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One Way to Lose a Maritime Lien

07.01.19 | INSIGHTS

By Marilyn Raia
Shareholder, San Francisco Office, 415.352.2721

A maritime lien is created when certain goods and/or services are provided to a vessel. (see Pacific Maritime Magazine, Maritime Liens 101, November 2010). It is a non-possessory lien meaning the lienholder has a claim against the vessel but does not have physical possession of the vessel. However, the lienholder can lose the maritime lien under certain circumstances. This column discusses one way in which a maritime lien can be lost.

Maritime Lien Basics

Federal maritime law gives a maritime lien to a party providing certain “necessaries” to a vessel. Under federal statutory law “necessaries include repairs, supplies, towage, and the use of a dry dock or marine railway.” Maritime liens can also be created when dockage and agency services are provided to a vessel. Unlike liens against real property, a maritime lien against a vessel does not have to be recorded to be enforceable.

Maritime liens can be enforced in only one way. A complaint must be filed in federal court naming the vessel against which the lien is asserted as a defendant. Then the defendant vessel must be arrested by the United States Marshal. If the vessel owner does not post security to obtain release of the arrested vessel, the vessel may be sold at a public sale conducted by the marshal. When a vessel is sold at a marshal’s sale, all liens against it not satisfied from the sale proceeds are extinguished. In addition to a marshal’s sale, there are other ways in which a lien can be lost. One way is by waiver.

Lien Waived

A waiver is the intentional relinquishment of a right or claim. Under certain circumstances, a court will find a maritime lien has been waived by the lienholder’s words or conduct. Puerto Rico Ports Authority v. Barge Katy-B, 427 F.3d 93 (1st Cir. 2005) illustrates the point. In that case, the barge Katy-B was moored at a pier operated by the Puerto Rico Port Authority (PRPA) for almost four years. The barge owner had a lease with the PRPA which required the barge owner to pay daily dockage fees. The barge owner refused to pay, citing the failure of the PRPA to provide adequate terminal facilities. In June 2003, the PRPA began eviction proceedings against the barge owner in a local court but did not include a claim for the unpaid dockage fees in its original complaint. The barge owner filed a counterclaim against the PRPA alleging damages for breach of the lease.

In early 2005, the PRPA told the barge owner that it wanted the barge removed from the pier before the start of the hurricane season. The barge owner wanted to comply with the PRPA’s request by selling the barge. However, the PRPA had a maritime lien against the barge for more than $1.7 million in unpaid dockage fees which greatly exceeded the barge’s $500,000 value. The substantial lien discouraged potential buyers.

Representatives of the barge owner and the PRPA met to discuss the PRPA’s intentions regarding enforcement of the lien for the unpaid dockage fees. The barge owner’s counsel requested the PRPA to waive its lien in writing and to seek collection of the unpaid dockage fees from the barge owner in the eviction action pending in the local court. The barge owner understood that a letter from the PRPA to that effect would help the sale of the barge to a third party. As a result of the meeting, the PRPA wrote a letter to the barge owner stating it had no objection to the sale of the barge or its departure from the pier. The letter also acknowledged that the dockage fees were being controverted in the pending eviction action.

The barge was sold on June 3, 2004 to a third party. The next day, the PRPA recorded a maritime lien against the barge. Later in June 2004, the PRPA began proceedings to enforce its maritime lien and arranged for the arrest of the barge. The new buyer intervened in the action. The district court held the letter written by the PRPA representative was knowingly intended to influence parties who might be considering buying the barge and constituted a waiver of the maritime lien for the unpaid dockage fees.

The First Circuit affirmed the district court’s holding that the maritime lien for unpaid dockage fees had been waived. It recognized a lienholder’s right to waive a maritime lien for necessaries, which waiver need not be express. However, it noted the party trying to establish a waiver of a maritime lien for necessaries has a heavy burden of proof. It must show the lienholder took an action demonstrating a definite intent to waive the lien and instead to look solely to the vessel owner for payment.

The First Circuit reasoned the letter “was hardly a model of precise draftsmanship.” It did not expressly waive the lien or even mention the lien. Nonetheless, the court found the letter could be read as consistent with the waiver of the lien. The letter acknowledged the parties were litigating over the disputed dockage fees in the local court and stated there was no objection to the sale and removal of the vessel from the pier. The representative of the PRPA testified he knew the representations in the letter would be relied on by prospective buyers who would understand the disputed port charges would be addressed in the pending eviction action.

The First Circuit also agreed with the district court stating the “PRPA laid in wait knowing buyers would treat the letter as a waiver of the lien and then pounced once a purchaser took the bait.” In sum, although the letter did not expressly waive the lien for dockage, the record taken as a whole led to the conclusion that the PRPA took deliberate and purposeful steps to make clear an intent to forgo its lien for dockage fees and rely on the pending local court action against the barge owner for payment. Accordingly, the court held the lien was waived.

Lien Not Waived

S.E.I Maduro (Florida) In. v. M/V Antonio De Gastaneta, 1990 AMC 2097 (S.D. Fla. 1990) involved a lien asserted by a subagent of a vessel’s general agent. Maduro was hired as a port agent by the vessel owner’s general agent to provide services and supplies to the M/V Antonio De Gastaneta. It provided services and supplies upon the request of the vessel’s charterer. Maduro addressed its invoices to the vessel in care of the general agent or vessel charterer. When its invoices were not paid, Maduro asserted its maritime lien against the vessel and arranged for the vessel to be arrested. A letter of credit was posted to secure release of the vessel. The owner of the vessel alleged Maduro had waived its lien by relying on the credit of the general agent for payment, and had no right to arrest the vessel. The court disagreed.

The court recognized a strong presumption that one furnishing marine necessaries to a vessel looks to the vessel itself for payment and not merely to the credit of the owner or charterer. To rebut the presumption, the vessel owner must prove the lienholder deliberately intended to waive “this valuable privilege”, and rely solely on the personal credit of someone other than the vessel. The court further noted the presumption is difficult to rebut even under the best of circumstances.

Although Maduro had a business relationship with the general agent and signed a contract requiring it to remit collected freights to the general agent or to Chase Bank, such business arrangement was not considered to be evidence of the intent to waive the lien. The vessel owner also argued there was a provision in the vessel’s charter prohibiting the charterer from incurring liens against the vessel. The court rejected that argument too. It found Maduro did not have any obligation to investigate whether there was a lien prohibition clause in the charter. Rather, the court held the vessel owner had to prove that before providing the marine necessaries, Maduro had actual knowledge that the person ordering them did not have authority to incur liens against the vessel.

The court held the lienholder was entitled to collect the proceeds of the letter of credit to satisfy its lien of $145,496.20. It was also entitled to collect prejudgment interest in the amount of $138,562.30.

A person supplying necessaries to a vessel obtains a maritime lien against the vessel. The lien can be enforced only by filing a complaint in federal court and arresting the vessel. The lien can be lost in several ways, one of which is by waiver. The party contending the maritime lien was waived has a difficult burden of proof. It must show the lienholder took definite action to waive the lien and look to another source for payment.

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