Sea Trade Maritime Corporation et al v. Stelios Coutsodontis

Filing 383

OPINION AND ORDER: For the reasons stated, the recommendation in the Report is adopted: $1,170,645.87, representing one-half of the proceeds from the sale of the M/V Athena, plus any accrued interest thereon, currently residing in escrow, shall be distributed to Coutsodontis as the benefit of his 50% ownership in Sea Trade. The balance of the escrow account shall be distributed to Peters and his mother according to their ownership shares in Sea Trade. In addition, $116,542.9 0 or half of the appeal bond balance shall be distributed to Coutsodontis as an additional benefit of his 50% ownership interest in Sea Trade. The remaining half of the appeal bond balance shall be distributed to Peters and his mother according to their ownership shares in Sea Trade. Having reviewed the remainder of the Report as to which no objection was made and to the extent not inconsistent with the above, the Court finds that it is not clearly erroneous. The Clerk of Court is respectfully directed to close this case. (Signed by Judge Lorna G. Schofield on 5/26/2020) (rj) Transmission to Orders and Judgments Clerk for processing.

Case 1:09-cv-00488-LGS-SLC Document 383 Filed 05/27/20 Page 1 of 19

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------------ X
:
SEA TRADE MARITIME CORPORATION, et :
:
al.,
Plaintiffs, :
:
-against:
:
:
STELIOS COUTSODONTIS,
Defendant. :
------------------------------------------------------------ X
LORNA G. SCHOFIELD, District Judge:

9 Civ. 488 (LGS) (HBP)
OPINION AND ORDER

This action is before the Court after more than a decade of litigation and “much
hardship.” 1 The case arises from an intra-family dispute over ownership and control of Plaintiff
Sea Trade Maritime Corporation (“Sea Trade”). Sea Trade and its “attorney-in-fact” George
Peters commenced this action in 2009 against Defendant Stelios Coutsodontis. Magistrate Judge
Henry Pitman issued a Report & Recommendation (the “Report”) on how to allocate Sea Trade’s
assets. See Sea Trade Mar. Corp. v. Coutsodontis, 9 Civ. 488, 2018 WL 7460028 (S.D.N.Y.
Dec. 7, 2018). The Report recommends that Defendant is entitled to $1,170,645.87, plus
interest, or one-half of the proceeds of the sale of the “M/V Athena,” a “Panamax”-type, bulk
maritime vessel. Id. at *14. Both parties filed Objections. For the reasons herein, the
recommendation is adopted. In addition, Defendant is entitled to one-half of $233,085.80, plus
interest (i.e., $116,542.90, plus interest) which the Report does not allocate and is currently in
escrow.

1

HOMER, THE ODYSSEY, Book XVI (Samuel Butler, trans., Project Gutenberg 2019),
https://www.gutenberg.org/files/1727/1727-h/1727-h.htm (where Odysseus credits the goddess
Athena for directing him home to Ithaca, after ten years of “long wandering and much
hardship”).

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BACKGROUND
Only the facts necessary to address the Objections are included. 2 Sea Trade’s Articles of
Incorporation authorize 500 shares. At formation, Peters was designated as Sea Trade’s
attorney-in-fact and was effectively made its de facto manager through a written power of
attorney. 3 Sea Trade purchased the M/V Athena in 1992 and began chartering in 1993.
Sea Trade, through Peters as attorney-in-fact, entered employment contracts with Peters
in 1994 and 1995, and the terms were modified in 2004. Only Peters signed these agreements.
Peters’ employment agreements provide that Sea Trade “shall pay all reasonable costs, including
attorney fees in connection with any claims or suits made against [Peters] arising out of his
management of the affairs of [Sea Trade].”
As de facto manager, Peters managed Sea Trade’s bank account at MT&T Bank. He
worked with charter brokers to obtain profitable charters and retained third-party ship
management companies. He also made other management decisions, such as authorizing loan
agreements for Sea Trade and litigating on the corporation’s behalf.
On January 13, 2003 -- at which time Peters owned 50 shares in Sea Trade and his
mother Anna Peters owned 200 shares -- Coutsodontis was bequeathed 250 shares. Peters and

2

The facts have been more extensively stated in numerous published Opinions. See e.g., Sea
Trade Mar. Corp. v. Coutsodontis, 9 Civ. 488, 2011 WL 3251500 (S.D.N.Y. July 25, 2011); Sea
Trade v. Coutsodontis, 9 Civ. 488, 2012 WL 3594288 (S.D.N.Y. Aug. 16, 2012); Sea Trade
Mar. Corp. v. Coutsodontis, 9 Civ. 488, 2015 WL 4998638 (S.D.N.Y. Aug. 20, 2015); Sea Trade
Mar. Corp. v. Coutsodontis, 744 F. App’x 721 (2d Cir. 2018) (summary order); Sea Trade Mar.
Corp. v. Coutsodontis, 9 Civ. 488, 2018 WL 7460028 (S.D.N.Y. Dec. 7, 2018).
3

The power of attorney grants Peters the power “[t]o conduct generally the business for and on
behalf of the corporation,” “to administer and operate for the Corporation any and all vessels[,] .
. . to compromise any present or future dispute relating to said vessels or other disputes as said
attorney may deem advisable,” “to retain legal counsel, solicitors, attorneys at law and agents”
and “generally to act in relation with respect to the Corporation’s business as fully and
effectually in all respects as the Corporation could do if personally present.”
2

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his mother refused to acknowledge Coutsodontis as a shareholder. They sought a declaration
from the Multi-Member Court of First Instance of Athens (the “Greek Lower Court”) that the
bequest was null and void. In 2009, the Greek Lower Court held that the bequest was valid.
This decision was affirmed by the Greek intermediate appellate court, and in 2014 was again
affirmed by the Greek Supreme Court. Plaintiff and his mother did not treat Defendant as a
shareholder at any time after the Greek court decisions.
In July 2008, Coutsodontis caused the maritime arrest of the M/V Athena in Tarragona,
Spain (the “Spanish Arrest”). He again caused the maritime arrest of the vessel in New Orleans,
Louisiana in August 2008 (the “Louisiana Arrest”). Both arrests were vacated. After the
Spanish Arrest, a Spanish court found Coutsodontis liable to Sea Trade. Sea Trade and Peters
sought recognition of the Spanish judgment in the New York Supreme Court (the “2008 State
Action”). The New York Supreme Court recognized the judgment for $1,092,445.15 against
Coutsodontis, and the judgment was upheld by the Appellate Division in 2016. Coutsodontis
paid Sea Trade the judgment, most of which Sea Trade used to pay off a legal debt, leaving
$233,085.80, plus interest, remaining in escrow today.
In January 2009, a buyer paid Sea Trade $2,341,291.73 for the M/V Athena. The
proceeds from the sale were placed in escrow pursuant to an agreement between Sea Trade and
Coutsodontis. The agreement states in relevant part that the sale proceeds shall be disbursed
“upon the final non-appealable judicial determination of Coutsodontis’ ownership interest in Sea
Trade and Coutsodontis’ entitlement to the [sale proceeds].” Because the M/V Athena was Sea
Trade’s sole source of operating income, the corporation has been dormant since the ship was
sold.

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Peters and Sea Trade commenced this action against Coutsodontis on the same day as the
Greek Lower Court decision. They asserted claims for wrongful arrest of the vessel, and for
breach of fiduciary duty based on the same facts. After a three-day bench trial, this Court found
for Defendant on the wrongful arrest claim, and for Plaintiff on the fiduciary duty claim, but also
that Plaintiff had acted with unclean hands by refusing to treat Defendant as a shareholder after
the Greek Lower Court decision. Based on these findings, the Court fashioned an equitable
remedy -- that Coutsodontis had a 50% interest in Sea Trade beginning January 13, 2003, but
forfeited that interest as of August 23, 2016, because of his breach of fiduciary duty. See Sea
Trade Mar. Corp. v. Coutsodontis (“FFCL”), 9 Civ. 488, 2016 WL 11680976, at *16-18
(S.D.N.Y. Aug. 23, 2016). The matter was referred to Judge Pitman for an inquest on the
amount due to Coutsodontis based on his 50% shareholder interest. Id.
The Second Circuit affirmed in part and reversed in part this Court’s Order, concluding
that Plaintiff had not offered sufficient evidence of damages to find that Defendant had breached
his fiduciary duty. See Sea Trade Mar. Corp. v. Coutsodontis, 744 F. App’x 721, 726 (2d Cir.
2018) (summary order). In light of this decision, the forfeiture of Coutsodontis’ interest in 2016
was also reversed. Id. The Second Circuit noted, however, that “the reversal may have no
practical effect in that it affords Coutsodontis no larger share of the sale assets in escrow, and
Sea Trade has no assets or ongoing business operations.” Id. at 726 n.1. As a result, Defendant
has a 50% ownership interest in Sea Trade beginning January 13, 2003. The Court of Appeals
affirmed the referral for an inquest. Id. at 727.
Based on the parties’ submissions, including competing expert reports, the Report
recommends that Coutsodontis be awarded $1,170,645.87 plus any accrued interest thereon for
his 50% interest in Sea Trade. Sea Trade Mar. Corp., 2018 WL 7460028, at *14. This amount

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represents half of the proceeds of the sale of the M/V Athena. The Report declined to award any
further amount, finding that Coutsodontis had failed to prove that Sea Trade had earned any net
profits or had any assets beyond the proceeds from the sale.
STANDARD
In reviewing a Magistrate Judge’s Report, a District Judge “may accept, reject, or
modify, in whole or in part, the findings or recommendations made by the magistrate judge.” 28
U.S.C. § 636(b)(1)(C). For those findings or recommendations where no timely objection is
filed, “the court need only satisfy itself that there is no clear error on the face of the record in
order to accept the recommendation.” Fed. R. Civ. P. 72(b) Advisory Committee Notes; accord
Niles v. O’Donnell, No. 17 Civ. 1437, 2019 WL 1409443, at *1 (S.D.N.Y. Mar. 28, 2019). A
decision is “clearly erroneous” only when the Court is “left with the definite and firm conviction
that a mistake has been committed.” Smith v. Warden of North Infirmary Command, 18 Civ.
7018, 2019 WL 2866729, at *1 (S.D.N.Y. July 3, 2019) (internal citation omitted).
“A judge shall make a de novo determination of those portions of the report or specified
proposed findings or recommendations to which objection is made.” 28 U.S.C. § 636(b)(1)(C).
To invoke de novo review, the objections “must be specific and clearly aimed at particular
findings in the magistrate judge’s proposal.” George v. Professional Disposable Int’l, Inc., 221
F. Supp. 3d 428, 433 (S.D.N.Y. 2016) (internal citation omitted). Notably though, “a district
court should not entertain new grounds for relief or additional legal arguments that were not
before the magistrate judge.” Berrios v. City of New York, No. 14 Civ. 8959, 2018 WL 4608211,
at *3 (S.D.N.Y. Sept. 25, 2018).

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ANALYSIS
A.

De Novo Review and Conclusion

The purpose of the inquest was to determine what, if any, distribution Defendant is
entitled to as a 50% shareholder of Sea Trade. Defendant objects to the ultimate finding and
recommendation in the Report -- that Coutsodontis has failed to sustain his burden to show that
Sea Trade has any net assets, apart from the proceeds from the sale of the M/V Athena, and that
Coutsodontis is entitled to half of those proceeds, plus interest with regard to his 50% ownership
interest in Sea Trade. This finding and recommendation are adopted on de novo review as
explained below.
At the inquest, Plaintiffs -- Sea Trade and its manager Peters -- proffered evidence
showing that Sea Trade’s liabilities exceed its assets so that it has no net assets to distribute to
shareholders. This evidence included Sea Trade’s bank statements from 2004 through 2011, and
Peters’ declarations that Sea Trade ceased operations in 2008, and that after Sea Trade no longer
had a bank account in 2012, Peters paid the company’s expenses, primarily legal fees, from his
own account. In addition to showing de minimis assets apart from the proceeds from the sale of
the ship, Peters proffered evidence of Sea Trade’s liabilities exceeding $3.8 million from loans
he made to Sea Trade.
Defendant did not attempt to rebut this evidence of assets and liabilities directly. Instead
he sought to discredit this evidence by showing that Sea Trade had millions of dollars of net
profits, which should have resulted in the company’s having a positive net worth. Defendant
offered an expert’s opinion, which in the final revised version asserted that Sea Trade had net
earnings between 2003 and 2009 of between $25.7 million and $37.4 million. This opinion was
based largely on estimates of what a similarly situated shipping company would have earned

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under similar circumstances. Defendant in substance argued that, with this amount of earnings,
Sea Trade must have secret bank accounts holding additional undisclosed assets.
Plaintiff countered with evidence concerning Sea Trade’s actual operations, receipts and
expenditures. Plaintiff also submitted an expert report evaluating this evidence and analyzing
Defendant’s expert opinion. Plaintiffs’ expert concluded that Defendant’s expert had grossly
overstated Sea Trade’s net revenue and found instead for the period between mid 2005 to 2008
net revenue of approximately $3,363,460 versus Defendant’s estimate of $19,209,927.
Based on a de novo review, the Court finds that the only Sea Trade assets that Defendant
has sufficiently proved are the proceeds remaining from the sale of the M/V Athena principally
for two reasons. First, Defendant’s analysis of net profits does not address the traditional
measure of shareholder value also referred to as shareholder equity; this amount is generally the
excess of a corporation’s assets over liabilities. Although there is intuitively some general
relationship between a corporation’s net earnings and its equity, profitability is not a measure of
equity, and does not result in a number that represents the value of shareholder equity. Second,
even assuming that showing Sea Trade’s net profits sheds light on shareholder value, the
opinions of Defendant’s expert are too speculative since they are largely based on assumptions
about Sea Trade’s business rather than the available evidence. In short, Defendant has not
sustained his burden of rebutting Plaintiffs’ evidence and showing that Sea Trade has any net
assets, much less net assets in a particular amount capable of being computed and distributed.
Based on Plaintiff’s evidence of Sea Trades liabilities, it is possible that Sea Trade’s equity has
no value.
Nevertheless, in keeping with my prior opinion and acting as a court of equity, and
because of the nature of some of Sea Trade’s liabilities (most of which are owed to Peters and his

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mother), the Court awards Coutsodontis half of the proceeds from the sale of the M/V Athena.
See Sea Trade Mar. Corp., 744 F. App’x at 726-27 (upholding the order for an inquest and
stating that a court sitting in equity “may grant any type of relief within its jurisdiction
appropriate to the proof . . . imposing such terms as may be just.”) (internal quotation omitted).
The Court also awards Coutsodontis half of the amount in escrow following the 2008 State
Action, plus interest.
B.

Defendant’s Objections

Defendant contends that more discovery should have been permitted. He complains that
the Report applied the wrong standard of proof and as a result did not credit Sea Trade with the
correct amount of profits. Defendant also argues that the Report wrongly reduces Sea Trade’s
profits with improper expenditures that are not protected by the business judgment rule. These
objections are overruled.
1. Discovery
Defendant contends that the Report should be rejected because Judge Pitman should have
permitted the parties to complete further discovery as to Sea Trade’s assets. This argument fails.
After being referred a matter, the Magistrate Judge has “broad authority to oversee and fashion
discovery as appropriate.” City of Almaty, Kazahkstan v. Ablyazov, 15 Civ. 5345, 2018 WL
2148430, at *1 (S.D.N.Y. May 10, 2018). This includes Rule 26(b)(2)(C), which authorizes the
court to limit discovery if “the party seeking discovery has had ample time to obtain information
by discovery in the action.’” Fed. R. Civ. P. 26(b)(2)(C)).
By the time Judge Pitman received the inquest referral, this action had been ongoing for
over seven years and discovery had long been completed, as well as a trial and appeal on the
merits. Defendant had ample time to obtain discovery about Sea Trade’s financial condition,

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which was directly relevant to Plaintiffs’ claim that Defendant had breached his fiduciary duty to
the company and thereby injured it. In 2014, Sea Trade provided Defendant with significant
discovery in this action and in a state court action, including financial statements, bank
statements and records pertaining to revenue and expenses. It was well within Judge Pitman’s
authority to determine that additional discovery was unnecessary to ensure the fair and efficient
resolution of this matter. See Falcon v. Philips Elecs. N. Am. Corp., 304 F. App’x 896, 898 (2d
Cir. 2008) (summary order) (where the Second Circuit stated that “[a]t this late stage of the
litigation [after the close of discovery and dispositive briefing], we cannot say that it was an
abuse of discretion for the District Court to deny [Plaintiff’s] motion to reopen discovery . . .”).
2. The Standard of Proof to Determine Defendant’s Interest in Sea Trade
Defendant objects that the Report imposed on him too rigorous a standard of proof for
showing the value of his interest in Sea Trade. The Report states that “[t]he party seeking
damages ‘bears the burden of proving damages with reasonable certainty.’” Sea Trade Mar.
Corp., 2018 WL 7460028, at *10 (quoting New York v. United Parcel Serv., Inc., 253 F. Supp.
3d 583, 687 (S.D.N.Y. 2017)) (alterations omitted). Defendant contends that this Court directed
Judge Pitman to use a different standard for proving his share of Sea Trade’s assets -- i.e.,
“ascertaining a fair approximation” in contrast to completing a “more precise” analysis.
Defendant is mistaken. The FFCL simply directs that “[t]his matter is referred to Judge
Pitman for an inquest on the amount, if any, Coutsodontis is due” without reference to any
applicable standard. Sea Trade Mar. Corp., 2016 WL 11680976, at *17, 18. The “fair
approximation” language to which Defendant refers appears in another part of the FFCL
pertaining to Plaintiff’s damages for Defendant’s breach of fiduciary duty (before that finding
was overturned). Id. at 16. To be clear, the inquest here was not to determine Defendant’s

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damages for Plaintiff’s breach of fiduciary duty; Defendant did not assert such a claim. The
inquest was solely to determine the value of Coutsodontis’ one-half ownership in Sea Trade, an
equitable remedy giving effect to the Greek Supreme Court decision in 2014.
The Report was not incorrect to require that such a showing be made with “reasonable
certainty.” Reasonable certainty simply means that the damages must “be capable of
measurement based upon known reliable factors without undue speculation,” Ashland Mgt. Inc.
v. Janien, 82 N.Y.2d 395, 403, 624 N.E.2d 1007 (N.Y. 1992), and cannot be “merely
speculative, possible or imaginary,” Kenford Co., Inc. v. Erie Cty., 67 N.Y.2d 257, 261, 493
N.E.2d 234 (N.Y. 1986). Reasonable certainty means that the showing need not be made with
“mathematical certainty.” E.J. Brooks Co. v Cambridge Sec. Seals, 31 N.Y.3d 441, 449 (N.Y.
2018) (stating that the standard for compensatory damages is not one of “mathematical certainty”
but only “reasonable certainty”).
Defendant also contends that because Plaintiffs “did not produce or rely on detailed
records of Sea Trade’s financial operations”, the Report should have determined that Sea Trade’s
assets were their highest reasonably ascertainable value. This argument is incorrect. It is based
on inapplicable precedent where the offending party has committed a tort, an infringement or
some other wrong that “preclude[s] the ascertainment of the amount of damages with certainty.”
See, e.g., Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 563 (1931). As
noted above, Defendant did not assert any counterclaims, and the purpose of the inquest was to
give effect to the Greek court’s judgment recognizing Defendant’s one-half interest in Sea Trade.
Defendant contends that he provided sufficient evidence for Judge Pitman to conclude
with reasonable certainty that “Sea Trade’s total profits were at least $4,993,0730.00,” but could
be as high as $14,338,139.40, relying on his expert’s report. But Judge Pitman did not credit that

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report because Defendant failed to explain its inconsistency with Sea Trade’s bank account
statements. Defendant suggests that the bank records and the opinion of Defendant’s expert do
not line up because Sea Trade may have had other, secret bank accounts. Defendant makes
several arguments in support, which Plaintiffs strongly dispute. None of Defendant’s arguments
amount to more than speculation that additional accounts may exist. Therefore, these arguments
are not credited. See George, 221 F. Supp. 3d at 433.
Defendant also contends that the Report should have included in Defendant’s share half
of Sea Trade’s “retained earnings” of $2,578,000.00, as of January 13, 2003, allegedly as
reported in Sea Trade’s financial statements. However, the financial statements show retained
earnings at January 1, 2003, (“R/EARNINGS BEGINNING OF PERIOD”) of a different amount
-- $11,678,000, see 9 Civ. 488, at ECF. No. 338-4 at 4, which is the same amount that Defendant
claimed at the inquest. Defendant does not say where he found the $2.5 million number nor why
the Court should consider it now, when it was not raised at the inquest. The argument is rejected
on this basis alone. See Berrios, 2018 WL 4608211, at *3. The argument also fails on the
merits. Defendant asserts that “retained earnings” were an asset of the company on January 13,
2003, when he became a shareholder, and that he is entitled to one-half of its value now. This
argument is unpersuasive because Defendant is entitled to one-half of Sea Trade’s net assets
now, and it is too speculative to say that $2.5 million of Sea Trade’s retained earnings in 2003
continued to be an asset of Sea Trade now, particularly given Sea Trade’s substantial liabilities.
3. The Business Judgment Rule and its Application
The Report decreases Sea Trade’s profits during the relevant period based on a number of
“Disputed Expenses” -- Peters’ compensation as de facto manager, interest paid on loans from
Peters and his mother to Sea Trade, and legal fees and expenses. Relying on the business

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judgment rule (“BJR”), the Report rejected Defendant’s argument that these expenses should be
disregarded. Defendant objects to the Report’s definition and application of the BJR. 4
As Sea Trade is incorporated in Liberia, Liberian law generally governs Peters’ conduct
as the corporation’s de facto manager. See Winn v. Schafer, 499 F. Supp. 2d 390, 393 (S.D.N.Y.
2007) (“New York’s choice of law rules apply the internal affairs doctrine, which dictates that
the law of the state of incorporation governs the adjudication of the corporation’s ‘internal
affairs’ . . .”); accord Sea Trade Mar. Corp., 2016 WL 11680976, at *10 (same). However,
neither party contends that Liberian law applies, and both parties cite New York law for purposes
of analyzing whether the BJR shields Peters’ decisions. The parties also do not object to the
Report’s application of New York law for purposes of BJR analysis. Sea Trade Mar. Corp.,
2018 WL 7460028, at *11. Accordingly, this Opinion also applies New York law. See Nuevos
Aires Shows LLC v. Büler, 19 Civ. 1822, 2020 WL 1903995, at *2 n.1 (S.D.N.Y. Apr. 17, 2020)
(“New York law applies because both parties rely on it in their submissions to the Court.”);
Clarex Ltd. v. Natixis Sec. Am. LLC, 12 Civ. 7908, 2013 WL 2631043, at *2 n.3 (S.D.N.Y. June
11, 2013) (“Where ‘the parties’ briefs assume that New York law controls . . . such implied
consent . . . is sufficient to establish choice of law.’” (quoting Wolfson v. Bruno, 844 F. Supp. 2d
348, 354 (S.D.N.Y. 2011))).
The BJR “provides that, where corporate officers or directors exercise unbiased judgment
in determining that certain actions will promote the corporation’s interests, courts will defer to

4

There is some question whether the business judgment rule applies at all because, as noted
above, the issue is not whether Peters breached his fiduciary duty in making the disputed
expenditures, but rather whether they are properly included in a calculation of Sea Trade’s net
profits. Nevertheless, the question of self-dealing inherent in the business judgment analysis
provides a useful way to assess whether the disputed expenses are properly included in Sea
Trade’s net profits.
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those determinations if they were made in good faith.” In re Kenneth Cole Prods., Inc., 52
N.E.3d 214, 218 (N.Y. 2016). “[T]he substantive determination of [the corporate decisionmaker] is beyond judicial inquiry under the business judgment rule, but . . . ‘the court may
inquire as to the disinterested independence of [those who make the business determinations] and
as to the appropriateness and sufficiency of the investigative procedures chosen and pursued.’”
Id. (quoting Auerbach v. Bennett, 393 N.E.2d 994, 996 (N.Y. 1979)). The BJR does “not protect
corporate officials who engage in fraud or self-dealing, or corporate fiduciaries when they make
decisions affected by inherent conflict of interest.” Sea Trade Mar. Corp., 2018 WL 7460028, at
*11 (citing Wolf v. Rand, 258 A.D. 2d 401, 404 (1st Dep’t 1999)). If the court finds that a
corporate transaction is not protected by the BJR, the burden shifts to the corporate officer to
show good faith and the entire fairness of the transaction. See In re Kenneth Cole, 52 N.E.3d at
218 (“[T]he business judgment rule should be applied as long as the corporation’s directors
establish that certain shareholder-protective conditions are met; however, if those conditions are
not met, the entire fairness standard should be applied.”).
Defendant is incorrect that, as a general matter, the BJR does not accord any presumption
of propriety to the disputed expenses because “the very premise of the inquest was this Court’s
judgment that Peters had breached his fiduciary duty to Defendant Coutsodontis.” The Report
correctly notes that Defendant did not assert any counterclaim against Peters, and that neither
this Court nor the Court of Appeals concluded that Peters had breached his fiduciary duty to
Defendant by mismanaging the company’s affairs. The finding that Peters had “unclean hands”
by not recognizing Coutsodontis as a shareholder does not affect the analysis of Peters’ separate
business decisions to make the disputed expenditures.

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a. Legal Expenses
Defendant contends that the BJR does not shield Peters’ decision to have Sea Trade pay
legal expenses on numerous occasions. The BJR protects Peters’ decision to pursue litigation on
Sea Trade’s behalf unless Defendant offers sufficient evidence of bad faith, fraud or self-dealing.
See Sciabacucchi v. Burns, 15 Civ. 7506, 2016 WL 4074446, at *5 (S.D.N.Y. July 29, 2016)
(“‘[T]he decision whether and to what extent to explore and prosecute [shareholder claims]
ultimately lies within the judgment and control of the corporation’s board of directors’” (quoting
Auerbach, 393 N.E.2d at 1000)). Peters’ employment agreement and his written power of
attorney grant wide authority to pursue litigation in relation to Sea Trade’s business. 5
Accordingly, the BJR protects Peters’ decision to pursue most of the actions that Defendant
disputes. It protects the Hellenic Action, where Sea Trade sued its insurer to recover on a claim
for damage to Sea Trade’s ship, the M/V Athena. See Sea Trade Mar. Corp., 2018 WL
7460028, at *9. It also protects expenses related to litigation, such as this action, arising from
Defendant’s arrest of the M/V Athena in Spain and New Orleans. The BJR also protects from
scrutiny expenses arising from an action brought by Peters’ sister against Peters and his mother,
where Peters’ sister alleged that she was the rightful owner of all of Sea Trade’s shares, among
other family assets (the “Family Action”). See e.g., Peters v. Peters, No. 600456/2004, 2011
WL 11076564, at *1-4 (N.Y. Sup. Ct. July 12, 2011). Although defending this action was not
strictly in the interest of Sea Trade, it was in the interest of all of Sea Trade’s shareholders (i.e,

5

As noted above, the employment agreement states that Sea Trade “shall pay all reasonable
costs, including attorney fees in connection with any claims or suits made against [Peters] arising
out of his management of the affairs of [Sea Trade].” The written power of attorney states that
Peters has the power “to retain legal counsel” and “generally to act in relation with respect to the
Corporation’s business as fully and effectually in all respects as the Corporation could do if
personally present.”
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Peters, his mother and Coutsodontis). Therefore, the resulting litigation expenses can properly
be subtracted from the profit computation to determine what assets are available to distribute to
Sea Trade’s shareholders.
The BJR does not protect from scrutiny the expenses related to the Defamation Action
because in that case Peters sued Coutsodontis, and Sea Trade was not a party. Although Plaintiff
asserts that it was in Sea Trade’s interest to bring the action in order to protect Peters’ reputation
and thus Sea Trade’s reputation, that argument is unpersuasive. The Defamation Action
primarily served Peters’ interests and arose from Coutsodontis’ allegedly false accusation that
Peters had forged the signatures on the documents that gave him management authority over Sea
Trade. Accordingly, the business judgment rule does not protect Sea Trade’s payment of legal
expenses for the Defamation Action. The inquiry is then whether Peters has shown that it was
entirely fair and appropriate for Sea Trade to finance the litigation. See In re Kenneth Cole, 52
N.E.3d at 218-19.
Judge Pitman was “somewhat troubled” by Peters’ use of Sea Trade funds to pay for this
action, but included these litigation expenses as a deduction to Sea Trade’s profits because
Defendant did not dispute that Peters’ employment agreement and written power of attorney
permitted him to do so. Significantly, the Report notes that the fees and expenses from the
Defamation Action were less than $39,000, and “given Sea Trade’s poor financial state, they
have no impact on the outcome of this inquest.” On de novo review, this Court finds that the
legal expense from the Defamation Action should not have been paid by Sea Trade and therefore
should not have been deducted from Sea Trade’s profits, but agrees that this finding has no effect
on the ultimate result in this case because Coutsodontis has failed to show that Sea Trade earned
any net profits or has any net assets beyond the proceeds from the sale of the M/V Athena.

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b. Employment Compensation
Defendant asserts that the BJR should not protect the employment contracts that Sea
Trade entered into with Peters because the contracts were “not negotiated at arms-length and, of
course, [were] not approved by Coutsodontis.”
The BJR does not shield Sea Trade’s salary payments to Peters from further scrutiny
because he represented both himself and Sea Trade in effectuating the employment contracts that
authorized the payments. Peters, however, has shown that the salary payments he actually
received were fair and reasonable. Indeed, he received only about twenty-percent of the salary
owed to him under the employment agreements. And neither the Report nor this Opinion
provides for Peters to collect the unpaid millions of dollars that Sea Trade allegedly owes him for
unpaid salary and loans he made to Sea Trade.
c. The Remaining Disputed Expenses
Defendant argues that the BJR does not shield the remaining Disputed Expenses. First,
Defendant complains about interest payments Sea Trade made to Peters and his mother “at
exorbitant interest rates” and for too long a period, because Peters chose to repay bank loans at
lower rates before insider loans at higher rates. The BJR does not protect Peters’ decisions
regarding loans that he and his mother made to Sea Trade because they were self-interested
transactions. However, Peters has met his burden of showing that the payments were fair to Sea
Trade. It was reasonable to assume that creditors without a personal interest in Sea Trade were
more likely to penalize the company for defaulting. And given the evidence Peters has presented
as to Sea Trade’s precarious financial state, it was reasonable for Peters and his mother to charge
a higher interest rate for unsecured loans. Moreover, even if one questions whether the terms of

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these agreements were fair to Sea Trade, Sea Trade did not pay Peters the amounts due under the
loans, causing him to sustain “substantial losses,” which the inquest does not compensate.
Finally, Defendant objects that the Report does not address the disputed issue of
drydocking expenses in 2007. That is true but immaterial. Defendant estimated drydocking
expenses of $2 million based on industry standards. Plaintiff produced an actual invoice
showing actual drydocking expenses in 2007 of $3,356,121.00. Defendant criticizes the
reliability of the documentation, but although the invoice is unsigned, it does include Peters’
name and detailed information about the expenses that went into drydocking the M/V Athena
and the costs over time. This evidence taken as a whole does not change the conclusion that
Defendant failed to prove that Sea Trade has net assets and in what amount.
C.

Plaintiff’s Objections

Plaintiff does not object to the Report’s ultimate recommendation that Defendant is
entitled to one half of the proceeds from the sale of the M/V Athena. Plaintiff makes other
objections, but with one exception they are not addressed here because, even if they were
accepted, they would not change the result. 6
D.

Shared Objection

Plaintiffs and Defendant both object that the Report does not address and distribute the
$233,085.80, plus interest that remains in escrow after the 2008 State Action. In the interest
once again of bringing this dispute to a final resolution, and exercising the Court’s equitable

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These objections are (1) that the Report erred in not rejecting Defendant’s submission of new
claims and evidence; (2) that the Report did not address an argument about “retained earnings”
that Plaintiffs were not been able to make at the inquest because Defendant raised the issue of
“retained profits” for the first time in his reply; (3) that the Report mistakenly includes the sales
proceeds of the vessel in the calculation of Sea Trade’s revenues; and (4) that the Report
mistakenly states that the Court of Appeals affirmed this Court’s finding of unclean hands by
Peters.
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authority, the $233,085.80, plus interest, which remains in escrow shall be divided equally
among the Sea Trade shareholders according to their proportionate shares, i.e., half to Peters and
his mother and the other half to Coutsodontis.
Peters argues that he should receive the full amount held in escrow because “to do
otherwise would be unjust as it would effectively return to Coutsodontis damages he was found
liable for in Spain and New York.” This argument is unpersuasive. The $233,085.80 is what
remains of an appeal bond posted by Coutsodontis to secure a New York judgment against him
for the wrongful arrest of the M/V Athena in Spain as found by a Spanish court. The judgment
was affirmed, so that Defendant in effect owes the amount of the appeal bond to Sea Trade for
the wrongful arrest. Sea Trade is the rightful owner of the funds. Sitting in equity, the Court
awards half to Coutsodontis as a 50% shareholder. Although Sea Trade allegedly owes a
substantial amount to Peters, the validity of those liabilities has not been adjudicated. (They
were asserted in the inquest, but the focus of proof was to determine net income, and not net
assets to which liabilities would be relevant.) A just result is to treat the amount as a stand-alone
asset of Sea Trade, to be allocated among its shareholders. See Sea Trade Mar. Corp., 744 F.
App’x at 726 (“[A] court sitting in equity may grant any type of relief within its jurisdiction
appropriate to the proof . . . imposing such terms as may be just.” (internal quotation marks
omitted)).
CONCLUSION
For the reasons stated, the recommendation in the Report is adopted: $1,170,645.87,
representing one-half of the proceeds from the sale of the M/V Athena, plus any accrued interest
thereon, currently residing in escrow, shall be distributed to Coutsodontis as the benefit of his
50% ownership in Sea Trade. The balance of the escrow account shall be distributed to Peters

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and his mother according to their ownership shares in Sea Trade. In addition, $116,542.90 or
half of the appeal bond balance shall be distributed to Coutsodontis as an additional benefit of his
50% ownership interest in Sea Trade. The remaining half of the appeal bond balance shall be
distributed to Peters and his mother according to their ownership shares in Sea Trade. Having
reviewed the remainder of the Report as to which no objection was made and to the extent not
inconsistent with the above, the Court finds that it is not clearly erroneous.
The Clerk of Court is respectfully directed to close this case.

Dated: May 26, 2020
New York, New York

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