Branch Banking & Trust Co. of Virginia v. M/Y Beowulf
| Decision Date | 13 February 2012 |
| Docket Number | CASE NO. 11-80692-CIV-HURLEY |
| Court | U.S. District Court — Southern District of Florida |
| Parties | BRANCH BANKING & TRUST COMPANY of VIRGINIA, Plaintiff, v. M/Y "BEOWULF," Official No. 1137719, etc., in rem, Defendant. |
BRANCH BANKING & TRUST COMPANY of VIRGINIA, Plaintiff,
v.
M/Y "BEOWULF," Official No. 1137719, etc., in rem, Defendant.
CASE NO. 11-80692-CIV-HURLEY
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA
Dated: February 13, 2012
This is an in rem admiralty action to foreclose the first preferred ship mortgage held by plaintiff Branch Banking & Trust of Virginia ("the bank") on the defendant vessel, the M/Y "Beowulf." Sunfish Marine Ventures, Ltd. ("Sunfish"or "claimant"), the current owner of the vessel and sole claimant in this action, claims interest in the vessel as a subsequent bona fide purchaser for value without notice.
The case is before the court upon the bank's motion for final summary judgment, including request for entry of an order directing sale of the vessel. In addition, the bank requests permission to credit bid part or all of its judgment in lieu of cash at the sale.
Opposing the motion, Sunfish contends, in main part, that summary judgment is precluded by disputed issues of fact concerning the purported mortgagor's title to the vessel and corresponding ability to convey a valid security interest to the bank in the first instance. Alternatively, Sunfish contends that the summary judgment is precluded by genuine issues of material fact on the issue of whether the bank's reckless lending practices - both at the time it made the original loan and when it later modified the loan term - should cause the bank's preferred ship mortgage, if any, to be
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equitably subordinated to the ownership interest asserted by Sunfish as a subsequent innocent purchaser for value.
In January, 2003, Sculley Boatbuilders ("Sculley") completed original construction of a 60' vessel, then known as the "Sculley 60," and assigned it Hull Identification No.("HIN") GIJ60001A303.2 Although the Coast Guard requires that manufacturers permanently affix a HIN number on vessels which they build,3 Sculley did not affix a HIN to the transom of this yacht.
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According to Sculley's then general manager, James Polatty, most purchasers of custom yachts do not like the appearance of a number on the hull, so Scully typically placed the number inside a drawer on the boat instead of affixing it to the hull.
Shortly after construction was complete, James C. Sculley ("Mr. Sculley"), the president of Sculley Boatbuilders, applied for a personal loan from the bank offering the Sculley 60 as collateral. In support of his application, Mr. Sculley provided a January 8, 2003 vessel survey prepared at his request by Harbor Marine Services which estimated the value of the boat to be $2,375,000.00.
The bank approved the loan, and on January 17, 2003, loaned $1,000,050.00 to Mr. Sculley, evidenced by a "Retail Note and Security Agreement"("the note") of the same date signed by Mr. Sculley in his individual capacity [DE# 64-2]. In the note, Mr. Sculley acknowledged that he has granted the bank a security interest in certain personal property described in a separate agreement (the Sculley 60) as security for the loan, and that he has executed a mortgage in favor of the bank for recording. Under the line where "James C. Sculley" signed as "debtor," a separate, additional signature block captioned with the following type is inserted: "The following owners of the vessel are signing this Note only for the purpose of granting a security interest therein ans (sic) are not borrowers." Under this text appears a signature line bearing Mr. Sculley's signature, underneath which is typed, "Grantor of Security Interest: Sculley Boatbuilders, Inc., James S. Sculley, Member." Notably, the separate "Retail Security Agreement," and "Hypothecation Agreement" signed on the same date as the note also refer to the owner of the collateral (and grantor of the security interest) as "Sculley Boatbuilders, Inc." [DE# 25-9, 25-10].4
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Mr. Sculley contemporaneously signed a "First Preferred Ship Mortgage" ("the mortgage") as "sole owner" of the "Sculley 60" purporting to grant the bank a mortgage on the vessel, described as a 2003 60' Sculley, HIN GIJ60001A303 [DE# 1-2]. The mortgage recites that it is made by "James C. Sculley," the "the sole owner of 100% of the interests in the vessel which is being mortgaged," for purposes of securing a promissory note made by James C. Sculley on that same date.
Also on January 17, 2003, Mr. Sculley filed a Builder's Certification and First Transfer of Title with the United States Coast Guard's National Vessel Documentation Center ("NVDC") [DE# 29-9] identifying "James C. Sculley" as the "name ... of party ... for whom [the Sculley 60, HIN GIJ60001A303, was] built." This certification recites that it is signed by James C. Sculley, "acting in [his] capacity as President of Sculley Boat Builders."
On February 3, 2003, Mr. Sculley applied to the United States Coast Guard ("Coast Guard") for initial issue of a certificate of documentation for the Sculley 60, HIN GIJ60001A303, identifying himself as the sole owner of the vessel [DE# 25-5]. On March 27, 2003, the Coast Guard granted the application and issued a Certificate of Documentation identifying James C. Sculley as managing owner of this vessel. With this certification, the Coast Guard assigned Official No. 1137719 to the Sculley 60 [DE# 25-8]. On February 3, 2003, the bank recorded the above referenced mortgage on the Sculley 60 with the Coast Guard's NVDC, identifying the encumbered vessel as the Sculley 60, HIN GIJ60001A303.
A few months later, in June 2003, Sculley sold the Sculley 60 to Juanillo Corporation ("Juanillo"), a Puerto Rican corporation. It contemporaneously submitted a builder's certificate and
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application for certificate of documentation dated June 12, 2003 to the United States Coast Guard on behalf of Juanillo. This time, the builder's certification identifies "Sculley Boatbuilders, Inc." as the "party for whom [the Sculley 60 was] built," and recites that it is signed by James Polatty, "acting in [his] capacity as Gen. Mgr of Sculley Boatbuilders, Inc." This document identifies the vessel as Official No. 1137719, as previously assigned by the Coast Guard, HIN GIJ60001A303, as originally assigned by Sculley Boatbuilders.
On September 23, 2003, James Polatty apparently authored a letter to the Coast Guard advising that Scully Boatbuilders had "inadvertently duplicated issuance of a hull number" when it issued the second builder's certificate to Juanillo on June 12, 2003, and that an incorrect HIN was therefore included in its corresponding June 23, 2003 application to the Coast Guard for a certificate of documentation on behalf of Juanillo. Mr. Polatty advised that the HIN should have been listed as GIJ60003D303 [instead of GIJ60001A303], and asked the Coast Guard to correct its documentation accordingly, with issuance of a new official number for the Sculley 60.5
The Coast Guard complied and issued a new official number (Official No. 1148420) to correspond with Sculley's newly created HIN for the Sculley 60. Sculley then revised Juanillo's application for certificate of documentation, by scratching out 'Official No. 1137719,' and replacing it with 'Official No. 1148420' and changing the HIN to read: "HIN GIJ60001D303," (apparently intended as HIN GIJ60003D303).
The Coast Guard created a new abstract of title to correspond with the "corrected" HIN and
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official number, listing Sculley Boatbuilders, Inc. as grantor and Juanillo Corporation as grantee [DE# 53-3]. The bank's mortgage, recorded under the originally assigned HIN and official number, was not transferred to the new abstract of title. As a result, from this point forward, there were two chains of title on the Sculley 60, with the latter failing to reflect the bank's outstanding earlier recorded preferred ship mortgage. 6
On January 11, 2005, Juanillo Corporation transferred title of the Sculley 60, HIN GIJ60003D303, Official No. 1148420, back to Sculley Boat Builders, Inc., apparently as part of a lawsuit settlement. A year later, on January 30, 2006, Sculley Boatbuilders, Inc. sold the vessel to Forest Stream Sportfishing, LLC ("Forest Stream") [DE# 53-3].
On April 15, 2008, Forest Stream signed a bill of sale conveying the vessel to Sunfish in exchange for $1.25 million dollars (cash). The purchase and sale agreement between Sunfish and Forest Stream identifies the vessel as HIN GIJ60003D303, Official No. 1148420.
Shortly before the conveyance to Sunfish, in January, 2008, Mr. Sculley missed the final balloon payment ($863,999.00) due under the note, allegedly due to sickness and/or oversight. Despite that lapse, which followed a history of eight late payments, the bank agreed to modify his loan and extend its term for an additional five years. Before granting the modification, the bank did not conduct a new appraisal or otherwise inspect the vessel to ensure that it still had sufficient value to serve as collateral for the loan, or to ensure that the vessel even existed; it did not require proof
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of insurance; it did not inspect the vessel to confirm the identity of the HIN; it did not perform a credit check or perform other due diligence on Mr. Sculley's then credit-worthiness, despite information in his modification application revealing that his assets had plummeted from over $11 million dollars...
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