Branch Banking & Trust Co. of Va. v. Beowulf

Decision Date07 June 2012
Docket NumberCase No. 11–80692–CIV.
PartiesBRANCH BANKING & TRUST CO. OF VIRGINIA, Plaintiff, v. M/Y “BEOWULF,” Official No. 1137719, etc., in rem, Defendant.
CourtU.S. District Court — Southern District of Florida

OPINION TEXT STARTS HERE

Theodore Livingston Shinkle, Gray Robinson, Melbourne, FL, for Plaintiff.

Adam B. Cooke, McIntosh Schwartz, P.L., Fort Lauderdale, FL, for Defendant.

MEMORANDUM OPINION & FINAL JUDGMENT

DANIEL T.K. HURLEY, District Judge.

This is an in rem admiralty action to foreclose a first preferred ship mortgage claimed by plaintiff Branch Banking & Trust Co. of Virginia (“the Bank”) on the defendant vessel, the M/Y Beowulf (“the Beowulf” or “the vessel”). The mortgage was given as security for a $1 million personal loan funded by the Bank in favor of James C. Sculley (now deceased), past President of Sculley Boatbuilders, Inc., the North Carolina corporation which built the vessel.

Shortly after Mr. Sculley executed the mortgage, Sculley Boatbuilders assigned a second identification number to the vessel, secured a second, different official number from the United States Coast Guard, documented the vessel under a different name and sold it to a third-party purchaser for value, all without notice to the Bank. This fraud gives rise to the present controversy, in which Sunfish Marine Ventures, Ltd. (“Sunfish”) claims a competing ownership interest in the Beowulf as a subsequent innocent purchaser for value.

Sunfish contends that the Bank's mortgage is not a valid preferred ship mortgage under the Ship Mortgage Act, 46 U.S.C. § 31301 et seq., and that even if it is, grossly negligent and reckless lending practices of the Bank permeating the Sculley loan should cause this court to rank the Bank's mortgage below the interest claimed by Sunfish under the doctrine of equitable subordination.

A bench trial was conducted on these claims on April 16, 2012 through April 18, 2012. After consideration of the evidence, arguments of counsel, trial memoranda and the applicable law, the court now makes the following findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a).

I. Findings of Fact

1. Sculley Boatbuilders, Inc. (“Sculley Boatbuilders”) is a North Carolina corporation with headquarters in Wanchese, North Carolina. The company specializes in the production of custom sportfishing yachts.

2. On December 1, 2002, at a joint meeting of its stockholders and directors, James C. Sculley was elected President of Sculley Boatbuilders and Bonnie L. Hickie was elected Secretary and Treasurer. At that time, the corporation also authorized Ms. Hickie to pursue a $1,000,000.00 loan through Coastal Financial Corporation, a mortgage brokerage company, using “Hull # 3” as collateral. 1

3. “Hull # 3” referred to a 60–foot sport-fishing vessel, the “Sculley 60',” which was then under construction.

4. Coastal Financial Corporation brought Mr. Sculley, as a new customer, to the Bank at its Virginia Beach–Pembroke branch location. In late December, 2002, Mr. Sculley applied for a $1,000,000.00 personal loan from the Bank to be secured by a vessel as collateral.

5. At the outset, Mr. Sculley completed a “Retail Loan Application” on a form supplied by the Bank. This form described the proposed collateral as a 2003 Sculley Boatbuilders 60 Ft. 2 Although this form is dated December 22, 2002, Mr. Sculley did not sign the application until January 17, 2003, the day on which the loan closed.

6. In further support of his application, Mr. Sculley submitted a “personal financial statement to the Bank.” 3 Like the loan application, this form had a typed date of December 20, 2002, but it also included a handwritten date of January 17, 2003 next to Mr. Sculley's signature.

7. After collecting this preliminary financial data from Mr. Sculley, the Bank's loan processor, Kathy Harrell, generated a “BB & T Retail Loan Presentation” (“Loan Presentation”).4 This report was signed by Ms. Harrell, who approved the loan on January 16, 2003, and by R.B. Edwards, the bank's Direct Retail Lending Risk Manager, who co-approved the loan at time of closing.5

8. By early January, 2003, Sculley Boatbuilders had completed construction of the Sculley 60' and assigned it Hull Identification Number (“HIN”) GIJ60001A303.

9. Around the same time, Mr. Sculley commissioned Harbour Marine Services, Inc. (“Harbour Marine”) to perform a survey on the Sculley 60'. On January 8, 2003, Edward Harbour of Harbour Marine provided the Bank with a survey of the “2003 Sculley Custom 60' Sportfisherman” (the “Sculley 60'”), HIN GIJ60001A303, reporting the value of the vessel at $2,375,000.00.

Both parties agree that the vessel surveyed by Mr. Harbour is the vessel now known as the M/Y Beowulf.

10. Although Coast Guard regulations require vessel manufacturers to permanentlyaffix a Hull Identification Number (“HIN”) on all vessels which they build,6 Sculley Boatbuilders did not affix a HIN to the Sculley 60.' The Harbour survey placed the Bank on notice of this lapse, but the Bank nonetheless funded the Sculley loan without requiring Mr. Sculley to comply with the federal regulations.

11. In addition to the failure to affix the HIN, the Harbour survey noted different engine numbers from those referenced in the Bank's Loan Presentation. It also referenced the owner's intent to place the vessel in the upcoming Miami Boat Show. Further, the survey noted the builder's intent to install a custom fishing tower on the boat at an estimated cost of $75,000.00, and to add an electronic package at the option of the “buyer.”

12. Relying on the testimony of Dean McBrayer, the Bank's designated Rule 30(b)(6) corporate representative, the court finds that the above reference to the Miami Boat Show and contemplated addition of electronics at the buyer's option establish that Mr. Sculley was effectively seeking a “floor plan loan” (a loan to finance the purchase or construction of inventory intended for sale to other people) in January of 2003. In other words, Mr. Sculley appeared to be pursuing a corporate objective of obtaining financing in anticipation of an eventual sale of the vessel.

13. Before the Bank would fund the loan, it required a corporate resolution from Sculley Boatbuilders authorizing Mr. Sculley to pledge corporate property, and specifically the Sculley 60', as collateral for Mr. Sculley's personal indebtedness and obligations. An undated document found in the Bank's loan file, captioned “Certificate of Corporate Resolution and Authorization to Borrow” [Bank Form No. 1477VA], purports to memorialize this event. This form was signed by Mr. Sculley, claiming to act in capacity as both President and Secretary of Sculley Boatbuilders.7 By affixing his signature to this document, Mr. Sculley clearly acknowledged the Sculley 60' as corporate property.

14. The Bank closed the Sculley loan on January 17, 2003. The loan documentation executed on that date consisted of: (1) a Retail Note and Security Agreement (“the promissory note”); (2) a First Preferred Ship Mortgage (“the mortgage”); (3) a Retail Security Agreement (“the securityagreement”); (4) a Hypothecation Agreement (“the hypothecation agreement”), and (5) an “Agreement to Provide Accidental Physical Damage Insurance” (“the insurance agreement”).

As detailed below, these documents contained glaring inconsistencies regarding ownership of the collateral used to secure the Sculley loan. The note (in one place) and mortgage referred to James C. Sculley, individually, as owner of the collateral, while the note (in another place), the security agreement, and the hypothecation agreement all listed Scully Boatbuilders, Inc. as the owner of the vessel.

(a). The promissory note

In one place, the note executed by Mr. Sculley at closing indicated that he was the owner of the Sculley 60', the collateral used to secure the note. Specifically, on page 1, the note recited that Mr. Sculley was giving the Bank a security interest in certain personal property, as described in a separate agreement between the parties, to secure the note.

On page 2, however, under Mr. Sculley's individual signature, there is a reference to Sculley Boatbuilders as owner of the collateral. This language was added:

The following owners of the vessel are signing this Note only for the purpose of granting a security interest there ans (sic) are not borrowers.

Grantor of Security Interest: Sculley Boatbuilders Inc.

Mr. Sculley separately signed the addendum, this time designating himself as “Member” on behalf of Sculley Boatbuilders, Inc.8

(b). The mortgage

The mortgage was made by James C. Sculley, designated in this instrument as “Sole Owner(s) of the vessel” being mortgaged to secure a $1,000,050.00 promissory note made by James C. Sculley on January 17, 2003. The specific vessel “mortgage[d] and convey[ed] by this instrument was described as the “Sculley 60',” a “2003 60' Sculley 60,” HIN GIJ60001A303. On page three, the mortgage was signed solely by James C. Sculley,” as designated “Owner.”

Underneath Mr. Sculley's signature on the mortgage appears a partially complete notary signature block, with the handwritten name of Mark Delaney shown as the notary public before whom James C. Sculley allegedly appeared and took an oath.9 Although the notary block includes a handwritten date of January 17, 2003 along with what purports to be the signature of Mr. Delaney, the space for the “notary seal” is blank, and the notary acknowledgment on the form does not indicate whether the notary knew Sculley, or the method of identification he used to verify the identity of the signatory.10

(c). The security agreement

The security agreement identified “Sculley Boatbuilders Inc. as “Owner(s) of the “2003 Sculley 60' Sport Fisherman Vessel, HIN GLJ60001A303” serving as collateral for Mr. Sculley's loan. This instrument indicated that Sculley Boatbuilders, Inc., as “owner,” granted the Bank a security interest in the Sculley 60' to secure obligationsassumed by ...

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  • Don't Let Your Preferred Mortgage Get Equitably Subordinated
    • United States
    • Mondaq United States
    • 29 Junio 2022
    ...article. Footnotes 1 In re Mobile Steel Co., 563 F.2d 692, 700 (5th Cir. 1977). 2 Branch Banking & Trust Co of Virginia v. M/Y BEOWULF, 883 F.Supp.2d 1199 (S.D. Fl. 2012). 3 Id. at 1203-1212. 4 Id.. at 1204. 5 Id. at 1218-1219. 6 Id. at 1219. 7 805 F.2d 561 (5th Cir. 1987). 8 Id.. at 563. 9......

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