Equilease Corp. v. M/V Sampson

• Decision Date: 01 April 1985
• Docket Number: No. 83-3298,83-3298
• Citation: 756 F.2d 357
• Parties: EQUILEASE CORPORATION, Plaintiff-Appellant, Cross-Appellee, v. M/V SAMPSON, etc., et al., Defendants-Appellants, Cross-Appellees, v. FRED S. JAMES & CO., etc., Intervenor-Appellee, Cross-Appellant. FRED S. JAMES & CO., etc., Plaintiff-Appellee, Cross-Appellant, v. EQUILEASE CORP., et al., Defendants-Appellants, Cross-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 357

756 F.2d 357

EQUILEASE CORPORATION, Plaintiff-Appellant, Cross-Appellee, v. M/V SAMPSON, etc., et al., Defendants-Appellants, Cross-Appellees, v. FRED S. JAMES & CO., etc., Intervenor-Appellee, Cross-Appellant.

FRED S. JAMES & CO., etc., Plaintiff-Appellee, Cross-Appellant, v. EQUILEASE CORP., et al., Defendants-Appellants, Cross-Appellees.

No. 83-3298.

United States Court of Appeals Fifth Circuit.

April 1, 1985.

Opinion on Rehearing En Banc May 29, 1985.

Adams & Reese, Frank M. Adkins, Philip A. Franco, New Orleans, La., for Equilease Corp.

Burke & Mayer, James G. Burke, Jr., Therese B. Forrester, New Orleans, La., for Fred S. James & Co.

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

On Petition for Rehearing

(Opinion Sept. 27, 1984, 5th Cir.1984, 742 F.2d 852)

Before REAVLEY, JOHNSON and JOLLY, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

On this petition for panel rehearing, Equilease has challenged in fundamental ways, the correctness of our earlier opinion. Pursuant to our request James has submitted a response and we have carefully reviewed the arguments of the parties on rehearing. We are now persuaded that our original opinion is incorrect. We therefore withdraw the opinion, and substitute the following.

I.

Equilease is a financial corporation that in 1974 provided interim construction financing for three vessels, later named the M/V SAMSON, the M/V THOR, and the M/V HERCULES. In 1977 the owner of the vessels defaulted on its loan, leaving Equilease as involuntary owner of the uncompleted vessels. After determining that selling the hulls would not be economical, in 1978 Equilease moved the vessels to another shipyard for completion at its own expense. Upon completion, Equilease transferred title to each of the vessels to a separate, wholly owned, nominally capitalized Unilease ¹ "shelf" corporation, taking a preferred first mortgage from each corporation in the amount of construction costs and other expenses.

Having no experience in the operation of vessels, Equilease issued a bareboat charter on each of the vessels to Solar Fleet, Inc., a company wholly owned by James S. Denning. Denning later transferred the charters to Dunnamis Offshore Towing, Inc. ("Dunnamis"), another corporation he owned. The Equilease charter required the charter party to purchase insurance for each of the vessels. Dunnamis procured this required insurance from Fred S. James & Company (James).

At the end of the first year of operation, $184,000 of the insurance premiums remained unpaid. Dunnamis informed James that the three vessels soon would begin operating in Mexico under a lucrative five-year charter agreement. Relying on this information, James decided to provide insurance for the three vessels for another year rather than cancelling the policy and bringing suit for the unpaid premiums. James paid the overdue premiums to the insurers. Then, as James explains, "to clear up the books from an accounting standpoint," he arranged for a financing company, Borg-Warner Insurance Finance Corporation ("Borg-Warner"), to pay the outstanding overdue premiums. James arranged for Borg-Warner to accept a note executed by Dunnamis and then prepared the documents necessary to effect the transaction. Borg-Warner had James guarantee the Dunnamis note so that James, rather than Borg-Warner, bore the risk of non-payment by Dunnamis. When James received funds from Borg-Warner, it made appropriate bookkeeping entries, crediting Dunnamis' overdue account in full.

During the second year of their relationship, Equilease became concerned about the manner in which Dunnamis was operating its vessels. Dunnamis already had defaulted on the charter agreement, and the charter in Mexico had not worked out as expected. Equilease, with some difficulty, finally located its vessels in Panama. It brought the vessels back to the United States at its own expense, then seized them and instituted proceedings in federal district court to foreclose on its preferred mortgages.

By that time Dunnamis evidently also had defaulted on its insurance note payments to Borg-Warner. James, as guarantor, feared that it might have to pay Borg-Warner, and therefore intervened in the foreclosure proceedings, claiming a privilege arising under state law, and, alternatively, a maritime lien against the vessels for unpaid insurance premiums. James also filed a separate but substantially similar lawsuit against Equilease and Dunnamis in personam, and against the three vessels in rem. The district court consolidated the actions.

After hearing the evidence, the court held that James had a state privilege against the vessels for the amount of the unpaid insurance premiums, and that because Dunnamis acknowledged the debt within six months of the filing of the lawsuit, the applicable six-month limitations period had not lapsed. It refused, however, to create a federal statutory maritime lien in favor of James, relying on this court's decision in Learned v. Brown, 94 F. 876 (5th Cir.1899). It then invalidated the preferred mortgage on the basis that the three Unilease corporations were "shams" and "alter egos" of Equilease against the vessels, thus reducing Equilease to the status of a general creditor against the vessels. ² It further held that Dunnamis was not an agent of Equilease with the power to obligate Equilease to pay the premiums. It entered judgment in favor of James in rem against the vessels, and in personam against Dunnamis, who does not appeal. 568 F.Supp. 1259.

II.

Equilease argues that the district court's determination that James had a valid state privilege under Civil Code article 3237 for insurance premiums is erroneous on four bases: (1) that the period for asserting the privilege is a peremptive period, rather than a prescriptive period which, contrary to the finding of the district court, could not be acknowledged or interrupted; (2) that if the time period contained in article 3237 is a prescriptive period, James' acknowledgment of the underlying debt had no effect on the privilege, since the underlying debt is distinct and separate from the privilege; (3) that no legal subrogation exists in favor of James to assert rights to the underlying debt and privilege; and (4) the underlying debt and privilege were extinguished by payment. By cross-appeal, James argues that if we invalidate the state maritime lien, then it is entitled to a lien under the Federal Maritime Lien Act, because marine insurance is a "necessary." Additionally, James alleges that Dunnamis was the agent of Equilease, and therefore Equilease, as principal, is liable in personam for the insurance procured by Dunnamis.

We have carefully reviewed these arguments, and agree with the first argument advanced by Equilease, that the time limitation period contained in Civil Code article 3237 is a peremptive period, rather than a prescriptive period. Since a peremptive period is not interrupted by acknowledgment of the debt, James' privilege expired or perempted six months from the date the insurance policy was issued and therefore James has no claim against the vessels.

III.

Equilease's first alleged basis for reversing the district court is that James cannot assert its privilege to collect any premiums that were more than six-months overdue when it filed this lawsuit, since the time-limitation period in which to enforce the privilege had perempted with respect to earlier premiums. First let us distinguish between peremption and prescription.

Peremption is a species of prescription "with the characteristic that it does not admit of interruption of suspension." Flowers, Inc. v. Rausch, 364 So.2d 928, 931 (La.1978). "The difference between prescription and peremption is that the former simply bars the remedy where as, in the latter, time is made of essence of the right granted and a lapse of the statutory period operates as a complete extinguishment of the right." Succession of Pizzillo, 223 La. 328, 65 So.2d 783, 786 (1953).

Authority exists in Louisiana cases to support the proposition that a prescriptive period defined in a statute conferring a right is actually a peremptive period. See, e.g., Pounds v. Schori, 377 So.2d 1195, 1199 (La.1979); Succession of Pizzillo, 223 La. 328, 65 So.2d 783, 786 (1953); Guillory v. Avoyelles, 104 La. 11, 28 So. 899, 901 (1900). That the statute establishing the privilege or right also contains the prescriptive period, however, does not mean automatically that the prescriptive period is one of peremption. The Louisiana Supreme Court has stated that "each case of this nature should be considered separately on its merits." Pounds v. Schori, 377 So.2d at 1199.

Cases holding a prescriptive period to be one of peremption turn on special considerations--primarily perceived legislative intent to create a right of limited duration. In Pounds v. Schori, the statute created a prescriptive period for denying paternity of a child born in wedlock. The court relied on the legislative history of the statute, the manner in which French courts enforced an analogous provision of the Napoleonic Code, and the presumption that children born in wedlock are legitimate, to discern a legislative intent to create a right of limited duration. 377 So.2d at 1199. In Succession of Pizzillo the statute at issue effected a change in adoption laws and provided for a six-month transition period. The plain wording of the statute revealed a similar legislative intent. 65 So.2d at 786. Finally, the statute at issue in Guillory v. Avoyelles required that a challenge to a tax referendum be brought within three months of the election. The court reasoned that the taxpayers should be not allowed to complain after the beneficiary of the tax, in that case a railroad company, "has gone ahead and expended large sums of money in prosecuting the enterprise." 28 So. at 901. Thus, considerations of public policy peculiar to the statute favored...