Cary Marine, Inc. v. Motorvessel Papillon, 88-3516

• Decision Date: 18 April 1989
• Docket Number: No. 88-3516,88-3516
• Citation: 872 F.2d 751
• Parties: CARY MARINE, INC., Plaintiff-Appellant, v. The MOTORVESSEL PAPILLON, et al., Great Lakes Cary Corporation, Donald B. McCann, Defendants and Third Party Plaintiffs-Appellees, Randy Postma, Third Party Defendant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 751

872 F.2d 751

1990 A.M.C. 828

CARY MARINE, INC., Plaintiff-Appellant, v. The MOTORVESSEL PAPILLON, et al., Great Lakes Cary Corporation, Donald B. McCann, Defendants and Third Party Plaintiffs-Appellees Randy Postma, Third Party Defendant.

No. 88-3516.

United States Court of Appeals Sixth Circuit.

Argued Feb. 23, 1989.

Decided April 18, 1989.

William D. Carle, Ray, Robinson, Hanninen & Carle, Cleveland, Ohio, LeRoy Kramer (argued), Racine, Wash., for Cary Marine, Inc.

Donald B. McCann (argued), Cleveland, Ohio, pro se and for the Motorvessel Papillon, et al., Great Lakes Cary Corp.

Before KEITH, JONES and GUY, Circuit Judges.

RALPH B. GUY, Jr., Circuit Judge.

Plaintiff, Cary Marine, Inc. (Cary), brings this interlocutory appeal to challenge the district court's refusal to issue a warrant to arrest the motor vessel "Papillon" pursuant to Rules C and D of the Federal Rules of Civil Procedure Supplemental Rules For Certain Admiralty and Maritime Claims, 701 F.Supp. 604. Finding admiralty jurisdiction lacking, we affirm the district court's ruling.

This case involves three agreements among three parties concerning the Papillon, a vessel currently owned by American Marine Institutes, Inc. (AMI). In the first agreement (Agreement # 1), AMI granted a charter and option to purchase the Papillon to Cary. The agreement was signed by Cary's president, the now third-party defendant, Randy Postma. Under the agreement, Cary leased the Papillon on a "bare-boat charter basis" ¹ from January 20, 1986, until January 20, 1988. Cary "prepaid" the charter hire by assuming AMI's existing obligation on a note to Key Financial (Key) that was secured by the Papillon. Essentially, Cary agreed to pay Key on a monthly basis and to pay AMI a $15,000 balloon payment if it exercised the purchase option. The purchase price was agreed to be the vessel's fair market value. ² According to Agreement # 1, the charter fee for the twenty-four months is $110,000 and requires a $200,000 security deposit. The agreement requires AMI's consent for any assignment or subcharter of the Papillon. The agreement also provides that Cary can exercise the purchase option only during the last thirty-one days of the agreement. Upon exercise of the option, the charter hire payments and the balance of the security deposit are to be credited to the purchase price and Cary must pay AMI the $15,000 balloon payment to acquire title to the vessel. The agreement authorizes AMI to repossess the vessel upon any default by Cary. During the summer of 1986, Cary subchartered the Papillon to Great Lakes Cary Corporation (GLCC) ³ and resumed custody of the vessel that fall.

The second agreement (Agreement # 2), styled "Purchase Agreement," was executed by Randy Postma on behalf of Cary and Donald B. McCann on behalf of GLCC. Under that June 1, 1987, agreement, Cary agreed to deliver the Papillon in good and proper running condition. GLCC agreed to pay $343,012 for the vessel, in part, by assuming Cary's obligation to Key in the amount of $243,012. A balance of $101,800, which included some miscellaneous extra costs, was to be paid on delivery of the vessel to GLCC. Fifteen thousand dollars of the $101,800 was deferred as the amount GLCC would have to pay AMI to obtain title during the specified period when AMI authorized the purchase option to be exercised. The Agreement also specified in pertinent part:

Purchaser is assuming the charter and purchase option presently held by Associated Marine Learning [sic] Institute currently in the name of Cary Marine. This is to be accomplished within 60 days of signing these agreements. Purchaser will assume all obligations of the charter and purchase option including any charges for charter fees, taxes, or interest.

Purchaser will also assume all obligations of the Key Financial mortgage.

The Papillon was tendered to GLCC on June 1, 1987, and GLCC paid Cary $86,800 (the above-mentioned $101,800 minus the $15,000 balloon payment). GLCC began making monthly payments to Key, apparently without formally assuming the obligation. GLCC ceased making these payments after three installments because of alleged defects in the vessel.

The third and final agreement (Agreement # 3) executed on July 19, 1987, by AMI, Cary, and GLCC is styled "Yacht Charter and Option to Purchase Assignment." This Agreement incorporates all of the terms and conditions of Agreement # 1 and renders those terms and conditions binding on GLCC. Agreement # 3 and Agreement # 1 explicitly note that no payment is due and owing on the charter hire, reflecting the fact that Cary had prepaid the required fees by assuming AMI's mortgage held by Key. Agreement # 3 further provides for AMI's consent to the assignment of the charter agreement. GLCC agreed to undertake all of Cary's rights, duties, liabilities, and obligations under the charter such that GLCC stands in the place of Cary vis-a-vis Agreement # 1. Agreement # 3 also provides that if GLCC defaults on its assumed obligations under Agreement # 1, Agreement # 3 becomes null and void and Cary must resume its obligations under Agreement # 1. Finally, Agreement # 3 reflects AMI's consent to Cary's assignment of Cary's option to purchase under Agreement # 1 under the same terms and conditions provided in Agreement # 1. Agreement # 3 then provides that upon GLCC's exercise of the option, the $200,000 security deposit is applicable to the purchase price and the $15,000 balloon payment will be due. GLCC's performance under Agreement # 3 is personally guaranteed by McCann.

This cause of action accrued when GLCC failed to assume Cary's underlying indebtedness to Key and ceased making monthly payments on the note held by Key. GLCC contends that it stopped making payments because the vessel is in bad condition and because Cary refuses to cooperate with it. Cary has resumed making payments to Key while GLCC retains possession of the Papillon.

In November 1987, Cary filed a diversity action seeking, among other relief, ⁴ the arrest of the Papillon pursuant to a maritime lien under Rule C or to a possessory action under Rule D. The district court declined to issue an arrest warrant after determining that (1) because the alleged breach is of the purchase agreement (Agreement # 2) and not the charter agreement (Agreement # 1), Rule C, which authorizes an in rem action to enforce a maritime lien, is not applicable; (2) because Cary lacked legal title or a legal claim to possession of the Papillon, Rule D could not be invoked; and (3) arrest of the Papillon was unnecessary given McCann's assurances, as an attorney and officer of the court, that he would not "spirit the boat away, sell it, or harm it in any way." The propriety of the district court's ruling is the sole issue before us.

I.

Cary seeks to arrest or obtain possession of the Papillon pursuant to Rule C or Rule D. Rule C provides in pertinent part:

Actions in Rem: Special Provisions

(1) When Available. An action in rem may be brought:

(a) To enforce any maritime lien;

(b) Whenever a statute of the United States provides for a maritime action in rem or a proceeding analogous thereto.

Rule D provides in pertinent part:

Possessory, Petitory, and Partition Actions

In all actions for possession, partition, and to try title maintainable according to the course of the admiralty practice with respect to a vessel, in all actions so maintainable with respect to the possession of cargo or other maritime property, and in all actions by one or more part owners against the others to obtain security for the return of the vessel from any voyage undertaken without their consent, or by one or more part owners against the others to obtain possession of the vessel for any voyage on giving security for its safe return, the process shall be by a warrant of arrest of the vessel, cargo, or other property, and by notice in the manner provided by Rule B(2) to the adverse party or parties.

If a case is subject to admiralty jurisdiction, resort to these remedies is available. In the absence of admiralty jurisdiction, however, these remedies are not available. ⁵ Generally, admiralty jurisdiction extends only to wholly maritime contracts. When determining whether a contract action is subject to admiralty jurisdiction, the subject matter of the contract is controlling. North Pac. S.S. Co. v. Hall Bros. Marine Ry. & Shipbuilding Co., 249 U.S. 119, 125, 39 S.Ct. 221, 222-23, 63 L.Ed. 510 (1919); Goodman v. 1973 26 Foot Trojan Vessel, 859 F.2d 71, 72 (8th Cir.1988). In this case the parties concur with the widely held principle that federal admiralty jurisdiction, and thus, in rem remedies, do not extend to contracts, which, by their terms or effect, are solely for the sale of a vessel. That is, the breach of a contract for the sale of a vessel is not a maritime contract and does not give rise to a maritime lien. S.C. Loveland, Inc. v. East West Towing, Inc., 608 F.2d 160, 164 (5th Cir.1979), cert. denied sub nom. St. Paul Mercury Ins. Co. v. East West Towing, Inc., 446 U.S. 918, 100 S.Ct. 1852, 64 L.Ed.2d 272 (1980). Admiralty jurisdiction is, however, properly exercised over contracts to charter a vessel. Natasha, Inc. v. Evita Marine Charters, Inc., 763 F.2d 468, 470 (1st Cir.1985). The parties here differ with respect to how their agreements should be characterized. GLCC contends that its agreements with Cary are, in actuality, purchase agreements, precluding any in rem remedies while Cary maintains that their agreements are mixed, involving both an option to purchase and a present obligation to pay consideration for the interim use and possession (i.e., charter) of the Papillon. As such, admiralty jurisdiction is not necessarily precluded. For example, a court may extend admiralty jurisdiction to the charter portion of the charter-sale contract when the charter portion of the contract is readily separable from the rest of the contract. Natasha, 763 F.2d at 470. In Natasha,...