IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_________________________________
No. 01-30325
_________________________________
LIVERPOOL AND LONDON STEAMSHIP PROTECTION
AND INDEMNITY
ASSOCIATION LIMITED
Plaintiff - Appellant,
v.
QUEEN OF LEMAN MV, (ex-Madeira I), Official
No. 26656-
PEXT, her engines, tackle, apparel, furniture,
etc.; ET AL
Defendants
__________________________________________________________________
FUJI VEGETABLE OIL, INC
Plaintiff - Appellee
TOKIO MARINE AND FIRE INSURANCE COMPANY LIMITED
Intervenor Plaintiff - Appellee
v.
QUEEN OF LEMAN MV, her engines, boilers, tackle,
etc, in rem; ET AL
Defendants
________________________________________
Appeal from the United States District Court
for the Eastern District of Louisiana
________________________________________
_______________________________
No. 01-31142
_______________________________
LIVERPOOL AND LONDON STEAMSHIP PROTECTION
AND INDEMNITY ASSOCIATION LIMITED
Plaintiff - Appellee,
v.
M/V ABRA, (EX KAPPA UNITY), in rem
Defendant - Appellant
INTERFORCE SHIPPING LIMITED
Claimant - Appellant
_________________________________________
Appeal from the United States District Court
for the Middle District of Louisiana
__________________________________________
June 27, 2002
Before SMITH, BENAVIDES, and PARKER, Circuit
Judges.
BENAVIDES, Circuit Judge:
These consolidated appeals involve the interpretation
of the choice of law provisions of an insurance contract. The essential
question in both of these cases is whether English or United States law
determines the existence of a maritime lien for unpaid insurance premiums.
Two district courts provided conflicting answers to this question. For
the reasons that follow, we conclude that United States law governs.
I.
Liverpool and London Steamship Protection
and Indemnity Association ("L&L") is an English mutual insurance association
that provided protection and indemnity ("P&I") insurance to the owners
and operators of the M/V QUEEN OF LEMAN. Under the terms of the P&I
contract, L&L had certain rights to assert liens for the collection
of unpaid premiums. On May 2, 1999, L&L filed a verified complaint
in the Eastern District of Louisiana to seize the vessel for unpaid insurance
premiums under Rule 9(h) and Rules B and C of the Supplemental Rules for
Certain Admiralty and Maritime Claims. The district court granted the request
and issued an order authorizing the arrest and seizure of the QUEEN OF
LEMAN. On August 12, 1999, the vessel was sold for $512,000, which was
placed in the registry of the district court. L&L was not alone in
asserting liens against the QUEEN OF LEMAN. Two of the additional parties
seeking to recover from the proceeds of the sale were intervenor Tokio
Marine and Fire Insurance Company. Ltd. ("Tokio"), who had insured the
ship's cargo, and Fuji Vegetable Oil, Inc. ("Fuji"), who owned the cargo.
To this end, Tokio and Fuji filed a motion for summary judgment, arguing
that L&L did not have a maritime lien for unpaid insurance premiums
under Rule C. Their argument was essentially that the P&I insurance
contract called for the application of English substantive law, which did
not give L&L a maritime lien. The district agreed, and granted summary
judgment in favor of Tokio and Fuji. L&L timely appealed.
The interpretation of the L&L insurance
contract was also at issue in another case, filed in the Middle District
of Louisiana. In that case, L&L provided P&I insurance for the
M/V ABRA (ex KAPPA UNITY), a Cyprus flag bulk carrying cargo vessel, who
was entered with L&L as part of a fleet entry, along with several other
separately owned vessels managed by Kappa Shipping Company, Ltd. ("Kappa").
During the policy years 1994-1999, Kappa allegedly became delinquent on
premiums totaling $829,509.66 for the fleet and $229,102.16 attributable
to the KAPPA UNITY. In the spring of 2000, Interforce Shipping Ltd. ("Interforce")
purchased the vessel. It claims that it had no knowledge of Kappa's outstanding
debt. On February 9, 2001, L&L filed a complaint in district court,
pursuant to which a warrant of maritime arrest was issued. A few days later,
the complaint was amended to include the debt for the entire fleet. Interforce
appeared as a claimant of the vessel pursuant to Rules C and E to defend
against L&L's in rem claim for unpaid premiums. It moved for a post-seizure
hearing to contest the ship's arrest. The district court ultimately upheld
the arrest, determining that, pursuant to the contract, United States law
governed the existence of a maritime lien. Subsequent to the district court's
decision, Interforce learned of the QUEEN OF LEMAN case, in which the identical
issue was presented. It moved for reconsideration and/or certification
for interlocutory appeal. L&L consented to the request for certification,
and the district court then certified the choice of law issue for immediate
interlocutory appeal.
We consolidated these cases for the resolution
of the choice of law issue, which we now address.
II.
These cases come to us at different procedural
postures. In the QUEEN OF LEMAN case, we review the district court's entry
of summary judgment. The ABRA case, however, involves the
district court's
determination of the legality of a ship's arrest at a post-seizure hearing.
This difference in procedural posture does not affect our interpretation
of the contract rules, which presents purely legal issues that we review
de novo. Norfolk Shipbuilding & Drydock Corp. v. Seabulk Transmarine
P'ship, Ltd., 274 F.3d 249, 252 (5th Cir. 2001).
A.
The determination of whether English or United
States law applies requires examining the interplay of rules serving three
functions: the creation of liens, the explicit choice of law, and the enforcement
of liens in foreign jurisdictions. The parties agree that English law generally
governs the contract. Moreover, they agree that the procedure for enforcing
liens is controlled by the law of the foreign jurisdiction in which the
lien is being enforced. Their disagreement concerns the issue of whether
foreign law also determines the existence of a maritime lien. The difference
is significant because even L&L admits that it would have no maritime
lien under English law.(1) By contrast,
under United States law, the Federal Maritime Lien Act, 46 U.S.C. §§
31341-43 establishes a maritime lien for the provision of necessaries,
which include marine insurance. Equilease Corp. v. M/V Sampson,
793 F.2d 598, 603 (5th Cir. 1986) (en banc).
Under Rule 40 of the 1999 version of the contract,(2)
L&L is entitled to "a lien on the ships of a member" for any unpaid
premiums. Rule 48 provides that:
These rules and any special terms of entry
form a contract of insurance between the Association and a member, and
subject to the right of the Association under Rule 47C to enforce its right
of lien in any jurisdiction in accordance with local law in such jurisdiction,
shall be construed in accordance with English law.
Rule 47 also contains language that affects
the choice of law analysis, stating that disputes are to be resolved either
by arbitration or "by the English High Court of Justice." Rule 47C, however,
creates an important exception:
Nothing herein shall affect or prejudice the
right of the Association to take action and/or commence proceedings in
any jurisdiction to enforce its right of lien on ships or to otherwise
obtain security by seizure, attachment or arrest of assets for any amounts
owed to the Association.
The parties agree that these three rules represent
the relevant provisions of the P&I contract. Furthermore, they do not
dispute that the contractual choice of law is valid. Our task is therefore
to determine the scope of these choice of law provisions.
Fuji and Tokio argue that the reference to
local law in Rules 47C and 48 is limited to the procedural aspects of enforcing
liens. Specifically, Rule 47C refers to the right to "take action and/or
commence proceedings[.]" Similarly, Rule 48 provides for English law, except
"to enforce" the right of lien. In other words, according to Fuji and Tokio,
the effect of these rules is that the substantive issue of what lien L&L
may have is governed by English law. That right having been determined,
however, L&L is free to enforce it in any local jurisdiction using
local procedural law.
L&L argues persuasively that applying
English law to the issue of the existence of a maritime lien would render
Rule 40's grant of a "lien on ships" meaningless, as English law would
not recognize a maritime lien. Moreover, it calls into question the relevance
of the Rule 48 provision allowing for the enforcement of a lien in "any
jurisdiction in accordance with local law." If English law controls and
there is no maritime lien for unpaid insurance premiums, then L&L would
have little need for enforcement provisions, as no right would exist to
be enforced. Fuji and Tokio dispute this characterization, suggesting that
Rule 40's "lien on ships" language applies not to maritime liens, but rather
to "any type of seizure priority lien in the local jurisdiction under the
local rules." Appellee's Brief at 8. This expansive reading is not supported
by the structure of the contract and the language of the other clauses.
If the "lien on ships" referred to such a broad range of enforcement actions,
then it would have been unnecessary for Rule 47C to refer to the enforcement
of "its right of lien on ships or to otherwise obtain security by seizure,
attachment or arrest of assets[.]" (emphasis added). This additional
language suggests that the right of "lien on ships" refers narrowly to
an in rem action rather than any type of seizure priority lien. We therefore
agree with L&L that in order to give meaning to the entire contract,
the determination of whether a maritime lien exists in the first place
should be determined by United States law.
This reading of the P&I rules is consistent
with this circuit's caselaw interpreting similar policies. Fuji and Tokio's
reliance on Sembawang Shipyard. Ltd. v. Charger, Inc., 955 F.2d
983, 986 (5th Cir. 1992) is misplaced. The contract at issue
in that case provided for the application of Singapore law to "any dispute."
Id. In fact, the court specifically noted that the contract could
have, but did not, distinguish between in personam and in rem actions.
Id. By contrast, the P&I rules at issue here do include such
a distinction. Similarly, the contract at issue in Ocean Marine Ins.
Ass'n Europe O.V. v. M/V Lia, 1999 WL 679671 (E.D. La. Aug. 27, 1999),
is also distinguishable. Unlike the L&L P&I rules, it did not qualify
the general choice of English law with the explicit exception to allow
for asserting liens in foreign jurisdictions. See id. at 2; see
also Bolongon v. M/V NOR ATLANTIC, 1999 WL 804070 (E.D. La. Oct. 5,
1999) (applying English law to issue of existence of maritime lien in absence
of exception for asserting liens in foreign jurisdictions).
We also reject Fuji and Tokio's suggestion
that the application of United States substantive law would lead to uncertainty
and undermine the goal of uniformity in maritime law. They argue that by
resorting to the substantive law of foreign jurisdictions, a maritime lien
would appear and disappear as the ship sailed to different jurisdictions
that might or might not recognize such a lien. We do not share their concern.
We note that the existence of a maritime lien would only change as the
ship entered a jurisdiction that granted more expansive rights than English
law. Moreover, there is nothing absurd about applying the law of the jurisdiction
into which the ship sails, as the ship's presence in the jurisdiction represents
a substantial contact. Therefore, having determined that local law controls
the existence of a maritime lien, we disagree that this interpretation
would lead to nonsensical results.(3)
B.
Interforce argues that even if the contract
calls for United States law to apply, it is not bound by this provision
because it was not a party to the P&I rules.(4)
Instead, it contends that we should conduct a conflict of laws analysis,
which would dictate the application of English law. Interforce relies primarily,
but unpersuasively, on Gulf Trading & Transp. Co. v. Vessel Hoegh
Shield, 658 F.2d 363 (5th Cir. 1981). It characterizes Gulf
Trading as holding that because a maritime lien arises by operation
of law, not by contract, the P&I choice of law provisions do not bind
those who are not parties to the contract. Gulf Trading, however,
does not control the outcome here. In that case, the court applied a conflict
of laws analysis to the issue of a maritime lien. Id. At 367-68.
In doing so, it declined to use the conflicts analysis appropriate to contracts,
see Restatement (Second) Conflicts of Law § 188, noting that
the maritime lien was not contractual in nature. Id. at 366-68.
Importantly, however, it noted that the contract at issue there did not
have a choice of law provision governing the existence of a maritime lien.
Id. at 368. In light of this distinction with the present case,
we decline to read Gulf Trading as invalidating the parties' decision
in the P&I rules to apply local law to the issue of the existence of
a maritime lien. See also Arochem Corp. v. Wilomi, Inc., 962 F.2d
496, 498-99 (5th Cir. 1992) (applying conflicts analysis in
absence of any indication that contract dictated choice of law for existence
of maritime lien).
Indeed, it would be anomalous to refuse to
honor the parties' choice of law in the P&I rules as it applies to
maritime liens. Interforce does not dispute that the contract governs other
aspects of the maritime lien. For example, terms of price and quantity
in the original contract dictate the size of the debt that gave rise to
the lien. Interforce certainly could not escape the effect of the maritime
lien on the grounds that it did not consent to those price and quantity
terms. Likewise, Interforce's absence from the original contract negotiation
does not prevent the choice of law provision from binding it. In sum, Interforce's
argument proves too much, and is essentially an attack on the in rem nature
of the maritime lien itself. The maritime lien having arisen as a result
of the failure to pay a contractual debt, it attaches to the ship and binds
subsequent owners such as Interforce. We therefore hold that L&L's
maritime lien is enforceable against the ABRA even though Interforce was
not a party to the P&I rules.(5)
III.
We interpret the P&I rules to provide
generally for the choice of English substantive law, but to except from
this choice of law the substantive issue of whether a maritime lien exists
in the first place. Under the contract, that question, like the enforcement
of such a lien, is to be determined by the law of the local jurisdiction.
We therefore conclude that in this case the P&I rules call for the
application of United States substantive law to determine the existence
of maritime liens. Accordingly, we REVERSE the district court's grant of
summary judgment in the QUEEN OF LEMAN case and REMAND the case for further
proceedings. In the ABRA case, we AFFIRM the
district court's resolution
of the choice of law issue and conclude that Interforce is bound by this
contractual provision.
1. Under English law, L&L
would have a lien against ships only to the extent that they were still
the property of the debtor party. The central difference between a maritime
lien and this personal right under English law is that a maritime lien
is an in rem proceeding protecting a right that relates back to the time
when it attached. As a result, the maritime lien remains with the ship
even though the ship is transferred to another party. See Trinidad Foundry
v. M/V K.A.S. CAMILLA, 966 F.2d 613, 615-16 (11th Cir. 1992)
(quoting an English court on the difference between the maritime lien and
the personal right afforded under English statute).
2. The district court in
the ABRA case referred to the 1999 rules, while the district court in the
QUEEN OF LEMAN case relied on an earlier version. Although the applicable
provisions are not significantly different, the 1999 rules are numbered
differently than their predecessors. To avoid confusion and because it
does not affect the analysis, we will refer to the 1999 numbering.
3. We also reject Fuji
and Tokio's argument that L&L was forced to obtain an arbitration award
before bringing this action. The arbitration provision clearly applies
only to actions by members, not by the Association. See 1999 Rule
47A.
4. L&L argues that
Interforce has waived this argument. Although Interforce referred to it
only vaguely at best in its brief at the district court, we note that the
argument presents purely legal issues and that Interforce did discuss Gulf
Trading. Therefore, because it does not change the result, we exercise
our discretion to consider the argument. See Heci Exploration Co. v.
Holloway, 862 F.2d 513, 518 & n.7 (5th Cir. 1988) (stating
that court has discretion to consider arguments raised for the first time
on appeal).
5. We need not consider
Interforce's argument that even under United States law, L&L is not
entitled to a maritime lien for the portions of the unpaid premiums for
Freight, Defense, and Demurrage coverage. The district court certified
only the choice of law question for interlocutory appeal, and our resolution
of this extra issue would be premature.