Court Opinion

ID: 2963284
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:08:08.511743+00
Date Added: 2024-06-11T11:42:40.051329
License: Public Domain

USCA1 Opinion

	

                            United States Court of Appeals
                            United States Court of Appeals                                For the First Circuit
                                For the First Circuit                                 ____________________        No. 94-1959                               FANEUIL ADVISORS, INC.,                                Plaintiff, Appellant,                                          v.                             O/S SEA HAWK, (O.N. 559409),                    HER ENGINES, TACKLE AND APPURTENANCES, IN REM,
                                                           __ ___                                 Defendant, Appellee.                                  __________________                              PORTSMOUTH HARBOR TOWING,                                Intervenor, Appellee.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF NEW HAMPSHIRE                [Hon. Martin F. Loughlin, Senior U.S. District Judge]
                                          __________________________                                 ____________________                                        Before                               Selya, Boudin and Stahl,                                   Circuit Judges.
                                   ______________                                 ____________________            Harry Barnett  with whom  Timothy R.  McHugh, Lawrence J.  Mullen,
            _____________             __________________  ___________________        and Hoch & McHugh were on brief for appellant.
            _____________            Paul McEachern  with whom Shaines &  McEachern, P.A.  was on brief
            ______________            __________________________        for Portsmouth Harbor Towing, intervenor - appellee.                                _____________________                                    March 29, 1995                                _____________________

                      STAHL, Circuit Judge.   Plaintiff-appellant Faneuil
                      STAHL, Circuit Judge.
                             _____________            Advisors,  Inc.  ("Faneuil"),  appeals  the  district court's            order subordinating Faneuil's preferred ship mortgage on  the            O/S  Sea Hawk  to  the salvage  claim of  intervenor-appellee            Portsmouth Harbor Towing ("PHT").  Because the district court            predicated its order on  a misunderstanding of the applicable            law, we reverse.                                          I.
                                          I.
                                          __                                      BACKGROUND
                                      BACKGROUND
                                      __________                      The Sea  Hawk is a forty-five  foot Hatteras sport-            fishing  boat built in 1974.  David Kinchla, its owner during            the time relevant to this case, purchased the boat in January            1988.  In August 1988, Kinchla granted a first preferred ship            mortgage  on  the  Sea  Hawk to  Atlantic  Financial  Federal            Savings  and   Loan  Association  ("Atlantic"),   which  held            Kinchla's   $148,000  note executed  in association  with his            purchase  of  the  boat.     Atlantic  eventually  went  into            receivership  and  was taken  over  by  the Resolution  Trust            Corporation ("RTC").   On  April 23, 1993,  Faneuil purchased            Kinchla's note  and the  preferred ship mortgage  on the  Sea            Hawk from  the  RTC  as part  of  a pool  of  fifty-six  non-            performing boat loans for a total price of $1,516,000.                      As  Kinchla's mortgage was  making its  way through            the receivership netherworld, Kinchla  was losing his grip on            the Sea Hawk.  He stopped making payments on his  note in May                                         -2-
                                          2

            1991 and filed a Chapter 11 bankruptcy petition on January 6,            1992.   On June  3, 1992, the  Sea Hawk broke  loose from its            mooring in the Hampton-Seabrook Harbor ("Hampton Harbor") and            drifted  until  it  became  snagged near  the  Hampton  River            Bridge.  Harbormaster  William J. Cronin, an  employee of the            New  Hampshire State Port Authority, enlisted  the aid of the            U.S. Coast Guard,  which towed the boat to  the state pier in            Hampton Harbor.   Cronin contacted Kinchla,  but Kinchla told            Cronin that he  had abandoned  his interest in  the boat  and            that the mortgage-holder intended to foreclose on it.  Cronin            testified at his deposition  (which was admitted in evidence)            that he  attempted to  reach the  mortgage-holder but  had no            success, apparently  due to  the RTC receivership.1   Because            the state  has no facility  of its  own at Hampton  Harbor to            store a boat as large as the Sea Hawk -- the state pier being            a busy, commercial  fishing pier --  Cronin arranged for  one            Ray Gilmore to take  custody of the boat until  its ownership            could be sorted out, explaining to Gilmore that he would have            a  possessory  lien on  the  boat for  reasonable  towing and            storage fees.                      On July 15, 1992, shortly after 5 a.m., Kinchla and            his son attempted  to retake  possession of the  Sea Hawk  by            surreptitiously removing  it  from Gilmore's  mooring in  the                                
            ____________________            1.  The record  does not indicate exactly  when Atlantic went            into receivership.                                         -3-
                                          3

            harbor and towing the  vessel under the Hampton  River Bridge            and  out to  sea.   They did  not request  an opening  of the            drawbridge, however,  and in  attempting to maneuver  the Sea            Hawk under the  bridge, lost  control of it  in the  current.            The  Sea  Hawk  slammed  broadside  into  a  bridge  support,            damaging the  vessel's hull, and  then slid under  the bridge            stern-first,  damaging  the boat's  bridge-superstructure and            outrigger tuna poles.  The  Coast Guard soon intercepted  the            Kinchlas  and took them  and the Sea  Hawk back  to the state            pier.  Kinchla told Harbormaster Cronin that his attorney had            advised him to retake the boat; both Kinchla and his son were            turned over to the police, and Kinchla was arrested.  Gilmore            wanted  no further  involvement  with the  Sea Hawk,  leaving            Cronin once  again with the  problem of  what to do  with the            beleaguered boat.                      Here the tales diverge.  Stephen Holt, one of PHT's            partners, testified  that Cronin  contacted him and  asked if            PHT would  tow the  boat to  Portsmouth,  New Hampshire,  and            store it  safely in  dry storage.   Holt  claimed that, in  a            conference  call with  the Coast  Guard, Cronin  specifically            told  Holt  that  this would  be  a  "salvage  job."   Cronin            testified  that he could not  remember with whom  he spoke at            PHT, whether he mentioned the word "salvage," or even whether            the  topic  of  PHT's  compensation  ever  came  up.   Cronin            testified  that in  his mind,  this was  a tow  job.   In any                                         -4-
                                          4

            event, Holt  accepted the task,  and he and  his son  went to            Hampton  to bring  back the Sea  Hawk.  Both  Holt and Cronin            inspected the boat and determined that it was in no danger of            sinking  despite the damage it had just sustained.2  Holt and            his son  then towed the  boat out  to open ocean  and up  the            coast to Portsmouth Harbor, a two-and-one-half-hour trip.                      Initially, PHT  stored the  boat at  Patton's Yacht            Yard  in Eliot,  Maine.   Because  PHT  was paying  for  this            storage out  of its own pocket, however, and, ostensibly, for            insurance reasons, PHT  soon moved  the Sea Hawk  to its  own            dock  in  Portsmouth,  where  Holt and  his  partner,  Walter            Dunfey,  actively maintained  the  boat  and  performed  some            repairs.   PHT  attempted to  contact the  mortgage-holder on            several occasions  to establish their claim,  but were unable            to locate definitively any party claiming an interest  in the            boat.3   PHT never brought an action to foreclose its claimed            salvage lien.                                
            ____________________            2.  Indeed, Holt was  prepared to  place his  eleven-year-old            son aboard the Sea Hawk to help steer it during the trip back            to Portsmouth,  but changed his plans  after determining that            the Sea Hawk had lost its steering.            3.  On February 10, 1993,  an attorney for PHT sent  a letter            to Prentiss Properties of  Dallas, Texas, which assembled the            loan documents  for the  RTC's pool  of  assets that  Faneuil            purchased, informing it of PHT's "salvage and storage claim."            Faneuil  apparently  received  this  letter  at  some  point,            because  it included  it in  the motion  for relief  from the            automatic stay it filed in Kinchla's bankruptcy proceeding in            the fall of 1993.                                          -5-
                                          5

                      Finally, on October  26, 1993, with the  bankruptcy            court's permission, Faneuil filed a complaint in the district            court initiating this in rem  proceeding against the Sea Hawk
                                  __ ___            to  foreclose its  mortgage.   Federal marshals  arrested the            vessel on December  2, 1993, and moved  it to dry  storage in            Newington,  New Hampshire.   PHT  intervened in  January 1994            asserting its salvage lien.  The Sea Hawk was sold at auction            on April  22, 1994, yielding $32,537.20  after deductions for            custodia legis expenses.   That amount was placed in  escrow,
            ________ _____            pending resolution of PHT's and Faneuil's competing claims to            the sale proceeds.   The amount due under  Faneuil's mortgage            at  the time of trial  was $177,676; PHT  claimed expenses of            $24,606  plus attorney  fees  of  $6,279.04,  or a  total  of            $30,885.04,  in addition to a claimed salvage award of 20% of            the value of the  vessel.4  Following a one-day  bench trial,            the  district court held that, under the law of admiralty and            the federal  statutory scheme for disbursing  proceeds from a            foreclosure sale of a  vessel, PHT had a valid  salvage claim            that had priority over Faneuil's preferred ship mortgage, and            also  that, because it had  expended much time  and effort in            preserving  the  Sea Hawk  while  Faneuil's  purchase of  the                                
            ____________________            4.  PHT's  requested expenses  included $1,205 in  towing and            repairs and $23,101 in  marina charges, calculated at $1  per            day per foot,  or approximately $1,400 per  month for sixteen            months  of storage.  Great  Bay Marina, which  stored the Sea            Hawk  for  the U.S.  Marshal  pending  the foreclosure  sale,            charged  a total of $900  for a period  of approximately five            months.                                         -6-
                                          6

            mortgage  was "a pig in the poke," the equities dictated that            PHT  should recover  first.   Finding  all of  PHT's expenses            reasonable,   the  district   court  awarded   PHT  $32,885,5            exhausting the  sale proceeds.  Faneuil  now appeals, arguing            that the district  court erred in ruling that PHT had a claim            for salvage  or any other  claim that should  prime Faneuil's            mortgage.6                                         II.
                                         II.
                                         ___                                      DISCUSSION
                                      DISCUSSION
                                      __________            A.  Standard of Review
            ______________________                      We may  not set aside the  district court's factual            findings unless they are clearly erroneous.  Dedham Water Co.
                                                         ________________            v.  Cumberland Farms Dairy, Inc., 972 F.2d 453, 457 (1st Cir.
                ____________________________            1992).  Where factual findings  are predicated upon errors of            law,  however, we accord them diminished deference.  Id.  See
                                                                 ___  ___            also  B.V. Bureau Wijsmuller v.  United States, 702 F.2d 333,
            ____  ______________________     _____________            342  (2d Cir. 1983)  ("Generally an appellate  court will not            reverse a  salvage award unless the district court yielded to            an erroneous principle, plainly  misapprehended the facts . .                                
            ____________________            5.  This  is   $2,000  more   than  claimed.     The  court's            mathematical  error was  apparently  induced  by PHT's  trial            brief, which contained the same $2,000 error.            6.  Faneuil attacks  on appeal other aspects  of the district            court's ruling,  in particular  its failure to  make specific            findings  justifying the amount of PHT's  salvage award.  Our            holding  as to Faneuil's primary issue on appeal obviates the            need for any discussion on these other issues.                                         -7-
                                          7

            .  or  granted  an  award  that  was  clearly  inadequate  or            unreasonably excessive.").            B.  The Statutory Scheme
            ________________________                      The relative priorities of preferred ship mortgages            and salvage claims  are set forth in the Ship Mortgage Act of            1920 (codified as amended in 1988 by Pub. L. No. 100-710, 102            Stat. 4735, at  46 U.S.C.     30101-31343).  Congress  passed            the  Act in order  to provide  greater protection  to private            investment in  the shipping  industry.  Chase  Manhattan Fin.
                                                    _____________________            Servs.,  Inc.  v. McMillian,  896  F.2d 452,  458  (10th Cir.
            _____________     _________            1990); Merchants & Marine  Bank v. The T.E. Welles,  289 F.2d
                   ________________________    _______________            188,  193-94 (5th Cir. 1961).   Prior to the Act's passage, a            mortgage on a ship was outranked in admiralty proceedings  by            ordinary maritime liens on the ship, even those arising after            the mortgage.   McMillian, 896 F.2d at  458.  The Act changed
                            _________            the  law by granting the  holders of preferred ship mortgages            "priority  over all  claims  against the  vessel (except  for
                            ___            expenses  and fees allowed by the court, costs imposed by the            court,  and   preferred  maritime  liens)."     46  U.S.C.               31326(b)(1) (emphasis added).   There are just six categories            of preferred maritime liens; one of these categories is liens            for  salvage.   46 U.S.C.    31301(5).7   However,  liens for                                
            ____________________            7.  The subsection defines a preferred maritime lien as                      a maritime lien on a vessel--                           (A) arising before  a preferred  mortgage                           was  filed  under section  31321  of this                                         -8-
                                          8

            "necessaries,"  which include "repairs, supplies, towage, and            the  use of  a  dry  dock or  marine  railway," 46  U.S.C.               31301(4),  are  ordinary,  and  are  thus  subordinate  to  a            preferred ship mortgage.            C.  The Law of Salvage
            ______________________                      The  admiralty doctrine  of salvage,  which rewards            volunteers  who  save  ships  from  dangers  at  sea,  is  an            equitable   doctrine   that  dates   back   to   the  Romans.            Wijsmuller, 702 F.2d at  337.  To establish a  salvage claim,
            __________            PHT  must prove  three elements:  "`1.  A  marine peril.   2.            Service voluntarily rendered when not required as an existing            duty or from  a special contract.  3.  Success in whole or in            part, or  . .  .  service [contributing]  to such  success.'"            Clifford  v.  M/V Islander,  751 F.2d  1,  5 (1st  Cir. 1984)
            ________      ____________            (quoting The Sabine, 101 U.S. (11 Otto) 384 (1879)).  In this
                     __________            case, Faneuil contends that PHT's claim for salvage must fail            because the Sea Hawk  was never in "marine peril,"  which, as            we stated in Clifford,
                         ________                                
            ____________________                           title;                           (B) for damage  arising out  of                           maritime tort;                           (C)  for  wages of  a stevedore                           when  employed  directly  by  a                           person listed  in section 31341                           of this title;                           (D)  for wages  of the  crew of                           the vessel;                           (E) for general average; or                           (F)   for  salvage,   including                           contract salvage[.]                                         -9-
                                          9

                      occurs when a  vessel is  exposed to  any                      actual or apprehended danger  which might                      result in her destruction.  "All services                      rendered at  sea to a vessel  in distress                      are   salvage  services.     It   is  not                      necessary . . .  that the distress should                      be  immediate  and absolute;  it  will be                      sufficient if, at the time the assistance                      is rendered, the  vessel has  encountered                      any  damage  or  misfortune  which  might                      possibly expose her to destruction if the                      services were not rendered."   Reasonable                      apprehension of peril, whether  actual or                      not, is enough.            751 F.2d at 5-6 (quoting M. Norris, The Law of  Salvage   63,
                                                ___________________            at 97).  Marine peril has been found to exist in a variety of            circumstances, including where a vessel:  had run  aground on            a rocky ledge, Wijsmuller,  702 F.2d 333; was adrift  with no
                           __________            power within  a  short distance  of the  coast, The  Plymouth
                                                            _____________            Rock, 9 F. 413 (S.D.N.Y. 1881); was docked but was close to a
            ____            fire, The John Swan, 50 F. 447 (S.D.N.Y. 1892); was on course
                  _____________            at sea but  where its  crew was stricken  with yellow  fever,            Williamson  v. The  Alphonso, F.  Cas. No  17749 (C.C.  Mass.
            __________     _____________            1853).  On the other hand, courts have found  no marine peril            where  a vessel:   had  been holed  but  was secured  in calm            weather and  was  not  sinking,  Clifford, 751  F.2d  1;  had
                                             ________            drifted  out to sea during  a hurricane but subsequently came            to rest  and held fast on a mooring in calm waters, Phelan v.
                                                                ______            Minges, 170 F. Supp.  826 (D. Mass. 1959); was adrift  as the
            ______            result of bad weather  but could have returned to  port under            its own power once  the weather cleared, The Viola, 52 F. 172
                                                     _________            (C.C. Pa. 1892), aff'd, 55 F. 829 (3d Cir. 1893).
                             _____                                         -10-
                                          10

                      PHT does  not contend,  and the district  court did            not find, that  the damaged  Sea Hawk was  unseaworthy or  in            immediate danger of sinking when PHT took possession of it at            the  state pier  on  July  15,  1992.    The  district  court            apparently predicated its finding  that PHT had satisfied its            burden with regard to "marine peril" on the fact that the Sea            Hawk  was  essentially  an orphaned  vessel,  and  eventually
                                                               __________            "would have sunk or  deteriorated to the point that  it would            have  been   a  derelict  or  worthless  hulk"  had  PHT  not            volunteered as guardian:8                      The peril was not immediate  or absolute.                      Events as already  related by this  court                      showed    that     there    was    actual                      apprehension,   though   not  of   actual                      danger.  Gilmore had washed his hands and                      would not longer deal with the Sea  Hawk.                      Cronin, who  seems  to need  a  mnemonic,                      wanted  an immediate solution so he would                      be freed of  an untoward situation.   The                      Coast  Guard did  what it  had to  do and                      disembarked  from the scene .  . . .  But                      for  PHT  as  heretofore stated  and  its                      expensive  remedial  action  there is  no                                
            ____________________            8.  PHT  advances other  possible  bases for  a finding  that            marine peril existed:  Cronin's testimony that he feared that            Kinchla might return and try to steal the boat again or, even            worse, that he might sink it for insurance proceeds, and that            therefore  Cronin had to move the boat out of Hampton Harbor.            This argument is  preposterous.  First, Kinchla had just been            arrested for trying to retake his boat; he was  not likely to
            ________            make another attempt anytime soon.   Second, even if  another            attempt  by  Kinchla  to  seize  his  boat  would  have  been            unlawful, it would not necessarily have posed any grave peril            to the boat.   Third, Cronin's concern  about Kinchla sinking
                   ____            the boat for insurance seems entirely unfounded:  Kinchla was            more than a year behind in his mortgage payments on the boat,            and  the record contains  no indication that  Kinchla was any            more punctual in paying insurance premiums.                                          -11-
                                          11

                      doubt in the  court's mind that the  boat                      would   have   deteriorated  and   become                      valueless.            Faneuil  Advisors v.  Seahawk  [sic], No.  93-549-L, 1994  WL
            _________________     _______            484380, at *4 (D.N.H. Aug. 23, 1994).                      In  holding that these  circumstances constituted a            reasonable apprehension  of marine peril, the  district court            misreads the salvage cases holding that marine peril need not            be  immediate or absolute.  While it  is true that the threat            need not  be imminent, see, e.g., Williamson v. The Alphonso,
                         ________  ___  ____  __________    ____________            F. Cas. No  17749, the  cases make apparent  that the  threat            must be something more than the inevitable deterioration that            any  vessel left  untended would  suffer;  otherwise ordinary            maintenance, repairs  and storage  -- i.e.,  "necessaries" --            could easily give rise  to salvage liens if a  vessel's owner            were particularly  negligent in caring  for his or  her boat.            Such a result  could hardly be squared with the intent of the            Ship Mortgage Act.                      Moreover, in  stating that  it had "no  doubt" that            the Sea Hawk would have become a worthless hulk without PHT's            intervention, the  district court  glossed over  an important            fact:  once the  Sea Hawk was intercepted by  the Coast Guard            and delivered  to Cronin at the  state pier, the boat  was in            the custody  of the State  of New Hampshire,  which certainly            had the authority, and perhaps the duty, to remove the vessel            from the harbor and store it in a safe location.   See, e.g.,
                                                               ___  ____                                         -12-
                                          12

            N.H. Rev.  Stat. Ann.   271-A:8  (1987) (giving harbormasters            authority,  inter alia, "to require the removal of vessels if
                        _____ ____            necessity or an  emergency arises"); N.H. Rev.  Stat. Ann.               270-B1 to  -B7 (1987) (giving director of  safety services or            representative authority to impound  or order the removal and            storage  of abandoned boats, and imposing  lien on such boats            for all reasonable charges associated therewith).  As already            stated,  the Sea Hawk was  in no imminent  danger of sinking.            We fail  to see  how such a  boat, in  the safe custody  of a            state  officer with  statutory authority  to provide  for its            safekeeping,  can  possibly  be  said to  be  facing  "marine            peril,"   or  how   any  such   peril  could   reasonably  be            apprehended.                      The district  court stated  that Cronin  "wanted an            immediate solution  so  he  would  be freed  of  an  untoward            situation."   Id.   This  is  not marine  peril;  it is  mere
                          ___            inconvenience,  and the  state  cannot transform  an unwanted            tow-and-store job into a  salvage job simply by declaring  it            to  be such (if that is in  fact what Cronin attempted to do,            as Holt's testimony  suggests).  We have scoured  the salvage            cases  and  located not  a single  one  in which  a seaworthy            vessel in the safe possession of the state was found to be in            marine  peril.   Thus,  we  hold  that the  district  court's            finding  that there  was  reasonable apprehension  of  marine            peril  incorporated clearly erroneous factual assumptions and                                         -13-
                                          13

            was  predicated  on   an  erroneous   understanding  of   the            applicable law.  We hold that, under these circumstances, PHT            has failed  to prove marine peril  or reasonable apprehension            thereof, and therefore  it has failed  to prove an  essential            element of its salvage claim.            D.  The District Court's Alternative Holding
            ____________________________________________                      We  have  also  considered  whether  PHT  might  be            entitled to  recover  on the  basis of  the district  court's            implicit alternative  ground for its holding  -- namely, that            "[i]t is not fair or equitable that the plaintiff should reap            the  benefits bestowed  on  the Sea  Hawk  by [PHT]  when  it            contributed nothing  to its  well being."   Faneuil Advisers,
                                                        ________________            1994 WL 484380,  at *4.   Nevertheless, the statutory  scheme            permits no contrary conclusion:  Congress clearly intended to            afford  holders  of  preferred  ship  mortgages  considerable            protections against irresponsible actions by ship owners, and            the  exceptions  to  their  priority  status  are  explicitly            spelled out.  See 46 U.S.C.    31301(5), 31326(b)(1).  A lien
                          ___            for  necessaries, even one obtained by the state or its agent            under state law, is not among those exceptions.  In fact, any            argument that such a lien might have priority would appear to            be entirely foreclosed by  46 U.S.C.   31307:   "This chapter            supersedes any State statute conferring a lien on a vessel to                                         -14-
                                          14

            the  extent the statute establishes a claim to be enforced by            a civil action in rem against the vessel for necessaries."9                      While  the result  we reach  may appear  harsh, the            priority scheme  simply allows for no  judicial reordering on            expansive  notions of  equity where  the mortgage  holder has            engaged  in   no  inequitable  conduct  that   might  justify            subordination of his claim.   See Maryland Nat'l Bank  v. The
                                          ___ ___________________     ___            Vessel  Madam Chapel, No. 93-55905, 1995 WL 25833, at *6 (9th
            ____________________            Cir.  1995) (holding  that equitable  subordination generally            requires inequitable conduct by mortgagee and reversing order            that  had subordinated preferred ship mortgage).  It may well            be that other doctrines might supply some basis for relief in            cases  such as this one.  But  no such argument has been made            on  appeal, and this  is hardly a  case for us  to attempt to            find a basis  on which to  remand in order to  explore issues            that have never been raised.                                           CONCLUSION
                                      CONCLUSION
                                      __________                      For   the  foregoing  reasons,  the  order  of  the            district court is                                
            ____________________            9.  That a state  statutory lien is superseded should come as            no surprise; not even the federal government's claims against            a  vessel are  given special  dispensation from  the priority            scheme.   See General Elec. Credit Corp. v. Oil Screw Triton,
                      ___ __________________________    _________________            VI,  712   F.2d  991,  995  (5th  Cir.  1983)  (holding  that
            __            government's claim for expenses  in capturing and  preserving            vessel  seized for  violation of  narcotics laws  -- incurred            before  ship came  within  court's custody  --  could not  be
                                                                  ___            classified as  custodia legis expenses, and  thus were primed
                           ________ _____            by preferred ship mortgage).                                         -15-
                                          15

                      Reversed.  Costs to appellant.
                      Reversed.  Costs to appellant.
                      ________   __________________                                         -16-
                                          16