Newport News v. SS INDEPENDENCE

• Decision Date: 13 December 1994
• Docket Number: Civ. A. No. 4:94cv148.
• Citation: 872 F. Supp. 262
• Parties: NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY, Plaintiff, v. S.S. INDEPENDENCE, her engines, tackle, apparel, appurtenances, etc. in rem, Great Hawaiian Properties Corporation, in personam, The Delta Queen Steamboat Co., in personam, Defendants. GREAT HAWAIIAN PROPERTIES CORPORATION, Counterclaimant, v. NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY, Counterdefendant, Tenneco, Inc., Third Party Defendant.
• Court: U.S. District Court — Eastern District of Virginia

872 F. Supp. 262

NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY, Plaintiff, v. S.S. INDEPENDENCE, her engines, tackle, apparel, appurtenances, etc. in rem, Great Hawaiian Properties Corporation, in personam, The Delta Queen Steamboat Co., in personam, Defendants.

GREAT HAWAIIAN PROPERTIES CORPORATION, Counterclaimant, v. NEWPORT NEWS SHIPBUILDING AND DRY DOCK COMPANY, Counterdefendant, Tenneco, Inc., Third Party Defendant.

Civ. A. No. 4:94cv148.

United States District Court, E.D. Virginia, Newport News Division.

December 13, 1994.

COPYRIGHT MATERIAL OMITTED

Denham Arthur Kelsey, Gregory N. Stillman, Hunton & Williams, Norfolk, VA, for Newport News Shipbuilding and Dry Dock Co.

Benjamin T. Riddles, II, Julian F. Hoffar, Watt, Tieder & Hoffar, McLean, VA, for Great Hawaiian Properties Corp., in personam, d/b/a American Hawaii Cruises, Delta Queen Steamboat Co., in personam.

ORDER

DOUMAR, District Judge.

This matter comes before the Court on defendants' motion to vacate the arrest of the S.S. Independence in the in rem action named above. For the reasons outlined below, defendants' motion is DENIED.

Factual and Procedural Background

In or around March, 1994, defendants began seeking bids for repair work on the S.S. Independence, a cruise ship registered in the United States. Prior to submitting its bid, plaintiff did several shipchecks of the Independence to ascertain the nature and extent of the work necessary, and ultimately submitted a bid of $19,923,889.00, on or about April 4, 1994. Because the bid exceeded the amount budgeted for the project, defendants reduced the scope of the work to be done on the Independence. Plaintiff was hired to do the work at a contract price of $12,428,500.00, pursuant to a Renovation Contract dated April 29, 1994. Both Tenneco, Inc., plaintiff's parent corporation, and The Delta Queen Steamboat Co. (now "American Classic Voyages Co."), defendants' parent, issued guaranties for the performance of each of their subsidiaries under the Renovation Contract.

The Renovation Contract required (1) that the Independence be delivered to dry dock in Newport News on or before July 19, 1994, and (2) that work be completed on the Independence by September 21, 1994, so that defendants could meet its cruise obligations in the month of October. The contract also stipulated that time was of the essence. On July 18, 1994, defendants delivered the Independence to plaintiff. Almost immediately, plaintiff alleges, the shipowner began issuing change orders; ultimately, plaintiff contends, about 500 change orders were logged. Defendants counter that the contract required plaintiff to perform all essential changes, and all nonessential changes that would not impact upon the redelivery date for the vessel, and that therefore such orders were contemplated in the Renovation Contract.

On October 4, 1994, plaintiff filed a complaint with this court. In Count I of the complaint, the plaintiff lodged a claim for $29,756,090.00 in rem against the S.S. Independence for repairs constituting maritime necessaries within the meaning of the Federal Maritime Lien Act under general maritime law. In Count II, an action in personam for breach of contract, the plaintiff alleged that with changes, plaintiff performed more than $29,765,090.00 worth of work on the Independence. Plaintiff alleged that these changes were so substantial as to constitute a cardinal change in the Renovation Contract — the equivalent of a breach of the contract by defendants.

Plaintiff also contended that defendants refused to pay the 95% of the base contract price due at the time the complaint was filed. Plaintiff asked the Court for an in rem maritime lien and arrest of the Independence. Plaintiff further requested that the Court assert jurisdiction over the in personam breach of contract action against the ship-owner, but that the claim be stayed pending arbitration of the dispute pursuant to an arbitration requirement in the Renovation Contract.

On October 4, 1994, this Court issued an arrest order for the S.S. Independence, and appointed plaintiff substitute custodian for the Independence. On October 7, 1994, the Court ordered the Independence released predicated on the Undertaking in Lieu of Arrest signed by the parties, which, pursuant to Local Rule of Admiralty (c)(1), substituted the sum of $29,756,090.00 (placed in escrow) for the vessel. On October 27, 1994, defendants filed a motion to vacate the appointment of substitute counsel and the order substituting Local Rule (c)(1) undertaking for the vessel under arrest, or in the alternative, for substitute or reduced security.

On November 2, 1994, because defendants had not filed their responsive pleadings, plaintiff petitioned the court for a default judgment. On November 3, 1994, a default was entered against defendants. However, defendants' answer was also filed (subject to defect) on November 3, 1994.¹ On that same day, defendants filed a counterclaim against plaintiff and a third party complaint against Tenneco, Inc., plaintiff's parent corporation. On November 9, 1994, the Court heard defendants' motion to vacate the arrest of the S.S. Independence, or, in the alternative, to lower the amount of the security held in escrow. The Court lowered the security from $29,756,090.00 to $20,000,000.00 and reserved judgment on the motion to vacate the arrest, and specifically, on the issue of whether plaintiff was entitled to a maritime lien. That motion is now ripe for consideration by the Court.

Analysis

1. Motion to Vacate Arrest

Rule E(4)(f) of the Supplemental Federal Rules of Civil Procedure for Admiralty and Maritime Claims governs the procedure for release from arrest. It states in relevant part, "Whenever property is arrested or attached, any person claiming an interest in it shall be entitled to a prompt hearing at which the plaintiff shall be required to show why the arrest or attachment should not be vacated...."

The parties agree that the plaintiff carries the burden of showing that the arrest should not be vacated, but differ on the onerousness of that standard. Defendants cite Marubeni America Corp. v. M/V UNITY, 802 F.Supp. 1353, 1356 (D.Md.1992), as standing for the proposition that plaintiff bears a heavy burden. While the court in Marubeni recognized the hardship that an arrest of the vessel placed on the shipowner, and stated that "the party seeking to arrest a vessel must carry the burden of showing why the arrest or attachment should not be vacated," the court did not explicitly state that the burden was a heavy one. The court said only that the burden must be carried by the plaintiff.

Plaintiff argues that the plaintiff need only show "probable cause" to arrest. See Amstar Corp. v. S/S ALEXANDROS T., 664 F.2d 904, 912 (4th Cir.1981). In Mujahid v. M/V Hector, 1991 WL 254121, at *1-2, 1991 U.S.App. LEXIS 28445, *4 (4th Cir.1991) (unpublished opinion), the Fourth Circuit adopted the reasoning of the Third Circuit in Salazar v. "Atlantic Sun", 881 F.2d 73, 79 (3d Cir.1989), explaining that at a post-arrest hearing, the plaintiff need only show reasonable grounds for obtaining an arrest warrant for a vessel. The reasonable grounds/probable cause standard translates roughly to requiring that plaintiff show entitlement to a maritime lien. Amstar Corp., 664 F.2d at 912.

This Court agrees that plaintiff need show only probable cause for arrest of a vessel, and will evaluate the arrest of the S.S. Independence under that standard. To carry its burden, then, plaintiff must establish that it was entitled to a maritime lien, and that therefore it had reasonable grounds or probable cause to arrest the S.S. Independence.

2. Entitlement to Maritime Lien

Plaintiff asserts its entitlement to a maritime lien pursuant to the Maritime Lien Act, 46 U.S.C. § 31342(a), which states in relevant part,

(a) ... a person providing necessaries to a vessel on the order of the owner or a person authorized by the owner —

(1) has a maritime lien on the vessel;

(2) may bring a civil action in rem to enforce the lien; and

(3) is not required to allege or prove in the action that credit was given to the vessel.

The term "necessaries" includes repairs, supplies, towage and the use of a dry dock or marine railway, and has been interpreted broadly to include any goods and services necessary for a vessel's continued operation. Farrell Ocean Services, Inc. v. United States, 681 F.2d 91, 92-93 (1st Cir.1982); 46 U.S.C. § 31301(4). The lien arises "from the moment of the service or occurrence that provides its basis." 1 T. Schoenbaum, Admiralty and Maritime Law, § 9-1, at 490 (2d ed. 1994); Equilease Corp. v. M/V Sampson, 793 F.2d 598, 602 (5th Cir.), cert. denied, Fred S. James & Co. v. Equilease Corp., 479 U.S. 984, 107 S.Ct. 570, 93 L.Ed.2d 575 (1986) (explaining that "the lien arises when the debt arises...."); Trinidad Foundry & Fabricating, Ltd. v. M/V K.A.S. CAMILLA, 776 F.Supp. 1558, 1559 (S.D.Fla.1991), aff'd 966 F.2d 613 (11th Cir.1992) (stating that a maritime lien "arises at the moment of repair to the vessel").

An action to enforce a maritime lien in rem against a vessel is distinct from an action for breach of contract brought against a shipowner in personam. The primary right at stake in the first is the right to be compensated for services rendered; in the second, it is the right to receive the benefit of one's bargain. S.E.L. Maduro (Florida), Inc. v. M/V ANTONIO de Gastaneta, 833 F.2d 1477, 1482 (11th Cir.1987). To enforce its maritime lien under Count I of the complaint against the S.S. Independence, then, plaintiff need not prove the elements of the breach of contract action. Instead, plaintiff must show:

(1) that plaintiff performed services on the vessel;

(2) that charges for those services were reasonable;

(3) that services were "necessaries," as defined by 46 U.S.C. § 31301(4); and

(4) that the person who placed the order had the real, apparent or statutorily

...