Kopac Intern., Inc. v. M/V BOLD VENTURE

• Decision Date: 08 May 1986
• Docket Number: No. C85-1923D.,C85-1923D.
• Citation: Kopac Intern., Inc. v. M/V BOLD VENTURE, 638 F.Supp. 87, 1987 AMC 182 (W.D. Wash. 1986)
• Parties: KOPAC INTERNATIONAL, INC., a Washington corporation, Plaintiff, v. M/V BOLD VENTURE, O/N 513392, in rem; TTR Marine Systems Corp., in personam; Bold Venture, in personam, Defendants. SEATTLE-FIRST NATIONAL BANK, Plaintiff, v. BOLD VENTURE, Off. No. 513392, etc.; et al., Defendants. Tom Adams, et al., Intervening Plaintiff Crewmembers. Emerson GM Diesel, Inc. Intervening Plaintiff.
• Court: U.S. District Court — Western District of Washington

638 F. Supp. 87

1987 AMC 182

KOPAC INTERNATIONAL, INC., a Washington corporation, Plaintiff, v. M/V BOLD VENTURE, O/N 513392, in rem; TTR Marine Systems Corp., in personam; Bold Venture, in personam, Defendants.

SEATTLE-FIRST NATIONAL BANK, Plaintiff, v. BOLD VENTURE, Off. No. 513392, etc.; et al., Defendants.

Tom Adams, et al., Intervening Plaintiff Crewmembers.

Emerson GM Diesel, Inc. Intervening Plaintiff.

No. C85-1923D.

United States District Court, W.D. Washington, at Seattle.

May 8, 1986.

Erik Rosenquist, Graham & Dunn, Seattle, Wash., for Kopac Intern.

Dwight Guy, Seattle, Wash., for Seattle-First Nat. Bank.

Henry Haugen, Seattle, Wash., for Tom Adams, Richard A. Hodson, Charlotte J. Emerson, Ernest L. Beitel, John A. Heidt, Soren Lipson, Steven Jungclas.

Craig Watson, Seattle, Wash., for Emerson GM Diesel, Inc.

Gregory E. Keller, Seattle, Wash., for Evergreen Mobile Co.

Gary Furlong, Seattle, Wash., for Sang Hoon Hoh, Kwang C. Keum, Eunho Kim.

John H. Strasburger, Steven P. Connor, Seattle, Wash., for Cassiar Management, Ltd.

Shane Carew, Seattle, Wash., for Harbor Enterprises, Inc.

Harold A. Thoreen, Seattle, Wash., for Charles Honsinger, Joseph Gomes, Steven Garletts, Cathleen Woodson.

John Hagerty, Everett, Wash., for M/V Bold Venture, Bold Venture, Inc.

Paul N. Daigle, Seattle, Wash., for Tor Olsen.

MEMORANDUM AND SUPPLEMENTAL ORDER

DIMMICK, District Judge.

This case presents a potpourri of maritime claims against a salmon processing vessel, the M/V Bold Venture. The Bold Venture was arrested after a showing of default on a preferred ship mortgage. On April 25, 1986, after the arrest, numerous motions were made to intervene, for summary judgment of various claims, and for interlocutory sale of the vessel. After hearing oral argument on the pending motions from the in rem claimants and considering extensive briefing and research, this Court ordered an interlocutory sale of the vessel and established lien priority as to a preferred ship mortgagee and a time charterer of the vessel. That lien priority decision is the subject of this Memorandum and Supplemental Order.

As is often the case, the claims against the Bold Venture exceed its value. Thus, the liens with priority under the Ship Mortgage Act will be satisfied, while those low in priority will be extinguished by the Marshal's sale and the Court's subsequent distribution of proceeds. Those claimants with low-ranking priorities will be left with only their in personam remedies. These in personam remedies are circumscribed by the bankruptcy of the shipowners and an automatic stay prohibiting execution of a judgment in personam against them for any deficiency.¹ Thus, the only certain recovery for the numerous lien claimants before the Court is from proceeds of the sale of the vessel.

The potpourri of claims include wage claims from three different groups of "crewmembers," wage claims of the nominal master, claims for default of a preferred ship mortgage and for a second unperfected ship mortgage, claims for repairs and bunkers supplied to the vessel, claims to a trailer and to certain fishing equipment allegedly leased to the vessel, and claims that arose during performance of a time charter for tendering and processing salmon aboard the vessel.

The Court and the parties agree that custodial costs, including brokerage fees, have first priority and that adjudicated wage claims have second priority. The question is which claim comes next?

In an attempt to prevail over the preferred ship mortgagee, Seattle-First National Bank ("Sea-First"), the time charterer, Kopac International, Inc. ("Kopac"), has characterized its claims as maritime tort claims. As Gilmore and Black observe, in cases involving the negligent performance of a contractual duty, lienors attempt to plead themselves in to the higher priority for tort liens. The Law of Admiralty 739-40 (1975).

I. LAW OF MARITIME LIEN PRIORITIES

Under the Ship Mortgage Act, only maritime liens prior in time or maritime liens that are preferred, such as tort liens for collision and personal injury, out-rank preferred ship mortgages. 46 U.S.C. § 953(a) (1985). There is no statutory directive and scant case authority² on the question of which claims other than those for collision and personal injury may be characterized as tort claims for purposes of 46 U.S.C. § 953(a)(2). Ordinarily, the maritime lien that arises when a vessel owner has breached its contract with a charterer has the relatively low priority of a contract lien. See, e.g., Cardinal Shipping Corp. v. M/S Seisho Maru, 744 F.2d 461, 466-67 (5th Cir.1984).

The United States Supreme Court's "one relatively modern decision on lien priorities" is The John G. Stevens, decided in 1898. G. Gilmore & C. Black, The Law of Admiralty at 740. The John G. Stevens, 170 U.S. 113, 18 S.Ct. 544, 42 L.Ed. 969 (1898). In The John G. Stevens, negligent towage resulted in a collision. The Court treated the claim like a tort claim for collision and gave it priority over claims for supplies provided to the vessel prior to the collision. The rather limited holding in that case is not helpful here, however. Not only was there a traditional maritime tort involved, namely collision, but the case precedes by several decades the Ship Mortgage Act.

Since the passage of the Ship Mortgage Act, the United States Supreme Court has provided some guidance to the lower courts on setting priorities in the obscure terrain between contract and tort. In The Thomas Barlum, the Court emphasized the purpose of the Ship Mortgage Act: to foster the merchant marine by making ship mortgages safe and attractive to investors. Detroit Trust Co. v. The Thomas Barlum, 293 U.S. 21, 38-39, 55 S.Ct. 31, 36, 79 L.Ed. 176 (1934). The Court observed that the legislative history of the Act reflects a congressional effort to make mortgages "good except as to certain demands that should be superior to everything else, such as wages." Id. at 39, 55 S.Ct. at 36. In holding that loan proceeds from a preferred ship mortgage need not be used by the mortgagor for maritime purposes, the Court reasoned that the fundamental purpose of the Act of protecting investors would have been frustrated if such investors had to discover at their peril the application of the proceeds of the secured loans. Id. at 40, 55 S.Ct. at 37. By analogy, the Act's purpose would be frustrated in the present case if investors had to make certain at their peril that the shipowners and ships that they invest in perform their contractual duties.

Further support for a restrictive interpretation of "tort" under 46 U.S.C. § 953(a)(2) may be found in another United States Supreme Court case, Osaka Shosen Kaisha v. Pacific Export Lumber Co., 260 U.S. 490, 497, 43 S.Ct. 172, 173, 67 L.Ed. 364 (1923). The Osaka Court explained that because the maritime lien operates secretly to the prejudice of general creditors and purchasers without notice, that lien is "stricti juris." Id.

The Osaka Court then ruled that "where there is a charter-party, its covenants will define the duties imposed on the ship." Id. at 498, 43 S.Ct. at 173. In addition to such express duties, the existence of a charter party imposes a duty on the vessel to deliver the cargo at the time and place stipulated in the charter party, without injury or deterioration. Id. The Court observed, however, that the lien arising for breach of charter party is so circumscribed that no lien arises at all unless the ship receives the cargo and departs on her voyage according to contract. The charterer has instead his personal action for damages. Id. The Osaka Court concluded by repeating that admiralty liens are stricti juris, and that they cannot be extended argumentatively or by analogy or inference. "`They must be given by the law itself, and the case must be found described in the law.'" Id. at 500, 43 S.Ct. at 174.

This Court has found no case "described in the law" that provides a tort lien for the claims made here. In the absence of such definitive authority, this Court is guided by lien priority cases in which a charterer's lien claim has been ranked below a prior preferred ship mortgage. The authority most often cited for this principle comes from the Second Circuit: "A maritime lien for breach of charter has priority over the mortgagee only if it has attached before the mortgage was recorded, 46 U.S.C. § 953." Rainbow Line, Inc. v. M/V Tequila 480 F.2d 1024, 1028 (2d Cir.1973). In the present case, the preferred ship mortgage was recorded before any breach of charter could have taken place. The parties do not dispute the chronology of their claims. The Second Circuit observed that a sophisticated ship mortgagee, such as Sea-First, is well able to devise adequate protection for itself against liens prior in time. A mortgagor who fails to disclose to the mortgagee the existence of any maritime liens known to him runs the risk of criminal penalties and civil damages. 46 U.S.C. §§ 924, 941(b), (c). Id.

A ship mortgagee is not able to protect itself against secret liens, however, that might arise after execution and perfection of the ship mortgage. Thus, the federal statute gives priority to preferred ship mortgagees over all lienors with certain exceptions. First, those with liens prior in time to the mortgage will be prior in right; the mortgagee can discover prior liens and insist on discharge or assume liability for them. Second, liens arising for wages, for salvage, for tort, and for general average are given priority over preferred ship mortgages, generally because these liens must be favored to ensure that the vessel is kept moving in trade. See generally G. Varian, Rank and Priority of Maritime Liens, 47 Tul.L.Rev. 751 (1973). The priority given to lienors for wages, for salvage, and for general average serves indirectly to protect the mortgagee's interests because the mortgagee wants the vessel to operate. Accordingly, the wages due to seamen are...