The opinion of the court was delivered by: CROAKE
This possessory action in admiralty presents an unusual and unfortunate situation. Plaintiff, a marine repairman, obtained and performed a certain repair contract, but has never been paid. This finding serves merely as the introduction to a complex legal dispute.
Besides plaintiff, the parties involved in this action are Frank B. Hall and Company ("Hall"), and the Mastan Company, Inc. ("Mastan"). The action was tried in personam as against Hall, although Hall had not defended, and in rem as against Mastan. However, plaintiff has now asserted, for the first time after trial, an in personam action against Mastan as well.
When the action was instituted, Hall, whose interest is essentially that of a stakeholder, appeared pro se and deposited the $35,000 res into the registry of the court. The real parties in interest, therefore, are plaintiff and the intervening claimant, Mastan. The facts giving rise to their respective claims are as follows.
On September 18, 1966, while en route from Sunny Point, North Carolina, to Zeebrugge, Belgium, with a cargo of ammunition and rockets destined for the N.A.T.O. Alliance forces, and while approximately 600 miles out to sea, the American flag steamship "Sapphire Sandy," owned by Sapphire Steamship Lines, Inc. ("the shipowner"), sustained boiler damage. (Sahler, Transcript, p. 24.) The severity of the damage, which was caused by the rupturing of a screen tube in the port boiler, precluded successful temporary repairs, and necessitated interruption of the voyage on September 20, and diversion of the vessel to New York as a port of refuge. Since the United States Coast Guard refused entry to the inner harbor while the ammunition remained on board the "Sapphire Sandy" anchored off Leonardo, New Jersey, and was put on general average pending resumption of the voyage. (Sahler, Tr. p. 34; Plaintiff's Exhibits 7 and 9.)
A joint survey was immediately held, on the evening of September 23, 1966, to establish the casualty and obtain expert opinion as to the necessary extent and the preferable method of repairs. In attendance were representatives of the plaintiff, the shipowner and operator (not interested in the outcome of this action), the American Bureau of Shipping, and the Coast Guard, and an agent of the London Salvage Association, the underwriters' surveyors. (Taylor, Tr. pp. 13, 21; Sahler, Tr. pp. 24-25; Plaintiff's Exhibits 1 and 2.)
The parties to the survey agreed that on-board repairs were preferable to work at a pier, which would have involved the delay and expense of unloading the ship with lighters. It was also agreed that plaintiff perform the specified repair work; plaintiff eventually charged $39,260.08 for its services. Plaintiff was chary about relying for payment upon the shipowner's credit or upon its customary maritime lien on the vessel, apparently already heavily encumbered, so it was further agreed that plaintiff be paid $35,000 "on account," as a direct payment from the underwriters of the applicable hull and machinery insurance policies.
The shipowner therefore agreed to provide the necessary documentation to prove the loss, and Hall, who was both insurance broker for the owner's fleet, including the "Sapphire Sandy," and also average adjuster for the vessel, agreed to collect the pro rata contributions of the various American and British underwriters, and then remit the money to plaintiff, rather than to the owner or Mastan, the mortgagee of the vessel. (Taylor, Tr. pp. 14-17, 21; Kanapaux, Tr. pp. 39-44; Plaintiff's Exhibits 4-7.)
In other words, plaintiff was in effect assigned the insurance proceeds, as distinguished from the policies themselves, although no formal written assignment was ever prepared. This troublesome lack was caused either by a mistake in judgment or through an oversight during the documentation of the casualty or elsewhere in the haste of the moment; the consequences were such that it is unlikely that such an omission will ever be allowed to occur in the future.
Plaintiff commenced work in reliance upon the "pre-repair agreement," and the expectation of its approval by Mastan. It began on September 24, 1966, the morning after the survey, and completed its job on October 10, 1966. Its bill dated December 9, 1966, was subsequently approved by the necessary entities. When the papers were complete, Hall began to receive the contributions from the underwriters; $31,500 of the $35,000 payment was received by March 2, 1967. Had not supervening events interfered, plaintiff would undoubtedly have been paid soon thereafter without further incident. (Taylor, Tr. p. 21; Sahler, Tr. p. 29; Plaintiff's Exhibit 1.)
Unfortunately, the shipowner's finances deteriorated in the period after the completion of plaintiff's work, and it failed to make the February 28, 1967 payment on its note to Mastan. Mastan, which was owed in excess of $800,000 at the time, immediately moved to vindicate all its rights in order to prevent a huge loss.
One remedy to which it claims to be entitled, the only relevant one in this context, was direct payment to itself of insurance proceeds then owing under the "loss payee" clause of the hull and machinery insurance. The clause reads as follows:
"Loss, if any, payable to The Mastan Company, Incorporated, 640 Fifth Avenue, New York City, mortgagee, for distribution by and to itself and Sapphire Steamship Lines, Inc., as interest may appear, or order, except that all claims not exceeding $25,000 each accident or occurrence may be paid directly to Sapphire Steamship Lines, Inc. or order, until the mortgagee may otherwise direct in writing." (Cl's Exhibits A-C.)
Accordingly, Mastan by letter dated March 2, 1967 to Hall directed that all insurance proceeds be paid to it. (Gold, Tr. pp. 85-88; Cl's Exhibit Z.) When plaintiff inquired as to the proximity of payment and was told of this letter, it made formal demand on March 10, 1967 for the earmarked funds, and then instituted this action. (Plaintiff's Exhibit 10.) On the return day, as has been noted above, Hall appeared in court pro se, declared itself a "mere stakeholder," and sought and obtained leave from Judge Frederick vP. Bryan to deposit the res into the registry of the court. The res was paid in on April 10, 1967, pursuant to the order signed March 31, 1967 and filed on April 3, 1967. Hall has not answered the complaint or otherwise defended this action thereafter.
Maston also appeared on the return date, and obtained leave to interpose its claim to the res. It then moved to vacate the arrest; the motion was denied by Judge Marvin E. Frankel on July 12, 1967 (270 F. Supp. 1017). Cross-motions for summary judgment and plaintiff's motion for reargument thereof, were ...