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Jennifer Waggoner, Class of 1996

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Faneuil Advisors, Inc. v. O/S Sea Hawk, CA1, 50 F.3d 88, 3/29/95

Biblioteca Virtual de Prensa Histórica (Virtual Library of Historical Newspapers)

El Correo de Cantabria  : periódico de noticias, literario y de anuncios: Año XVII Número 33 - 1898 marzo 18

St. John's University School of Law

Admiralty Practicum Volume 1995 Issue 1 Fall 1995 Article 11 February 2018 Faneuil Advisors, Inc. v. O/S Sea Hawk, CA1, 50 F.3d 88, 3/29/95 Jennifer Waggoner, Class of 1996 Follow this and additional works at: https://scholarship.law.stjohns.edu/admiralty_practicum  Part of the Admiralty Commons Recommended Citation Jennifer Waggoner, Class of 1996 (1995) "Faneuil Advisors, Inc. v. O/S Sea Hawk, CA1, 50 F.3d 88, 3/29/95," Admiralty Practicum: Vol. 1995 : Iss. 1 , Article 11. Available at: https://scholarship.law.stjohns.edu/admiralty_practicum/vol1995/iss1/11 This Recent Admiralty Cases is brought to you for free and open access by the Journals at St. John's Law Scholarship Repository. It has been accepted for inclusion in Admiralty Practicum by an authorized editor of St. John's Law Scholarship Repository. For more information, please contact selbyc@stjohns.edu. St. John's University School of Law and Empresa filed restricted appearances as owner and owner pro hac vice, respec­tively. Central Hudson then brought an action in personam against Empresa in the Southern District ofNew York and an ad­ditional quasi in rem action in Louisiana against another ship operated by Em­presa- both actions being consolidated in the New York court. The district court decided in favor of Central Hudson in the in rem proceeding, awarding damages to­talling $4,477,584. 1 5, greater than the amount provided for in the letter of un­dertaking, but dismissed the in personam suit against Seiriki for lack of jurisdic­tion. The district court also held in favor of Central Hudson in the suit against Em­presa, awarding the amount of the defi­ciency from the in rem judgment plus pre­judgment interest- $ 1 ,850,895.83 in totaL Empresa appealed the district court's rulings. On appeal, the second circuit decided whether a district court sitting in admi­ralty could enter an in rem judgment in excess of the value of the subject res or the substituted bond and whether the in rem judgment of an admiralty court bars a subsequent in personam action against the bareboat charterer of the subject ves­sel for a deficiency in the prior in rem judgment The court of appeals began its analysis with an affirmation of the general rule that in rem judgments may not be ren­dered in excess of the value of the res or the substituted bond because in rem pro­ceedings are brought against the res itself. 7A JAMES W. MOORE ET AL., MOORE'S FEDERAL PRACTICE � E. l 6[2], at E-779 (2d ed. 1 995). The court then asserted that district courts sitting in admiralty are not bound by the general rule by virtue of their equitable powers. The Minnetonka, 1 46 F. 509, 5 1 5  (2d Cir.), cert. denied, 203 U.S. 589 ( 1906)). The court stated that admiralty courts may award damages in excess of a letter of undertaking which was delivered to avoid the arrest of a ves­sel, adding the caveat that this does not allow execution of judgment for the defi­ciency against parties not found liable in personam. The court of appeals then proceeded to discuss the in rem judgment creditor's ability to secure an in personam judgment for the deficiency. Stating that Supple­mental Rule C( 1 )(b) of the Federal Rules F a11 1995 of Civil Procedure specifically allows both in rem and in personam actions against possibly liable parties, the court found that the doctrine of res judicata, if applicable, was the only bar to the in personam action by Central Hudson. The court determined that res judicata was not applicable unless Empresa was in privity with Seiriki, the owner of the subject res. Empresa was found not to be in privity and therefore res judicata did not bar the in personam suit The court explained that Empresa's interest in the in rem action was strictly representative and separate from its in­terest in an action to impose in per­sonam liability. The court thus con­cluded that Empresa's liability had not been previously adjudicated. However, the court also held that Empresa was collaterally estopped from contesting li­ability or damages as these issues had been adjudicated in the in rem proceed­ings and that Empresa was bound by virtue of the principle of respondeat su­perior. Confirming the findings of the district court, the second circuit affirmed the lower court's judgment in all respects. In a dissent, Judge Jacobs questioned the majority's holding that the facts relied upon to establish collateral estoppel did not also establish res judicata as to Empresa. Judge Jacobs opined that Empresa, as bareboat charterer, was in privity with the ship and that further actions against Empresa were therefore barred by res judicata. Christopher T Scanlon Class of 1 996 0 0 1 0 Recent Admiralty Cases Maritime Liens SALV AG E CL AIM DOES NOT SUP ERSEDE P REF ERRED SH IP M ORTG AG E IN ABSENCE OF REASONABL E  APP REH ENSION OF M ARINE P ERIL Salvage lie n  asse rted for ve sse l  se r­vice s not re nde red as a re su lt of " re asonabl( yJ app re he n[ded)"  ma­rine pe ri l  d oe s  not supe rsede p re­fe rred mortgage i n  acc ord ance with pu rp ose s of 1920 Ship M ortgage Ac t. (Faneuil Advisors, inc. v. 0/S Sea Hawk. CA l,  50 F. 3d 88, 3129195) In the early morn­ing hours of July 1 5 ,  1 992, David Kinchla (Kinchla) and his son tried to �-! retake possession of the Sea Hawk, a fishing boat they had abandoned to state custody after having filed for Chapter I I  bankruptcy. Kinchla intended to tow the boat out to sea from the harbor of Hampton-Seabrook, New Hamp­shire, but did not make the necessary re­quest for the opening of the Hampton River Bridge. The bridge blocked the Kinchlas' exit from the harbor and, while maneuvering under it, they lost control in the current, slamming the hull into a bridge support. The current then shifted the boat and it slid back­wards stem first under the bridge, dam­aging its bridge-superstructure and out­rigger tuna poles. Although the Kinch­las were able to abscond, the Coast Guard caught up with them and brought the duo and the Sea Hawk to the state pier, where the Kinchlas were arrested. The saga began in January 1 988, when Kinchla purchased the 45-foot Sea Hawk, by taking out a $ 148,000 note with Atlantic Financial Federal Savings and Loan Association (Atlantic); there­after, Kinchla granted Atlantic a first preferred ship mortgage. Subsequently, Atlantic went into receivership and was taken over by Resolution Trust Com­pany (RTC), which sold the mortgage to Faneuil Advisors, Inc. (Faneuil) on April 23, 1 993. XVII RAC9 St. John's University School of Law During the time leading up to the pur­chase of Kinchla's mortgage by Faneuil, Kinchla stopped making payments on his note and filed a petition for bankruptcy on January 6, 1 992. On June 3, 1992, the Sea Hawk began its travail when it broke free from its harbor moorings and drifted until it snagged near the Hampton River Bridge. William Cronin (Cronin), a har­bormaster of the New Hampshire State Port Authority, towed the boat to a state pier with the help of the U.S. Coast Guard. Cronin contacted Kinchla, the seeming owner, but Kinchla told Cronin he had abandoned his interest in the Sea Hawk. Subsequently, Cronin tried to contact the mortgage holder. Because the state had no facility large enough to store the Sea Hawk, Cronin arranged with a lo­cal individual to take custody of the boat until ownership could be ascertained telling that person that he would have � possessory lien on the boat for towing and storage. After Kinchla's attempt to retake the boat, the individual declined further involvement. At that point, Portsmouth Harbor Tow­ing (PHT) was contacted by Cronin who asked the company to tow the Sea Hawk to Portsmouth, New Hampshire to store it safely in dry storage. PHT consented and consequently stowed, stored, maintained and repaired the boat over a period of fif­teen months, trying fruitlessly on several occasions to contact the Sea Hawk's mortgage holder to establish a claim. PHT claimed a salvage lien but never brought an action to foreclose on it. In October 1 993, Faneuil initiated an in rem proceeding in district court against the Sea Hawk to foreclose on its mort­gage. Federal marshals arrested and took custody of the vessel in December 1 993, whereupon PHT intervened in January I 994 in order to assert its sal­vage lien. The Sea Hawk was sold at auction netting $32,537.20- not enough to cover the claims of Faneuil ($1 77,676) and PHT ($30,885). The district court held that PHT had a valid salvage lien which had priority over Faneuil's claim since PHT had spent "much time and effort in preserving the Sea Hawk." Faneuil appealed to the first circuit. The questions raised in the case were whether an unattended vessel's in­evitable deterioration could be con­strued as a "marine peril" and whether a vessel in safe custody of a state officer could "reasonably be apprehended" to be facing marine peril giving rise to a valid salvage claim. In its review and reversal of the district court in favor of Faneuil, the appeals court found that: ( l )  repairs, supplies, storage and towing were ordinary "necessaries" and there­fore subordinate to a preferred ship mortgage and (2) PHT failed to prove marine peril or a reasonable apprehen­sion thereof necessary to establish a sal­vage claim. The first circuit began its analysis by reviewing the priorities established by the 1 920 Ship Mortgage Act. 46 U.S.C. § 3 0 1 0 1 -3 1 343. The court noted that, prior to passage of the Act, a mortgage on a ship was outranked in admiralty proceedings by ordinary maritime liens on a ship, even those arising after the The Saint John's University School of Law Admiralty Sodety Officers at Editorial Board Dean of the Law School Faculty Advisor t 995-1 996 t 995-t 996 Officers 8t Editorial Board President Vice President Director of Publications Assistant Director of Publications Secretary /Treasurer Editor, Recent Admiralty Cases Special Thanks Dean Rudolph C. Hasl Professor Joseph A. Calamari Robert Doolan Harry C. Demiris, Jr. Michael R. Curran Alexia I. Panteris Christopher T. Scanlon Michael R. Curran John J. Poggi Ill Rece�t Admiral!f Cases is published by the St. John's University School of Law Admaralty Socaety. RAC presenu topical and Interesting contemporary admiralty cases for practitioners specializing in the maritime at allied fields. F all 1995 Recent Admiralty Cases mortgage. Chase Manhattan Fin. Servs. , Inc. v. McMillian, 896 F.2d 452. 458 ( l Oth Cir. 1 990). However, the Act changed the law by granting priority to preferred ship mortgage holders over all other claims with limited exceptions. Further, the court did not recognize the services provided by PHT as anything more than "necessaries," a category not enumerated among the Act's exceptions as a "preferred maritime lien," which could possibly trump the mortgage. 46 U.S.C. § 3 13 0 1 (4). The court went on to examine the straits the Sea Hawk was in at the time she was recovered from the Kinchlas and turned over to PHT for safekeep­ing. Examining the general maritime law, the court did not find that the or­phaned Sea Hawk was in "immediate or absolute peril," because Cronin, as agent for the State of New Hampshire, had a duty to care for her. The court held that the lower court had clearly erred in elevating PHT' s claim over the preferred mortgage. "In holding that the circumstances consituted 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, * * * the cases make apparent that the threat must be some­thing more than the inevitable deterio­ration that any vessel left unattended would suffer; * * *." F aneuil, 50 F .3d at 93 (emphasis in original). "Such a result could hardly be squared with the intent of the Ship Mortgage Act." !d. Finally, the court noted that state liens could not lie as an exception to the pre­emption rights of the preferred mort­gage holders nor were "expansive no­tions" of equity enough to subordinate Faneuil 's claim to that ofPHT. Jennifer Waggoner Class of /996 0 0 0 XVIIRA C  10 

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El Correo de Cantabria : periódico de noticias, literario y de anuncios: Año XVII Número 33 - 1898 marzo 18

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