Source: https://www.mayerbrown.com/en/news/2012/08/resolving-vessel-ownership-and-lien-issues-through
Timestamp: 2019-04-23 08:43:57+00:00

Document:
Recordation of ownership of and liens on motor vehicles is a fairly straightforward affair. Each of the 50 states has a certificate of title statute and these vary only nominally from state to state.
By contrast, the situation is entirely different when it comes to boats and other vessels. Only 33 states currently have certificate of title laws for vessels, and there is significant variation among those title statutes, including as to items such as size and types of vessels covered and basis for registration. In addition, existing title laws pre-date revised Article 9 of the Uniform Commercial Code (UCC), and the lack of harmonization between the current provisions of the UCC and these title statutes hampers vessel financings. Finally, federal regulations overlay vessel ownership, operation and financing, and do so without effective coordination with state statutes. For example, federal law accords preferred ship mortgage status (see below) to security interests perfected under state title statutes approved by the Coast Guard.1 However, none of the existing title statutes has been approved.
With these considerations in mind, the Uniform Law Commission (ULC, formerly NCCUSL) resolved in 2008 to formulate a uniform certificate of title statute for vessels. A number of interested parties with diverse expertise participated in the drafting process. These included representatives of the Department of Homeland Safety (U.S. Coast Guard), the U.S. Coast Guard's National Vessel Documentation Center, the National Association of State Boating Law Administrators, the National Marine Bankers Association, and the Maritime Law Association of the United States.
The ULC Drafting Committee held its first meeting in late 2009. The proposed Uniform Certificate of Title for Vessels Act (UCOTVA or the act)2 was finalized by the ULC Committee in July 2011 and approved by the American Bar Association in February 2012 for adoption by the various state legislatures. Today, we briefly examine the existing regulatory scheme for owning and placing liens on vessels, and summarize the changes to be effected pursuant to the proposed uniform statute.
The vessel trade has been under U.S. federal regulation and scrutiny since the late 18th century.3 It is not surprising, then, that the recording of ownership and lien interests in vessels is subject to a hodgepodge of federal and state laws.
Federal rules require most vessels11 not documented with the Coast Guard but which are equipped with "propulsion machinery" of any kind, or, in the case of barges, weighing in excess of 100 gross tons and operating on U.S. waters, to be assigned a number issued by the state in which the vessel is principally operated.12 All 50 states, the District of Columbia and the U.S. territories currently use vessel numbering to identify vessels.
In addition to this federal requirement for a state-run vessel numbering system, the Secretary of Transportation is required to maintain a vessel identification system (VIS) database of information about vessels and their owners for the public's use mainly for law enforcement and other purposes relating to the ownership of vessels.13 States are not required to provide the vessel numbering identification information and titling information in their system to the VIS. Thirty-one states and territories are currently participating in the VIS.
UCOTVA seeks to create a statutory regime that fits more seamlessly with both the current UCC, including revised Article 9, as well as federal law. It is intended to qualify as a state titling law that the Coast Guard will approve, allowing liens under the act to be accorded preferred mortgage status. As further discussed below, it also implements a novel branding requirement intended to protect vessel purchasers by obligating owners and insurers to disclose hidden hull damage.
Summarized below are some of the more salient provisions of the proposed act.
Only a few state laws provide for the branding of a vessel's title in the event the vessel is damaged. As a result, hull-damaged vessels are often sold in secondary markets without disclosure of the condition of the vessel, potentially increasing the number of unseaworthy vessels in use and the likelihood of dangerous accidents. As the introduction to UCOTVA notes, this problem can be significant after a major hurricane or other widespread casualty.
UCOTVA imposes a branding obligation on both owners and insurers, the latter when they are transferring ownership interest in a hull-damaged vessel (acting in their capacity as insurers). Prior to the transfer of a vessel by an owner, if the damage to the vessel occurred while that person was an owner and the owner has notice of the damage at the time of transfer, the owner must either deliver a new certificate of title application that contains the title brand designation "hull damaged" or indicate "hull damaged" on the existing certificate. An insurer who is transferring an ownership interest must submit a new application to the state office that includes the title brand designation "hull damaged." An owner or insurer who does not comply with these provisions is subject to an administrative or civil penalty of up to $1,000.
Secured parties who acquire title to a vessel, either by foreclosure or otherwise in the exercise of rights and remedies, will be subject to this title branding requirement. Although the obligation to disclose hull damage is limited by knowledge, the exact degree of scienter required to satisfy the knowledge test will ultimately be a matter of case law.
A secured party may perfect a security interest in a vessel only by delivery to the state's office of a compliant application for a certificate of title that identifies the secured party on the certificate, together with payment of the applicable fee. This requirement aligns with UCC §9-311(b), which states that compliance with the requirements of a certificate-of-title statute is equivalent to the filing of a financing statement under Article 9. Generally, perfection occurs on the later of the application's delivery and payment of applicable fees to the state office or attachment of the security interest under the UCC (i.e., there is no "relation back" to an earlier date of attachment).
Thus far, Connecticut is the only state that has formally introduced UCOTVA for adoption.29 It is important to note that Connecticut does not currently have a certificate of title law for vessels.
The act, as proposed in Connecticut, differs from UCOTVA in several respects, including coverage by minimum vessel size and type. Most interestingly, and possibly as a foreshadow of things to come, the report of the Connecticut legislative advisory committee noted that its committee members were divided about whether to mandate owners and insurers to "title brand" a vessel when they had notice that it was "hull damaged." Opponents were concerned that no other state had adopted this requirement or definition of "hull damaged," that it may be difficult to identify hull-damaged vessels, and that owners would be compelled to brand the title of the vessel following an accident, even if there is no evidence that the hull's integrity was compromised. The bill ultimately introduced in the Connecticut Senate contains an optional amendment which would allow the legislature to remove the title branding requirement (although it would preserve brands noted on titles from other states and any requirement imposed by the Connecticut state titling office).
UCOTVA would bring needed change to the legal framework surrounding vessels in numerous ways. The act has not yet gathered traction among state legislatures, although it is still relatively early in the legislative process. It remains to be seen whether the much-heralded benefits of title branding will, as occurred in Connecticut, also draw some unwanted controversy.
Alan M. Christenfeld is senior counsel at Clifford Chance. Barbara M. Goodstein is a partner at Mayer Brown.
1. See 46 U.S.C. §31322(d)(1).
2. Uniform Certificate of Title Act for Vessels (UCOTVA) (2011), available at http://www.uniformlaws.org/shared/docs/certificate_of_title_for_vessels/ucotav_prestylefinal_jul11.pdf.
3. See act of Sept. 1, 1789, ch. xi, §1, 1 Stat. 55.
4. See 46 U.S.C. §§12102, 12103, 12301, 12501.
5. Coastwise trade is defined as "the transportation of merchandise by water, or by land and water, between points in the United States to which the coastwise laws apply, either directly or via a foreign port." See 46 U.S.C. §55102(b).
6. "Fisheries" includes processing, storing, transporting, planting, cultivating, catching, taking, or harvesting fish, shellfish, marine animals, pearls, shells, or marine vegetation in the navigable waters of the United States or in the exclusive economic zone.
7. See 46 U.S.C. §§12102, 12103.
8. See Prefatory Note to UCOTVA (Nov. 7, 2011), http://apps.americanbar.org/buslaw/committees/CL190020pub/materials/2012/UCOTVA_FinalAct_2011.pdf.
9. See 46 U.S.C. §§31321, 31322; UCC §9-311(a). Note that liens such as those arising in connection with the provision of "necessaries," including repairs, fuel, wharfage, insurance premiums and other goods or services, tort liens, seafarers' liens for wages, maintenance and cure, and salvage liens, arise as a matter of law and do not need to be recorded.
10. See id. at §12106.
11. Barges are not required to be documented for coastwide trade. See id. at §12102.
12. See id. at §12301.
13. See id. at §12501.
14. See UCC §§9-311(a)(2), (3).
15. See id. at §9-310(a).
16. See 46 U.S.C. §§31301(5), 31325, 31326.
17. See id. at §§31301(5), 31321, 31322.
18. See id. at §31322(d)(1)(B).
19. Connecticut Law Revision Commission, Connecticut Law Revision Commission, Report of Advisory Committee on Adoption of Uniform Certificate of Title for Vessels Act (Feb. 22, 2012), available at http://www.cga.ct.gov/lrc/UniformVessels/Report-Committee Draft Bill.pdf.
21. See id. at §6(v)(5).
22. See id. at Comment to §6.
23. See id. at §§2, 7.
24. See id. at §2(a)(13).
25. See, e.g., id. at §§15-16, 19.
26. See id. at §24.
27. See id. at §15(h).
29. See S. 418, 2012 Gen. Assemb., Substitute Sess. (Conn. 2012).
Reprinted with permission from the August 2, 2012 edition of New York Law Journal © 2012 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

References: §9
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