Stephens Boat Co., Inc. v. BARGE ORR 1, Civ. A. No. 91-3235.

• Decision Date: 02 April 1992
• Docket Number: Civ. A. No. 91-3235.
• Citation: 791 F. Supp. 145
• Parties: STEPHENS BOAT CO., INC. v. The BARGE "ORR 1", et al.
• Court: U.S. District Court — Eastern District of Louisiana

791 F. Supp. 145

STEPHENS BOAT CO., INC. v. The BARGE "ORR 1", et al.

Civ. A. No. 91-3235.

United States District Court, E.D. Louisiana.

April 2, 1992.

George V. Baus, Adams & Reese, New Orleans, La., for plaintiff.

Carter K.D. Guice, Asst. U.S. Atty., New Orleans, La., for intervenor, U.S.

ORDER AND REASONS

MENTZ, District Judge.

Before the Court are two motions of the United States: its Motion to Stay Sale to Enforce Judgment, and its Motion to Set Aside Default Judgment and Dismiss Complaint to Enforce Lien. For the reasons set out below, the Court finds the second motion to be well taken in part, and the first to be moot in light of the action ordered herein to dispose of the second.

I. Facts

Agents of the U.S. Customs Service seized the barge ORR1 from the shipyard of Stephens Boat Co., Inc., the builder of the barge. At the time of the seizure, Stephens Boat was holding the barge pending payment of sums due for parts and labor that Stephens Boat had incurred in outfitting the barge for its intended use. According to Customs, the barge was subject to forfeiture due to the existence of hidden compartments incorporated into its hull. Stephens Boat filed suit in this Court both in rem and in personam to recover the money it claims it is due. The Clerk of Court entered default on September 26, 1991, and the United States intervened on October 2, 1991, and began conducting discovery. On October 16, 1991, this Court entered a default judgment against the barge in rem. Stephens Boat sought to sell the barge to enforce its lien, and the United States responded with the motions described above.

II. The Character of the Dispute

Because each of the three actions that the United States has requested the Court to take depends at least partially upon the nature of the interest that Stephens Boat is able to assert against the barge, the Court will define that interest at the outset of this opinion. The United States asserts that the debt that Stephens Boat seeks to satisfy by proceeding against the vessel is not within the maritime jurisdiction of the United States. In light of the argument of the United States and of evidence that discovery has recently revealed, the Court agrees. Stephens Boat argues that "at the time that title was transferred to the purchaser and the Barge was registered under foreign flag, the contract for construction of the Barge had been completed, the Barge had been launched and the price paid therefor."¹ However, the Court notes and approves the following statement of the law:

In the United States it is settled by authority that a contract for building of a ship, or supplying materials for her construction, is not a maritime contract. The Supreme Court so held in 1857 in People's Ferry Co. v. Beers,² and has followed that ruling both in dicta and decision in every subsequent case in which the subject has been presented or reference to it made."³

The Barge's having been launched is of no consequence, as the Supreme Court has ruled:

Counsel for appellant insist that there is a broad distinction between a vessel construction contract and one for work and material to finish a vessel after she has been launched and is waterborne. ... However, we think the same reasons which exclude such contracts from admiralty jurisdiction likewise apply to agreements made after the hull is in the water, for the work and material necessary to consummate a partial construction and bring the vessel into condition to function as intended.

The FRANCIS MCDONALD, 254 U.S. 242, 244-45, 41 S.Ct. 65, 66, 65 L.Ed. 245 (1920) (emphasis added).

Moreover, even if the Barge had embarked upon a short voyage before its completion, the outcome would be the same: the additional equipment that Stephens Boat installed was "necessary to outfit the new vessel for its intended purpose,"⁴ and, as a consequence, the contract providing for the installation of that equipment was "merely preliminary to its use as an instrumentality of commerce and navigation." B & B Salvage & Rigging, Inc. v. M/V NORTH BEND, 548 F.Supp. 123, 124 (E.D.Mo.1982).⁵ A contract that falls outside the admiralty jurisdiction of the United States cannot give rise to a maritime lien. See E.S. Binnings, Inc. v. M/V SAUDI RIYADH, 815 F.2d 660 (11th Cir.1987). Thus, Stephens Boat's only right against the barge is a state-created lien of a maritime nature under La.Civ. Code art. 3237, rather than a maritime lien.

III. Motion to set aside default judgment

The United States moves to set aside the in rem default judgment against the barge, arguing as follows:

Rule 55(e) of the Federal Rules of Civil Procedure sets out, "No judgment by default shall be entered against the United States or an officer or agency thereof unless the claimant establishes a claim or right to relief by evidence satisfactory to the court." A default should not stand against the government on this basis of this provision alone. However, even if the United States did not have the benefit of this rule, the United States intervention would defeat the default.⁶

The argument of the United States is incorrect for the simple reason that no default judgment of any kind has been entered against it. Foreclosure of an interest in a vessel against that vessel in rem is not a default judgment "against" the United States, even where the latter has already commenced judicial forfeiture proceedings against the vessel. General Elec. Credit Corp. v. The Oil Screw TRITON VI, 712 F.2d 991 (5th Cir.1983).

The motion of the United States is well taken for a reason other than the one it argued, however. While a proper default judgment can be rendered against a vessel despite the potential forfeiture interest of the United States, such a judgment is inappropriate where the Court lacks jurisdiction to render it. As a general matter, Federal courts are empowered to enforce state created liens; "state legislation, maritime in nature but applicable to areas not considered by federal maritime law or covered by enactments of Congress, is enforceable in the federal courts...." Grow v. Steel Gas Screw LORAINE K, 310 F.2d 547, 549 (6th Cir.1962).⁷ Specifically, liens arising under La.Civ.Code art. 3237 are enforceable by this Court both in personam and in rem. Equilease Corp. v. M/V SAMSON, 568 F.Supp. 1259, 1264 (E.D.La.1983) (Mentz, J.), rev'd on other grounds, 756 F.2d 357 (5th Cir.1985).

However, the Court's power to grant relief in rem is limited to causes brought under the maritime jurisdiction of the United States. "In the absence of admiralty jurisdiction, in rem remedies are not available." Cary Marine, Inc. v. The M/V PAPILLON, 872 F.2d 751, 754 (6th Cir. 1989).⁸ Thus, because this Court's default judgment of October 16, 1991, against the Barge in rem was void, the Court will vacate that judgment pursuant to Fed. R.Civ.P. 60(b)(4).

IV. Motion to dismiss complaint

The United States also contends that it is entitled to dismissal under Fed. R.Civ.P. 12(b)(6) on the ground that Stephens Boat has failed to state a claim on which relief could be granted. However, "the mere existence of the forfeiture statutes does not preclude this admiralty proceeding, particularly where the private action is the first filed...." Rayon Y Celanese Peruana v. M/V PHGH, 471 F.Supp. 1363, 1367 n. 5 (S.D.Ala.1979).⁹ The Court finds no merit in the assertion of the United States that Stephens Boat cannot maintain this action simply because the Customs Service has seized the vessel and the United States intends to bring forfeiture proceedings against it.

Moreover, even if forfeiture proceedings were currently going forward, any interest that the United States could assert would be junior to that of Stephens Boat under its state-created lien. The United States cites many nonmaritime cases for the proposition that "it is a well-established principle of law that when property is subject to forfeiture for violation of the law, title vests absolutely in the government on the date of the illegal act.... Since the forfeiture actually occurs at the moment of the illegal use, no third party can acquire a legally cognizable interest in the property after the date of the illegal act which forms the basis of the forfeiture."¹⁰

This is plainly incorrect. From the outset of this dispute, Stephens Boat has claimed innocent lienholder status, and the United States has not challenged that status in any of its pleadings.¹¹ The rights of such a lienholder "are protected, whether its lien arose before or after the unlawful act was committed, so long as it had no knowledge of the master's or owner's intention to engage in an illegal venture and did not in any way join in the execution of the violation." 2 Benedict on Admiralty § 65 at 5-16 (1991).¹² Consequently, Stephens Boat is entitled to full payment of its state-created lien interest before the United States can recover based upon its forfeiture claim. See Varian, Rank and Priority of Maritime Liens, 47 Tul.L.Rev. 751, 763 (1973).¹³ Thus, the Court will continue to entertain this action.

V. Other matters

Because the default judgment upon which Stephens Boat sought to sell the barge is vacated herein, the Motion to Stay Sale to Enforce Judgment of the United States is denied as moot. In addition, this opinion does not address the appropriateness of the arrest of the barge that this Court ordered when it appeared that this was a maritime cause. That arrest is now suspect because it appears that the sole basis of this Court's subject matter jurisdiction is diversity of citizenship and amount in controversy under 28 U.S.C. § 1332. The Court will entertain the briefs of counsel on this issue as specified below. Finally, it appears to the Court that Stephens Boat filed an appropriate bond under 19 U.S.C. § 1608 in October, 1991¹⁴ and that the United States' delay in filing judicial forfeiture proceedings is unwarranted. Stephens Boat has made repeated entreaties both of the Court and of the...