Opinion
Civil Action No. 01-2679, Section "N" (1)
March 8, 2002
ORDER AND REASONS
Before the Court are competing claimants' cross-motions for summary judgment regarding the validity of Harris Trust and Savings Bank's ("Harris Bank") purported lien claim, to wit:
1. Motion for Summary Judgment filed on behalf of Effjohn International Cruise Holding, Inc. seeking dismissal of Harris Bank's in rem claim on the basis that, as a matter of law, Harris Bank has no maritime lien on the ISLE under any theory it advances [Rec.Doc. No. 107];
2. Motion for Partial Summary Judgment filed on behalf of Freret Hardware, Inc., AL Sales, Inc., and Reliable Disposal Co., Inc. seeking a declaration that the Harris Bank's claims are not "necessaries" within the meaning of the Commercial Instruments and Maritime Lien Act, 46 U.S.C. § 31342(2)[Rec.Doc. No. 106]; and
3. Motion for Summary Judgment filed on behalf of Harris Bank seeking a declaration recognizing the validity of its claim as one for "necessaries" within the meaning of the Commercial Instruments and Maritime Lien Act, 46 U.S.C. § 31342(2) [Rec.Doc. No. 104].
The matters regarding the status of Harris Bank's claims were the subject of a lengthy oral hearing conducted on March 6, 2002, and were argued contemporaneously with identical motions for summary judgment filed by and on behalf of Harris Bank and competing in rem claimants in the related but not consolidated matter, Freret Marine Supply et al v. M/V ENCHANTED CAPRI, E.D. La. No. 00 cv 3805 "N"(1). For reasons detailed below, Harris Sank's Motion for Summary Judgment regarding the maritime lien status of its claims is DENIED, and the Motions for Summary Judgment filed on behalf of Effjohn International Cruise Holdings, Inc. and Freret Hardware, et al, seeking a declaration that the claims of Harris Bank are not "necessaries" within the meaning of 46 U.S.C. § 31342(2) are GRANTED.
All of the claimants in these proceedings are competing claimants for limited funds deposited in the registry of the Court pursuant to the interlocutory sales of the vessels the M/V ENCHANTED ISLE ("ISLE") or the M/V ENCHANTED CAPRI ("CAPRI"), or both. The cases arise out of the insolvency of New Commodore Cruise Lines Limited, a Florida-based company that operated a number of cruise vessels, which offered luxury passenger cruises to the public. The ISLE and the CAPRI both operated out of the Port of New Orleans and are currently subject to the in rem jurisdiction of this Court.
Effjohn International Cruise Holdings, Inc., et al v. M/V ENCHANTED ISLE, E.D. La. No. 01cv2679"N"(1).
Freret Marine Supply et al v. M/V ENCHANTED CAPRI, E.D. La. No. 00cv3805"N"(1).
I. BACKGROUND
A. Enchanted Isle
When claimant Effjohn International Cruise Holdings, Inc. ("Effjohn") filed its complaint regarding the M/V ENCHANTED ISLE, more than 4.1 million dollars of the funds loaned by Effjohn to the vessel owner Almira Enterprises, Inc. ("Almira"), remained due and outstanding. A first priority ship mortgage on the ISLE secured Effjohn's loan when Almira defaulted and filed for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States District Court for the Southern District of Florida on or about December 27, 2000. In August 2001, the Bankruptcy Court granted relief from the automatic stay pursuant to § 362 of the Code, and on September 4, 2001, Effjohn arrested the ocean-going passenger vessel ISLE in this district. On December 6, 2001, the ISLE was sold pursuant to a Court-ordered interlocutory sale, which sale is now pending confirmation.B. Enchanted Capri
On April 5, 2001, Kennedy Funding, Inc. ("Kennedy") submitted the highest bid for the MN ENCHANTED CAPRI at a Court-ordered interlocutory sale. This sale was ordered in Civil Action No. 00-3805, which is still pending before this Court. Kennedy's winning bid consisted of $4 million in cash and $4.9 million in credit from a mortgage it held against the vessel's purported owner, Norsong Shipping Limited ("Norsong"). On June 11, 2001, the sale of the ENCHANTED CAPRI was confirmed. Winchester Navigation Limited ("Winchester") objected to the sale on the grounds that it, and not Norsong, was the true owner of the vessel, that Kennedy's mortgage was invalid, and that the sale was therefore inappropriate. Without conclusively deciding the issue of who truly owned the vessel, the District Court (then Judge Clement) rejected Winchester's challenge to the sale on account of lack of sufficient proof to support its allegations. Winchester's interlocutory appeal of the sale is currently pending before the Fifth Circuit. The matter has since been reassigned to the undersigned.
The ISLE and the CAPRI are two of the five vessels originally operated by the now-bankrupt New Commodore Cruise Line Limited (referred to hereinafter interchangeably as either "NCCL" or "Commodore") and its affiliates, that carried passengers for hire to and from ports of the United States and foreign ports. In order to call on United States ports, Commodore, like other cruise operators, had to comply with the provisions of 46 C.F.R. § 540.1 and 540.9, and to provide certain evidence of financial responsibility, which could include but was not limited to a surety bond posted with the Federal Maritime Commission ("FMC"). NCCL chose to comply by purchasing a Federal Maritime Commission Passenger Vessel Surety Bond ("FMC bond").
C. Lien Claimant Harris Trust and Savings Bank
Harris Bank intervened in each of the in rem actions against the ISLE and the CAPRI to assert claims under the Commercial Instruments and Maritime Liens Act ("CIMLA" or "FMLA") for alleged "necessaries" that Harris Bank provided NCCL and its affiliated companies.
Effjohn International Cruise Holdings, Inc. v. M/V ENCHANTED ISLE, E.D. La. No. 01cv2679"N"(1).
Freret Marine Supply, et al v. M/V ENCHANTED CAPRI, E.D. La. No. 00cv3805"N"(1).
On June 30, 1998, Harris Bank entered into a Merchant Service Agreement ("MSA") with NCCL. Michael Ulrich was Harris Bank's representative responsible for risk management, underwriting and review of merchants, and thus on behalf of Harris Bank, Mr. Ulrich negotiated the MSA with NCCL's Chief Financial Officer (CFO), Allen Pritzker, who signed the MSA.
See Harris Trust and Savings Bank Master Services Agreement, effective June 30, 1998 [Exhibit "A" to Motions for Summary Judgment filed on behalf of Freret Hardware, et al].
The MSA consists of several parts, including an operating agreement, a schedule of rates and fees, and a reserve account agreement. This is the entire agreement of the parties and includes provisions specifically detailing the credit card services provided by Harris Bank (the acquiring bank) along with a schedule of fees for all of the services it provides via the MSA. Simply stated, the MSA was the operative agreement, and unlike a blanket Master Service Agreement, it did not contemplate future work orders which would modify the terms or services it provided. The MSA provides at paragraph 16 that exclusive jurisdiction and venue for any dispute arising in connection with its terms is an appropriate federal or state court in Chicago, Illinois.
No vessels are mentioned or identified in any part of the MSA. Essentially, the agreement describes in detail the terms and provisions under which Harris Bank provides credit card services to NCCL. Harris Bank charged NCCL and NCCL paid 3.1% of the monthly MasterCard and VISA charges for the credit card services provided to NCCL on behalf of prospective passengers.
To book passage on one of NCCL's cruise liners, a $200.00 per person deposit was required at the time of booking. The prospective passenger could charge his deposit with the booking agent NCCL. Under the MSA agreement, when prospective customers booked a cruise with NCCL and paid with a VISA or MasterCard, Harris Bank would process the transaction, forwarding the amounts charged to VISA and MasterCard. Those credit card associations would then forward funds minus a fee back to Harris Bank. In turn, Harris Bank forwarded the advanced sums minus its fee to NCCL's accounts.
The MSA utilized by Harris Bank was the bank's standard form contract, which contained elements which were required by VISA and MasterCard regulations. This standard agreement regarding credit card services was utilized by Harris Bank whether or it was acting as an acquiring bank for a cruise ship operator, "a sandwich stand in south Chicago," a dry cleaners, grocery store or trucking company.
See FRCP 30(b)(6) Deposition of Michael Ulrich, at p. 152.
FRCP Rule 30(b)(6) Deposition of Michael Ulrich, at p. 153.
See id. at p. 154.
In each of the in rem proceedings (ISLE and CAPRI), Harris Bank alleges that it provided credit card services, i.e., credit card processing services, which included advancing sums for a fee. The amounts advanced by Harris Bank were deposited in accounts owned by NCCL, however such funds were segregated by vessel name to correspond with credit card charges for advanced passage on a particular vessel.
When NCCL declared bankruptcy, prospective passengers who had booked passage on the ISLE and the CAPRI sought refund of moneys charged in advance though their credit card associations. Apparently, the preferred method of obtaining a refund of advanced passage or booking deposit was via "charge back" to the credit card utilized by the customer to book passage or to pay passage in advance of the sail date.
Michael Ulrich testified that basically the prospective passenger had three different avenues available for seeking a refund of moneys advanced to the cruise line operator: (1) a claim in NCCL's bankruptcy proceeding; (2) a claim directly against the FMC bond; or (3) charge back though their credit card because of non-receipt of merchandise. See id. at p. 71.
Harris Bank had no contract with any of NCCL's customer passengers, however, it did have a contractual obligation to remit the advance to the credit card association in the event that a Cruise was cancelled, inter alia. The services were all accomplished electronically, whether the process was engaged in acquiring credit card funds or reversed so that amounts were "charged back" to the credit card association, which originally advanced the sums to Harris for deposit in an NCCL account. The contractual obligation was though the credit card associations (VISA and MasterCard); the charge back would eventually inure to the benefit of the customer passenger, whose cruise was cancelled.
More to the point, no prospective customer passenger had a claim directly against Harris Bank. Indeed, when Harris Bank paid the claim via charge back, Harris Bank sought an assignment of the claim from the prospective passenger to Harris Bank.
Harris Bank was not named on the FMC bond. The bank has no insurance protection as an omnibus insured or otherwise for any such "charge back" liability. Security under the terms of the MSA was a reserve account. Ulrich testified that as of November 7, 2001, the balance in NCCL's reserve account was $267, 291.13. NCCL's reserve account is pledged to the current balance of liability as to all of NCCL's accounts maintained by Harris Bank subject to the MSA.
Mr. Ulrich testified that in light of the fact that AmWest is in liquidation, Harris Bank is considering the option of gathering up the assignments made to it to date and making demand on Swiss Re under the FMC bond. Mr. Ulrich testified that the bond is in excess of the current charge back balances with respect to the ISLE and the CAPRI. Id. at p. 79.
Ulrich testified that he considered the reserve of $250,000.00 sufficient to cover the fisk of the NCCL's going concern. Id. at p. 51. He further testified that the reserve balance of $267, 291.13 was subject to the automatic stay provisions of the Bankruptcy Court; however, Harris Bank has obtained the permission of the Bankruptcy Court to use the collateral. Id. at p. 32.
As of September 30, 2001, "charge back" liabilities reflected on Harris Banks ledgers with respect to NCCL's accounts labelled ISLE and CAPRI were $2, 390, 650.00 and $610, 962.00, respectively. Harris Bank's claims in these in rem proceedings relate solely to these charge backs.
Regarding such amounts charged back to NCCL's prospective customers' credit card accounts, Harris Bank has no knowledge as to whether any of the funds acquired by Harris Bank and advanced to the NCCL were used to pay the salaries of NCCL employees, office expenses of NCCL, or any obligations of NCCL to third parties. In fact, use of acquired funds was not restricted at all by the terms of the MSA, which as aforestated comprised the entirety of the agreement between Harris Bank and NCCL. Regarding the reverse operation of the credit card services provided by Harris Bank, it charged NCCL $16.00 per charge back to the credit card association, whether it was a MasterCard or a VISA charge.
No evidence suggests that Harris Bank looked to the vessels as security for the services it provided NCCL. Harris Bank did not require separate account numbers denominated ISLE and CAPRI at all. Separating accountings for the ISLE and the CAPRI were arranged merely to accommodate NCCL's request. Commodore requested the division of accounts by vessel name so as to accommodate its own ( i.e., NCCL's) books and records. Suffice it to say, insofar as Harris Bank was concerned, separate accounts were not necessary for its purposes and the MSA did not even mention the vessels. Regarding the security in the form of a Reserve Account, there was only one such account, not a separate reserve corresponding to each vessel. Michael Ulrich testified: "It was available for all three vessels in the sense that our merchant agreement is with New Commodore Cruise Lines Limited, and it was not segregated to one particular vessel." Regarding whether Harris Bank relied on the credit of the vessels or considered the vessels as assets at the time that Harris Bank entered the MSA with NCCL, it is noteworthy that Mr. Ulrich candidly admitted that no appraisals were made of any vessels, and that as of that juncture, NCCL had not even chartered the CAPRI.
See Deposition of Michael Ulrich, at pp. 115-116.
Id. at 118, 123 ("those specific merchant numbers were set up at New Commodore's request").
Id. at 118.
Id. at p. 121 (emphasis added).
Id. at 135.
In oral argument, Harris Bank clarified the basis of its in rem claims made in the ISLE and CAPRI cases pending before this Court, limiting the basis of its claim to Harris Bank's 1998 MSA with New Commodore Cruise Lines Limited. More specifically, Harris Bank's in rem claims specifically involve the Bank's "cash advance," or the "financial accommodations," provided pursuant to the 1998 MSA with NCCL.
Ulrich Deposition at p. 161.
II. CONTENTIONS OF THE PARTIES
Harris Bank asserts claims in these in rem proceedings, arguing that it provided "necessaries" to the ISLE and the CAPRI in connection with the MSA; and alternatively that it is subrogated to the claims of the passengers who booked cruises with NCCL, but which were later cancelled. Additionally, Harris argues that this it has a lien on the vessel on the basis of conversion. At oral argument, however, Harris Bank withdrew its alternative arguments based on subrogation to the passengers' executory contracts and tortious conversion.
The contentions against Harris Bank by competing claimants are that there is no CIMLA/FMLA maritime lien for credit card loans/services, and that the 1998 MSA is not a maritime contract. More specifically, opposing lien claimants argue that such credit card services are not "necessaries," the advances were not made either to a vessel or on the credit of a vessel, and were instead made at the instance of a party with no property interest whatsoever in the vessel. Opposing lien claimants further submit that the executory contract doctrine would bar any passenger claims, since there is no maritime lien for executory contracts. As assignee, Harris Bank would acquire no greater rights than the prospective passengers they paid. Further, opposing claimants argue that under the rule of advances, not one of its three requirements are met, to wit: (1) the money must be advanced to a vessel; (2) on the order of the master or one with similar authority; and (3) be used to satisfy existing or future lien claims.
III. SUMMARY JUDGMENT STANDARD
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment should be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "The moving party for summary judgment bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the record which it believes demonstrate the absence of a genuine issue of material fact." Stults v. Conoco, 76 F.3d 651, 656(5th Cir. 1996).
If the movant meets the aforesaid burden, then "nonmovant must go beyond the pleadings and designate specific facts showing that there is a genuine issue for trial." Tubacex, Inc. v. M/V Risan, 45 F.3d 951, 954 (5th Cir. 1995); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994)( en banc). To meet this burden, the nonmovant must "identify specific evidence in the record, and articulate the `precise manner' in which that evidence supports its claims." Stults, 76 F.3d at 656 (citing Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir.), cert. denied, 115 S.Ct. 195 (1994)). In the case at bar, there are no disputed issues of material fact. The matter of the lien status of Harris Bank's claims is before this Court on cross-motions for summary judgment.
IV. ANALYSIS
A. Maritime Lien
A maritime lien is a special property right in a vessel that "developed as a necessary incident of the operation of vessels." The lien secures creditors who provide "supplies which are necessary to keep the ship going." Such maritime lien "arises in favor of the creditor by operation of law . . . and grants the creditor the right to appropriate the vessel, have it sold, and be repaid the debt from the proceeds."The special nature of the maritime lien, which rests upon the legal fiction of the personality of the vessel, was parsed by the court in E.A.S.T., Inc. of Stamford, Connecticut v. M/V ALAIA, 876 F.2d 1168 (5th Cir. 1989). The Fifth Circuit observed:
A maritime lien is not, like a dry-land lien, a security interest arising from a personal obligation of a vessel's owner under a contract. A maritime lien is based instead on the fiction that the vessel may be a defendant in a breach of contract action when the vessel has begun to perform the contract.
While the legal fiction of the personality of the vessel may seem anachronistic, it is grounded in sound policy. The existence of a maritime lien affords special protection to the party who has been injured by a breach of contract and provides the basis for in rem admiralty jurisdiction. The injured party may arrest the vessel to ensure that should it prevail in the breach of contract action, it will be able to satisfy its judgment. The lien holder is therefore placed in a privileged position in relation to other creditors who do not have the security of a lien and must proceed in personam against the owner.Id. at 1174 (emphasis in original and citations omitted).
Considering the applicable case law in light of the undisputed facts regarding Harris Bank's agreement to extend credit card services to NCCL, it cannot be seriously disputed that Harris Bank is simply a non-maritime creditor of NCCL with absolutely no relationship whatsoever to or with either the ISLE or the CAPRI. The obligations are non-maritime, and thus Harris Bank's maritime lien claim fails as a matter of law, since the MSA is not a maritime contract.
In arguing that there is no maritime lien in this case, opposing claimants rely on the well established rule that the law creates no lien on a vessel as security for performance until some lawful contract is made. More to the point, opposing claimants invoke the "executory contract doctrine" which precludes the creation of a maritime lien for the breach of a contract that is merely executory. See Osaka Shoshen Kaisha v. Pacific Export Lumber Co., 260 U.S. 490, 498, 43 S.Ct. 172, 173, 67 L.Ed.2d 364 (1923).
B. Maritime Contract
In Wilkins v. Commercial Investment Trust Corporation, 153 F.3d 1273, 1276 (11th Cir. 1998), the court explained the interrelationship between a valid maritime lien and the necessary prerequisites, maritime jurisdiction and a maritime contract, to wit:
Maritime jurisdiction is a prerequisite to a claim against a vessel asserting a maritime lien. Thus, whether maritime jurisdiction exists is a question anterior to, although often coincident with, the question of whether the plaintiff has a maritime lien.Id. at 1276 (citations omitted).
The contract here involves credit card services, for which fees were charged. The fact that NCCL is a cruise operator is of little consequence. In Planned Premium Services of Louisiana, Inc. v. International Insurance Agents, Inc., 928 F.2d 164, 166, 167 (5th Cir. 1991), the Fifth Circuit affirmed the district court's dismissal of a complaint concerning an agreement to finance marine insurance, and held that such an agreement did not fall within the admiralty jurisdiction of the court. The Court observed:
Preliminary contracts typically relate to maritime affairs in that the services provided often are necessary for the operation of ships and other concerns of the shipping industry. These services, however, are often identical to or essentially similar to nonmaritime services regularly performed by those not involved in the operation of vessels. In determining whether preliminary contracts are to be deemed maritime contracts, a tension exists, pitting the value of these contracts to the shipping industry against the non-maritime essence of the service provided.Id. at 166. The Fifth Circuit determined that the national interest in securing a stable, uniform law applicable to the maritime industry could not be served by adopting a jurisdictional standard dependent on a qualitative and quantitative weighing of the value of a particular service, in a particular instance, to the maritime industry. Id. at 167.
It is not disputed that the services provided in this case by Harris Bank, i.e., advancing money and reversing charges regarding accounts owned by NCCL pursuant to a credit card service agreement for specific fees, are identical to the services the Bank offers its non-maritime customers. Indeed, it is uncontroverted that Harris Bank had identical contracts in effect with its non-maritime merchant customers in need of such credit card services. The Court further observes that there is no historical treatment of the activity contemplated by this contract as anything other than non-maritime.
In the case at bar there is absolutely nothing about the services performed (credit card services), uniquely maritime and essential to the voyage of a cruise ship. Financial services provided as an accommodation to the charterer, no strings attached, are truly preliminary and not directly or substantially related to the operation of the ship, whether passenger vessel or otherwise, or to the vessel's management afloat, or its navigation. Assuming that the proper focus is the nature of the services to be performed, as Harris Bank suggests, then the MSA is not a maritime contract. The services performed by Harris Bank are neither analogous to the embarkation services considered essential to the voyage of a cruise ship, nor to the freight forwarding services considered essential to cargo shipping. The subject agreement (MSA) was a regular, run-of-the-mill, land-lubbers credit card servicing agreement neither peculiarly, uniquely, essentially, substantially or directly related to shipping, passenger cruises, or any particular type of maritime activity.
A Second Circuit case, Ingersoll Milling Mach. Co. v. M/V BODENA, 829 F.2d 293, 301-03 (2nd Cir. 1987), cert. denied. 484 U.S. 1042. 108 S.Ct. 774, 98 L.Ed.2d 860 (1988), involved a claim by a shipper against a freight forwarder for damages to goods which had been improperly stored on the ship. The Second Circuit rejected the freight forwarder's challenge and affirmed the district court's assertion of admiralty jurisdiction on the grounds that the services performed, including the "preparation and processing of export declarations, delivery orders, dock receipts, bills of lading, and advance notification of shipment," were not services rendered preliminary to a voyage, and to contrary were essential to it, and thus, a contract to perform these freight forwarding services "falls squarely within the admiralty jurisdiction of the federal courts." Id. at 303.
With regard to passenger shipping, the district court in Kaleidoscope Tours v. M/V TROPICANA, 755 F. Supp. 382 (S.D. Fla 1990) held that the contract under which Kaleidoscope performed embarkation services ( i.e., accounting for passengers' fares and tickets, checking passports for immigration services) essential to the voyage of a cruise ship, and thus gave rise to maritime contract, giving the court jurisdiction to enforce a maritime lien.
In sum, the contract contemplates credit cash advances and charge backs in connection with NCCL-owned accounts, regarding NCCL obligations. Vessels are not mentioned in the contract. Harris Bank provided credit card services to NCCL with respect to NCCL accounts without any parameters regarding spending. Indeed, the advances to NCCL-owned accounts on behalf of prospective customers, while segregated according to the vessels operated by NCCL, was simply an accommodation to the request of NCCL for its own record keeping purposes. Indeed, there was only one reserve account which served as security with respect to all of NCCL's accounts subject to the MSA.
C. "Necessaries"
"`Necessaries' includes repairs, supplies, towage, and the use of a dry dock or marine railway. . . ." 46 U.S.C. § 31301(4). The statutory list is not all-inclusive. However, credit card services in the form of money advances and the reverse, "charge backs" on behalf of prospective passengers, all of which are services that were conducted for a fee deducted at the time when service was rendered, simply do not fit naturally into this list of shore-to-ship goods. Harris Bank cites no cases classifying the services contemplated by the MSA as necessaries because there are none. Indeed, the absence of precedent is significant, considering that "admiralty enjoys an unusually rich legal tradition and, more nearly than any other contemporary area of federal law, relies on venerable precedents where they exist."
See e.g. GulfMarine and Industrial Supplies, Inc. v. GOLDEN PRINCE M/V, 230 F.3d 178, 179 (5th Cir. 2000) (noting that the terms of the FMLA lend little support to a claim that a maritime lien secures attorney's fees incurred releasing the vessel and preventing her rearrest).
See id. (refusing to define the term "necessaries" expansively and holding that legal services which arguably released the GOLDEN PRINCE and prevented her rearrest, however, useful, were not "necessaries," being services provided to the owner rather than the vessel).
Harris Bank cites Equilease Corp. v. M/V SAMPSON, 793 F.2d 598, 602 (5th Cir. 1986) (en banc), cert. denied, 479 U.S. 984, 107 S.Ct. 570 (1986), as support for its position. However, the Equilease case provides only two parallels, to wit: (1) both the instant case and the facts of Equilease involve intangible services; and (2) in both cases the claimant did not rely on the credit of any vessel in providing the service, and thus is not entitled to lien status.
In Equilease, a financing corporation instituted foreclosure proceedings on the preferred mortgages of three chartered vessels. Id. at 600. The charterer's insurance broker intervened in the proceedings, attempting to recover for the vessel's unpaid premiums, and claimed, inter alia, a maritime lien for necessaries. The Equilease court found that the nineteenth century view of marine insurance as an optional contract, entered into by a shipowner at his own discretion solely for his own personal indemnity, was no longer accurate in this day when vessel insurance is necessary even to sit at the dock. Id. The Fifth Circuit held that insurance constituted a "necessary," but that the insurance broker failed to meet the statutory requirement of reliance on the credit of the vessel when furnishing the insurance. Id. at 607. The Equilease court held that by deliberately choosing not to rely on the credit of a vessel, a supplier as a matter of law purposefully intends to forego its right to claim a maritime lien. Equilease, 793 F.2d at 606 n. 9.
Equilease is also distinguishable in that it involved vessel insurance which directly benefitted the vessel. The financial services offered by Harris Bank were extended to NCCL, with the proviso that the transaction could be reversed in favor of the credit card association ( i.e., electronic "charge back") upon the occurrence of any number of contingencies raised by the prospective passenger/customer of NCCL. Nowhere in the entirety of the MSA is there a reference to one or more vessels, vessel-owned accounts, or any security other than: (1) a Settlement Account maintained by NCCL with a balance of available funds sufficient to accommodate the NCCL's obligations under the MSA; (2) a reserve account funded by NCCL; and (3) "A LIEN OR SECURITY INTEREST IN THE SETTLEMENT ACCOUNT, THE RESERVE ACCOUNT, ALL ITEMS AND ALL DEPOSITS AND OTHER PROPERTY OF YOURS (NCCL) THAT THE BANK OR ITS AFFILIATES MAINTAIN (INCLUDING THE PROCEEDS THEREOF), AND YOU WILL EXECUTE, DELIVER AND PAY THE FEES FOR ANY DOCUMENTS WE REQUEST TO CREATE, PERFECT, MAINTAIN AND ENFORCE THIS SECURITY INTEREST." The record is devoid of evidence to suggest that either vessel (ISLE or CAPRI or both) can be categorized as an account, item, deposit, or other property owned by NCCL and maintained by Harris Bank or its affiliates.
MSA at para. 5 (emphasis added).
In Silver Star Enterprises, Inc. v. SARAMACCA MV, 82 F.3d 666 (5th Cir. 1996), the Fifth Circuit considered the claim of Trans Ocean, which leased over one hundred cargo containers to the SMS fleet of vessels. The lease did not earmark particular containers for service on any particular SMS vessel. Id. at 667. If the Court had determined that Trans Ocean had a lien for providing necessaries to the vessels ( i.e., containers), then its lien would have primed the preferred ship mortgages of Silver Star Enterprises. The Fifth Circuit found no such right to a maritime lien because the cargo container company provided the container to the shipper, not to the vessels. Id. at 69. In the case at bar, it is clear that the credit card services were provided to NCCL, as opposed to the vessels it operated but did not own.
Here, the evidence uniformly indicates that Harris Bank intended to look solely towards NCCL, as well as its deposits and property, which included accounts maintained by Harris Bank or its affiliates. It is noteworthy that the MSA neither mentions a vessel, nor any other asset specifically. If there was any doubt after the completion of the deposition of Harris Bank's representative, Michael Ulrich, it is pellucid from the clear wording of paragraph 16 of the MSA that Harris Bank did not rely on the credit of a vessel and never intended to venture beyond the friendly jurisdictional confines of Chicago, Illinois, to recover under its contract.
In Racal Survey U.S.A., Inc. v. M/V COUNT FLEET, 231 F.3d 183, 191 (5th Cir. 2000), cert denied, 532 U.S. 1051, 121 S.Ct. 2192 (2001), the Fifth Circuit observed that maritime liens are largely statutorily created, stricti juris, and should not be extended by construction, analogy, or inference. The Racal court denied lien status to the lessor/seller of technical seismic equipment, holding that it did not provide supplies to the four chartered vessels on the credit of the vessels. Id. at 189. The Court observed:
When evidence reveals that a supplier looked solely to a party other than a vessel for payment, we are persuaded that the supplier was not relying on the credit of the vessels because of the logical inference that can be derived from that evidence. In the instant case, we need not trouble ourselves with any inference as the evidence is directly on point. Accordingly, consistent with Equilease, because the testimony explicitly shows that Racal deliberately chose not to rely on the credit of four chartered vessels, as a matter of law, Racal purposefully intended to forego its maritime lien.Id. at 190.
Additionally, in this case, the services were not provided to the vessels. The credit card services and advances were furnished to NCCL, pursuant to the MSA. Harris Bank deducted the fees for these services it provided NCCL on both ends of the transaction ( i.e., for advancing money on behalf of prospective passengers who were credit card customers of VISA or MasterCard and upon reversing charges when called for by the credit card association). The advances'were in fact funded to NCCL-owned and controlled accounts, which were only nominally "CAPRI" and "ISLE," inter alia. Harris Bank set up three separate accounts only at the request of and as an accommodation to NCCL. The summary judgment record is devoid of evidence that advances were made directly available to a vessel or with the understanding that the advances be utilized solely to pay for "necessaries." It is clear from the deposition of Michael Ulrich that NCCL could utilize the funds advanced on behalf of prospective passengers in accordance with its own discretion, and that while NCCL's accounts were segregated by vessel name, that was accomplished to satisfy the request of NCCL, not Harris Bank.
Review of the case law cited by Harris Bank is entirely distinguishable. In re SS Norberto Capay and SS Galicia Defender, 330 F. Supp. 825 (N.D. Cal. 1970) did in fact result in a determination that traveler's checks were "necessaries," however, those checks were advanced on the condition that they be utilized to pay crew wages, and the traveler's checks were in fact used for that purpose. The arrangement between the bank FNCB and Liberty Navigation and Trading was that: (1) the bank furnished traveler's checks to Liberty to be used for wage advances to crew members, who had the right under their collective bargaining agreement to receive such advances; and (2) reimbursement would be made to FNCB for only those checks actually issued in accordance with the clear restrictions set forth in the arrangement ( i.e., that the checks be used for the payment of crew wages). 330 F. Supp. at 828. In the case at bar, not only is there no clear restriction that the funds be used to pay seaman's wages or some other "necessary," there is no restriction at all on how NCCL utilized the funds advanced to the various accounts subject to the MSA.
In In Re SeaEscape Cruises Limited, 191 B.R. 944 (S.D. Fla. 1995), affirmed, 98 F.3d 1353 (11th Cir. 1996), involving a bankrupt cruise line, the court denied maritime lien status to the travel agency who booked airline tickets for the SeaEscape crew and passengers and provided a concierge program for the SeaEscape vessels. The travel agency paid for tickets through an electronic account and then billed SeaEscape for the tickets. The concierge would solicit hotel guests to book passage aboard particular ships and then issue a ticket voucher to the passenger. The facts underlying the travel agency's travel services contract with SeaEscape make it clear that services contemplated by the contract were provided to the owner/operator of the group rather than to individual vessels. Maduro Travel did, however, provide services to vessels including concierge services, booking tickets for cruise liner's members and passengers, and providing bellman services to the cruise line vessels. Id. at 953.
Harris Bank is not in the business of providing any services to a vessel. It provides financial accommodations/services to persons. Advances were made to NCCL accounts without any proviso whatsoever as to how funds remitted to the various accounts were spent. Harris Bank did not look to either to the credit or the actual earnings of any vessel. Funds were advanced based on credit card charges regardless of whether the charge represented merely a deposit or prepaid passage.
In light of the undisputed facts, Harris Bank's argument compels an unprecedented expansion of the maritime lien for "necessaries." According maritime lien status to credit card services and willy-nilly advances to a non-owner merchant, absent any spending parameters whatsoever, would throttle the solace and belie any real advantage historically and presently conferred by the preferred ship mortgage.
D. The Rule of Advances
The rule of advances states that "[a]ny person advancing money to a ship or on the order of the master or one [e]ntrusted with her management and for the purpose of satisfying outstanding or future lien claims against the vessel is entitled to a lien of equal dignity with the one replaced, provided the amounts so advanced are actually applied to the payment of such debts." Tramp Oil and Marine Ltd v. M/V MERMAID I, 805 F.2d 42, 44 (1st Cir. 1986) (citations omitted and emphasis added).
In Inland Credit Corp. v. M/T BOW EGRET, 552 F.2d 1148 (5th Cir. 1977), the Fifth Circuit's decision regarding creditors' claims for advances turned on the aforesaid precept. Although the intervening creditors demonstrated that they had advanced funds on the credit of the vessel, the Fifth Circuit affirmed the district court's ruling denying recovery because of their failure to demonstrate that the loans had in fact been utilized to discharge maritime liens. Inland Credit, 552 F.2d at 1152-53.
In the case at bar, Harris Bank fails all three parts of the test. NCCL's CFO Mr. Pritzker' s testimony is of no moment in light of the admissions by Harris Bank's representative. Mr. Ulrich admitted that Harris Bank provided NCCL no spending restrictions and that the bank did not know how the advanced sums would be spent.
See Deposition of Michael Ulrich, at pp. 164-166.
Accordingly, and for all of the foregoing reasons,
IT IS ORDERED that Harris Bank's Motion for Summary Judgment is DENIED;
IT IS FURTHER ORDERED that the Motions for Summary Judgment filed on behalf of Effjohn International and Freret Hardware, Inc., et al, are GRANTED