Chembulk Trading LLC v. Chemex Ltd.

• Decision Date: 08 December 2004
• Docket Number: No. 03-30598.,03-30598.
• Citation: 393 F.3d 550
• Parties: CHEMBULK TRADING LLC, Plaintiff-Appellee, v. CHEMEX LTD., Defendant. Novorossiysk Shipping Company, Plaintiff-Appellant, v. Chemex Ltd., Etc., Defendant.
• Court: U.S. Court of Appeals — Fifth Circuit

393 F.3d 550

CHEMBULK TRADING LLC, Plaintiff-Appellee, v. CHEMEX LTD., Defendant.

Novorossiysk Shipping Company, Plaintiff-Appellant, v. Chemex Ltd., Etc., Defendant.

No. 03-30598.

United States Court of Appeals, Fifth Circuit.

December 8, 2004.

E. Carroll Rogers (argued), Peter Brooks Sloss (argued), Murphy, Rogers & Sloss, New Orleans, LA, for Plaintiff-Appellant.

Peter Alexander McLauchlan (argued), Adams & Reese, Houston, TX, Philip A. Franco, Robert N. Markle, Adams & Reese, New Orleans, LA, for Plaintiff-Appellee.

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

Before KING, Chief Judge, and SMITH and EMILIO M. GARZA, Circuit Judges.

KING, Chief Judge:

The district court granted Defendant-Appellee Chembulk's motion for summary judgment, and Plaintiff-Appellant Novorossiysk appeals. For the following reasons, we REVERSE.

I. BACKGROUND

On May 30, 2001, Novorossiysk Shipping Co. (Novorossiysk) entered into a time-charter party¹ with Chemex Ltd. (Chemex) to charter its ship, the M/V TUAPSE, to Chemex. The time-charter party granted Novorossiysk a lien on "all cargoes and all freights for any amounts due under this charter." On August 29, 2002, Chemex entered into a voyage-charter party² with Westway Trading Co. (Westway) to subcharter the M/V TUAPSE to Westway. In return, Westway was to pay Chemex freight, ten percent of which was payable at the end of the voyage. In a separate transaction on August 29, Chembulk Trading, Inc. (Chembulk) voyage-chartered the M/V CHEMBULK CLIPPER to Chemex. Chemex failed to pay both the full amount of hire and demurrage ($500,000) it owed Novorossiysk and the freight ($147,000.01) and demurrage ($36,449.65) it owed Chembulk.

On October 1, 2002, Novorossiysk faxed a notice to Westway stating that it was exercising its right to a lien on "all freight and sub-freights" pursuant to the Novorossiysk-Chemex time-charter party. Novorossiysk requested that Westway remit the remaining ten-percent balance of freight (the "Westway Freight"), which Westway had not yet paid to Chemex, directly to Novorossiysk. On October 2, 2002, Chembulk sought a Writ of Maritime Attachment and Garnishment against the Westway Freight pursuant to Rule B of the Supplemental Rules for Certain Admiralty and Maritime Claims. On October 4, 2002, Novorossiysk also sought a Writ of Maritime Attachment and Garnishment against the Westway Freight.

Both the Chembulk and Novorossiysk attachment suits were consolidated. Westway then filed a complaint for interpleader, whereupon the district court consolidated all three suits. The district court granted Westway leave to deposit $31,533.55 (the full amount of the Westway Freight) into the court's registry, discharged it from the lawsuit, and relieved it of all claims regarding that amount.

On January 21, 2003, Chembulk moved to stay the consolidated proceedings pending arbitration of its claim against Chemex in accordance with an arbitration clause in the Chembulk-Chemex voyage charter. Novorossiysk opposed Chembulk's motion and cross-motioned for summary judgment, alleging that its lien-claimant status gave it priority over Chembulk's Rule B attachment. In response, Chembulk also moved for summary judgment, arguing that Novorossiysk did not have a maritime lien but was merely a Rule B claimant whose claim was preempted by Chembulk's earlier Rule B attachment. Further, Chembulk argued that even if Novorossiysk did have a lien, it could not assert priority in an in personam Rule B attachment proceeding since maritime liens can only be asserted in in rem proceedings. Subsequently, the district court granted Novorossiysk leave to amend its complaint to add an in rem claim to the Westway Freight under Rule C of the Supplemental Rules for Certain Admiralty and Maritime Claims.

On February 18, 2003, Chemex (and its managing agent, Brookwater) relinquished all rights to the Westway Freight. Based on that, the district court dismissed as moot Chembulk's motion to stay pending arbitration. Therefore, the sole issue before the court was whether Novorossiysk or Chembulk was entitled to the Westway Freight — i.e., whether Novorossiysk had a maritime lien on the Westway Freight giving it priority over Chembulk's Rule B attachment. On March 31, 2003, the district court initially denied both parties' motions for summary judgment so that Chembulk could respond to Novorossiysk's in rem claim. However, the parties asked the court to decide the motion on the existing record.

On May 27, 2003, the district court granted Chembulk's motion for summary judgment. The district court found as a matter of law that the Westway Freight was properly characterized as "subfreights" rather than "freights" because it represented the amount that "Westway (a third party payor/subcharterer of the M/V TUAPSE) agreed to pay Chemex for the shipment of cargo." Chembulk Trading L.L.C. v. Chemex Ltd., 2003 AMC 1441, 1445, 2003 WL 22016925 (E.D.La.2003). Consequently, the district court concluded that the Novorossiysk-Chemex time-charter party did not give Novorossiysk a maritime lien over the Westway Freight because it provided a lien on "all freights" and not "subfreights." The district court thus treated the case as that of two competing Rule B attachments and, accordingly, held that Chembulk had priority since it was the first to attach the Westway Freight.

On June 11, 2003, the district court stayed the disbursement of the Westway Freight pending appeal. The issue before us on appeal is whether the language in the Novorossiysk-Chemex time charter provided Novorossiysk with a valid maritime lien over the Westway Freight defeating Chembulk's Rule B attachment.

II. DISCUSSION

A. Introduction

The district court's holding would certainly encourage precision in drafting charter parties. Indeed, had the charter at hand specifically used the term "subfreights," this whole litigation could have been avoided. However, while the district court's reasoning seems logical, in the absence of any meaningful evidence that the terms "freights" and "subfreights" are legally, or by custom and usage, mutually exclusive, we are bound by principles of contract interpretation under federal maritime law. We therefore hold that the district court's interpretation of the "all freights" language in the Novorossiysk-Chemex time charter was erroneous as a matter of law.

B. Standard of Review

We review the district court's grant of summary judgment de novo, applying the same standards used by the district court. Vulcan Materials Co. v. City of Tehuacana, 369 F.3d 882, 886 (5th Cir.2004). Summary judgment is proper when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Vulcan Materials Co., 369 F.3d at 886.

We also review the district court's legal conclusions de novo. Triad Elec. & Controls, Inc. v. Power Sys. Eng'g, Inc., 117 F.3d 180, 186 (5th Cir.1997). The interpretation of an unambiguous contract³ presents a question of law, and thus, it is subject to our de novo review. Id. at 186; Exxon Corp. v. Crosby-Mississippi Res., Ltd., 40 F.3d 1474, 1481 (5th Cir.1995) (per curiam). Therefore, we review the district court's interpretation of the "all freights" language in the Novorossiysk-Chemex time charter de novo.

C. Analysis

Under general principles of maritime law, claimants with maritime liens are entitled to preference and priority over attaching creditors. Triton Container Int'l, Ltd. v. Baltic Shipping Co., 1995 AMC 2963, 2965-67, 1995 WL 608485 (E.D.La.1995). As between two Rule B attaching creditors, however, the first to attach has priority. Id. at 2969. Therefore, as the district court noted, if Novorossiysk has a valid maritime lien over the Westway Freight, its claim takes priority over Chembulk's Rule B attachment. If Novorossiysk does not have a lien, then Chembulk's claim takes priority because Chembulk was the first attaching creditor.

Shipowners, as a general rule, have a lien upon the cargo owned by the charterer for compensation not yet paid. See Bird of Paradise, 72 U.S. (5 Wall.) 545, 554, 18 L.Ed. 662 (1866); Arochem Corp. v. Wilomi, Inc., 962 F.2d 496, 499 (5th Cir.1992). Accordingly, Novorossiysk would traditionally have a lien on any cargo owned by Chemex for any hire or demurrage Chemex owed to Novorossiysk. In contrast, when the cargo is not owned by the charterer, a shipowner generally does not have a lien on the cargo. See Finora Co., Inc. v. Amitie Shipping, Ltd., 54 F.3d 209, 213 (4th Cir.1995). The charter between the shipowner and the charterer, however, may provide for a lien on any freights owed by the cargo owner to the charterer. Id. Indeed, "[t]wo general conditions are necessary for a shipowner to maintain a lien against such a third person. First, the shipowner must have a contractual right to assert the lien; second, the shipowner must properly perfect the lien." Biehl & Co., Inc. v. Apollonia Holding, Inc., 693 F.Supp. 457, 465 (E.D.La.1988); accord Toro Shipping Corp. v. Bacon-McMillan Veneer Mfg. Co., 364 F.2d 928, 930 (5th Cir.1966). Novorossiysk states, and Chembulk does not dispute, that Novorossiysk perfected whatever lien rights it had by faxing notice of its lien to Westway on October 1, 2002.⁴ We therefore turn to whether Novorossiysk had a contractual right to assert a lien against the Westway Freight.

A shipowner's contractual right to assert a lien against freight owed by a third party arises by an express provision in the charter party granting the shipowner a lien on such freight. Marine Traders, Inc. v. Seasons Navigation Corp., 422 F.2d 804, 806 (2d Cir.1970). The lien provision, as it appears in most form charters, is usually phrased as: "the owners [meaning the owners of the vessel] shall have a lien upon all cargoes and all subfreight for charter money due under this charter." Am. Steel Barge Co. v. Chesapeake & O. Coal Agency Co., 115 F....