FSM SUPREME COURT TRIAL DIVISION

CIVIL ACTION NO. 2009-3002

THE PEOPLE OF THE MUNICIPALITY OF TOMIL, YAP, by and through CHIEF STEVEN MAR, CHIEF ALEX GILTAMNGIN, and CHIEF ROBERT FITHING,
Plaintiffs,

vs.

M/C JUMBO ROCK CARRIER III and M/T PAGBILAO I,
in rem, their engines, masts, bowsprits, boats, anchors, chains, cables, rigging, apparel, furniture and all necessaries thereunto pertaining;

and

IDHI PORTS & SHIPPING, INC.,
In Personam Defendant.

________________________

ORDER SETTING BOND AMOUNT

Dennis K. Yamase
Associate Justice

Hearing: August 12, 2009
Submitted: August 19, 2009
Decided: August 21, 2009

APPEARANCES:
For the Plaintiffs: Daniel J. Berman, Esq.
111 Chalan Santo Papa, Suite 503
Hagatna, Guam 96910

Joseph C. Razzano, Esq. (pro hac vice)
Teker Torres & Teker, P.C.
Suite 2A, 130 Aspinall Avenue
Hagatna, Guam 96910

For the Defendants: Manuel N. Camacho, Esq. (pro hac vice)
Camacho & Associates
No. 7 Interior I Capitol Hills Drive
Old Balara, Dilman, Quezon City
1109 Philippines

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HEADNOTES

Admiralty  Ships  Maritime Liens
 The release of vessels from arrest is governed by Supplemental Admiralty and Maritime Rule E(6), and if the parties are unable to stipulate to the amount and nature of the security, the court must fix the principal sum of the bond at an amount sufficient to cover the plaintiff's claim fairly stated with accrued interest. If the plaintiffs' claim "fairly stated" exceeds the vessels' value, the amount of the bond needed to release the vessels would be limited to the vessels' value, and, if the vessels' value exceeds that of the plaintiffs' claim, the bond amount would be the amount of the plaintiffs' claim "fairly stated" with accrued interest. People of Tomil ex rel. Mar v. M/C Jumbo Rock Carrier III, 16 FSM Intrm. 543, 545 (Yap 2009).

Admiralty  Ships  Maritime Liens
 For a court to determine the amount of a plaintiff's claim "fairly stated," the court can consider affidavits and look behind the complaint to ascertain the amount actually in controversy. For a plaintiff's claim to be "fairly stated," it must only be arguable. This is because "any ultimate recovery against the res itself [the vessel] is limited to the amount of the bond; therefore it is prudent to err on the high side. Thus, in making a preliminary assessment of plaintiff's damages claim, the court should be satisfied that the plaintiff's claims are not frivolous, but it should not require the plaintiff to prove its damages with exactitude. People of Tomil ex rel. Mar v. M/C Jumbo Rock Carrier III, 16 FSM Intrm. 543, 545-46 (Yap 2009).

Admiralty  Ships  Maritime Liens
 Factual disputes that a trial would resolve need not be resolved to set a bond for an arrested vessel; the court need only conclude that the plaintiffs' claims are not frivolous and are arguable. People of Tomil ex rel. Mar v. M/C Jumbo Rock Carrier III, 16 FSM Intrm. 543, 546 (Yap 2009).

Admiralty  Ships  Maritime Liens; Evidence
 The FSM Rules of Evidence would appear to be inapplicable to proceedings with respect to release of an arrested vessel on bond. People of Tomil ex rel. Mar v. M/C Jumbo Rock Carrier III, 16 FSM Intrm. 543, 546 (Yap 2009).

Admiralty  Ships  Maritime Liens
 When, without prejudging who will ultimately prevail and to what extent, the plaintiffs' claim appears arguable; the amount is "fairly stated" for the purpose of setting a bond for an arrested vessel. People of Tomil ex rel. Mar v. M/C Jumbo Rock Carrier III, 16 FSM Intrm. 543, 546, 546 (Yap 2009).

Interest and Usury; Judgments
 The legal rate of interest is 9%, and is simple interest, not compounded. People of Tomil ex rel. Mar v. M/C Jumbo Rock Carrier III, 16 FSM Intrm. 543, 546 (Yap 2009).

Admiralty  Ships  Maritime Liens
 Whenever security is taken for the release of an arrested vessel, the court may, on motion and hearing, for good cause shown, increase or reduce the amount of security given. People of Tomil ex rel. Mar v. M/C Jumbo Rock Carrier III, 16 FSM Intrm. 543, 547 (Yap 2009).

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COURT'S OPINION

DENNIS K. YAMASE, Associate Justice:

This is before the court on the defendants' motion to set the bond for the release of the arrested vessels, the Barge Jumbo Rock Carrier III and the Motor Tug Pagbilao I. After reviewing the motion, affidavits, and other filings, and considering counsels' arguments at the August 12, 2009 hearing and the memorandums filed by each side on August 19, 2009, the court is satisfied that the amount of the plaintiffs' claim "fairly stated" is $739,800 and hereby sets the total bond for the release of the two vessels at that amount. The court's reasons follow.

On July 15, 2009, while entering Colonia Harbor, the Barge Jumbo Rock Carrier III, under tow by the Motor Tug Pagbilao I, allegedly struck the reef on the north side of the Tomil Channel entrance to Colonia Harbor, Yap and caused damage to the reef. Based on this alleged damage by the barge, the tugboat, or both, the plaintiffs filed this suit on July 20, 2009, and, to obtain in rem jurisdiction over the vessels, had them arrested the same day.

 The defendants ask that a bond be set for the vessels so that they may be released. The parties could not agree on or stipulate to the amount of a bond.

 The release of vessels from arrest is governed by Supplemental Admiralty and Maritime Rule E(6). "If the parties are unable to stipulate to the amount and nature of the security, the court shall fix the principal sum of the bond at an amount sufficient to cover the plaintiff's claim fairly stated with accrued interest." FSM Mar. R. E(6)(a). If the plaintiffs' claim "fairly stated" exceeds the vessels' value, the amount of the bond needed to release the vessels would be limited to the vessels' value. Id. In this case, the vessels' value exceeds that of the plaintiffs' claim. The bond amount shall therefore be the amount of the plaintiffs' "claim fairly stated with accrued interest."

 The parties differ greatly on the amount of the plaintiffs' claim "fairly stated." The defendants contend that, at most, only 82.5 square meters of reef was damaged and that at the $600 per square meter evaluation for reef damage in People of Rull ex rel. Ruepong v. M/V Kyowa Violet, 14 FSM Intrm. 403, 418 (Yap 2006), the plaintiffs' claim "fairly stated" should be set at $81,000 (in brief) or $159,000 (stated at hearing). The plaintiffs' complaint alleges that 900 square meters of the reef were damaged. They value the reef at $800 per square meter. Their claim also includes 9% interest, compounded annually, for five years (their estimated time from filing the complaint to judgment). And they add 10% to cover estimated litigation costs, including custodial fees for the arrested vessels. The plaintiffs therefore ask that the bond be set at $1,116,000. Both sides provide reports from various observers and investigators that tend to support that side's position.

 For a court to determine the amount of a plaintiff's claim "fairly stated," the court can consider affidavits and look behind the complaint to ascertain the amount actually in controversy. 20th Century Fox Film Corp. v. M.V. Ship Agencies, Inc., 992 F. Supp. 1423, 1430-31 (M.D. Fla. 1997) (citing 7A Moore's Federal Practice ¶ E.13[2], at E-612-13 (2d ed.)). For a plaintiff's claim to be "fairly stated," it must only be arguable. See 20th Century Fox Film Corp., 992 F. Supp. at 1431-33. This is because "any ultimate recovery against the res itself [vessel] is limited to the amount of the bond; therefore it is prudent to err on the high side." Id. (citing 7A Moore's Federal Practice ¶ E.13[2], at E-613 (2d ed.)). "In making a preliminary assessment of plaintiff's damages claim, the court should be satisfied that the plaintiff's claims are not frivolous, but it should not require the plaintiff to prove its damages with exactitude." Transportes Navieros y Terrestres S.S. de C.V. v. Fairmount Heavy Transport N.V., 572 F.3d 96, 111 (2d Cir. 2009).

 The plaintiffs contend that a total of 900 square meters of reef were damaged at two points along the channel. The defendants assert that the barge only struck the reef once. Both sides rely on reports from persons who inspected the reef for damage and question the qualifications of the other side's observers or the admissibility of their evidence under the FSM Rules of Evidence.

 These are factual disputes that a trial would resolve. Furthermore, the FSM Rules of Evidence would appear to be inapplicable to proceedings with respect to release on bond. FSM Evid. R. 1101(d)(3). At this point, the court need only conclude that the plaintiffs' claims of 900 square meters of reef damage are not frivolous and are arguable.

 The defendants rely on the Kyowa Violet judgment concerning damage to the reef at the entrance to Tomil Channel, close to the reef in this case. The plaintiffs value the reef at $800 per square meter based on a deposition and report in another case concerning a different portion of the Yap fringing reef. That deposition suggested that "the additional value of the damaged area [in that case] as a quality dive site" would warrant a higher value of $800 per square meter for that reef based on the $600 per square meter value for the reef off the Colonia [Tomil] passage. Opp'n to Mot. to File a Bond or Letter of Undertaking for the Release of the Seized Vessel, Ex. A at "19." It does not suggest that the reef near the Tomil Channel or Colonia Harbor is now worth $800 per square meter. The court will therefore use the $600 per square meter valuation. Without prejudging who will ultimately prevail and to what extent, the plaintiffs' claim appears arguable; thus a $540,000 (900 square meters x $600 per square meter) amount is "fairly stated."

 The plaintiffs also claim interest at the "legal rate" of 9%, compounded annually, for the five years they estimate it will take their case to progress from filing to judgment. The court is not so pessimistic as that and will allow three years' of interest. Furthermore, the legal rate of 9%, 6 F.S.M.C. 1401, is simple interest, not compounded. M/V Kyowa Violet, 14 FSM Intrm. at 420-21 & n.2 (Yap 2006). Without prejudging who will ultimately prevail and to what extent, the plaintiffs' claim appears arguable; thus a $145,800 (9% interest for three years) amount for pre-judgment interest is "fairly stated."

 The plaintiffs further claim an additional 10% of the principal amount as their estimate for the costs they will incur in this litigation. These costs include claim custodial expenses of $200 to arrest and secure the vessels and ship-keeping costs of $85 per day while the vessels are under arrest. It has been 32 days since the vessels' arrest. The arrest and custodial expenses to date therefore equal $2,920. Assuming that the defendants post the bond set by this order or as modified by a later order, this expense will end. This should take no more than another 30 days. The court would thus allow $2,550, giving a total of $5,470 in custodial expenses. The other costs sought are unexplained, but the defendants have not disputed that estimated costs should be part of the bond, and if successful in obtaining a judgment, the plaintiffs would be entitled to costs. They are entitled to some allowance for these. Without prejudging who will ultimately prevail and to what extent, the plaintiffs' claim for expenses appears arguable; thus a $54,000 (10% of principal amount, which includes the custodial expenses) amount as expected costs is "fairly stated."

 Accordingly, the court hereby sets the bond amount at $739,800. The bond or letter of undertaking should be in a form acceptable to the plaintiffs. Since "[w]henever security is taken the court may, on motion and hearing, for good cause shown, increase or reduce the amount of security given," FSM Mar. R. E(6)(c), if any interested party seeks, before August 27, 2009, modification of the bond amount set by this order, the motion will be heard on September 4, 2009, at 9:30 a.m.

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