Court of Appeals
For the First
F/V QUALITY ONE, IN REM;
NUNYA, INC., IN PERSONAM;
RESOURCE TRADING COMPANY,
APPEAL FROM THE UNITED STATES
FOR THE DISTRICT OF MAINE
[Hon. Gene Carter, U.S.
Boudin, Circuit Judge,
Bownes, Senior Circuit
and Lynch, Circuit Judge.
William H. Welte with whom Welte & Welte, P.A.
was on brief for appellants.
Michael Kaplan with whom Preti, Flaherty, Beliveau,
Pachios & Haley, LLC was on brief for plaintiff.
BOUDIN, Circuit Judge. This
case involves a question of first impression as to the scope
of maritime liens. Gowen, Inc., brought the action in December
1999 in federal district court against the vessel F/V Quality
One and her owner, Nunya, Inc. Gowen sought to recover debts
owed for wharfage and repair, and sought relief in rem
against the vessel and in personam against the owner.
Federal Maritime Lien Act, 46 U.S.C. §§ 3141-43 (1994).
The amount sought, with interest through November 23, 1999, was
just under $12,000, plus unspecified costs of collection and
attorney's fees. The vessel was arrested pursuant to a warrant
commanding the seizure of "her equipment, engines, and appurtenances."
After Nunya failed to answer Gowen's
complaint, Gowen secured an entry of default and then a default
judgment establishing liability. Fed. R. Civ. P. 55(a), (b).
Upon entry of the default judgment, Gowen promptly moved for
sale of the vessel, including specifically her fishing permits
and history, which Gowen's motion argued were appurtenances of
the vessel. No opposition was filed. On February 29, 2000, the
court ordered a public sale of the vessel, including "any
valid fishing permits and history to the extent permitted by
applicable law." The permits, as more fully explained below,
are federal permits allowing restricted use of the vessel for
the fishing of specific species. See, e.g., 50 C.F.R.
§ 660.336(b) (2000); Sea Watch Int'l v. Mosbacher,
762 F. Supp. 370, 373 & n.1 (D.D.C. 1991).(1)
After local advertising the vessel
was sold at auction on March 15, 2000, by representatives of
the United States Marshals Service. Seven or eight bidders attended,
as did the captain of the vessel. Prior to the bidding, the captain
told those present that the sale was being challenged legally
and that the permits would not be transferred with the vessel.
Only two bids were then made: one by Gowen for $16,000, and the
other by Andrew Todd for $17,000. Todd's bid was accepted. Under
the terms of the auction, Todd paid the $17,000 sale price that
Gowen moved on March 27, 2000, for
confirmation of the sale, and for the first time counsel for
the vessel and owner appeared and opposed the motion. The opposition
disputed inter alia the inclusion of the permits and the
fairness of the price. The district court then held an evidentiary
hearing, in which it heard testimony from five witnesses. The
court later received briefs from both sides. On June 14, 2000,
the court issued a decision upholding the sale and ruling that
the permits and history were included as appurtenances. Gowen,
Inc. v. F/V Quality One, 2000 A.M.C. 2225, 2229, 2233
(D. Me. 2000). Thereafter, the Marshal provided a bill of sale
1. Nunya and the F/V Quality
One have now appealed from the confirmation of sale and the
decision that the sale includes the permits and history. Although
interlocutory (the proceeds have not yet been divided), the confirmation
order is appealable. 28 U.S.C. § 1292(a)(3) (1994). Nevertheless,
Gowen has argued that the appeal should be dismissed, for mootness
or lack of jurisdiction, because the appellants allowed the sale
to be completed without seeking a stay. This means, says Gowen,
that no effective relief is now possible since Todd owns the
vessel and permits and Todd is not even a party to the case.
The problem raised by Gowen is common
enough in a number of different contexts. See, e.g., Oakville
Dev. Corp. v. F.D.I.C., 986 F.2d 611, 613 (1st Cir.
1993) (mortgage foreclosure sale); Anheuser-Busch, Inc.
v. Miller (In re Stadium Mgmt. Corp.), 895
F.2d 845, 847-48 (1st Cir. 1990) (bankruptcy). Here, it is sufficient
to defeat any claim of mootness that a reasonable chance of effective
relief would remain if we were persuaded to reverse the district
court. For example, a ruling that the fishing permits were not
transferred would be possible. Only if it were indisputable that
no form of relief could be provided would a mootness claim lie.
Pine Tree Med. Assocs. v. Sec'y of Health & Human
Servs., 127 F.3d 118, 121 (1st Cir. 1997).
Obviously, any relief that nullified
the sale or stripped out the permits could raise issues of fairness
and reliance, and there is an interest in making court-ordered
auctions viable. See Munro Drydock, Inc. v. M/V
Heron, 585 F.2d 13, 14 (1st Cir. 1978). But in the ordinary
case, these are arguments against relief or particular types
of relief--not proof that relief is impossible. It is only in
an extreme case (e.g., a completed complex reorganization,
cf. Rochman v. Northeast Utils. Serv. Group
(In re Pub. Serv. Co. of N.H.), 963 F.2d 469, 472-76
(1st Cir.), cert. denied, 506 U.S. 908 (1992)), that the
failure to seek a stay might be deemed fatal at the outset.
Alternatively, Gowen says that appellants
waived their objections, or that laches applies, because they
did not oppose the default, default judgment, or motion for sale,
and did not seek a stay of the confirmation order. No obvious
reason exists why either default (entry or judgment) should bar
an objection to the adequacy of the auction price; the fairness
of the sales price could hardly be an issue prior to the sale.
By analogy, failure to contest a default judgment for an unliquidated
sum does not automatically bar a dispute as to damages. See
Fed. R. Civ. P. 55(b)(2); cf. Sony Corp. v. Elm
State Elecs., Inc., 800 F.2d 317, 321 (2d Cir. 1986).
On the other hand, the failure to
object in advance to inclusion of the permits could be deemed
fatal to an appeal on that issue. This is not because of the
default judgment; the complaint did not specifically mention
the permits nor does a default judgment automatically preclude
all challenges, in subsequent stages of the same case, to the
legal premises of the complaint.(2)
It is because after the default but before the sale Nunya knew
from the terms of the motion that Gowen sought to include the
permits in the sale and did nothing to object to this inclusion
in court prior to the sale.
Although the complaint did not request
anything more specific than the arrest, attachment, and sale
of the F/V Quality One and the attachment and sale of
other unspecified property of Nunya, the duly served motion for
an order of sale explicitly sought to include the permits and
history as "appurtenances" to be sold. No objection
was filed on behalf of appellants. Thereafter, the court's order
specifically designated the permits and history as items to be
sold at the auction to the extent legally permitted; although
there were more than two weeks between the order and the sale,
again no objection was filed by appellants.
It seems to us that once appellants
knew that the order of sale was intended to sell the fishing
permits and history, they had an obligation to make a timely
objection to the district court. Cf. Reilly v.
United States, 863 F.2d 149, 160-61 (1st Cir. 1988). Under
the District of Maine's local rules, objections to the motion
for an order of sale were waived if they were not filed within
ten days after the filing of the contested motion, D. Me. R.
7(b) (2000) (the period was recently increased to 21 days). Appellants
did not file any objection in the more than three weeks between
Gowen's motion and the date when it was granted.
Nonetheless, although the obligation
to make timely objections is worth stressing for the benefit
of future litigants, we do not rely upon it in this case. When
the district court ordered that the sale include the permits,
it said that this inclusion was "to the extent permitted
by applicable law," arguably reserving the issue for later
disposition. And the district court decided on the merits the
issue of whether the permits were properly included. Under these
circumstances, we decline to decide the dispute based solely
on waiver or laches.
2. Under maritime law, a maritime
lien against the vessel and its appurtenances arises for certain
liabilities, including wharfage and repairs, and the vessel can
be arrested and sold to satisfy such liens. See generally
Gilmore & Black, The Law of Admiralty ch. IX (2d ed.
1975). It was on that doctrinal premise that the sale in this
case took place. If the permits were appurtenances, they were
subject to the lien and passed with the sale of the vessel; if
not, they were merely personal property of the owner, like a
desk in a steamship company office. 2 Benedict on Admiralty
§ 32, at 3-3 (7th ed. 2000) ("The term 'vessel' includes
its apparel and appurtenances.").(3)
Traditionally, a maritime lien attaches
not only to the bare vessel but also to equipment that is used
aboard the vessel and is "essential to the vessel's navigation,
operation, or mission." Gonzalez v. M/V Destiny
Panama, 102 F. Supp. 2d 1352, 1356 (S.D. Fla. 2000); see
also United States v. F/V Sylvester F. Whalen,
217 F. Supp. 916, 917 (D. Me. 1963). Although a vessel's fishing
permits generally must be kept "on board," 50 C.F.R.
§ 648.4(l), the rights themselves are what matter, and they
are intangible. The question, not often mooted, is whether a
maritime lien applies to intangibles that play a role similar
to the vessel's equipment.
There is no general objection to
treating an intangible as an appurtenance. On the contrary, freight
charges due on account of a vessel's carriage of cargo are subject
to maritime liens against the vessel. United States v.
Freights of the Mount Shasta, 274 U.S. 466, 469-70 (1927)
(Holmes, J.); 29 Moore's Federal Practice § 705.01[d],
at 705-21 (Coquillette et al. eds., 3d ed. 2000). Appellants
point out that the majority view is that insurance proceeds due
on cargo loss or damage are not subject to maritime liens.(4) However, the reasons for this do not
turn on the intangible character of the proceeds but on history
and on conceptual concerns peculiar to insurance. See
"The determination [whether
something is an appurtenance] is commonly made on a case-by-case
basis without great consistency of results." 1 Schoenbaum,
Admiralty and Maritime Law § 9-1, at 489 (2d ed.
1994). There being no authoritative answer as to how fishing
permits should be classed, we must ask whether treating such
permits as subject to maritime liens advances the objectives
for which such liens were created and, if so, whether there are
overriding objections to the contrary. A familiar purpose of
such liens is to make readily available to a mobile borrower
the secured credit that is often necessary to ensure that a vessel
can obtain the basic supplies or services needed for its operation.(5)
Because of declining fishing stocks,
federal law now elaborately regulates catches for many types
of fish through a network of statutory provisions, regulations,
and agreements too complicated to summarize. See, e.g.,
Magnuson-Stevens Fishery Conservation and Management Act, 16
U.S.C. §§ 1801-83 (1994); 50 C.F.R. ch. VI (1999).
In practical terms, the "vessel permits" at issue in
this case reflect rights to fish for certain species for a certain
number of days each year. See 50 C.F.R. pt. 648. For present
purposes, what matters is that vessels like the F/V Quality
One are valuable significantly, and sometimes almost entirely,
because of their permits.
Testimony during the district court
hearing made clear that the F/V Quality One's permits
contributed substantially to the vessel's value, although there
was disagreement as to what the vessel was worth standing alone
and how much more the permits contributed. Documents indicated
that the permits included a multispecies permit (for certain
northeastern species listed in the regulations) and several other
permits for individual species. Neither at the hearing nor on
appeal has either side distinguished among the permits.
Thus, not only the market value
but the creditworthiness of the fishing vessel may well depend
on its permits quite as much as on its engine, physical dimensions,
and navigation equipment. Maritime liens underpin the extension
of credit to fishermen, and this mechanism for ready credit would
be impaired by excluding from the lien the permits that allow
vessels to carry on their accustomed fishing activities. Thus,
in the large, fishermen seeking repairs and supplies on credit
are likely to benefit from treating a vessel's permits as appurtenances.
The benefits should not be overstated.
Maritime liens are mostly "secret," because (ship mortgages
aside) there is no registry system for such liens. 2 Benedict
on Admiralty, supra, § 24, at 2-16; Gilmore &
Black, supra, at 588. Furthermore, the general rule with
maritime liens is that, among liens of "equal rank,"
later liens have priority. 2 Benedict on Admiralty, supra,
§ 51, at 4-4. No one offering credit for supplies or repairs
can be certain just how many higher-priority creditors will be
standing in line when collection is sought. But presumably common
knowledge may supply the equivalent of a credit rating for a
fisherman based for years in, or regularly visiting, the same
From the standpoint of policy, no
obvious arguments exist against treating the permits as subject
to lien. We have assumed, as appellants assert, that the permits
could in some circumstances be severed from the vessel upon its
sale and retained by its old owner. But courts have repeatedly
upheld maritime liens upon "severable" equipment, including,
surprisingly enough, equipment merely leased to the owner.
Stewart & Stevenson Servs., Inc. v. M/V Chris Way
MacMillan, 890 F. Supp. 552, 561 (N.D. Miss. 1995) ("components
of a vessel, even though readily removable," may be appurtenances);
F/V Sylvester F. Whalen, 217 F. Supp. at 917 (leased fathometer
and radar equipment); 2 Benedict on Admiralty, supra,
§ 32, at 3-3 to 3-5; 1 Schoenbaum, supra, §
9-1, at 488-89.
Nor is there any indication that
upholding the lien here would upset settled expectations. There
is no evidence of any common understanding in the maritime world
that permits are, or are not, subject to liens. Nor is there
much precedent. The only circuit case on point assumed without
discussion that permits were subject to liens, but the issue
was not actively litigated. Bank of Am. v. Pengwin,
175 F.3d 1109, 1119 (9th Cir.), cert. denied, 528 U.S.
872 (1999). Here, as elsewhere with new issues, the case law
probably has to form expectations rather than reflect them.
Appellants point out that Congress
has recently provided by statute for the Secretary of Commerce
to create a registry system for a large class of fishing permits,
Sustainable Fisheries Act, Pub. L. No. 104-297, § 110(d),
110 Stat. 3559, 3590-92 (1996) (codified at 16 U.S.C. §
1855(h) (Supp. II 1996)). The statutory provision in question,
16 U.S.C. § 1855(h), contains language that could be used
to argue that the registry system will preempt any use of maritime
liens against fishing permits:
Such registration shall constitute
the exclusive means of perfection of title to, and security
interests in, such permits, except for Federal tax liens thereon
. . . .
16 U.S.C. § 1855(h)(3) (Supp.
II 1996) (emphasis added). Indeed, a subsequent subsection of
the registry statute defines "security interest" to
"include security interests, assignments, liens and other
encumbrances of whatever kind." Id. § 1855(h)(4).
What appellants tellingly omit is
the preceding sentence, which reads as follows:
To be effective and perfected against
any person except the transferor, its heirs and devisees,
and persons having actual notice thereof, all security interests,
and all sales and other transfers of [certain fishing] permits
. . . , shall be registered in compliance with the regulations
promulgated . . . .
§ 1855(h)(3) (emphasis added). Placement suggests that the
claimed exclusivity, even if it applies to maritime liens, does
not apply to the perfection of a security interest against the
transferor of that interest--in this case, Nunya. Thus, we need
not resolve Gowen's claim that maritime liens are not encompassed
within section 1855(h)'s definition of security interests, because
(allegedly) "[a] maritime lien, so-called, is not a lien
at all in the common law sense of the term," Gilmore &
Black, supra, § 9-1, at 586.
More important, the registration
system is not yet established, because regulations to implement
it are still not in force. Sometimes new legislation indicates
how Congress would wish a problem to be solved absent the statute
or its implementing regulations, Ballard Shipping Co.
v. Beach Shellfish, 32 F.3d 623, 631 (1st Cir. 1994),
but the statutory provisions that appellants cite do not do this.
The legislation would create a different means of achieving
a security interest in fishing permits; this tells us nothing
about how Congress would wish the matter to be handled where
no registry system yet exists.
Congress's provision for "transition"
to the registry system, which appears as a note in the United
States Code, is more illuminating. See Sustainable Fisheries
Act, Pub. L. No. 104-297, § 110(e), 110 Stat. at 3592 (codified
at 16 U.S.C. § 1855 note). Congress's transition provision
Security interests on permits [within
the ambit of the registry] that are effective and perfected by
otherwise applicable law on the date of the final regulations
implementing [the registry] shall remain effective and perfected
if, within 120 days after such date, the secured party submits
evidence satisfactory to the Secretary of Commerce and in compliance
with such regulations of the perfection of such security.
The transition provision indicates that Congress intended for
security interests "effective and perfected by otherwise
applicable law" to remain so at least until the establishment
of the registry.(6)
3. Appellants argue at length that
the auction price for the vessel was unfairly low with or without
the permits. A district court should disallow a court-ordered
sale where the price is grossly inadequate, "at least where
the interests of creditors do not point in a different direction."
Munro Drydock, Inc. v. M/V Heron, 585 F.2d 13,
14-16 (1st Cir. 1978). Necessarily, "[w]hat is grossly inadequate
. . . is a judgment call which does not lend itself to firm guidelines,
for the circumstances involved are so varied." 29 Moore's
Federal Practice, supra, § 706.02[b], at 706-22
to -23. Here, the district court took evidence, analyzed the
testimony, and concluded that the sale price was not grossly
inadequate. The district court's judgment on such an issue would
normally be reviewed under a deferential standard and, to the
extent raw facts were involved, reversed only for clear error.
United States v. Howard (In re Howard),
996 F.2d 1320, 1327-28 (1st Cir. 1993).
The district court's discussion
of the value issue, like the rest of its opinion, is cogent and
persuasive. We have discussed the lien issue in detail because
it is a legal question of first impression, although the core
of our reasoning on this issue tracks that of the district court.
However, the value issue is fact-specific, and we readily rely
on the district court's reasoning and conclusions to find that
the auction was fair and the price received not grossly inadequate.
Some might think that the value
issue should not even be reached because the former captain's
conduct went far to frustrate the possibility of a better sale
price. Cf.Campaniello Imports, Ltd. v. Saporiti Italia
S.P.A., 117 F.3d 655, 662 (2d Cir. 1997) (general equitable
principle that a claimant may not seek relief from a situation
for which the claimant is to blame). However, so far as it was
not obstreperous (it may have been in part), one might in the
ordinary case defend the captain's conduct as giving fair notice
to other bidders that the permit issue would be litigated; on
the other hand, the failure to raise the issue in court before
the auction somewhat compromises this argument. It is enough
here that the district court's treatment of the captain's conduct
seems to us reasonable.
This case has been well litigated
on both sides. The issue is both novel and difficult. We affirm
the judgment but direct that each side shall bear its own costs
on the appeal.
It is so ordered.
1. The fishing
or catch history is a record of fish caught by the vessel over
time (usually measured in yearly increments). It is used to determine
whether the vessel qualifies for a permit and what the vessel's
permit allows. Consistent with the practice of the district court
and the parties, we sometimes refer to the permits alone when
both the permits and the corresponding fishing history are meant.
2. The default
judgment is conclusive as to facts but does not always defeat
later legal objections. Bonilla v. Trebol Motors Corp.,
150 F.3d 77, 80 (1st Cir. 1998) (defaulted party able to argue
failure to state a claim), cert. denied, 526 U.S. 1098
(1999); Dierschke v. O'Cheskey (In re Dierschke),
975 F.2d 181, 185 (5th Cir. 1992) (entertaining a defaulted party's
argument that relief was beyond that requested in the complaint).
3. Here, Gowen
sought an in personam judgment against Nunya and might
eventually have levied on its non-appurtenant property, but a
maritime lien is enforced by different procedures and governed
by different substantive rules. See Gilmore & Black,
supra, §§ 9-1, 9-2, 9-19.
Gilmore & Black, supra, § 9-19, at 622 n.80 (citing
conflicting cases). Compare Farland v. T &
T Fishing Corp., 626 F. Supp. 1136, 1140-41 (D.R.I.), vacated
on other grounds, 808 F.2d 1513 (1st Cir. 1986), and
A.M. Bright Grocery Co. v. Lindsey, 225 F. 257,
260-61 (S.D. Ala. 1915), with The Conveyor, 147
F. 586, 592-93 (D. Ind. 1906).
& Stevenson Servs., Inc. v. M/V Chris Way MacMillan,
890 F. Supp. 552, 562 (N.D. Miss. 1995); Bavely v. Wandstrat
(In re Harbour Lights Marina, Inc.), 146 B.R. 963,
971 (Bankr. S.D. Ohio 1992), aff'd, 153 B.R. 781 (S.D.
Ohio 1993); 29 Moore's Federal Practice, supra,
§ 705.01, at 705-7.
cite to us a letter from an officer of the National Marine Fisheries
Service that might be read to say that the statutory provisions
preempt maritime liens even in the absence of the registry. Since
Congress has "directly spoken" to this issue, any contrary
agency interpretation cannot stand. Chevron U.S.A. Inc.
v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43