Wilkins v. Commercial Inv. Trust Corp.

• Decision Date: 04 September 1998
• Docket Number: No. 97-3182,97-3182
• Citation: 153 F.3d 1273
• Parties: , 12 Fla. L. Weekly Fed. C 74 Edward WILKINS; William Jenkins, et al., Intervenors-Plaintiffs Appellants, v. COMMERCIAL INVESTMENT TRUST CORPORATION, a New York Corporation, in personam, Defendant, Intervener-Defendant, Cross-Claimant, Third-Party-Plaintiff Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1273

153 F.3d 1273

1999 A.M.C. 164, 12 Fla. L. Weekly Fed. C 74

Edward WILKINS; William Jenkins, et al Intervenors-Plaintiffs Appellants, v. COMMERCIAL INVESTMENT TRUST CORPORATION, a New York Corporation, in personam, Defendant Intervener-Defendant, Cross-Claimant Third-Party-Plaintiff Appellee.

No. 97-3182.

United States Court of Appeals Eleventh Circuit.

Sept. 4, 1998.

J. Michael Shea, Tampa, FL, for Intervenors-Plaintiffs Appellants.

Gregory S. Grossman, Bruce A. McAllister, Edward M. Mullins, Stell, Hector & Davis, Miami, FL, for Commercial Investment Trust Corp.

Appeal from the United States District Court for the Middle District of Florida.

Before TJOFLAT, COX and HULL, Circuit Judges.

PER CURIAM:

This is an appeal concerning admiralty jurisdiction. We conclude that admiralty jurisdiction is lacking.

I. Background

A. Facts

This action arises from the failed launching of a new cruise line. The defendant CIT Group/Equipment Financing, Inc., (CIT) acquired the motor vessel Sun ¹ at a foreclosure sale in the Bahamas and then sought a buyer. ² In early June 1996, CIT agreed in principle to a sale to Sun Travel Investment Corporation, part of a group of affiliated corporations that included the proposed charterer, Royal Venture Cruise Line, Inc., and a third corporation, Royal Shipping Management, Inc. (collectively referred to as "the Royal companies"), which planned to operate the Sun as a cruise ship. ³ The purchase agreement was developed through an agreed summary of proposed terms, ⁴ a commitment letter, ⁵ and several amendments to these agreements. ⁶

The deal that emerged was as follows. The purchase price of $25 million was to be mostly financed by CIT, secured by mortgages on the vessel and a pledge of the contemplated charter and of Royal Venture stock. ⁷ In addition, consideration for the sale included an initial investment by the Royal companies of up to $1.5 million to repair and refurbish the vessel. ⁸ The Royal companies would oversee the repairs and refurbishment, and the parties explicitly agreed that the Royal companies were uniquely responsible for all repair and refurbishment expenses (hereinafter called "the refurbishment expenses"). ⁹ The Royal companies' payment for refurbishment expenses was to be guaranteed either by a letter of credit or by an escrow account, issued or opened before refurbishment began, to be available to CIT upon any default in payment by the Royal companies to refurbishers. ¹⁰

The Royal companies began the refurbishment on July 7. As of late July, no Royal company had yet provided the required security, and CIT--worried that maritime liens on the vessel would result if the Royal companies defaulted on their obligations to refurbishers--threatened to end the transaction if security were not provided. ¹¹ At the Royal companies' request, the plaintiff Edward Wilkins, an investor in the Royal companies, stepped in and posted an irrevocable letter of credit for $1.5 million. CIT could draw upon the letter upon certification that one of the Royal companies had failed to pay the refurbishment expenses for which it was responsible, and that a maritime lien would likely result. In exchange for Wilkins's posting the letter of credit, the Royal companies--reaffirming that they were responsible for payment of the refurbishment expenses--promised to open, for Wilkins's protection, an escrow account of up to $1.5 million to be funded by proceeds from a sale of securities. ¹²

Royal Venture also sought help from Gary Kimball, another plaintiff here, who in turn recruited the plaintiffs other than Wilkins (whom we shall call "the investors") to provide varying amounts of cash to the Royal companies. In exchange, Royal Venture provided the investors with notes promising payment from Royal Ventures before certain dates in the fall of 1996 at an 18% interest rate. ¹³ At no point did CIT promise to reimburse any plaintiff here, and no plaintiff has any express lien on the Sun.

By October, it was evident that the Royal companies would not be able to raise enough capital to close the deal. CIT notified the Royal companies of their default under the purchase agreement, and CIT drew upon the letter of credit to pay off the debts that the Royal companies had incurred in refurbishing the Sun. The investors allege that their loans were also used to pay off maritime liens, although there is no evidence to that effect in the record--only conclusory affidavits.

B. Procedural History

This action began when a group of the Sun's seamen sued CIT for wages. The plaintiffs (as we have been calling them here) moved to intervene and assert two claims against the Sun and CIT. In Count I, they sued the Sun and claimed maritime liens under 46 U.S.C. § 31342, in Wilkins's case because he furnished the letter of credit, and in the other plaintiffs' cases because they provided cash to the Royal companies, supposedly to pay refurbishment expenses. In Count II, they sued CIT and the Sun, claiming fraud by CIT or the vessel. ¹⁴ The plaintiffs were permitted to intervene; the seamen who were the original plaintiffs have been dismissed from the case following settlement.

CIT moved to dismiss the Count II fraud claim on the ground of lack of admiralty jurisdiction. While this motion was pending, the plaintiffs moved for partial summary judgment on their maritime lien claim. CIT opposed this motion in part on the ground that no maritime jurisdiction existed over the maritime lien claim. The district court agreed and dismissed the action for want of subject matter jurisdiction. Although the plaintiffs briefly mentioned diversity as an alternative basis for jurisdiction in their response to the motion to dismiss, the district court did not explicitly consider it. The plaintiffs now appeal the dismissal of the action, arguing that either admiralty or diversity jurisdiction exists to hear their claims. Our standard of review is de novo. See Ambassador Factors v. Rhein-, Maas-, Und See-Schiffahrtskontor GMBH, 105 F.3d 1397, 1398 (11th Cir.1997).

II. Discussion

Maritime jurisdiction is a prerequisite to a claim against a vessel asserting a maritime lien. See E.S. Binnings, Inc. v. M/V Saudi Riyadh, 815 F.2d 660, 662 (11th Cir.1987), overruled in part on other grounds, Exxon Corp. v. Central Gulf Lines, Inc., 500 U.S. 603, 111 S.Ct. 2071, 114 L.Ed.2d 649 (1991). Thus, whether maritime jurisdiction exists is a question anterior to, although often coincident with, the question of whether the plaintiff has a maritime lien. See The Resolute, 168 U.S. 437, 439-40, 18 S.Ct. 112, 113, 42 L.Ed. 533 (1897); Inbesa America, Inc. v. M/V Anglia, 134 F.3d 1035, 1036 & n. 2 (11th Cir.1998); Logistics Mgmt., Inc. v. One (1) Pyramid Tent Arena, 86 F.3d 908, 912 (9th Cir.1996). Count I's maritime lien claim is rooted in contract, so jurisdiction is determined by the general rule for admiralty jurisdiction in contract: for jurisdiction to exist the subject contract must be wholly maritime in nature, or any nonmaritime elements must be either insignificant or separable. See Inbesa, 134 F.3d at 1036. A maritime contract in general is one whose subject matter "is necessary to the operation, navigation, or management of a ship," id. (quoting Ambassador Factors, 105 F.3d at 1399), and precedent has defined categories that provide useful boundary posts for the line between maritime and state-law-governed contracts. See Kossick v. United Fruit Co., 365 U.S. 731, 735, 81 S.Ct. 886, 890, 6 L.Ed.2d 56 (1961).

There are many agreements in the facts of this case, both express and implied. The plaintiffs urge us to base jurisdiction on the agreements between Royal Venture and the suppliers who furnished goods and services for the Sun 's refurbishment. Such contracts are maritime, as they are for repair of a vessel. See North Pac. S.S. Co. v. Hall Bros. Marine Ry. & Shipbuilding Co., 249 U.S. 119, 128, 39 S.Ct. 221, 224, 63 L.Ed. 510 (1919). A murkier issue, however, is whether the plaintiffs' in rem claims asserting maritime liens can rest at all on these refurbishment contracts. The plaintiffs argue that their claims are based on these contracts, even though they are not parties to the contracts, because of the maritime rule of advances: "A creditor who advances money specifically for the purpose of discharging a maritime lien is subrogated to the lienor's rights." Sasportes v. M/V Sol de Copacabana, 581 F.2d 1204, 1207 (5th Cir.1978); see Crustacean Transp. Corp. v. Atalanta Trading Corp., 369 F.2d 656, 660 (5th Cir.1966). The money Wilkins paid through the letter of credit, and the money the investors put up, assertedly ended up (after passing through some intermediaries' hands) paying off the refurbishers, who were potential lienors of the Sun. Thus, the plaintiffs are, in their opinion, subrogated to the suppliers' rights. Since jurisdiction would exist to entertain an in rem claim by one of the suppliers, the plaintiffs reason, jurisdiction exists to hear a claim by one subrogated to the lienors' rights.

We are unpersuaded because the plaintiffs cannot benefit from the rule of advances. Not just any creditor whose money goes to discharge maritime liens himself acquires a maritime lien. Rather, the advance must be on the credit of the vessel. Tramp Oil & Marine, Ltd. v. M/V "Mermaid I", 805 F.2d 42, 45 (1st Cir.1986). This qualification carries with it a common-law presumption that anyone making advances to provide necessaries to a vessel does so on the vessel's credit, and not merely on the credit of any individual. See The Emily Souder, 84 U.S. (17 Wall.) 666, 671, 21 L.Ed. 683 (1873); The Cimbria, 214 F. 128, 129 (D.N.J.1914); cf. 46 U.S.C. § 31342(a)(3) (providing that an alleged lienor, to whose rights a creditor may become subrogated, need not prove that credit was given to the vessel). The origin of the presumption is common sense about the paradigmatic loan to the master of a foreign ship who needs the...