Mullane v. Chambers

• Decision Date: 24 February 2006
• Docket Number: No. 05-1174.,No. 05-1173.,05-1173.,05-1174.
• Parties: David E. MULLANE; Joan-Leslie Mullane, Plaintiffs, Appellants, Cross-Appellees, v. Adele CHAMBERS; Jean Farese, Defendants, Appellees, Cross-Appellants.
• Court: U.S. Court of Appeals — First Circuit

438 F.3d 132

David E. MULLANE; Joan-Leslie Mullane, Plaintiffs, Appellants, Cross-Appellees, v. Adele CHAMBERS; Jean Farese, Defendants, Appellees, Cross-Appellants.

No. 05-1173.

No. 05-1174.

United States Court of Appeals, First Circuit.

Heard October 6, 2005.

Decided February 24, 2006.

Thomas E. Clinton, with whom Robert E. Collins and Clinton & Muzyka, P.C. were on brief, for the appellants.

Paul L. Kenny, with whom Salim Rodriguez Tabit was on brief, for the appellees.

Before LYNCH, Circuit Judge, STAHL, Senior Circuit Judge, and LIPEZ, Circuit Judge.

LIPEZ, Circuit Judge.

This is an appeal and cross appeal of the district court's resolution, on remand from this court, of competing claims to a 42-foot motorized yacht, known variously as the Lady B, the Lady B Gone, and the Cent'Anni (the vessel). The vessel's owners, David and Joan Mullane, appeal the district court's rejection of their claim to a lien on the vessel. Adele Chambers and Jean Farese, who seized the vessel to satisfy debts of the vessel's previous owner, appeal the district court's order that they reimburse the Mullanes for storing the vessel during the course of the litigation. We affirm.

I.

The facts have been recounted elsewhere. This case has been tried twice, by two different district court judges, each of whom published an opinion. Mullane v. Chambers, 349 F.Supp.2d 190 (D.Mass.2004); Mullane v. Chambers, 206 F.Supp.2d 105 (D.Mass.2002). It has been the subject of a published opinion by this court. Mullane v. Chambers, 333 F.3d 322 (1st Cir.2003). We review only the details relevant to the issues before us. Because this case comes to us after a trial, we present the facts in the light most favorable to the district court's judgment. See Wilson v. Mar. Overseas Corp., 150 F.3d 1, 3 (1st Cir.1998).

In July 1998, the Mullanes bought the vessel from a trust established by Dr. David Murphy and his wife. As consideration, the Mullanes paid $98,117 to Eastern Bank to discharge the preferred ship's mortgage on the vessel in favor of the bank,¹ paid $2,000 cash to Murphy and assumed a $40,000 lien Murphy owed to his own company.

The vessel was federally documented and listed on the registry maintained by the United States Coast Guard.² In the normal course of maritime affairs, transfer of the vessel and discharge of the mortgage should have been recorded immediately with the Coast Guard, in which case the public record would have shown that the Mullanes, not the Murphys, owned the vessel. 46 U.S.C. §§ 12101-12124, 31321. For whatever reason, however, the sale and discharge were not recorded until September. In the interim—for all of August—the public record showed erroneously that the Murphys owned the vessel, subject to a mortgage in favor of Eastern Bank.

At the time he sold the vessel to the Mullanes, David Murphy was indebted to Chambers and Farese, both of whom had loaned him money. Chambers had obtained a $70,132 writ of execution against Murphy, and Farese a writ for $27,612. But neither Chambers nor Farese had attached any claim to the vessel until late August, when, acting on the information in the public record, they arranged for sheriff's deputies to seize the vessel.

Chambers and Farese learned about the transfer from the Murphys to the Mullanes and the mortgage discharge hours after the seizure. Nonetheless, they elected to press their claim to the vessel rather than attempt to satisfy Murphy's debt with property that actually belonged to him. Indeed—according to their own statements—upon learning that the Eastern Bank mortgage on the vessel had been discharged, Chambers and Farese abandoned their plans to seize Murphy's condominium, which they also had arranged for the sheriff's deputies to levy. They believed that the additional equity in the vessel available after the mortgage discharge would make any seizure of Murphy's own property unnecessary.

The Mullanes sued Farese, Chambers, and the Sheriff's Department that had seized the vessel. They claimed that the seizure had been illegal, that they were entitled to unencumbered ownership of the vessel, and that they were owed compensation for damage to the vessel that occurred during the seizure. The case landed on the admiralty docket of the district court. See Mullane, 333 F.3d at 328 (concluding admiralty jurisdiction correctly invoked). The Mullanes arranged for the vessel to be arrested, see Fed.R.Civ.P. D, an action that prevented anyone from selling the vessel before litigation concluded. Initially, the vessel was held by the court. At some relatively early point, however, the Mullanes posted a $125,000 passbook savings account as security for the vessel, and it was released to their custody. See Fed. R.Civ.P. E(5)(d).

After the first trial in this case, the district court found that the Mullanes were bona-fide purchasers of the vessel who had no notice of Chambers and Farese's claims. The court also concluded that the seizure of the vessel was improper under Massachusetts law. The district court restored the Mullanes' ownership rights and ordered Chambers and Farese to pay $100,000 in punitive damages to the Mullanes, for what the district court termed their "wanton and reckless" disregard of the Mullanes' rights.³

We vacated and remanded, concluding that Chambers and Farese were entitled to rely on the public record unless they had actual notice of the transfer to the Mullanes, and that they had adhered to Massachusetts law in seizing the vessel. See Mullane, 333 F.3d at 329-33. We asked the district court to determine whether Chambers and Farese had knowledge of the Mullanes' claim to the vessel before they completed their seizure. We noted that if the district court found that Chambers and Farese had knowledge of the Mullanes' purchase, the court would need to determine whether there was any merit in Chambers and Farese's claim that the Murphys' sale of the vessel to the Mullanes constituted a fraudulent transfer under Massachusetts law. (The district court had resolved that question in the Mullanes' favor through application of federal law, which we concluded did not govern the transaction.)

On remand, the district court found that Chambers and Farese had no actual or constructive notice of the Mullanes' purchase at the time of the seizure (though they did within hours thereafter).⁴ Consequently the district court determined that Chambers and Farese had a valid claim on the vessel. The parties do not contest this determination on appeal. Because the district court found that Chambers and Farese had valid liens on the vessel, it did not need to reexamine the fraudulent transfer issue.

Recognizing that application of 46 U.S.C. § 31321, the vessel documentation statute, would yield a "harsh" penalty on the "innocent" Mullanes, the district court invited briefing on whether the Mullanes might be entitled to relief from that application, on admiralty or analogous state law grounds. The Mullanes suggested only that they were entitled to a maritime lien on the vessel, equal in value to the Eastern Bank mortgage that they had discharged. The district court determined that no such maritime lien existed.

Finally, the court ordered, "in the interest of equity," that Chambers and Farese "reimburse the Mullanes for all reasonable storage and insurance costs of the vessel incurred since the levy." The Mullanes had incurred such charges by storing the vessel at various marinas during the course of the litigation as they tried to clear title to the vessel.

II.

A. The Mullanes' Appeal

At the conclusion of the second trial in this case, the district court opined that relief might be possible on grounds that, in light of Chambers and Farese's seizure, the Mullanes' discharge of the Eastern Bank mortgage had unjustly enriched Murphy. Seeking to resolve the issue, the district court gave very specific instructions:

I . . . need to have briefed the issue of. . . the role that Dr. Mullane's discharge of the preferred ships mortgage plays here. I'm not here talking about simple appeals to equity. . . . I want to know everything there is to know about this type of circumstance either under the federal recording statute, and if we can't find that let's go to the common law of the several states which have recording statutes. When a creditor seeks to levy on encumbered assets of the debtor, the creditor takes those assets encumbered. Here there appears no evidence but that Dr. Mullane was innocent. . . . Dr. Mullane may be entitled to . . . the equivalent of a preferred ship's mortgage. . . .

Tr. Day 2, pp. 33-34 (emphasis added).

Whether or not an equitable subordination argument could have been made on these facts, it was not made before the district court or before us, and so is waived. Cf. Maryland National Bank v. The Vessel Madam Chapel, 46 F.3d 895, 901 (9th Cir.1995) (recognizing that equitable subordination is "available in admiralty to resolve priority disputes"). Instead, the Mullanes argued that they were entitled to a maritime lien on the vessel, which they argued had been created by their discharge of the Eastern Bank mortgage.⁵ The holder of a maritime lien can look to a vessel itself, in rem, to satisfy any resultant debt. See generally 46 U.S.C. § 31301 et seq.; Fed.R.Civ.P. C(1)(a); 2-II Benedict on Admiralty (2004). The Mullanes relied on 46 U.S.C. § 31342(a), the statute that creates a lien in favor of "a person providing necessaries to a vessel on the order of the owner." See Lake Charles Stevedores, Inc. v. PROFESSOR VLADIMIR POPOV, MV, 199 F.3d 220, 223-25 (5th Cir.1999) (discussing generally maritime liens for necessaries). The Mullanes also argued that they were entitled to a lien under the "rule of advances," a common-law principle that awards liens to certain persons who do not provide necessaries but do "satisfy an outstanding or future lien" on a vessel, typically by paying for necessaries that are provided by another party. 2-III Benedict...