United States Court of Appeals

Fifth Circuit 

## FILED

April 28, 2004

Charles R. Fulbruge III

Clerk UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

03-30426

UNITED STATES OF AMERICA,

Plaintiff,

VERSUS

TRIDENT CRUSADER, ETC.,

Defendant,

and

DET NORSKE VERITAS,

Intervenor-Plaintiff-Appellant,

VERSUS

UNITED STATES OF AMERICA,

Intervenor-Defendant-Appellee.

Appeal from the United States District Court

For the Western District of Louisiana

Before DUHÉ, BARKSDALE, and DENNIS, Circuit Judges.

DUHÉ, Circuit Judge:

This case presents the question whether a preferred ship

mortgage is void if recorded after a vessel was documented, but

before the vessel construction was complete. Appellant Det Norske

Veritas (DNV ) intervened in this foreclosure action by Appellee,

the Maritime Administrat ion of the United States Department of1 DNV was employed as a classification society and was retained

to provide pre-classification services for the review of plans and

specifications and supervision of actual constructi on. The

services it provide d after vessel completion were necessaries.

Stipulation nos. 6, 28.

2 Stipulation no. 15.

3 Stipulation nos. 16-17.

2 Transportatio n (MARAD), the holder of the first preferred ship

mortgage. The M/V TRIDENT CRUSADER was seized and sold to MARAD as

a credit bid against MARAD’s mortgage debt, and the intervenor’s

claim was referred to the proceeds. The district court found that

MARAD had a valid preferred ship mortgage on the CRUSADER that

takes precedence over the claim of DNV, holder of a “necessaries”

lien. 1 We agree and affirm.

I.

The parties agree d that “A first preferred ship mortgage in

favor of the United States, as mortgagee, was placed on the

CRUSADER in July, 1999. The mortgage secured a guarantee, pursuant

to Title XI of the Merchant Marine Act, 1936, as amended, 46 U.S.C.

App. §§ 1271 et seq.

, from [MARAD ] of the loans by which the

CRUSADER’s construction was financed.” 2 DNV challenges the

validity of MARAD’s preferred ship mortgage, arguing first that M/V

CRUSADER was not a “vessel” so that a lien could not have attached.

W hen the mortgage was placed on the CRUSADER in July 1999, the

CRUSADER had not completed its sea trials; sea trials were

completed August 18, 1999. 3 Vessel documentation, however, was4 On July 27, 1999, the New Orleans Office of the National

Vessel Documentation Center issued a Certificate of Documentation

based on presentation of documents from the owner (Application for

Initial Issue, Exchange, or Replacement of Cert ificate of

Documentation; Redocumentation, stipulation no. 11), from DNV

(International Tonnage Certificate, stipulation no. 12), and from

the builder (Builder’s Certification and First Transfer of Title,

stipulation no. 13). Stipulation no. 14.

5 9 R. 368.

6 Id. 370.

3 com plete on July 27, 1999, the date the mortgage was recorded. 4

The district court found that the CRUSADER was incomplete July 27

and complete August 18, 1999, when its sea trials were completed. 5

The court held that the mortgage was properly recorded on the

vessel upon documentation even though the vessel was incomplete. 6

A vessel can be mortgaged before its construction is

completed. Section 1271 of Title 46 defines "mortgage" to include

both a “ preferred mortgage as defined in section 31301 of Title 46"

as well as “ a mortgage on a vessel that will become a preferred

mortgage when filed or recorded under chapter 313 of Title 46.” 46

U.S.C. App. § 1271(a) (emphasis added). “Vessel” is defined to

include:

all types, whether in existence or under construction

, of

passenger cargo and combination passenger-cargo carrying

vessels, tankers, tugs, towboats, barges, dredges and

ocean thermal energy conversion facilities or plantships

which are or will be documented under the laws of the

United States, [certain] fishing vessels

. . . [certain]

floating drydocks . . . and [certain other] vessels.

Id. § 1271(b) (emphasis added). With that broad definition of the

term “vessel,” a “mortgage on a vessel” may be made before the

vessel’s construction is completed.7 9 R. at 370-71.

8 46 U.S.C. § 31322(a) (emphasis added).

9 46 U.S.C. § 30101(1).

4 Largely on stipulations, the Court found that MARAD’s mortgage

was a preferred mortgage as defined in section 31322. 7 Under that

section a “mortgage,” “whenever made,” is not a “preferred

mortgage” unless it

(1) includes the whole of the vessel;

(2) is filed in substantial compliance with section

31321 of this title [and];

(3)(A) covers a documented vessel ; or

(B) covers a vessel for which an application for

documentation is filed that is in substantial

compliance with the requirements of chapter 121 of

this title and the regulations prescribed under

that chapter . . . . 8

A “documented vessel” as intended in section 31322 is “a vessel

documented under chapter 121 of [title 46].” 9 Reading these

provisions together and with the parties’ stipulations, we hold

that the court correctly determined whether the mortgage was a

preferred mortgage by considering when the mortgage was filed under

chapter 313 and when the vessel was “documented” as provided in

chapter 121, rather than whether the CRUSADER was a “vessel” under

the definitions DNV offers.

Congress and the Secretary have defined “vessel” in distinct

ways for distinct purposes. Subtitle III, in which sections 30101-

31522 are found, does not encompass the Title 1 definition of

“vessel” that DNV would have us employ, i.e., “capable of being10 1 U.S.C. § 3. C ompare 46 U.S.C. § 30101(1) (definitions for

Subtitle III, consisting of the provisions at issue in this case,

46 U.S.C. §§ 30101-343, with no adoption of § 3's definition) with

46 U.S.C. § 2101(45) (definitions for Subtitle II, adopting

meaning of “vessel” given in 1 U.S.C. § 3).

11 Jones Act recovery is impossible unless a vessel is “in

navigation,” Caruso v. Sterlin g Yacht & Shipbuilders, Inc. , 828

F.2d 14 (11th Cir. 1987), but the phrase “documented vessel” in

§ 30101(1) has no such requirement. Compare 46 U.S.C. § 30101(5),

which defines “seaman” to mean “a master or a crewmember of a

vessel in operation ”)(emphasis added).

12 46 U.S.C. App. § 1271(b). Regulations governing obligation

guarantees, part 298 of title 46, similarly provide,

Vessel means a ll types of vessels, whether in existence or

under construction

, including passenger, cargo and combination

passenger-cargo carrying vessels, tankers, towboats, barges

and dredges which are or will be documented under the laws of

the United States, [certain] floating drydocks

. . . [and

other] vessels. . . .

46 C.F.R. § 298.2. (emphasis added).

To the extent that In re Biloxi Casino Belle equates the meaning

of “vessel” in 46 U.S.C. §§ 30101, 31321 a nd 31322 with the

definition of a "vessel" under 1 U.S.C. § 3 and or the existence of

a “vessel” required for purposes of admiralty jurisdictio n, we disagree with it. C harles N. White Constr. Co. v. MRA, Ltd. (In re

Biloxi Casino Belle, Inc.)

, 176 B.R. 427, 432-35 (Bkrtcy. S.D.

Miss. 1995).

5 used as a means of transportation on water.” 1 0 The “vessel”

required to confer seaman status, too, is obviously different,

because a Jones Act “vessel” must be in navigation. 11 We disagree

with DNV’s contention that the existence of a completed “vessel” as

required for admiralty jurisdiction is the appropriate test,

because the definition of “vessel” for purposes of a mortgage on a

vessel plainly does not require that construction be completed. 12

DNV suggests, too, that because the preferred mortgage is a13 The statutory scheme deems the preferred mortgage a “lien” on

the “vessel,” 46 U.S.C. § 31325(a), but does not call it a

“maritime lien. ” The statute distinctively denominates maritime

liens and preferred mortgage liens where both are intended. E .g.

, 46 U.S.C. § 31326(a).

14 DNV did not contest federal jurisdiction because the United

States is a party.

15 S ee 46 U.S.C. § 31325(c) of the 1989 Maritime Commercial

Instruments and Liens Act, 46 U.S.C. § 31301-31343, replacing the

Ship Mortgage Act of 1920, previously codified at 46 U.S.C. § 911

et seq. (repealed 1989).

16 D etroit Trust Co. v. The Thomas Barlum

, 293 U.S. 21, 32, 52,

55 S.Ct. 31, 41, 42 (1934).

17 For provisions of current enactment, see 46 U.S.C.

§ 31325(b)(1)&(c).

6 species of ma ritime lien, 1 3 maritime jurisdiction cannot exist

unless the vessel meets the a dmiralty-jurisdiction definition of

“vessel.” 14 Maritime jurisdiction has been present over preferred

mortgages, however, since enactment of the Ship Mor tgage Act in

1920.

The statute (then and now) provid es for jurisdiction to

enforce a pre ferred mortgage via an in rem proceeding. 1 5 The

Supreme Court in Thomas Barlum determined that a district court had

such jurisdiction provided Congress had authority to grant it, and

indeed found Congressional authority to expand admiralty

jurisdiction to preferred mortgages although they were not formerly

considered to be maritime contracts. 16

We also disagree with DNV’s suggestion that Congress did not

expand maritime jurisdiction with the enactme nt of the Ship

Mortgage Act, which made ship mortgages subject to ad miralty

jurisdiction and foreclosure by in rem process. 17 Formerly, a ship18 B ogart v. The John Jay

, 58 U.S. (17 How.) 399, 402, 15 L. Ed.

95 (1854).

19 Thomas Barlum , 293 U.S. at 40, 55 S.Ct. at 47.

20 Id. , 293 U.S. at 51, 55 S.Ct. at 41.

21 Id. , 293 U.S. at 51-52, 55 S.Ct. at 41.

22 M orse Dry Dock & Repair Co. v. The Northern Star

, 271 U.S.

552, 556, 46 S.Ct. 589, 590 (1926).

7 mortgage was not subject to remedies in admiralty, being a contract

that was not maritime. 18 “But it did not follow

. . . that Congress

w as without power to amend the law so as to enable the admiralty

courts to take cognizance of mortgages on ships . . . .” 19

The real question is thus whether the mortgage is preferred

—

not whether the preferred mortgage lien is maritime. To create

public confidence in obligations issued on the faith of ship

mortgages, the Congress “[gave] a definite and assured character to

such mo rtgages provided they met certain simple conditions.” 2 0

Congress considered, as was within its discre tion, “methods by

w hich securities are issued to the public and dealt in, an d the

well- known usages of business in this regard.” 2 1 As the Supreme

Court declared, “The mortgage is made preferred only upon

compliance with all the conditions specified,

. . . and the

[competing] maritime lien is preferred if it arises before the

recording

. . . of the mortgage. We see no room for construction,

and there is nothing for the courts to do but to bow thei r heads

and obey.” 22

The district court thus properly focused on whether the

mortgage attained preferred status by satisfaction of those simple23 H. Rep. No. 100-918, r eprinte d in 1988 U.S.C.C.A.N 6104,

6110.

24 Reply br. at 7 n.2.

8 con ditions specified in the statute. Accordingly, the district

court’s consideration of fili ng of the mortgage, eligibility for

documentation of the vessel, and documentation were e ntirely

appropriate to determining when the mortgage became a preferred

mortgage under 46 U.S.C. App. § 1271(a) and 46 U.S.C. § 31322(a).

With respect to the requirement in section 31322(a)(2), that

a mortgage be filed in “substantial compliance” with section 31321,

we find no error or no error pr eserved. DNV cites legislative

history under section 31321 declaring that if someone proves “that

a n instrument is invalid because it is not in subst antial

compliance with the legal requirements, then the responsibility for

that is on the party that was responsible for providing that

information, not the Secretary.” 23 DNV has not established MARAD’s

responsibility under that principle, however.

DNV does contend that MARAD “elected to rush to a premature

closing on an incomplete vessel.” The only misinformation in the

documentation that DNV notes, for the first time in its reply

brief, is the representation in the builder’s certificate that the

CRUSADER’s “entire construction” was completed. 24 DNV has neither

attempted to argue that MARAD was responsible for such

misinformation, nor shown that the district court clearly erred in

finding that MARAD had nothing to do with the documentation25 7 R. 368.

26 See 46 U.S.C. § 922, repealed 1989 by Pub.L. 100-710.

27 46 U.S.C. § 31301-31343.

28 F armers & Tra ders State Bank of Meredosia v. Magill (In re

Meredosia Harbor & Fleeting Serv., Inc.)

, 545 F.2d 583, 587-88 (7th

Cir. 1976), cert. denied

, 430 U.S. 967, 97 S.Ct. 1649, 52 L. Ed. 2d

359 (1977).

29 E .g.

, 46 U.S.C. §§ 31309, 31323(c), 31330; s ee H. Rep. No.

100-918, reprinted in 1988 U.S.C.C.A.N 6104, 6135 (“This section

[31322] eliminate s the requirement for the inclusion of an

affidavit of good faith. However, both criminal and civil

penalties have been added to help ensure that there is not

fraud.”).

9 process. 25

II.

DNV’s second challenge is that MARAD was not in “good faith”

because when it took its mortgage, it knew of existing charges and

liens against the CRUSADER. The former Ship Mortgage Act required

an owner’s affidavit of good faith to be filed with a mortgage, but

this requirement was repealed. 2 6 I n 1989 the Maritime Commerci a l

Instruments and Liens Act 27 replaced the Ship Mortgage Act of 1920.

Jurispru dence under the former act extended the statutory

requirement for an owner’s affidavit of good faith (under former §

922(a)(3)) to derivatively require the mortgagee to also be in good

faith. 28 T he affidavit of good faith is not required under the

current law, and new penalties have been imposed as substitute

protection against fraud. 29 We will not read into the current law

the provisions of a repealed act or its jurisprudential gloss where

Congress has not seen fit to carry forward the provisions at issue.

Further, the district court specifically found no bad faith30 9 R. 358-59, 373-75.

31 The district court refused to equitably subordinate MARAD’s

lien. Although discussed to a limited extent in MARAD’s brief and

at argument, equitable subordination is beyond the scope of our

review. DNV’s asserted error is that the mortgage was invalid from

its inception, not that it should be equitably subordinated.

10 and no fraud or other inequitable conduct on the part of MARAD 3 0

warranting equitable subordination 31 or denial of preferred status.

We discern no clear error in those findings or any misapplication

of law.

III.

The district court properly focused on the statutory scheme

which specifies certain simple conditions that make a “mortgage on

a vessel” become a “preferred mortgage.” Upon review of the

record, we find no clear error in the court’s findings that those

conditions were met and that no fraud or misconduct on MARAD’s part

warranted avoidance of its position of p reference. MARAD’s

preferred mortgage takes priority over DNV’s necessaries lien. 46

U.S.C. § 31326(b)(1). The judgment of the district court is

AFFIRMED.