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