Opinion
CASE NO.: 03-60925-CIV
July 24, 2003
ORDER ON MOTIONS FOR SUMMARY JUDGMENT
THIS CAUSE is before the Court upon the Plaintiff, Standard Federal Bank, N.A.'s ("Standard Federal") Motion for Summary Judgment [DE #15] and Intervening Plaintiff, Merrill Lynch Business Financial Services, Inc.'s ("Merrill Lynch") Motion for Summary Judgment [DE #29]. The Court heard oral argument on the parties' respective motions for summary judgment on July 16, 2003. The Court has considered the motions, the parties' respective legal memoranda and oral argument and is fully advised in the premises.
This case involves two major issues: the priority of the liens claimed by Standard Federal and Merrill Lynch against the M/Y PLEASURES and whether Merrill Lynch is entitled to recover custodia legia expenses. Standard Federal seeks to foreclose, as a first lien, its ship mortgage, encumbering the M/Y PLEASURES and executed by the mortgagors, Defendants, Marie A. Falui and Robert D. Falor, to secure a loan from Michigan National Bank ("Michigan National"), Standard Federal's predecessor in interest. Merrill Lynch also seeks to enforce, as a first lien, a state court judgement against the Defendant owners of the M/Y PLEASURES and recover custodia legia expenses.
BACKGROUND
A. Standard Federal's Mortgage Lien
On May 11, 2001, Defendants entered into a renewal note ("Note") in which they became indebted to Michigan National in the principal sum of $540,700.00. In order to secure the payment of their indebtedness Defendants, as owners of M/Y PLEASURES, executed and delivered to Michigan National, a First Preferred Ship Mortgage (the "Mortgage"), dated June 5, 1998, on their vessel. The Mortgage was recorded with the United States Coast Guard documentation center in Falling Waters, West Virginia, on or about June 5, 1998.
On October 5, 2001, Michigan National merged with Standard Federal. The rights of Michigan National, in and to every type of property (real, personal, and mixed) and choses in action were transferred to and vested in the Standard Federal by virtue of this merger without any deed or other transfer, See 12 U.S.C.S. § 215(e). Beginning on April 15, 2003, Defendants have been in default under the Note and Mortgage as they have failed to make the required monthly payments. Pursuant to the terms of the Mortgage, Standard Federal has accelerated the loan and now seeks to foreclose on the Mortgage and recovery of the sum due it. On June 16, 2003, Standard Federal moved for summary judgment arguing that its mortgage lien has priority over Merrill Lynch's competing claims. B. Merrill Lynch's Judgment Lien
According to Standard Federal, as of April 30, 2003, Defendants are indebted to it under the Note and Mortgage in the principal amount of $495,095.74, plus accruing interest at the per diem rate of $114.00, and attorney's fees and expenses.
On December 5, 2002, Merrill Lynch obtained a $847,172.35 judgment against the Defendants in Cook County, Illinois (the "Judgment"). On March 18, 2003, the Judgment was domesticated in the State of Florida by the filing of the Notice of Recording of Foreign Judgment. On March 13, 2003, the Judgment Lien Certificate was recorded with the Secretary of State of Florida.
On April 18, 2003, a writ of execution was issued by the Florida court in favor of Merrill Lynch and against the Defendants in the Judgment amount. On April 18, 2003, the vessel was seized by the Sheriff of Miami-Dade County, Florida, as reflected by a Notice of Sheriff s Levy, dated April 22, 2003. The vessel was noticed for a sheriff sale to occur on May 28, 2003. On May 16, 2003, Standard Federal filed this action and had the vessel arrested by the United States Marshal pursuant to this Court's order. On June 2, 2003, Merrill Lynch filed its Intervened Verified Complaint. On June 30, 2003, Merrill Lynch filed its summary judgment motion claiming its judgment lien has priority over Standard Federal's mortgage because Standard Federal failed to obtain and record an assignment of Michigan National Bank's Note and Mortgage.
In addition, Merrill Lynch has asserted a first priory administrative expense claim of $47,587.31 for custodia legis fees and expenses that it incurred in the recovery and safeguarding of the vessel for the benefit of the creditors. The expenses include wharfage, insurance, security, Sheriffs expenses, Marshal's expenses, attorneys fees, and other expenses.
SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate if the pleadings, depositions, and affidavits show that there is no genuine issue of material fact, and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). An issue is "material" if it is a legal element of the claim under applicable substantive law which might affect the outcome of the case. Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986); Alien v. Tyson Foods, 121 F.3d 642, 646 (11th Cir. 1997). An issue is "genuine" if the record taken as a whole could lead a rational trier of fact to find for the non-moving party. Id. On a motion for summary judgment, the Court must view all the evidence and all factual inferences drawn therefrom in the light most favorable to the non-moving party, and determine whether that evidence could reasonably sustain a jury verdict. Celotex, 477 U.S. at 322-23; Alien, 121 F.3d at 646.
While the burden on the movant is great, the opposing party has a duty to present affirmative evidence in order to defeat a properly supported motion for summary judgment. Anderson, 477 U.S. at 252. A mere "scintilla" of evidence in favor of the non-moving party, or evidence that is merely colorable or not significantly probative is not enough. Id.; see also May field v. Patterson Pump Co., 101 F.3d 1371, 1376(11th Cir. 1996) (conclusory allegations and conjecture cannot be the basis for denying summary judgment). At that hearing, the parties agreed that the facts were not in dispute and that these motions should be decided as a matter of law.
DISCUSSION
A. Priority of Liens
The determinative issue is simply which lien has priority. In support of Merrill Lynch's contention that its judgment lien has priority over Standard Federal's mortgage lien, Merrill Lynch argues that Standard Federal failed to comply with the recording requirements of Title 46 U.S.C. § 31321 by not properly recording an assignment of Michigan National's Mortgage to Standard Federal.
Pursuant to Title 46 U.S.C. § 31321, to have a valid lien against a vessel, an assignee of a mortgage that includes any part of a documented vessel must record the assignment with the Secretary of Transportation. Specifically, Title 46 U.S.C. § 31321 states:
(a)(1) A bill of sale, conveyance, mortgage, assignment, or related instrument, whenever made, that includes any part of a documented vessel or a vessel for which an application for documentation is filed, must be filed with the Secretary of Transportation to be valid, to the extent the vessel is involved, against any person. . . .
(emphasis added). Section 67.237 of the Code of Federal Regulations further establishes the requirements for assignments of mortgages and provides:
An assignment of mortgage presented for filing and recordingmust:
(a) Be signed by or on behalf of each assignor; and
(b) Recite the following:
1) the name and address of each assignor and the interest in the mortgage held by the assignor(s); and
2) the name and address of each assignee and the interest in the mortgage granted to the assignee.
In response to Merrill Lynch's argument, Standard Federal concedes that it had failed to file or record an assignment of Michigan National's Mortgage with the Secretary of Transportation. However, Standard Federal argues that there was no need to comply with 46 U.S.C. § 31321 because it did not acquire Michigan National's Mortgage by virtue of an assignment, but rather by virtue of Michigan National's merger into Standard Federal. In support of its argument, Standard Federal relies on 12 U.S.C. § 215 of the Federal Banking Act.
Section 215(a) provides that "any national bank or any bank incorporated under the laws of any State may, with approval of the Comptroller, be consolidated with one or more national banking associations located in the same State under the charter of a national banking association.". In addition, § 215(e), entitled "Status of consolidated association; property rights and interests vested and held a fiduciary," provides in relevant part:
. . . such consolidated national banking association shall be deemed to be the same corporation as each bank or banking association participating in the consolidation. All rights, franchises, and interests of the individual consolidating banks or banking associations in and to every type of property (real, personal, and mixed) and choses in action shall be transferred to and vested in the consolidated national banking association by virtue of such consolidation without any deed or other transfer. The consolidated national banking association, upon the consolidation and without any order or other action on the part of any court or otherwise, shall hold and enjoy all rights of property, franchises, and interests, including appointments, designations, and nominations, and all other rights and interests as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, and committee of estates of lunatics and in every other fiduciary capacity, in the same manner and to the same extent as such rights, franchises, and interests were held or enjoyed by any one of the consolidating banks or banking associations at the time of consolidation, subject to the conditions hereinafter provided.
(emphasis added).
Standard Federal first argues that, while it did not obtain and record an assignment of the Preferred Ship Mortgage, Standard Federal merged with Michigan National in compliance with the relevant provisions of the Federal Banking Act, and thereby, automatically holds all rights to the mortgage "by virtue of such consolidation without any deed or other transfer." Standard Federal then argues that, based on 12 U.S.C. § 215 of the Federal Banking Act, there was no need to comply with 46 U.S.C. § 31321. This is so, Standard Federal argues, because it did not acquire Michigan National's mortgage by virtue of an assignment, but rather by virtue of Michigan National's merger into Standard Federal.
In neither its legal memorandum or oral argument, does Merrill Lynch meet Standard Federal's argument that it was not required to obtain and record an assignment of the Mortgage. More importantly, Standard Federal's argument is correct. Merrill Lynch's argument that its judgment lien on the M/Y PLEASURES is superior to Standard Federal's Mortgage because Standard Federal did not record an assignment fails because Standard Federal's rights under the duly recorded mortgage automatically vested upon the merger pursuant to the Federal Banking Act. Accordingly, the Court concludes that Standard Federal's Mortgage has priority over any judgment lien that Merrill Lynch may have on the M/Y PLEASURES.
Standard Federal also contends that Merrill Lynch's judgment does not constitute an existing, valid maritime lien on the M/Y PLEASURES. Because the Court has determined that Standard Federal's mortgage lien has priority over any judgment lien which Merrill Lynch asserts, the Court need not reach, at this time, the issue of whether Merrill Lynch, in fact, has a valid judgment lien on the vessel.
B. Merrill Lynch's Claim for Expenses
Merrill Lynch also claims preferred administrative expenses of $47,587.31 which it asserts were necessary expenses and legal fees incurred in recovering and safeguarding the M/Y PLEASURES. Merrill Lynch claims $25,033.31 for costs and $22,555.00 for attorneys fees. Of these expenses, it appears that only the United States Marshal Service fee to re-arrest the M/Y PLEASURES was incurred during and in connection with these proceedings and this expense was incurred after Standard Federal had already had the vessel arrested by the United States Marshal. It further appears that Merrill Lynch's other expenses were incurred as a result of Merrill Lynch's attempt to enforce its state court judgment against the Defendants by levying on the Defendants' vessel, M/Y PLEASURES.
Merrill Lynch does not provide a complete list of these expenses and fees. However, in support of its Motion, Merrill Lynch provided an affidavit which sets forth the following:
Included in the above referenced expenses, among other necessary expenses, were the following costs that were advanced by Merrill Lynch in the recovery and safeguarding of the Vessel:
a. U.S. Marshal's Service to Re-Arrest the Vessel $ 2,000.00
b. Miami-Dade Sheriffs fee $ 1,010.00
c. Dixie Transportation $10,000.00
(including towing fees, storage fees, insurance premiums security, charter fee, arrest fees . . . wharfage expenses)
d. Charter fee $ 1,670.00
e. Administrative expenses $10,352.31
Subtotal $25,032.31
Less Anticipated Refund from Sheriffs Office: $10,280.36Total $14,751.95
In support of its contention that these expense should be paid as "`expenses of justice' in priority to all lien claims with [sic] the dictates of `equity and good conscious require,'" Merrill Lynch relies on New York Dock Co. v. The Poznan, 274 U.S. 117 (1927) and its progeny. The Poznan involved the wharf owner's claim to preferential payment from the proceeds of the sale of The Poznan, for wharfage furnished the vessel while it was in the custody of the United States Marshal under a warrant of arrest in admiralty. In allowing such preferential payment, the Supreme Court held:
Service rendered to the ship after arrest, in aid of the discharge of cargo, and afterward pending the sale, necessarily inured to [lienors] benefit, for it contributed to the creation of the fund now available to them. The most elementary notion of justice would seem to require that services or property furnished upon the authority of the court or its officer, acting within his authority, for the common benefit of those interested in a fund administered by the court, should be paid from the fund as an "expense of justice." The Phebe 1 Ware, 354, 359, Fed. Cas. No. 11,065. This is the familiar rule of courts of equity when administering a trust fund or property in the hands of receivers. The rule is extended, in making disposition of the earnings of the property in the hands of the receiver, to require payment of sums due for supplies furnished before the receivership, where their use by the debtor or receiver in the operation of the property has produced the earnings. . . .
Such preferential payments are mere incidents to the judicial administration of a fund. They are not to be explained in terms of equitable liens in the technical sense, as is the case with agreements that particular property shall be applied as security for the satisfaction of particular obligations or vendors' liens and the like, which ware enforced by plenary suits in equity. They result rather from the self-imposed duty of the court, in the exercise of its accustomed jurisdiction, to require that expenses which have contributed either to the preservation or creation of the fund in its custody shall be paid before a general distribution among those entitled to receive it.The Poznan, 274 U.S. at 121-22 (citations omitted) (emphasis added).
Merrill Lynch's claim for custodia legis expenses must be denied for two reasons. First, the expenses were not incurred post-arrest, while the M/Y PLEASURES was under the Court's custody and control, that is, the expenses were not reasonably incurred during custodia legis. As the court in U.S. v. One (1) 254 Ft. Freighter, M/V Andoria, 570 F. Supp. 413,416 (E.D. La. 1983) observed:
It is well established that only those services or property furnished upon the authority of the Court for the common benefit of those interested in a fund administered by the Court should be paid from the fund as an "expense of justice".
It is apparent from the underscored language that "custodial" expenses within the meaning of this equitable doctrine are those incurred "when a vessel is in the custody of the law, having been seized by the Marshal". Thus, only those expenses for services or property furnished the M/V ANDORIA after its seizure by the U.S. Marshal on November 24, 1981, can be considered to have been incurred while the vessel was in custodia legis. Conversely, any expenses for services or property provided before that date were not incurred during custodia legis. (citations omitted)See also Morgan Guaranty Trust Company of New York v. Hellenic Lines Ltd., 593 F. Supp. 1004, 1010(S.D.N.Y.).
Second, Merrill Lynch's claimed expenses do not deserve special equitable treatment, and therefore, preference, because they were not reasonably incurred in the creation, preservation or maximizing of a fund which inured to the benefit of all having claims against the M/Y PLEASURES. See The Poznan, 274 U.S. at 121; In the matter of Kingstate Oil 815 F.2d 918, 912 (3rd Cir. 1987); Morgan Guaranty 593 F. Supp. at 1010. Rather, the expenses incurred by Merrill Lynch were for the purpose of enforcing its judgment against the M/Y PLEASURES and did not inure to Standard Federal's benefit. Thus, equity and good conscience do not require that Merrill Lynch's expenditure be given preference over Standard Federal's mortgage lien.
Accordingly, the Plaintiff, Standard Federal's Motion for Summary Judgment [DE #15] is GRANTED and Intervenor, Merrill Lynch's Motion for Summary Judgment [DE #29] is DENIED. The Court will enter a final judgment in accordance with this order and will order the sale of the M/Y PLEASURES.
ORDERED in Chambers, Miami, Florida