LaFauci v. NH Department of Cor ( 2006 )

United States Court of Appeals
For the First Circuit
Nos. 05-1173, 05-1174
DAVID E. MULLANE; JOAN-LESLIE MULLANE,
Plaintiffs, Appellants, Cross-Appellees,
v.
ADELE CHAMBERS; JEAN FARESE,
Defendants, Appellees, Cross-Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Lynch, Circuit Judge,
Stahl, Senior Circuit Judge,
and Lipez, Circuit Judge.
Thomas E. Clinton, with whom Robert E. Collins and Clinton &
Muzyka, P.C. were on brief, for the appellants.
Paul L. Kenny, with whom Salim Rodriguez Tabit was on brief,
for the appellees.
February 24, 2006
LIPEZ, Circuit Judge. This is an appeal and cross appeal
of the district court's resolution, on remand from this court, of
competing claims to a 42-foot motorized yacht, known variously as
the Lady B, the Lady B Gone, and the Cent'Anni (the vessel). The
vessel's owners, David and Joan Mullane, appeal the district
court's rejection of their claim to a lien on the vessel. Adele
Chambers and Jean Farese, who seized the vessel to satisfy debts of
the vessel's previous owner, appeal the district court's order that
they reimburse the Mullanes for storing the vessel during the
course of the litigation. We affirm.
I.
The facts have been recounted elsewhere. This case has
been tried twice, by two different district court judges, each of
whom published an opinion. Mullane v. Chambers, 349 F. Supp. 2d
190 (D. Mass. 2004); Mullane v. Chambers, 206 F. Supp. 2d 105 (D.
Mass. 2002). It has been the subject of a published opinion by
this court. Mullane v. Chambers, 333 F.3d 322 (1st Cir. 2003). We
review only the details relevant to the issues before us. Because
this case comes to us after a trial, we present the facts in the
light most favorable to the district court's judgment. See Wilson
v. Mar. Overseas Corp., 150 F.3d 1, 3 (1st Cir. 1998).
In July 1998, the Mullanes bought the vessel from a trust
established by Dr. David Murphy and his wife. As consideration,
the Mullanes paid $98,117 to Eastern Bank to discharge the
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preferred ship's mortgage on the vessel in favor of the bank,1 paid
$2,000 cash to Murphy and assumed a $40,000 lien Murphy owed to his
own company.
The vessel was federally documented and listed on the
registry maintained by the United States Coast Guard.2 In the
normal course of maritime affairs, transfer of the vessel and
discharge of the mortgage should have been recorded immediately
with the Coast Guard, in which case the public record would have
shown that the Mullanes, not the Murphys, owned the vessel. 46
U.S.C. §§ 12101-12124, 31321. For whatever reason, however, the
sale and discharge were not recorded until September. In the
interim -- for all of August -- the public record showed
erroneously that the Murphys owned the vessel, subject to a
mortgage in favor of Eastern Bank.
At the time he sold the vessel to the Mullanes, David
Murphy was indebted to Chambers and Farese, both of whom had loaned
him money. Chambers had obtained a $70,132 writ of execution
1
A preferred ship's mortgage is a statutorily-created lien that
can be publicly registered, see infra note 2, and can be enforced
in an admiralty court. See 46 U.S.C. § 31322 et seq.
2
The Coast Guard maintains a "national form of registration" for
vessels larger than five net tons. Vessels like the one involved
in this case, larger than five net tons but not involved in any
commercial enterprise, may be registered at the option of the
owner. See 46 U.S.C. § 12101 et seq. See also National Vessel
Documentation Center: Frequently Asked Questions, at
http://www.uscg.mil/hq/g-m/vdoc/faq.htm (last visited Jan. 24,
2006).
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against Murphy, and Farese a writ for $27,612. But neither
Chambers nor Farese had attached any claim to the vessel until late
August, when, acting on the information in the public record, they
arranged for sheriff's deputies to seize the vessel.
Chambers and Farese learned about the transfer from the
Murphys to the Mullanes and the mortgage discharge hours after the
seizure. Nonetheless, they elected to press their claim to the
vessel rather than attempt to satisfy Murphy's debt with property
that actually belonged to him. Indeed -- according to their own
statements -- upon learning that the Eastern Bank mortgage on the
vessel had been discharged, Chambers and Farese abandoned their
plans to seize Murphy's condominium, which they also had arranged
for the sheriff's deputies to levy. They believed that the
additional equity in the vessel available after the mortgage
discharge would make any seizure of Murphy's own property
unnecessary.
The Mullanes sued Farese, Chambers, and the Sheriff's
Department that had seized the vessel. They claimed that the
seizure had been illegal, that they were entitled to unencumbered
ownership of the vessel, and that they were owed compensation for
damage to the vessel that occurred during the seizure. The case
landed on the admiralty docket of the district court. See Mullane,
333 F.3d at 328 (concluding admiralty jurisdiction correctly
invoked). The Mullanes arranged for the vessel to be arrested, see
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Fed. R. Civ. P. D, an action that prevented anyone from selling the
vessel before litigation concluded. Initially, the vessel was held
by the court. At some relatively early point, however, the
Mullanes posted a $125,000 passbook savings account as security for
the vessel, and it was released to their custody. See Fed. R. Civ.
P. E(5)(d).
After the first trial in this case, the district court
found that the Mullanes were bona-fide purchasers of the vessel who
had no notice of Chambers and Farese's claims. The court also
concluded that the seizure of the vessel was improper under
Massachusetts law. The district court restored the Mullanes'
ownership rights and ordered Chambers and Farese to pay $100,000 in
punitive damages to the Mullanes, for what the district court
termed their "wanton and reckless" disregard of the Mullanes'
rights.3
We vacated and remanded, concluding that Chambers and
Farese were entitled to rely on the public record unless they had
actual notice of the transfer to the Mullanes, and that they had
adhered to Massachusetts law in seizing the vessel. See Mullane,
333 F.3d at 329-33. We asked the district court to determine
whether Chambers and Farese had knowledge of the Mullanes' claim to
the vessel before they completed their seizure. We noted that if
3
The district court found that no relief was warranted on the
Mullanes' claims against the sheriff's department.
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the district court found that Chambers and Farese had knowledge of
the Mullanes' purchase, the court would need to determine whether
there was any merit in Chambers and Farese's claim that the
Murphys' sale of the vessel to the Mullanes constituted a
fraudulent transfer under Massachusetts law. (The district court
had resolved that question in the Mullanes' favor through
application of federal law, which we concluded did not govern the
transaction.)
On remand, the district court found that Chambers and
Farese had no actual or constructive notice of the Mullanes'
purchase at the time of the seizure (though they did within hours
thereafter).4 Consequently, the district court determined that
Chambers and Farese had a valid claim on the vessel. The parties
do not contest this determination on appeal. Because the district
court found that Chambers and Farese had valid liens on the vessel,
it did not need to reexamine the fraudulent transfer issue.
Recognizing that application of 46 U.S.C. § 31321, the
vessel documentation statute, would yield a "harsh" penalty on the
"innocent" Mullanes, the district court invited briefing on whether
the Mullanes might be entitled to relief from that application, on
admiralty or analogous state law grounds. The Mullanes suggested
4
After our remand, the case was assigned to a different district
court judge than the one who presided at the first trial. Due to
that judge's busy schedule, the case was reassigned to the Chief
Judge, who presided at the second trial and entered the judgment
that we now review.
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only that they were entitled to a maritime lien on the vessel,
equal in value to the Eastern Bank mortgage that they had
discharged. The district court determined that no such maritime
lien existed.
Finally, the court ordered, "in the interest of equity,"
that Chambers and Farese "reimburse the Mullanes for all reasonable
storage and insurance costs of the vessel incurred since the levy."
The Mullanes had incurred such charges by storing the vessel at
various marinas during the course of the litigation as they tried
to clear title to the vessel.
II.
A. The Mullanes' Appeal
At the conclusion of the second trial in this case, the
district court opined that relief might be possible on grounds
that, in light of Chambers and Farese's seizure, the Mullanes'
discharge of the Eastern Bank mortgage had unjustly enriched
Murphy. Seeking to resolve the issue, the district court gave very
specific instructions:
I . . . need to have briefed the issue of . .
. the role that Dr. Mullane's discharge of the
preferred ships mortgage plays here. I'm not
here talking about simple appeals to equity. .
. . I want to know everything there is to
know about this type of circumstance either
under the federal recording statute, and if we
can't find that let's go to the common law of
the several states which have recording
statutes. When a creditor seeks to levy on
encumbered assets of the debtor, the creditor
takes those assets encumbered. Here there
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appears no evidence but that Dr. Mullane was
innocent . . .. Dr. Mullane may be entitled
to . . . the equivalent of a preferred ship's
mortgage . . ..
Tr. Day 2, pp. 33-34 (emphasis added).
Whether or not an equitable subordination argument could
have been made on these facts, it was not made before the district
court or before us, and so is waived. Cf. Maryland National Bank
v. The Vessel Madam Chapel, 46 F.3d 895, 901 (9th Cir. 1995)
(recognizing that equitable subordination is "available in
admiralty to resolve priority disputes"). Instead, the Mullanes
argued that they were entitled to a maritime lien on the vessel,
which they argued had been created by their discharge of the
Eastern Bank mortgage.5 The holder of a maritime lien can look to
a vessel itself, in rem, to satisfy any resultant debt. See
generally 46 U.S.C. § 31301 et seq.; Fed. R. Civ. P. C(1)(a); 2-II
Benedict on Admiralty (2004). The Mullanes relied on 46 U.S.C.
5
The Mullanes argue here, as they did in their motion for
reconsideration before the district court, that they had asked not
for a maritime lien but for an equitable lien. But the Mullanes
did not forward any theory of law pursuant to which an equitable
lien could be granted. While they included the term "equitable
lien" in their post-trial motion, the Mullanes relied entirely on
two maritime lien theories and asserted that Dr. Mullane was "the
holder of a maritime lien." Pltfs. Post Trial Brief at 11.
Perhaps the Mullanes mistakenly thought that their maritime lien
theories could create equitable liens. But see 2-III Benedict on
Admiralty § 24 (2005) (suggesting consensus that maritime liens
are "stricti jurris; they cannot be conferred on the theory of
unjust enrichment or subrogation"). At most, however, the Mullanes
made legal arguments spiked with exactly the kind of "simple
appeals to equity" that the district court had asked them to avoid.
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§ 31342(a), the statute that creates a lien in favor of "a person
providing necessaries to a vessel on the order of the owner." See
Lake Charles Stevedores, Inc. v. Professor Vladimir Popov, MV, 199
F.3d 220, 223-25 (5th Cir. 1999) (discussing generally maritime
liens for necessaries). The Mullanes also argued that they were
entitled to a lien under the "rule of advances," a common-law
principle that awards liens to certain persons who do not provide
necessaries but do "satisfy an outstanding or future lien" on a
vessel, typically by paying for necessaries that are provided by
another party. 2-III Benedict on Admiralty § 34 (2004). See also
Wilkins v. Commercial Inv. Trust Corp., 153 F.3d 1273, 1276-78
(11th Cir. 1998) (discussing rule of advances).
Under § 31342(a), a person provides a "necessary" by
furnishing "goods or services . . . necessary to the continued
operation of the vessel," in a manner that "facilitates the flow of
commerce." Payne v. S.S. Tropic Breeze, 423 F.2d 236, 241 (1st
Cir. 1970) (discussing predecessor statute to § 31342(a)).
Classically, "necessaries" are those things that allow a vessel to
perform its ordinary functions, such as needed repairs to an engine
or foodstuffs for a long voyage. See Trinidad Foundry &
Fabricating, Ltd. v. M/V KAS Camilla, 966 F.2d 613, 614 n.2 (11th
Cir. 1992) ("Necessaries are the items that a prudent owner would
provide to enable a ship to perform the functions for which she has
been engaged"). See also Bradford Marine, Inc. v. M/V Sea Falcon,
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64 F.3d 585, 589-90 (11th Cir. 1995) (discussing definition of
necessaries and concluding that attorney's fees incurred in
collecting repair charges did not qualify as a necessary).
The rule of advances, like the doctrine of necessaries,
facilitates reimbursements of those who allow a vessel to perform
its functions. The difference is that the rule of advances
provides protection not to the person furnishing "necessaries," but
rather to a third person who pays for the goods and services that
would have given rise to a statutory maritime lien, on an assurance
that the vessel will be responsible for the debt. Wilkins, 153
F.3d at 1276. See also The Emily Souder, 84 U.S. (17 Wall.) 666
(1873) (holding that company, which on request of American
consulate provided funds for repairs to American steamer stranded
in Brazil, had maritime lien on the steamer); Universal Shipping
Inc. v. Panamanian Flag Barge, 563 F.2d 483 (1st Cir. 1976)
(awarding maritime lien to third party that provided funds to allow
a vessel operator's purchase of "supplies and other necessaries").
On appeal, the Mullanes do not quibble with the district
court's conclusion that their discharge of the Eastern Bank
mortgage did not constitute a "necessary" but seek relief only
pursuant to the rule of advances. We see at least two basic
barriers to the Mullanes' rule of advances theory, both also fatal
to the Mullanes' § 31342(a) argument.
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First, maritime liens, created pursuant to the rule of
advances or any other theory, are intended to safeguard the
interests of "strangers to the vessel," not vessel owners or those
who can control the vessel's affairs. Sasportes v. M/V Sol de
Copacabana, 581 F.2d 1204, 1208 (5th Cir. 1978). "Quite clearly,
owners may not benefit by the advances rule." 2-III Benedict on
Admiralty § 34. See also Medina v. Marvirazon Compania Naviera,
S.A., 709 F.2d 124, 125 (1st Cir. 1983) (per curiam) (recognizing
that owners are not entitled to maritime liens). This is because,
as the district court recognized, maritime liens and the admiralty
jurisdiction that comes with them are a way of making the provision
of services to vessels as safe and predictable as the provision of
services to land-based businesses. A creditor with a maritime
lien, not unlike the holder of a materialman's lien, can seek
payment even if the person she negotiated with has absconded. The
overarching goal is keeping the channels of maritime commerce open
-- by ensuring that people who service vessels have an efficient
way of demanding reimbursement for their labor and are thus willing
to perform the services necessary to keep vessels in operation.
See Payne, 423 F.2d at 240-41; see generally Benedict on Admiralty,
supra. The Mullanes' discharge of Murphy's mortgage did not
further these goals.
Second, even assuming that the Mullanes' purchase of the
vessel effected a maritime lien by "advance," the Mullanes already
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have received the appropriate compensation for that advance:
ownership of the vessel. The Mullanes entered into a contract
whereby they agreed to supply the funds to extinguish the Eastern
Bank mortgage in exchange for the vessel. Nothing else was
promised. The Mullanes' ownership rights were compromised not
because the vessel's operator or owner failed to repay them for an
advance, but because, after they had been repaid in full -- and
after any maritime lien had been extinguished by satisfaction --
they neglected to protect their rights by documenting their
purchase.
B. Chambers and Farese's Appeal
The district court granted the Mullanes' motion for
reimbursement for the cost of storing the vessel during litigation,
an expense they documented to the district court. Chambers and
Farese contend that the district court abused its discretion in so
doing.
It is well established that admiralty courts may award
storage charges on equitable grounds. See The Ponzan, 274 U.S.
117, 120-23 (1927) (recognizing authority of admiralty courts to
award storage charges as flexible and equitable in nature); David
Forsht Assoc., Inc v. Transamerica ICS, Inc., 821 F.2d 1556, 1560-
61 (11th Cir. 1987) (recognizing that storage charges in admiralty
are created through equity). See also Taino Lines, Inc. v. M/V
Constance Pan Atl., 982 F.2d 20, 24 (1st Cir. 1992) (recognizing
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that any reduction of an award of storage costs in admiralty is an
equitable determination). The district court has wide discretion
in determining whether equitable relief in admiralty cases is
appropriate. Id. We will not, on appeal, weigh the equities anew.
Rather, "if there is a sound reason for the decision of the
[district court], it does not matter that there are also sound
reasons for the opposite result." Boston & Maine Corp. v. First
Nat. Bank of Boston, 618 F.2d 137, 141 (1st Cir. 1980). See also
Certain Underwriters at Lloyds v. Kenco Marine Terminal, Inc., 81
F.3d 871, 872-73 (9th Cir. 1996) (reviewing award of storage
expenses for abuse of discretion); Kingstate Oil v. M/V Green Star,
815 F.2d 918, 922 (3d Cir. 1987) (same).
Essentially, Chambers and Farese argue that it was an
abuse of discretion for the court to award storage charges because
the Mullanes, having posted a bond, could have enjoyed the use of
the vessel during the litigation. However, there is no evidence
that the Mullanes did employ the vessel while the case was pending.
The record indicates that the vessel was damaged severely in the
initial seizure, and that its usefulness since has been limited.
In any case, we are not persuaded that the district court abused
its discretion in allowing the motion for storage costs.
Storage costs were an inevitable consequence of the
litigation that we have recounted. As we have discussed, vessels
subject to ownership disputes ordinarily are held in the custody of
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the court during litigation. See Fed. R. Civ. P. E; 28 U.S.C. §
1921(a)(1)(E) (2000). If the Mullanes had not posted security and
served as substitute custodians, the court would have been entitled
to reimbursement for its storage costs. Id. And the court's
custodia legis expenses would have created a right superior to
Chambers and Farese's lien. See 46 U.S.C. § 31326(b)(1); 2-IV
Benedict on Admiralty § 51 (2005). There is no indication on the
record that the storage costs incurred by the Mullanes were any
greater than those that would have been incurred by the court. The
Mullanes had an interest in maintaining the damaged vessel (which
they intended to use personally). Their expenditures to insure and
store the vessel during litigation benefitted all parties. These
were good enough reasons for the district court to appoint them as
the vessel's custodians and to reimburse them for storage charges.
See David Forsht Assoc., 821 F.2d at 1561 (holding that where
multiple parties had claims to a vessel, the party that arrested
the vessel and served as substitute custodian should be entitled to
reimbursement from the others, because that party benefitted all
claimants by safeguarding the vessel during litigation, at a cost
lower than would have been assessed by the marshal).
Chambers and Farese also appear to argue that the
Mullanes should not be entitled to storage charges because they
initiated, but eventually lost, this lawsuit. Again, we are
unpersuaded. This was not a frivolous suit. It was a close case
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that required two district court trials, the first of which the
Mullanes won. The district court found that the Mullanes were
"innocent" parties, who fought at length, if unsuccessfully, to
prevent their own property from being seized by another person's
creditors. Their claim to the vessel was a plausible one. In
light of these facts, we discern no abuse of discretion in
reimbursing their storage charges.6 See Taino Lines, 982 F.2d at
24 (no abuse of discretion in awarding custodia legis expenses
where partially unsuccessful litigation "was neither frivolous nor
undertaken in bad faith").
III.
The district court's order is affirmed in all respects.
The parties shall bear their own costs and fees.
So ordered.
6
Chambers and Farese also argue that Dr. Mullane forfeited the
right to storage charges because, they contend, he documented the
vessel's home port as in New Hampshire, where he intended to move
it, rather than in Massachusetts, where it was at the time of the
seizure, to avoid paying state sales tax on it. We will not
entertain this contention. Before it allowed the Mullanes'
petition for storage charges, the district court gave Chambers and
Farese an opportunity to submit written objections. Chambers and
Farese submitted a post-trial memorandum that did not include any
reference to the sales tax issue. Accordingly, they waived the
opportunity to make the argument they now attempt. See In re
Weinstein, 164 F.3d 677, 685 (1st Cir. 1999).
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