INDUSTRIAL NAT. BANK OF RI v. BUTLER AVIATION INT., INC.

• Citation: 370 F. Supp. 1012
• Decision Date: 28 January 1974
• Docket Number: No. 73 C 1629.,73 C 1629.
• Parties: INDUSTRIAL NATIONAL BANK OF RHODE ISLAND, Plaintiff, v. BUTLER AVIATION INTERNATIONAL, INC., Defendant.
• Court: U.S. District Court — Eastern District of New York

370 F. Supp. 1012

INDUSTRIAL NATIONAL BANK OF RHODE ISLAND, Plaintiff, v. BUTLER AVIATION INTERNATIONAL, INC., Defendant.

No. 73 C 1629.

United States District Court, E. D. New York.

January 28, 1974.

Alvin Chriss, New York City, for plaintiff.

Hofheimer, Gartlir, Gottlieb & Gross by Sylvia D. Garland, New York City, for defendant.

MEMORANDUM AND ORDER

NEAHER, District Judge.

Plaintiff, a Rhode Island bank, sues in replevin to recover possession of a DC-7C airplane stored at defendant's aviation facilities at La Guardia Airport, Queens. Jurisdiction is grounded on 28 U.S.C. §§ 1331 and 1332. Defendant having declined to release the aircraft to plaintiff until its storage charges are paid, the matter is now before the court on plaintiff's application for an order of replevin pursuant to N. Y. CPLR § 7102(a) McKinney's Consol. Laws, c. 308 and Rule 64, F.R.Civ.P.

Plaintiff requests that a United States Marshal be directed to seize the aircraft and turn it over to plaintiff upon the furnishing of an undertaking "equal to twice the value of defendant's charges." That request brings sharply into focus the pivotal question — apparently of first impression in this Circuit — whether a bailee's possessory lien under New York law must give way to a prior federally recorded security interest which assertedly has ripened into a right to take possession of the airplane.

While the parties are in conflict over their legal rights, there is no real dispute as to the material facts. In April 1970 plaintiff made a loan of $79,749.60 to an Ohio corporation, Tortugas of Ohio, Inc. (Tortugas), repayable in monthly installments over a five-year period. Tortugas was then the owner of the DC-7C airplane here involved and had registered that ownership with the Federal Aviation Administration (FAA) sometime in 1970. To secure the loan, Tortugas executed a security agreement note and an aircraft security agreement with plaintiff, which the latter duly recorded with the FAA on May 27, 1970, in compliance with 49 U.S.C. § 1403 (1970).¹

Tortugas subsequently defaulted on the loan and owes plaintiff nearly $30,000. Invoking rights under the security agreement, plaintiff directed Tortugas to make the airplane available and it is claimed Tortugas "has turned over possession of the aircraft to" plaintiff (Pl. Aff., para. 17). At that time the plane was apparently parked at defendant's La Guardia facility, having been left there since May 1972, when Tortugas' lessee of the aircraft abandoned its lease. The plane has there remained while unpaid parking and related charges have been accruing at the rate of approximately $600 a month and now total over $11,000, for which defendant claims a bailee's possessory lien pursuant to N.Y. Lien Law § 184 (McKinney's Consol.Laws, c. 38, 1966).² There is no question that the lien has not been recorded with the FAA.

In urging its right to replevy the airplane without paying defendant's charges, plaintiff primarily contends that any state-created lien rights of defendant are invalid and subordinate to plaintiff's prior federally recorded security interest. Secondarily, plaintiff argues that in any event under the applicable New York replevin statutes, N. Y. CPLR § 7102 and § 7103(a), defendant may not object to replevin if plaintiff posts an undertaking equal to twice the value of defendant's charges. This, it contends, is all the protection defendant is entitled to and it accords with the equities in that (a) defendant's charges are assured; (b) no further charges are incurred; (c) defendant will suffer no further expenses; and (d) the airplane will not further depreciate in value and plaintiff will realize the highest possible collateral value to apply to its loan.

Defendant is quick to point out the illusory nature of the "protection" afforded by an undertaking in lieu of possession. Once defendant relinquishes "actual possession" of the airplane, there can be no doubt that "the lien provided for in this section shall thereupon become void as against all security interests, whether or not perfected. . . ." N.Y. Lien Law § 184, n. 2 supra. Such a clear expression of legislative intent leaves little room for the suggestion that payment of defendant's charges is assured by an undertaking and can safely await determination of the "ultimate issue . . . of whether Industrial or Butler has the better right to possession" (Plaintiff's Memorandum of Law, p. 10).³

An even more cogent reason for not postponing determination of the ultimate legal issue is the essential replevin requirement that defendant's possession be shown to be "wrongfully held", N.Y. CPLR § 7102(c)(2). There appears to be no question that defendant stored and serviced the plane in good faith in the regular course of its business. Certainly Tortugas, as original owner, could not have regained possession without paying the accrued charges or otherwise securing defendant. A refusal by defendant to release the plane to Tortguas unless so paid or secured could hardly be considered wrongful. N.Y. Lien Law § 184. Under the New York statute, plaintiff, as holder of even a perfected security interest, is surely in no better position — unless it is correct in its primary contention that federal recording gives it supremacy. To that pivotal issue we now turn.

In asserting its right to possession, plaintiff's position in essence is that federal law, 49 U.S.C. § 1403, has preempted the field of aircraft liens and titles and that plaintiff's duly recorded security interest is entitled to priority over a state-created possessory lien, such as defendant's, which has not been recorded in compliance with the federal statute and FAA regulations thereunder. Extensive authority has been cited for these propositions.⁴

Against plaintiff's array of authorities defendant resolutely maintains that it was not obliged to record its possessory lien federally and that the lien prevails as against plaintiff's security interest even though it be of antecedent creation. For those propositions defendant relies principally, if not entirely, on the solitary case of Southern Jersey Airways, Inc. v. National Bank of Secaucus, 108 N.J.Super. 369, 261 A.2d 399 (App. Div.1970), a case which overruled, in relevant part, Smith v. Eastern Airmotive Corp., n. 4, supra. 261 A.2d at 411.⁵

After careful review of the cited authorities, the statute, 49 U.S.C. § 1403, and the relevant implementing regulations, 14 C.F.R. § 49.31 (1973), the court concludes that despite its lack of widespread support, defendant's view is the better one, and must prevail in this case. Contrary to plaintiff's characterization, the Southern Jersey case, supra, is clearly not an isolated "maverick" opinion which flies in the face of settled law. The Appellate Division of the New Jersey Superior Court has provided in a virtually identical case a thoughtful, exhaustive, and, ultimately, persuasive analysis of exactly the question presented here.

In the Southern Jersey case, as here, a bank (there the defendant) had loaned money and had taken as collateral a "security agreement" covering an airplane. This was duly recorded with the FAA. Thereafter the borrower-owner stored and had the plane serviced at the plaintiff's aircraft hangar in New Jersey. The owner subsequently defaulted on the loan and the bank appointed a bailiff to take possession of the plane. The bailiff conducted a public sale and the bank purchased the plane as highest bidder. Plaintiff, having physically retained possession at all times, refused to surrender possession of the plane until its charges were paid, relying upon its statutory aircraft mechanic's lien, N.J.Stat.Annot. 2A:44-1, et seq. After filing its own "Notice of Aircraft Lien" with the FAA, the plaintiff brought a declaratory judgment action. The New Jersey county court ruled the bank's lien had priority and awarded it possession, relying upon Smith v. Eastern Airmotive Corp., supra. The Appellate Division reversed, overruling the Smith case and holding that the plaintiff's possessory lien had priority over the bank's prior federally recorded security interest.⁶

The appellate holding in Southern Jersey, in this court's opinion, correctly recognizes

that Congress did not intend by adoption of the cited federal recordation procedure necessarily to displace and preempt all state law otherwise applicable bearing upon priorities of lien and title interests in aircraft. Rather was it the intent, in relation to aircraft, to substitute for the multiplicity of state registration or recording systems a single preemptive federal system for registering (1) instruments of title, comparable to state registration of titles to motor vehicles, and recording (2) security documents of the kinds commonly comprehended by state recording laws concerning written consensual security interests affecting personal property. The reason was that the ready mobility of aircraft and their common use across state lines made it cumbersome and burdensome for persons having concern with title to or incumbrances on aircraft to have to record or search in all states or localities which could arguably be claimed to constitute the proper recording situs in relation to the specific owner or incumbrancer of a particular aircraft. Citations omitted. Thus, failure to federally record a recordable instrument would entail the specific consequences declared by § 1403(c), but no other. Federal recording would validate a title or incumbrance as against any claim of invalidity based upon absence of state recording, but would not necessarily create affirmative priority as against competing rights declared by applicable state law.⁷

As the New Jersey court noted, an aircraft mechanic's lien under the law of that State "is not evidenced by any instrument executed by the obligor . . . ." 261 A.2d at 407. The New York bailee's lien is precisely the same. It is a possessory right created by and solely dependent upon law,...