Opinion
Civil Action No. 00-3805, Section "N"
March 8, 2002
ORDER AND REASONS
Before the Court are: (1) a Motion for Partial Summary Judgment as to the Claims of AmWest Surety Insurance Company and Swiss Reinsurance America Corporation, filed by Freret Hardware, Inc., AL Sales, Inc., Reliable Disposal Co., Inc., Air Movement, Inc., Air Specialty, Dixie Trading Corp., and the certain members of the crew of the M/V Enchanted Capri (Rec.Doc. 561); and (2) a Motion to Compel AmWest Surety Insurance Company to Deposit $250,000 into the Registry of the Court, filed by certain members of the crew of the M/V Enchanted Capri (Rec.Doc. 555). For the reasons that follow, the Motion for Partial Summary Judgment is GRANTED. The motion to compel the deposit of funds is DENIED.
I. BACKGROUND
The M/V Ehchanted Capri (the " Capri") is one of five vessels that were operated by the now-bankrupt Commodore Cruise Line and its affiliated companies ("Commodore" or "NCCL"). Federal law requires that cruise operators, such as Commodore, file with the Federal Maritime Commission proof of their "financial responsibility" "or, in lieu thereof, file a bond or other security for obligations under the terms of ticket contracts to indemnify passengers for nonperformance of transportation." 46 C.F.R. § 540.1; see also 46 U.S.C. § 817e(a). The regulations provide several alternative methods for establishing financial responsibility ( e.g., insurance, self-insurance, guaranties, escrow accounts). See 46 C.F.R. § 540.5. Commodore, however, chose to file a bond instead. It purchased a Federal Maritime Commission Passenger Vessel Surety Bond, No. 1385290 (the "Bond"), from AmWest Surety Insurance Company ("AmWest") and Swiss Reinsurance America Company ("Swiss Re") (collectively, the "Sureties"). The Bond named "New Commodore Cruise Lines Limited" as the principal, but a subsequent rider changed the principal to "New Commodore Cruise Lines Limited d/b/a Crown Cruise Line, Commodore Day Cruises, Capri Cruises, Commodore Cruise Line and World Explorer Cruises." See Movants' Memo in Support, Exh. B. The Bond was written to "inure to the benefit of any and all passengers to whom the Principal may be held legally liable" for damages, with damages not to exceed "the passage price paid by or on behalf of such passenger." Id. Thus, it covered "all passenger operations" of Commodore, regardless of the particular vessel employed. See 46 C.F.R. § 540.6.
Several persons have made claims for reimbursement of deposits that they had paid for cruises with Commodore but which did not occur due to the Commodore bankruptcy. Although AmWest itself is in liquidation, Swiss Re (the reinsurer on the Bond) allegedly has begun to process and pay these claims.
The Sureties have intervened in this in rem proceeding, claiming a maritime lien against the Capri on two theories: (1) that the Bond was a "necessary" provided "to the vessel" within the meaning of the Federal Maritime Lien Act ("FMLA"); and (2) that their lien arises by subrogation to the potential claims of passengers for prepaid fares. The Sureties also have intervened in the in rem proceeding against the M/V Enchanted Isle (the " Isle"), another Commodore vessel, asserting a lien based on the very some Bond.
II. LAW AND ANALYSIS
The movants seek to dismiss the Sureties' claims on the following grounds: (I) that the Bond is not a maritime contract and, thus, cannot give rise to a maritime lien and cannot support admiralty jurisdiction over the Sureties' claims; (2) even if the Bond is a maritime contract, it cannot give rise to a maritime lien because it is not a "necessary" provided "to a vessel" within the meaning of the FMLA; and (3) it is immaterial whether the Sureties might become subrogated to passenger claims for unperformed transportation because the ticket contracts of such passengers are executory contracts which cannot give rise to a maritime lien.
A. The Bond Is Not a Maritime Contract and, Thus, Cannot Give Rise to a Maritime Lien or a Claim Within the Admiralty Jurisdiction of this Court .
Movants argue, as a threshold matter, that the Bond is not a maritime contract and, thus, that the Sureties' claims cannot support a maritime lien or the jurisdiction of this Court. See United States v. Panama Centroamericana de Navegacion, 1997 WL 382107 at 5, 1997 A.M.C. 1298 (E.D. La. 1997) ("While it is true that maritime liens are subject to admiralty jurisdiction, a maritime lien does not arise unless the underlying contract secured by the `implied hypothecation' of the vessel is a maritime contract."); Stephens Boat Co., Inc. v. Barge ORR 1, 791 F. Supp. 145 (E.D. La. 1992) ("A contract that falls outside the admiralty jurisdiction of the United States cannot give rise to a maritime lien.").
"[I]n determining whether a contract falls within admiralty, `the true criterion is the nature and subject-matter of the contract, as whether it was a maritime contract, having reference to maritime service or maritime transactions.'" Exxon Corp. v. Central GulfLines, Inc., 500 U.S. 603, 610 (1991) (quoting Insurance Co. v. Dunham, 11 Wall. 1, 20 L.Ed. 90 (1871)). The jurisdictional inquiry should focus on "whether the services performed under the contract are maritime in nature." Exxon, 500 U.S. at 612. "`It is the character of the work to be performed under the contract that is determinative of whether the agreement was maritime,'" not the "value of [the] contract to the shipping industry." Planned Premium Services of Louisiana, Inc. v. International Ins. Agents, Inc., 928 F.2d 164, 166 (5th Cir. 1991) (holding "that a financing contract preliminary to obtaining maritime insurance is not within the admiralty jurisdiction") (quoting Ingersoll Milling Machine Co. v. M/V Bodena, 829 F.2d 293, 302 (2d Cir. 1987)). If the "essence of the services provided" is nonmaritime ( i.e., "identical to or essentially similar to non-maritime services regularly performed by those not involved in the operation of vessels"), then the contract is not a maritime contract regardless of its importance to the maritime industry or, in this case, the pleasure cruise industry. Id.
The Court agrees with the movants that the service to be performed under the Bond ( i.e., to pay money damages to those who put down a deposit on a cruise vacation, but who — through no fault of their own — never set foot on a vessel) is non-maritime in nature. It is a consumer protection measure and has no direct relationship to the operation of any ship as such. Accordingly, the Court finds that the Bond is not maritime contract.
B. Even If the Bond Is a Maritime Contract, It Does Not Give Rise to a Maritime Lien Because It Is Not a "Necessary" Provided "To a Vessel" as Required Under the FMLA
A maritime lien is a special property right in a vessel that "developed as a necessary incident of the operation of vessels." See Silver Star Enterprises, Inc. v. Saramacca MV, 82 F.3d 666, 668 (5th Cir. 1996) (quoting Piedmont Georges' Creek Coal Co. v. Seaboard Fisheries Co., 254 U.S. 1, 9 (1920)). It "secures creditors who provide `supplies which are necessary to keep the ship going.'" Id. (quoting Dampskibsselskabet Dannebrog, et al., v. Signal Oil Gas Co., 310 U.S. 268, 280 (1940)). "The lien `arises in favor of the creditor by operation of law . . . and grants the creditor the right to appropriate the vessel, have it sold, and be repaid the debt from the proceeds.'" Id. (quoting Equilease Corp. v. M/V SAMPSON, 793 F.2d 598, 602 (5th Cir.) (en banc), cert. denied, 479 U.S. 984 (1986)). It is against the vessel, "and only indirectly, inasmuch as it conflicts with the owner's rights in the vessel, it is connected with the owner." Equilease, 793 F.2d at 602. "The maritime lien concept thus somewhat personifies a vessel as an entity with potential liabilities independent and apart from the personal liability of its owner." Id.
Under the FMLA, "a person providing necessaries to a vessel . . . has a maritime lien on the vessel [and] may bring a civil action in rem to enforce the lien." 46 U.S.C. § 31342. Thus, in order to have maritime lien against a vessel, one must have (1) provided a good or service that qualifies as a "necessary" to the vessel; and (2) the good or service must have been provided "to the vessel." Movants argue that the Bond meets neither requirement. The Court agrees.
1. The Bond is Not a "Necessary" within the Meaning of the FMLA .
The Sureties hold a maritime lien only if the Bond was a "necessary" for the Capri. The FMLA defines the term "necessaries" to include "repairs, supplies, towage, and the use of a dry dock or marine railway." 46 U.S.C. § 31301. The enumerated examples in § 31301 are not exclusive. However, courts have denied maritime liens where the service provided "did not fit naturally into this list of traditional shore-to-ship goods and services." Gulf Marine and Indus. Supplies, Inc. v. GOLDEN PRINCE M/V, 230 F.3d 178, 179-170 (5th Cir. 2000) (denying lien for services of attorney who released vessel from arrest and prevented her rearrest).
This definition is consistent with the history and purpose of maritime liens. "Because a ship moves from place to place, it is peculiarly subject to vicissitudes that would compel abandonment of vessel or voyage, unless repairs and supplies are promptly furnished." Racal Survey U.S.A., Inc. v. M/V COUNT FLEET, 231 F.3d 183, 187 (5th Cir. 2000), cert denied, 532 U.S. 1051 (2001). "Moreover, a ship is often absent from her home port without access to funds and, as a result, must be able to obtain upon her own account needed repairs and supplies." Id. "That and the resulting need to ensure that a ship did not sail away from its debts contributed to the creation of the maritime lien." Id.
The Sureties argue that the Bond is a "necessary" because it was provided pursuant to federal law; they argue that without it, the Capri would not have been allowed to sail. This is bootstrapping. The Bond did not protect the Capri or insure the Capri or assist the Capri in obtaining supplies, towage, dry dock, repairs, or anything else. Accordingly, the Court finds that the Bond was not a "necessary" to the Capri within the meaning of the FMLA.
The Bond enabled Commodore to operate a pleasure cruise business by satisfying Congress' requirement that Commodore be able to reimburse consumer deposits. If Commodore had not posted a bond, the Federal Maritime Commission ("FMC") would have required Commodore to establish through some other method its financial ability to reimburse customers in the event of nonperformance. 46 C.F.R. § 540.5. If Commodore had been unable to comply with any of the various methods for establishing such financial responsibility, then the FMC likely would have refused to issue a certificate to Commodore allowing it to operate vessels with accommodations for 50 or more persons embarking at United States ports. 46 C.F.R. § 540.1, 540.7. Without such a certificate, Commodore likely would have been unable to arrange clearance for a cruise on the Capri or any other vessel. However, this attenuated, indirect connection to the vessels operated by Commodore does not transform the Bond into a "necessary" for the Capri.
2. The Bond Was Not Provided "To a Vessel" as Required under the FMLA .
Movants further argue that, even if the Bond might qualify as a "necessary" in other circumstances, it does not give rise to a maritime lien in this case because it was not provided "to a vessel" as required by the FMLA. The Bond was not provided to the Capri. Indeed, it does not mention the Capri or any other vessel. Rather, it was provided to the operator of a fleet of vessels and obligated the Sureties to pay nonperformance damages to "any and all passengers to whom the Principal may be held legally liable," without regard to what vessel the operator might have intended to use in rendering performance. That this is the case is underscored by the fact that the Sureties have claimed a lien on the Isle based upon the exact same bond.
Movants' argument finds strong support in the case law. See Silver Star Enterprises, Inc. v. Saramacca MV, 82 F.3d 666, 668-69 (5th Cir. 1996). In Silver Star, the Fifth Circuit denied a maritime lien claimed by a container supplier, reasoning that, even if the containers were "necessaries," the supplier "furnished containers to SMS [the owner], not to the SMS vessels, and it was SMS which ultimately dictated upon which vessel the containers were placed." Id. at 669. The supplier therefore failed to demonstrate that necessaries were provided "to a vessel" as required by the FMLA. Id. In so holding, the court distinguished Equilease Corp. v. M/V Sampson, 793 F.2d 598 (9th Cir. 1986) (holding that marine insurance can constitute a "necessary," but denying insurance agent's claim of maritime lien because it did not rely on the credit of the vessels). "In Equilease, the charterer `purchased insurance for each vessel,' . . . an act strongly suggesting earmarking of the insurance to each vessel." Silver Star, 82 F.3d at 669 (quoting Equilease, 793 F.2d at 600). The Silver Star cargo containers, on the other hand, were leased in bulk by the vessel owner and not earmarked for any particular vessel. The supplier, therefore, had no maritime lien on the vessels. Id.; see also Piedmont, 254 U.S. at 7-8 (although "quantity of coal delivered to each vessel could be established after the fact" and "although the use of the coal aboard the vessels had been contemplated," the coal company supplying coal to owner of fleet of vessels did not have a maritime lien in the vessels).
Applying this reasoning here, the Court finds that the Bond was not provided "to" the Capri as required under the FMLA. Thus, it did not give rise to a maritime lien on the Capri.
C. It Is Immaterial Whether the Sureties Might Become Subrogated to the Claims of Prepaid Prospective Passengers, For Such Passengers Do Not Have a Maritime Lien .
Finally, with regard to the Sureties' alternative argument, that they will be subrogated to claims of prepaid prospective passengers, the movants' argue that such subrogation is immaterial to this in rem proceeding, for such passengers do not have maritime liens on the Capri. The Court agrees.
The claims that the Sureties are obligated to pay under the Bond — i.e., the claims of prospective passengers for nonperformance under their ticket contracts with Commodore — are executory contracts. Under the "executory contract doctrine," such contracts do not give rise to a maritime lien against the vessel. See E.A.S.T., Inc. of Stamford, Conn. v. M/V Alaia, 876 F.2d 1168, 1174 (5th Cir. 1989) (the executory contract doctrine "precludes the creation of a maritime lien for breach of a contract that is merely executory"). "This doctrine reflects the special nature of the maritime lien which rests upon the legal fiction of the personality of the vessel." Id. "A maritime lien is not, like a dry-land lien, a security interest arising from the personal obligation of the vessel's owner under a contract." Id. Rather, "[a] maritime lien is based instead on the fiction that the vessel may be a defendant in a breach of contract action when the vessel itself has begun to perform under the contract." Id. (emphasis in original) (citing Krauss Bros. v. Dimon S.S. Corp., 290 U.S. 117, 121 (1933); Osaka Shosen Kaisha v. Pacific Export Lumber Co., 260 U.S. 490, 498 (1923)). "While the legal fiction of the personality of the vessel may seem anachronistic, it is grounded in sound policy." Id. "The lien holder is . . . placed in a privileged position in relation to other creditors who do not have the security of a lien and must proceed in personam against the owner of the vessel." Id. "Consequently, the lien `is stricti juris and cannot be extended by construction, analogy or inference.'" Id. (quoting Osaka Shosen, 260 U.S. at 499)).
Applying this reasoning, movants argue that although the prospective Commodore passengers might have in personam claims against the cruise operator for unperformed passage, they have no in rem claim against any particular vessel until "the vessel itself has begun to perform under the contract." Id. Since the prospective passengers here never boarded a vessel, they can have no maritime lien on the Capri. See Todd Shipyards Corp. v. The City of Athens, 83 F. Supp. 67 (D. Md. 1949) (holding that prospective passengers, although they perhaps had claims against the vessel owner for unperformed passage, did not have a maritime lien on the vessel). The reasoning of the City of Athens court is instructive here. It began with a review of the nature of maritime liens:
The crucial question is whether prospective passengers, who have bought tickets for transportation but have not boarded the ship, have a maritime lien for breach of executory contract. . . . In considering the question on principle it is well to bear in mind some long established doctrines of the admiralty law. The maritime lien is of very ancient lineage. Its conceptual origin lies in the personification of the ship itself. The ship as an entity, considered apart from the personal liability of the owner, becomes responsible for benefits conferred and damages committed by her. One who bestows such benefits or suffers such damage becomes entitled to an interest in the ship (jus in re) which constitutes the maritime lien. . . .
Id. at 74-75. The court then examined the nature of the passengers' contracts:
A contract for the carriage of cargo or passengers is a contract of affreightment; and there is no distinction in principle between the liabilities of the ship in the two cases. . . . While some earlier cases asserted the liability of a ship in rem for failure to transport cargo even though not placed on board the ship, the latter cases in the Supreme Court definitely establish the law to the contrary. This is clearly pointed out in . . . Osaka Shosen, [supra] . . . And, in the later case of Krauss Bros., [supra]:
`. . . Only upon the lading of the vessel or at least when she is ready to receive the cargo — where there is "union of ship and cargo' — does the contract become the contract of the vessel and the right to the lien attach. No lien for breach of the contract to carry results from failure of the vessel to receive and load the cargo or a part of it. . . .'
Thus it may well be that the shipowner in the present case may be sued in tort by the prospective passengers either in the civil law courts or even in personam in admiralty, but they have no maritime lien to enforce in rem against the ship. . . . The obligation to transport passengers either in accordance with a previous contract or advertised schedule is not the obligation of the vehicle used for transportation, but of the owner or operator of the vehicle. Furthermore, the contention now made is inconsistent with the nature of the maritime lien which flows from the concept of the personification of the ship and which in turn connotes the idea of responsibility of the ship as an entity for benefits conferred upon or damages caused by it. . . . Since any duty to the prospective passengers is imposed only on the shipowner, the grant of a maritime lien for any breach of that duty would be inconsistent with the definition and purpose of that type lien, would destroy the purpose and policy of the lien and would make it synonymous with a right in personam.Id. at 75-76.
The Sureties do not dispute that these doctrines are well ensconced in the maritime law. Rather, they argue that this Court should disregard these precepts on the notion that Congress has shown an inclination to protect consumers who contract with cruise ship operators. As evidence of this alleged congressional intent, the Sureties point to 46 U.S.C. § 817e, which was created in 1966, after City of Athens was decided. The Court is unpersuaded. In providing this consumer protection, Congress included no language suggesting that it intended to change the law of maritime liens or create new in rem rights against the vessels employed by cruise operators. Courts in admiralty continue to adhere to the executory contract doctrine, and this Court can find no basis for breaking with these sound principles. Prospective passengers with breach of contract claims against Commodore would have no maritime lien on the Capri. Thus, the Sureties, to the extent they are subrogated to such claims, likewise have no lien.
D. The Motion to Compel AmWest to Deposit $250,000 into the Registry of the Court .
The Court has determined that AmWest's claims are not within the jurisdiction of this Court. Therefore the Court is without jurisdiction to order AmWest to deposit funds. Moreover, even if this Court did have jurisdiction over AmWest's claims, it nonetheless would deny movants' motion, for they have made no showing that the dollars in question are in any way funds belonging to the Capri. If AmWest misappropriated funds belonging to the Commodore bankruptcy estate (and therefore indirectly to the movants as creditors of Commodore), then movants should present their claim to the Bankruptcy Court handling the bankruptcy proceedings in Florida.
III. CONCLUSION
Accordingly, for the foregoing reasons, IT IS ORDERED that: (1) the Motion for Partial Summary Judgment as to the Claims of AmWest Surety Insurance Company and Swiss Reinsurance America Corporation, filed by Freret Hardware, Inc., AL Sales, Inc., Reliable Disposal Co., Inc., Air Movement, Inc., Air Specialty, Dixie Trading Corp., and the certain members of the crew of the Enchanted Capri (Rec.Doc. 561) is GRANTED; and (2) the Motion to Compel AmWest Surety Insurance Company to Deposit $250,000 into the Registry of the Court, filed by certain members of the crew of the Enchanted Capri (Rec.Doc. 555) is DENIED