McCorkle v. First Pennsylvania Banking and Trust Co.

• Decision Date: 20 April 1972
• Docket Number: No. 71-1157.,71-1157.
• Citation: 459 F.2d 243
• Parties: William R. McCORKLE and Jeanne D. McCorkle, Appellees, v. The FIRST PENNSYLVANIA BANKING AND TRUST COMPANY, Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

459 F.2d 243 (1972)

William R. McCORKLE and Jeanne D. McCorkle, Appellees, v. The FIRST PENNSYLVANIA BANKING AND TRUST COMPANY, Appellant.

No. 71-1157.

United States Court of Appeals, Fourth Circuit.

Argued November 29, 1971.

Decided April 20, 1972.

John C. Cooper, III, Baltimore, Md. (James N. Vaughn, Ellicott City, Md., on the brief), for appellant.

Malcolm B. Kane, Columbia, Md., for appellees.

Before SOBELOFF, Senior Circuit Judge, and CRAVEN and FIELD, Circuit Judges.

SOBELOFF, Senior Circuit Judge:

We face here an unhappy predicament: The law and the equities appear certain, yet we may not decide the case on its merits because of a technical jurisdictional deficiency. Although the appellant raised the jurisdictional question for the first time at the appellate level, we reluctantly accept its contentions. The judgment of the District Court, 321 F.Supp. 149, must be vacated and the case dismissed for lack of subject-matter jurisdiction.¹

I. Facts

There is no contest concerning the facts. In October 1966, Patrick Murphy, a resident of Harford County, Maryland, purchased the yacht "Safari" from Northeast Yacht Sales, Inc., executing, at that time, an installment sales contract which reserved to the seller title to the yacht and a security interest therein. In a simultaneous transaction, the vendor assigned the contract to the present appellant, The First Pennsylvania Banking and Trust Company "Bank", a Pennsylvania corporation. The Bank then filed, in the county of Murphy's residence, an appropriate financing statement under the Maryland Uniform Commercial Code to perfect its security interest in the yacht. Md.Code Ann. Art. 95B, § 9-301(1) (b).

Fifteen months later, without the Bank's knowledge, Murphy enrolled the Safari as a "vessel of the United States" in accordance with 46 U.S.C. §§ 11, 103; 46 C.F.R. Part 67. As proof that he held clear title, Murphy exhibited the yacht's Master Carpenter's Certificate, which the seller had delivered to him. However, he concealed the Bank's ownership of the yacht and its outstanding security interest. Nine months after the Safari's enrollment, still without disclosing the Bank's interest, Murphy sold the yacht to Mr. and Mrs. McCorkle, here the appellees, for cash. Before consummating the purchase, Mr. McCorkle, a resident of Pennsylvania, noted the official registry number displayed on the yacht and realized the vessel was federally registered. He thereupon examined the yacht's Abstract of Title, kept in the Customs House at Baltimore, to verify whether Murphy was the outright owner of the Safari and the yacht subject to no liens. No outstanding liens were listed in the federal registry papers and there was nothing to alert the buyers to the existence of the Bank's security interest in the vessel, represented by the financing statement filed in Harford County, Maryland, under Maryland's Uniform Commercial Code. Consequently, the McCorkles relied solely on the federal enrollment records and did not search for or uncover the financing statement.

Shortly after the sale, Murphy left the country and took up residence in Panama. He defaulted on the installment sales contract and soon thereafter died, leaving an insignificant estate. The Bank, after tracing ownership of the yacht to appellees, looked to them for payment of the unpaid balance of the yacht's purchase price. Appellees, taking the position that they had done all that could reasonably be expected of them to discover the Maryland lien, denied liability to the Bank. In short, they maintained that Murphy's federal enrollment of the Safari, without giving the Collector of Customs notice of the Bank's security interest, cut off the prior state lien as to them.²

Appellees brought an action in federal district court at Baltimore for a declaratory judgment adjudicating title to the yacht and determining whether the Bank's interest survived. Apart from the Bank's observing, correctly, in the District Court that there was no diversity as between the parties, no jurisdictional issue was raised below. The court was of the opinion that it could act under "general admiralty jurisdiction * * in the light of the Ship Mortgage Act of 1920." It then proceeded to grant summary judgment for the McCorkles, holding that the Bank's failure to record its security interest in the federal registry in Baltimore cut off its state lien as against subsequent good faith purchasers of the yacht — here the appellees McCorkle. In their brief, appellees advance three alternative theories to sustain jurisdiction: (1) that all questions as to the ownership of a "vessel of the United States" are cognizable in admiralty in light of the Ship Mortgage Act of 1920, 46 U.S.C. § 911 et seq.; (2) that the case is one coming under general federal admiralty and maritime jurisdiction, see 28 U.S.C. § 1333; and (3) that it is one arising under "the laws of the United States, to wit: The Ship Mortgage Act of 1920," see 28 U.S.C. § 1331(a).

We shall examine these theories in the following sections.

II. Admiralty Jurisdiction

Appellees' first two jurisdictional theories suffer from related weaknesses and we will consider them together. It is argued first that, since there is provision in the Ship Mortgage Act and related statutes, see 46 U.S.C. § 11, et seq., for federal registration, or enrollment, of certain vessels, those Acts have "federalized" all questions of title pertaining to federally-enrolled ships and thereby have extended admiralty jurisdiction to encompass any case presenting such a question. The short answer to this contention is that the Supreme Court has expressly considered and unanimously rejected it:

In providing for the enrollment of vessels, Congress has not undertaken to regulate contracts for conditional sales of vessels * * *. It has not entered the field * * *. There is no foundation for the contention earnestly urged by plaintiff in error that Congress by these acts created "a new form of property known as vessels of the United States" or that enrolled vessels are "nationalized or federalized" in respect of conditional sale contracts such as the one here involved. The enrollment of such vessels is not inconsistent with the application of the state law.

James Stewart & Co. v. Rivara, 274 U.S. 614, 618, 47 S.Ct. 718, 720, 71 L.Ed. 1234 (1927).

In light of Rivara, appellees' first jurisdictional submission must fail. We therefore turn to appellees' second theory: that the Ship Mortgage Act has operated to enlarge general admiralty jurisdiction to embrace all actions which bring into question maritime mortgages.

The general admiralty jurisdiction of the federal courts finds its roots in Art. III, § 2 of the Constitution: "The judicial Power of the United States shall extend * * * to all Cases of admiralty and maritime Jurisdiction; * * *." See, 28 U.S.C. § 1333(1). In applying this somewhat imprecise language to cases which involve contracts, as does the instant case, courts have always looked to the subject matter of the contract to determine whether admiralty jurisdiction attaches, Grant Smith-Porter Ship Co. v. Rohde, 257 U.S. 469, 476, 42 S.Ct. 157, 66 L.Ed. 321 (1922). If the contract's subject matter is "maritime in nature," there is jurisdiction. North Pacific S.S. Co. v. Hall Bros. Marine Ry. & Shipbuilding Co., 249 U.S. 119, 39 S.Ct. 221, 63 L.Ed. 510 (1919); N. J. Steam Navigation Co. v. Merchant's Bank of Boston, 6 How. 344, 47 U.S. 344, 392, 12 L.Ed. 465 (1848); Weinstein v. Eastern Airlines, Inc., 316 F.2d 758 (3rd Cir.), cert. denied, 375 U.S. 940, 84 S.Ct. 343, 11 L.Ed.2d 271 (1963).

Oddly, an unchallenged line of cases decided prior to the Ship Mortgage Act of 1920, in applying this standard, held all mortgages on ships to be "non-maritime" in nature and thus unenforceable in admiralty. The J. E. Rumbell, 148 U.S. 1, 15, 13 S.Ct. 498, 37 L.Ed. 345 (1893); Bogart v. The Steamboat John Jay, 17 How. 399, 58 U.S. 399, 401-402, 15 L.Ed. 95 (1854).³

This preclusion of all ship mortgages from admiralty was eased in 1920 when Congress passed the Ship Mortgage Act. In an effort to make investment in ship mortgages more attractive, the Act accords priority to mortgages given on vessels of the United States, as against most other liens, upon compliance with certain filing requirements. 46 U.S.C. § 922(a), (b), (c), and (d).⁴ Upon meeting these filing requirements, the mortgages become known as "preferred mortgages." 46 U.S.C. § 922(b). The Act further provides:

Upon the default of any term or condition of the preferred mortgage, such lien may be enforced by the mortgagee by suit in rem in admiralty. Original jurisdiction of all such suits is granted to the district courts of the United States exclusively. 46 U.S.C. § 951. (Emphasis added.)

Seeking to bring themselves within this explicit congressional expansion of admiralty jurisdiction, appellees argue that "the passage by Congress of the Ship Mortgage Act of 1920 sufficiently expanded the admiralty jurisdiction to encompass any legal questions arising under the Act." Once again we must disagree with appellees' contention. In upholding the constitutionality of the Ship Mortgage Act, the Supreme Court explained that the above-quoted section 951 was a valid exercise of congressional power to "alter or supplement the maritime law * * * and thus to extend the admiralty jurisdiction, `as experience or changing conditions might require.'" Detroit Trust Co. v. The Barlum, 293 U.S. 21, 48, 55 S.Ct. 31, 40, 79 L.Ed. 176 (1934) (Hughes, C. J.).⁵ However, the Chief Justice took pains to observe that the Ship Mortgage Act had not brought all ship mortgages within the admiralty jurisdiction:

The grant is thus one of exclusive jurisdiction to enforce the lien of a "preferred mortgage." If the mortgage is a preferred mortgage within the definition of the Act, jurisdiction is granted; otherwise not. 293 U.S. at 33, 55 S.Ct. at 33.

Although it is dictum, the rule in ...