FSM SUPREME COURT TRIAL DIVISION
Cite as Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305 (Pon. 2019)
FISHY CHOPPERS, LTD.,
Plaintiff,
vs.
F/V MARITA 88, her engines, tackle, machinery,
equipment, appurtenances, etc.,
In Rem Defendant,
JOHANNA SEAFOODS LIMITED, JOHANNA-
SUBIC SEAFOODS CORPORATION, KUROSHIO
COMPANY LTD., and HELICOPTER AERIAL
SURVEYS PTY LTD. d/b/a Tropic Helicopters,
In Personam Defendants.
_______________________
JOHANNA-SUBIC SEAFOODS CORPORATION,
KUROSHIO COMPANY LTD., and HELICOPTER
AERIAL SURVEYS PTY LTD. d/b/a Tropic
Helicopters,
Counterclaimants,
vs.
FISHY CHOPPERS, LTD.,
Counter-Defendant.
CIVIL ACTION NO. 2018-023
ORDER CONFIRMING BOND AMOUNT
Larry Wentworth
Associate Justice
Decided: August 19, 2019
APPEARANCES:
For the Plaintiffs:
Michael J. Sipos, Esq.
P.O. Box 2069
Kolonia, Pohnpei FM 96941
For the Defendant:
Stephen V. Finnen, Esq.
(ship, Johanna &
P.O. Box 1450
Johanna-Subic)
Kolonia, Pohnpei FM 96941
For the Defendant:
Erick B. Divinigracia, Esq.
(Kuroshio & Tropic)
Ramp & Mida Law Firm
P.O. Box 1480
Kolonia, Pohnpei FM 96941
* * * *
Helicopter fish-spotting services provided to a fishing vessel are necessaries that can give rise to a maritime lien. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 310 (Pon. 2019).
Whenever security is taken for the release of an arrested vessel the court may, on motion and hearing and for good cause shown, increase or reduce the amount of security given. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 311 (Pon. 2019).
The court may reduce a stipulated bond amount, but the burden on a party seeking the reduction of a bond so established is considerably greater than when the bond amount is set by statute or is provided by rule. While the court may reduce the amount of stipulated security, this is justified only upon a showing that the bond amount is clearly excessive. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 311 (Pon. 2019).
The FSM Supreme Court must first look to FSM sources of law rather than other courts' cases, but when the court has not already construed an aspect of an FSM Supplemental Admiralty and Maritime Rule that is identical or similar to the U.S. rule, it may consult U.S. sources for guidance. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 312 n.1 (Pon. 2019).
In order to obtain a reduction of a stipulated bond amount, the movants must show that the current bond amount is clearly excessive. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 312 (Pon. 2019).
Whenever an asserted counterclaim arises out of the same transaction or occurrence as the original action, and the defendant has given security to respond in damages, any plaintiff for whose benefit such security has been given shall give security to respond in damages set forth in the counterclaim unless the court, for cause shown, directs otherwise. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 312 (Pon. 2019).
A defendant, that gave security to respond in damages to a maritime lien, cannot ask that the plaintiff be required to give security for a counterclaim it did not make or ask for a reduction in the security it provided to be based on another party's counterclaims. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 312 (Pon. 2019).
Rule E(6)(d) does not authorize the court to, and it cannot, reduce the amount a defendant
posted for security because the defendant has a counterclaim, but, under that rule, the court can require the plaintiff to post security to answer the defendant's counterclaim. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 312 (Pon. 2019).
Rule E(6)(a) clearly allows the maritime lien bond amount to include prejudgment interest. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 313 (Pon. 2019).
Under maritime law, a prejudgment interest award is the rule rather than the exception, and, in practice, is well-nigh automatic. This maritime law practice has been followed in the FSM. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 313 (Pon. 2019).
Maritime law is uniquely related to the law of nations and consists of rules that in large part govern the conduct of nations in their shipping and commercial activities. Its origins lie in the codes of the world's seafaring nations and is still a part of the law of nations. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 313 n.3 (Pon. 2019).
The FSM Supreme Court customarily awards injured parties prejudgment interest in maritime tort cases. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 313 (Pon. 2019).
For a conversion claim, a prejudgment interest award under maritime law does not differ from a common law award for conversion, because, under the common law, one whose property is converted is entitled to interest at the legal rate from the time of conversion. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 314 n.4 (Pon. 2019).
Conversion can be a maritime tort, and, when it is, it gives rise to a maritime lien. Admiralty jurisdiction over a conversion claim depends on whether the chattel was on navigable waters when the alleged wrongful exercise of dominion occurred. Maritime conversion is an intentional tort that gives rise to a preferred maritime lien. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 314 (Pon. 2019).
Maritime torts, like all torts, occur when a defendant breaches a legal duty and proximately causes a plaintiff damage. Such a duty is imposed by law whether or not the parties have ever had any prior consensual contact. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 314 (Pon. 2019).
In the admiralty context, as elsewhere, conversion is simply an intentional and wrongful exercise of dominion or control over a chattel, which seriously interferes with the owner's right in the chattel. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 314 (Pon. 2019).
The failure to return property, possession of which was acquired lawfully, when the owner is entitled to its return and makes demand therefor, is a tortious conversion. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 314 (Pon. 2019).
When the alleged conversion of each helicopter took place while that helicopter was aboard the defendant vessel and thus on navigable waters, the plaintiff's conversion claims allege maritime torts for which maritime liens on the offending vessel will arise. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 314 (Pon. 2019).
The measure of damages for conversion is the property's market value at the time and place of conversion plus the legal rate of interest from the date of the conversion. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 315 (Pon. 2019).
A conversion is complete when the defendant takes, detains, or disposes of the chattel. At that point, the plaintiff acquires the right to enforce a sale, and recover the property's full value. The defendant cannot undo his wrong by forcing the goods back upon their owner, either as a bar to the action, or in mitigation of damages. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 315 (Pon. 2019).
Regardless of how accurate a May 9, 2019 appraisal was, it cannot be used to establish conversion damages where no evidence relates that appraised value to the chattels' value eight to ten months earlier when the chattels were allegedly converted. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 315 (Pon. 2019).
Even if the conversion occurs in good faith, the complaining party may nonetheless recover damages beyond the fair market value of the converted property. Thus, damages for lost profits are allowed when, either from the article's nature or the case's peculiar circumstances, they might be reasonably supposed to follow from the conversion, even though this recovery of lost profits is above and beyond the chattels' market value. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 315 (Pon. 2019).
The general rule is that compensation for lost profits may be recovered in an action for conversion, when the loss is the proximate result of the defendant's act and the loss can be shown with reasonable certainty. Thus, although the usual measure for conversion damages is the property's value at the time and place of conversion, plus interest, and lost profits may also be recovered if they may reasonably be expected to follow from the conversion. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 315 (Pon. 2019).
Lost profit damages can be awarded for conversion when the plaintiff shows that, but for the conversion, a profit would have been realized from the items converted and shows the extent thereof with reasonable certainty. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 315 (Pon. 2019).
Awards for lost business profits are appropriate damages in a conversion case when proved with
reasonable certainty. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 315-16 (Pon. 2019).
It would be improper to allow lost business profit damages in every case involving conversion. The damages would only be proper when the person whose property has been converted shows that the conversion has resulted in lost business profits and shows with reasonable certainty the amount of these lost profits. The proper measure of these damages is lost profits, as opposed to lost gross receipts, and this damages amount need only be shown with as much certainty as the tort's nature and the case's circumstances permit. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 316 (Pon. 2019).
Recovery for lost rental income may be limited in time until when the plaintiff could have obtained a replacement for his rental business since, if a plaintiff could have avoided the loss by purchasing a substitute item, profits from that point on are not the measure of the plaintiff's recovery even if profits were in fact lost. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 316 (Pon. 2019).
Conversion, when committed on navigable waters, is a maritime tort that creates a maritime lien. The measure of damages in a maritime conversion is the property's market value at the time and place of its conversion plus the legal rate of interest from that date, and to these damages, the plaintiff's lost profits can be added when that loss can reasonably be expected to follow from the conversion, or is the proximate result of the defendant's conversion, and when the amount of that loss can be shown with reasonable certainty. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 316 (Pon. 2019).
The amount of the bond securing a vessel's release can be based on the plaintiff's conversion causes of action and on the lost profits and prejudgment interest claims related to those causes of action. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 316 (Pon. 2019).
The court cannot reduce a stipulated bond amount when, considering the nature and the breadth of the alleged maritime liens, it cannot say that the stipulated security bond amount was shown to be clearly excessive. Fishy Choppers, Inc. v. M/V Marita 88, 22 FSM R. 305, 316 (Pon. 2019).
* * * *
LARRY WENTWORTH, Associate Justice:
This is before the court on the following filings: (1) Motion to Reduce or Return Bond, filed January 14, 2019; (2) Supplement to Motion to Reduce or Return Bond, filed January 24, 2019; (3) Plaintiff's Opposition to Motion of F/V Marita 88 and its owner Johanna Seafoods Limited to Reduce or Return Bond, filed February 4, 2019; (4) Reply Supporting Motion to Reduce or Return Bond, filed February 21, 2019; (5) Supplement Supporting Motion to Reduce or Return Bond, filed April 2, 2019; (6) Plaintiff's Response to Supplement to Motion of F/V Marita 88 and its owner Johanna Seafoods
Limited to Reduce or Return Bond, filed April 16, 2019; (7) Plaintiff's Supplement to Response to Motion of F/V Marita 88 and its owner Johanna Seafoods Limited to Reduce or Return Bond, filed April 26, 2019; (8) Second [sic] Supplement Supporting Motion to Reduce or Return Bond, filed April 30, 2019; (9) Notice of Filing Decisional Authority, filed May 2, 2019; and (10) Supplemental Reply Supporting Motion to Reduce or Return Bond, filed June 17, 2019. The court, on April 24, 2019, heard argument on the Motion to Reduce or Return Bond and all related papers filed by then.
The motion to return the bond is denied. The motion to reduce the bond is also denied. The court's reasons follow.
A. Return of Bond
The movants, the F/V Marita 88 and its owner Johanna Seafoods Limited ("Johanna"), contend that the $2.36 million bond that Johanna posted to secure the F/V Marita 88's release must be returned since the plaintiff's claims, as pled, do not give rise to maritime liens because the plaintiff's fish-spotting helicopters were not necessities for the F/V Marita 88, and thus no maritime liens arose.
The court rejected this contention in its March 4, 2019 Order Denying Dismissal, ruling that the plaintiff's helicopter fish-spotting services were necessaries that could give rise to a maritime lien. Fishy Choppers, Ltd. v. F/V Marita 88, 22 FSM R. 187, 199 (Pon. 2019). The motion to return the entire bond is accordingly denied.
B. Reduction of Bond
The movants further contend that, even if there are maritime liens, the $2.36 million bond amount is excessive and must be reduced. Johanna asserts that it agreed to that bond amount only to obtain the F/V Marita 88's prompt release so that it could depart Pohnpei and resume fishing and thus generate revenue.
The movants acknowledge that the bond amount "was originally sought as based on all the damages outlined in the first amended complaint." Mot. to Reduce or Return Bond at 5 (Jan. 14, 2019). They state that, as pled, the bond amount includes damages for the retention of Fishy Choppers' two helicopters and parts, and damages for lost lease payments under the helicopters' charter agreements, and that these damage claims were "characterized as both a maritime lien for necessaries and tort claims." Id.
The movants contend that only the furnishing-of-necessaries claim can create a maritime lien. The movants argue that conversion, even if proven, cannot create a maritime lien because conversion is a common law tort, and not a traditional maritime claim. In their view, Fishy Choppers' conversion claims for the retention of the helicopters and helicopter spare parts and its claims for the alleged breach of the charter agreements cannot create maritime liens and should not now be included in the bond amount.
The movants further argue that even if Fishy Choppers' conversion claims can be included in the bond amount, the amount attributed to the conversion claims is excessive. They assert that Fishy Choppers grossly overvalued the helicopters because a helicopter's value is highly depreciable and thus cannot be based on its original purchase price. They supply a detailed report, prepared for Johanna-Subic Seafoods Corporation ("Johanna-Subic") by Hart Aircraft Appraisal of Northridge, California, that, as of May 9, 2019, the two helicopters (which Hart averred could only be valued only as scrap) and
the helicopter spare parts were all together worth only $45,812.50. The movants also argue that the conversion claim for the helicopter that was not on the F/V Marita 88 when it was arrested cannot be used to calculate a bond amount since that helicopter had been off-loaded two months before this civil action was filed and the vessel arrested.
The movants argue that the $2.36 million bond must be reduced to reflect only the amount of necessaries – the helicopter fish-spotting services – that Fishy Choppers actually furnished the F/V Marita 88, and nothing more. The movants also argue that prejudgment interest should not be included in the bond amount. The movants urge the court to follow the principle that the bond amount can be calculated only on Fishy Choppers' necessaries claims against them, or just on its necessaries claims against the F/V Marita 88, and not on any of its other claims. They also argue that the value of the counterclaims made by Kuroshio Company Ltd. ("Kuroshio"), the general agent for F/V Marita 88 and other fishing vessels, against Fishy Choppers should be offset against Fishy Choppers' conversion claims and thereby reduce the current bond amount.
Fishy Choppers responds that the bond amount conforms to the claims it fairly stated in its Verified First Amended Complaint, which contains causes of action to enforce maritime liens for furnishing necessaries and for the maritime tort of conversion. The parties, through a stipulated agreement, set the bond amount and submitted it to the court for approval. Fishy Choppers contends that since the movants stipulated to the amount, they have waived any right to seek its reduction.
Fishy Choppers asserts that each of its two helicopters was converted when that helicopter was aboard the F/V Marita 88, and that its lost profits damages stem directly from those conversions. It contends that these conversions were maritime torts that create maritime liens on the offending vessel – the F/V Marita 88. Fishy Choppers states that the record contains ample evidence to support the bond amount. It points to the helicopters' purchase price, their prior purchase prices, and the amounts the helicopters were insured for. Fishy Choppers also notes that a special bond, such as the one in this case, is expected to include prejudgment interest and costs. It emphasizes that an adequate cash bond is needed because the only relief it seeks is cash damages.
A. Can the Court Reduce a Stipulated Bond Amount?
Fishy Choppers contends that the court cannot reduce the $2.36 million bond amount because the parties stipulated to that amount. The Supplemental Admiralty and Maritime Rules do not explicitly preclude a court-ordered reduction of a stipulated bond amount. Rule E(6)(c) provides that "[w]henever security is taken the court may, on motion and hearing, for good cause shown, increase or reduce the amount of security given." The court thus concludes that it may reduce a stipulated bond amount, but that
the burden on a party seeking the reduction of a bond so established is considerably greater than where the bond amount is set by statute or is provided by rule. While the court may reduce the amount of stipulated security, this is justified only upon a showing that the bond amount is clearly excessive.
Whitney-Fidalgo Seafoods, Inc. v. Miss Tammy, 542 F. Supp. 1302, 1304-05 (W.D. Wash. 1982)
(citations omitted).1 The movants, in order to obtain a reduction of the stipulated bond amount, will therefore have to show that the current bond amount is clearly excessive.2
B. Counterclaim Cannot Be Used to Reduce Bond Amount
Kuroshio has counterclaimed against Fishy Choppers for breach of contract because Fishy Choppers is not now providing the helicopter fish-spotting services that Kuroshio, as the vessel's general agent, contracted for. The movants contend that Kuroshio's counterclaim ought to be set off against Fishy Choppers' claims and thereby reduce the bond amount. Under Supplemental Rule E(6)(d):
Whenever an asserted counterclaim arises out of the same transaction or occurrence as the original action, and the defendant or claimant in the original action has given security to respond in damages, any plaintiff for whose benefit such security has been given shall give security in the usual amount and form to respond in damages set forth in such counterclaim, unless the court, for cause shown, directs otherwise. . . .
Johanna, the owner of the F/V Marita 88 and thus the defendant that gave security to respond in damages, does not ask that the plaintiff, Fishy Choppers, be required to give security for Johanna's counterclaim. It cannot. Johanna made no counterclaim. Instead, Johanna asks for a reduction in the security it provided to be based on another party's (Kuroshio's) counterclaims.
Rule E(6)(d) does not authorize such a procedure. Kuroshio was not the party that gave the $2.36 million security. If Kuroshio had been that party, it could ask the court to require Fishy Choppers to post security to answer its counterclaim, but even then it could not ask that the security it had posted be reduced. Thus, this basis for a bond amount reduction must be rejected outright.
C. Amounts That Can Be Included in Rule E(6)(a) Special Bond
Under Rule E(2)(a),
The demand for judgment in every complaint filed under Rule B or C (except a demand for salvage award) shall allege the dollar amount of the debt or damages for which the action was commenced. The demand for judgment shall also allege the nature of other items of damage. The amount of the special bond posted under Rule E(6)(a) may be based upon these allegations. . . .
The $2.36 million Rule E(6)(a) special bond that Johanna posted equals the dollar amount of damages pled in Fishy Choppers's prayer for relief in its First Amended Verified Complaint (Oct. 5, 2018). Fishy Choppers pled the following damages allegations: (1) value of the two helicopters based on their purchase price from Johanna-Subic – $1.2 million; (2) Fishy Choppers' helicopter spare parts – $200,000; (3) the helicopter lease payments that were not made in the two months before filing suit – $160,000 ($80,000 a month at $45,000 for one helicopter and $35,000 for the other); and (4) the total lease payments for the ten months remaining unpaid on each helicopter's charter agreements – $800,000. This totals $2.36 million.
Fishy Choppers calculates its provable losses somewhat differently in its opposition: (1) the value of the two helicopters when each was converted (referred to as present value in earlier discovery responses) – $1.05 million (or if their insured value was used – $948,000); (2) Fishy Choppers’ helicopter spare parts as per its parts inventories – $223,986.70; (3) net loss on the total lease payments for the ten months remaining unpaid on each helicopter's charter agreements (deducting $20,000 per month as overhead operating expenses) – $600,000; plus (4) an estimated three years of prejudgment interest on these losses – $505,976.40. This totals $2,379.963.10, a sum that exceeds the current bond amount by $19,963.10. Pl.'s Opp'n to Mot. of F/V Marita 88 & its Owner Johanna Seafoods Ltd. to Reduce or Return Bond at 14-17 (Feb. 4, 2019).
1. Maritime Lien Security Can Include Prejudgment Interest
The movants contend that the bond amount should not include amounts attributed to prejudgment interest. Supplemental Rule E(6)(a), however, clearly provides that the bond amount include interest, which can only be prejudgment interest. It provides that
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 and costs; but the principal sum shall in no event exceed (i) twice the amount of the plaintiff's claim or (ii) the value of the property on due appraisement, whichever is smaller.
FSM Mar. R. E(6)(a). The only inference that can be drawn when the allowable bond amount can be up to twice the amount of the plaintiff's fairly stated claim is that the interest mentioned is prejudgment interest. Post-judgment interest would make no sense since the judgment would be paid promptly out of the posted security.
"Under maritime law, the awarding of prejudgment interest is the rule rather than the exception, and, in practice, is well-nigh automatic." Reeled Tubing, Inc. v. M/V Chad G, 794 F.2d 1026, 1028 (5th Cir. 1986). This maritime law practice has been followed in the FSM.3 The FSM Supreme Court customarily awards injured parties prejudgment interest in maritime tort cases. E.g., Pohnpei v. M/V Ping Da 7, 20 FSM R. 75, 80 (Pon. 2015); People of Gilman ex rel. Tamagken v. Woodman Easternline Sdn. Bhd., 18 FSM R. 165, 175 (Yap 2012); People of Rull ex rel. Ruepong v. M/V Kyowa Violet, 14 FSM R. 403, 420 (Yap 2006). No reason is apparent, or has been suggested, why it should be
otherwise in this case.4
2. Maritime Lien Security Can Be Based on a Maritime Conversion Claim
The movants contend that a conversion claim cannot create a maritime lien, and thus the security provided for the F/V Marita 88's release is excessive because it includes amounts for the alleged conversions. They argue that conversion is not a traditional maritime claim.
This is incorrect. Conversion can be a maritime tort, and, when it is, it gives rise to a maritime lien. "Admiralty jurisdiction over a conversion claim . . . depends on whether the chattel was 'on navigable waters' at the time of the alleged wrongful exercise of dominion." Evergreen Marine Corp. v. Six Consignments of Frozen Scallops, 4 F.3d 90, 94 (1st Cir. 1993); see also The Lydia, 1 F.2d 18, 23 (2d Cir. 1924) ("conversion is a tort . . . and if that tort is committed on navigable waters, admiralty has jurisdiction"). "[C]onversion is an intentional tort that gives rise to a preferred maritime lien." Norman B. Richards, Maritime Liens in Tort, General Average, and Salvage, 47 TUL. L. REV. 569, 582 (1972); see also Port Welcome Cruises, Inc. v. S.S. Bay Belle, 215 F. Supp. 72, 86 (D. Md.) (maritime lien for linens and uniforms rented to vessel and not returned), aff'd sub nom., Humble Oil & Ref. Co. v. S.S. Bay Belle, 324 F.2d 954 (4th Cir. 1963).
A plaintiff is not required to prove that it relied on the vessel's credit to establish a maritime tort lien, because "[m]aritime torts like all torts occur when a defendant breaches a legal duty and proximately causes a plaintiff damage. Such a duty is imposed by law whether or not the parties have ever had any prior consensual contact." Thyssen, Inc. v. S.S. Rio Capaya, 1988 A.M.C. 1878, 1881 (M.D. Fla. 1988). "In the admiralty context, as elsewhere, conversion is simply an intentional and wrongful exercise of dominion or control over a chattel, which seriously interferes with the owner's right in the chattel." Evergreen Marine Corp., 4 F.3d at 94 (emphasis in original). "[T]he failure to return property, possession of which was acquired lawfully, when the owner is entitled to its return and makes demand therefor, involves a tortious conversion." S.S. Bay Belle, 215 F. Supp. at 86 (failure to return linens and uniforms rented to vessel).
Since the alleged conversion of each helicopter took place while that helicopter was aboard the F/V Marita 88 and thus on navigable waters, Fishy Choppers' conversion claims allege maritime torts for which maritime liens on the offending vessel will arise.
3. Whether Conversion Claim Amount Is Excessive
The movants, however, further contend that the bond amount attributed to Fishy Choppers' conversion claims is excessive, not only because Fishy Choppers greatly overvalues the helicopters and parts but also because Fishy Choppers' potential lost profits should not be considered.
a. Value of Chattels Allegedly Converted
The movants contend that the allegedly converted chattels are greatly overvalued and that
therefore that maritime lien component is excessive. They offer an appraiser's affidavit that, as of May 9, 2019, the two helicopters (valued as scrap) and the helicopter parts were all together worth just $45,812.50.
The measure of damages for conversion is the property's market value at the time and place of conversion plus the legal rate of interest from the date of the conversion. Ihara v. Vitt, 18 FSM R. 516, 531 (Pon. 2013); Bank of Hawaii v. Air Nauru, 7 FSM R. 651, 653 (Chk. 1996); Bank of Guam v. Nukuto, 6 FSM R. 615, 616 (Chk. 1994); see also Individual Assurance Co. v. Iriarte, 16 FSM R. 423, 448 (Pon. 2009), aff'd, 18 FSM R. 340, 363 (App. 2012).
The conversion is complete when the defendant takes, detains or disposes of the chattel. At that point, . . . the plaintiff acquires the right to enforce a sale, and recover the full value of the property. The defendant cannot undo his wrong by forcing the goods back upon their owner, either as a bar to the action, or in mitigation of damages.
PROSSER AND KEETON ON THE LAW OF TORTS § 15, at 106 (W. Page Keeton et al. eds., 5th ed. 1984) (footnotes omitted). The movants allegedly converted the first helicopter sometime in August 2018, and then converted the other sometime in September 2018. The alleged conversion of the parts is around the same time.
Regardless of how accurate the May 9, 2019 appraisal was, no evidence relates that appraised value to the chattels' value eight to ten months earlier when the chattels were allegedly converted. The court thus has no actual evidence of the helicopters' and parts' value in August and September 2018 other than the helicopters' insured value ($948,000).
b. Lost Profits May Be Included in Conversion Damages
The movants also contend that Fishy Choppers' alleged lost profits are not damages that are recoverable under a conversion tort claim and cannot be included in the bond amount for a maritime lien. They argue that only the chattels' fair market value can be awarded for conversion damages.
The court must reject this contention because "even if the conversion occurs in good faith, the complaining party may nonetheless recover damages beyond the fair market value of the converted property." Pride Oil Co. v. Tommy Brooks Oil Co., 761 So. 2d 187, 191 (Miss. 2000). Damages for "lost profits are allowed where either from the nature of the article or peculiar circumstances of the case they might be reasonably supposed to follow from the conversion," and this "recovery of lost profits [is] above and beyond the [chattels'] market value." Al Hirschfeld Found. v. Margo Feiden Galleries Ltd., 328 F. Supp. 3d 232, 237 (S.D.N.Y. 2018) (emphasis in original). "'[T]he general rule is that compensation for lost profits may be recovered in an action for conversion, where the loss is the proximate result of the defendant's act, and the loss can be shown with reasonable certainty.'" Pride Oil Co., 761 So. 2d at 192 (quoting 18 AM. JUR. 2D Conversion § 119, at 232 (1985)). Although the "usual measure of damages for conversion is the value of the property at the time and place of conversion, plus interest," lost profits "may be recoverable if they may reasonably be expected to follow from the conversion." Fantis Foods, Inc. v. Standard Importing Co., 402 N.E.2d 122, 125 (N.Y. 1980).
Lost profit damages can be awarded for conversion when the plaintiff "show[s] that a profit would have been realized from the items converted, but for the conversion, and . . . show[s] the extent thereof with reasonable certainty." Nika Corp. v. City of Kansas City, 582 F. Supp. 343, 358 (W.D. Mo. 1984) (lost profits can be awarded for conversion when they are "shown to be the natural and probable consequence of the act or omission complained of"). Awards for
lost business profits are appropriate damages in a conversion case when proved with reasonable certainty. . . . [I]t would not be proper to allow lost business profit damages in every case involving conversion. The damages would only be proper when the person whose property has been converted shows that the conversion has resulted in lost business profits and shows with reasonable certainty the amount of these lost profits.
Nora v. Safeco Ins. Co., 577 P.2d 347, 351 (Idaho 1978). The proper measure of these damages resulting from a business tort is lost profits as opposed to lost gross receipts, Phillip v. Marianas Ins. Co., 12 FSM R. 464, 472 (Pon. 2004), and these damages amount need only be shown with as much certainty as the tort's nature and the case's circumstances permit, M/V Kyowa Violet, 14 FSM R. at 418.
This case's circumstances should permit lost profits to be calculated with a fair degree of certainty. The lost gross receipts from Fishy Choppers' charter agreements with Kuroshio are undisputed. Those contracts were to expire June 1, 2019. It should not be too difficult for the parties to prove the overhead and operational costs to be deducted from the gross receipts for those charter agreements to arrive at Fishy Choppers' lost profits.
The court notes that any recovery for lost rental income may be limited in time until when the plaintiff could have obtained a replacement for his rental business since if a plaintiff could have avoided the loss by purchasing a substitute item, profits from that point on are not the measure of the plaintiff's recovery even though profits were in fact lost. Phillip, 12 FSM R. at 472; see also Ware v. McDaniel, 899 S.W.2d 170, 173 (Mo. Ct. App. 1995) ("Consequential damages such as . . . lost profits are limited in a conversion case to the period it would take to replace the converted item."). Whether in the short time left on the charter agreements (eight to ten months depending on the chattel allegedly converted) Fishy Choppers would have been able to, or could even have been expected to, replace the converted fish-spotting helicopters, and have in the FSM substitute helicopters and parts to service them, is not a point any of the parties addressed, so the court need not consider it now.
c. Conversion as a Maritime Tort and Maritime Liens
The court concludes that conversion, when committed on navigable waters, is a maritime tort that creates a maritime lien. The court further concludes that the measure of damages in a maritime conversion is the property's market value at the time and place of its conversion plus the legal rate of interest from that date, and that, to these damages, the plaintiff's lost profits can be added when that loss can reasonably be expected to follow from the conversion, or is the proximate result of the defendant's conversion, and when the amount of that loss can be shown with reasonable certainty.
The court must therefore reject the movants' contentions that the amount of the bond securing the F/V Marita 88's release cannot be based on the Fishy Choppers' conversion causes of action or on the lost profits and prejudgment interest claims related to those causes of action.
Accordingly, while the stipulated bond amount may be higher than what the court might have set (especially if Fishy Choppers is unduly pessimistic about how long it would take to resolve this case), the court, considering the nature and the breadth of the alleged maritime liens, cannot say that the bond amount has been shown to be clearly excessive. Since the stipulated security is not clearly excessive, the court cannot reduce the bond amount. The F/V Marita 88's and Johanna Seafoods Ltd.'s motion to reduce the bond is therefore denied, and the current bond amount is confirmed and retained.
_____________________________________Footnotes:
1 The court must first look to FSM sources of law, FSM Const. art. XI, § 11, rather than other courts' cases, but when the FSM Supreme Court has not already construed an aspect of an FSM Supplemental Admiralty and Maritime Rule that is identical or similar to the U.S. rule, it may consult U.S. sources for guidance. See, e.g., People of Eauripik ex rel. Sarongelfeg v. F/V Teraka No. 168, 19 FSM R. 49, 57 n.2 (Yap 2013); People of Tomil ex rel. Mar v. M/C Jumbo Rock Carrier III, 16 FSM R. 633, 635 n.1 (Yap 2009). The court has not previously considered this aspect of Rule E(6)(c).
2 The court is aware of what may seem contrary authority. In Stemcor USA, Inc. v. M/V Cern Urkmez, 2000 A.M.C. 2104, 2104-05 (S.D. Ala. 2000), the court held that Rule E(6) was inapplicable and it had no role in reducing the security because the defendant vessel had been released on the parties' joint stipulation that "'satisfactory security ha[d] been provided to Plaintiff'" without the court having a role in setting (or actual knowledge of) the amount of the letter of undertaking that the parties had exchanged as a result of their agreement. Unlike M/V Cern Urkmez, the parties herein, as in Miss Tammy, stipulated to a bond amount, which the court then approved and entered in an order.
3 Maritime law is uniquely related to the law of nations and consists of rules that in large part govern the conduct of various nations in their shipping and commercial activities. People of Eauripik ex rel. Sarongelfeg v. F/V Teraka No. 168, 18 FSM R. 532, 538 (Yap 2013); Lonno v. Trust Territory (I), 1 FSM R. 53, 71 (Kos. 1982). Maritime law "has its origins in the codes of seafaring nations of the world and which still is a part of the law of nations." Federal Business Dev. Bank v. S.S. Thorfinn, 4 FSM R. 367, 374 (App. 1990).
4 For these conversion claims, a prejudgment interest award under maritime law would not differ from a common law award. Under the common law, one whose property is converted is entitled to interest at the legal rate from the time of conversion. FSM v. Muty, 19 FSM R. 453, 462 (Chk. 2014); Ihara v. Vitt, 18 FSM R. 516, 531 (Pon. 2013); Individual Assurance Co. v. Iriarte, 16 FSM R. 423, 448 (Pon. 2009); Phillip v. Marianas Ins. Co., 12 FSM R. 464, 471 (Pon. 2004); Bank of Guam v. Nukuto, 6 FSM R. 615, 616 (Chk. 1994).
* * * *