Gowen, Inc. v. F/V Quality One

United States Court of Appeals
For the First Circuit

No. 00-1898

GOWEN, INC.,

Plaintiff, Appellee,

v.

F/V QUALITY ONE, IN REM; NUNYA, INC., IN PERSONAM;

Defendants, Appellants.
__________

RESOURCE TRADING COMPANY,

Claimant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MAINE

[Hon. Gene Carter, U.S. District Judge]

Before

Boudin, Circuit Judge,

Bownes, Senior Circuit Judge,

and Lynch, Circuit Judge.

William H. Welte with whom Welte & Welte, P.A. was on brief
for appellants.
Michael Kaplan with whom Preti, Flaherty, Beliveau, Pachios
& Haley, LLC was on brief for plaintiff.
 March 30, 2001

BOUDIN, Circuit Judge. This case involves a question

of first impression as to the scope of maritime liens. Gowen,

Inc., brought the action in December 1999 in federal district

court against the vessel F/V Quality One and her owner, Nunya,

Inc. Gowen sought to recover debts owed for wharfage and

repair, and sought relief in rem against the vessel and in

personam against the owner. Federal Maritime Lien Act, 46

U.S.C. §§ 3141-43 (1994). The amount sought, with interest

through November 23, 1999, was just under $12,000, plus

unspecified costs of collection and attorney's fees. The vessel

was arrested pursuant to a warrant commanding the seizure of

"her equipment, engines, and appurtenances."

After Nunya failed to answer Gowen's complaint, Gowen

secured an entry of default and then a default judgment

establishing liability. Fed. R. Civ. P. 55(a), (b). Upon entry

of the default judgment, Gowen promptly moved for sale of the

vessel, including specifically her fishing permits and history,

which Gowen's motion argued were appurtenances of the vessel.

No opposition was filed. On February 29, 2000, the court

ordered a public sale of the vessel, including "any valid

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fishing permits and history to the extent permitted by

applicable law." The permits, as more fully explained below,

are federal permits allowing restricted use of the vessel for

the fishing of specific species. See, e.g., 50 C.F.R. §

660.336(b) (2000); Sea Watch Int'l v. Mosbacher, 762 F. Supp.

370, 373 & n.1 (D.D.C. 1991).1

After local advertising the vessel was sold at auction

on March 15, 2000, by representatives of the United States

Marshals Service. Seven or eight bidders attended, as did the

captain of the vessel. Prior to the bidding, the captain told

those present that the sale was being challenged legally and

that the permits would not be transferred with the vessel. Only

two bids were then made: one by Gowen for $16,000, and the

other by Andrew Todd for $17,000. Todd's bid was accepted.

Under the terms of the auction, Todd paid the $17,000 sale price

that same day.

Gowen moved on March 27, 2000, for confirmation of the

sale, and for the first time counsel for the vessel and owner

appeared and opposed the motion. The opposition disputed inter

1
The fishing or catch history is a record of fish caught by
the vessel over time (usually measured in yearly increments).
It is used to determine whether the vessel qualifies for a
permit and what the vessel's permit allows. Consistent with the
practice of the district court and the parties, we sometimes
refer to the permits alone when both the permits and the
corresponding fishing history are meant.

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alia the inclusion of the permits and the fairness of the price.

The district court then held an evidentiary hearing, in which

it heard testimony from five witnesses. The court later

received briefs from both sides. On June 14, 2000, the court

issued a decision upholding the sale and ruling that the permits

and history were included as appurtenances. Gowen, Inc. v. F/V

Quality One, 2000 A.M.C. 2225, 2229, 2233 (D. Me. 2000).

Thereafter, the Marshal provided a bill of sale to Todd.

1. Nunya and the F/V Quality One have now appealed

from the confirmation of sale and the decision that the sale

includes the permits and history. Although interlocutory (the

proceeds have not yet been divided), the confirmation order is

appealable. 28 U.S.C. § 1292(a)(3) (1994). Nevertheless, Gowen

has argued that the appeal should be dismissed, for mootness or

lack of jurisdiction, because the appellants allowed the sale to

be completed without seeking a stay. This means, says Gowen,

that no effective relief is now possible since Todd owns the

vessel and permits and Todd is not even a party to the case.

The problem raised by Gowen is common enough in a

number of different contexts. See, e.g., Oakville Dev. Corp. v.

F.D.I.C., 986 F.2d 611, 613 (1st Cir. 1993) (mortgage

foreclosure sale); Anheuser-Busch, Inc. v. Miller (In re Stadium

Mgmt. Corp.), 895 F.2d 845, 847-48 (1st Cir. 1990) (bankruptcy).

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Here, it is sufficient to defeat any claim of mootness that a

reasonable chance of effective relief would remain if we were

persuaded to reverse the district court. For example, a ruling

that the fishing permits were not transferred would be possible.

Only if it were indisputable that no form of relief could be

provided would a mootness claim lie. Pine Tree Med. Assocs. v.

Sec'y of Health & Human Servs., 127 F.3d 118, 121 (1st Cir.

1997).

Obviously, any relief that nullified the sale or

stripped out the permits could raise issues of fairness and

reliance, and there is an interest in making court-ordered

auctions viable. See Munro Drydock, Inc. v. M/V Heron, 585 F.2d

13, 14 (1st Cir. 1978). But in the ordinary case, these are

arguments against relief or particular types of relief--not

proof that relief is impossible. It is only in an extreme case

(e.g., a completed complex reorganization, cf. Rochman v.

Northeast Utils. Serv. Group (In re Pub. Serv. Co. of N.H.), 963

F.2d 469, 472-76 (1st Cir.), cert. denied, 506 U.S. 908 (1992)),

that the failure to seek a stay might be deemed fatal at the

outset.

Alternatively, Gowen says that appellants waived their

objections, or that laches applies, because they did not oppose

the default, default judgment, or motion for sale, and did not

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seek a stay of the confirmation order. No obvious reason exists

why either default (entry or judgment) should bar an objection

to the adequacy of the auction price; the fairness of the sales

price could hardly be an issue prior to the sale. By analogy,

failure to contest a default judgment for an unliquidated sum

does not automatically bar a dispute as to damages. See Fed. R.

Civ. P. 55(b)(2); cf. Sony Corp. v. Elm State Elecs., Inc., 800

F.2d 317, 321 (2d Cir. 1986).

On the other hand, the failure to object in advance to

inclusion of the permits could be deemed fatal to an appeal on

that issue. This is not because of the default judgment; the

complaint did not specifically mention the permits nor does a

default judgment automatically preclude all challenges, in

subsequent stages of the same case, to the legal premises of the

complaint.2 It is because after the default but before the sale

Nunya knew from the terms of the motion that Gowen sought to

include the permits in the sale and did nothing to object to

this inclusion in court prior to the sale.

2The default judgment is conclusive as to facts but does not
always defeat later legal objections. Bonilla v. Trebol Motors
Corp., 150 F.3d 77, 80 (1st Cir. 1998) (defaulted party able to
argue failure to state a claim), cert. denied, 526 U.S. 1098
(1999); Dierschke v. O'Cheskey (In re Dierschke), 975 F.2d 181,
185 (5th Cir. 1992) (entertaining a defaulted party's argument
that relief was beyond that requested in the complaint).

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 Although the complaint did not request anything more

specific than the arrest, attachment, and sale of the F/V

Quality One and the attachment and sale of other unspecified

property of Nunya, the duly served motion for an order of sale

explicitly sought to include the permits and history as

"appurtenances" to be sold. No objection was filed on behalf of

appellants. Thereafter, the court's order specifically

designated the permits and history as items to be sold at the

auction to the extent legally permitted; although there were

more than two weeks between the order and the sale, again no

objection was filed by appellants.

It seems to us that once appellants knew that the order

of sale was intended to sell the fishing permits and history,

they had an obligation to make a timely objection to the

district court. Cf. Reilly v. United States, 863 F.2d 149, 160-

61 (1st Cir. 1988). Under the District of Maine's local rules,

objections to the motion for an order of sale were waived if

they were not filed within ten days after the filing of the

contested motion, D. Me. R. 7(b) (2000) (the period was recently

increased to 21 days). Appellants did not file any objection in

the more than three weeks between Gowen's motion and the date

when it was granted.

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 Nonetheless, although the obligation to make timely

objections is worth stressing for the benefit of future

litigants, we do not rely upon it in this case. When the

district court ordered that the sale include the permits, it

said that this inclusion was "to the extent permitted by

applicable law," arguably reserving the issue for later

disposition. And the district court decided on the merits the

issue of whether the permits were properly included. Under

these circumstances, we decline to decide the dispute based

solely on waiver or laches.

2. Under maritime law, a maritime lien against the

vessel and its appurtenances arises for certain liabilities,

including wharfage and repairs, and the vessel can be arrested

and sold to satisfy such liens. See generally Gilmore & Black,

The Law of Admiralty ch. IX (2d ed. 1975). It was on that

doctrinal premise that the sale in this case took place. If the

permits were appurtenances, they were subject to the lien and

passed with the sale of the vessel; if not, they were merely

personal property of the owner, like a desk in a steamship

company office. 2 Benedict on Admiralty § 32, at 3-3 (7th ed.

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2000) ("The term 'vessel' includes its apparel and

appurtenances.").3

Traditionally, a maritime lien attaches not only to the

bare vessel but also to equipment that is used aboard the vessel

and is "essential to the vessel's navigation, operation, or

mission." Gonzalez v. M/V Destiny Panama, 102 F. Supp. 2d 1352,

1356 (S.D. Fla. 2000); see also United States v. F/V Sylvester

F. Whalen, 217 F. Supp. 916, 917 (D. Me. 1963). Although a

vessel's fishing permits generally must be kept "on board," 50

C.F.R. § 648.4(l), the rights themselves are what matter, and

they are intangible. The question, not often mooted, is whether

a maritime lien applies to intangibles that play a role similar

to the vessel's equipment.

There is no general objection to treating an intangible

as an appurtenance. On the contrary, freight charges due on

account of a vessel's carriage of cargo are subject to maritime

liens against the vessel. United States v. Freights of the

Mount Shasta, 274 U.S. 466, 469-70 (1927) (Holmes, J.); 29

Moore's Federal Practice § 705.01[6][d], at 705-21 (Coquillette

et al. eds., 3d ed. 2000). Appellants point out that the

3Here, Gowen sought an in personam judgment against Nunya
and might eventually have levied on its non-appurtenant
property, but a maritime lien is enforced by different
procedures and governed by different substantive rules. See
Gilmore & Black, supra, §§ 9-1, 9-2, 9-19.

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majority view is that insurance proceeds due on cargo loss or

damage are not subject to maritime liens.4 However, the reasons

for this do not turn on the intangible character of the proceeds

but on history and on conceptual concerns peculiar to insurance.

See note 4.

"The determination [whether something is an

appurtenance] is commonly made on a case-by-case basis without

great consistency of results." 1 Schoenbaum, Admiralty and

Maritime Law § 9-1, at 489 (2d ed. 1994). There being no

authoritative answer as to how fishing permits should be

classed, we must ask whether treating such permits as subject to

maritime liens advances the objectives for which such liens were

created and, if so, whether there are overriding objections to

the contrary. A familiar purpose of such liens is to make

readily available to a mobile borrower the secured credit that

is often necessary to ensure that a vessel can obtain the basic

supplies or services needed for its operation.5

4See Gilmore & Black, supra, § 9-19, at 622 n.80 (citing
conflicting cases). Compare Farland v. T & T Fishing Corp., 626
F. Supp. 1136, 1140-41 (D.R.I.), vacated on other grounds, 808
F.2d 1513 (1st Cir. 1986), and A.M. Bright Grocery Co. v.
Lindsey, 225 F. 257, 260-61 (S.D. Ala. 1915), with The Conveyor,
147 F. 586, 592-93 (D. Ind. 1906).
5Stewart & Stevenson Servs., Inc. v. M/V Chris Way
MacMillan, 890 F. Supp. 552, 562 (N.D. Miss. 1995); Bavely v.
Wandstrat (In re Harbour Lights Marina, Inc.), 146 B.R. 963, 971
(Bankr. S.D. Ohio 1992), aff'd, 153 B.R. 781 (S.D. Ohio 1993);

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 Because of declining fishing stocks, federal law now

elaborately regulates catches for many types of fish through a

network of statutory provisions, regulations, and agreements too

complicated to summarize. See, e.g., Magnuson-Stevens Fishery

Conservation and Management Act, 16 U.S.C. §§ 1801-83 (1994); 50

C.F.R. ch. VI (1999). In practical terms, the "vessel permits"

at issue in this case reflect rights to fish for certain species

for a certain number of days each year. See 50 C.F.R. pt. 648.

For present purposes, what matters is that vessels like the F/V

Quality One are valuable significantly, and sometimes almost

entirely, because of their permits.

Testimony during the district court hearing made clear

that the F/V Quality One's permits contributed substantially to

the vessel's value, although there was disagreement as to what

the vessel was worth standing alone and how much more the

permits contributed. Documents indicated that the permits

included a multispecies permit (for certain northeastern species

listed in the regulations) and several other permits for

individual species. Neither at the hearing nor on appeal has

either side distinguished among the permits.

Thus, not only the market value but the

creditworthiness of the fishing vessel may well depend on its

29 Moore's Federal Practice, supra, § 705.01[1], at 705-7.

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permits quite as much as on its engine, physical dimensions, and

navigation equipment. Maritime liens underpin the extension of

credit to fishermen, and this mechanism for ready credit would

be impaired by excluding from the lien the permits that allow

vessels to carry on their accustomed fishing activities. Thus,

in the large, fishermen seeking repairs and supplies on credit

are likely to benefit from treating a vessel's permits as

appurtenances.

The benefits should not be overstated. Maritime liens

are mostly "secret," because (ship mortgages aside) there is no

registry system for such liens. 2 Benedict on Admiralty, supra,

§ 24, at 2-16; Gilmore & Black, supra, at 588. Furthermore, the

general rule with maritime liens is that, among liens of "equal

rank," later liens have priority. 2 Benedict on Admiralty,

supra, § 51, at 4-4. No one offering credit for supplies or

repairs can be certain just how many higher-priority creditors

will be standing in line when collection is sought. But

presumably common knowledge may supply the equivalent of a

credit rating for a fisherman based for years in, or regularly

visiting, the same community.

From the standpoint of policy, no obvious arguments

exist against treating the permits as subject to lien. We have

assumed, as appellants assert, that the permits could in some

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circumstances be severed from the vessel upon its sale and

retained by its old owner. But courts have repeatedly upheld

maritime liens upon "severable" equipment, including,

surprisingly enough, equipment merely leased to the owner.

Stewart & Stevenson Servs., Inc. v. M/V Chris Way MacMillan, 890

F. Supp. 552, 561 (N.D. Miss. 1995) ("components of a vessel,

even though readily removable," may be appurtenances); F/V

Sylvester F. Whalen, 217 F. Supp. at 917 (leased fathometer and

radar equipment); 2 Benedict on Admiralty, supra, § 32, at 3-3

to 3-5; 1 Schoenbaum, supra, § 9-1, at 488-89.

Nor is there any indication that upholding the lien

here would upset settled expectations. There is no evidence of

any common understanding in the maritime world that permits are,

or are not, subject to liens. Nor is there much precedent. The

only circuit case on point assumed without discussion that

permits were subject to liens, but the issue was not actively

litigated. Bank of Am. v. Pengwin, 175 F.3d 1109, 1119 (9th

Cir.), cert. denied, 528 U.S. 872 (1999). Here, as elsewhere

with new issues, the case law probably has to form expectations

rather than reflect them.

Appellants point out that Congress has recently

provided by statute for the Secretary of Commerce to create a

registry system for a large class of fishing permits,

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Sustainable Fisheries Act, Pub. L. No. 104-297, § 110(d), 110

Stat. 3559, 3590-92 (1996) (codified at 16 U.S.C. § 1855(h)

(Supp. II 1996)). The statutory provision in question, 16

U.S.C. § 1855(h), contains language that could be used to argue

that the registry system will preempt any use of maritime liens

against fishing permits:

Such registration shall constitute the
exclusive means of perfection of title to,
and security interests in, such permits,
except for Federal tax liens thereon . . . .

16 U.S.C. § 1855(h)(3) (Supp. II 1996) (emphasis added).

Indeed, a subsequent subsection of the registry statute defines

"security interest" to "include security interests, assignments,

liens and other encumbrances of whatever kind." Id. §

1855(h)(4).

What appellants tellingly omit is the preceding

sentence, which reads as follows:

To be effective and perfected against any
person except the transferor, its heirs and
devisees, and persons having actual notice
thereof, all security interests, and all
sales and other transfers of [certain
fishing] permits . . . , shall be registered
in compliance with the regulations
promulgated . . . .

Id. § 1855(h)(3) (emphasis added). Placement suggests that the

claimed exclusivity, even if it applies to maritime liens, does

not apply to the perfection of a security interest against the

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transferor of that interest--in this case, Nunya. Thus, we need

not resolve Gowen's claim that maritime liens are not

encompassed within section 1855(h)'s definition of security

interests, because (allegedly) "[a] maritime lien, so-called, is

not a lien at all in the common law sense of the term," Gilmore

& Black, supra, § 9-1, at 586.

More important, the registration system is not yet

established, because regulations to implement it are still not

in force. Sometimes new legislation indicates how Congress

would wish a problem to be solved absent the statute or its

implementing regulations, Ballard Shipping Co. v. Beach

Shellfish, 32 F.3d 623, 631 (1st Cir. 1994), but the statutory

provisions that appellants cite do not do this. The legislation

would create a different means of achieving a security interest

in fishing permits; this tells us nothing about how Congress

would wish the matter to be handled where no registry system yet

exists.

Congress's provision for "transition" to the registry

system, which appears as a note in the United States Code, is

more illuminating. See Sustainable Fisheries Act, Pub. L. No.

104-297, § 110(e), 110 Stat. at 3592 (codified at 16 U.S.C. §

1855 note). Congress's transition provision states:

Security interests on permits [within the
ambit of the registry] that are effective

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 and perfected by otherwise applicable law on
the date of the final regulations
implementing [the registry] shall remain
effective and perfected if, within 120 days
after such date, the secured party submits
evidence satisfactory to the Secretary of
Commerce and in compliance with such
regulations of the perfection of such
security.

Id. The transition provision indicates that Congress intended

for security interests "effective and perfected by otherwise

applicable law" to remain so at least until the establishment of

the registry.6

3. Appellants argue at length that the auction price

for the vessel was unfairly low with or without the permits. A

district court should disallow a court-ordered sale where the

price is grossly inadequate, "at least where the interests of

creditors do not point in a different direction." Munro

Drydock, Inc. v. M/V Heron, 585 F.2d 13, 14-16 (1st Cir. 1978).

Necessarily, "[w]hat is grossly inadequate . . . is a judgment

call which does not lend itself to firm guidelines, for the

circumstances involved are so varied." 29 Moore's Federal

Practice, supra, § 706.02[7][b], at 706-22 to -23. Here, the

6
Appellants cite to us a letter from an officer of the
National Marine Fisheries Service that might be read to say that
the statutory provisions preempt maritime liens even in the
absence of the registry. Since Congress has "directly spoken"
to this issue, any contrary agency interpretation cannot stand.
Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S.
837, 842-43 (1984).

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district court took evidence, analyzed the testimony, and

concluded that the sale price was not grossly inadequate. The

district court's judgment on such an issue would normally be

reviewed under a deferential standard and, to the extent raw

facts were involved, reversed only for clear error. United

States v. Howard (In re Howard), 996 F.2d 1320, 1327-28 (1st

Cir. 1993).

The district court's discussion of the value issue,

like the rest of its opinion, is cogent and persuasive. We have

discussed the lien issue in detail because it is a legal

question of first impression, although the core of our reasoning

on this issue tracks that of the district court. However, the

value issue is fact-specific, and we readily rely on the

district court's reasoning and conclusions to find that the

auction was fair and the price received not grossly inadequate.

Some might think that the value issue should not even

be reached because the former captain's conduct went far to

frustrate the possibility of a better sale price. Cf.

Campaniello Imports, Ltd. v. Saporiti Italia S.P.A., 117 F.3d

655, 662 (2d Cir. 1997) (general equitable principle that a

claimant may not seek relief from a situation for which the

claimant is to blame). However, so far as it was not

obstreperous (it may have been in part), one might in the

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ordinary case defend the captain's conduct as giving fair notice

to other bidders that the permit issue would be litigated; on

the other hand, the failure to raise the issue in court before

the auction somewhat compromises this argument. It is enough

here that the district court's treatment of the captain's

conduct seems to us reasonable.

This case has been well litigated on both sides. The

issue is both novel and difficult. We affirm the judgment but

direct that each side shall bear its own costs on the appeal.

It is so ordered.

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