Bank of Scotland v. Sabay

• Decision Date: 28 April 2000
• Docket Number: No. 99-30102,99-30102
• Parties: (5th Cir. 2000) THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND, Plaintiff-Appellee, v. HECTOR SABAY; VOLODYMYR SHEVCHUK; NORMAN SOLIS; NOEL SOMOSIERRA; GERRY SUYAT, ET AL., Intervenors-Appellants, v. MARIA S. J. MV, her engines, tackle, lifeboats, anchor, chain, equipment and appurtenances, in rem, ET AL., Defendants. UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
• Court: U.S. Court of Appeals — Fifth Circuit

Page 261

211 F.3d 261 (5th Cir. 2000)

THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND, Plaintiff-Appellee, v. HECTOR SABAY; VOLODYMYR SHEVCHUK; NORMAN SOLIS; NOEL SOMOSIERRA; GERRY SUYAT, ET AL., Intervenors-Appellants, v. MARIA S. J. MV, her engines, tackle, lifeboats, anchor, chain, equipment and appurtenances, in rem, ET AL., Defendants.

Appeal from the United States District Court for the Eastern District of Louisiana

No. 99-30102

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

April 28, 2000

[Copyrighted Material Omitted] Before JONES, BARKSDALE, and DENNIS, Circuit Judges.¹

RHESA HAWKINS BARKSDALE, Circuit Judge:

For this 28 U.S.C. 1292(a)(3) interlocutory appeal, the issue is one of first impression: can a seaman's preferred maritime lien for 46 U.S.C. 10313(g) "penalty" wages be enforced against the proceeds from the sale of the vessel on which he served, when those proceeds are less than the indebtedness secured by a preferred mortgage for the vessel, and in the light of the plain language of the penalty wages statute, which imposes liability on only the vessel's master or owner (if wages not paid within specified time "without sufficient cause, the master or owner shall pay to the seaman 2 days' wages for each day payment is delayed") (emphasis added). The district court held the lien could not be enforced. We AFFIRM.

I.

On 30 July 1996, Golden Lines Shipping, Inc., owner of the M/V MARIA S.J., and Golden Mediterranean Lines, Inc., owner of the M/V NINA S, were loaned approximately $15 million by the Governor and Company of the Bank of Scotland. The loan amount was not to "exceed ... 70% of the [vessels'] aggregate market value", with a satisfactory valuation for each being required; Golden Lines was to notify the Bank when any legal action, likely to have a material adverse effect on Golden Lines or the operation of its vessel, was either threatened or instituted; and the Bank received a first preferred ship mortgage on each vessel.

In the mortgage, Golden Lines covenanted that it would, inter alia, "promptly pay and discharge all debts, damages and liabilities whatsoever which have given or may give rise to maritime or possessory liens on or claims enforceable against" the MARIA, and "furnish satisfactory evidence that the wages ... of the ... crew are being regularly paid".

In addition to the mortgages, security for the loan included the assignment of proceeds from charter party agreements covering the MARIA and NINA, and a personal guarantee from Nikolaos Mazarakis, president and sole shareholder of Golden Lines, who was also the manager of Kosmas Marine Line, Inc., which managed the MARIA, NINA, and M/V NORSE TRADER. (The NORSE TRADER, owned by Konim Shipping Co., Ltd., was subject to a separate loan agreement and mortgage in favor of the Bank.)

In March 1997, while the MARIA was in the Mississippi River in Louisiana, its seamen complained about being underpaid and retained counsel. Following negotiations with Golden Lines, a settlement agreement was reached later that month.

As consideration for the seamen not having the vessel arrested, Golden Lines agreed, inter alia, to make a partial payment that day against the wage arrearage, with the balance to be paid at the next port of call (Houston, Texas). Golden Lines stipulated that, if the agreement was not satisfied punctually, it was in violation of 46 U.S.C. 10313 (penalty wages) as of 24 March 1997, the day of the settlement, "and that penalty wages shall commence to run as of" that date. (Emphasis added.) Golden Lines failed to pay the wages due.

On 30 March 1998, approximately a year after the wages-settlement, the Bank issued notices of default for the loans secured by the three vessels. On 7 April, in response to Mazarakis' request for release from his personal guarantees for the loans secured by those vessels, the Bank advised that release would be recommended if he cooperated in their arrest and sale.

The MARIA re-entered the Mississippi River in the spring of 1998. All on 22 April, the seamen aboard filed an unpaid wages action in Louisiana state court against Golden Lines and Kosmas Marine Line; the court issued a writ of attachment; and the MARIA was taken into the custody of the sheriff.

Five days earlier, on 17 April, the Bank had filed a complaint in federal court against the MARIA, in rem, and Golden Lines, in personam, to foreclose its mortgage on the vessel. That same day, the district court issued an arrest warrant for the vessel; it was served on 29 April. In mid-May, Kosmas Marine Line and Golden Lines removed the seamen's state court action to federal court, where it was consolidated with the Bank's foreclosure proceeding.

That May, the Bank paid the wages owed the seamen aboard the MARIA at the time of arrest, and they were repatriated; the Bank took an assignment of their wage liens. Seamen still claimed to be owed past due wages in excess of $250,000. (As discussed infra, such wages were paid from the sale proceeds a year later, in May 1999.)

In June 1998, the seamen filed a complaint in intervention in the Bank's foreclosure proceeding, seeking to enforce maritime liens against the vessel for unpaid wages and penalty wages for each day of delay in payment of earned wages.

That July, the MARIA was sold at a judicial auction to the Bank, which bid $3.7 million. The Bank agreed to satisfy any liens determined to have priority over the mortgage, up to the amount of sale proceeds, less custodia legis expenses. (The prior month, the NINA had been sold at auction; that September, the Bank received approximately $3.6 million from the sale proceeds.)

The MARIA seamen asserting penalty wages liens consist of two groups: (1) 22 serving on 24 March 1997, covered by the settlement agreement of that date with Golden Lines; and (2) 25 serving on 20 April 1998, the day they formally demanded payment of past-due wages, two days prior to filing the state court action.

The Bank's motion for partial summary judgment was granted in part. The court ruled that: the seamen had preferred maritime liens for wages and penalty wages; the latter had the same priority as the former; the wages liens were entitled to priority over the Bank's preferred ship mortgage; but, the seamen could not enforce their penalty wages liens against the vessel sale proceeds. The court reasoned that: the vessel's master and owner had no interest in those proceeds, because the amount owed the Bank exceeded that realized from the sale; and permitting a penalty wages claim against the proceeds was the functional equivalent of allowing the claim against a party other than the master or owner, contrary to the penalty wages statute, which expressly imposes liability only against them. See 46 U.S.C. 10313(g).

In June 1999, after this appeal was filed, the district court granted the seamen summary judgment against Golden Lines, in personam, and the MARIA, in rem, for approximately $261,000 in unpaid wages, plus pre-judgment interest. The unpaid wages lien was satisfied from the vessel sale proceeds. (Therefore, penalty wages ceased when those wages were paid.) In addition, the seamen's unopposed summary judgment motion against Golden Lines, in personam, for penalty wages of approximately $7 million was granted.²

II.

The seamen contend that the district court erred in holding they cannot enforce their preferred maritime lien for penalty wages against the MARIA sale proceeds, without determining whether, when the wages were due, Golden Lines had "sufficient cause" for their non-payment; and in failing to consider evidence that the Bank failed to mitigate its losses by not enforcing guarantees securing the loan. ³ Even assuming that the issue was preserved by the seamen, through their contention in district court that, prior to foreclosing on the mortgage, the Bank should have been required to mitigate its losses by enforcing its other security interests, including Mazarakis' personal guarantee, the district court did not err by rejecting it. Neither the statutes nor the terms of the mortgage condition the Bank's right to foreclose on its pursuing other means of repayment. The Bank counters that allowing the seamen to recover penalty wages from the sale proceeds would violate the Due Process Clause of the Fifth Amendment and create conflicts between Supreme Court decisions and between the penalty wages statute and the Ship Mortgage Act, while not advancing Congress' intent to impose penalty wages liability only on vessel masters or owners.

A summary judgment is reviewed de novo, using the standard applied by the district court. E.g., Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir.), cert. denied, 513 U.S. 871 (1994). Such judgment is mandated when the summary judgment record, viewed in the light most favorable to the non-movant, reveals that "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law". FED. R. CIV. P. 56(c); Forsyth, 19 F.3d at 1533. Resolution of this issue of first impression requires an examination of the language, history, and purposes of the penalty wages statute, 46 U.S.C. 10313(g), and the Ship Mortgage Act, 46 U.S.C. 31301-31343, as well as the jurisprudence interpreting them.

A.

In truth, no authority really need be cited for the fact that seamen, the "wards of admiralty", historically have received favored treatment from the Congress and the admiralty courts. See Bainbridge v. Merchants' & Miners' Transp. Co., 287 U.S. 278, 282 (1932) ("Seamen have always been regarded as wards of the admiralty, and their rights, wrongs, and injuries a special subject of the admiralty jurisdiction. The policy of Congress, as evidenced by its legislation, has been to deal with them as a favored class." (citation omitted)); Hume v. Moore-McCormack Lines, 121 F.2d 336, 340-41 & n.13 (2d Cir.) (discussing historical background of judicial solicitude for seamen's rights, including...