The opinion of the court was delivered by: Simandle, District Judge
This admiralty matter involving the enforcement of alleged maritime liens is before the Court upon Defendants' motion for a post-seizure hearing [Docket Items 9 & 10].*fn1 Having conducted the post-seizure hearing pursuant to Supplemental Rules for Admiralty or Maritime Claims E(4)(f) and D.N.J. Local Admiralty Rule (e)(8), the Court must determine whether Plaintiff has demonstrated reasonable grounds for the arrest of the four subject vessels.
Plaintiff, Sea Village Marina, operates a community of floating homes in Egg Harbor Township, New Jersey. The vessels involved in this action have occupied the slips at which they are currently moored for many years, but recent years have been somewhat tumultuous.
On February 28, 2007, Egg Harbor Township passed a revision of its rent control ordinance applying it to the marina's agreements with the owners of the floating homes. Egg Harbor Township Code, Rent Review, § 180-1.*fn2 A few weeks after the rent control ordinance was revised, apparently believing that it could set the baseline dockage fee under the ordinance, Sea Village Marina issued notices to the vessel owners that their agreements with the marina would be terminated and that a new, much higher dockage rate would go into effect.*fn3 (Pl.'s Ex-5, at 1.)
According to the notice, the marina was already experiencing financial troubles and it feared that the rent control would only exacerbate the problem. (Id.) The notice indicates that the rate being billed at the time was $633.75 per month, and that the new rate would be $1,165.25.*fn4 (Id.)
The attempted increase did not have the intended effect. Sea Village bookkeeper Beverly Cox testified that in April 2007, the manager of Sea Village, Patricia Best, resigned from her position, and an interim administratrix, Barbara Lieberman, took over on May 25, 2007.*fn5 (Third Hearing Tr. 27:8-17, 33:23-34:1, November 24, 2009.) Lieberman instructed Cox to bill the dockage at a rate of $633.75 per month, instead of the rate in the notices to quit, in an effort to resolve an ongoing "rent strike." (Id. at 27:8-17, 33:23-34:1.) Cox testified that Defendants were billed $633.75 for dockage from May 2007 until August 2009. (Id. at 27:21-24.)
Lieberman's plan to end the rent strike by billing the dockage at $633.75 instead of the higher notice to quit rate was also unsuccessful. In June 2007, the marina's lease from the State of New Jersey to occupy the tidelands upon which it sits expired, (Def.'s Ex-10), apparently because the marina could not afford to pay the licensing fees for renewal.*fn6 On July 13, 2007, the vessel owners occupying 32 slips, including Defendants, entered into an agreement with the marina according to which dockage fees would be paid into an escrow until a new well was built for the marina. (Def.'s Ex-4.) The terms of the "Agreement As To Rent Dispute" provided that the dockage fee was to be set at $600 (with a $100 credit until the problems with the water were remedied) for the period from May 2007 through July 2008. (Id.) Each month, half of the dockage payment (i.e. $250) was to be released to the marina. (Id.)
According to Cox, despite the agreement, the vessel owners continued to be billed for dockage at a rate of $633.75, of which no portion was paid including no payments of $250 per month according to the rental agreement. (Third Hearing Tr. 55:15-18, November 24, 2009.) Cox testified that no portion of the dockage owed since December 1, 2006 for the Allen vessel and May 21, 2007 for the Patterson vessel has been paid to the marina. (Id. at 14:2-12.) Plaintiff has not produced any signed dockage agreements or any invoices covering the relevant period.*fn7
Ms. Cox did testify that $500 from the escrow was distributed to an attorney to draft a new dockage agreement. (Id. at 58:7-10.) She also said that "[t]here was another distribution of a little over $20,000 early on . . . in July of 2007." (Id. at 58:7-23.) However, no part of the $20,500 of distributed escrow funds was credited to any of the tenants because the attorney managing the escrow "did not give [the marina] any kind of a breakdown on where to apply, he didn't tell us who paid how much, what portion of it should be applied to any tenant." (Id.) The Court has not been provided any evidence by which it could accurately apportion it to the tenants.*fn8
In May 2008, Sea Village, by then under the management of Bill Garry, brought actions in state court for non-payment of rent against Allen, Patterson, and three others. (Def.'s Br. Opp. Admiralty J., Ex-D.) The dockage rate alleged in the state court documents was $633.75. (Id.) For unknown reasons, the marina did not pursue these actions and they were dismissed for lack of prosecution on March 10, 2009.*fn9 Sea Village Marina, LLC v. Patterson, Docket No. C-121-08 (N.J. Sup. Ct. March 10, 2009) (attached in Def.'s Br. Opp. Admiralty J., Ex-D.).
This brings us to June 2009 when the new owner of Sea Village, Thomas Martinolich, embarked on a novel approach to the problem of the rent dispute: maritime liens. Shortly after he took over on June 16, according to Cox, he instructed Cox to edit the computer data in the bookkeeping software to retroactively reflect the dockage fee proposed in the notices allegedly sent to the vessel owners in March 2007, namely $1,165.25, rather than the dockage fee that was actually billed to the residents of Sea Village, namely $633.75. (Third Hearing Tr. 30:17-32:19, November 24, 2009.) On July 7, he filed the present action in rem pursuant to 46 U.S.C. § 31342 to enforce maritime liens on four of the floating homes as the result of the delinquent dockage payments. Cox tabulated the amounts due for the Verified Complaint based on the computer data she had been instructed to revise upward. (First Hearing Tr. 1:19-2:10, July 30, 2009.)
On July 7, 2009, Plaintiff filed its Verified Complaint in rem against the four vessels, asserting claims arising under the maritime lien statute, 46 U.S.C. § 31342(a), invoking the Court's admiralty jurisdiction to collect unpaid houseboat dockage fees. These claims asserted the amounts of $49,130.59 as to the Allen Vessel and $44,117.47 as to the Patterson Vessel. [Verified Complaint ¶ 12, Docket Item 1.]
Upon reviewing the Verified Complaint, this Court issued warrants for the arrest of the vessels the same day the complaint was filed [Docket Item 4]. On July 28, 2009, two of the owners of the floating homes requested a post-arrest hearing [Docket Item 9] which was held two days later. At that first hearing on July 30, 2009, Plaintiff entered into evidence for each vessel a document described by Cox as an "internal statement of the account showing all of the open invoices." (First Hearing Tr. 2:12-19, July 30, 2009.) Cox testified that these statements were the records she consulted to calculate the dockage owed, and that they were kept in the ordinary course of business. (Id. at 2:3-10.) In fact, according to Cox's later testimony, the statements were produced based on the data that was edited in advance of this litigation in June 2009 to retroactively reflect the higher amounts - amounts that were not actually billed. (Third Hearing Tr. 30:17-32:19, November 24, 2009.) The apparent falseness of this documentation, and the overstatement of Plaintiff's lien claim, are discussed below in Part III.B.1.
At this first hearing, Defendants made a number of objections to the seizure, including objections to the exercise of subject matter jurisdiction in admiralty in this matter, arguing that the floating homes were not vessels. It became clear to the Court that some discovery would be needed in the case, and the Court ordered that the owners be permitted to board and occupy the homes while they remained within the custody of the Court and ordered limited discovery [Docket Item 19] and ordered briefing from the parties on the issue of subject matter jurisdiction [Docket Item 21].
The second hearing, on October 9, 2009, was focused on the threshold question of whether these floating homes constituted vessels for the purposes of admiralty jurisdiction. In a written opinion of October 19, 2009, the Court determined that it had admiralty jurisdiction over the matter based on the seaworthiness of the vessels and their lack of permanent mooring. Sea Village Marina, LLC v. A 1980 Carlcraft Houseboat, Hull ID No. LMG37164M80d, Civil Action No. 09-3292 (JBS-AMD), 2009 WL 3379923 (D.N.J. October 19, 2009) (entered as Docket Item 29).*fn10
After finding that it had admiralty jurisdiction, the Court held two additional evidentiary hearings on November 24, 2009 and December 10, 2009 to determine whether Plaintiff has demonstrated reasonable grounds for the arrest of the vessels. It was at the third hearing on November 24, 2009 that the nature of Plaintiff's unorthodox bookkeeping was revealed. Plaintiff attempted to introduce spreadsheets showing the dockage owed. While the figures on the spreadsheet had been exported from the marina's computer accounting program, the dockage rates for each month had been edited to reflect the rate applied before the 2007 notices ($633.75). In other words, the numbers were re-revised to reflect the rates actually charged to Defendants. Plaintiff's counsel described this as "doing [Defendants] a favor by reducing the amount of the claim." (Third Hearing Tr. 9:14-15, November 24, 2009.) The Court admitted these spreadsheets as demonstrative exhibits for the purposes of Cox's testimony, but not as business records since they were not prepared in the normal course of business.
Upon further questioning of Ms. Cox by Mr. Goldring, counsel for Defendants Allen and Patterson, the Court made another discovery. Not only had the figures on the exported spreadsheet been edited, but as discussed above, the figures in the computer accounting program had also been edited after new ownership took over, and these were the figures summarized on the statements of account submitted to the Court. (Id. at 30:17-35:13.)
Because a number of the other issues raised by Defendants were still unresolved after the third hearing, the Court issued a second discovery order to facilitate the expedited discovery of matters related to Defendants' arguments about landlord-tenant laws, the Tidelands lease, information about the escrow and the agreement that created it, and any documentation of agreements in place between Plaintiff and Defendants. [Docket Item 41.]
The fourth hearing, held on December 10, 2009, examined the fruits of this expedited discovery. Defendants also called Robert Cozen, a marine surveyor, and Defendant John Allen. Both testified about conditions at the marina.
The Court, having had the opportunity to reflect on the events of these four hearings, now addresses the question of whether Plaintiff has shown reasonable ...