State of Israel v. Motor Vessel Nili

• Decision Date: 23 October 1970
• Docket Number: No. 27126.,27126.
• Citation: 1971 AMC 428,435 F.2d 242
• Parties: STATE OF ISRAEL, a sovereign nation, Plaintiff-Appellant, v. The MOTOR VESSEL NILI, etc., et al., Defendants-Appellees, and Singer & Friedlander, Inc., and Ted Curry Shipping, Ltd., Claimants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

1971 AMC 428, 435 F.2d 242 (1970)

STATE OF ISRAEL, a sovereign nation, Plaintiff-Appellant, v. The MOTOR VESSEL NILI, etc., et al., Defendants-Appellees, and Singer & Friedlander, Inc., and Ted Curry Shipping, Ltd., Claimants-Appellants.

No. 27126.

United States Court of Appeals, Fifth Circuit.

October 23, 1970.

Richard F. Ralph, Ralph & Boyd, Miami, Fla., for State of Israel.

Raymond T. Greene, Miami, Fla., for Singer & Friedlander.

William F. Parker, Miami, Fla., for Ted Curry Shipping, Ltd.

M. Lewis Hall, Jr., Hall & Hedrick, Miami, Fla., for Belcher Oil Co.

Eugene C. Heiman, Heiman, & Crary, Miami, Fla., for T. Arison & Co.

Richard E. Reckson, Arnold D. Schatzman, Aronovitz, Aronovitz & Haverfield, Miami, Fla., George E. Patterson, Jr., Turner & Patterson, John L. Britton, Feibelman, Friedman, Hyman & Britton, Arthur Roth, Miami, Fla., for Sea Host, Inc.

Before COLEMAN, SIMPSON and MORGAN, Circuit Judges.

SIMPSON, Circuit Judge:

The good ship M/V NILI makes its third voyage into this Court.¹ This trip the NILI's mortgagee, appellant-cross-appellee, State of Israel (Israel), brings a foreign ship mortgage foreclosure action² against the M/V NILI (NILI) and her fittings, herein appellee-cross-appellant, which generates an international multi-party lien priority race. The race was won-by entry of partial summary judgment in the district court-by the American lienors (American)³, herein appellees, with Israel runner-up and the foreign lienors, Singer and Friedlander, Ltd. (Singer) and Ted Curry Shipping, Ltd. (Curry), herein appellants-appellees, eliminated as also-rans. T. Arison & Co., Inc. (Arison)⁴, a fellow lien-intervenor with American, Singer and Curry did not take part in the contest in district court, but hopes to receive Section 951 status with American after the litigation is completed below.⁵ On this appeal Arison lends moral support to American's Section 951 lien priority status.

The court below entered partial summary judgment⁶ holding Israel's mortgage to be a valid preferred foreign ship mortgage as defined in Section 951, as amended.⁷ In addition, the court held that Israel's posted lien preclusionary clause⁸ embodied in its foreign ship mortgage was ineffective to alter the Section 953(a) (2)⁹ and Section 951 claims. We approve the holding of the district court and affirm.

I. Background

Although the record in this appeal comes to this Court piece-meal, confusing and sometimes incomplete¹⁰ adequate relevant facts can be gleamed therefrom to throw light on the issues we must deal with.

On December 17, 1963, the Nili-Somerfin Car Ferries, Ltd.¹¹ (Somerfin), owner-mortgagor, contracted with Fairfield Shipbuilding and Engineering Company, Limited, of Govan, Glasgow, Scotland (Fairfield) for construction of the vessel M/V NILI.¹² Financing was arranged through the Bank of Scotland (Bank). Israel signed a guarantee contract with the Bank guaranteeing repayment of the Bank's construction loan to Somerfin. For Israel's guarantee promise, Somerfin executed a first mortgage on the NILI in Israel's favor.

After construction and delivery of the NILI to Somerfin, the mortgage and vessel were registered in Israel. The mortgage secured a series of sixty promissory notes from Somerfin to Israel. It was at this time that Somerfin commenced chartering the NILI for tourist travel from Miami, Florida, to the Bahama Islands. The first charter was to Tropical Cruise Line and was to expire on September 17, 1966.

On June 12, 1966, two of Somerfin's promissory notes were past due and unpaid. The Bank demanded and received payment from the guarantor, Israel. Israel then made a demand on Somerfin for payment but none was forthcoming.

Thereafter, in an endeavor to settle these obligations, numerous meetings were held between Israel and Somerfin. Somerfin's complete inability to pay came to light and talks of a NILI sale were entered into. No sale was ever consummated and the Somerfin obligations remained unpaid.

On September 17, 1966, Somerfin rechartered the NILI to Arison. During this charter period most of the liens involved here attached. On November 17, 1966, after accelerating the debt under the mortgage acceleration clause on November 8, 1966, Israel filed its suit to foreclose its mortgage. The NILI was bid in at foreclosure sale by Israel and the proceeds were ordered held in the registry of the district court. The sale only generated 4.20 million dollars whereas Israel's lien was for 8 million. As a result, if Israel is successful in establishing priority in this lien contest, none of the American and foreign lienors receive anything.

The district court summarized the claims as follows:

                (1) Israel .............................. $ 8,014,644.00
                (2) Settled or dismissed ................      76,349.21
                (3) Claims under 953(a) (2) .............      82,000.00
                (4) American lienors under § 951 ...     275,000.00
                (5) Foreign and other (Singer
                       and Curry) .......................     451,000.00
                

Thereafter, during the pleading stages of this action, Israel and Dade Trading Corporation¹³ filed motions for summary judgment raising the two major issues of this appeal:

(1) Is Israel's mortgage a preferred and valid mortgage within the purview of Section 951 under which the district court has jurisdiction to foreclose certain foreign ship mortgages?

(2) Is the lien preclusionary clause in Israel's foreign ship mortgage, (footnote 8, supra) by which the mortgagor-owner, Somerfin, agreed not to encumber the NILI, valid and effective?

In its order of May 18, 1968, considering these motions, the district court found the mortgage valid and enforceable, but held the lien preclusionary clause invalid and ineffective as to American. Thereafter, on November 4, 1968, the district court amended its May 18 order and certified the two summary judgment questions to this Court pursuant to Title 28, U.S.C., Section 1292 (b). Israel, Singer and Curry appealed from the November 4, 1968 order.

As a result of the partial summary judgment,¹⁴ Israel's mortgage lien was subordinated to American's liens, causing a loss of $275,000 in Israel's recoupment of its mortgage outlay. Singer and Curry, as representatives of the foreign claims, were relegated to a position which shared in a non-existent fund. American and the Section 953(a) (2) claims assumed the priority position. On appeal, all appellants seek a reordering of these priorities.

II. Validity of Israel's Mortgage and Foreclosure Jurisdiction

Singer, Curry and Arison raise many specious arguments contesting the validity of Israel's foreign ship mortgage and the United States district court's foreclosure jurisdiction. We find all of these contentions to be totally without merit and adopt the district court's rationale as set forth in its unpublished partial summary judgment opinion-order entered on October 18, 1968.¹⁵ This leaves for our discussion the single issue of the validity of the Israel mortgage's lien preclusionary clause and its effect on American's liens.

III. Lien Preclusionary Clause — Validity and Effect

We do not think it was error for the district court to hold that Israel's lien preclusionary clause was ineffective here as not within the purview of Title 46, U.S.C. Sections 971-973, and especially 973.¹⁶ Moreover, assuming validity, the lien preclusionary clause would not have the effect of relegating American to a non-maritime status.

Israel realizes that its preferred mortgage lien will be subordinated to American's maritime liens under the subordination proviso of Section 951, as amended, unless it can circumvent a literal reading of that section. The Section 951 proviso reads:

"Provided, however, that such `preferred mortgage lien\' in the case of a foreign vessel shall also be subordinate to maritime liens for repairs, supplies, towage, use of drydock or marine railway, or other necessaries, performed or supplied in the United States."

(Emphasis added)

Israel argues that its preclusionary clause is within the purview of Sections 971-973, especially 973, in the sense that these sections condition American's lien priority under Section 951 on the diligence used by American to learn of Israel's posted lien preclusionary clause. See footnote 16, supra.

Israel theorizes that the Section 973 language "for any other reason" and "the person ordering" contemplates a "lien preclusionary clause" and an "owner" of a vessel, thereby requiring diligence on the part of American. Israel advances this argument in the face of the expressed unconditional subordination language of the Section 951 proviso, supra. We agree with the district court that Israel's contention is answered convincingly by Tradewind, D.C. Md. 1956, 144 F.Supp. 408, 416-417.

In Tradewind, the court traced the history of Sec. 973 in relation to other provisions of the Ship Mortgage Act to show that Sec. 973 was not intended to include a preferred ship mortgage. The court said, 144 F.Supp., at page 417:

"Section 973, when originally enacted as a part of the Federal Maritime Act, created an exception in favor of the vessel owner as against suppliers. If Congress had intended this section, upon its re-enactment as a part of the Ship Mortgage Act, 1920, to be construed as extending this exception to holders of preferred mortgages so as to require suppliers to make inquiry as to the authority of the owner to bind his vessel, the addition of a few words would have made such an intent clear. The careful amendment of Section 974 indicates that when Congress intended a former section of the Federal Maritime Lien Act to be extended to include a mortgage or a preferred mortgage, it used language clearly indicating such an intent." (Emphasis added)

and on page 419:

"Accordingly, this court holds that Section 973 was enacted and re-enacted as an exception in favor of the vessel owner and deals only with the authority of a third person to represent the owner so as to create a lien.

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