# Opposition Brief — Todd Shipyards Corp. v. Mastan Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385604_1382%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1970 - **Citation:** 397 U.S. 1009 ## Text 2 OF co Supreme Court, US, ’ ry D r ] iF an mt ERA 6 1970 IN. THE JOHN F. bss, CL | Supreme Court of the United States p October Term, 1969 yo 180 nea etree ¢ TODD SHIPYARDS CORPORATION, Petitioner, \ Vs. MASTAN COMPANY, INC., ete., Respondents. BRIEF IN OPPOSITION TO PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS-FOR THE THIRD CIRCUIT . Sy = ’ Joun R. SHeneman Attorney for Respondent, Mastan Company, Inc. 19 Rector Street New York, New York 10006 (izorcGe D. Byrnes Of Counsel =f TABLE OF CONTENTS PAGE Statement of the Case ao Reasons for Denial of the Writ x oe Mastan Respeetfully Requests That This Court Grant It, As Against Todd, Interest And Damages For : Delay On The Ground That Todd’s Application | For Writ Is Totally Frivolous 28 Conclusion be 29 TABLE..OF AUTHORITIES Cases: : Atlantic Steamer Supply Company v. The SS Trade- wind, 153 F. Supp. 354 (D. Mad. 1957) 1, 17, 18, 20 Blair v. Durham, 139°F. 2d 260 (1945) 29 Brock v. The SS South Hampton, 231 F. Supp. 280 (D. Ore. 1964) pepe 14 Chemical Bank New York Trust Co. y. The SS West- hampton, 231 F. Supp. 284 (D. Md. 1964) 22 C. T. Willard Co, v. City of New York, 81 Mise. 48, . 142 N.Y.S.-11 | | | 23 Dampskibsselskabet Dannebroe ¥, Signal Oil & Gas Co., 310 U.S. 268 (1940) 16 Decker, Matter of, 149 Mise. 264, 268 N.Y.S, 280 i) Deming v. Carlisle Packing Co., 226 US 102 (1912) 29 Diaz v. The SS Seathunder, 191 F. Supp. 807 (D. Mad. 1961) 15, 16, 17, 18 v II PAGE Doehlen v. Real Estate Board of New York Bldg. Co., 150 Mise. 733, 270 N.Y.S. 386 .... 9,10 Donald T. Wright, The, 30 F. Supp. 610 (W.D. Ken. 1939) : 93 First Nat. Bank of Batavier y. Franke, 1 AD 2d 939, 151 N.Y.S. 2d 596, aff 3’ NY 2d 849, 144 NE 2q 727 9 Flood v. American Oil Screw Trawler, Francis Me- Pherson, 258 F. Supp. 768 (.D. Mass. 1966) 11 Gordon v. Aratee, 114 NJ Kq. 294, 168 A 729 24, 26 Henry W. Breyer, 17 F. 2d 422 (D. Md. 1927) 13, 18, 20, 21 Huit Corp. v. Siskind, 30 Mise, 2d O88, 219 N.Y.S, 2d 982 10 International Refugee Organization vy. Maryland Dry- _ dock Co., 179 F. 2d 284 (4th Cir. 1950) | 18 Independent Truckers, Inc., In Re, 226 F. Supp. 440 (D. Neb. 1963) ae Shel nN mee pn Irving Trust Co. vy. Kaminsky, 19 F. Supp. 816 (S.D. N.Y. 1987) 9 Kamisher v. Sinicropi, 192 N.Y.S, 2d 240 10 Kelly v. Farmers Production Credit Assn., 88 NLY.S. 2d 872 | : 10 Klinger v. New York State National Bank, 151 Mise. 903, 271 N.Y.S. 252 25, 26 Langford vy. Fessenden, 220 AD 298, 221 N.Y.S. 424 9 Lewis v. U. S., 92 US 618 (1879) card 25 Libel of Pilgrim Trust v. The Frances (. Denehy, 94 ‘Supp. 807 (D. Me. 1.950) | 22 Lottawanna, The, 88 US 558 (187+) ; 23 Lupia v. Lupia, 190 N.Y.S. 2d 733 |: | 9 tae : / Sg | } PAGE Markham v. Russel State Bank, 358 F. 2d 488 (10th Cir, TORR). Wea ree) oe eens 24 Marine Transport, In Re, 94 F. 2d 7 (2 Cir. 1938). . 14 Meriam v. Witnpfheimer, 25 F., Supp. 405 (S.D.N.Y. § Boon oO emer SRA ee tee re oe Ses 10 Morrisey ct al. v. The'SS A & J Faith, 252 F. Supp. o4 (D. Ohio 1965) 2... co. 14, 18, 19, 20 Panama R.R. Co. v. Johnson, 264 U. S. 375 (1924) 10 Pascagoula Dock Station y. Merchants & Marine Bank, 271 F. 2d 53 (Sth Cir. 1959) ©... pe a Philadelphia Home, ete. v. Philadelphia Sav. F. Soce., 126 N. J. Eq. 104,8 A 2d193... 7 27 Pope & Talbot, Ine. v. Hawn, 346 U. S. 406 (1953) 11 R. Lenahan, The, 10 F. Supp. 497 (E.D. Pa. 1935) 11 Resolute, The, 168 US 437 (1897) , | 23 Rock Island Bridge, The, 73 US (6 Wall) 213 (1867) 23 Ruhl v. Phillips, 48 NY 195 (1871) 9 Sernberger v. Sussman, 69 N. J. Kq. 199, 60 A 195; aff. 85 N. J. Eq. 593, 98 A 1087 (1916) 25 713 Co. v. Jersey City, 94 N. J. Super. 210 (1967) 29 Shay v. Abdella, 131 Mise. 175, 225 N.Y.S. 2d 517 9 Sowell v. Federal Reserve Bank, 268 US 449 (1925) 25 Todd Shipyard Corporation vy. City of Athens, 83 F, Supp. 67 (D.C. Md. 1949) 18 U. S. v. American Gas Serew Franz Joseph, 210 F. Supp. 581 (D. Alaska 1962) +48, 21, 22 U.S. v. Johnston, 268 US 220 (1925) 6 U.S. v. Oil Serew Ken Jr., 275 F. Supp. 792 (E.D. La. 1967) . pa er ack 11 IV ¥ PAGE Victor Gruen. Associates, Ine. v. Glass, 338 F. 2d 826 (9th Cir. 1964) see iseccity ol Walsh v. Tadlock, 104-E. 2d 131 (9th Cir, 1939) _. "93 Walter KE. Heller & Co. v. The M/V Mr. Ed, 270 F. Supp. 830 (K.D. La. 1967) 11, 21 Statutes: ‘ Carriage of Goods by Sea Act (46 USC §§1800-1315) aon ! 19, 20 New York Debtor and Creditor Law: $273 7,8, 9, 10, 11 \274 7,8, 9,10, 11 $276 | 7,8,9 Uniform Mraudulent Conveyance Aci 7,10 U.S. Ship Mortgage Act of 1920: 46 USC 9911 | 2 46 USC 6953 ! | 3,4 46 USC §921 AF) ee ae : 4 46 USC $922 4 46 USC 6922(a) (3) He 7, 8,9, 10, 11 46 USC 6922(¢) 29 Other Authorities: 1 Benedict on Admiralty, (12, page 22 1; ‘78, page 181 22 4 Benedict on Admiralty, (613. 22 55 CJS Marshalling of Assets & Securities, 64 26, 27 “Gilmore & Black, The Law of Admiralty, 510 (1957) 93 517 (1957) 24 Robinson, Admiralty, page 362 : . 23 IN THE Supreme Court of the United States | October Term, 1969 No. RE ne Assos Topp Siipyarps CORPORATION, Petitioner, VS, Mastan Company, Ine, ote, Respondents, i BRIEF IN OPPOSITION TO PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT Statement of the Case At stake in this admiralty m ren action is the Uistribue, tion of $55,085.37, deposited in the Rogistry of the District Court, following the foreclosure and sale of tha SS Sap: phire Sandy (hereinafter Sandy’) by the United: States Marshal. The original sale proceeds secured by the United States Marshal were $160,000. This sum was reduced to #,085.37 by payments for administrative costs and by payments in settlement of lien suits filed below by seamen for wages, After the latter reductions, there remained only two contestants to the fund of $55,085.37, to wit, the Peti- 2 tioner, Todd Shipyards Corporation (hereinafter ‘*'Todd’’) and the Respondent, Mastan Company Ine. (hereinafter **Mastan’’), Mastan brought the suit below jn ren against the Sandy, a vessel @wned by Sapphire Steamship Company (herein- after Sapphire’) to foreclose a mortgage thereon, which it claimed to bea preferred ship mortgage under the U, 8, Ship Mortgage Act of 1920 (46 USC So] et seq.). Other maritime lien claimants, such as Todd, also filed in. rem suits below against. the Sandy. The Distriet Conrt up- pointed a Special Master, who determined that Mastan was entitled to the remaining fund in the Distriet Court (#55,- O80.87) hy reason of its being the holder of a valid first preferred ship morteage on the Sandy within the purview of the U.S. Ship Mortgage Act, Mastan’s ship mortgage originally seeured a total loan ‘from Mastan to Sapphire in the amount of’$1,296,000. The Special Master, the District Court and the Court of Ap- peals found that the sole purpose of this loan was to en- able Sapphire to purchase three ships, one of which was the Sandy, The other ships were the SS Sapphire Gladys (hereinafter “Gladys"’) and the SS Sapphire Ktta (here- inafter “Mtta’’), Thus, Mastan’s mortgvage was in effect a purchase money mortgage, This loan was made by Mas- fan in tworparts, i.e, $864,000 on December 29, 1965 and M432,000 on January 21, 1966. The first loan installment Was used to purchase the “Sandy and Gladys, To secure said Joan, Sappbire eranted Mastan a First Preferred Fleet Ship Mortgaee on the Sandy and Gladys. The see- ond loan installment was used to purchase the Mita. “To secure said loan; the First Preferred Ship Mortgage was ve a 9 al amended by a Supplemental Agreement in Which the Mort- gage on the Sandy and Gladys was extended to include said loan and a preferred ship mortgage granted on the Etta . to cover the entire loan. Thereafter and in August of 1966 Mastan, at Sapphire’s request, extended the term of Sapphire’s loan and reduced the monthly payments thereunder. For this Mastan charged a finance fee of #92,817.18 which was, in effect, loaned by Mastan to Sapphire, the said sum being added.on to the then outstanding indebtedness due under the original loan of $1,296,000, To secure the latter, the aforesaid OVrigi- nal First Proferred Mleot Ship Mortewawe, «as amended by the Supplemental Agreement, was further amended by a Supplemental Indenture which extended the mortgage on the Sandy, Gladys and Etta so as to cover the additional loan of $52,817.13, The admiralty jurisdiction of the District Court was strictly in rem and was invoked to determine the validity and priority of competing maritime lien rights in the Sandy and the proceeds of her sale. There Was no issue as to in personam ri€hts of any of the lien contestants either be- tween themselves or against Sapphire, It is conceded by Todd that the Ship Mortgage Act of 120 is the controlling statute which governs the priority of the liens filed in the proceedings below, Such Aet (46 USC 03) grants a ship mortgage, within its coverage, lien priority “over all claims against the vessel, except (1) pre. ferred maritime liens and (2) expenses and fees al- lowed and costs taxed, by the court’, The Act (46 USC 998) defines a ‘preferred maritime lien’? as either (A) ‘a lien arising prior in time to the re- “ 4 cordiig and endorsement of preferred martgage”’ or (B) ‘a lien for damages arising out of tort, * * ¥?? (Kmphasis supplied. ) It was found below and it is coneeded by Todd that the First Preferred Fleet Ship Mortgage and the Supplemental Agreement thereto (which secured the original loan of $1,296,000) were duly recorded and endé¥sed on Decem- ber 29, 1965 and January 21, 1966 respectively.'” Todd concedes that its repairs were rendered after such recerda- tion and endorsement. 9 By reason of the fact that Mastan’s Original Mortgage and the Supplemental Agreement thereto avere recorded and endorsed prior to the rendition of Todd’s services, the Ship Mortgage Act gives the lien of Mastan’s mortgage priority over the lien of Todd up to the amount outstanding on the original loan? unless such mortgage is invalid un-. 1. The Ship Mortgage Act requires, as a condition precedent to preferred status that (a) the mortgagee be a U.S. citizen (46 USC $922), and (hb) that the mortgage comply with the public notice pro- visions of such Act (46 USC $$921, 922). These provisions require that the mostgage, together with a good faith affidavit executed by the mortgagor, be recorded with the U.S. Coast Guard at the mort- gaged vessel's port of documentation and further, require that certain information about -the mortgage be endorsed on the mortgaged ves- sel's papers. The courts below found, and Todd does not contest, that Mastan’s mortgage and all the amendments thereto c mplhed with the just noted recording provisions and further that Mastan was a United States citizen. 3 2. As noted above, the mortgage documents securing the original loan to Sapphire of $1,296,000 (1.e., the Original Mortgage and the Supplemental Agreement thereto) were recorded and endorsed prior to any rendition of repairs by Todd. The evidence below showed that up to the time of its mortgage default, Sapphire had repaid Mastan the sum of $531,000.68, which means that there is still a principal debt \of $715,068.32 due on the original loan to which the lower courts have held Mastan has lien priority. This amount is monumentally in excess of the fund in the Registry of ‘the District > Court ($55,085!37). id j \ © ~ ; 3) “ der the Ship Mortgage Act or unless Todd’s lien be a ‘‘preferred maritime lien,”’ as defined above, i.e. if its lien be deemed based on tort. Realizing the above, Todd advanced below a dual at- tack on Mastan’s lien priority ie. (a) Mastan’s mortgage was fraudulent and thus is not valid under the Ship Mort- gage Act and (b) Todd’s lien is a ‘‘preferred maritime ’ lien’? sounding in tort and is superior, to that of Mastan’s mortgage even if the latter is valid under the Ship Mort- gage Act. VJ ~The Speci al Master, District Court and the Court of Appeals found that the iortgage transactions between . Sapphire and Mastan were untainted with the slightest fraud. To obviate the patent lack of fraud, Todd sought ° belaw to graft upon the provisions of the Ship Mortgage Act concepts of presumed-in-law fraud found in the Debtor and Creditor Law of New York, i 1.e., concepts founded, in part, on-a standard of insolvency or inadequacy of capital assets of a transferor at the time of a transfer. Likewise to support its characterization of tort lien, Todd relies on the concept of insolvency, i.e., that Sapphire was insolvent when it ordered the repairs and that this) condition was fraudulently concealed from Todd by both’ Sapphire and Mastan. In support of the above tack, Todd contended below and contends here, that the District’ Court found, and im-* plies that the Special Master found, that, Sapphire was in- ~ solvent at the time of the mortgage transactions to. the knowledge of Mastan. In its petition, Todd supports this contention by quotations from the District Court's opinion. / 6 Mastan submits that these quotations are extracted out of context and that there was a complete absence of a find. ing of insolvency and knowledge thereof below. Mastan, however, need not dwell upon this, as the courts below held that, even assuming insolvency of Sapphire at the time all the mortgage transactions to the knowledge of Mastan. Mastan’s mortgage is valid under the Ship Mortgage Act of 1920 and is entitled to priority over the purported lien of Todd. Todd, however, goes beyond quotations of the District Court's opinion and launches into a lengthy re- view of the evidence below in an attempt to justify its’ con- tention of fraud, insolvency andeknowledge thereof in Mas- tan.- Mastan would be remiss if it did not place on the record the notation that this evidential review amounts to nothing more than a self-serving and blatant distortion of the evidence below. The merits of Todd's evidential in- eursion aside, Mastan submits that the same is improper as certiorari is not granted to review&evidence or discuss specific facts. U.S. v. “Johnston, 268 US 220, 227 (1925). _ Reasons for Denial of the Writ I. The decision helow sustaining the validity of Mas. fan’s mortgage and the priority of that mortgage over the purporte d lien of Todd does not present an important fed- eral question as such decision was patently correct nor doves there exist any conflict between that decision and the degi- sion of any other court. ; \ Todd's assault upon the finding of validity of Mastan’s mortgage, rendered by the courts below, is founded upon ¢. ‘ 9922(a)(3) of the Ship Mortgage Act (46 USC °922(a) (>)). This section requires that an affidavit be filed with the mortgage “** to the effect that the mortgage is made in good faith and without any design to hinder, delay or de- frand any existing or future creditor of the mortgagor or any lienor of the mortgaged vessel; Todd asserts that the Ship Mortgage Act requires more than the mere formality of the filing of a good faith afi- ~ davit :that the Aet requires as a matter of substance that the inortgage be given in good faith and not as a device of the mortgagor or the mortgagee to perpetrate fraud. Mastan Wholeheartedly agrees. Todd, however, goes he- youd this truism and without favor of citation to either the legislative history of the Ship Mortgage Act or case “ue thority contends that the Uniform Fraudulent Conveyance ‘Act, or more specifically the New version thereof ive been used as a of 99221a) (3). Todd 274 of the Now York (Debtor and Creditor Law), should standard for fleshing out the meaning specifically points to, ‘6276, 273 ane Debtor and Creditor Law. As the point of nexus, Todd alludes to Section 276° of the Debtor and Creditor Law. whith reads, in part, as fol- lows; ; ‘ We eon ,¥ : . ; “Kvery conveyance made and every obligation in- eurred with actual intent. as distinguished from intent’ presumed im law, to hinder, delay, or defraud either present or future creditors ix frandulent as to both, present and future creditors." (Emphasis supplied) The similarity between the above language and that of Section 922(a)(3), says Todd, makes such Section appli- cable to the Ship Mortgage Act. Such interpolation is not, 8 > however, supported by citation of authority. From this base of similarity in language, Todd then skips to Sections 273 and 274 of the Debtor and Creditor Law, again with- out citation of any authority, and says these, too, are in- corporated in Section 922(a)(3) of the Ship Mortgage Act. The latter two sections introduce the concepts of insolvency’ and inadequacy of capital assets of a transferor as ele- ments to be considered in the concept of presumed in law wren fraud. Section 2723 reads as follows: Every conveyance made and every obligation in- curred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration.’ Section 274 reads as follows: * Every conveyance made without fair considera- tion when the person making it is engaged or is about . fo engage in a business or transaction for which the property remaining in his hands after. the convey- ance is an unreasonably small capital, is fraudulent as to creditors and as to other persons who become creditors during the continuance of such business or ; transaction without regard to his actual intent.” The concepts of insolveney 5 seman of capital assets found in Sections 273 and 27 of Section 276, for, if they were there would be no need to promulgate Sections 273 and 274. While Section 276 has Biciics 922(a)(3) of the Ship Mortgage Act, there is no analogy of language or concept are obviously not elements language similar to that 4 hetween the latter and Sections 2723 and 274 of the Debtor and Creditor Law. It is submitted that to read the dissimi- lar language and concepts of Sections 273 and 274 of the 9 Debtor and Creditor Law into the Ship Mortgage Act would amount to blatant perversion of statutory construction. Thus, Mastan submits that even if one grants that Section 922(a)(3) of the Ship Mortgage Act may take some benefit from the e° York Debtor and Creditor Law, Sections 273 and 274 thereof cannot be-a part of that benefit, The language of Section 276 of the Debtor and Creditor Law expressly requires a finding of ‘‘actual”’ fraudulent intent, and expressly excludes fraudulent intent presumed in law. Thus, the standards of imputed intent found in Sections 273 and 274 (insolvency and inadequacy of the capital of the transferor), even if found to exist, would not work x violation of Section 276. Neither suspicion nor pre- sumption, but only proof of fraudulent intent, as a@ matter af fact, spells out a violation of Section 276, First Nat. Bank of Batavicr vy. Franke, 1 AD) 2a 939, 151 N.Y.S. 2d 596, aff. Oo NY 2d S49, 144 NI 2d 727; Langford vy. Fe ssenden, 220 AD 258, 221 N.Y.S. 424: Matter of Decker, 149 Mise. 364. 268 N.Y.S. 280; Shay y. Abdella. 12] Mise. 175, 225 N.Y.S, 2d 917; Lupia vy. Lupia. 190 N.Y.S. 2d 733. Nor ean a viola- tion of Section 276 be founded upon mere intent to hinder or delay creditors, actual fraudulent intent being absolutely necessary, Dochlen vy. Real Estate Board of New York Blda, Co., 150 Mise. 733, 270 N.Y.S. 386; Irving Trust Co. v. Ka- musky, 19 F. Supp. 816, 818: (S.D.N.Y. 1987): Ruhl y. Phillips, A8 NY 125 (1871). The Special Master, the Dis. trict Court and the Court of Appeals found that Mastan‘s mortgage transactions were untainted with the slightest frand. Thus, even if we deem that Section 276 of the Debtor and Creditor Law has some application, Todd would gain naught. vi 10 Further, it is to be noted that both Sections:273 and 274 of the Debtor and Creditor Law expressly require, as a ‘condition precedent, to violation, that the complained of transfer be without ‘fair consideration’. The case law *, has made ‘itselear beyond peradventure that, even where there is insolvency at the time of transfer or even where a transfer leaves inadequate ‘apital, a violation of Sections 273 and 274 cannot oceur, if the transfer was given or made for **fair consideration’? Hyit Corp. Siskind, 30 Mise. 2d I98, 219 N.Y.S..2d 982: Doehlen y. Real Estate Board of Vew York Blig. Co.. supra; Kamisher v. Sinicropi, 192 N.Y.S. 2d 240; Kelly v. Farmers Production Credit Agssn., 88 N.Y.S. 2d 872: Veriam vy. Wimpfheimer, 25 F. Supp. 405 (S.D.N.Y. 1938). . The Special. Master, the District Court and the Court of Appeals found that _Mastan’s mortgage transactions were patently supported by fair and full eon- sideration, Thus, $275 and 274 of the Debtor and Credi- tor Law, even if deemed applicable, would gain Todd noth- ing. In its petition, Todd relies heavily on the eases In the Matter of Lea Fabrics, Ine. and Dean v. Davis. Lea Fabrice concerned The New Jersey Corporation Act and the Dean case the Bankruptey: Act, both of Which aré far removed from the New York or even Uniform Fraudulent Convey- ance Act, which Todd uses by analogy in its attempt to craft the concept of insolvency onto the Ship Mortgage Act. The dictates of statutory construction and the nee of facts helow-aside, it is paramount to note that neither in (925 (a) (3) nor anywhere else does the Ship Mortgage Act stipulate that insolvency of the mortgagor or the status " 11 of his capital assets at the time of a mortgage transaction is an element by which the good faith of the transaction is to be judged. If the latter were elements of concern, it is submitted the Ship Mortgage Act certainly would have said so, as does the Debtor and Creditor Law ($$273, 274). Mastan submits that the Court of Appeals was patently correct in ruling that the submission of the Ship Mortgage Act to the idiosyncrasies of various state standards could not be sanctioned, as same would run afoul of the require- ment that federal ship mortgages haye aZyniform fund a harmonious application throughout the “I id and pn the international sphere, a reqhiremént ‘dictated by both the Constitution and the Ship Morteage Adt, itself, Pagiama R.R. Co. v. Johnson, 264 U. 8. 375 (1924)2Pope & Talbot. Tne. v. Hawn, 346 U.S. 406 (1953): U.S. y. Oil Screw Ken Jr., 275 F. Supp. 792 °(E.D. La. 1967); Walter E. Weller Co. v. The M/V Mr. Ed, 270 F. Supp. 880 (ED. La. 1967) U.S. v. American Gas Screw Franz Joseph, 210 F, Supp. 081 (D. Alaska 1962). The federalgcases which have interpreted $922 (a) (3) of the Ship Mortgage Act have "made it clear the type of mortgage transaction which would run afoul of that seetion is one founded upon actual fraudulent intent (i.e. the typical example being a sham mortgage. given to a dummy not founded upon any consideration). Pascagoula Dock Sta- tion v. Merchants & Marine Bank, 271 F. 2d 53 (5th Cir. 1959); Flood v. American Qil Serew Trawler, Francis McPherson, 258 F. Supp. 768 (E.D. Mass. 1966); The R. Lenahan, 10 F, Supp. 497 (E.D. Pa. 1935). Nono of the federal cases which have dealt with the requirement of good 12 faith of a preferred ship mortgage have implied, much less. found, that the financial status of the mortgagor, be it in- solvency or inadequate capital, is a pertinent inquiry, In- deed, the one case where the topie of the mortgagor’s finan- cial status was mentioned, shows just. the Opposite, In Pascagoula Dock Station y. Merchants «& Marine Bank, supra, a lien claimant, whose claim arose, In part, subse- quent to the recording and endorsement of the ship’s mort- gage therein, éontended that, even though a good faith affidavit had been filed, the mortgage could not have heen taken in good faith, sinee no adequate inquiry was made by the mortgagee of the mortgagor concerning the latter’s outstanding debts and liens. The court rejeeted this cCoOn- tention, holding that the failure of the mortgagee to make inquiry as to the financial status of the mortgagor, had no debilitating effect, as there is no stautory duty upon him to do so. The court discussed this, at 271 F. 2d 53, 54, as follows: | ; ‘Since the statute requires an affidavit of good faith by the mortgagor, we may assume that, on proof and finding that the mortgagor and the mortgagee undertook to use the device of a preferred ship mort- gage in fraud of creditors, and henee with a design to hinder, delay{ and defraud any existing or future ered- itor or any Henor of the vessel, the mortgage would lose its preferred status. But except for such cir- cumstances, there is no statutory obligation on the part of the mortgagee to make any imquiry. It might, of course, affect the status of -the mortgage as to prior. liens—just as perhaps it does here concerning’ the $1,282.95—but an absence of inquiry does not Vitiate the mortgage as such.” (Kmphasjs supplied) 13 The Special Master, the District Court and the Court of Appeals found (a) that the evidence below abundantly showed that Mastan’s mortgage transactions were made in good faith and (b) that such transactions were patently Supported by full and complete consideration. It is conceded by Todd that it rendered its repairs sub- sequent to the due recordation and endorsement of Mas- tan’s Original Mortgage and the Supplemental Agreement thereto, which secured Mastan’s original loan to Sapphire of $1,296,000. As hereinbefore discussed, the Ship Mort- gage Act decrees that a lien sounding in tort isa ‘preferred maritime lien’? and, as such, has priority over the lien of a ship mortgage, even if the event giving rise to that lien occurs subsequent to the due recordation and endorsement of the mortgage. Realizing this, Todd attempted below to convert its re- pair lien from one based upon contract into one sounding in tort, relying on two cases, to wit, the Henry W, Breyer, li #; 2d 423 (D. Mad. 1927) and Morrisey Pay: The SS AJ Faith, 252 F. Supp. 94 (D. Ohio 1965), Citing these very same cases in the petition, Todd says its lien is one arising from tort because at the time it rendered its re- pairs to the Sandy, both Sapphire and Mastan knew Sap- phire was hopelessly insolvent. that Sapphire had no in- tention of paying for the repairs and that thus, its repairs were fraudulently accepted. Mastan does not agree with this interpretation of the evidence. Be that as it may, Mastan contends that the cases cited by Todd do not, sup- port its position and, further, even if Sapphire was insol- vent and did not intend to pay at the time of Todd's re- pairs, Todd’s lien still could not sound in tort, tes a 4 The suit below was one in admiralty, strietly in. rem, The issue was the validity and priority of competing mari- time lien claims against the Sandy. There was no issue as to im personam rights of any of the lien contestants, either between themselves or agaist Sapphire. It is estab- lished beyond peradventure that the test of whether a repairer, such as Todd, has a maritime lien, is whether in rendering his services he relied on the eredit of the vessel, as Opposed to the credit of the vessel owner. Without reli- ance on the credit of the vessel, no maritime lien can exist. Tn Re Marine Trausport, 94 F, 2d 7 (2 Cir. 1938) ; Brock We The SS South Hampton, 231 F. Supp. 280 (D. Ore. 1964). Thus, insofar as the right of maritime lien of 4 repairman, such as Todd, is coneerned (which is all that was in issue below), the solvency or insolvency of the vessel owner at the time the repairs are ordered and rendered is completely -immatérial. > hat, alone, is relevant, is the solvency ‘of the . “vessel at the time, ie. its ability to stand as a credit for the ~ services given. This concept of personification of the ves- sel, separate from the vessel owner, is reflected in the remedy given to enforce the maritime lien, namely, the suit in admiralty in rem. In discussing the nature of the mari- time lien and the remedy given to enforce it, 1 Benedict on Admiralty 12, at page 22, states: “The maritime lien is an appropriation of the ship ‘as security for a debt or claim, such appropriation being made by the law * * * ‘the law ereates ‘a remedy for the ¢laim against the ship herself and rests in the creditor a special property in her, which subsists from the moment the debt arises and follows a ship into the hands of an innocent purchaser,’’ 15 ‘ © The ‘concept of fraud consists of concealment of a fact from and justifiable reliance on the absence of that tact hy the person defr: auded. Thus, if a. re pairer, prior to’ ren- dering his serviees to ‘a vessel, he that the solveney or credit of the vessel is pledged, in priority, to the lien of another, the repairer cannot later Claim that he was de- frauded with respect to any lien right his'services een: erated against the vessel since the st: tus of that vessel's credit standing, which in lien right alone is relevant, was not coneealed from him. It is established that. the due recordation and. endorsement of a ship mortgage pursuant to the terms of the Ship Mortgage Act eives constructive notice to those who subsequently furnish repairs Or services to the eneumbered vessel that said vessel. is covered by a US. preferred mortgage and that the credit. of ‘that vessel is pledged first to the lien of that mort\iee. Thus, anvone who furnishes repairs or other serwices to a vessel ‘in the face gt ‘the latter is not mislead and does so at his risk, These concepts are reflected: in two recent Cases which are directly in point, to wit, Atlantic Steamer Supply Company v. The SS Triadewind. 152 BY. Supp. 354 (D. Ma. 1957), and Diaz v. The SS Scathunder, 191 F, Supp. S07 (D. Md. 1961). | ° s ~ a Diaz v. SS Seathunder. supra, involved a lien proceed- Ing against a vessel, the SS Seathunder, in whieh various lien claimants were asserting competing lien rights. One of these lien claimants was a repairer who had rendered: repairs to the ‘SW Seathunder prior to her arrest. At the time the repairer had rendered said repairs, the SS Seq. thunder was under demise charter (ke., a type of lease of a vessel in which the vessel owner gikes over complet \ 16 control and operation of the vessel to the charterer, or leasee). A clause in the eharter party covering the vessel provided that the charterer had no authority to pledge the Vessel as security for any repairs. Such a clause (a lien prohibition clause) in a demise charter party is the normal practice. The United States Maritime Lien Act (46 USC 901-975) ix to the effect that, if a repairer knows that a Vessel is under charter, or should: know that a Vessel under charter, he.has a duty to investigate whether there is a lien prohibition clause in the charter party. If the repairer does not so investigate and there is such a lien clause, he ein have no lien, Dampskibsselskabet) Danne- brog ve Signal Oil & Gas Co., 310 US. 268|(1940). A lien prohibition clause, however, applies only to contract liens and docs not apply tort liens against the vessel (e.g. liens arising from collision, personal injury) since the latter are deemed created by operation of law. : | The. repairer realizing he would have no lien because of the Len prohibition clause in the charter party under which the SS Seathunder was operating, attempted to convert his contract lien into a tort lien, by using the same argument advanced by Todd below, 1:¢., that'at the time the charterer @rdered hind accepted the vepairs, the charterer. was in- solvent, unable to pay for same and had no intention of doing so; and that such inability to pay was concealed from the repairer. Thus, ssid the repairer, his lien was based on tort: To this the court refuse d to agree, The caurt found that the repairer knew of the ex- istence of the demise charter. The court further found that a copy of the charter party containing the lien prohibi- tion clause was on board the vessel at all relevant times. 17 The statutory duty imposed upon the repairer to investi- gate, together with the knowledge of the repairer as to. the existence of the charter party and the placement of the latter on board the ve essel, meant, said the court, that the SS Seathunder gave constructive notice to -the repalrer that her eredit «(which In maritime lien right is, alone, of concern) could not be/ pledged oO secure = payment of the repairs. “The court held that the latter had the resnilt that no lien based on fraud could be given to the repairer, as the two vital clements of. that fault could ‘not be present, namely: (a) justifiable reliance by the repairer on the ability of the vessel to stand als security for payment’ of the repairs, the court Stating one “alleging fraud ‘annot close his eyes to ay ‘oid discovery of the truth and still prevail’? (191 F. Supp. 807 at 815): and (b) fraudulent concealment by the vessel of its in ibility to cae as a eredit for payment of the repairs, An analogous situation was presented in Atlantic Steamer Supply Co.v. The SS Trade wind, supra. This case like the Diaz case, Involved a competition of Tiey claims With respect to the sale proceeds of a vessel, the SS Trady- wind, which had been arrested and thereafter sold. One of the lien el: almants (*Smith’’?) was an agent who hed been appointed by the vessel owner to render port, careo and. sundry services to the vessel in the port of Havana. An- other of the lien claimants Was a ship mortgagee whose mortgage had been recorded and endorsed prior to. the rendition of Smith’s services. Realizing that the Prior -reeording and endorsement of a ship mortgage would moan” that his lien would be inferior, Smith attempted to convert 1s his contract lien into one sounding in tort, alleging the sime grounds, as in the’ Diaz ease anil as Todd below, to Wil, that at the time the vessel owner directed him to render services to the SS Trad: wind, the owner was insolvent, unable to pay and had no intention of paying Smith, all of Which was ¢ meet. Indeed, shortly aft.: the services were Soha by Smith, the vessel owner went into yolun- tary bankruptey. Noting that Smith had alleged: frand. only against the shipowner and not against the vessel, the court held that this could never give rise to a lien against the vessel citing lutevuatiounl Re fudge Oraanization ¥. Marylin? Drydock Co. 179 F. 2d 284 (4th Cir. 195 WW): Todd Shipyard © Or pora- liow v. City of Athy ws, S5 - Supp. 67, 76 (D.C. Md. 1949), The court went os lo state however, that even issuing frand was alleged against the Vessel, Smith's position would be untenable by reason of the fact that the mortgage Wits properly recorded and Sidorsed prior to Smith's ren- ‘dering of services, Thus said the court: ‘The vessel clearly gave notice. the solveney | “or _ Insolvency of her corporate owner being irrelevant as to the vessel’s representation of -her own ability to pay for the services rendered, that her own credit: was pledyed first to the payment of the preferred mort- wave’’, (153 F. Supp. HOF, BOS.) Neither Morrisey ve SS A & J Faith nor the Henry W. Breyer re ‘lied on by Todd diminish the above authority or =p) port Todd’ = position, The Morrisey ease involved a lien contest Wilf respect to the sale proceeds of a vessel, SS Add Faith, which had ; 19 heen arrested and thereafter sold at the behest of a farmber of lien claimants. One of the lien Claimants to fe vessel Was a preferred ship mortgagee and another Was a shipper of cargo, The question was whether the lien of the pre- ferred ship mortgagee or that of the eargo shinner was superior, The shipper had loaded hisgeargo aboard the® SS Add Faith at atime When the vessel owner was floun- dering on the shoals of hopeless insolvency, The result of the latter was thet the Vessel never sailedgby reason of its being arrested at the port of loading by Lge its nan lien creditors, The shipper arened that its lien was superior to that of the ship mortgage, as it Was founded npon tort. The lien was based on tort, said the shipper, for two reasons: : ‘ (1) the vessel, as a common carrier, had a statn- | tory duty under the Carriage of Goods hy Sea Ael (46 USC “€1800-1315), to he seaworthy and had, vielated that duty as reward the shipper by reason of the ves. sel’s financial inability to make the voyage; (2) the act of the vessel owner in aceepting perepniel freight, with no expectation of completing the voyage, gave rise to acclaim based on frand. At common law, a vessel engaged in common carriage, owed an absolute duty to cargo to be seaworthy. The Carriaa Of Goods hy Sea Net. supra, modified that duty hy the requirement that such vessel peed only exercise due diligence to be seaworthy, While: recognizing that the concept of seawortlriness normally meant the physical fitness of a vessel to perforin a particular voyage, the court held that the term should net he merely limited thereto but should be extended to include wtres ‘, ey toe 20 the financial ability of the vessel to complete the voyage for Which it solicits carge. The court then held that the hope- lessly insolvent state existing at the time of loading made - the SS Lue J Faith: unse: worthy, and unse: worthy due to por “dlack of due diligence. As this fault was a breach of an ~ extn contractual duty-imposed by law, the court held that it Munded in tort. “Thus, said the court, was the shippers lien superior to the lien of the ship mortgage, Having found the latter, the court refused to decide the second ground advanced by the shipper . namely, that the acceptance of prepatd freights by the vessel owner in an insolvent state eave rise toa tort lien based on fraud. The Henry W. Breyer also relied on by Todd is on all fours with the Morrisey ease ie. a shipper loading his eargo ‘on board a vessel and prepaying freight only. to ne met with the failure of the vessel to sail by reason of arrest by lien creditors. The sole difference between e Po a ER ite eee ke ae hed we ‘Moreover there is serious doubt whether marshalling is ever proper where its e feet would -relogate the pre- ferred mortgage to a status inconsistent with. the OX press priority given it by the statutor y direc tion.” . The Jurisdiction of the court below is strictly in rem overa single fund, i.e. the Sandy sale proceeds, 'T he source _of that Fein ay Was and is the maritime liens against that fund of the various lien claimants. The court below had and has 10 power to adjudicate With.respect to property to which a maritime lien cannot adhere. As Justice Rield wrote in The Rock Island Bridge, % 2 US (6 Wall) 212, 215 (1867): ‘The lien and the proceedings in rem are, there- fore correlative—where one exists, the other can be taken, and not otherwise.”’ See also The Re solute, 168 US 4387. 440 (1897): The Lotta- wanna, 88 US 558, 581 (18 (4); Gilmore & Black, The Lay of Admiralty, 510 (1957) ; Robinson, Admiralty, p. 362 As noted in the'Phin Circuit's opinion, the supposed furids which Todd contents should be m: irshalled are (1) purported net marine insirance proceeds derived from the Sandy, Gladys and Etta w hich Todd contends Mastan is o N- titled to and (2), accounts receivable assigned by Sapphire to Mastan, such ecounts primarily consisting at freight, charter hire, ete, purportedly due Sapphire undes’ vitriois contracts of affreightment. : | Tt ix well established, however, thi i marine insurance, proceeds are nonmaritime property 1 o which na right of! “maritime lien ean adhere, Walsh v. Tadlock, 104 F.2d 12) (9th Cir, 1939); The Donald T. Wright, 30.F. Supp. 610. (W.D. Ken, 1939) and a cases cited therein. A like fesyls J | a4 N pertains to the accounts receivables (assignments of charter hire, freight: s). While a vessel is given a maritime lien against cargo. to secure the payment of charter hire or freight due on a particular vovage, such lien is strictly | possessory and is thus destroyed if the cargo is unloaded, Gilmore and Blaek, The Law of Admiralty, p. 517 (1957). As Sapphire has long since lost its vessels to lien arrests, there is obviously no eargo possessed by it to which liens for freight and hire might attach, Thus uy assignments as to the latter, Mastan may have, certainly do not carry any maritime lien rights. As the marine insurance proceeds and the accounts re- celvable alluded to by Todd eannot support maritime liens, it is submitted that, under the above law, the ‘court helow “Was and is without jurisdiction to adjudicate a marshalling é of same, . 1 The above aside, it is submitted that even if the doctrine of mi irshalling of assets could in theory be applied below, Mastan would not ugder the terms of that doctine be re- quired to marshal. This is said for the following: (a) Said doctrine can apply only if the other fund or property to which the senior lienor, alone, has access. is in the control of or in the hands of a debtor, common to both such senior lenor and the junior lienor. who is seeking the marshalling process, Markham vy. Russel State Bank, 358 F. 2nd 488 (10th Cir. 1966); Victor Gruen Associates, Inc. \ Glass, 338 F 2nd 826 (9th Cir. 1964): In Re Independent Truckers, Inc., 226 F. Supp. 440 (D. Neb. 1963): Gordon vy. Aratec, 114 NJ Eq. 294, 168 A. 729. As noted in the Third Circuit's opinion the insurance proceeds on the Sandy And the other vessels are in the hand of English underwriters While the English und& ‘writers may be considered debtors to Sapphire by reason of the t fact that the latter is the named assured under the marine policies on the aforesaid: vessels, and while they may be considered debtors to Mas- tan by reason of the fact that it is loss payee as interest may appear, they are certainly not debtors as to Todd. the Jatter having no contractual or other relation with sald underwriters. A like result must. be advaneed as rewards the accounts recej rable, assuming the ‘vy have any worth at all. While the obligors under these accounts may he con- sidered debtors of Sapphire, by reason of being opposite ‘contractual parties, and debtors of Mastan. by reason of an assignment in its favor, they are certainly not debtors as to Todd, the latter having no contractual or other rela- ‘tion with said obligors. ~ (b) Said doctrine does ot apply where the fund or property as to which the senior lienor, alone. has a right is without the ON ag of the court attempting the marshalling, Lewis v. U.S., 92 US 618 (1879): Sowell y. Federal Reserve Bank, 268 US 449 (1925); Klinger ve New York State National Bank, 151 Mise. 903, 271 Ny tee = Sernberger v. Sussman, 69 N.J. Eq. 199, 60 A 195, aff. 85 N.J. Eq. 593, 98 A 1087 (1916). Tf any insurance proceeds: are available to Mastan, they, as noted above, are in the hands of the English underwriters. Thus, thie ‘Vare without the jurisdiction of the court below, the underwriters bei ine obviously ‘in London. + ? . (c) Said doctrine may not be applied where it would compel the senior licnor to engage in litigation, especially Where the property or funds as 10 Whieh marshalling is directed are of doubtful value. C.7. WW lard Co, v. City of New York, 81 Mise. 48, 142 N.Y.S. 11: Klinger ve. New < 26 H oa) York State National Bank, supra : Gordon v. Aratee, supra, or compel him to exhaust a mere personal remed~ 55 CJS Marshalling of Assets & Securities, S4. a As discussed above, Mastan has no lien rights as. re- wards the insurance proceeds or accounts receivable alluded to hy Todd. Thus, any attempt by Mastan to vindicate a right to said items would not be by a rem suit, but by an ordinary (i personam remedy with all its attendant delay. The value of Mastan’s right to the purported insurance proceeds is cloudy. At page 40 of its petition, Todd implies that Mastan has certain legal right to collect the proceeds. The testimony below was just the opposite. The adjuster for the underwriters testified as to the Failure of under- Writers to pay claims under the Sandy's ii¥surance, as, to which claims, Todd asserts there is a net due Mastan.. This adjuster advised that the funds on these claims were not being sent by the English underwriters lecduse they were aware of Sapphire’s bankruptey and thus, the prob- able legal problem as how to. distribute the funds. Thus, the obvious reality is that Mastan,‘even if it attempted to “Vindicate any rights it might have as to the i Insurance pro: ceeds, could not do so by merely writing a letter , but would have to take the path of litigation, which litigation would most assuredly involve Sapphire’s Trustee in Bankraptes: -as one of the parties, A like view results with respect. 10. the accounts receivable as to which Todd urges marshalling. OAS Sapphire is now in bankruptey, any claim by Mastan to these aecounts would involve litigation, which would he complicated by the interest. of Sapphire’s Trustee in Bankruptey., ~Further and most important and as noted in the Third Circuit's: opinion, the Special Master found | that the evidence showed the accounts receivable to, be worthless. Ro att Se Characteristic of Todd's straining approach throughout the proceedings below, it asserts on page 59 of ity petition, that it is prepared to offer te stimony that Mastan assigned ‘to the 046 corporation insurance claims) of 130,000) for 15,000." The testimony below showed that this assignment had nothine to do with the mortgage in issue here, was not made for 15,000 and in faet Was actually made tor Todd’s benefit. It is submitted that Todd js guilty of nothing less than a shocking lack of ¢ dor to this Court. \ \ \ (d) Said doctrine may: not be applicd where it will’ operate to the senior lienor’s pre ye or trench upon his rights; Vietor Crrucn Associates / Glass. supra; Philadele phia Home, elo. ve Philadelphia nS EL Soc., 196 NJ, Kq. 104, 8 A’ 2nd 193: Gordon \ : Aratec, supra; 55 CJS War- shalling of Assets & See iritie Ry f S4. It is submitted that application of the doetrine would seriously prejudice Mastan, sinee it would put Mastan to the vexation of comn neing 7 personam litigation with respect to rights ofAmeertain value in Jurisdictions othe: than the court belo Vv, Which litigation would be made all ‘the more difficult and which litigation would .be prolonged, say the least, by reason of the competitive right of Sapphire’s Trustee in Bankruptey. Thus, it is submitted that the Special Master's refusal to apply the doctrine of marshalling of assets, which refis:!| Was sdnetioned by hoth the District Court and the Cireuit Court of Appeals was eminently proper on any one of a number of grounds, a Mastan respectfully requests that this Court grant it, as.against Todd, interest and damages for delay on the ground that Todd’s application for writ is sto tally frivolous. The judgment below was dated and entered in the Dis- trict Court: for the District of New Jersey on February 17, 169. In substinee, said judgment confirmed the find- ings o¥ the Special Master that Mastan was éntitled to the orehaining funds of $55,085.37 in the Distriet Court and di- rected the Clerk of that Court to pay out of the Registry to Mastan said sum. The enforcement of this judement for money has been delayed from February 17, 1969 until date, a period of ever a year, by reason of Todd’s ap- peal to the Court of Appeals and its present application for certiorari to this Court. rs Mastan respectfully submits that the grounds advanced hy Todd in its petition are of the most. frivolous kind and further were briefed in a manner th: at simply ignored the clear findines of the Special Master; Distriet Court and Court of Appeals that the evidence aNae showed that Mas- tan’s morteage transactions were made in abundant good faith and that" same were supported by full and fair con- Nideration. It is respectfully submitted, then, that the pres- ent application for writ Was proseeuted solely for the pur- poses of d Tay. Thus, Mastan respectfully 1 requests that this Court grant it, as against Todd, interest on the sum awarded to Mastan below ($55,085.37) from the date the. judement of the Court of Appeals was entered, to wit, No- “vember 18, 1969 until the date the judgment_of the District / / oo Court is enforced by payment of the said $99,085.87 to Mas- tan, the interest rate being at 6% per annum, which is the rate for post-judgment interest allowed by the law of the State of New Jersey, the place where the District Court Judgment Was rendered and entered. 773 Co. v. Jersey City, 94 XN. J. Super 210 (1967). Mastan further requests that this Court, in addition.to interest, exact in its favor, as against Todd, a sum equal to 10% of the sum of $55.- O85.37 as an award of damages and penalty, Mastan makes the above application on the basis of Rule 56 of the Supreme Court Rules. J), ming v. Carlish Packing Co.: 226 US 102 (1912): Blair vy. Durham, 139 FY. 2d 260 (1943) and the cases cited therein. - Conclusion For the foregoing reasons it is respectfully sub- mitted that this petitien for a writ of certiorari should be denied and that Mastan should be awarded inter- est and damages as against Todd. Respectfully submitted, Joun R. Sunexeman Attorney fo r Re spond ni. Mastan Company, Ine. 19 Rector Street New York, New York 10006 Of Counsel Georce D. Byrnes / --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385604_1382%3A2. Public record. Not legal advice.