“Necessary” Practice Pointers to Secure Maritime Liens

“Necessary” Practice Pointers to Secure Maritime Liens

Cigarettes get a bad rap. Well, actually, cigarettes are bad for your health, but can qualify as a maritime lien.1 Necessaries are recognized maritime liens, and maritime liens offer creditors leverage by attaching a security interest to a vessel. Time is of the essence in arresting a vessel to enforce a maritime lien,2 and vessels can move in and out of ports at breakneck speeds. Without maritime liens, suppliers or vendors may be less willing to provide materials or services to vessels which could simply sail out of port.

A proficient attorney can secure a warrant, arrest a vessel, prevent the vessel’s departure, and increase the chances of recovery to the client. To avoid delay, the attorney must clear the first hurdle and convince the court the client has a valid maritime lien. When the claim concerns wages, bunkers, fuel, maintenance and cure, or other preferred maritime liens, procuring a warrant is a matter of filing the proper pleadings. However, maritime liens are subject to a court’s scrutiny and discretion, and, unfortunately, some cases draw a judge or clerk who are unfamiliar with maritime parlance or how a claim qualifies as a necessary. Informing a client that the court issued a show cause order requiring a response on how the claim qualifies as a necessary and that the response results in additional fees is an unpleasant conversation. This article briefly touches upon the background of maritime liens, but mainly focuses on what qualifies as a “necessary” for pleasure or specialty vessels and offers practice pointers to avoid issues in procuring a warrant. This article does not delve into the analysis on what constitutes a vessel or whether the person who authorized the necessary was an authorized agent – both topics warrant their own articles.

Maritime Liens
Maritime liens serve a vital and unique role in maritime law because it allows a creditor to attach an interest in rem and exercise that interest quickly. Maritime liens arise from general maritime law and statutes. In 1910, Congress passed the Federal Maritime Lien Act (“FMLA”) to encourage growth in the merchant marine industry and unify theories of maritime liens. See Dampskibsselskabet Dannebrog v. Signal Oil & Gas Co., 310 U.S. 268, 271-72 (1940). Some of the congressional intents behind the FMLA was to protect private investment in the shipping industry and provide suppliers and vendors an avenue to recover money due by permitting liens against a vessel’s value. Since the FMLA’s introduction, cases have refined what constitutes a maritime lien. The priority of maritime liens generally descend as follows: (1) custodia legis costs, (2) seaman wage claims, (3) maintenance and cure claims, (4) salvor’s claims, and (5) tort claims. Non-maritime liens have the lowest priority and include state tax liens, state title liens, and Uniform Commercial Code title liens. Also, the general rule is the most recent lien has higher priority than previous liens. Maritime liens are unique in that it permits a vessel’s sale to satisfy the lien rather than obtaining a judgment and then collecting from the vessel’s owner. Silver Star Enters., Inc. v. Saramacca MV, 82 F.3d 666, 668 (5th Cir.1996)(quoting Equilease Corp. v. M/V Sampson, 793 F.2d 598, 602 (5th Cir. 1986) (en banc), cert. denied, 479 U.S. 984, 107 (1986)(recognizing “creditors who provide supplies which are necessary to keep the ship going...grants the creditor the right to appropriate the vessel, have it sold, and be repaid the debt from the proceeds”).

The Standard
Maritime liens can arise when a person or entity provides “necessaries to a vessel.”3 The test for a vessel’s “necessary” is whether the equipment or labor is “useful to the vessel, keep[s] her out of danger, and enable[s] her to perform her particular function.” Equilease Corp. v. M/V Sampson, 793 F.2d 598 (5th Cir. 1986). Some necessaries are statutorily recognized as “repairs, supplies, towage and the use of a dry dock or marine railway.” 46 U.S.C. §31301(4). But, “[c]ourts read the term [necessaries] expansively.” Total Safety US, Inc. v. Con-Dive, LLC, 2009 WL 1794771 (S.D. Tex. 2009) referring to Gulf Marine and Indus. Supplies, Inc. v. Golding Prince M/V, 230 F.3d 178 (5th Cir. 2000). The test is vessel specific and requires an evaluation of the vessel’s function and intended purpose. The Equilease decision provides an in-depth analysis of maritime liens and the issue was whether insurance premiums constitute a maritime lien. The Equilease court held:

“[T]he term necessary under the FMLA includes most goods or services that are useful to the vessel, keep her out of danger, and enable her to perform her particular function. Necessaries are the things that a prudent owner would provide to enable a ship to perform well the functions for which she has been engaged. These ‘things’ may be money, labor and skill, and personal services as well as materials. As an example, we have held that printing for advertising is sufficient to give rise to a maritime lien. Colonial Press of Miami, Inc. v. The Allen’s Cay, 277 F.2d 540 (5th Cir. 1960) See also Stern, Hays, & Lang, Inc. v. M/V NILI, 407 F.2d 549, 551 (5th Cir. 1969). What is a ‘necessary’ is to be determined relative to the requirements of the ship.”

Further, the court reasoned that insurance was “something that every vessel needs just to carry its normal business” and was “essential to keep a vessel in commerce.” Id. at 604. The court’s analysis was clear that there must be a nexus between the necessary and the vessel’s function and intended purpose.

In 2015, Florida’s Department of Motor Vehicles reported nearly 1 million registered vessels.4 In 2016, California reported nearly 700,000 registered vessels.5 The registries are inclusive and identify vessels such as fishing vessels, mega-yachts, and even canoes. Absent from the registries are the thousands of out-of-state vessels that transit Florida and California waters and avail themselves to services and labor of their hosting state’s suppliers and vendors. Considering the myriad vessel types, there will inevitably be different necessaries that qualify as maritime liens.

As an example, a luxury yacht may require high-definition televisions with integrated satellite and internet network systems to cater to a distinct clientele and provide unique and one-of-a-kind experiences.6 Thus, the high-end electronics would be necessary for the luxury yacht to carry out its function and intended purpose. However, the televisions and network systems on a 20’ water taxi would not be necessary to the vessel’s operation or business of shuttling passengers short distances.

In Payne v. S.S. Tropic Breeze, 423 F.2d 236 (1st Cir. 1970), the circuit court held that a master’s travel expenses to meet with the vessel’s owner constituted a necessary and the master was entitled to a maritime lien. The vessel S.S. Tropic Breeze, registered in Libera, was sued by crew members for wages while berthed in Puerto Rico. Id. The master intervened to assert his claims for maritime lien. Id. The vessel’s owners did not appear in court, and the S.S. Tropic Breeze was ordered to auction to satisfy the liens. Id. at 238. Eventually, an intervenor, who was the assignee of the ship’s mortgage, agreed to post funds into the court registry. Id. Prior to the vessel’s arrest, the master incurred travel expenses to meet with vessel owner in an attempt to procure crew wages and allow the vessel to continue her voyage. Id. The circuit court held these travel expenses were “other necessaries” because the master’s services “were necessary to the continued operation of the vessel.” Id. at 241. The circuit court looked to the factual circumstances that without a paid crew the vessel risked being arrested and her voyage terminated. Id. The court recognized the master was unsuccessful in his endeavors to pay the crew, but, at the time, the travel expenses were necessary. Id.

In Total Safety US, Inc. v. Con-Dive, LLC, 2009 WL 1794771 (S.D. Tex. 2009), the district court found that equipment such as self-contained breathing apparatuses (“SCBAs”), fixed gas detection systems, and installation services provided to vessels conducting subsea operations in a gas field were necessaries. The court stated the equipment “was necessary for these vessels to complete their mission of subsea pipe repair in sour gas fields.” Id. at 5. While the number of SCBAs and fixed gas detection systems are not generally found aboard a tow vessel, for example, the court looked to the vessel’s functions and intended purpose to determine whether the equipment and services provided were necessaries.

The cases illustrate that courts evaluate the vessel’s description, the vessel’s functions, the vessel’s intended purposes, and the nexus between the vessel and the claimed necessary. The standard is fact specific and the verified complaint’s allegations and exhibits serves as the best tool to secure the warrant.

Practice Pointers
On its face, the standard to determine what qualifies as a “necessary” appears self-explanatory and its application straightforward. However, submerged dangers may be present. This section offers practice pointers to avoid a show cause order. The procedure to foreclose a maritime lien is generally uniform with slight differences and procedures between local jurisdictions. An overarching summary is that one who provided a necessary to a vessel can foreclose a maritime lien by arresting the vessel. The procedure requires filing a verified complaint with the federal district court. The court reviews the verified complaint, and if probable cause exists, the court will direct the clerk to issue an arrest warrant for the vessel. The U.S. Marshals will arrest the vessel, and the vessel’s possession is usually assumed by a custodian or the vessel owner posts the appropriate bond to release the vessel.

As an example, the United States District Court for the Southern District of Florida requires a judicial officer to “first review the verified complaint, and any other relevant case papers.”7 The standard for federal pleadings is subject to the ubiquitous Twombly and Iqbal cases, and it does pay to be specific in the verified complaint. Southern District of Florida judges may be well versed in how a necessary relates to the vessel’s intended function given the amount of maritime cases that pass through their docket, but a judge in a district that does not experience many maritime cases or the judge’s landlubber clerk reviewing the verified complaint may need a more thorough explanation to analyze the nexus between the necessary and the vessel’s function and intended purpose to find probable cause.

First, the verified complaint should describe the vessel with precision, including the vessel’s function and intended purpose. A verified complaint will generally include a vessel’s dimensions and designation as a motor vessel or a sailing vessel, but often the vessel’s intended purposes is overlooked. As an example, if the vessel is an offshore fishing vessel specializing in Atlantic blue marlin fishing, then include vessel specifics such as the engine size, specialized electronics, radars, and an internet address to business’s website where the judicial officer can view photographs of the vessel. The goal is to paint a picture and show how the necessary could be part-and-parcel of the vessel’s function and intended purpose.

Second, provide a detailed description of the claimed necessary, how it got to the vessel, who authorized the necessary,8 and how the necessary fulfills the vessel’s function and intended purpose – avoid general descriptions. Extending the example of the high-end electronics on the luxury yacht, describe each component’s manufacturer information, model numbers, and prices rather than simply “televisions and networking equipment.” Describe how the client delivered or installed the necessaries on the vessel. Identify the vessel’s agent who authorized the necessaries. Finally, the crux of the verified complaint is the necessary’s nexus to the vessel. A proactive attorney may cite or quote the Safety case with an analysis on how the necessary is relevant to the vessel’s function and intended purpose. The prudent course in close call situations is to gather Unsworn Declarations from those practicing in the field9 such as yacht captains or charterers who are familiar with the clientele and the expectations of the necessaries aboard a luxury yacht. If possible, attach exhibits of the vessel’s chartering materials, the costs for the charters, or prior charter agreements that market the high-end equipment.

Third, if representing a supplier or vendor, then plead a direct connection to the vessel. See generally In Re Container Applications Intern v. Lykes Bros. Steamship Co., 233 F.3d 1361 (11th Cir. 2000). Cases have held that materials delivered in bulk to a charterer or servicing company – even with the knowledge it will eventually arrive aboard a vessel – does not give rise to a necessary. In other words, the court expects privity or a direct connection between the supplier or vendor and the vessel. As such, describe or attach invoices that establish the client delivered the services and materials directly to the vessel or that all parties agreed the materials were vessel specific.

Fourth, a small digression. As a practical matter, a proactive attorney should distinguish the necessary from a component that makes the vessel seaworthy. The practice pointer arises from experience where a court confused the “necessary” standard with the “seaworthy” standard. The court believed that a service, product, or material must contribute to a vessel’s seaworthiness to be designated a “necessary.” In the example of the high-definition televisions, it is clear the televisions would not be equipment required for the vessel’s seaworthiness. Avoid any confusion through proactive pleading that differentiates the necessary from a component that renders the vessel seaworthy.

Conclusion
Most knowledgeable maritime attorneys are familiar with whether the claimed necessary will constitute a maritime lien. As a young cadet, I learned a valuable lesson – never assume the party you are communicating with understands you. In a bone chilling January, I was on the bridge wing of a tanker vessel departing Norfolk with the captain, pilot, and chief mate. Departure consisted of a pre-agreed sequence of casting off the mooring lines since the wind was abeam and pushing the vessel against the dock. On the aft deck, a newly minted third mate was the officer-in-charge of releasing the aft lines per the sequence. The captain assumed the third mate knew how to cast off, but, evidently, the third-mate had never undocked a vessel, ever. Glossing over the expletives, screaming, radios slammed against the bulkhead, and – I’m sure – tears, the vessel got underway without an environmental incident or allision. Much like a captain assuming a licensed officer knows basic departure and mooring line vernacular, an attorney may assume judges or clerks are well-versed in evaluating how a claimed necessary qualifies as a maritime lien. However, assume they don’t, and plead clear supporting facts that will assist the judicial officer reviewing the verified complaint. You will increase the chances of obtaining the warrant and arresting the vessel without delay. The article’s intended purpose was to shed some light on those necessaries that may draw a raised eyebrow and practice pointers to avoid the dreaded show cause order.

Article submitted by Benjamin Dowers, McIntosh Schwartz, PL

Endnotes
1Allen v. The Contessa, 196 F. Supp. 649 (S.D. Tex. 1961). The court found that a local grocer who supplied cigarettes to a shrimping vessel was entitled a maritime lien. The ship’s agent placed orders with the grocer that included cigarettes, and the ship’s agent failed to pay. In finding the cigarettes were necessaries, the court stated that it was local practice was for similar type vessels to offer cigarettes to the crew members, and, as such, the cigarettes were “necessary in order to obtain the crew to man” the vessel.
2The maritime lien attaches to the vessel “the moment the debt arises.” Dresdner Bank AG v. M/V Olympia Voyager, 465 F.3d 1267, 1272 (11th Cir. 2006).
346 U.S.C. 31342(a)
4http://www.flhsmv.gov/dmv/TaxCollDocs/vesselstats2015.pdf
5http://www.dbw.ca.gov/pages/28702/files/Vessel%20registration%20totals%20December%202016.pdf
6This example partly derives from experience where a vendor supplied materials and services to a luxury yacht.
7The Local Admiralty Rule C(2)(a)
8As stated earlier, this article does not analyze who is an authorized agent, but it would be prudent to plead the elements of an authorized agent.
9Unsworn Declarations under, 28 U.S.C. 1746, subject the declarant to penalties of perjury. Affidavits are equally acceptable, but affidavits require notaries which can result in additional time.

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