Effjohn Intern. Cruise Holdings, Inc. v. A&L Sales
| Decision Date | 19 September 2003 |
| Docket Number | No. 02-30335.,No. 02-30414.,No. 02-30250.,No. 02-30360.,02-30250.,02-30335.,02-30360.,02-30414. |
| Citation | 346 F.3d 552 |
| Parties | EFFJOHN INTERNATIONAL CRUISE HOLDINGS, INC.; Eff-Shipping Ltd., Plaintiffs-Appellants, v. A&L SALES, INC.; Reliable Disposal Co., Inc.; Freret Marine Supply; Amwest Surety Insurance Co.; Swiss Reinsurance America Corp.; Cooper/T Smith Stevedoring, Inc.; Crescent Towing, Inc.; Marine Medical Unit, Inc.; George Ott Transportation, Inc.; Castrol North America, Inc.; Advance Marine, Inc.; Scheuring Security, Inc., Intervenor Plaintiffs-Appellees, v. ENCHANTED ISLE MV, etc.; et al., Defendants. Effjohn International Cruise Holdings, Inc.; et al., Plaintiffs, A&L Sales, Inc.; Reliable Disposal Co., Inc.; Freret Marine Supply; Amwest Surety Insurance Co.; Swiss Reinsurance America Corp.; Cooper/T Smith Stevedoring, Inc.; Crescent Towing, Inc.; Marine Medical Unit, Inc.; George Ott Transportation, Inc.; Castrol North America, Inc.; Advance Marine, Inc.; Scheuring Security, Inc., Intervenor Plaintiffs-Appellees, v. ENCHANTED ISLE MV, etc.; et al., Defendants, Cusimano Produce Co., Movant-Appellant. Freret Marine Supply, a division of Freret Hardware, Inc., Plaintiff-Appellee, Noel Nolasco; Eduardo Sedo; Sergiy Bilogolovy; Oleksandr Zhukov; Yuriy Palamarchuk; et al., Intervenor Plaintiffs-Appellees, v. ENCHANTED CAPRI MV, etc., Defendant, Amwest Surety Insurance Co.; Swiss Reinsurance America Corp., Intervenor Plaintiffs-Appellants. Effjohn International Cruise Holdings, Inc.; et al., Plaintiffs, Effjohn International Cruise Holdings, Inc., Plaintiff-Appellee, A&L Sales, Inc.; Reliable Disposal Co., Inc.; Freret Marine Supply, Intervenor Plaintiffs-Appellees, v. Amwest Surety Insurance Co.; Swiss Reinsurance America Corp.; Intervenor Plaintiffs-Appellants, v. ENCHANTED ISLE MV, etc.; et al., Defendants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
David Boies Sharpe (argued), Nathan P. Horner, Stewart F. Peck, Lugenbuhl, Wheaton, Peck, Rankin & Hubbard, New Orleans, LA, Bruce G. Paulsen (argued), Seward & Kissell, New York City, for Effjohn Intern. Cruise Holdings Inc. and Eff-Shipping Ltd.
Andrew S. de Klerk (argued), Pamela Lynn Schultz, Frilot, Partridge, Kohnke & Clements, New Orleans, LA, for A&L Sales, Inc., Reliable Disposal Co., Inc., Freret Marine Supply, Cooper/T Smith Stevedoring Inc., Crescent Towing Inc., Marine Medical Unit Inc., George Ott Transp. Inc., Castrol North America Inc., Advance Marine Inc. and Scheuring Sec. Inc.
Joseph P. Tynan (argued), Montgomery, Barnett, Brown, Read, Hammond & Mintz, New Orleans, LA, for Amwest Sur. Ins. Co. and Swiss Reinsurance America Corp.
J. Kendall Rathburn (argued), Mollere, Flanagan & Landry, Metairie, LA, for Cusimano Produce Co.
Richard J. Dodson, Dodson & Hooks, Baton Rouge, LA, for Nolasco, Sedo, Bilogolovy, Zhukov, Palamarchuk and others.
Appeals from the United States District Court for the Eastern District of Louisiana.
Before SMITH and BARKSDALE, Circuit Judges, and DUPLANTIER, District Judge.*
These consolidated interlocutory appeals are from admiralty proceedings that arise out of the bankruptcy of New Commodore Cruise Lines and its vessel-owning affiliates and concern maritime lien claims by creditors of two Commodore cruise ships. Primarily at issue are: (1) whether denying intervention by two maritime lien claimants for one of those two vessels constituted an abuse of discretion; and (2) whether the surety for a passenger vessel surety bond has a maritime lien on both vessels. AFFIRMED.
In December 2000, Commodore and its vessel-owning affiliates filed for Chapter 11 bankruptcy in the Southern District of Florida. Two of Commodore's cruise ships, the M/V ENCHANTED ISLE and the M/V ENCHANTED CAPRI, were then stranded in New Orleans, Louisiana, and subject to the automatic bankruptcy stay. The bankruptcy court in Florida lifted the stay so that these stranded vessels could be arrested. The district court for the Eastern District of Louisiana thus obtained admiralty jurisdiction. Each vessel had numerous creditors, with some asserting maritime liens. These interlocutory appeals concern such liens. See generally 1 THOMAS J. SCHOENBAUM, ADMIRALTY AND MARITIME LAW § 9 (3d ed.2001).
A maritime lien is a special property right in a vessel, giving the lien-holder priority over some claimants. Upon a vessel's sale by court order in an in rem action to enforce a lien on that vessel, all pre-existing claims in the vessel are terminated and attach in accordance with their priorities to the sale proceeds. See 46 U.S.C. § 31326. Proceeds go first to expenses, and fees allowed and costs taxed by the court. See id. Preferred maritime liens are then satisfied, followed by preferred mortgage liens, and then non-preferred maritime liens (except that a preferred mortgage on a foreign vessel not guaranteed under the Merchant Marine Act is subordinate to maritime liens). See id.
Non-maritime claims are not within admiralty jurisdiction and may not be enforced in an in rem proceeding. See id. Obviously, creditors prefer to have a maritime lien.
Under the United States Commercial Instruments and Maritime Lien Act (CIMLA) (formerly Federal Maritime Lien Act), any person furnishing repairs, supplies, towage, usage of drydock or marine railway, or other necessaries, to any foreign or domestic vessel has a maritime lien on that vessel. 46 U.S.C. §§ 31301, 31342.
[A] person providing necessaries to a vessel on the order of the owner or a person authorized by the owner —
(1) has a maritime lien on the vessel;
(2) may bring a civil action in rem to enforce the lien; and
(3) is not required to allege or prove in the action that credit was given to the vessel.
46 U.S.C. § 31342(a).
Maritime liens for necessaries "developed as a necessary incident of the operation of vessels". Silver Star Enter., Inc. v. SARAMACCA MV, 82 F.3d 666, 668 (5th Cir.1996) (internal quotation omitted). They "secure[] creditors who provide supplies which are necessary to keep the ship going". Id. (internal quotation omitted).
Because a ship moves from place to place, it is peculiarly subject to the vicissitudes that would compel abandonment of the vessel or voyage, unless repairs and supplies are promptly furnished. Moreover, a ship is often absent from her home port without access to funds and, as a result, must be able to obtain upon her own account needed repairs and supplies. That and the resulting need to ensure that a ship did not sail away from its debts contributed to the creation of the maritime lien.
Racal Survey U.S.A., Inc. v. M/V COUNT FLEET, 231 F.3d 183, 187 (5th Cir.2000)(internal citation omitted), cert. denied, 532 U.S. 1051, 121 S.Ct. 2192, 149 L.Ed.2d 1024 (2001).
The lien arises in favor of the creditor by operation of law and grants the creditor the right to appropriate the vessel, have it sold, and be repaid the debt from the proceeds. Silver Star Enter., 82 F.3d at 668. The lien is against the vessel and only indirectly connected with the owner. Equilease Corp. v. M/V SAMPSON, 793 F.2d 598, 602 (5th Cir.), cert. denied, 479 U.S. 984, 107 S.Ct. 570, 93 L.Ed.2d 575 (1986). "The maritime lien concept thus somewhat personifies a vessel as an entity with potential liabilities independent and apart from the personal liability of its owner". Id.
The M/V ENCHANTED ISLE (ISLE), the first Commodore vessel at issue, was owned by Almira Enterprises, a Commodore affiliate. The ISLE's creditors include, among others, several of the key parties in these consolidated actions: Effjohn International Cruise Holdings, Inc.; Freret Marine Supply; Cusimano Produce Co.; and Amwest Surety Insurance Co. and Swiss Reinsurance America Corp. (Swiss Re; it and Amwest are collectively referred to as the Sureties).
Effjohn has three claims; at issue is the one it was not permitted to add to the proceedings. The first claim concerns its loan to Almira, secured by a foreign preferred ship mortgage bearing against the ISLE. (At the time of the bankruptcy, Almira owed Effjohn principal of approximately $4 million.) For this loan, Effjohn asserts an in rem claim against the ISLE. The second claim is a maritime lien for custodial expenses (wharfage, insurance, and related expenses advanced while the vessel was in legal custody of the bankruptcy court) and crew wage and related expenses (payments to, and repatriation of, the stranded crew). Finally, for its third claim, at issue here, Effjohn seeks to assert domestic maritime lien claims it acquired from former ISLE creditors by assignment and subrogation for approximately 50 cents on the dollar. It was not permitted to do so.
Freret provided supplies to the ISLE, on the credit of the vessel, worth approximately $120,000. It claims "necessaries" protection under 46 U.S.C. § 31342(a)(1).
Cusimano is a New Orleans produce company. Between October and December 2000, Cusimano provided fresh produce and supplies worth approximately $65,000 to the ISLE, for which it was not paid. Cusimano claims a maritime lien for necessaries based on the supplied produce. It was not permitted to intervene to make this claim.
The Sureties issued a Federal Maritime Commission Passenger Vessel Surety Bond (the bond) to Commodore to cover its vessels, including the ISLE and the M/V ENCHANTED CAPRI, discussed infra. The bond provided security for passengers who pre-paid for cruises on one of Commodore's vessels, but who, through no fault of their own, never sailed; it required the Sureties to refund unearned passenger revenues up to $15 million if Commodore was unable to do so. (Under 46 U.S.C. § 817e and 46 C.F.R. Part 540.1 et seq., a passenger vessel operator must post such a bond or otherwise prove financial responsibility.) Swiss Re reinsured the bond and was a co-surety with Amwest. The Sureties claim a maritime lien for necessaries against the ISLE, based on the bond. (...
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