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United States v. Trident Crusader

Court: Court of Appeals for the Fifth Circuit
Date filed: 2004-04-28
Citations: 366 F.3d 391
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3 Citing Cases

                                                         United States Court of Appeals
                                                                  Fifth Circuit
                                                               F I L E D
                                                                April 28, 2004
                 UNITED STATES COURT OF APPEALS
                      FOR THE FIFTH CIRCUIT                Charles R. Fulbruge III
                                                                   Clerk


                               03-30426



                       UNITED STATES OF AMERICA,

                                                             Plaintiff,

                                VERSUS

                       TRIDENT CRUSADER, ETC.,

                                                             Defendant,

                                  and


                          DET NORSKE VERITAS,

                                        Intervenor-Plaintiff-Appellant,

                                VERSUS

                       UNITED STATES OF AMERICA,

                                        Intervenor-Defendant-Appellee.



          Appeal from the United States District Court
              For the Western District of Louisiana



Before DUHÉ, BARKSDALE, and DENNIS, Circuit Judges.

DUHÉ, Circuit Judge:

     This case presents the question whether a preferred ship

mortgage is void if recorded after a vessel was documented, but

before the vessel construction was complete.       Appellant Det Norske

Veritas (DNV) intervened in this foreclosure action by Appellee,

the Maritime Administration of the United States Department of
Transportation (MARAD), the holder of the first preferred ship

mortgage.    The M/V TRIDENT CRUSADER was seized and sold to MARAD as

a credit bid against MARAD’s mortgage debt, and the intervenor’s

claim was referred to the proceeds.        The district court found that

MARAD had a valid preferred ship mortgage on the CRUSADER that

takes precedence over the claim of DNV, holder of a “necessaries”

lien.1   We agree and affirm.

                                     I.

      The parties agreed that “A first preferred ship mortgage in

favor of the United States, as mortgagee, was placed on the

CRUSADER in July, 1999. The mortgage secured a guarantee, pursuant

to Title XI of the Merchant Marine Act, 1936, as amended, 46 U.S.C.

App. §§ 1271 et seq., from [MARAD] of the loans by which the

CRUSADER’s    construction    was   financed.”2      DNV    challenges    the

validity of MARAD’s preferred ship mortgage, arguing first that M/V

CRUSADER was not a “vessel” so that a lien could not have attached.

When the mortgage was placed on the CRUSADER in July 1999, the

CRUSADER    had   not   completed   its   sea   trials;    sea   trials   were

completed August 18, 1999.3         Vessel documentation, however, was




  1
     DNV was employed as a classification society and was retained
to provide pre-classification services for the review of plans and
specifications and supervision of actual construction.         The
services it provided after vessel completion were necessaries.
Stipulation nos. 6, 28.
  2
      Stipulation no. 15.
  3
      Stipulation nos. 16-17.

                                     2
complete on July 27, 1999, the date the mortgage was recorded.4

The district court found that the CRUSADER was incomplete July 27

and complete August 18, 1999, when its sea trials were completed.5

The court held that the mortgage was properly recorded on the

vessel upon documentation even though the vessel was incomplete.6

      A   vessel   can   be   mortgaged   before    its   construction   is

completed.   Section 1271 of Title 46 defines "mortgage" to include

both a “preferred mortgage as defined in section 31301 of Title 46"

as well as “a mortgage on a vessel that will become a preferred

mortgage when filed or recorded under chapter 313 of Title 46.”          46

U.S.C. App. § 1271(a) (emphasis added).            “Vessel” is defined to

include:

      all types, whether in existence or under construction, of
      passenger cargo and combination passenger-cargo carrying
      vessels, tankers, tugs, towboats, barges, dredges and
      ocean thermal energy conversion facilities or plantships
      which are or will be documented under the laws of the
      United States, [certain] fishing vessels . . . [certain]
      floating drydocks . . . and [certain other] vessels.

Id. § 1271(b) (emphasis added).      With that broad definition of the

term “vessel,” a “mortgage on a vessel” may be made before the

vessel’s construction is completed.


  4
      On July 27, 1999, the New Orleans Office of the National
Vessel Documentation Center issued a Certificate of Documentation
based on presentation of documents from the owner (Application for
Initial Issue, Exchange, or Replacement of Certificate of
Documentation; Redocumentation, stipulation no. 11), from DNV
(International Tonnage Certificate, stipulation no. 12), and from
the builder (Builder’s Certification and First Transfer of Title,
stipulation no. 13). Stipulation no. 14.
  5
      9 R. 368.
  6
      Id. 370.

                                     3
      Largely on stipulations, the Court found that MARAD’s mortgage

was a preferred mortgage as defined in section 31322.7           Under that

section   a    “mortgage,”   “whenever   made,”   is   not   a   “preferred

mortgage” unless it

              (1) includes the whole of the vessel;
              (2) is filed in substantial compliance with section
              31321 of this title [and];
              (3)(A) covers a documented vessel; or
                (B) covers a vessel for which an application for
              documentation is filed that is in substantial
              compliance with the requirements of chapter 121 of
              this title and the regulations prescribed under
              that chapter . . . .8

A “documented vessel” as intended in section 31322 is “a vessel

documented under chapter 121 of [title 46].”9                Reading these

provisions together and with the parties’ stipulations, we hold

that the court correctly determined whether the mortgage was a

preferred mortgage by considering when the mortgage was filed under

chapter 313 and when the vessel was “documented” as provided in

chapter 121, rather than whether the CRUSADER was a “vessel” under

the definitions DNV offers.

      Congress and the Secretary have defined “vessel” in distinct

ways for distinct purposes. Subtitle III, in which sections 30101-

31522 are found, does not encompass the Title 1 definition of

“vessel” that DNV would have us employ, i.e., “capable of being




  7
      9 R. at 370-71.
  8
      46 U.S.C. § 31322(a) (emphasis added).
  9
      46 U.S.C. § 30101(1).

                                    4
used as a means of transportation on water.”10              The “vessel”

required to confer seaman status, too, is obviously different,

because a Jones Act “vessel” must be in navigation.11        We disagree

with DNV’s contention that the existence of a completed “vessel” as

required   for   admiralty   jurisdiction   is   the   appropriate   test,

because the definition of “vessel” for purposes of a mortgage on a

vessel plainly does not require that construction be completed.12

       DNV suggests, too, that because the preferred mortgage is a




  10
      1 U.S.C. § 3. Compare 46 U.S.C. § 30101(1) (definitions for
Subtitle III, consisting of the provisions at issue in this case,
46 U.S.C. §§ 30101-343, with no adoption of § 3's definition) with
46 U.S.C. § 2101(45)     (definitions for Subtitle II, adopting
meaning of “vessel” given in 1 U.S.C. § 3).
  11
       Jones Act recovery is impossible unless a vessel is “in
navigation,” Caruso v. Sterling Yacht & Shipbuilders, Inc., 828
F.2d 14 (11th Cir. 1987), but the phrase “documented vessel” in
§ 30101(1) has no such requirement. Compare 46 U.S.C. § 30101(5),
which defines “seaman” to mean “a master or a crewmember of a
vessel in operation”)(emphasis added).
  12
      46 U.S.C. App. § 1271(b). Regulations governing obligation
guarantees, part 298 of title 46, similarly provide,

  Vessel means all types of vessels, whether in existence or
  under construction, including passenger, cargo and combination
  passenger-cargo carrying vessels, tankers, towboats, barges
  and dredges which are or will be documented under the laws of
  the United States, [certain] floating drydocks . . . [and
  other] vessels. . . .

46 C.F.R. § 298.2. (emphasis added).

   To the extent that In re Biloxi Casino Belle equates the meaning
of “vessel” in 46 U.S.C. §§ 30101, 31321 and 31322 with the
definition of a "vessel" under 1 U.S.C. § 3 and or the existence of
a “vessel” required for purposes of admiralty jurisdiction, we
disagree with it. Charles N. White Constr. Co. v. MRA, Ltd. (In re
Biloxi Casino Belle, Inc.), 176 B.R. 427, 432-35 (Bkrtcy. S.D.
Miss. 1995).

                                   5
species of maritime lien,13 maritime jurisdiction cannot exist

unless the vessel meets the admiralty-jurisdiction definition of

“vessel.”14   Maritime jurisdiction has been present over preferred

mortgages, however, since enactment of the Ship Mortgage Act in

1920.

       The statute (then and now) provides for jurisdiction to

enforce a preferred mortgage via an in rem proceeding.15                    The

Supreme Court in Thomas Barlum determined that a district court had

such jurisdiction provided Congress had authority to grant it, and

indeed    found     Congressional   authority     to    expand       admiralty

jurisdiction to preferred mortgages although they were not formerly

considered to be maritime contracts.16

       We also disagree with DNV’s suggestion that Congress did not

expand   maritime    jurisdiction   with   the   enactment     of    the   Ship

Mortgage Act, which made ship mortgages subject to admiralty

jurisdiction and foreclosure by in rem process.17        Formerly, a ship

  13
     The statutory scheme deems the preferred mortgage a “lien” on
the “vessel,” 46 U.S.C. § 31325(a), but does not call it a
“maritime lien.” The statute distinctively denominates maritime
liens and preferred mortgage liens where both are intended. E.g.,
46 U.S.C. § 31326(a).
  14
      DNV did not contest federal jurisdiction because the United
States is a party.
  15
      See 46 U.S.C. § 31325(c) of the 1989 Maritime Commercial
Instruments and Liens Act, 46 U.S.C. § 31301-31343, replacing the
Ship Mortgage Act of 1920, previously codified at 46 U.S.C. § 911
et seq. (repealed 1989).
  16
      Detroit Trust Co. v. The Thomas Barlum, 293 U.S. 21, 32, 52,
55 S.Ct. 31, 41, 42 (1934).
  17
      For provisions       of   current    enactment,    see        46   U.S.C.
§ 31325(b)(1)&(c).

                                    6
mortgage was not subject to remedies in admiralty, being a contract

that was not maritime.18    “But it did not follow . . . that Congress

was without power to amend the law so as to enable the admiralty

courts to take cognizance of mortgages on ships . . . .”19

       The real question is thus whether the mortgage is preferred —

not whether the preferred mortgage lien is maritime.               To create

public confidence in obligations issued on the faith of ship

mortgages, the Congress “[gave] a definite and assured character to

such mortgages provided they met certain simple conditions.”20

Congress considered, as was within its discretion, “methods by

which securities are issued to the public and dealt in, and the

well-known usages of business in this regard.”21             As the Supreme

Court    declared,   “The   mortgage       is   made   preferred   only   upon

compliance with all the conditions specified, . . . and the

[competing] maritime lien is preferred if it arises before the

recording . . . of the mortgage.           We see no room for construction,

and there is nothing for the courts to do but to bow their heads

and obey.”22

       The district court thus properly focused on whether the

mortgage attained preferred status by satisfaction of those simple

  18
     Bogart v. The John Jay, 58 U.S. (17 How.) 399, 402, 15 L. Ed.
95 (1854).
  19
        Thomas Barlum, 293 U.S. at 40, 55 S.Ct. at 47.
  20
        Id., 293 U.S. at 51, 55 S.Ct. at 41.
  21
        Id., 293 U.S. at 51-52, 55 S.Ct. at 41.
  22
      Morse Dry Dock & Repair Co. v. The Northern Star, 271 U.S.
552, 556, 46 S.Ct. 589, 590 (1926).

                                       7
conditions specified in the statute.                       Accordingly, the district

court’s consideration of filing of the mortgage, eligibility for

documentation          of    the   vessel,   and      documentation       were    entirely

appropriate to determining when the mortgage became a preferred

mortgage under 46 U.S.C. App. § 1271(a) and 46 U.S.C. § 31322(a).

            With respect to the requirement in section 31322(a)(2), that

a mortgage be filed in “substantial compliance” with section 31321,

we find no error or no error preserved.                          DNV cites legislative

history under section 31321 declaring that if someone proves “that

an        instrument    is     invalid    because     it    is    not   in    substantial

compliance with the legal requirements, then the responsibility for

that is on the party that was responsible for providing that

information, not the Secretary.”23                DNV has not established MARAD’s

responsibility under that principle, however.

           DNV does contend that MARAD “elected to rush to a premature

closing on an incomplete vessel.”                  The only misinformation in the

documentation that DNV notes, for the first time in its reply

brief, is the representation in the builder’s certificate that the

CRUSADER’s “entire construction” was completed.24                       DNV has neither

attempted        to     argue      that   MARAD       was    responsible         for   such

misinformation, nor shown that the district court clearly erred in

finding that           MARAD    had   nothing    to    do    with   the      documentation




     23
            H. Rep. No. 100-918, reprinted in 1988 U.S.C.C.A.N 6104,
6110.
     24
           Reply br. at 7 n.2.

                                             8
process.25

                                    II.

       DNV’s second challenge is that MARAD was not in “good faith”

because when it took its mortgage, it knew of existing charges and

liens against the CRUSADER.       The former Ship Mortgage Act required

an owner’s affidavit of good faith to be filed with a mortgage, but

this requirement was repealed.26          In 1989 the Maritime Commercial

Instruments and Liens Act27 replaced the Ship Mortgage Act of 1920.

Jurisprudence      under   the   former    act   extended   the   statutory

requirement for an owner’s affidavit of good faith (under former §

922(a)(3)) to derivatively require the mortgagee to also be in good

faith.28     The affidavit of good faith is not required under the

current law, and new penalties have been imposed as substitute

protection against fraud.29      We will not read into the current law

the provisions of a repealed act or its jurisprudential gloss where

Congress has not seen fit to carry forward the provisions at issue.

       Further, the district court specifically found no bad faith

  25
       7 R. 368.
  26
       See 46 U.S.C. § 922, repealed 1989 by Pub.L. 100-710.
  27
       46 U.S.C. § 31301-31343.
  28
      Farmers & Traders State Bank of Meredosia v. Magill (In re
Meredosia Harbor & Fleeting Serv., Inc.), 545 F.2d 583, 587-88 (7th
Cir. 1976), cert. denied, 430 U.S. 967, 97 S.Ct. 1649, 52 L. Ed. 2d
359 (1977).
  29
      E.g., 46 U.S.C. §§ 31309, 31323(c), 31330; see H. Rep. No.
100-918, reprinted in 1988 U.S.C.C.A.N 6104, 6135 (“This section
[31322] eliminates the requirement for the inclusion of an
affidavit of good faith.      However, both criminal and civil
penalties have been added to help ensure that there is not
fraud.”).

                                     9
and no fraud or other inequitable conduct on the part of MARAD30

warranting equitable subordination31 or denial of preferred status.

We discern no clear error in those findings or any misapplication

of law.

                                   III.

       The district court properly focused on the statutory scheme

which specifies certain simple conditions that make a “mortgage on

a vessel” become a “preferred mortgage.”             Upon review of the

record, we find no clear error in the court’s findings that those

conditions were met and that no fraud or misconduct on MARAD’s part

warranted   avoidance   of   its   position   of   preference.   MARAD’s

preferred mortgage takes priority over DNV’s necessaries lien.        46

U.S.C. § 31326(b)(1).    The judgment of the district court is

       AFFIRMED.




  30
       9 R. 358-59, 373-75.
  31
      The district court refused to equitably subordinate MARAD’s
lien. Although discussed to a limited extent in MARAD’s brief and
at argument, equitable subordination is beyond the scope of our
review. DNV’s asserted error is that the mortgage was invalid from
its inception, not that it should be equitably subordinated.

                                    10