintiffs custody.
Second, the court should determine whether the counterplaintiff could initially have
brought its claim in rem or quasi in rem. Where the counterplaintiff could not have
proceeded in this manner, there seems little justification for ever requiring a larger bond
on the counterclaim than is required in the original action. Additionally, the court should
consider, if applicable, the plaintiffs financial ability to post countersecurity and the
extent to which the counterclaim may be deemed frivolous.
Id. at 349-350 (internal quotation marks, citations, and parenthetical explanations omitted).
Similarly, in Results Shipping Co., Ltd. V. Ferruzzi Trading USA Inc., 56 F.3d 394 (2d Cir.
1995), the Second Circuit stated that courts granting countersecurity should follow two
competing principals—balancing Rule E(7)'s equality objective, "which usually favors granting
countersecurity when a defendant whose property has been attached asserts non-frivolous
counterclaims growing out of the same transaction," while "not imposing burdensome costs on a
plaintiff that might prevent it from bringing suit." Id. at 399-400 (citing Titan Navigation. Inc. v.
Timsco, Inc., 808 F.2d 400,403-05 (5th Cir. 1987)).2

The Second Circuit declined to apply Afram to the extent that "it meant to suggest that countersecurity is
inappropriate unless the plaintiff is seeking to have released property the defendant has previously attached." Results
Shipping, 56 F.3d at 400 n.3. Plaintiff is not seeking to release the vessel, but the Court does not deem Defendant's
request for countersecurity presumptively inappropriate.
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Additionally, the Fourth, Fifth, Eleventh, and Second Circuits all agree that a plaintiff
should not be required to post countersecurity when doing so would impose burdensome costs
that would require it to abandon its claims. See Spriggs, 240 F.2d at 78 (citing City of Beaumont,
8 F.2d 599 (4th Cir. 1925) ("the inability of the cross-respondent to furnish bond or security
because of insolvency" was a valid justification for not requiring countersecurity)); see also
Results Shipping, 56 F.3d at 400 ("the Rule is not intended to impose burdensome costs on a
plaintiff that might prevent it from bringing suit"); 4fram, 905 F.2d at 350 ("the court should
consider, if applicable, the plaintiffs financial ability to post countersecurity"); Titan Navigation,
808 F.2d at 404 ("when a party is financially unable to post countersecurity, courts often
dispense with the requirement of the rule").
According to Defendant, because he raises non-frivolous counterclaims, equality
principals demand that Plaintiff posts countersecurity for the full amount of Defendant's
counterclaims. Defendant, in his counterclaims, alleges that Plaintiff performed work without
authorization, billed for work that it did not complete, and deficiently performed numerous
repairs. ECF No. 14 II 24. Defendant contends that his $70,000 bond over-secures Plaintiff's
alleged damages by a factor of 1.74, and he is entitled to a proportionally similar countersecurity
on his counterclaims. ECF No. 17-1 at 9. Plaintiff argues that it should not be required to post
countersecurity because Defendant's claims are unallowable under maritime law, explicitly
barred by the service contract, and frivolous and excessive compared to any actual damages
Defendant could prove at trial. ECF No. 19 at 10-12. However, Plaintiff does not dispute the
thrust of Defendant's counterclaims—that during Plaintiff's performance under the service
contract, the repair and refit project greatly exceeded initial schedule and budget projections. See
ECF No. 141 18, 22 (alleging that the project estimate increased from $125,000-$165,000 in

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May 2016 to "well in excess of $315,000" in July 2016 without authorization from Defendant,
prompting Defendant to hire an independent project manager for the remainder of the project).
Defendant's claims "are well pleaded and based on plausible if debatable legal theories,' and the
Court will not review in detail the merits of Plaintiff's arguments to the contrary at this time. See
Voyager Shipholding Corp. v. Hanjin Shipping Co., 539 F. Supp. 2d 688, 691-92 (S.D.N.Y.
2008) ("[t]hat an expert, through legal analysis, concludes that a claimant is unlikely to succeed
in litigation does not indicate that the claim is frivolous").
While Defendant is entitled to countersecurity, the amount will be significantly less than
requested. Plaintiff states that it is financially incapable of posting $425,000 in countersecurity,
lacking sufficient cash or liquid assets. ECF No. 19-1 TT 2, 3. As a result, Plaintiff would be
unable to pursue its claim if required to provide such countersecurity. Id. ¶ 6. Defendant has not
suggested that Plaintiff can in fact post such countersecurity. Further justifying a reduced
countersecurity, Defendant is in possession of the subject vessel and only alleges that Plaintiff
damaged the vessel, or failed to properly perform service contract tasks, in the amount of
$62,000. ECF No. 14 ¶ 43. As such, Defendant is entitled to receive countersecurity in the
amount of $70,000.
III. CONCLUSION
For the foregoing reasons, Defendant's Motion to Compel Countersecurity, ECF No. 17,
shall be granted, in part, and denied, in part. A separate Order follows.

Dated: November ° , 2017
I
GEORGE J. HAZEL
United States District Judge

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