Appendix — Fred S. James & Co. of Texas v. Equilease Corp.
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86-58 Y) i ee
NO.
FILED
; JUL 17 1986
os y JOSEPH F. SPANIOL, JR
——as
In the oon
Supreme Court of the United States
OCTOBER TERM, 1986
FRED S. JAMES & CO. OF TEXAS, INC.
Petitioner
VERSUS
EQUILEASE CORPORATION,
M/V SAMSON, M/V THOR, and M/V HERCULES, ETC.
Respondent
ON PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
APPENDIX TO
PETITION FOR WRIT °F CERTIORARI
JAMES G. BURKE, JR.
20th FLoor, Energy Centre
1100 Poydras Street
New Orleans, LA 70163
Telephone: (504) 569-2900
and
BURKE & MAYER, Of Counsel
INDEX
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A-1
APPENDIX A
EQUILEASE CORPORATION
V.
M/V SAMSON, etc., et al.
FRED S. JAMES & CO. OF
TEXAS, INC.
V.
EQUILEASE CORPORATION, et al
Civ. A. Nos. 81-112, 81-234.
United States District Court,
E.D. Louisiana,
Section "I".
March 18, 1983.
MENTZ, District Judge.
In C.A. 81-234, Fred S. James & Co. of Texas,
Ine. ("James") filed a complaint against Equilease
Corporation ("Equilease"), Dunnamis Offshore Towing,
Ine., ("Dunnamis"), Unilease 13, Inc., Unilease 14, Inc.,
and Unilease 20, Inc., in personam, and against the
A-2
M/V¥V SAMSON, the M/V THOR, and the M/V
HERCULES, in rem, both for the insurance premiums
due and payable on the vessels in the amount of
$231,621.00 and for interest, costs and attorneys
fees. James' suit was originally transferred to this
section for consolidation with Civil Actions Nos, 80-
4785 and 81-112. The latter two cases, except for
James' intervention in 81-112, were subsequently
dismissed. The Court conducted a non-jury trial in
C.A. 81-234 on January 3, 1983. After the trial,
the Court took the matter under submission.! Having
reviewed the evidence, the memoranda of counsel,
and the applicable law, the Court now makes the
following findings of fact and conclusions of law.
he On January 26, 1983, this Court signed an ex
parte order dismissing Dunnamis from the case
without prejudice. Since signing the order, the
Court has learned that Equilease strenuously
objects to the dismissal. Because of this
objection and because the order was considered
and signed ex parte, the Court hereby vacates
that order. |
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FINDINGS OF FACT AND
CONCLUSIONS OF LAW
Equilease, a wholly-owned subsidiary of Eltra
Corporation ("Eltra"), engaged in financing through
both mortgages and leases. James, a national
insurance broker, is a principal supplier of marine
insurance. James' own offices are located in Texas.
It has affiliated offices, however, with Fred S. James
& Co. of New York in New York.
In 1974, Equilease agreed to provide interim
construction financing to the owner and builder of
the tugs M/V SAMSON, M/V THOR, and M/V
HERCULES. Equilease foreclosed upon and became
the owner of these three vessels in 1977, after a
default by the shipyard and the owner. At that
time, however, the boats had not been completed
but were still sitting in the shipyard at Lockport,
Louisiana. Equilease did not decide to complete the
three tugs until 1978. The remaining work was then
done at the Avondale Shipyard in New Orleans.
After the tugs were completed, Equilease trans-
ferred the title of each vessel to a separate "shelf"
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corporation. One tug was transferred to Unilease
13, Ine.; another to Unilease 14, Inc.; and another
to Unilease 20, Inc. In return, each Unilease
corporation granted a preferred first mortgage to
Equilease. These mortgages covered the cost of
each vessel, the fraud losses sustained at the original
shipyard, the cost of completion, plus other expenses.
The following facts about the Unilease corporations
are relevant to the resolution of this dispute. Each
was capitalized at the nominal figure of $200 and
filed a consolidated federal income tax return with
Equilease. The officers and directors of each
corporation were employees of Equilease. Finally,
at all relevant times, Equilease remained the sole
stockholder of each corporation and furnished each
with the same attorney.
At trial, Mr. Hal B. Parkerson, Vice President
and General Counsel of Equilease and the three
Unilease companies, described Equilease's general
activities. He stated that in structuring transactions
during the period relevant to this suit Equilease
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generally had to comply with the requirements of
companies that lent Equilease nenee under bond and
financing arrangements. When asked about the
business purpose of Equilease placing the tugs in
separate Unilease corporations, rather than retaining
ownership, Parkerson offered the following
explanation:
(1) Each Unilease corporation was the
type of asset Equilease would get credit
on under a lending agreement. He
referred specifically to the preferred first
mortgage granted by each Unilease
corporation to Equilease in return for the
transfer of the vessel.
(2) The preferred first mortgage was
convenient from the standpoint of a
possible sale to a third party. To
illustrate, Parkerson mentioned
discussions between Equilease and
Manufacturers Hanover Bank of New York
regarding the possibility of purchasing the
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three Unilease mortgages on a recourse
basis.
(3) The creation of the Unilease "shelf"
corporations enabled Equilease to avoid
possible exposure for tort losses.
(4) By having the Unilease corporations
as wholly-owned subsidiaries and by filing
@ consolidated tax return, Equilease
retained the investment tax credit, as
well as the depreciation on the three
vessels.
In 1978, while negotiating for the completion
of the three tugs, Equilease entered into a bareboat
charter agreement for all three tugs with Solar Fleet,
Ine., a company whose sole shareholder and president
was Mr. Speck Denning. A year later, Solar's interest
in the agreement was transferred to or inherited by
Dunnamis, another of Denning's wholly-owned
corporations. Equilease decided to enter into this
agreement and to maintain it even though the
company had previously had financial problems with
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Denning, including having to bring a suit against him,
which the company won.
Parkerson testified at trial that the charter
agreement contained a provision requiring Dunnamis
to purchase insurance. That provision brought James
into the picture. Knowing that its New York affiliate
handled the Eltra account, James was very interested
in retaining the business generated by the Eltra-
Equilease companies. To put Denning and Dunnamis
in an operating position, Equilease advanced $200,000
in working capital but did not require monthly
payments for the first several months. Denning took
out the necessary insurance with James, at a cost
of over $200,000. Although $184,000 of the first
year's premiums were still unpaid at the end of the
first policy year, James did not bring suit against
Dunnamis. Instead, in late September or early
October of 1980, James financed the premiums with
Borg-Warner Finance Company ("Borg-Warner").
When the financing took place, for $215,000, that
sum consisted mostly of earned premiums for the
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1979-1989 premium year, so that James had to
endorse the note. The financing agreement itself
involved only Dunnamis and James.
Denning worked the three vessels in the Guif
for several months but did not generate sufficient
funds to pay Equilease under the bareboat charter.
To ensure full use of the vessels, Dunnamis executed
a contract with Newpark Marine Services ("Newpark")
under which Newpark would receive a 10% commission
for its services in obtaining full use of the three
boats. Shortly thereafter a dispute arose between
Dunnamis and Newpark over whether Newpark or
Dunnamis should pay the fuel bill. Following this
dispute, relations between Dunnamis and Newpark
continued to deteriorate until they were terminated.
After the Newpark arrangement was terminated,
Denning thought he could obtain a better contract
from Pemex, the Mexican national oil company.
Toward this end, Denning apparently set out with
the three vessels for Tampico. Owing to various
misunderstandings, however, Denning brought the
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vessels to Panama, where they were finally brought
back into the custody of Equilease-Unilease.
Parkerson stated that he had made a trip to Tampico,
where he ascertained’ that Denning had
misrepresented the nature of the Mexican contract
to Equilease. Only at that point did Parkerson
conclude that Equilease-Unilease could no longer rely
on Denning.
While neither Equilease nor Unilease had
control over the purchase of insurance from James,
and while James was responsible for Denning's return
from Mexico to sign the Borg-Warner finance
agreement, the court finds that the only reason James
cooperated with Denning and Dunnamis was because
James reasonably believed that Equilease was
Denning's firm financial backer. This finding is
strongly supported by the trial testimony of Mr.
William K. Hargrove, an expert in marine insurance
who was employed by James during the period
relevant to this dispute. Hargrove testified that,
from the beginning, when James originally decided
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to issue Dunnamis a policy, James’ understanding was
that Dunnamis would pay the premiums but that the
money would be coming from Equilease.
On Dunnamis' 1979-1980 policy, the named
assureds were "D'‘nnamis and Equilease and Unilease.”
Both Equilease and Unilease were listed as owners,
On the 1980-81 policy, however, when Dunnamis'
receivables were being assigned to Equilease, only
Equilease was named as owner. According to
Hargrove, instructions for this latter policy were
given by Mr. Barranko, Risk Manager of Eltra. All
correspondence went directly to Denning, with copies
going to Parkerson and to Mr. Harrigan, Vice
President of Equilease. The premiums on this policy
were paid in part by Dunnamis. Hargrove testified
that he thought Equilease was advancing money to
Dunnamis to pay the bills, but none of the insurance
premiums were ever paid by Equilease itself. After
financial problems developed Denning advised
Hargrove that Equilease was "taking over" and would
pay the Dunnamis premiums. Although Denning
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received "favorite son" treatment from Equilease
throughout this period, this treatment did not make
him the agent of Equilease.
Hargrove emphasized that, when the boats left
for Mexico, James decided to stay on the risk only
after talking to Parkerson. When asked, however,
whether Parkerson had agreed to pay the insurance,
Hargrove said "no."2 Parkerson's only relevant
comment appears to have been that "Equilease would
be taking over" from Dunnamis and Denning. There
_m See Pre-Trial Order Statement of Uncontested
Facts (7)¢e)(15):
At no time did any officer,
director, employee or agent of
Equilease Corporation, its
parent Eltra Corporation, or
Unilease 13, Inc., Unilease No.
14, Inc. or Unilease 20, Inc.
purchase the aforementioned
insurance policies, procure the
aformentioned policies, order
the aforementioned insurance
policies, request the issuance
of the binders of the
aforementioned insurance
policies, or otherwise contract
for the insurance mentioned
above.
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is a contention that Exhibit 22, signed by "Speck",
stating that "Equilease is taking over,” is also
important. Since this communication came from
Denning, however, rather than from any agent of
Equilease, the Court disagrees. Hargrove stated that,
after the boats went to Mexico, Barranko asked
whether there was coverage on the "breach of
warranty" portion of the policy. Hargrove said
Barranko was told the coverage was in effect and
applicable to boats being taken out of the country.
Hargrove stated he did not ask Equilease or Eltra
to guarantee the Borg-Warner note or the account.
The testimony of Mr. Lionel "Pappy" Ruckstul,
former president of Newpark, demonstrates the neces-
sity for vessels having the proper insurance.
Ruckstul stated that Newpark would not accept the
three vessels into its fleet without certain insurance
coverages. These coverages were required, in turn,
by agreements Newpark had with its own customers.
Ruckstul explained that a company such as Newpark
will not be invited to bid on a job unless the company
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is on an approved list indicating the company has
all of the required insurance. Ruckstul's testimony
regarding the need vessels have for insurance was
corroborated by Mr. Robert W. Wells Breeden, Senior
Vice President for Caroon & Black Insurance Agency,
who stated that 99% of the boats operating offshore
carry full insurance as a necessary expense of
operating. Also of note in this connection is the
testimony of Parkerson, which reveals Equilease
required all of its affiliated companies to carry
adequate insurance and would not do business with
any company that failed to carry adequate insurance.
MARITIME LIEN
(1) The Louisiana Civil Code, art. 3237,
provides as follows:
The following debts are privileged on the
price of ships and other vessels, in the
order in which they are placed:
(10) The premiums due for in-
surance made on the vessel,
tackle, and apparel, and on the
armament and equipment of
the ship.
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The term of prescription of privileges
against ships, steamboats, and other
vessels shall be 6 months.
Since the present suit was filed on January 19, 1981,
and the last acknowledgement of this account
occurred in late September or early October of 1980,
when the Borg-Warner instalment contract was
negotiated by Dunnamis and James, the account had
not prescribed at the time this suit was filed. The
Court therefore finds that the suit itself was filed
within the six-month prescription period. See
La.C.C. arts. 520 and 3535 (Prescription "only ceases
from the time when there has been an amount
acknowledged, a_ note or bond given, or a suit
instituted." (emohasis added) Article 3237 of the
Louisiana Civil Code refers to the six-month period
as being one of prescription rather than peremption
as contended by Equilease. The case of In Re
Safticraft Corporation, 255 F.Suon. 797 (W.D.La.),
Affirmed 376 F.2d 855 (5th Cir.1967), applied Article
3518, contained in the chapter on Prescription, in
holding that an interruption took place. This shows
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the Court considered the six-month period contained
in Article 3237 to be one of prescription.
{[2] James urges this Court to find that for
the unpaid insurance premiums James is entitled to
a privilege on the vessels V/V SAMSON, M/V THOR,
and M/V HERCULES under Louisiana law and to a
maritime lien on those vessels under federal law.
The Court agrees that James has a privilege on the
three vessels, see L.C.C. art 3237, and that that
privilege is enforceable by this Court. Grow v. The
Loraine K, 310 F.2d 547 (6th Cir.1962); see generally
Comment, Developments in the Law of Maritime
Liens, 45 Tul.L.Rev. 574, 598-604 (1971). The Court
cannot agree, however, that James has a federal
maritime lien on the vessels.
(3,4) The Federal Maritime Lien Act
provides, in pertinent part:
Any person furnishing repairs, supplies,
towage or use of drydock or marine
railway, or other necessaries, to any
vessel, whether it be foreign or domestic,
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upon the order of the owner, shall have
a maritime lien on the vessel, which may
be enforced by suit in rem, and it shall
not be necessary to allege or prove that
credit was given to the vessel.
46 U.S.C. §971 (emphasis added). As James rightly
points out, the jurisprudence interpreting this section
of the Act requires that the phrase "other
necessaries" be given a broad meaning. J. Ray
McDermott & Co. v. The Offshore-Menhaden Co.,
262 F.2d 523 (5th Cir.1959) The phrase does not
refer to something that is absolutely indispensable.
Abjubita v. S/S Peik, 428 F.2d 1345 (5th Cir.1970).
It refers, instead, to supplies and services that are
"reasonably needed in [a] ship's business." Walker-
Skageth Food Stores, Inc. v. The Bavois, 43 F.Supp.
109, 110 (S.D.N.Y.1942). As the testimony of several
witnesses reveals, insurance is something every vessel
today needs just to carry on its normal business.
Messrs. Breeden, Hargrove, Parkerson and Ruckstul
all agreed on this point. The Court here thus has
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no doubt that, as a practical matter, insurance falls
into the class of "other necessaries". As a legal
matter, however, insurance does not fall into that
class.
More than eighty years ago, in a case that is
still good law, Learned v. Brown, 94 F. 876 (5th
Cir.1899), the Fifth Circuit held that 4 federal
maritime lien cannot be predicated on unpaid
insurance premiums. Since then, other courts have
reached the same conclusion. The Sixth Circuit, for
example, recently stated that "Neither admiralty law
nor the Federal Maritime Lien Act ... provide{s] for
a lien for unpaid insurance premiums." Grow, supra
at 549. Similarly, in West of England Shipowners v.
Patrick $.S. Co., 491 F.Supp. 539, 544 (D.Mass.1980),
the court stated that "the case law is clear that
claims of an insurer for unpaid insurance premiums
do not give rise to a maritime lien." This Court is
not in a position to ignore or reject these precedents.
More specifically, it has no authority to overturn
Brown. If that decision is to be overturned, it will
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have to be overturned by the Fifth Circuit. The
Court finds, therefore, that James is entitled to a
lien for all unpaid premiums owed to the company,
but that the lien to which James is entitled arises
only under state law.
THE UNILEASE COMPANIES
[5-7] According to well-established juris-
prudence, a finding of control or domination of a
corporation by an individual or a corporate entity
in the use of the corporate fiction is a prerequisite
to the application of the alter ego theory of liability.
Noe v. Roussel, 310 So.2d 806 (La.1975); Panther
Pumps & Equipment Co., Inc. v. Hydrocraft, Ine, 424
F.Supp. 815 (N.D.I11.1976). The fiction of corporate
entity will be disregarded, however, whenever justice
so requires. In re Bowen Transport, Inc., 551 F.2d
171 (7th Cir.1977). The corporate veil should always
be pierced, moreoever, whenever the separate entity
theory leads to an absurdity or whenever persons
involved in a corporation seek to use the legal fiction
to immunize themselves from the consequences of
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their fraud or illegality. Haynes v. Champagne Title
Corp., 228 F.Supp. 157 (E.D.La.1964); Houston Oil
Field Material Company v. Stuard, 406 F.2d 1052
(5th Cir.1969).
[8] In the present case, all of the evidence
reveals that the three Unilease corporations were
the "alter ego" of Equilease. This is shown by the
following. Under the Ship Mortgage Act, preferred
Status is given if, among other things, an affidavit
is filed stating that the mortgage is made in good
faith and without any design to hinder, delay, or
defraud any existing or future creditor of the
mortgagor or any lienor of the mortgaged vessel. 46
U.S.C. §922(a)(3). That requirement was not satisfied
in this case. Here sole control of the Unilease
corporations was held and exercised by Equilease.
Equilease owned all of the Unilease stock, furnished
all of the Unilease directors and officers, all of the
companies' financing, and all of its salaries and legal
counsel. The only business the Unilease corporations
ever had was that given to it by Equilease. Finally,
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the Unilease corporations filed a consoldiated federal
tax return with Equilease. All things considered,
then, Equilease appears to have enjoyed total control
and supervision. Under these circumstances, the
"good faith affidavit" of the Unilease mortgagors was
a sham. Consequently, the subject mortgage must
be held void as to James.
Although the Equilease-Unilease arrangement
was not of itself illegal, third parties must be
protected from suffering financial loss caused by
that arrangement. Had Equilease continued to hold
title to the three tugboats, James undoubtedly would
have had the first lien on all three vessels. Hence
Equilease cannot put itself ahead of other legitimate
ereditors by transferring the boats to three
controlled corporations, and then taking a preferred
first mortgage on the vessels, the amount thereof
representing capitalization of its investment in those
vessels,
EA DISA LSTA ON et a i ate
PI On LY LOFTY
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LIABILITY OF DUNNAMIS
AND/OR EQUILEASE
There is no question but that Dunnamis is liable
for the debt here sued on. Aithough some evidence
exists that Equilease made a verbal commitment to
pay this debt, such commitments are not binding
under Louisiana law. The Louisiana Civil Code is
quite explicit on this point. It states: "{Plarole
evidence shall not be received ... (3) to prove any
promise to pay the debt of a third person." La.C.C,
art. 2278.
In light of the foregoing, the Court hereby
VACATES the Order Dismissing Dunnamis without
prejudice, signed on January 26, 1983, and enters
judgment as follows:
(1) Granting Fred S. James & Co. of Texas,
Ine, judgment in personam_ against
Dunnamis Offshore Towing, Inc. and in
rem against the M/V THOR, SAMSON and
HERCULES, for the amount sued upon,
plus legal interest from judicial demand,
together with 10% of principal and
(2)
(3)
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interest as attorneys’ fees and for all
costs of these proceedings, subject to the
submission by James within 30 days of a
statement showing the proportion of
premiums paid on each vessel.
Voiding the preferred first mortgages of
the Equilease Corporation, Unilease 13,
Inc., Unilease 14, Inc., and Unilease 20,
Ine., insofar as the claims of Fred S.
James & Co. of Texas, Inc. are concerned.
Dismissing the intervention of Fred S.
James & Co. of Texas, Inc., in Civil
Action No. 81-112 as being duplicative of
the complaint in Civil Action No, 81-234.
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APPENDIX B
EQUILEASE CORPORATION,
Plaintiff-Appellant
Cross-A ppellee,
v.
M/V SAMPSON, Ete., et al.,
Defendants-Appellants,
Cross-A ppellees,
v.
FRED S. JAMES & CO., ete,
Intervenor-Appellee,
Cross-A ppellant.
FRED S. JAMES & CO., ete.,
Plaintiff-Appellee
Cross-Appellant,
Vv.
EQUILEASE CORP., et al.,
Defendants-Appellants,
Cross-Appellees.
No. 83-3298.
United States Court of Anpeals,
Fifth Circuit.
Sept. 27, 1984.
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Before REAVLEY, JOHNSON and JOLLY,
Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
Equilease Corporation and the three Unilease
Corporations (collectively "Equilease" unless
otherwise noted) appeal the district court's holding,
568 F.Supp. 1259 (D.La. 1983) that Fred S. James
Company ("James"), an insurance agency, has an
enforceable state privilege for unpaid insurance
premiums against three vessels owned by Equilease
and that the privilege had not prescribed. James
cross-appeals, but because we affirm the district
court, we need not reach the issues James raises on
cross-appeal.
L.
Equilease is a financial corporation that in 1974
provided interim construction financing for three
vessels, later named the M/V SAMPSON, the M/V
THOR, and the V/V HERCULES. In 1977 the owner
of the vessels defaulted on its loan, leaving Equilease
as involuntary owner of the uncompleted vessels.
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After determining that selling the hulls would not
be economical, in 1978 Equilease moved the vessels
to another shipyard for completion at its own
expense. Upon completion, Equilease transferred
title to each of the vessels to a separate, wholly
owned, nominally capitalized Unilease "shelf"
corporation, taking a preferred first mortgage from
each corporation in the a of construction cost
and other expenses.
Having no experience in the operation of
vessels, Equilease issued a bareboat charter on each
of the vessels to Solar Fleet, Inc., a company wholly
owned by James S. Denning. Denning later
transferred the charters to Dunnamis Offshore
Towing, Ine. ("Dunnamis"), another corporation he
owned. The Equilease charter required the charter
party to purchase insurance for each of the vessels.
Dunnamis procured this Tequired insurance from Fred
S. James & Company.
At the end of the first year of operation,
.
$184,000 of the insurance premiums remained unpaid.
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Dunnamis informed James that the three vessels soon
would begin operating in Mexico under a lucrative
five year charter agreement. Relying on this
information, James decided to provide insurance for
the three vessels for another year rather than
cancelling the policy and bringing suit for the unpaid
premiums. James paid the overdue premiums to the
insurers. Then, as James explains, "to dear up the
books from an accounting standpoint", James
arranged for a financing companv, Borg-Warner
Insurance Finance Corporation ("Borg-Warner") to
pay the outstanding overdue premiums. James
arranged for Borg-Warner to accept a note executed
by Dunnamis and then prepared the documents
necessary to effect the transaction. Borg-Warner
had James guarantee the Dunnamis note so that
James, rather than Borg-Werner, bore the risk of
non-payment by Dunnamis. When James recieved
funds from Borg-Warner, it made appropriate
bookkeeping entries, crediting Dunnamis' overdue
~ geeount in full.
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During the second year of their relationship,
Equilease became concerned about the manner in
which Dunnamis was operating its vessels. Dunnemis
already had defaulted on the charter agreement, and
the charter in Mexico had not worked out 4s
expected. Equilease,; with some difficulty, finally
located its vessels in Panama. It brought the vessels
back to the United States at its own expense, then
seized them and instituted proceedings in federal
district court to foreclose on its preferred mortgages.
By that time Dunnamis evidently also had
defaulted on its insurance note payments to Borg-
Warner. James, as guarantor, feared that it might
have to pay Borg-Warner, and therefore intervened
in the foreclosure proceedings, claiming a state
privilege! and maritime lien against the vessels for
‘ The Louisiana Civil Code provides that a
debtor's property is the common pledge of his
creditors, and in the absence of cause for
preference, the creditors rank equally. La.Civil
Code art. 3183 (West 1952). One cause of
preference is the privilege, which arises by
operation of law, and allows a_ creditor
preferred status over other creditors because
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unpaid insurance premiums. James aiso filed a
separate but substantially similar lawsuit against
Equilease and Dunnamis in personam, and against the
three vessels in rem. The district court consolidated
the actions.
After hearing the evidence, the court held that
James has a state privilege against the vessels for
the amount of the unpaid insurance premiums, and
that because Dunnamis acknowledged the debt within
six months of the filing of the lawsuit, the applicable
six-month prescriptive, or limitations period had not
lapsed. It refused, however, to create a federal
statutory maritime lien in favor of James, relying
on this court's decision in Learned v. Brown, 94 F.
876 (5th Cir. 1899). It then invalidated the preferred
mortgage on the basis that the three Unilease
corporations were "shams" and "alter egos" of
Equilease against the vessels, thus reducing Equilease
to the status of a general creditor against the
(cont.)
of the nature of the debt owed him. La.Civil
Code arts. 3184 and 3186. .
A-29
vessels.2 It further held that Dunnamis was not an
agent of Equilease with the power to obligate
Equilease to pay the premiums. It entered judgment
in favor of James in rem and against the vessels,
and in personam against Dunnamis, who does not
appeal.
The district court's rationale on this issue leads
to confusing and contradictory conclusions, or
so it seems to us. If the district court meant
that the Unilease corporations are "shams" and
"alter egos" of Equilease, then Equilease is the
owner of the vessels and not the mortgagee.
It therefore has no creditor's claim against
ships it in fact owns. The district court,
however, indicated that it was invalidating the
mortgages "as to James", and referred to
Equilease as the "legitimate creditor", but one
who could not advance its claims over other
general creditors. We are thankful that we
are not asked to resolve this conundrum on
appeal, and that its resolution is not relevant
to the issues we must decide. Whether the
district court pierced the corporate veil
between Equilease and the three Unilease
corporations generally, or whether it simply
invalidated the "preferred" status of the ship
mortgage, Equilease's strategy on appeal
evidently is to reduce James to the status of
a general creditor, so that its earlier mortgage
will have priority over James' lien. Equilease
does not appeal the district court's holding that
the Unilease corporations are "shams" or "alter
egos",
A-30
Il.
The parties raise several issues on appeal and
cross-appeal, including whether James holds a
privilege for unpaid insurance premiums, whether the
privilege survived execution of the note to Borg-
Warner, and whether the privilege prescribed.
Because we resolve these issues in favor of James,
we need not address the other issues raised.
A.
[1] First, we reject Equilease's argument that
James, aS an insurance agency and not an insurer,
cannot enforce the debt for unpaid insurance
premiums secured by the privilege. Louisiana courts
apply a rule "that the insurer, not the agent, is the
proper party to sue for premiums due on an insurance
policy unless the agent has paid the [insurance]
company for the premiums or has become personally
liable therefor, in which case the agent can sue for
the premiums in his own name". Cypress Insurance
Agency, Ine. v. Agua Blast Service Co., 347 So.2d
1198, 1199 (La.App. 1977) (emphasis added). See
A-31
also, Perrin v. Saunders, 198 So.2d 555, 557 (La.App.
1967);
1950).
Page v. Marcel, 44 So.2d 363, 368 (La.Adp.
James actually paid the insurance premiums
to the insurers, and therefore has a right of action
for the unpaid premiums against the insureds, and,
pursuant to Article 3237 of the Louisiana Civil Code,
also against the vessels.3
B,
Article 3237 provides that:
Equilease vigorously argues that before James
can claim a privilege for unpaid insurance
premiums it must prove that it, as an insurance
agent, was subrogated to the legal rights of
the insurers who actually provided the
insurance and to whom the premiums were due.
Louisiana law, however, does not require proof
of legal subrogation, but requires only that an
agent prove something more than that it sold
and delivered the policies to the insured.
Perrin v. Saunders, 198 So.2d at 557. Any
"connection or relationship" between the
defendant insured and the plaintiff will suffice.
Id. The agent's actual payment of or liability
for premiums is such a connection. Cypress
Insurance Agency, 347 So.2d at 1199. Thus,
we need not discuss Equilease's subrogation
argument.
A-32
The following debts are privileged on the
price of ships and other vessels, in the
order in which they are placed:
(10) The premiums due for insurance made
on the vessel, tackle, and apparel, and
on the armament and equipment of the
ship.
The term of prescription of privileges
against ships, steamboats and other
vessels shall be six months.
[2,3] The lien created by Article 3237 is stricti
juris; it cannot be extended by implication cr analogy.
La.Civ.Code Ann. art. 3185 (West 1952); P.B.C.
Systems, Inc. v. L.A.D. Construction Co., 428 So.2d
984 (La.App. 1983); Pelican State Associates, Inc. v.
Winder, 208 So.2d 355 (La.App. 1968), aff'd 253 La.
697, 219 So.2d 500 (1969). The debt Dunnamis owed
to James for unpaid insurance premiums, however,
clearly falls within Article 3237. That James
guaranteed Dunnamis' note payable to Borg-Warner
in the amount of unpaid insurance premiums, in
exchange for Borg-Warner's payment of that amount
to James, does not change the nature of the
A-33
underlying obligation flowing from Dunnamis_ to
James.
[4,5] Whether the transaction among James,
Borg-Warner, and Dunnamis extinguished James'
privilege for unpaid insurance premiums and created
another type of debt - specifically, a debt to Borg-
Warner on a note - depends on whether the parties
intended a novation of the debt secured by the
privilege. Farmers' National Bank of Lebanon v.
Belle Alliance Co., 142 La. 538, 77 So. 144 (1917).
A "novation is a contract consisting of two
Stipulations; one to extinguish an existing obligation,
the other to substitute a new one in its place".
La.Civ.Code art. 2185. Novation may result from
substitution of debtors or, as in this case, substitution
of creditors. E.g., Sterlington Bank v. Terzia Lumber
& Hardware, Inc., 146 So.2d 233, 235 (La.App. 1962).
Louisiana law, however, never presumes that parties
intended to create a novation of an existing debt,
but requires clear proof of intent to discharge the
original debt and substitute a new one in its place.
A-34
Id. at 235. Cf. La.Civ.Code art. 2192 (novation
requires expression of intent by creditor to discharge
original debt). The intent to create a novation may
be expressly declared, or may be tacit and implied
from the nature of the contract or from external
circumstances. Placid Oil Co. v. Taylor, 325 So.2d
313 (La.Aop. 1976).
[6] A change in the form of a debt does not
by itself create a novation. Executing a’ note to
renew an old debt, for example, "does not novate
the original debt or destroy the privilege securing
the same". Farmer's National Bank of Lebanon, 142
La. at 538, 77 So. at 144. See also, Wilson v. Clerk
of Court, 148 So.2d 775, 777 (La. App. 1963). Cf.
In Re: Red River Line, 115 La. 867, 40 So. 250,
252 (1905) (parties conceded note received "as cash").
Similarly, acceptance of subsequently dishonored
checks does not destroy the privilege underlying the
debt the debtor gave the checks to Satisfy.
Sterlington Bank, 146 So.2d at 236.
PATHE 1 er
A-35
The transactions analyzed in Insured Lloyds
Insurance Co. v. Woodle, 248 So.2d 862, 864 (La.Apo.
1971), although involving automobile insurance,
parallel the facts of this ease. The insured in Woodle
procured automobile insurance from the plaintiff. He
obtained a loan from an independent finance company
to pay the premium, giving the finance company 4
downpayment and a note for the balance. The
finance company then transferred the downpayment
and sold the insured's note to the insurer. Later
the insurer brought suit against the insured for unpaid
premiums, and the insured moved to dismiss for no
cause oO: action on the basis that the premiums had
been paid. The insured argued that the only cause
of action the insurer might have flowed from its
Status as a holder of the note. The Louisiana Court
of Appeals held that the downpayment and note
transferred by the finance company to the insurer
did not extinguish the debt owed directiy by the
insured to the insurer unless the parties intended a
novation. Id. at 864-65.
A-36
Wilson v. Clerk of Court, 148 So.2d 775
(La.App. 1963) also provides insight into this case.
In Wilson a supplier of building materials took a note
from its debtor, a contractor, in the amount of a
debt secured by liens on the construction. The
supplier then made appropriate bookkeeping entries,
crediting the contractor's open account and debiting
a note account. The contractor later brought a
mandamus action seeking cancellations of the
supplier's materialmen's lien. In recognizing the
validity of the lien, the Louisiana Court of Appeals
failed to find any consideration for the note flowing
to the supplier. It held that the supplier's booking
debits and credits, reflecting receipt of the note,
did not prove that the parties intended to create a
novation, especially in the light of the surrounding
circumstances suggesting that the creditor, by
accepting the note, did not intend to relinquish any
previously existing rights. Id. at 777.
[7] The record in this case does not contain
evidence sufficient to prove that the parties intended
A-37
to create a novation or that James intended to
extinguish the original debt Dunnamis owed for
insurance on the three Equilease vessels. According
to Insured Lloyds, James' guaranty or purchase of 4
note does not, by itself, prove that James intended
to create a novation, and according to Wilson, James’
bookkeeping entries also are insufficient. The record
contains no other evidence that James intended to
relinquish any rights, and the manner in which the
parties structured the Borg-Warner transaction
indicates that the parties intended the existing
obligation to continue.
James sought funds to pay the insurers for
Dunnamis' overdue premiums. Dunnamis could not
provide those funds. James therefore arranged to
procure them from Borg-Warner. Although Borg-
Warner took a promissory note from Dunnamis, and
not from James, it relied on the credit of James and
not that of Dunnamis. It did not even require
collateral from Dunnamis, but instead required James
to guarantee the note. James, then, bore the risk
A-38
of default by Dunnamis. When Dunnamis defaulted,
it still owed James a debt for insurance premiums
that were outstanding before the Borg-Warner
transaction. Considering all the facts of this case,
James' change in status from an acccount creditor
to a creditor on a note is immaterial to its status
as holder of a privilege. Here, the privilege against
the vessels secured the debt in either form. The
remaining question, then, is whether the privilege
became extinct because it prescribed. La.Civ.Code
art. 3277. We hold that it did not.
Ill.
A.
Again, we must first reject Equilease's
argument, which is that, because Article 3237 itself
contains a limitations peri d, that period is one of
peremption and not of prescription. Peremption is
a species of prescription "with the characteristic
that it does not admit of interruption of suspension".
Flowers, Ine. v. Rausch, 364 So.2d 928, 931 (La.
1978). Stated differently, "The difference between
A-39
prescription and peremption is that the former simply
bars the remedy whereas, in the latter, time is made
of essence of the right granted and a lapse of the
Statutory period operates aS a complete
extinguishment of the right". Succession of Pizzollo,
223 La. 328, 65 So.2d 783, 786 (1953). If Equilease
is correct, then James cannot assert its privilege to
collect any premiums that were more than six months
overdue when it filed this lawsuit. Cf. La.Civ.Code
art 2496 (West Supp. 1984) (prescription begins to
run from the day payment is exigible).
[8] Authority exists in Louisiana cases to
support the proposition that a prescriptive period
defined in a statute conferring a right is actually a
peremptive period. See, e.g., Pounds v. Schori, 377
So.2d 1195, 1199 (La. 1979); Suecession of Pizzillo,
223 La. 328, 65 So.2d 783 786 (1953); Guillory v.
Avoyelles, 104 La. 11, 28 So. 899, 901 (La. 1900).
That the statute itself contains the prescriptive
period, however, does not mean automatically that
the prescriptive period is one of peremption. The
A-40
Louisiana Supreme Court has instructed that "each
case of this nature should be considered separately
on its merits", Pounds v. Schori, 377 So.2d at 1199.
Cases holding a prescriptive period to be one
of peremption turn on _ special considerations
- primarily perceived legislative intent to create a
right of limited duration. In Pounds v. Schori the
statute created a prescriptive period for denying
paternity of a child born in wedlock. The court
relied on the legislative history of the statute, the
manner in which French courts enforced an analogous
provision of the Napoleonic Code, and _ the
presumption that children born in wedlock are
legitimate, to discern a legislative intent to create
a right of limited duration. 377 So.2d at 1199. In
Succession of Pizzollo the statute at issue effected
a change in adoption laws and provided for a six
month transition period. The plain wording of the
statute revealed a similar legislative intent. 65 So.2d
at 786. Finally, the statute at issue in Guillory v.
Avoyelles required that a challenge to a _ tax
A-41
referendum be brought within three months of the
election. The court reasoned that the taxpayers
should be not allowed to complain after the
beneficiary of the tax, in that case a railroad
company, "has gone ahead and expended large sums
of money in prosecuting the enterprise". 28 So.2d
at 901. Thus, considerations of public policy peculiar
to the statute favored holding the prescriptive period
to be one of peremption. 28 So. at 900-01.
We find, however, no historie or policy
consideration to suggest that the limitations period
in article 3237 should be anything other than what
it explicitly purports to be - a regular prescriptive
period. Further, aithough no Louisiana cases have
analyzed the nature of the prescriptive period
contained in article 3237, early cases interpreting
article 3204 of the Civil Code of 1825 (the
predecesssor article to article 3237), without
discussing the issue, apply the prescriptive period as
if it were one of regular prescription, and not of
peremption. In Seott v. His Creditors, 3 La.Ann. 40
A-42
(1848), provisional seizure of the vessel suspended
proscription against the party who instigated the
provisional seizure. In Blanchin v. Steamer Fashion
and Owners, 10 La.Ann. 490 (1855), the sheriff taking
actual custody of the vessel suspended the
prescriptive period in favor of all creditors. If the
prescriptive period were peremptive, it could not
have been suspended or interrupted for any reason.
See, Flowers, 364 So.2d at 931.
[9] In the light of these Louisiana cases, and
in the absence of any legislative history or other
countervailing considerations, we will apply the six-
month prescriptive period in article 3237 as a regular
prescriptive period, and not a peremptive period.
B.
[10] A debtor's acknowledgment of a debt
interrupts the prescriptive period. La.Civ.Code art.
3520. The debtor may acknowledge the debt verbally,
or he may do so in writing, by partial payment, by
payment or partial payment of interest, or by some
other act or expression of intent to acknowledge the
A-43
debt. Lake Providence Equipment Co. v. Tallulah
Production Credit Association, 257 La. 104, 241 So.2d
906, 509 (La. 1970); Emery v. Cabral, 400 So. 2d
340, 342 (La.App. 1981). The district court found
that Dunnamis acknowledged its debt to James within
six months of the time James filed this lawsuit. Our
review of the record indicates that this factual
finding is not clearly erroneous.
[11] James issued the first year's insurance
policy to Dunnamis on July 20, 1979, at which time
the premium became due. Between that date and
March 20, 1980, Dunnamis made partial payments in
the amount of $88,881.12, and on several occasions
promised to pay the rest. These acknowledgements
tolled the six-month prescription period. Then,
sometime between March 20, 1980, and July 17, 1980,
the date James issued the second insurance policy,
Denning traveled to James' offices to inform James
of the Mexican charter and to discuss continuing the
insurance coverage for another year even though
Dunnamis still owed premiums on the first policy.
A-44
On September 29, 1980, approximately three months
after James issued the second policy, James executed
the Borg-Warner finance agreement, and signed a
note for the amount of the past-due premiums.
Finally, on January 1, 1981, three months after
Dunnamis executed the agreement, James made its
first judicial demand for payment.
Dunnamis' actions and assurances between July
of 1979 and January of 1981 repeatedly, and at
intervals of less than six months, acknowledged its
growing debt to James. That the note signed in
September of 1980 also created another kind of
obligation, with a prescriptive period different from
that of the privilege4 does not affect the character
of that act as an acknowledgment of a pre-existing
debt. James, having filed a lawsuit approximately
three months after the last acknowledgment of the
4. See, In Re: Red River Line, 115 La. at 872,
40 So.
A-45
debt, acted well within the six-month period
contained in article 3237.
IV.
We therefore affirm the district court's holding
that James held a privilege against the three
Equilease vessels for unpaid insurance premiums, By
repeatedly acknowledging this debt, at intervals of
less than the six-month prescriptive period, Dunnamis
kept the privilege alive until James filed a lawsuit
three months after the last acknowledgment. The
judgment of the district court is
AFFIRMED
at 252.
A-46
APPENDIX C
EQUILEASE CORPORATION,
Plaintiff-Appellant,
Cross-Appellee,
V.
M/V SAMPSON, etce., et al.,
Defendants-Appellants,
Cross-Appellees,
V.
FRED S. JAMES & CO., ete.,
Intervenor-Appellee,
Cross-Appellant.
FRED S. JAMES & CO., ete.,
Plaintiff-Appellee,
Cross-Appellant,
V.
EQUILEASE CORP., et al,
Defendants- Appellants,
Cross- Appellees.
No. 83-3298.
United States Court of Appeals,
Fifth Circuit.
April 1, 1985.
Opinion on Rehearing En Banc
May 29, 1985.
Sena EL SN TNT TT PER
A-47
Before REAVLEY, JOHNSON AND JOLLY, Circuit
Judges.
E. GRADY JOLLY, Circuit Judge:
On this petition for panel re-hearing, Equiicase
has challenged in fundamental ways, the correctness
of our earlier opinion. Pursuant to our request James
has submitted a response and we have carefully
reviewed the arguments of the parties on rehearing.
We are now persuaded that our original opinion is
incorrect. We therefore withdraw the opinion, and
substitute the following.
A
Equilease is a financial corporation that in 1974
provided interim construction financing for three
vessels, later named the M/V SAMSON, the M/V
THOR, and the M/V HERCULES. In 1977 the owner
of the vessels defaulted on its loan, leaving Equilease
as involuntary owner of the uncompleted vessels.
After determining that selling hulls would not be
economical, in 1978 Equilease moved the vessels to
another shipyard for completion at its own expense.
A-48
Upon completion, Equilease transferred title to each
of the vessels to a separate, wholly owned, nominally
capitalized Unilease! "shelf" corporation, taking a
preferred first mortgage from each corporation in
the amount of construction costs and other expenses.
Having no experience in the operation of
vessels, Equilease issued a bareboat charter on each
of the vessels to Solar Fleet, Inc. a company wholly
owned by James S. Denning. Denning later
transferred the charters to Dunnamis Offshore
Towing, Ine. ("Dunnamis") another corporation he
owned. The Equilease charter required the charter
party to purchase insurance for each of the vessels.
Dunnamis procured this required insurance from Fred
S. James & Company (Jamies).
At the end of the first year of operation,
$184,000 of the insurance premiums remained unpaid.
Dunnamis informed James that the three vessels soon
Re Equilease and the three Unilease corporations
are collectively referred to as "Equilease",
unless indicated otherwise.
ay WOR PAT ag x
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A-49
would begin operating in Mexico under a lucrative
five-year charter agreement. Relying on this
information, James decided to provide insurance for
the three vessels for another year rather than
cancelling the policy and bringing suit for the unpaid
premiums. James paid the overdue premiums to the
insurers. Then, as James explains, "to clear up the
books from an accounting standpoint," he arranged
for a financing company, Borg-Warner Insurance
Finanee Corporation ("Borg-Warner"), to pay the
outstanding overdue premiums. James arranged for
Borg-Warner to accept a note executed by Dunnamis
and then prepared the documents necessary to effect
the transaction. Borg-Warner had James guarantee
the Dunnamis note so that James, rather than Borg-
Warner, bore the risk of non-payment by Dunnamis.
When James received funds from Borg-Warner, it
made appropriate bookkeeping entries crediting
Dunnamis' overdue account in full.
During the second year of their relationship,
Equilease became concerned about the manner in
A-50
which Dunnamis was operating its vessels. Dunnamis
already had defaulted on the charter agreement, and
the charter in Mexico had not worked out as
expected. Equilease, with some difficulty, finally
located its vessels in Panama. It brought the vessels
back to the United States at its own expense, then
seized them and instituted proceedings in federal
district court to foreclose on its preferred mortgages.
By that time Dunnamis evidently also had
defaulted on its insurance note payments to Borg-
Warner. James as guarantor, feared that it might
have to pay Borg-Warner, and therefore intervened
in the foreclosure proceedings, claiming a privilege
arising under state law, and, alternatively, a maritime
lien against the vessels for unpaid insurance
premiums, James also filed a separate but
substantially similiar lawsuit against Equilease and
Dunnamis in personam, and against the three vessels
in rem. The district court consolidated the actions.
After hearing the evidence, the court held that
James had a state orivilege against the vessels for
a -
A-51
the amount of the unpaid insurance premiums, and
that because Dunnamis acknowledged the debt within
six months of the filing of the lawsuit, the applicable
six-month limitations period had not lapsed. _ It
refused, however, to create a federal statutory
maritime lien in favor of James, relying on this
court's decision in Learned vy. Brown, 94 F. 876 (5th
Cir.1899). It then invalidated the preferred mortgage
on the basis that the three Unilease corporation were
"shams" and "alter egos" of Equilease against the
vessels, thus reducing Equilease to the status of a
general creditor against the vessels.2 It further held
2. The district court's rationale on this issue leads
to confusing and contradictory conclusions, or
so it seems to us. If the district court meant
that the Unilease corporations are "shams" or
"alter egos" of Equilease, then Equilease is the
owner of the vessels and not the mortgagee.
It therefore has no creditor's claim against
ships it in fact owns. The district court,
however, indicated that it was invalidating the
mortgages "as to James," and referred to
Equilease as a "legitimate creditor," but one
who could not advance its claims over other
general creditors. We are thankful that we
are not asked to resolve this conundrum on
appeal, and that its resolution is not relevant
to the issues we must decide. Equilease does
A-52
that Dunnamis was not an agent of Equilease with
the power to obligate Equilease to pay the premiums.
It entered judgment in favor of James in rem against
the vessels and in pe sonam against Dunnamis, who
does not appeal 568 F.Supp. 1259.
Il.
Equilease argues that the district court's
determination that James had a valid state privilege
under Civil Code article 3237 for insurance premiums
is erroneous on four bases: (1) that the period for
asserting the privilege is a peremptive period, rather
than a prescriptive period which, contrary to the
finding of the district court, could not be
acknowledged or interrupted; (2) that if the time
period contained in article 3237 is a perscriptive
period, James' acknowledgment of the underlying
debt had no effect on the privilege, since the
underlying debt is distinct and separate from the
(cont.)
not appeal the district court's holding that the
Unilease corporations are "shams" or "alter
egos.”
A-53
privilege; (3) that no legal subrogation exists in favor
of James to assert rights to the underlying debt and
privilege; and (4) the underlying debt and privilege
were extinguished by payment. By cross-appeal,
James argues that if we invalidate the state maritime
lien, then it is entitled to a lien under the Federal
Maritime Lien Act, because marine insurance is a
"necessary." Additionally, James alleges. that
Dunnamis was the agent of Equilease, and therefore
Equilease, as principal, is liable in personam for the
insurance procurred by Dunnamis.
[1] We have carefully reviewed these
arguments, and agree with the first agrument
advanced by Equilease, that the time limitation
period contained in Civil code article 3227 is a
peremptive period, rather than a prescriptive period.
Since a peremptive period is not interrupted by
acknowledgment of the debt, James' privilege expired
or perempted six months from the date the insurance
policy was issued and therefore James has no claim
against the vessels.
A-54
II.
Equilease's first alleged basis for reversing the
district court is that James cannot assert its privilege
to collect any premiums that were more than six-
months overdue when it filed this lawsuit, since the
time limitation period in which to enforce the
privilege had perempted with respect to earlier
premiums. First let us_ distinguish between
peremption and prescription.
([2] Peremption is a species of prescription
"with the characteristic that it does not admit of
interruption of suspension." Flowers, Inc. v. Rausch,
364 So.2d 928, 931 (La.1978). "The difference
between prescription and peremption is that the
former simply bars the remedy where as, in the
latter, time is made of essence of the right granted
and a lapse of the statutory period operates as a
complete extinguishment of the right." Succession
of Pizzillo, 223 La. 328, 65 So.2d 783, 786 (1953).
Authority exists in Louisiana cases to support
the proposition that a prescriptive period defined in
A-55
a Statute conferring a right is actually a peremptive
period. See e.g., Pounds v. Schori, 377 So.2d 1195,
1199 (La.328, 65 So.2d 783, 786 (1953); Guillory v.
Avoyelles, 104 La. 11, 28 So. 899, 901 (1900). That
the statute establishing the privilege or right also
contains the prescriptive period, however, does not
mean automatically that the prescriptive period is
one of peremption. The Louisiana Supreme Court
has stated that "each case of this nature should be
considered separately on its merits." Pounds v.
Schori, 377 So.2d at 1199.
Cases holding a prescriptive period to be one
of peremption turn on _ special considerations-
primarily perceived legislative intent to create a
right of limited duration. In Pounds v. Schori, the
statute created a prescriptive period for denying
paternity of a child born in wedlock. The court
relied on the legislative history of the statute, the
manner in which French courts enforced an analogous
provision of the Napoleonic Code, and_ the
presumption that children born in wedlock are
A-56
legitimate, to discern a legisiative intent to create
a right of limited duration. 377 So.2d at 1199. In
Sueeession of Pizzillo the statute at issue effected
a change in adoption laws and provided for a six-
month transition period. The plain wording of the
statute revealed a similar legislative intent. 65 So.2d
at 786. Finally, the statute at issue in Guillory v.
Avoyelles required that a challenge to a tax
referendum de brought within three months of the
election. The court reasoned that the taxpayers
should be not allowed to complain after the
beneficiary of the tax, in that case a railroad
company, "has gone ahead and expended large sums
of money in prosecuting the enterprise." 28 So. at
901. Thus, considerations of public policy peculiar to
the statute favored holding the prescriptive period
to be one of peremption. 28 So. at 900-01.
IV.
Turning now to the particular statute before
us, we note that the Louisiana Supreme Court in In
re Red River Line, 115 La. 867, 40 So. 250 (1905),
A-57
stated (in the syllabus) that the privilege contained
in article 3237 perempts or dies at the end of six
months. In that case the creditor was asserting a
vendor's privilege or lien for the unpaid balance of
a vessel. Although the contract declared that the
transaction was a cash sale, the vendor had received
a promissory note for a portion of the sale price.
The promissory note was payable eighteen months
after date. The purchaser was placed in receivership
before the note was payable but after six months
from the date of the sale. The vendor attempted
to assert a vendor's privilege or lien under article
3237. The other creditors opposed the vendor's
asserted privilege on the basis that the lien had
either been waived, or extinguished by "prescription."
The court decided the case on the latter basis.
Although the holding of the case that the period
is one of peremption is contained only in the syllabus
and not stated clearly in the opinion, the Louisiana
courts have held that when the syllabus is prepared
by the Louisiana Supreme Court, as it was by specific
4-58
notation in Red River Line, it reflects the reasoning
in the opinion and the ruling made. State, Through
Dept. of Highway v. LaBauve, 225 La.330, 72 So.2d
865, 867 (1954); Williams v. Marionneaux, 240 La.713,
124 So.2d 919, 922, n. 6 (1960). Furthermore, the
court's holding that the period contained in article
3237 is peremptive, rather than prescriptive, is
supported by language in the text of the opinion in
which the court stated that no plea of prescription
was necessary. This statement would indicate that
the time limitation period is peremptive since, at
the time of Red River Line opinion, it was not
necessary that peremption be pleaded, but it was
necessary that prescription be pleaded. La.Civ.Code
art. 3460 (prior to its amendment in _ 1983);
La.Civ.Code art. 3452. We also note that James
has conceded in its brief on petition for rehearing
that Red River Line held that the period contained
in article 3237 is a peremptive period.
It has not been necessary in cases arising since
the Red River Line decision for Louisiana courts to
A-59
specifically decide whether the time limitation period
contained in article 3237 is a prescriptive period or
a peremptive period. In Graeme Spring & Brake
Service v. DeFelice, 98 So.2d 314 (La.App.1957), the
court held that the limitation period contained in
article 3237 had been "interrupted" by the filing of
an ordinary suit which sought to impress the vessel
with the privilege. The lawsuit was instituted well
within the six-month period; in other words, the
privilege was timely claimed. Although the court
referred to the time period in terms of "prescription",
we place little significance in this use of the term
in the contaxt of the case. The term was imprecisely
used without analysis as it was unncessary to its
decision to determine whether article 3237 contained
a prescriptive or peremptive period because the
privilege was claimed in time. The time limitation
period contained in aritlee 3237 was also discussed
in In re Safticraft Corporation, 255 F.Supp. 797
(W.D.La.1966). Again, Safticraft is not helpful here
sinee it did not address the issue before us. The
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primary issue in that case was when the six-month
period begins to run. The court held that in the
ease of a privilege arising out the _ original
construction of the vessel, the prescriptive period
"does not commence to run until after the vessel is
completed and delivered or 'sold' to the owner." Id.
at 804. It was unnecessary to decide, and the court
did not decide, whether the time limitation period
contained in article 3237 was prescriptive or
peremptive. The holding in Safticraft is clearly
limited by its faets to vessels under construction.
3. James argues on petition for rehearing that, as
a general proposition, the privilege provided in
article 3237 does not begin to run until a vessel
is seized and sold, citing In re Satficraft. We
reject James' reading of In re Safticraft since
it would render’ the _ six-month period
meaningless in practically ali cases. This is
true because the six-month period would have
no relationship to the date of the contract to
which the privilege applies. Additionally, we
make it clear that we do not approve or
disapprove the limited holding of In_re
Safticraft. Ks = sSirptia
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V.
In our original opinion, in which we virtually
overlooked Red River Line, we held that the time
limitation period contained in article 3237 was a
prescriptive period. Today we reach the opposite
result. Our original opinion was based on what we
perceived to be the implicit holdings of cases, earlier
decided that Red River Line, analyzing article 3204,
the predecessor to article 3237. These cases were
Seott v. His Creditors, 3 La.Ann. 40 (1848) and
Blanchin v. Steamer Fashion and Owners, 10 La.Ann.
49 (1855). In both of these cases, the time period
in article 3204 (now 3237) was suspended by
provisional seizure of the vessel. We concluded that
the implicit holding of these cases was that the time
period was prescriptive, since if it were peremptive
it could not be interrupted for any reason.
Given our second occasion to consider this
issue, and aided by the thoughtful briefs of Louisiana
counsel, we are persuaded that the time-limitation
period contained in article 3237 is a peremptive
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period. First, the later Louisiana Supreme Court
case of Red River Line explicitly states in its
syllabus that the time period is peremptive. Although
the case interchangeably uses the _ terms
"prescription" and "peremptive", this imprecision is
not determinative because "peremption" is but a
species of the more inclusive term "prescription".
Additionally, language in the body of the text
supports the argument that the Louisiana Supreme
Court considered the time period to be one of
peremption.
Second, we believe our earlier analysis is
incorrect because the provisional seizure that
suspended the privilege period in Scott and Blanchin
is more properly viewed as an exercise - not an
interruption-of the privilege provided by the Code.
In Seott, the only creditors who were entitled to
the privilege were those who had joined in the seizure
of the vessel and who asserted claims falling within
the statutory privilege period, thereby timely
exercising their privilege. A similar result was
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reached in Blanchin. We hold, therefore, that the
time-limitation period contained in article 3237 is a
peremptive period which expired six months from the
date of the insurance contract.
Finally, it is clear that none of the acts of
acknowledgment asserted by James constitutes an
exercise of the special six-month privilege provided
in article 3237. The privilege contained in article
3237 is an aecessory right to the underlying
obligation to pay insurance premiums. The Red River
Line opinion makes it clear that the six-month
privilege is distinct from the ten-year presciptive
period for the payment of insurance premiums,
Continental Insurance Co. v. Fairfield Temporaries,
Inc. 437 So.2d 376 (La.App.1983). The acts of
acknowledgment in this case, that is Dunamis' partial
payment of insurance premiums and promises to pay
the balance, served only to interrupt the prescriptive
period of the underlying obligation to pay the
premiums, and was not an assertion of the privilege
itself. Indeed, it is beyond dispute that James took
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no steps to enforce its claim under the privilege.
We further hold, therefore, that the privilege
provided in article 3237 expired, or "perempted,”
having never been claimed.
VI.
([3] James argues on cross-appeal that even
if we hold that it does not have a valid state
privilege, we should nevertheless hold in its fevor
by recognizing a federal maritime lien for the unpaid
insurance premiums. In Learned v. Brown, 94 F. 876
(5th Cir. 1899), this court held that when an
insurance policy is written for the sole and exclusive
benefit of the owners and does not insure to the
benefit of the ship, there is no lien for insurance
premiums granted under general maritime law. James
argues that we snould overrule Learned v. Brown in
this case, since, according to James, its principles
are archaic and have no place in the modern
commerciai world. We note initially that the Sixth
Circuit recently reaffirmed in Grow v. Steel Gas
Screw Loraine K, 310 F.2d 547 (6th Cir. 1979), that
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"neither admiralty law nor the Federal Maritime Lien
Act (46 U.S.C. §§ 971-75) provide[s] for a lien for
unpaid insurance premiums.” Thus, this "archaic
principle" has been given recent application.
Furthermore, even if we were inclined to overrule _
Learned v. Brown, we could not do so, since it is
clear that one panel of this court cannot overrule
an earlier panel's decision. United States v. Albert,
675 F.2d 712 (Sth Cir. 1982).
[4-6] James also argues that Dunnamis was the
agent of Equilease, rather than a bareboat charterer.
If an agency relationship did exist, Equilease, a
principal, would be liable for the unpaid insurance
premiums. James argues that Equilease provided the
financial backing for and management control over
Dunnamis to the extent that Equilease cannot be
considered to have transferred dominion and control
of the vessels to Dunnamis. In its opinion the district
court stated: "Although Denning* received ‘favorite
4. Denning was the owner Dunnamis.
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son' treatment from Equilease throughtout this
period, this treatment did not make him the agent
of Equilease." The existence of any agency
relationship is a question of fact which should not
be reversed on appeal unless it is clearly erroneous.
Strachan Shipping Co. v. Dresser Industries, Inc., 701
F.2d 483 (5th Cir.1983). A finding is clearly
erroneous when, although there is evidence to support
it, the reviewing court on the entire evidence is left
with the definite and firm conviction that a mistake
has been commited. United States v. United States
Gypsum Co., 333 U.S. 364, 68 S.Ct. 525, 92L.Ed. 746
(1948); Musial v. A & A Boats, Inc., 696 F.2d 1149
(5th Cir.1983). After reviewing the relevant
evidence, we are not persuaded by James’ arguments
that the district court was clearly erroneous in its
conclusion that Denning was not the agent of
Equilease.
Vil.
We therefore withdraw our original opinion, and
reverse the district court. We hold that James'
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privilege as provided by Louisiana Civil Code article
3237 had expired since the time-limitation period
contained in article 3237 is a peremptive period.
We have carefully considered the arguments
presented on cross-appeal by James, but for the
reasons assigned above, we have rejected them. The
district court, accordingly, is
REVERSED.
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APPENDIX D
EQUILEASE CORPORATION,
Plaintiff-Appellant,
Cross-A ppellee,
v.
M/V SAMPSON, etc., et al.,
Defendants-Appellants,
Cross-A ppellees,
V.
FRED S. JAMES & CO., ete.,
Intervenor-Appellee,
Cross-A ppellant,
+e eee et
FRED S. JAMES & CO., ete.
Plaintiff-Appellee,
Cross-A ppellant,
V.
EQUILEASE CORP., et al.,
Defendants-Appellants,
Cross-A ppellees.
Filed April 25, 1986,
as amended on May 5, 1986, and May 28, 1986
A-69
BEFORE: Clark, Chief Judge, Gee, Rubin, Reavley,
Politz, Randall, Johnson, Williams, Garwood, Jolly,
Higginbotham, Davis, Hill and Jones, Circuit Judges.
Opinion by Judge E. Grady Jolly; Partial
Concurrence, Partial Dissent by Judge W. Eugene
Davis, with whom Judges Randall and Higginbotham
join.
Appeals from the United States District Court for
the Eastern District of Louisiana. Henry A. Mentz,
Jr., District Judge, Presiding.
OPINION
E. GRADY JOLLY, Circuit Judge:
The facts of this case are reported in detail
in the district court opinion Equilease Corp. v. M/V
SAMPSON, 568 F.Supp. 1259 (E.D.La. 1983), and in
our panel opinion, Equilease Corp. v. M/V SAMPSON,
756 F.2d 357 (5th Cir. 1985). We agreed to hear
this case en bane to decide the issue whether
nw
A-70
insurance is a necessary under the Federal Maritime
Lien Act, 46 U.S.C. §971-5(1982) ("FMLA" or the
"Act"), so that an unpaid insurance company may
claim a federal maritime lien on the insured vessel.!
We now expressly overrule Learned v. Brown, 94 F.
876 (5th Cir. 1899), and hold that marine insurance
is a necessary under the Federal Maritime Lien Act,
and thus may be given the status of a federal
maritime lien.
l.
The essential facts are these. Equilease is a
financing corporation that in 1974 provided interim
construccion financing for three vessels. In 1977
the vessels' owner defaulted on its loan and Equilease
became the owner of the vessels. Equilease
transferred title to each vessel to one of three
1. Although under the Fifth Circuit's internal
operating procedures the effect of the granting
of a rehearing en banc is to vacate the panel
opinion, see Internal Operating Procedures
following Local Rule 35.6, the court today
reinstates the panel's ruling in Parts Il, Ill, IV,
and V of its opinion, Equilease Corp. v. M/V
SAMPSON, 756 F.2d at 360-62. |
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separate, wholly-owned, nominally capitalized "shelf"
corporations, taking a preferred first mortgage from
each corporation in the amount of construction cost
and other expenses.
Equilease then issued a, bareboat charter on
each vessel to a company wholly owned by James
Denning. Denning transferred the charters to
Dunnamis Offshore Touring, Ine., another corporation
he ian. As required by the charters, Dunnamis
purchased insurance for each vessel. The insurance
was purchased from various insurance companies
through the agent Fred S. James & Company of
Texas, Ine. ("James"), at a cost of over $200,000.
When $184,000 of the insurance premiums remained
unpaid at the end of the first policy year, James,
instead of suing Dunnamis for the balance, arranged
financing of the premium with Borg-Warner Insurance
Finance Corporation ("Borg-Warner"). Borg-Warner
paid Dunnamis' debt to James, and James' accountant
credited Dunnamis' account in full. James guaranteed
the debt by endorsing a note executed by Dunnamis
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to Borg-Warner. As a result of this guarantee,
James, rather than Borg-Warner, bore the risk of
Dunnamis' non-payment to Borg-Warner.
Dunnamis soon defaulted on the charter
agreement with Equilease. Equilease located and
seized the vessels, and instituted proceedings in
federal district court to foreclose on its preferred
mortgages.
By that time Dunnamis also had defaulted on
its insurance note payments to Borg-Warner. James,
who later satisfied the debt, intervened in the
foreclosing proceedings, claiming a state privilege2
and a maritime lien against the vessels for unpaid
insurance premiums. James also filed a separate but
substantially similar lawsuit against Equilease and
2. The Louisiana Civil Code provides that a
debtor's property is the common pledge of his
creditors, and in the absence of cause for
preference, the creditors rank equally. La.
Civil Code art. 3183 (West 1952). One cause
of preference is the privilege, which arises by
operation of law, and allows a_ creditor
preferred status over other creditors because
of the nature of the debt owed him. La. Civil
Code arts. 3184 and 3186. , .
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Dunnamis in personam, and against the three vessels
in in rem. The district court consolidated the
actions.
After hearing the evidence, the court held that
James had a state privilege against the vessels for
the amount of the unpaid insurance premiums, and
that because Dunnamis acknowledged the debt within
six months of the filing of the lawsuit, the applicable
six-month limitations period had been interrupted and
thus had not lapsed. It refused, however, to
recognize a federal statutory maritime lien in favor
of James, relying on this court's decision in Learned
v. Brown, 94 F. 876 (5th Cir. 1899). It then
invalidated the preferred mortgages against the
vessels on the basis that the three Unilease
corporations were "shams" and "alter egos" of
Equilease, and reduced Equilease to the status of a
general creditor against the vessels. It further held
that Dunnamis was not an agent of Equilease with
the power to obligate Equilease to pay the premiums.
The district court entered judgment in favor of James
A-74
in rem against the vessels and in personam against
Dunnamis.
The panel reversed the district court, holding
that the six-month period was one of peremption,
not prescription, and thus could not have been
interrupted by Dunnamis' acknowledgement of the
debt. The state lien had therefore expired, so James
had no state claim against the vessels. The panel
then held that it could not overrule Learned v.
Brown, 94 F. 876 (5th Cir. 1899), and letting that
decision stand, ruled that there was no federal
maritime lien for unpaid insurance premiums.
Il.
[1] The issue before the en bane court is
whether we should overrule Learned and recognize
a federal maritime lien in James' favor for the unpaid
insurance premiums. In refusing to recognize such
a lien, the district court and the panel both followed
the precedent of Learned, which held that maritime
insurance on a vessel is for the sole and exclusive
benefit of the vessel owners, not inuring to the
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benefit of the vessel and therefore that no lien arises
for unpaid insurance premiums under general maritime
law.
(2] Learned was decided in 1899, eleven years
before the passage of the Federal Maritime Lien
Act, 46 U.S.C. §§ 971-75. The decision was based
on general maritime principles that denied a lien for
materials and services rendered in the vessel's home
State. Because the vessel in Learned was a Louisiana
vessel operating solely within Louisiana, the Fifth
Circuit held that no general maritime lien could
attach under federal law. The Learned court then
considered whether the insurers had a lien and
privilege under the law of Louisiana. This lien too
was denied because "the insurance written was for
the sole and exdusive benefit of the owners of the
steamboat, and in no wise inured to the benefit of
the ship or maritime lienholders." Learned, 94 F. at.
883.
Anaysis of the question under the Federal
Maritime Lien Act, James argues, leads to a different
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conclusion. James urges that in determining what
constitutes a necessary under the Federal Maritime
Lien Act, this court should apply the test that asks
whether the furnished supplies or services are
"reasonably needed in the ship's business."3 James
further suggests that Learned can be read narrowly
as a decision of state law, not a federal law, and
therefore might not control the result in this case.
Equilease, on the other hand, argues on appeal
that the federal maritime lien is a preferential one
that should not be granted to those who advance
premiums for the marine insurance. In support of
this position, Equilease first argues that because
insurance is not physically delivered to the vessel,
it is not "furnished" to the vessel within the meaning
3. This is the test that has been articulated by
two district courts. See Layton Industries, Inc.
v. Sport Fishing Cruiser Gladiator, 263 F.Supp.
356 (D.Mass.1967); Walker-Skageth Food Stores,
Inc. v. The Bavois, 43 F.Supp. 109
(S.D.N.Y.1942).
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of 46 U.S.C. §971.4 Second, Equilease argues that
neither general admiralty law nor the Federal
Maritime Lien Act provides a maritime lien for unpaid
insurance premiums because insurance is not a
necessary for the benefit of the vessel. In support
of this proposition, Equilease cites Learned and Grow
v. Steel Gas Screw Lorraine K, 310 F.2d 547 (6th
Cir. 1972), and the rationale that a contract of
insurance in no way aids the ship. Equilease's third
argument is that James did not rely on the credit
of the vesssels when it advanced the insurance
premiums, and therefore James may not claim a
federal maritime lien. Equilease's first argument is
4. 46 U.S.C. §971 provides in full:
Persons entitled to lien
Any person furnishing repairs, supplies,
towage, use of dry dock or marine
railway, or other necessaries, to any
vessel, whether foreign or domestic, upon
the order of the owner of such vessel, or
of a person authorized by the owner, shall
have a maritime lien on the vessel, which
may be enforced by suit in rem, and it
shall not be necessary to allege or prove
that credit was given to the vessel.
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that even if a maritime lien did arise in James'
favor, the lien expired when James received payment
from Borg-Warner in the amount of the insurance
premiums owed by Dunnamis. Equilease reasons that
this payment in full to James extinguished any right
that James had to assert a privilege.
To answer the question whether insurance is a
necessary under the Federal Maritime Lien Act, we
first examine briefly the history and nature of the
federal maritime lien.
il.
[3] Under the FMLA, a maritime lien is
established in favor of those who furnish "repairs,
supplies, towage, use of drydock or marine railway,
or other necessaries, to any vessel... ." 46 U.S.C.
$971 (emphasis added).> Although maritime liens are
to be strictly construed, tre provision of necessaries
for a vessel has long been recognized as the basis
5. See footnote 4 for the text of section 971.
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for a lien. See Atlantic & Gulf Stevedores, Inc. v.
M/V Grand Loyalty, 608 F.2d 197, 200 (5th Cir. 1979).
One purpose of the Ship Mortgage Act, 46
U.S.C. §911. et seg. (1982), of which the Federal
Maritime Lien Act is a part, was to establish sound
security in favor of loans to ship owners. Merchants
& Marine Bank v. The T. E. Welles, 289 F.2d 188
(5th Cir. 1961); First Suffolk National bank of
Huntington v. The Air brandt, 125 F. Supp. 709, 710
(E.D.N.Y. 1954). History shows that the merchant
marine industry was faltering in 1910; Congress
passed the Act in an attempt to spur incentive for
the financing of shipowners by making private
investment in shipping more attractive than it had
been. The Act is esentially a compromise between
two conflicting interests: that of the materialmen,
who wanted an automatic and far-reaching lien, and
that of the snipowners, who preferred never to have
any lien attach. Gilmore and Black, The Law of
Admiralty, at 653.
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[4] The federal maritime lien is a unique
security device, serving the dual purpose of keeping
ships moving in commerce while not allowing them
to escape their debts by sailing away. Riffle
Petroleum Co. v. Cibro Sales Corp., 601 F.2d 1385,
1389 (10th Cir. 1979). The lien is a special property
right in the vessel, arising in favor of the creditor
by operation of law as security for a debt or daim.
The lien arises when the debt arises, and grants the
creditor the right to appropriate the vessel, have it
sold, and be repaid the debt from the proceeds. The
Poznan, 9 F.2d 838 (2nd Cir. 1925), rev'd on other
grounds, sub nom New York Dock Co. v. the Poznan,
274 U.S. 117, 47 S.Ct. 482, 71 L.Ed. 955 (1927).
Thus the maritime lien may be defined as a property
right that adheres to the vessel wherever it may go.
Pierside Terminal Operators, Inc. v. M/V_ Floridian,
389 F. Supp. 25, 26 (E.D.Va. 1974): The Rupert
City, 213 F. 263, 267 (W.D. Wash. 1914). Such a
lien has been held to follow the vessel even after it
is sold to an innocent purchaser. The Joseph Warner,
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32 F. Supp. 532 (D.C. Ma. 1939). The maritime lien
is a lien on the vessel, "and only indirectly, inasmuch
as it conflicts with the owner's rights in the vessel,
it is connected with the owner.” Pierside Terminal
Operators, 389 F. Supp. at 26. The maritime lien
concept thus somewhat personifies a vessel as an
entity with potential liabilities independant and apart
from the personal liability of its owner. Todd
Shipyards Corp. v. The City of Athens, 83 F. Supp.
67 (Md. 1949).
[5] The second major purpose of the Federal
Maritime Lien Act was to remove certain limitations
on the right to liens and substitute a single federal
Statute for the statutes of the various states.
Piedmont & George's Creek Coal Co. v. Seaboard
Fisheries Co., 254 U.S. 1, 41 S.Ct. 1, 65 L.Ed. 97
(1920). Prior to the passage of the FMLA, a
distinction had been drawn between a vessel in her
home port and a vessel in a foreign port. A lien
could be given for necessaries furnished to a vessel
in a port of a foreign state if the necessaries were
A-82
furnished upon the credit of the vessel. No such
lien, however, was given for necessaries furnished
in the home port or state. There also was a
discrepancy among the court decisions as to when
and under what circumstances repair or supplies
should be held to have been furnished relying on the
credit of the vessel. In re Burton S.S. Co., 3 F.2d
1015 (D.C. Mass. 1925); The Lucille, 208 F. 424
(D.C.Ala. 1913). With the creation of the federal
maritime lien, a single federal statute is substituted
for the state statutes insofar as they confer liens
for repairs, supplies and other necessaries, and the
old geographical distinctions are gone.
Dampskibsselskabet Dannebrog v. Signal Oil & Gas
Co. of California, 310 U.S. 268, 272, 60 S.Ct. 937,
940, 84 L.Ed 1197 (1940); Piedmont, 254 U.S. at 11.
IV.
(6) The Act provides a right to a federal
maritime lien to “any person furnishing repairs,
supplies, ... or other necessaries, to any vessel ..."
46 U.S.C. §971. Equilease argues that the concept
A-83
of "furnishing" requires a physical delivery to the
vessel. Equilease's heavy reliance on a literal
interpretation o: the work "furnishing," however, is
misplaced. To read "furnishing" as requiring an
actual thing to be physically delivered to the vessel
would foreclose any intangible services from ever
being held necessaries under section 971. The term
"necessary" under the FMLA includes most goods or
services that are useful to the vessel, keep her out
of danger, and enable her to perform her particular
function. Necessaries are the things that a prudent
owner would provide to enable a ship to perform
well the functions for which she has been engaged.
2 Benedict on Admiralty §34 (7th ed. 1984). These
"things" may be money, labor and skill, and personal
services aS well as materials. "It is the present,
apparent want off the vessel, not the character of
the thing supplied, which makes it a necessary." Id.
As an example, we have held that printing for
advertising is sufficient to give rise to a maritime
lien. Colonial Press of Miami, Inc v. The Allen's
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Cay, 277 F.2d 540 (Sth Cir. 1960). See also Stern,
Havs & Lang, Inc. v. M/V NILI, 407 F.2d 549, 551
(5th Cir. 1969). What is a "necessary" is to be
determined relative to the requirements of the ship.
2 Benedict on Admiralty §37 at 3-28. Anchors and
cables are generally considered to be necessaries,
but if the vessel is fully supplied with them, the
furnishing of another anchor or cable is not
"necessary". Id., §34 at 3-19.
(7] We find no persuasive reason to read the
term "furnishing" so narrowly as Equilease would
urge. The statute was intended to encourage private
investment in the maritime industry. We will not
begin now to defeat the purpose of the Act by
layering technicalities onto its interpretation. We
hold that ‘furnishing" in section 971 does not
necessarily require an actual delivery of something
to the vessel. That neither James nor the insurers
physically delivered anything to any of Equilease's
vessels does not bar James' claim to a lien.
A-85
V.
Equilease next argues that no maritime lien
arises in favor of James because insurance is not a
"necessary" and therefore neither general admiralty
law nor the Act provides a maritime lien for unpaid
insurance premiums. Equilease relies on Learned and
on Grow v. Steel Gas Screw Lorraine K, 310 F.2d
547 (6th Cir. 1962), for this proposition. The Grow
court stated in one sentence without elaboration that
there is no federal maritime lien for insurance
premiums, 310 F.2d at 549, and went on to grant
the plaintiff insurance broker a lien under Michigan
State law. Grow is thus not of much aid to us here.
We focus instead on Learned.
As a mortgage creditor of the steamboat
"Liberty", Learned argued to this court in 1899 that
policies of insurance on the "Liberty" were for the
sole and exclusive benefit and use of the owners of
the vessel, in no way inuring to the benefit of the
ship itself. This court agreed with Learned and held
that no lien arose on the vessel for premiums due
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on the insurance policies. The court reasoned that
because the policies were solely for the benefit of
the vessel's owners, they did not benefit the ship
and the ship could therefore not be held accountable
for them.
Learned was based on an interpretation of state
law prior to the passage of the Federal Maritime
Lien Act. General maritime law in 1899 denied a
lien for materials and services rendered in the waters
of the vessel's home state. The Roanoke, 189 U.S.
185, 193, 23 S.Ct. 491, 47 L.Ed. 770. Since the
"Liberty" travelled only in a Louisiana bayou, it fell
within this "home port" doctrine and no federal
maritime lien could attach for insurance premiums
or for any other supplies and materials furnished in
the home port upon the credit of the owners. The
Learned court also held that no lien arose in favor
of the insurers, under either federal law or Louisiana
law, because it deemed the insurance policy to be
a contract "written for the sole and exclusive benefit
of the owners of the steamboat." Learned, 94 F.
A-87
at 883. See Also The Prilla, 21 F.Supp. 383 (D.C.D.
Ma. 1937); The Wabash, 279 F. 921 (D.C.D. Conn.
1922). Equilease urges us to apply Learned and to
find that marine insurance in 1986 inures solely to
the benefit of a ship's owner, in no way aiding the
ship, and therefore that no federal lien can be had
for unpaid insurance premiums. This we cannot do.
[8] In the nineteenth century, an insurance
policy on a ship was viewed as a contract for the
personal idemnity of the insured ship's owner. Under
this reasoning, no lien against the ship itself could
possibly arise as the result of an insurance policy;
"“uInless the ship is benefitted the ship should not
pay." In Re _ Petition of Insurance Co. of
Pennsylvania, 22 F. 109, 116 (N.D.N.Y. 1884), Aff'd
sub nom. Insurance Co. of Pennsyivania v. The
Proceeds of the Sale of the Barge Waubauschene,
24 F. 559 (C.C.N.D.N.Y. 1885). It is no longer
appropriate, however, to view maritime insurazce
this way. Even a vessel that simply sits at a dock
without making any attempt to ply the waters must
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today have hull protection and indemnity insurance.
As the district court noted, insurance is something
that every vessel today needs just to carry on its
normal business. Equilease, 568 F.Supp. at 1263.
Equilease itself required all of its affiliate companies
to carry adequate insurance and would not do
business with any company that failed to do so.
Eguilease, 568 F.Supp. at 1263. The Bareboat
Charter Party entered into by the Equilease "shelf"
corporations with Dunnamis required that throughout
the term of the charter, "the charterer shall, at his
own expense, keep the vessel insured against ... risks
.. in an amount ... not less than the greater of the
initial cost of the vessel or the full commercial value
of the vessel..." The agreement specifically required
insurance coverage for property damage, personal
injury and death to third parties and crew, breach
of warranty, pollution, cargo and tower's liability,
and provided that war risk hull and indemnity
insurance would be required at the owner's
discretion. The Charter Party also mandated that
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any insurance payments for losses greater than
$10,000 (but less than total loss of the vessel) were
to be made to the owner, or to a_ designated
mortgagee, who was required to apply such funds
directly for repairs, liabilities, salvage claims, or
other charges and expenses, or to reimburse the
charterer for any money he had advanced for repairs
and daims covered by the policy. In the light of
this type of agreement, the nineteenth century view
of marine insurance as an optional contract, entered
into by a shipowner at his own discretion solely for
his own personal indemnity, must fade into the
shadows of history. /
[9] We therefore hold that because insurance
is essential to keep a vessel in commerce, insurance
is a "necessary" under 46 U.S.C. §971 and unpaid
insurance premiums to give rise to a maritime lien
under the FMLA.
This determination, however, does not resolve
the case before us. Our holding recognized that a
federal maritime lien may have arisen against the
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vessels in James' favor for the balance of the
insurance premiums that Dunnamis failed to pay. The
question remains whether James has met the other
Statutory requirements of the lien.
VI.
Equilease insists that for James to claim a righi
to a federal maritime lien, it must have relied on
the credit of the vessels when it furnished the
insurance. Equilease points to evidence and
testimony in the record indicating that James relied
solely on the eredit of Equilease, Dunnamis and Eltra
~orporation, the owner of Equilease, and argues that
James has no right to assert the lien. For the
proposition that a creditor who relies solely on the
credit of one other than the vessel may not claim
a federal maritime lien, Equilease cites W. A.
Marshall & Co., Ine v. The President Arthur, 279
U.S. 546, 49 S.Ct. 420 (1929), and Gulf Trading &
Transportation Co. v. The Vessel Hoegh Shield, 658
F.2d 363 (5th Cir. 1981).
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Equilease's argument at first appears to be
contrary to the express language of the FMLA.
Section 9971 provides that "it shall not be necessary
to allege or prove that credit was given to the
vessel." Examination of the history of the principles
and a study of the cases interpreting the statute,
however, reveal the merits of Equilease's argument.
Prior to the initial passage of the Act, 36 Stat.
604, the law was settled that a federal maritime
lien could arise only for necessaries furnished in
reliance upon the credit of the vessel. Credit to
the ship, as distinguished from credit to the owner,
was essential to the existence of a maritime lien.
The St. Jago de Cuba, 22 U.S. (9 Wheat.) 409 (1824).
Because the lien arose against the ship and gave the
lienor a right to seize the ship upon process of the
admiralty court, such a drastic remedy was to be
made available only to creditors who had relied on
the credit of the ship itself. If the goods or services
had instead been furnished in reliance upon the credit
of the owner or a third party, then the creditor had
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recourse for the debt other than against the vessel
itself, and no lien would arise.
When the FMLA was passed in 1910, a debate
arose among the courts about the interpretation to
be given the phrase concerning credit to the vessel.
The cases interpreting the Act immediately after its
passage did not even consider the possibility that
Congress had intended to dispense with credit to the
ship as a prerequisite to the lien. Gilmore and Black,
The Law of Admiralty at 665-66. Then in 1920 two
relevant events occurred: Congress re-enacted the
Act as part of the Ship Mortgage Act without
amending this provision, and the Supreme Court
decided Piedmont & George's Creek Coal Co. v.
Seaboard Fisheries Co., 254 U.S. 1, settling the
debate. Piedmont held that the relevant language
in the Act served only to remove from the creditor
the burden of proving that he had relied on the
credit of the vessel. The presumption that the
vessel's credit was relied upon, a presumption
formerly available only to creditors furnishing
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necessaries to a vessel in a port or jurisdiction
foreign to it, see Gilmore and Black, The Law of
Admiralty at 664-65, was now granted to "fa)ny
person furnishing repairs, supplies, towage, use of
dry dock or marine railway, or other necessaries, to
any vessel, whether foreign or domestic ..." 46 U.S.C.
$971.
[10] Despite the language of the Act, the idea
of credit to the vessel being a prerequisite to a lien,
and the concomitant principle that credit to the
owner negates the lien, are still very much with us
today. Thus, under section 971, a presumption arises
that one furnishing supplies to a vessel acquires a
maritime lien, and the party attacking this
presumption has the burden of establishing that the
personal credit of the owner or charterer was solely
relied upon. TTT Stevedores of Texas, Inc v. M/V
Jagat Vijeta, 696 F.2d 1135, 1139 (Sth Cir. 1983);
General Electric Credit & Leasing ~orp. v. Drill Ship
Mission Exploration, 668 F.2d 811, 814 (5th Cir.
1982); see also Sasportes v. M/V Sol de Copacabana,
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581 F.2d 1204, 1209 (5th Cir. 1978).6 To meet this
burden, eivdence must be produced that would permit
the inference that the supplier purposefully intended
to forego the lien. Gulf Oil Trading Co. v. M/V
Caribe Mar, 757 F.2d 743, 750 (5th Cir. 1985); TTT
Stevedores, 696 F.2d at 1139; Farrell Ocean Services,
Inc. v. United States, 681 F.2d 91, 93-94 (Ist Cir.
1982); Gulf Trading & Transportation Co. v. The
Vessel Hoegh Shield, 658 F.2d 363, 368 (Sth Cir.
1981); Point Landing, Inc. v. Alabama Dry Dock &
Shipbuilding Co., 261 F.2d 861, 867 (5th Cir. 1958).
Because of the strong presumption in favor of a
maritime lien, it is necessasry that a party opposing
the lien prove that the creditor, in this case James,
deliberately intended to look solely to the owner's
personal credit and to forego the valuable privilege
afforded it by law. Gulf Oil Trading, 757 F.2d at 750.
6. "{U)ntil there is a proper denial with supporting
proof to the contrary, the presumption is that
the goods were furnished on the credit of the
vessel." Colonial Press of Miami, Ine. v. The
Allen's Cay, 277 F.2d 540, 541 (5th Cir.1960).
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Because it relied on Learned v. Brown and
found that no federal maritime lien had arisen in
James' favor, the district court did not make a
finding as to what credit James relied upon in
advancing the insurance premiums. Equilease argues,
however, that there is uncontradicted evidence in
the record that James did not rely on the credit of
the vessel when it advanced the monies for the
insurance premiums. William Keith Hargrove, former
manager of James' Marine, Oil and Gas Department,
who handled the Equilease and Dunnamis accounts,
testified at trial that James had relied on the credit
of Equilease and Dunnamis. Hargrove was asked on
cross-examination, "What did you rely on for payment
of those insurance »remiums? .... Who or what did
you rely on?" He responded that it had been James’
understanding "from the very beginning" that
Equilease, whether directly or indirectly, was being
relied upon, in that James was receiving money from
Dunnamis that had been furnished to Dunnamis by
Equilease. When the cross-examiner probed, "So you
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are saying you relied only on Dunnamis, Equilease,
and/or Eltra, is that a fair statement?" Hargrove
replied, "That's a fair statement."” James itself
states in its original brief filed in this court: "The
Unilease Companies were totally funded for the
operations of the Vessels by Equilease and it was
the credit of Equilease upon which all parties placed
total reliance.® James contests this showing only
by quoting a general statement made by Hargrove
on direct examination — "There is no intent for us
to give up anything” — and by alleging that Equilease
has not adduced enough evidence of James’ reliance
7. Eltra Corporation was Equilease's owner at the
time.
8. The dissent implicitly acknowledges this
unrefuted testimony that reliance for payment
of the debts was placed altogether on other
sources. The dissent places the words of the
witness in the fuller context of his entire
testimony, but their impact remains unchanged.
Whether this testimony is placed in full context
or excerpted, the point is clear: in advancing
payment for the insurance premiums, the credit
of the vessel was not considered in the
slightest, and not having been considered, there
plainly could have been no reliance.
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on someone or something other than the vessels to
show that James waived its lien.
[11] We find that the relevant parts of the
transcript and record make it clear that James did
not rely on the credit of the insured vessels when
advancing the money for the premiums, but rather
relied on the credit of Equilease and Dunnamis. The
uncontradicted testimony and the concession made
by James in its brief overcomes the presumption that
James relied on the credit of the vessel. We find
no evidence that James conducted its business with
9. The dissent argues that the question is not
whether James consciously relied on the credit
of the vessel. Rather, the dissent insists that
"the question which should be asked is whether
the record compels the inference that James
deliverately or purposefully intended toforego
its right to a lien." The answer to the question
is, yes. First, in the absence of reliance
— intentional, by presumption, or otherwise
— there is no right to claim a lien; in different
words, if one purposefully foregoies reliance
on the credit of the vessel, it is tantamount
to purposefully foregoing the right to claim a
lien against the vessel. Thus, when James
deliverately chose not to rely on the credit of
the vessel, as a matter of law it purposefully
intended to forego its right to claim the lien.
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Equilease and Dunnamis in such a way as to preserve
a federal maritime lien.19 Because James did not
rely on the credit of the vessels, either wholly or
in part, it may not claim a federal maritime lien for
the unpaid insurance premiums.!1
10.
11.
Indeed, James could not have _ reasonably
expected to have relied on a federal maritime
lien, because until today, this circuit
recognized no such lien in favor of a creditor
who advances insurance premiums.
James also claims that if it is denied a lien,
it should be able to collect the unapid insurance
premiums from Equilease as restitution under a
contract theory of unjust’ enrichment.
Recognizing that this court has subject matter
jurisdiction in admiralty to hear this claim, see
International Sea Food Ltd. v. M/V Campeche,
566 F.2d 482, 485 (5th Cir.1978) ("that marine
insurance is a maritime contract within the
jurisdiction of an admiralty court has long been
settled"), we find James' argument meritless.
Unjust enrichment is an equitable remedy to be
invoked only when there is no available remedy
at law. Fidelity & Deposit Co. of Maryland
v. Smith, 730 F.2d 1026, 1030 (5th Cir.1984);
Austin v. North American Forest, 656 F.2d
1076, 1088-89 (5th Cir.1981). Because James
has a remedy at law in an action available
against Dunnamis, its claim for equitable
restitution cannot be entertained.
A-99
Vil.
Accordingly, Learned v. Brown, 94 F. 876, is
overruled. Marine insurance on vessels is a necessary
under the Federal Meritime Lien Act and unpaid
insurance premiums may give rise to a federal
maritime lien in favor of the insurerer. James,
however, is denied a federal maritime lien because
it has been shown to have not relied on the credit
of the vessels when it advanced the insurance
premiums. The district court is
REVERSED. |2
12. The dissent predicts that our decision, allowing
a competing creditor to defeat a lien by
showing that the claimant did not rely on the
credit of the vessel, will create special trial
problems. We do not foresee special problems.
In such cases, there usually will be a clear and
routinely resolved question before the court:
does the evidence show that the credit of the
vessel was not relied upon to any extent? If
competent and credible evidence proves that
the claimant did not rely to any extent on the
credit of the vessel, then the right to claim a
federal maritime lien against the vessel will be
defeated.
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W. EUGENE DAVIS, Circuit Judge, with whom
Carolyn Dineen Randall and Patrick E. Higginbotham,
join, concurring in part and dissenting in part:
We took this case en bane to decide whether
insurance is a "necessary" so that the supplier of
insurance is entitled to a maritime lien for insurance
premiums under the Maritime Lien Act. I concur in
the majority's affirmative answer to this question
and the clear persuasive reasons advanced in support
of this rule.
I thoroughly disagree, however, with the court's
holding that James, who supplied the insurance, did
not, as a matter of law, rely on the credit of the
vessel and thus waived his lien. This conclusion is
bottomed on a finding that James relied on the credit
of the vessel owner and others without consciously
considering whether he would lien the vessel if the
owner defaulted. In holding that this is sufficient
to rebut the presumption of reliance by a supplier
on the credit of the vessel, the court, without a
word of disapproval, overrules at least twenty-five
.
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years of established law in this circuit and create
serious practical problems in the enforcement of
maritime liens.
1,
Before the adoption of the Maritime Lien Act
(lien act), a supplier who cdaimed a lien for
necessaries furnished to a vessel in her home port
was required to establish his reliance on the credit
of the vessel as an essentiai element of the lien.
G. Gilmore & C. Black, The Law of Admiralty, §9-
37 (2d ed. 1975). The circuits were split, however,
as to whether the materialman had the burden of
establishing reliance on the credit of the vessel. Id.
The lien act contains two provisions relevant to this
reliance on the credit of the vessel element of the
lien. The first, section 971(46 U.S.C. §971), provides
that "it shall not be necessary to allege or prove
that credit was given to the vessel." The second
relevant provision of the lien act, section 974 (46
U.S.C. §974), provides that nothing in the act should
be construed to prevent a supplier of necessaries
A-162
from waiving his right to a lien "by agreement or
otherwise."
Following the adoption of the lien act, the
Supreme Court in Piedmont & George's ~reek Coal
Co. v. Seaboard Fisheries Co., 254 U.S. 1 (1920),
held that the effect of the lien act was to give the
materialman the benefit of a presumption that he
relied on the credit of the vessel when he furnished
necessaries. The law has been exceedingly clear in
this circuit, at least since 1958, that this presumption
is a strong one that may be rebutted only by showing
that the supplier intentionally relinguished his right
to a lien. We have consistently rejected the
argument that reliance by the supplier on the
personal credit of the vessel owner or charterer is
sufficient to rebut that presumption.
In Point Landing, Ine. v. Alabama Dry Dock,
261 F.2d 861 (5th Cir.1958) the supplier of a new
engine for the vessel took a note from the vessel
owner, a chattel mortgage on the vessel and a
mortgage on the vessel owner's real estate to secure
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the indebtedness for the engine. The vessel owner
argued that no lien arose because the note obtained
from the owner, along with the conventional security
devices to secure that note, reflected that the
supplier relied on the credit of the owner rather
than the vessel. This argument was soundly rejected.
Judge Brown, speaking for the court, announced a
rule that has been consistently followed: "In a proper
case it might well be that all such acts, with other
convincing testimony deemed sufficient to establish
it by a preponderance of the evidence, might permit
the inference that the supplier purposefully intended
to forego the valuable privilege which the law
accords and look solely to the owner's personal
credit. Here, there was no such proof." 261 F.2d
at 867 (emphasis edded).
In Gulf Trading and Transporation Co. v. The
Vessel HOEGH SHIELD, 658 F.2d 363 (5th Cir.1981),
cert. denied, 457 U.S. 1119 (1982), the shipowner
argued that the lien had been waived because the
supplier dealt with the charterer of the vessel and
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had no contact with the vessel owner. The court
concluded "twle agree with Gulf that when the
transaction is considered a whole, nothing was
purposely done by Gulf to waive the maritime lien
that arose as a matter of statutory law upon the
furnishing of bunker fuel to the vessel in a United
States port." 658 F.2d at 368. (emphasis added)
In a very recent case, Gulf Oil Trading Co. v.
M/V_CARIBE MAR, 757 F.2d 743 (5th Cir.1985), we
held that the supplier of bunkers had not waived its
maritime lien even though the fuel was sold to the
charterer which had enjoyed a long. business
relationship with the supplier and had a fixed dollar
line of eredit with the supplier. We stated "[blecause
of the strong presumption in favor of a maritime
lien, we have consistently held that it is necessary
that a litigant arguing for such a w. er prove that
the creditor deliberately intended 'to forego the
valuable privilege which the law accords and look
solely to the owner's personal credit.' 757 F.2d at
750 (emphasis in opinion at p. 750). To the same
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effect, see Sasportes v. M/V SOL DE COPACABANA,
581 F.2d 1204, 1209-10 (5th Cir.1978); TTT
Stevedores of Texas, Inc. v. M/V Jagat Vijeta, 696
F.2d 1135, 1139 (5th Cir.1983). See also Farrell
Ocean Services, Inc. v. United States, 681 F.2d 91,
93-94 (ist Cir.1982).
Gilmore & Black, after a thorough discussion
of the background of this defense to the assertion
of a maritime lien, states: "... the presumption that
the lienor relied on his lien has become all but
eonclusive." G. Gilmore & C. Black, The Law of
Admiralty, §9-38, (2d ed. 1975).
I.
The majority cites three sources in the record
that it finds sufficient as a matter of law to establish
that James waived its lien.
First, the court points to the cross-examination
of James' marine manager, Mr. Hargrove. Before
the testimony was given that is relied upon by the
court, counsel questioned Hargrove closely about why
James did not require either Equilease or Eltra to
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sign the Borg-Warner note along with Dunnamis.
Counsel then attempted to learn from Mr. Hargrove
the identity of the person in the James organization
who made the decision to extend credit for the
insurance sold on the vessels in question. Hargrove
responded that James thought the bill for the
insurance premiums would be paid promptly and that
a credit transaction was not intended. The series
of questions that culminated in the answer relied on
by the majority then followed:! Nowhere in this
1. @Q. Mr. Hargrove, what did you rely on for
payment of those insurance premiums?
A. Now, why we allowed the premiums to go
as long as they did?
Q. No, sir. What did you rely on for payment
of those insurance premiums?
A. I still don't understand your question. I
mean, who —
Q. Who or what did you rely on?
A. It was our understanding from the very
beginning that Equilease, whether directly
or indirectly, and at that time we
understood the money wes to be given to
Dunnamis, we were receiving money from
Dunnamis, which was money furnished by
A-107
line of questioning did counsel refer to the liability
of the vessel or the willingness of James to enforce
a lien if the law gave him one. In sum, Hargrove
testified that James, as the insured's broker,
advanced the premiums in the belief that Eltra or
Equilease, two corporations with substantial assets,
would see that Dunnamis reimbursed James in the
normal course of business. Hargrove was not asked
whether he intended to assert a lien against the
vessel if the premiums were not paid, but under these
circumstances it is reasonable to infer that he did
(cont.)
Equilease.
Q. So-
A. And again, that's why we allowed the
receivables to go as long as they did
without payment. I mean, under normal
course of business, if it had not been
Eltra, Equilease, we would have cancelled
that policy a long time prior to the July
20th renewal.
Q. So you are saying you relied only on
Dunnamis, Equilease and/or Eltra, is that
a fair statement?
4. That's a fair statement.
A-108
not consider what collection steps he would take if
James' invoice was not paid. As the majority
acknowledges, Hargrove did state that he did not
intend to give up any right.
The statement in James' brief? relied on by
the majority in support of its finding that James
waived the lien appears in the portion of James’
brief dealing with the validity of Equilease's
mortgage on the vessel. James was attempting to
make the point in this passage of its brief that
Dunnamis was a shell corporation acting as agent for
its dominant parent, Equilease, the party that funded
the entire operation and on whose reputation and
credit all parties relied.
2. The Unilease Companies stand in the same
position as a general agent for the operations
of the Vessels on behalf of Equilease. There
was the requisite mutual inter-dependence on
the financial credit and stability of each of
the parties. The Unilease Companies were
totaily funded for the operations of the Vessels
by Equilease and it was the credit of Equilease
upon which all parties placed total reliance.
A-109
The most that can reasonably be inferred from
Mr. Hargrove's testimony and the above sentence
from James' brief is that James relied on the personal
credit of Dunnamis, Equilease and Eltra and no
consideration was given to collection procedures that
might be followed in the event of default. The
record evidence does not suggest any reason James
would relinquish his right to a lien and Mr. Hargrove's
testimony that James did not intend to give up this
right is completely credible. In my view, the record
evidence relied on by the majority falls far short of
supporting a finding that James_ intentionally
relinquished his right to a lien.
The majority cites an additional reason why
James waived his lien: Until today, the law in this
circuit did not allow a lien to one providing
insurance, so James had no right to rely on the
vessel to pay the debt.
Although the significance of this fact is not
explained by the majority, I do not read the opinion
to hold that James is not entitled to the change in
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the law we announce today. It wouid be novel indeed
to hold that the litigant who blazed the trail and
persuaded the court to change the law is not entitled
to the benefit of that change.
The record does not establish that Mr. Hargrove
or anyone else with James knew that James was not
entitled to a lien under the law of this circuit when
the insurance was furnished. Without proof of such
knowledge by James, I fail to see how it can be said
that James intentionally relinquished the lien by
furnishing necessaries with knowledge that no lien
would accrue.
In resolving this issue, the majority seeks to
answer the following question: Did James consciously
rely on the credit of the vessel when he supplied
the insurance. I have no quarrel with the negative
answer to that question; it is simply the wrong
question. The question which should be asked is
whether the record compels the inference that James
deliberately or purposefully intended to forego his
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right to a lien. The record in my view does not
support — much less compel — such an inference.
iil.
I am persuaded that the rule adopted by the
majority will have several untoward consequences in
maritime lien litigation. First, an inordinate amount
of unproductive trial time will be expended in an
attempt to devine the subjective thoughts of the
supplier, particularly at the time of the sale, whether
he considered the possibility of liening the vessel of
his bill for supplies were not paid. If the supplier is
a large concern with distinct sales and credit
departments the subjective intent of several persons
may be relevant. The small unsophisticated supplier
uninformed about liens and unaware that his services
or supplies give rise to a maritime lien will face a
serious problem. According to the majority, such a
supplier who has no knowledge that the vessel is
liable for the debt and thus does not rely on the
credit of the vessel waives his lien. Many of the
larger firms will incorporate language in their
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invoices that will negate any intent to waive the
lien. But the less sophisticated individuals and small
suppliers — who need lien protection the most — will
frequently lose their lien.
IV.
The holding of the majority that James iost its
lien because it did not rely on the credit of the
vessel is premised on a erroneous interpretation of
the Lien Act. In my view, this holding will have
‘the effect of advancing form over substance and
creating unnecessary uncertainty, confusion and
litigation in this important area of commercial law.
For these reasons, I respectfully dissent from this
feature of the court's opinion.
ir
7 i a
Wess fas
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