Inland Credit Corp. v. M/T Bow Egret

• Decision Date: 27 May 1977
• Docket Number: No. 74-3195,74-3195
• Parties: INLAND CREDIT CORPORATION, Plaintiff-Appellant-Cross Appellee, v. M/T BOW EGRET, her engines, machinery, nets, tackle, apparel and furniture, in rem, and Bow Egret Tanker Corporation, her owner, in personam, Defendants, v. Constance R. EARLE, Intervenor-Appellee-Cross Appellant, v. Peter KENNARD, Intervenor-Appellee-Cross Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1148

552 F.2d 1148

INLAND CREDIT CORPORATION, Plaintiff-Appellant-Cross Appellee, v. M/T BOW EGRET, her engines, machinery, nets, tackle, apparel and furniture, in rem, and Bow Egret Tanker

Corporation, her owner, in personam, Defendants, v. Constance R. EARLE, Intervenor-Appellee-Cross Appellant, v. Peter KENNARD, Intervenor-Appellee-Cross Appellant.

No. 74-3195.

United States Court of Appeals, Fifth Circuit.

May 27, 1977.

Rehearing Denied July 29, 1977. See 556F.2d 756.

J. Michael Mahaffey, Corpus Christi, Tex., for Inland Credit.

Ben H. Sheppard, Jr., Houston, Tex., for Earle.

H. T. Hermansen, Jr., Corpus Christi, Tex., for Kennard.

J. Donald Stillwell, Houston, Tex., for M/T Bow.

Robert M. Julian, Houston, Tex., for Shell Oil.

Appeals from the United States District Court for the Southern District of Texas.

Before TUTTLE, GOLDBERG and CLARK, Circuit Judges.

TUTTLE, Circuit Judge:

The economic travails of the M/T Bow Egret now compel this Court to review the trial court's effort to perform the familiar judicial task of dividing the limited resources of a debtor among competing creditors. The Bow Egret's journey began with its purchase by the Bow Egret Tanker Corporation (hereinafter Tanker Corporation). Tanker Corporation obtained the funds for the purchase by giving a preferred ship mortgage for $600,000 to Inland Credit Corporation. At first, Tanker Corporation doubtless had high hopes of financial success from a charter to carry grain to India. These hopes were not realized. By the beginning of July, 1973, the vessel had already required significant payments for operating expenses and repairs. Though Tanker Corporation, pursuant to its mortgage agreement, had on May 8, 1973 deposited with Inland Credit some $145,000 as an operating fund to cover such expenses, these repairs depleted the fund to $63,409.50 by June 12, 1973. Inland Credit insisted that a further $70,000 be deposited in this fund. Tanker Corporation succeeded in borrowing $50,000 from Mrs. Constance R. Earle and the balance of $20,000 from Mr. Peter Kennard, and delivered their checks to Inland Credit on July 5, 1973. Despite the injection of these new funds, Inland Credit chose on July 19, 1973 to foreclose on its mortgage.

Inland brought suit in rem against the M/V Bow Egret (which was seized on July 19) and in personam against the Bow Egret Tanker Corporation. Subsequently a number of creditors of the vessel and Tanker Corporation intervened. Many of these creditors asserted maritime liens based on their provision of services to the vessel. Of these lien claims, Inland Credit ultimately acquired all but one by assignment. In addition, Earle and Kennard asserted claims based on the advances which they had made.

Pursuant to court order, the Bow Egret was sold, and the proceeds of the sale ($800,100 less costs and fees) were deposited in the registry of the court. The trial court also ordered Inland Credit to pay certain claims out of the funds in the operating account, and then to make a bond for what was evidently deemed the amount remaining in the account ($72,031.69). Certain additional expenditures at court command dropped the bonded operating fund to $61,721.69. ¹

Subsequently, the court ordered distribution of the proceeds from the sale of the vessel, and this distribution in fact took place shortly thereafter. Since the propriety of this distribution is an issue in the case, it is relevant that the attorney representing Earle and Kennard approved the proposed distribution order "as to form." Moreover, the distribution was carried out without Earle or Kennard (or any other party) seeking a stay of the order or filing a supersedeas bond. This distribution is now the subject of attack in this appeal.

The court's order directed that the maritime liens be satisfied first. Only one lienor Shell Oil, had not assigned its claim to Inland Credit; Shell received $21,344.32 and is not now a party to this appeal. By the same token, Inland won judgment on the lien claims which it had acquired. Inland also prevailed on its preferred ship mortgage (whose priority was second only to the lien claims). The total sum paid to Inland was approximately $784,000, and this left Inland with a deficiency judgment for $118,791.69 plus interest and certain attorneys' fees.

Earle and Kennard were not permitted to share in the distribution of the res. The court did direct, however, that they should be paid from the bonded operating fund, and that Earle should recover before Kennard. Because Earle's claim, including interest and attorneys' fees, exceeded the balance remaining in the fund, the effect of this order was that Kennard took nothing.

In this appeal, Earle and Kennard attack the court's decision not to permit them to recover as lien claimants from the proceeds of the sale of the vessel. For its part, Inland challenges the right of Earle and Kennard to priority in recovery from the bonded operating fund. Finally, Kennard contends that Earle should not have been granted priority over Kennard in recovery from the bonded operating fund. An appeal filed by Bow Egret Tanker Corporation has already been dismissed, and is not before the Court.

Before we can evaluate the merits of the claim by Earle and Kennard to a share of the res funds, we must address Inland's argument that we lack jurisdiction over this issue. Inland contends that in rem jurisdiction depends on the court's retention of control of the res. It is well established that the sale of the res does not destroy jurisdiction, so long as the court continues to exercise control over the proceeds of the sale. But when the proceeds themselves are distributed, and that distribution is not fraudulent or improper, Inland contends, jurisdiction is lost. That is to say, when funds arising from sale of an attached vessel are ordered disbursed, and they are actually paid out of the registry of the court, there can be no appeal from the distribution order. ²

This rather startling proposition does find support in the case law. Cases in this Court have found jurisdiction destroyed when the res was released from the court's control. See The Manual Arnus, 141 F.2d 585 (5th Cir.), cert. denied, 323 U.S. 728, 65 S.Ct. 63, 89 L.Ed. 584 (1944); Canal Steel Works, Inc. v. One Drag Line Dredge, 48 F.2d 212 (5th Cir.), cert. denied, 284 U.S. 647, 52 S.Ct. 29, 76 L.Ed. 550 (1931). Cf. Point Landing, Inc. v. Alabama Dry Dock & Shipbuilding Co., 261 F.2d 861, 864 (5th Cir. 1958) (finding jurisdiction present because res proceeds were still in registry of Court); The Kotkas, 135 F.2d 917 (5th Cir. 1943). Though our Court has not recently decided a case on this basis, we have adverted to the general rule that removal of the res destroys a court's jurisdictional base, see Platoro Limited v. Unidentified Remains of a Vessel, 508 F.2d 1113, 1116 (5th Cir. 1975). The Ninth Circuit has applied, though perhaps not embraced, this rule in American Bank of Wage Claims v. Registry of the District Court of Guam, 431 F.2d 1215, 1218-19 (9th Cir. 1970).

Although we may assume for purposes of this case that this strict rule remains potent, we conclude that our jurisdiction to consider the lower court's in rem decision is still extant.

Our starting point is the power (and duty) of the court to restore to a litigant what he has lost by an erroneous judgment, so long as the subject of the controversy and the parties are before the court. Baltimore & Ohio R.R. Co. v. United States, 279 U.S. 781, 786, 49 S.Ct. 492, 73 L.Ed. 954 (1929). See Ex parte Morris and Johnson, 76 U.S. (9 Wall.) 605, 19 L.Ed. 799 (1869).

Inland Credit, the plaintiff below, itself filed suit both in rem and in personam. Moreover, Inland is before this Court in part as an appellant, seeking to recapture from Earle a part of her in personam recovery out of the bonded operating fund. Thus it is undeniable that Inland is subject to this Court's in personam jurisdiction. It follows as a matter of course that we possess the power to order Inland to pay judgments in personam. As the Supreme Court put it (in a different context), "The plaintiff having, by his voluntary act in demanding justice from the defendant, submitted himself to the jurisdiction of the court, there is nothing arbitrary or unreasonable in treating him as being there for all purposes for which justice to the defendant requires his presence." Adam v. Saenger, 303 U.S. 59, 67-68, 58 S.Ct. 454, 458, 82 L.Ed. 649 (1938).

We conclude that it is proper for us to exercise our jurisdiction in personam to correct any errors in the lower court's in rem adjudication. We recognize, to be sure, that a strict construction of the limits of in rem actions might bar any appeal of an in rem action unless supported by continued in rem jurisdiction. This narrow view of our jurisdiction, however, is difficult to square with the modern view, now almost a cliche, that in personam jurisdiction can be asserted whenever the defendant has those minimum contacts with the forum state that will satisfy " 'traditional notions of fair play and substantial justice.' " International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945), quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 85 L.Ed. 278 (1940). We need not decide in the present case whether the philosophical underpinnings of the system of in rem jurisdiction in admiralty have been critically shaken. We do decide, however, that where, as here, we find ourselves at the interface of in rem and in personam jurisdiction, we can properly exercise a broad in personam power.

We turn, therefore, to the merits of the claim by Earle and Kennard that they were entitled to the status of lien claimants, and thus to priority over all claims against the M/V Bow Egret except other similar liens. The district court recognized that one who advances funds for the payment of lienable claims is himself entitled to a lien if the...