Free Letter - District Court of Delaware - Delaware

Case 1 :06-cv-00015-GIVIS Document 6 Filed 01/10/2006 Page 1 of 4
PALMER BIEZUP & HENDERSON LLP
COUNSELORS AT LAW
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MICHAEL B. MCCAULEY
~ PARTNER
mccau1ey@pbh. com
January 10, 2006
The Honorable Gregory M. Sleet
United States District Judge
J. Caleb Boggs Federal Building
844 N. King Street, Room 4324
Lockbox 19
Wilmington, DE 19801 ·
Re: Wilmington Tug, Inc. v. M/V CLARY and Clary Shipping Co.,
3 C.A. No. 1:06-cv-00015
and
In the Matter of the Complaint of Clary Shipping (Pte.) Ltd.
C.A. No. 1:06-cv-
Our File: 9439-015
Dear Judge Sleet:
We represent the Plaintiff Wilmington Tug, Inc. and its insurer ACE—INAMAR in C.A. No.
1:06-cv-00015, which we understand has been reassigned from Judge Robinson to Your Honor.
At 10:00 a.m. on Friday, January 6, 2006, the freighter M/V CLARY, while inbound in the
Christina River, struck and caused serious damage to three tug boats owned by Wilmington Tug
which were moored and stationary at their usual berth at Wilmington Marine Terminal. The
collision occurred in broad daylight and clear weather conditions. The CLARY is a foreign owned
and flagged vessel (Singapore) and on information and belief is the sole asset of its registered owner,
Clary Shipping (Pte.) Ltd.
Wilmington Tug has a valid maritime lien against the M/V CLARY itself, in rem, for the
collision and resulting damages. Wilmington Tug filed its_suit against the vessel in rem on January
6, 2006 (C.A. No. 1:06-cv-00015, the "Arrest Action"). The CLARY was arrested at the Poit of
psu; iso641.1

Case 1 :06-cv-00015-GIVIS Document 6 Filed 01/10/2006 Page 2 of 4
Wilmington by the U.S. Marshal on January 6, 2006 pursuant to the Court’s Order (Chief Judge
Robinson) and Rule C of the Admiralty Rules to enforce the maritime lien and to secure in rem
jurisdiction over the vessel. The vessel presently remains under arrest and subject to the Court’s in
rem jurisdiction.
The court properly acquired and currently has in rem jurisdiction over the CLARY by virtue
of the arrest. The release of the vessel from the arrest and its departure from this District without
requiring the Owner to substitute security (res) for the vessel (or surrender it for judicial sale) would
destroy this cou1t’s in rem jurisdiction over the vessel validly obtained by Wilmington Tug. The
court would be relinquishing federal admiralty jurisdiction over the vessel which it properly
possesses.
On Monday, January 9, 2006, the owner of the CLARY filed a separate civil action in this
Court invoking the U.S. Limitation of Liability Act, 46 U.S.C. § 181, et seq. (C.A. No. 1:06-cv-___,
the "Limitation Action"). The Owner has requested the Court to enter a restraining order enj oining
all other suits against the Owner. We understand that counsel for the Owner of the CLARY has or
will request an emergency hearing before Your Honor today.
The filing ofthe limitation action will stay Wilmington Tug’ s in rem claim against the vessel.
However, if the limitation is ultimately denied, the stay will be lifted, and Wilmington Tug will be
able to continue its in rem action against the CLARY.
The issues in the Limitation Action relate primarily to the vessel owner’ s personal liability-
pursuant to the statute, the owner will seek to limit its in personam liability for any and all claims
arising out of the incident to the value of the vessel and any pending freight (claimed to be $3
million) by attempting to prove that it lacked personal "privity and knowledge" with respect to the
negligence and fault which caused the collision. In contrast, the Arrest Action filed by Wilmington
Tug is a direct in rem claim against the vessel itself to secure Wilmington Tug’s valid maritime lien.
The Owner of the CLARY could have obtained the release of the vessel unilaterally by the
filing of a bond or by surrendering the vessel to the court for judicial sale (See Rule E of the
Admiralty Rules). It chose not to do so.
Wilmington Tug has not demanded a bond as security for the release ofthe vessel from arrest
and has agreed to accept a simple unsecured "letter of undertaking" from the vessel’s insurers to
confirm that they will pay a judgment against the vessel in rem only if and in the event that a
judgment is rendered in the Arrest Action. Wilmington Tug has also informed the Owner’ s counsel
that it agrees to submit and prosecute its claims against the vessel and the Owner in the Limitation
Action and that the Arrest Action should be stayed after security is posted pending the outcome of
the limitation case or further order of the court. The stay of the Arrest Action during the pendency
ofthe Limitation Action avoids any risk ofthe Owner having to provide "double security" since the
letter of undertaking that Wilmington Tug is prepared to accept as security for the release of the l
vessel expressly states that the insurer’s payment obligations are not triggered unless or until a
judgment is entered in the Arrest Action — it cannot serve as security for any judgment in the
man. 180641.1
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Case 1 :06-cv-00015-GIVIS Document 6 Filed 01/10/2006 Page 3 of 4
Limitation Action. Simply put, Wilmington Tug has made it abundantly clear that the security which
it seeks in the Arrest Action is contingent only and is not duplicative of any security available
through the Limitation Action. p
The security in the Arrest Action is required to secure and preserve the Court’s in rem
jurisdiction over the CLARY in that action, to give effect to Wilmington Tug’s valid maritime lien,
and to provide financial security for Wilmington Tug’s claims if subsequent events require
Wilmington Tug to prosecute its claims against the CLARY in the Arrest Action. There are various
circumstances under the law of shipowner’s limitation of liability which could result in a decision
by this Court to dismiss the vessel owner’s Limitation Action or to vacate the customary injunction
against suits outside of the limitation action and direct the parties to prosecute their claims
elsewhere. If no security for Wilmington Tug’s claims is posted in the Arrest Action and the
Limitation Action is later dismissed or the court directs the claimants to pursue their claims outside
- ofthe limitation case by dissolving the injunction, Wilmington Tug will be deprived of a lawsuit to
pursue its in rem claims against the CLARY because in rem jurisdiction will have been relinquished
by the Court.
Moreover, like many foreign ocean—going vessels, the CLARY is almost certainly the sole
asset of its owning company, a foreign corporation (Singapore). lf security is not posted in the arrest
action and the vessel is released, it could be sold at any time or the company could be liquidated
before Wilmington Tug is in position to enforce a judgment in its favor. By the time a judgment
is obtained there may be no assets against which to enforce a judgment.
Ultimately, the issue is whether the CLARY’s Owners can secure the release of CLARY in
the in rem action by filing a bond in the limitation action. Allowing the owners to do this would
contravene and jeopardize the valid in rem jurisdiction obtained by Wilmington Tug when it arrested
the CLARY. This is because Owners control the limitation action. For instance, if Owners later
detennined that the amount of all claims did not exceed the value of the vessel, they could simply
dismiss their limitation action and withdraw the limitation bond. This would effectively destroy
Wilmington T ug’s in rem jurisdiction over CLARY, unless the court were to rule that the limitation
bond must also serve as the arrest bond and cannot be withdrawn (regardless of the status of the
limitation action) until the resolution of Wilmington Tug’s in rem claim against CLARY.
A recent decision filed on October 14, 2005 in the Eastern District of Louisiana considers
the distinction between a special bond securing the claim of one party in an in rem arrest proceeding
and the general bond filed to secure all claimants in an in persomzm limitation proceeding. El Paso
Production Gom, Inc., 2005 U.S. Dist. LEXIS 36483 (E.D.La. 2005). There, the owners attempted
to have the Letter of Undertaking which was issued to secure the release of the vessel also serve as
the general bond in the limitation proceeding. The court denied the request, noting that the two types
and purposes of security were different. The court noted that if limitation were ultimately denied
to the owners, the stay of the in rem arrest action would be lifted and the claimant who had arrested
the vessel would be able to continue with the arrest and was entitled to rely upon the specific security
posted in the in rem arrest action.
PBH; 180641.1
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Case 1 :06-cv-00015-GIVIS Document 6 Filed 01/10/2006 Page 4 of 4
In Petition of Marsuerte Compania Naviera, S.A., 252 F. Supp. 279 (S.D.N.Y. 1966), the
district judge lifted the restraining order in a limitation proceeding to allow claimants to attach the
hull insurance proceeds irom the vessel, which had sunk as a result ofthe casualty. The Court noted
that "had claimants known of the hull insurance before the petition for limitation of liability was
filed in this court, they would have been free to attach the proceeds. Had they done so, the
restraining order would only have stayed the attachment and not vacated it, so that they would have
had resort to the proceeds if the petition for limitation of liability were ultimately denied." kl. at 280.
The court went on to note that the vessel was the owner’ s only real asset and the court was concerned
that if the hull proceeds were not attached, they would be removed from the jurisdiction and work
prejudice on the claimants. Likewise, here, it appears that the vessel is the owner’s only real asset,
and unless Wilmington Tug is provided a letter of undertaking or bond securing their in rem interests
in the vessel, they will be prejudiced.
For the foregoing reasons, Wilmington Tug respectfully requests the Court to deny any
‘ request by the Owner of the CLARY for release of the vessel from the arrest in C.A. No. l:06—cv—
00015 and to direct that security must be provided to Wilmington Tug in that action before the arrest
will be lifted and the vessel permitted to depart this Judicial District. .
Respectfully submitted,
PALMER IEZUP & HENDERSON LLP
I \
By: é
ichael . cCauley
MMC:lr
man; 1xo641.1
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