Opinion ID: 536603
Heading Depth: 1
Heading Rank: 4

Heading: Priorities Under SMA Section 953

Text: 52 Having determined the status of the parties as nonmaritime claimants and the holder of a preferred ship mortgage, we look to SMA section 953 to ascertain who has priority to the proceeds from the sale of the Patriot. SMA section 953(b) states: 53 Upon the sale of any mortgaged vessel by order of a district court of the United States in any suit in rem in admiralty for the enforcement of a preferred mortgage lien thereon, all preexisting claims in the vessel, including any possessory common-law lien of which a lienor is deprived under the provisions of section 952 of this title, shall be held terminated and shall thereafter attach, in like amount and in accordance with their respective priorities, to the proceeds of the sale; except that the preferred mortgage lien shall have priority over all claims against the vessel, except (1) preferred maritime liens, and (2) expenses and fees allowed and costs taxed by the court. 54 46 U.S.C. Sec. 953(b). Section 953(a) defines a preferred maritime lien as: 55 (1) a lien arising prior in time to the recording and indorsement of a preferred mortgage in accordance with the provisions of this chapter; or (2) a lien for damages arising out of tort, for wages of a stevedore when employed directly by the owner, operator, master, ship's husband, or agent of the vessel, for wages of the crew of the vessel, for general average, and for salvage, including contract salvage. 56 46 U.S.C. Sec. 953(a). Although the section 953(a) definition itself does not include the word maritime, the preferred lien arising prior in time unquestionably must be a maritime lien. See In re Alberto, 823 F.2d 712, 717 n. 8 (3d Cir.1987); United States v. Pacific Far East Lines, Inc., 809 F.2d 1435, 1437 (9th Cir.1987) (adopting district court opinion in part); Gulf Coast Marine Ways v. The J.R. Hardee, 107 F.Supp. 379, 385 (S.D.Tex.1952); Gyory, 31 Fordham L.Rev. at 258. 57 As discussed above, the claims of the appellants for materials and labor used in the construction of the Patriot are nonmaritime dry land liens. See discussion supra pp. 456-457. Under SMA section 953(b), it is universally recognized that a preferred ship mortgage has priority over nonmaritime liens. E.g., In re Alberto, 823 F.2d at 717 n. 8 (a valid preferred ship mortgage prevails over all nonmaritime liens); Pacific Far East Lines, Inc., 809 F.2d at 1438 (only maritime liens result in subordination of preferred ship mortgage); Gulf Coast Marine Ways, 107 F.Supp. at 385 (nonmaritime lien cannot take priority over SMA preferred mortgage); see also 2 Benedict Secs. 51-52, at 4-1 to 4-12; Connor, Maritime Lien Priorities: Cross Currents of Theory, 54 Mich.L.Rev. 777, 815 (1956); Ray, 47 Tul.L.Rev. at 606; Varian, Rank and Priority of Maritime Liens, 47 Tul.L.Rev. 751, 764 (1973); Willard, Priorities Among Maritime Liens, 16 Cornell L.Q. 522, 527 n. 22 (1931); Note, 69 Harv.L.Rev. at 531; see generally Gilmore at 733-806 (discussing priorities of maritime liens and ship mortgages). In spite of the voluminous authority to the contrary, appellants contend that their nonmaritime liens should take priority over Chase's preferred ship mortgage because their liens attached prior to the time the Patriot was completed and came into existence as a vessel capable of being mortgaged under section 922 of the SMA. To support their argument appellants rely on North Pacific Steamship Co. v. Hall Brothers Marine Railway & Shipbuilding Co., 249 U.S. 119, 39 S.Ct. 221, 63 L.Ed. 510 (1919) for the proposition that a ship is born when she is launched, id. at 127, 39 S.Ct. at 223 (quoting Tucker v. Alexandroff, 183 U.S. 424, 438, 22 S.Ct. 195, 201, 46 L.Ed. 264 (1902)), and argue essentially that because their materials and labor were furnished before the Patriot was launched, the Patriot was not yet a vessel eligible for a preferred ship mortgage, and therefore the principle of first in time, first in right, should govern. 58 Appellants' argument is fundamentally flawed. As explained previously, it is precisely because their claims are for materials and labor furnished prior to the completion 4 of the Patriot as a vessel that their liens are nonmaritime and thus subordinant to a preferred ship mortgage. We therefore reject appellants argument and hold that Chase's preferred ship mortgage gives Chase priority to the proceeds from the sale of the Patriot over the competing nonmaritime claims of the appellants. 59 The judgment of the district court is AFFIRMED.