Merchants Nat. Bank v. Dredge General G. L. Gillespie

• Decision Date: 18 December 1981
• Docket Number: No. 80-3349,80-3349
• Citation: 663 F.2d 1338
• Parties: The MERCHANTS NATIONAL BANK OF MOBILE, et al., Plaintiffs-Appellees, v. The DREDGE GENERAL G. L. GILLESPIE, Etc., et al., Defendants-Appellants. . Unit A *
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1338

663 F.2d 1338

64 A.L.R.Fed. 921

The MERCHANTS NATIONAL BANK OF MOBILE, et al., Plaintiffs-Appellees, v. The DREDGE GENERAL G. L. GILLESPIE, Etc., et al Defendants-Appellants.

No. 80-3349.

United States Court of Appeals, Fifth Circuit.

Unit A ^*

Dec. 18, 1981.

Charles G. Black, Memphis, Tenn., for defendants-appellants.

John W. Sims, New Orleans, La., David R. Owen, Baltimore, Md., Professor David J. Sharpe, George Washington University Law School, Washington, D. C., J. Dwight LeBlanc, Jr., New Orleans, La., for amicus curiae, Maritime Law Assoc. of the U.S. Sims/Owen/Sharpe & LeBlanc, Jr.

Alex T. Howard, Jr., Mobile, Ala., for Merchants National Bank.

Wm. R. Forrester, Jr., Scott Selden Partridge, W. L. West, New Orleans, La., for Dravo Leasing Co.

Appeal from the United States District Court for the Western District of Louisiana.

Before BROWN and TATE, Circuit Judges, and SMITH ^**, District Judge.

JOHN R. BROWN, Circuit Judge:

This case presents, for the first time to any U.S. Court of Appeals, ^*** the issue of the Constitutionality of Admiralty Rules C and E, concerning in rem seizure of a vessel without a preliminary judicial hearing. We find this historical procedure Constitutional and affirm.

A Tale of Two Plaintiffs

The consolidated cases on appeal before this Court were instituted by two plaintiffs to foreclose preferred ship mortgages. Dravo Leasing Company filed the first complaint in rem against the barge ARLINGTON, pursuant to Rule C of the Supplemental Rules for Certain Admiralty and Maritime Claims (Rule C), and in personam against the vessel's owner. The Merchants National Bank of Mobile filed the remainder of the actions consolidated in this controversy against eight vessels in rem, the eight vessel owners in personam, and a Mr. Bierman, the owner of several corporations involved in the gravel operation where these vessels were located. For the remainder of this opinion, Dravo and Merchants National will be referred to collectively as "lienors", and the owners of all the vessels, as well as Mr. Bierman, will be collectively referred to as "claimants".

All of the vessels were physically arrested on July 18, 1979. The lienors simultaneously filed Motions for the Interlocutory Sale of the Vessels. The claimants responded to the above foreclosure action by filing a motion to vacate and invalidate the seizure of the vessels, an opposition to the motion for interlocutory sale, and answers and affirmative defenses to the lienors' complaints in a multi-count, multi-party counterclaim. The District Court held a two-day evidentiary hearing on December 14 and 28, 1979. Subsequently, District Judge Hunter, a distinguished and highly experienced admiralty judge, was assigned to the case, and on April 25, 1980, the District Court denied claimants' motion to vacate the seizure and entered an order of interlocutory sale. These rulings of April 25, 1980, are the subject of this appeal.

No one denies that the claimants executed (i) demand promissory notes payable to one or both of the lienors and (ii) preferred ship mortgages as security for the indebtedness created by those notes. The funds were to be used in the construction and operation of a floating gravel operation on the Mississippi River. The claimants allege that the lienors and several other named counter-defendants conspired to defraud them and that the lienors' seizure of the vessels in furtherance of such schemes prevented claimants from paying back portions of the outstanding indebtedness. Moreover, the claimants emphasize that the lienors seized the vessel without prior notice to them and without prior judicial participation.

The claimants raise two significant questions on this appeal: First, they urge that the prejudgment seizure and sale procedures of Rules C and E ¹ violate the procedural due process requirements of the Fifth Amendment, and second, that the District Court's order of interlocutory sale was erroneous since none of the standards of Rule E(9)(b) of the Supplemental Rules for Certain Admiralty Maritime Claims, allowing interlocutory sale, ² had been met.

Was the Interlocutory Sale Justifiable?

For the reasons set forth below, we are convinced that both the evidence presented to the District Court and the findings of that court more than justify the interlocutory sale. The attack argues that (i) the vessels are not subject to deterioration or injury by being detained in custody, (ii) the District Court's conclusion that the costs of seizure are excessive or disproportionate was clearly erroneous, ³ and (iii) the District Court's conclusion that there has been an unreasonable delay in securing the release of the seizure is clearly erroneous because claimants timely filed their motion to vacate and $3 million cash would have been required to procure a bond for releasing the vessels. These three arguments parallel the three circumstances under Rule E(9)(b) in which an interlocutory sale is appropriate. ⁴ In order to prevail, the lienors need only show one of the three criteria.

In our review of the District Court's judgment, we are bound under F.R.Civ.P. 52(a) to accept its findings of fact "unless clearly erroneous." See 5A Moore's Federal Practice P 52.03. Findings are "clearly erroneous" in this Circuit where such findings are without substantial evidence to support them, where the District Court misapprehended the effect of the evidence, and if the force and effect of testimony considered as a whole discloses that the the finding is so against the great preponderance of the credible testimony that it does not reflect the truth of the case. Western Cottonoil Co. v. Hodges, 218 F.2d 158, 161 (5th Cir. 1954).

The District Court made detailed findings. Several of the barges were taking on water and had to be pumped. The vessels were deteriorating, and if allowed to continue in their laid-up condition, the machinery on board would need to be completely overhauled. The hulls of all the vessels and the superstructures of all but one of the vessels are steel, and were not being maintained to prevent deterioration. The total expenses attributable to the vessels during seizure had been over $17,000 per month. ⁵ The owners of the vessels never posted bond, entered into any stipulation or otherwise attempted to secure the release of the vessels during the eight months after the seizure, thus constituting an unreasonable delay in securing their release. Merchants National Bank of Mobile v. Dredge General G. L. GILLESPIE, 488 F.Supp. 1302, 1307-08 (W.D.La.1980).

The claimants challenged these findings of fact, particularly in light of the District Court's consideration of all of the vessels collectively in its analysis of deterioration and the expense of keeping the vessels in custody. Moreover, they argue that their filing of a Motion to Vacate and Invalidate the Seizure, as well as their efforts to secure a bond, demonstrate that there has been no "unreasonable delay" in securing the release of the seized vessels.

Expert evidence was presented to the District Court, suggesting that if any of the vessels was permitted to lay idly without routine maintenance and without having been properly prepared for lay-up, the engine(s) might rust and freeze up, necessitating costly overhaul. The engines were not properly conditioned for lay-up and they did not receive the necessary maintenance during lay-up. Moreover, credible expert testimony showed that the electric equipment on each of the vessels was susceptible to corrosion, rust and general deterioration. Likewise, the hulls of all of the vessels and most of the superstructures were subject to rusting, and had not been properly painted. The court's assessment that each of the vessels was "liable to deterioration ... or injury by being detained in custody" was not clearly erroneous.

Rule E(9)(b) also permits an interlocutory sale if the costs of the seizure are "excessive or disproportionate." The evidence revealed that the costs attributable to the vessels during seizure exceeded $17,000 per month, all of which had to come out of the lienors' pockets with uncertain hope of reimbursement. We do not think that the District Court erred in concluding that these expenses are excessive.

Finally, we do not hold clearly erroneous the District Court's finding that there was an unreasonable delay in securing the release of the vessels. The claimants, it was found, never posted bond, entered into any stipulation, or otherwise attempted to secure the release of the vessels pursuant to Rule E(5). ⁶ For this and the other reasons noted above, we find that the interlocutory sale was justifiable.

The Constitutionality of Rules C(3) and E(9)

This Constitutional question is, of course, of primary importance to this controversy. If the prejudgment seizure and sale provisions of the maritime rules violate due process, it would not prove necessary to consider the question of the justifiability of the interlocutory sale. We have, nevertheless, reserved this important discussion for the remainder of this opinion, and for the reasons set forth below, we conclude that the maritime procedures at issue are Constitutionally sufficient.

Although Rule C(3) ⁷ was promulgated in 1966 as an essential part of the integration of Admiralty Rules with the Federal Rules of Civil Procedure, it has roots deep in the maritime history of the nation. ⁸ For this reason, we must not take lightly the present challenge. It is well established that the Constitution is sufficiently flexible to permit its requirements to be considered in relation to the legal and commercial contexts in which they are invoked. See Mitchell v. W. T. Grant Co., 416 U.S. 600, 610, 94 S.Ct. 1895, 1901, 40 L.Ed.2d 406, 415 (1974), and cases cited therein. Moreover, as fundamental fairness in practical application is the primary criterion of due process, this Court holds that Rule C meets that criterion in the context of...