World Imports, Ltd. v. OEC Group (In Re World Imports Ltd.)

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 15-1498
_____________
In re: WORLD IMPORTS LTD., et al.,
Debtors
WORLD IMPORTS, LTD.; WORLD IMPORTS CHICAGO,
LLC;
WORLD IMPORTS SOUTH, LLC; 11000 LLC
v.
OEC GROUP NEW YORK,
Appellant
_______________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 2:13-cv-05085)
District Judge: Hon. Petrese B. Tucker
_______________
Argued
November 3, 2015
Before: McKEE, Chief Judge, JORDAN, and VANASKIE,
Circuit Judges.
(Opinion Filed: April 20, 2016)
_______________
Dean E. Weisgold
Dean E. Weisgold PC
1835 Market Street, Suite 1215
Philadelphia, PA 19103
Brendan Collins [ARGUED]
GKG Law, PC
1055 Thomas Jefferson Street, NW, Suite 500
Washington, DC 20007
Counsel for Appellant
David L. Braverman [ARGUED]
John E. Kaskey
Brian J. Discount
Braverman Kaskey, P.C.
One Liberty Place, 56th Floor
1650 Market Street
Philadelphia, PA 19103-7334
Counsel for Appellee
_______________
OPINION OF THE COURT
_______________
2
JORDAN, Circuit Judge.
In a bankruptcy proceeding, OEC Group, New York
(“OEC”) asserted maritime liens on goods then in its
possession, and it now appeals a ruling of the United States
District Court for the Eastern District of Pennsylvania that
certain contractual modifications to those liens were
unenforceable. Because we conclude that the modifications
were enforceable as to goods then in OEC’s possession, we
will reverse and remand for the District Court to craft an
appropriate remedy.
I. Background
Although the parties dispute the legal consequences of
the facts, what happened is not in dispute. World Imports,
Ltd., World Imports Chicago, LLC, World Imports South,
LLC, and 11000 LLC (collectively, “World Imports”)1 are
business entities [A 206] that buy furniture wholesale and sell
it to retail distributors. OEC provided non-vessel-operating
common carrier transportation services2 to World Imports for
approximately five years, including services to ensure that
cargo was delivered from countries of origin to World
Imports’ warehouse or to other United States destinations
designated by World Imports.
1
For convenience we refer to the several World
Imports debtor-entities together in the singular.
2
A non-vessel-operating common carrier “is a
consolidator who acts as a carrier by arranging for the
transportation of goods from port to port.” Logistics Mgmt.,
Inc. v. One (1) Pyramid Tent Arena, 86 F.3d 908, 911 n.1 (9th
Cir. 1996) (internal quotation and editorial marks omitted).
3
A. Supporting Documents
On or about January 26, 2009, World Imports, Ltd.
entered into an Application for Credit with OEC (the
“Application”). Page two of the Application, titled “Notice
Concerning Limitation of Liability,” was signed by the vice
president of World Imports, Ltd. and included the following
language:
[OEC] has adopted general terms and
conditions of service. These terms and
conditions are printed on the back of or
accompany every invoice issued by [OEC] and
are incorporated herein by reference. … When
[OEC] is acting as a carrier, the exact limits of
liability and the other terms and conditions of
carriage can be located on the ocean bill of
lading or other shipping document such as the
airway bill issued by the carrier (which is the
contract between the parties). Unless modified
or superseded by the terms of the bill of lading
or other contract of carriage, [OEC’s] general
terms and conditions of service will also apply
to the transaction. However, the terms of the
bill of lading prevail in all cases.
(A 40.)
Page three of the Application, titled “Terms for Credit
Accounts,” was signed by the bookkeeper of World Imports,
Ltd. and said:
4
Specific terms and conditions of service …
apply to the services performed by [OEC].
These terms and conditions are established by
contract as set forth in the governing instrument
or by operation of law. [OEC’s] standard
payment terms require receipt of cash in
advance of performance. In the event that
[OEC] extends credit to [World Imports], which
is defined as permitting [World Imports] to pay
for service within a specified period of time
after performance by [OEC], [World Imports]
agrees that the following additional terms are
applicable. …
As security for any existing and future
indebtedness of [World Imports] to [OEC],
including claims for charges, expenses or
advances incurred by [OEC] in connection with
any shipment or transaction of [World Imports],
and whether or not presently contemplated by
[World Imports] and [OEC], [World Imports]
hereby grants to [OEC] a general lien and
security interest in any and all property of
[World Imports] (including goods and
documents relating thereto) then or thereafter in
[OEC’s] possession, custody or control or en
route (the “Collateral”). This general lien and
security interest shall be in addition to any other
rights [OEC] has or may acquire under other
agreements and/or applicable law, and shall
survive delivery or release of any specific
property of [World Imports]. …
5
(A 37 (emphasis added).)
For each container of goods it transported for World
Imports, OEC provided to World Imports an invoice (the
“Invoice”) which contained, in its “Terms and Conditions of
Service,” the following provisions:
These terms and conditions constitute a legally
binding contract between the “Company” [i.e.,
OEC] and the “Customer” [i.e., World Imports].
…
14. General Lien and Right to Sell
Customer’s Property.
(a) Company shall have a general and
continuing lien on any and all property of
Customer coming into Company’s actual or
constructive possession or control for monies
owed to Company with regard to the shipment
on which the lien is claimed, a prior
shipment(s) and/or both … .
(A 42 (emphasis added).)
As required by federal law, OEC also publishes a tariff
(the “Tariff”) with the Federal Maritime Commission, which
governs its shipments. Included with the Tariff is a Bill of
Lading whose terms and conditions provide, in pertinent part,
as follows:
6
17. CARRIER’S LIEN
The Carrier shall have a lien on the Goods,
inclusive of any Container owned or leased by
the Merchant and on all equipment and
appurtenances thereto, as well as on any
Charges[3] due any other person, and on any
documents relating thereto, which lien shall
survive delivery, for all sums due under this
contract or any other contract or undertaking to
which the Merchant was party or otherwise
involved, including, but not limited to, General
Average contributions, salvage and the cost of
recovering such sums, inclusive of attorney’s
fees. Such lien may be enforced by the Carrier
by public or private sale at the expense of and
without notice to the Merchant.
(A 54-55 (emphasis added).)4
3
As defined in the Tariff, “Goods” referred to “the
cargo received from the shipper” and “Charges” referred to
“freight, deadfreight, demurrage and all expenses and money
obligations incurred and payable by the Merchant.” (A 43.)
4
The record does not reflect the relationship of the
various World Imports entities to one another, nor whether
representatives from all of those entities signed credit
applications similar to the Application executed by World
Imports, Ltd. Indeed, World Imports has argued that, because
one page of the Application was signed by a bookkeeper,
none of the World Imports entities is bound by that document.
However, in the briefing and argument before us, World
Imports has never taken issue with OEC’s assertion that all
7
B. Procedural Background
On July 3, 2013 (the “Petition Date”), World Imports
filed voluntary petitions for relief in the Bankruptcy Court
pursuant to Chapter 11 of Title 11 of the United States Code
(the “Bankruptcy Code”). OEC promptly filed a motion for
relief from the automatic stay imposed by Bankruptcy Code §
362(a). It argued that it was a secured creditor with a
possessory maritime lien on World Imports’ goods in its
possession and was entitled to refuse to release such goods
unless and until certain prepetition claims were satisfied. As
exhibits to its motion, OEC provided documentation that, as
of July 10, 2013, the total amount owed to OEC by World
Imports was $1,452,956. Of that amount, $458,251 was the
estimated freight and related charges due on containers then
in OEC’s possession (the “Landed Goods”). The remaining
$994,705 consisted of freight and related charges associated
with goods for which OEC had previously provided
transportation services (the “Prepetition Goods”). OEC
estimated the total value of World Imports’ goods then in
OEC’s possession was approximately $1,926,363.
World Imports responded by filing an adversary
proceeding against OEC and a motion for an expedited
the World Imports entities are effectively bound by the
contractual provisions of the Invoice and Tariff, both of
which grant, like the Application, a continuing lien as security
for past debts. For purposes of our analysis, therefore, we
take it as given that all of the World Imports entities are
bound, at the very least, by the Invoice and the Tariff, and
that the primary issue is the legal effect of the agreements
reflected in those documents.
8
hearing to compel OEC to turn over all of World Imports’
“Current Goods,” which World Imports defined to include
both the Landed Goods and goods then in transit for which
OEC was to provide delivery in the near future. (A 60.)
World Imports represented its willingness to pay OEC for the
freight charges on those Current Goods but not for the
outstanding charges associated with the Prepetition Goods.
After a hearing, the Bankruptcy Court granted the injunctive
relief sought by World Imports, ordering that:
Pursuant to 11 U.S.C. §[]542, [World Imports
is] entitled to immediate delivery and
possession of the Current Goods and Defendant
OEC shall immediately account for and deliver
the Current Goods to [World Imports];
…
Upon Defendant OEC’s delivery of the Current
Goods to [World Imports], [World Imports]
shall pay Defendant OEC: (a) the regular freight
charges on the Current Goods; (b) documented
demurrage/retention charges.
(A 105.) After OEC timely filed its notice of appeal from the
Bankruptcy Court’s order, that court issued an opinion in
support of its order. See In re World Imports, Ltd. Inc., 498
B.R. 58 (Bankr. E.D. Pa. 2013).
OEC did not seek a stay of the Bankruptcy Court’s
order. Rather, on appeal to the District Court, it requested
entry of an order requiring World Imports to pay all
outstanding amounts due for OEC’s transportation services
or, in the alternative, providing OEC with “valid, fully
9
enforceable replacement liens on assets of [World Imports] in
the amount of $1,926,363.” (A 243.) The District Court
ordered the parties to brief “whether the specific contract at
issue between the parties created a maritime lien … .” (A
299.) After that briefing, the Court entered an order on
January 22, 2015, affirming the order of the Bankruptcy
Court. Specifically, the District Court held that OEC did not
possess a valid maritime lien on the Prepetition Goods
because “the provisions in OEC’s contract with [World
Imports] purporting to give OEC a lien on goods in its
possession for freight charges for the Prepetition Goods [are]
unenforceable.” World Imports, Ltd. v. OEC Group New
York, 526 B.R. 127, 135 (E.D. Pa. 2015). Accordingly, OEC
could not assert a maritime lien to supersede interests secured
according to the Uniform Commercial Code as adopted in
various jurisdictions. Id. at 136. OEC timely appealed.
10
II. DISCUSSION5
OEC frames its appeal as a single question, namely,
whether the Bankruptcy Court and District Court erred in
holding that the contract provisions at issue, which purported
to give OEC maritime liens on goods in its possession both
for freight charges on those goods and for unpaid charges on
prior shipments, were unenforceable. In its response, World
Imports has added the further question of whether OEC’s
failure to obtain a stay of the Bankruptcy Court’s order
renders the appeal moot. We address the latter question first.
A. Mootness
World Imports argues that OEC’s appeal should be
dismissed as constitutionally moot because OEC failed to
obtain a stay of the Bankruptcy Court’s order and, instead,
fully complied with that order by releasing the Current Goods
5
Pursuant to 28 U.S.C. § 1334(b), the Bankruptcy
Court had jurisdiction over the adversary proceeding, which
was a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (E),
and (O). Pursuant to 28 U.S.C. §§ 158(a) and 1292(a), the
District Court had jurisdiction over the appeal from the
Bankruptcy Court’s order granting injunctive relief. We have
appellate jurisdiction to review the decision of the District
Court pursuant to 28 U.S.C. § 1291. In our review, we
“exercise the same standard of review as the District Court
when it reviewed the original appeal from the Bankruptcy
Court. Thus, we review the Bankruptcy Court’s findings of
fact for clear error and exercise plenary review over the
Bankruptcy Court’s legal determinations.” In re Handel, 570
F.3d 140, 141 (3d Cir. 2009) (citation omitted).
11
to World Imports in exchange for payment for the charges on
those goods. That argument, however, fails to account for
remedies that may still be granted to OEC. As we observed
in In re Continental Airlines,
an appeal is moot in the constitutional sense
only if events have taken place during the
pendency of the appeal that make it impossible
for the court to grant any effectual relief
whatsoever. An appeal is not moot merely
because a court cannot restore the parties to the
status quo ante. Rather, when a court can
fashion some form of meaningful relief, even if
it only partially redresses the grievances of the
prevailing party, the appeal is not moot.
91 F.3d 553, 558 (3d Cir. 1996) (internal quotation marks
omitted); see also Church of Scientology of California v.
United States, 506 U.S. 9, 12 (1992). In this case, although
OEC complied with the Bankruptcy Court’s order by
delivering the Current Goods, it has asked for relief that
would remedy its loss from the surrender of those goods,
specifically, a court order either requiring World Imports to
pay its outstanding debts to OEC or granting OEC
enforceable replacement liens on other assets of World
Imports. Because we are not precluded from granting any
effective relief, OEC’s appeal is not moot.6
6
Although World Imports cites Continental Airlines
for the authority that failure to seek a stay may, in some
circumstances, justify dismissal of an appeal, the language on
which it relies was describing not constitutional but equitable
12
B. Whether OEC Held a Valid Maritime Lien
The District Court concluded, and World Imports does
not dispute, that a valid maritime lien would supersede any
UCC security interests that may exist in the World Imports
cargo. World Imports also concedes that OEC possessed a
valid maritime lien on the Current Goods “for the actual
freight charges associated with the Current Goods.”7
(Appellees’ Br. 10 n.5.) Thus, the only dispute is whether
OEC held a valid maritime lien for charges associated with
the Prepetition Goods.
1. Maritime Liens Generally
“A maritime lien is a privileged claim upon maritime
property, such as a vessel, arising out of services rendered to
mootness, see Continental, 91 F.3d at 558, which is not at
issue here.
7
OEC cites numerous authorities to establish that, as a
non-vessel-operating common carrier contracting primarily to
transport goods by sea, its contracts with World Imports were
maritime contracts. Moreover, OEC argues that, although it
does not physically transport goods, it takes legal
responsibility for their transportation and thus “is treated by
the law as a bona fide carrier entitled to assert a maritime lien
on cargo.” (Appellant’s Br. 13 n.4 (citing Logistics Mgmt.,
86 F.3d at 913-15).) Although World Imports disputes that
its contracts with OEC, by themselves, created maritime liens,
it does not dispute that OEC’s role as a non-vessel-operating
common carrier created maritime liens arising by operation of
law.
13
or injuries caused by that property.” 1 Thomas J.
Schoenbaum, Adm. and Mar. Law § 9-1, at 683 (5th ed.
2011). Maritime liens are a security device intended “to keep
ships moving in commerce while preventing them from
escaping their debts by sailing away.” Id. at 684-85. Thus,
such a lien attaches to the maritime property from the
moment a debt arises, and adheres, even through changes in
the property’s ownership, until extinguished by operation of
law. Id. at 683.
Because maritime liens enjoy a special priority status
and may operate without notice, courts are hesitant to
recognize new forms of them or new circumstances under
which such liens may arise. See Osaka Shosen Kaisha v.
Pacific Export Lumber Co., 260 U.S. 490, 499 (1923) (“The
maritime privilege or lien, though adhering to the vessel, is a
secret one which may operate to the prejudice of general
creditors and purchasers without notice and is therefore stricti
juris and cannot be extended by construction, analogy or
inference.” (citing Vandewater v. Mills, Claimant of Yankee
Blade, 60 U.S. 82 (1856))). Federal courts nevertheless “have
full authority to update old doctrines and to recognize new
forms of liens if warranted by new conditions.” Logistics
Mgmt., Inc. v. One (1) Pyramid Tent Arena, 86 F.3d 908, 913
n.7 (9th Cir. 1996) (internal quotation omitted) (collecting
cases).
In much the same way that traditional maritime liens
against a ship were based on the legal fiction that the ship was
the wrongdoer, see 1 Schoenbaum, supra, § 9-1, at 683-84,
maritime law recognizes a reciprocal claim against the ship’s
cargo for debts associated with it.
14
Subject to the exception that the lien of the
shipowner may be displaced by an
unconditional delivery of the goods before the
consignee is required to pay the freight, or by an
inconsistent and irreconcilable provision in the
charter-party or bill of lading, the rule is
universal as understood in the decisions of the
Federal courts, that the ship is bound to the
merchandise and the merchandise to the ship for
the performance on the part of the shipper and
shipowner of their respective contracts.
The Maggie Hammond, 76 U.S. (9 Wall.) 435, 449-50 (1869).
As the Supreme Court acknowledged in its influential opinion
in a case captioned simply The Bird of Paradise, such liens
on cargo may arise out of contracts to pay freight. 72 U.S. (5
Wall.) 545 (1866); see also 2 Thomas A. Russell, Benedict on
Admiralty § 44, at 3-50 n.2 (7th ed. rev. 2010) (collecting
cases).
2. Waiver of Liens for Unpaid Freight
A lien for unpaid freight “arises from the right of the
ship-owner to retain the possession of the goods until the
freight is paid,” and thus is lost upon “unconditional delivery
to the consignee.” Bird of Paradise, 72 U.S. at 555 (emphasis
added). Yet, because it would frustrate commerce to require
shipowners to retain their liens only by actual possession of
the implicated cargo,8 a shipowner enjoys a strong
8
See In re 4,885 Bags of Linseed, 66 U.S. (1 Black)
108, 114 (1861) (emphasis added):
It is in the interest of the ship-owner that his
15
presumption that, absent a clear indication to the contrary, he
has not waived his cargo lien upon delivery of that cargo.9 To
vessel should discharge her cargo as speedily as
possible after her arrival at the port of delivery.
And it would be a serious sacrifice of his
interests if the ship was compelled, in order to
preserve the lien, to remain day after day with
her cargo on board, waiting until the consignee
found it convenient to pay the freight, or until
the lien could be enforced in a court of
admiralty. The consignee, too, in many
instances, might desire to see the cargo unladen
before he paid the freight, in order to ascertain
whether all of the goods mentioned in the bill of
lading were on board, and not damaged by the
fault of the ship. … And if the cargo cannot be
unladen and placed in the warehouse of the
consignee, without waiving the lien, it would
seriously embarrass the ordinary operations
and convenience of commerce, both as to the
ship-owner and the merchant.
9
See Bird of Paradise, 72 U.S. at 556 (emphasis
added):
Where the stipulation is, that the goods are to be
delivered at the port of discharge before the
freight is paid, without any condition or
qualification, it seems to be agreed that the lien
of the ship-owner for the payment of the freight
is waived and lost, as the right of lien is
inseparably associated with the possession of
the goods. Unless the stipulation is, that the
16
overcome the presumption against waiver, a court
determining whether a cargo lien has been waived by
unconditional delivery may consider, among other things,
whether there was an understanding between the parties
regarding retention of the lien either before or at the time the
consignee took possession of the cargo,10 whether there was a
delivery shall precede the payment of the
freight, and the language employed as applied
to the subject-matter and the surrounding
circumstances is such as clearly to show that the
change of possession is to be absolute and
unconditional, the lien is not displaced, as the
presumption of law is the other way, which is
never to be regarded as controlled, except in
cases where the language employed in the
instrument satisfactorily indicates that such is
the intention of the parties.
See also N.H. Shipping Corp. v. Freights of the S/S Jackie
Hause, 181 F. Supp. 165, 169 (S.D.N.Y. 1960) (“This right of
the vessel [to a cargo lien] is so strong in the eyes of the
admiralty that it will only be considered relinquished by the
most unequivocal and express terms or the most absolute and
unconditional surrender.” (citing Bird of Paradise, 72 U.S.
545)); 1 Schoenbaum, supra, § 9-7, at 728-29 (“A lienholder
may waive his lien either expressly or by implication, but
waiver is not favored, and the courts will require a clearly
manifested intention to forego the lien.” (internal footnote
omitted)).
10
See The Eddy, 72 U.S. (5 Wall.) 481, 495-96 (1866)
(affirming that courts will uphold the parties’ agreement that
a cargo lien shall survive delivery).
17
stipulation in the contract of affreightment inconsistent with
the exercise of a lien, or whether other security was taken
when the cargo was discharged. 2 Russell, supra, § 44, at 3-
52.
Both the Bankruptcy Court and the District Court
appear to have assumed, without analysis, that OEC did not
merely deliver the Prepetition Goods to World Imports, but
did so unconditionally and thus in waiver of its liens on those
goods.11 Given the strong presumption against waiver, and in
the absence of clear evidence of unconditional delivery, we
cannot agree with that assumption. The evidence appears to
us to be very much to the contrary. Consistent with the
presumption against waiver, both the Application and the
Tariff expressly state the understanding of the parties that
OEC would hold liens against any World Imports goods in
OEC’s possession as security for (among other things)
charges incurred for any shipment of World Imports goods,
and that such liens would “survive delivery.” (A 37, 54.)
Independent of the question of whether those provisions are
fully enforceable in and of themselves, they are compelling
evidence that OEC did not clearly intend to waive its cargo
liens on the Prepetition Goods by making an unconditional
11
See In re World Imports, Ltd. Inc., 498 B.R. 58, 62
(Bankr. E.D. Pa. 2013) (rejecting OEC’s reliance on Bird of
Paradise, emphasizing that that case “nowhere explicitly
states that a maritime lien may be extended by contract to
secure goods already shipped and unconditionally released to
an owner” (original emphasis)); World Imports, Ltd. v. OEC
Group N.Y, 526 B.R. 127, 133 (E.D. Pa. 2015) (referring to
the Prepetition Goods as “those already unconditionally
delivered”).
18
delivery of such goods. They show instead that there was an
agreement between the parties, for the purpose of
perpetuating any such lien, to apply unwaived and unsatisfied
liens toward cargo currently in OEC’s possession, the cargo
essentially taking the place of cargo previously delivered out
of OEC’s possession. Moreover, this case is akin to Capitol
Transportation, Inc. v. United States, in which the First
Circuit rejected the argument that a carrier had waived its
liens on prior shipments when it released shipping containers
“without providing notice of a continuing lien,” noting that
“the relevant tariffs in effect in this case provide that such
liens survive delivery of the goods.” 612 F.2d 1312, 1324-25
(1st Cir. 1979). Those tariffs, the court affirmed, “are
considered binding and in essence carry the force of law.” Id.
at 1325. In light of the express language of OEC’s Tariff,
that case squarely supports the position that OEC did not
unconditionally deliver the Prepetition Goods, and hence
retained its liens on those goods.
We further note that the persistence of a lien through
substitution is not a novel practice, as “[i]t is familiar doctrine
of the admiralty courts that a maritime lien attaches not only
to the original subject of the lien, but also to whatever is
substituted for it, and that the lienholder may follow the
proceeds wherever he can distinctly trace them.” Bank of
British N. Am. v. Freights, etc., of the Hutton, 137 F. 534, 536
(2d Cir. 1905). Cf. N.H. Shipping Corp. v. Freights of the S/S
Jackie Hause, 181 F. Supp. 165, 171 (S.D.N.Y. 1960)
(holding that a shipowner had not waived its cargo lien when
its release of the cargo was conditioned on the substitution of
freight money, held in escrow, for such cargo).
19
World Imports disputes that the parties could have
created valid maritime liens entirely through contract, but it
has not attempted to dispute that, as a general proposition,
OEC’s carrier services created enforceable maritime liens by
operation of law. Indeed, World Imports’ consistent
acknowledgment that “OEC possessed a maritime lien on the
Current Goods for the actual freight charges associated with
the Current Goods” is also, by implication, a tacit concession
that OEC, at least initially, must have possessed comparable
maritime liens on the Prepetition Goods for freight charges
associated with those goods. (Appellees’ Br. 10.) Hence, if
one concludes, as we do, that OEC never waived those liens
on the Prepetition Goods, then the question of whether the
parties could and did create the liens solely through contract
is a red herring. Instead, the dispositive questions are
whether liens arising by operation of maritime law may be
modified or extended by agreement, and whether such an
agreement may extend an unwaived lien onto property
currently in the lienholder’s possession.
3. Enforceability of Maritime Lien
Provisions
World Imports argues against the enforceability of the
parties’ contractual lien modifications by pointing to portions
of the Supreme Court’s opinion in Bird of Paradise which
state that maritime liens on cargo are established by operation
of law rather than agreement of the parties and arise from the
shipowners’ possessory interest in the cargo. Attempting to
place on OEC the burden of proving both that the parties
intended to preserve the maritime liens for the Prepetition
Goods and that the delivery of those goods was not
20
unconditional,12 World Imports argues that OEC has failed to
produce “any evidence whatsoever to demonstrate that the
delivery of the Prepetition Goods was anything but
unconditional.” (Appellees’ Br. 14 n.9.) Insisting that OEC
made such an unconditional delivery of the Prepetition
Goods, World Imports essentially argues that Bird of
Paradise does not authorize the parties to reassert waived
liens from the Prepetition Goods onto the Current Goods.
Both the District Court and Bankruptcy Court accepted that
argument and declined to interpret Bird of Paradise as
authorizing the parties’ contractual extension of OEC’s
maritime liens.
To recap, our analysis of the facts begins from a very
different premise than that adopted by the District Court and
Bankruptcy Court. They assumed that OEC waived its liens
on the Prepetition Goods through unconditional delivery but
nevertheless tried, through contract, to revive those liens and
place them on the Current Goods. We conclude that OEC did
not waive its previous liens but rather agreed with World
Imports in advance that such liens would survive delivery and
would be applied to any of World Imports’ goods currently in
12
Specifically, World Imports cites Logistics Mgmt.,
86 F.3d at 914-15, as supportive of their position that “OEC
bears the burden to produce evidence which shows that the
parties intended to preserve the maritime lien.” (Appellees’
Br. 14 n.9.) Although Logistics Mgmt. reiterates that a
maritime lien is lost on unconditional delivery, we discern
nothing in that case placing on the lienholder the burden of
proving that the parties intended to preserve the lien. Rather,
as noted above, the presumption falls heavily in the opposite
direction.
21
OEC’s possession. On that foundation, we hold that their
agreement to extend the liens is enforceable.
Despite World Imports’ contentions, the opinion in
Bird of Paradise made clear that there is no internal
contradiction in recognizing a lien as a creature of maritime
law that, once created by operation of law, may be extended
or modified by agreement of the parties. In that case, the
Court affirmed that a maritime lien “arises from the usages of
commerce, independently of the agreement of the parties …
.” Bird of Paradise, 72 U.S. at 555; see also Osaka, 260 U.S.
at 499-500 (clarifying that “[t]he contract of affreightment
itself creates no lien, and this court has consistently declared
that the obligation between ship and cargo is mutual and
reciprocal and does not attach until the cargo is on board or in
the master’s custody”); Krauss Bros. Lumber Co. v. Dimon
S.S. Corp., 290 U.S. 117, 121 (1933) (affirming that, while
contracts may form the basis of a maritime lien, it is “[o]nly
upon the lading of the vessel or at least when she is ready to
receive the cargo” that the lien arises or attaches). In other
words, a traditional maritime lien cannot be created by
contract alone, but that does not mean that such liens, once
created, are beyond contractual modification.
On the contrary, immediately after recognizing that a
cargo lien, being possessory, “is lost by an unconditional
delivery to the consignee,” Bird of Paradise used broad
language supporting contractual modification and extension
of the lien beyond delivery, stating:
Parties, however, may frame their contract of
affreightment as they please, and of course may
employ words to affirm the existence of the
22
maritime lien, or to extend or modify it, or they
may so frame their contract as to exclude it
altogether. They may agree that the goods,
when the ship arrives at the port of destination,
shall be deposited in the warehouse of the
consignee or owner, and that the transfer and
deposit shall not be regarded as the waiver of
the lien; and where they so agree, the settled
rule in this court is, that the law will uphold the
agreement and support the lien.
72 U.S. at 555 (emphasis added)
The Bankruptcy Court interpreted that passage more
narrowly than the language calls for, hanging great weight on
the opinion’s prior use of the definite article “the” before the
word “freight” to conclude that a maritime lien was limited to
the immediate circumstances in which it arose:
[In Bird of Paradise], the High Court stated that
the “[l]egal effect of such a lien is that the ship-
owner, as carrier by water, may retain the goods
until the freight is paid … “ Id. at 555. It added
that the lien “arises from the right of the ship-
owner to retain the possession of the goods until
the freight is paid, and is lost by an
unconditional delivery to the consignee.” Id.
This Court places emphasis on the definite
article (“the”) preceding the word “freight.” It
reads those statements to limit the extent of a
maritime lien to the freight charges for those
goods on that vessel at that time. It does not
share OEC’s reading of the case to allow the
23
parties to unconditionally extend the lien to
unpaid freight for prior cargo deliveries. See
also Newell [v. Norton, 70 U.S. (3 Wall.) 257,
262 (1865)] (“Indeed, the only power the
contracting parties have respecting such liens as
attach as consequences to certain contracts is,
that the creditor may waive the lien, and may by
express stipulation, or by his manner of dealing
in certain cases, give credit exclusively to those
who would also have been bound to him
personally by the same contract which would
have given rise to the lien.”).
In re World Imports, 498 B.R. at 61-62 (original emphasis).
Besides its underlying assumption that OEC waived its prior
liens through unconditional delivery, we think the Bankruptcy
Court’s analysis is flawed by two significant oversights.
First, it overlooks the context and sequence in which the
supposedly limiting language appeared in the Bird of
Paradise opinion. As mentioned above, the Supreme Court’s
opinion began by describing the origins and traditional form
of maritime liens, but then, in its transition between
paragraphs, signaled that the parties may depart from the
norm by contractual agreement. See Bird of Paradise, 72
U.S. at 555 (“[T]he lien … arises from the right of the ship-
owner to retain the possession of the goods until the freight is
paid, and is lost by an unconditional delivery to the
consignee. Parties, however, may frame their contract of
affreightment as they please, and of course may employ
words to affirm the existence of the maritime lien, or to
extend or modify it … .” (emphasis added and footnote
omitted)). Had the order of the statements been reversed –
that is, had the Supreme Court stressed the traditional form of
24
maritime liens after discussing contractual modification – that
might provide a stronger basis from which to argue that the
Supreme Court intended to limit (albeit only implicitly) the
scope of contractual modifications of liens to something
closely resembling the traditional form. However, read in
proper sequence, the Supreme Court’s opinion signals the
opposite message, namely, that despite the non-contractual
origins and traditional form of maritime liens, parties are free
to contractually extend or modify an existing lien “as they
please.” Id., 72 U.S. at 555.
The Bankruptcy Court’s second oversight is its casual
citation to language appearing in the report of another
Supreme Court case, Newell v. Norton, language that is not
the Supreme Court’s but is merely a summary of one party’s
position in the syllabus of that case, on a point which
ultimately played no role in the Court’s analysis. See Newell,
70 U.S. at 261-62 (documenting the arguments of counsel for
the appellants in that case). World Imports has pushed that
erroneous reliance on Newell’s syllabus at every stage of the
proceedings (see A 65, 258, 318; Appellees’ Br. 13), even
after OEC has repeatedly, and correctly, drawn attention to
the citation’s complete absence of authoritative value (see A
223, 227, 231, 274, 280, 307; Appellant’s Br. 22, 25 n.8;
Reply Br. 8-9). The dogged determination of World Imports
to perpetuate a clear error of citation is both troubling and
revealing.
Especially in light of the “familiar doctrine” that a
maritime lien may attach to property substituted for the
original object of the lien, Bank of British N. Am., 137 F. at
536, we see no sound reason why the parties’ contractual
transfer of the unwaived liens to the Current Goods should
25
not have been enforceable.13 See also Logistics Mgmt., 86
F.3d at 914 (“Contractual provisions regarding liens on cargo
for freight are enforceable in admiralty.” (citing Bird of
Paradise, 72 U.S. at 555)); id. (“[A] lien on the cargo is
normally expressly granted in the bills of lading and charter
parties. If so, the extent of the relevant lien is governed by
the terms of the lien clause.” (quoting Eric M. Danoff,
Provisional Remedies in Adm. U.S., 4 U.S.F. Mar. L.J. 293,
299 (1992))).
13
Despite the seemingly broad scope of contractual
modification contemplated by Bird of Paradise, there must of
course be some limiting principal that would prevent
contracting parties from unilaterally altering the rights of
bona fide purchasers whose interests would otherwise be
affected by a continuing lien on cargo that has passed into the
stream of commerce. The facts of this case, however, do not
implicate that concern, as OEC has only sought to enforce its
liens on goods that were still in its possession, and has
conceded that the case may be resolved on those more limited
grounds. Hence, while we understand the Bankruptcy
Court’s resistance to “the proposition that the freight charges
for goods upon their release from a warehouse and entry into
the hands of others in the ordinary course of commerce
remain secured by a pre-existing maritime lien,” In re World
Imports, 498 B.R. at 62 (original emphasis), we emphasize
that the disposition of this case concerns only the
enforceability of a contractual transfer of a lien from
previously released goods to currently held goods. In short,
the enforceability of a provision asserting a maritime lien on
goods that have already been released into the stream of
commerce is not at issue in this case.
26
Both the District Court and World Imports raise the
policy argument that an extended maritime lien on cargo
could hurt innocent third parties. In doing so, they rely
primarily on Atlantic Richfield Co. v. Good Hope Refineries,
Inc., 604 F.2d 865 (5th Cir. 1979), in which the Fifth Circuit
concluded that a transportation provider could not assert a
lien on undelivered cargo to secure unpaid charges on already
delivered cargo. After concluding, as a matter of contractual
interpretation, that the applicable lien clause did not guarantee
this right “[o]n its face” and was not otherwise ambiguous, id.
at 871, the court opined, in dicta, that a broader construction
of the contractual language might also have unfavorable
consequences to third parties:
[An] expansive interpretation of this maritime
lien clause … would have consequences far
beyond the situation where the cargo belonged
to the charterer and was seized before it left the
vessel. The lien for the debts of past voyages
would extend to cargo owned by others, and
might, if all the other terms of the entire clause
were literally enforced, follow that cargo after
delivery, even if all freights due for its carriage
were paid. We decline to sanction
reinterpretation of words apparently clear to
permit this result.
Id. at 873 (emphasis added).
The Fifth Circuit’s policy concerns were apparently
ancillary to what the court considered a question of
contractual interpretation, but the District Court in the present
case decided that the lien clauses now at issue are
27
unenforceable on policy grounds alone. Specifically, it
worried that “[a] third-party purchaser of the undelivered
goods would have no notice that the goods it purchased could
be withheld pursuant to a maritime lien on previously-shipped
goods.” World Imports, 526 B.R. at 134.
Putting aside the real and immediate harm of depriving
OEC of the benefit of its bargain with World Imports, at least
three other considerations weigh against the District Court’s
policy concern. First, any risk to third parties is mitigated by
the fact that, unlike the voyage charter at issue in Atlantic
Richfield, OEC’s Tariff not only specifies the applicability of
the maritime lien to unsatisfied debts of previous shipments in
unambiguous language, but does so in a published document.
Second, the potential of harm to third parties is
implicated regardless of whether the maritime lien is intended
to satisfy the consignee’s immediate charges or past ones. In
either case, the lien creates the danger that the consignee’s
failure to meet its obligations to the carrier will impede its
ability to put the cargo into the hands of a third party. “[T]his
is a characteristic of all maritime liens.” Usher v. M/V Ocean
Wave, 27 F.3d 370, 374 (9th Cir. 1994). Any marginal
increase in the risk to third parties (above the risk inherent in
a traditional lien on cargo) is limited in this case because, as
already noted supra n.13, the goods to which the previous
liens attached were still in the carrier’s possession. In other
words, the type of lien asserted in this case was still, at
bottom, a possessory lien over goods that had not yet entered
the stream of commerce.
Third, we must consider the potential benefits to
commerce of enforcing the parties’ voluntary decision to
28
enter into this type of credit arrangement. Although World
Imports has argued that commerce is hindered by allowing a
current shipment of goods “to be held hostage” to secure the
payment of prior shipments, that argument ignores the
commercial benefit implicit in that or any other credit
arrangement that facilitates the exchange of goods or services
with a guarantee of future payment. The relevant fact is not
simply that the most recent shipment was held up, but that
numerous prior shipments were not held up because the
shipper had assurances that it could release those shipments
conditionally, without surrendering its liens. In other words,
while the traditional cargo lien promotes commerce by
ensuring that a particular ship can assert a secured claim even
after the cargo has conditionally left the ship, OEC’s
contractually modified lien further promotes commerce over a
series of transactions by ensuring that the carrier can retain its
secured claims in an ongoing business relationship.14
14
OEC also points to Eagle Marine Transp. Co. v. A
Cargo of Hardwood Chips, 1998 WL 382141 (E.D. La. July
8, 1998), as persuasive authority that a lien purporting to
enforce freight charges on past shipments is enforceable. In
that case, the district court noted that the contract giving rise
to the lien provided as follows: “Seller has a maritime lien on
all cargo which it may assert and enforce to ensure payment
of the freight and demurrage on all current en route shipments
and earlier completed shipments. Waiver of such lien on
prior shipments does not constitute a waiver as to the cargo
covered by this agreement.” Id. at *1. OEC essentially
argues that that case tacitly approved the type of contractual
extension of a cargo lien as is implicated here, because “if the
court had believed that such a lien provision was not
enforceable, it would have so indicated … .” (Appellant’s Br.
29
Besides its public policy argument, the District Court
also relied on the oft-cited principle that maritime liens
should be strictly construed, reasoning that
[n]o Supreme Court decision has addressed
whether parties may contractually modify a
maritime lien to make the delivery of existing
shipments contingent on the consignee’s
payment for already-delivered shipments. As
maritime liens are to be strictly construed, this
Court declines OEC’s invitation to extend or
modify maritime liens beyond the
circumstances indicated by Supreme Court
precedent. See Osaka Shosen Kaisha, 260 U.S.
at 499 … .
World Imports, 526 B.R. at 132-33.
The case which the District Court cited, Osaka Shosen
Kaisha v. Pacific Export Lumber Co., reaffirmed that “[t]he
maritime privilege or lien … is a secret one which may
37.) However, as the District Court pointed out, the issue in
that case was whether the transporter had discharged the lien
by unconditional delivery, and the court’s opinion did not
specify “whether the lien at issue was asserted to enforce
payment of freight charges to previous shipments” as opposed
to the current shipment. World Imports, 526 B.R. at 135.
Thus, the opinion did not squarely address the enforceability
of a lien for charges incurred on past shipments.
Nevertheless, the circumstances of that case give at least
some indication that the type of contractual modification at
issue in this case is not novel.
30
operate to the prejudice of general creditors and purchasers
without notice and is therefore stricit juris and cannot be
extended by construction, analogy or inference.” 260 U.S. at
499. And while that principle is sound, we think the District
Court has misapprehended its import. The principle does not
restrain the private modification of liens arising out of the
traditional relationship between ship and cargo – e.g., the lien
of the cargo owner on the ship or the lien of the shipowner on
the cargo – but rather limits the judicial creation of new
circumstances, outside that reciprocal relationship, under
which liens may attach in the first instance. The language
proscribing the expansion of the lien universe “by
construction, analogy or inference” curtails a court’s ability to
recognize, by mere legal implication, previously
unanticipated circumstances under which liens may arise by
operation of maritime law, but says nothing about private
parties’ ability to modify traditional liens by express
agreement. Reading that language to limit private lien
modifications to those forms previously and specifically
blessed by the Supreme Court renders meaningless the same
Court’s affirmation that parties may extend or modify liens
and otherwise frame their contracts of affreightment as they
please. Compare Osaka, 260 U.S. at 499-500 (finding
inadequate legal authority to recognize a new type of lien
upon a ship for damages resulting from a failure to accept all
the intended cargo),15 with Bird of Paradise, 72 U.S. at 555
15
The Osaka court stressed that, under well-
established law, the reciprocal obligations between ship and
cargo, from which maritime liens arise, do not attach until the
cargo is physically loaded on the ship; hence, the court
declined to recognize, by inference alone, a lien on the ship
for cargo that was contractually anticipated but never actually
31
(recognizing that parties “of course” may agree “to extend or
modify” a lien “aris[ing] from the usages of commerce”).
The District Court appears to have blurred the distinction
between judicial enforcement of a private contract and more
comprehensive judicial rule-making, interpreting OEC’s
enforceability argument as an invitation for the court itself to
“extend or modify maritime liens” beyond their traditional
forms. World Imports, Ltd., 526 B.R. at 132. In this case at
least, there is a material difference between judicial expansion
of a legal doctrine and judicial enforcement of a private
agreement to vary from a legal default.
loaded aboard. See Osaka Shosen Kaisha v. Pacific Export
Lumber Co., 260 U.S. 490, 497-500 (1923); see also
Vandewater v. Mills, Claimant of Yankee Blade, 60 U.S. 82;
89-90 (1856) (invoking the principle of stricti juris in
concluding that, where the ship does not receive the cargo, no
maritime lien or privilege attaches). That is a very different
situation from the one presented here, where the question is
whether the parties can contractually preserve an existing lien
(that is, for cargo that was actually loaded and conditionally
delivered) and then apply that surviving lien to subsequent
cargo that was also loaded and still in the carrier’s possession.
Upholding a lien in Osaka would have required recognition of
a new type of maritime lien incompatible with the theoretical
underpinnings of the reciprocal lien relationship – i.e., it
would have created a new class of lien for cargo that never
touched the ship. By contrast, the present case does not
require the recognition of any liens other than those arising
through the traditional ship-and-cargo relationship, all based
on cargo actually loaded and shipped.
32
One last argument against enforceability of OEC’s
liens is embodied in the Bankruptcy Court’s conclusion that
the contractual arrangement presented here cannot stand
because, if permitted, it would effectively negate the utility of
general lien laws adopted by the states. According to the
Bankruptcy Court: “[I]f OEC’s position were correct, parties
would never need recourse to the general lien laws of the
several states. An agreement to extend the shipper’s maritime
lien to any unpaid debt would co-opt the field and suffice to
render any further security arrangements wholly
unnecessary.” In re World Imports, Ltd. Inc., 498 B.R. at 62
(original emphasis). Besides being overstated, that
conclusion rests on a faulty premise. Implicit in the stated
concern is, once again, an assumption that all previous liens
on goods from prior shipments were unconditionally waived.
In that view, OEC is attempting a post hoc resurrection of
liens that it had already surrendered by unconditional delivery
– a contractual cheat that would allow it to essentially jump
back to the front of the creditor line after relinquishing its
spot.
Given the express agreement that OEC would not
waive its liens upon delivery, however, the parties’
contractual modification is better regarded as an ex ante
agreement that OEC would simply retain the position already
afforded to it by operation of maritime law. Put differently,
the contractual extension of OEC’s outstanding liens from the
Prepetition Goods onto the Current Goods allowed OEC, at
most, to do in the aggregate what maritime law already
permitted it to do piecemeal with individual shipments, and
World Imports’ other creditors are only disadvantaged to the
same extent they would have been had OEC engaged in the
more protracted, commerce-restrictive process of withholding
33
each shipment until its attendant lien was satisfied. If parties
to a maritime contract, through negotiation and private
ordering, opt to streamline that process by retaining and
consolidating liens arising by operation of longstanding
maritime law, at least as such liens apply to goods still in the
shipper’s possession, there is no compelling argument to undo
such an agreement.16
In sum, we do not think the policy concerns roused by
World Imports and accepted by the Bankruptcy Court and
District Court are sufficient to either outweigh the benefits to
commerce of allowing two sophisticated businesses to
contract for a mutually agreeable transportation and credit
arrangement, or to curtail the broad contractual freedom that
Bird of Paradise on its face allows.
16
We are sympathetic to the Bankruptcy Court’s
concern that permitting the extension of maritime liens
necessarily preempts the operation of state-based commercial
law, and thus disadvantages – or at least maintains at a
disadvantage – all creditors whose claims arise under such
law. The question of whether centuries of federal admiralty
law favoring the claims of the carrier above other creditors
should give way to more modernized statutory schemes may
be open to legitimate debate. But the debate is not for us.
Congress is free to change policy in this area at any time.
Unless and until it does, the federal common law of admiralty
still prevails over state-based claims, and the traditions of that
law are sufficiently well-established to allow carriers holding
advantageous maritime liens to make private agreements to
preserve, modify and extend those liens through the
substitution of currently held goods.
34
III. Conclusion
Given the strong presumption that OEC did not waive
its maritime liens on the Prepetition Goods, the clear
documentation that the parties intended such liens to survive
delivery, the familiar principle that a maritime lien may attach
to property substituted for the original object of the lien, and
the parties’ general freedom to modify or extend existing
liens by contract, we conclude that the parties’ agreement to
apply those unwaived liens toward the Current Goods is
enforceable. Thus, we will reverse and remand so that OEC
may be granted relief appropriate to its valid maritime liens.
35