United States District Court, Eastern District of New York
August 27, 1990
MIDLANTIC NATIONAL BANK, PLAINTIFF,
HARLAN SHELDON ET ALIA, DEFENDANTS.
The opinion of the court was delivered by: Sifton, District Judge.
On June 21, 1990, plaintiff, Midlantic National Bank (the
"Bank"), filed a complaint in admiralty based on a preferred
mortgage lien held against a boat purchased by defendant Harlan
Sheldon. According to the original complaint, defendant Hanse
Point Marina holds a maritime lien against the same vessel for
repairs and storage charges, is now in possession of the
vessel, and had given notice of its intent to auction the boat
on July 2, 1990. The marina subsequently agreed not to hold
this auction, pending resolution of plaintiff's application to
enjoin this auction. On July 12, both parties appeared before
the Court on plaintiff's order to show cause why the auction
should not be enjoined, but the matter was adjourned to give
plaintiff an opportunity to respond to the marina's opposition
The matter is now before the Court on plaintiff's application
for an order foreclosing its ship mortgage and directing Hanse
Point Marina to turn over the vessel for sale by the plaintiff
and, pending final determination of this matter, for an
injunction against the sale or transfer of the vessel on the
part of defendants. The defendant marina has opposed this
motion and counterclaimed in rem to enforce its own maritime
lien against the boat in question. Both parties agree that
their claims may be determined on the basis of the documentary
evidence submitted to the Court without the need for testimony.
The facts in this case pertinent to this matter are, in any
event, not in dispute. On August 18, 1986, Harlan Sheldon
entered into a purchase money ship mortgage with the
plaintiff's assignor, First Commercial Corp., in connection
with the purchase of a 42 foot, 1984 model, Sundance Seadancer,
serial number SDH00860584. The mortgage agreement states that
the vessel is a 22 ton houseboat which is not self-propelled.
The financing arrangement is reflected by a "New York —
Marine" Promissory Note and Security Agreement dated Sept. 18,
1986, pursuant to which Sheldon agrees to repayment of the
total sum of $38,891.49 over a period of 120 months, at 11
percent interest. The promissory note explicitly provides that
the contract would be assigned to the plaintiff, Midlantic
The promissory note also provides that "if the Boat is
registered with the Coast Guard, [the mortgagor, Sheldon] must
sign and deliver a Preferred Ship Mortgage giving [the Bank]
first lien on the Boat." On December 30, 1986, Sheldon also
signed a "Mortgage of Vessel Agreement," by which he mortgaged
his boat as collateral to plaintiff Bank. The mortgage of
vessel was filed of record with the United States
Coast Guard on March 26, 1987, in New York City.
On August 28, 1989, defendant Sheldon filed for Chapter 7
relief in the United States Bankruptcy Court for the Eastern
District of New York. Plaintiff was notified of this filing and
apparently did not file an objection. Sheldon was granted a
discharge of his obligations by order dated December 7, 1989.
At some time prior to the filing of the bankruptcy
proceeding, Sheldon delivered his boat to the custody of the
defendant marina. A copy of a bill from the marina indicates
that Sheldon had incurred approximately $12,600 in storage fees
(for storage between January and May 31, 1990) and
approximately $15,800 in repairs, for a total of $28,480.
Plaintiff recently received a notice of lien and sale in which
the marina announced its intention, pursuant to sections 184
and 201 of the New York State Lien Law, to auction Sheldon's
vessel on July 2. That sale has, as noted, been postponed. The
notice asserted a lien of $28,480, which was demanded and due
on May 31, 1990, and estimated the value of the boat at
$15,000. If a sale by the marina is permitted, the Bank's
remaining security interest will be extinguished.
Plaintiff argues that the marina's threatened sale of the
boat would violate federal law and the supremacy clause of the
United States Constitution because this Court has exclusive
jurisdiction over this federal admiralty claim and because
plaintiff's preferred ship mortgage has priority over any other
New York Lien Law § 184 specifically provides that a person
who stores, maintains, keeps or repairs a motor boat, or
furnishes gasoline or other supplies at the request or with the
consent of the owner, whether or not the vessel is subject to a
security interest, may detain the boat until such sum is paid.
Section 200 of the New York Lien Law provides that a lien
against personal property may be satisfied by the public sale
of such property, while section 201 specifies the notice
required for such sale.
It is well established that under the New York Lien Law, an
unrecorded possessory lien under section 184 ordinarily has
priority over a perfected security interest, such as that held
by the defendant Bank. See Industrial National Bank of Rhode
Island v. Butler Aviation Int'l, Inc., 370 F. Supp. 1012, 1018
(E.D.N.Y. 1974); Willys-Overland, Inc. v. Prudman Automobile
Co., 196 N.Y.S. 487. Thus, N.Y. UCC § 9-310 expressly provides:
"When a person in the ordinary course of his
business furnishes services or materials with
respect to goods subject to a security interest, a
lien upon goods in the possession of such person
given by statute or rule of law for such materials
or services takes priority over a perfected
security interest unless the lien is statutory and
the statute expressly provides otherwise."
N Y UCC § 9-310 (McKinney's 1990).
However, N.Y. UCC § 9-104(a) states that Article 9 is not
applicable to "any security interest subject to any statute of
the United States to the extent that such statute governs the
rights of parties to and third parties affected by transactions
in particular types of property." Here, it is clear that this
Court's admiralty jurisdiction and the provisions of 46 U.S.C. § 31301
et seq. preempt the New York Lien Law.
A creditor obtains a "preferred mortgage" under federal
maritime law, 42 U.S.C. § 31322, if the mortgage (1) includes
the whole of the vessel, (2) covers a documented vessel, (3)
has as the mortgagee a federally insured depository
institution, and (4) is filed in substantial compliance with
section 31321. It is not disputed that plaintiff's mortgage
meets the requirements of this section and has been
Section 31325(b)(1) of the same title provides that, upon
default of any term of the preferred mortgage, the mortgagee
may enforce a preferred mortgage lien in a civil action in rem
for a documented vessel.
Section 31325(c) states that the district courts have original
jurisdiction of such a civil action and, where the vessel is
documented, exercises exclusive jurisdiction. Since plaintiff
has filed an in rem proceeding in this district, this Court has
exclusive jurisdiction over the matter.
Section 31326(a) provides that a district court may order a
vessel sold in an in rem action to enforce a preferred mortgage
lien and that any claim in the vessel existing on the date of
sale is terminated. Section 31326(b) further provides:
"Each of the claims terminated under subsection
(a) of this section attaches, in the same amount
and in accordance with their priorities to the
proceeds of the sale, except that —
(1) the preferred mortgage lien has priority
over all claims against the vessel (except for
expenses and fees allowed by the court, and
preferred maritime liens); and
(2) for a foreign vessel, the preferred mortgage
lien is subordinate to a maritime lien for
necessaries provided in the United States."
Thus, unless the marina's possessory lien qualifies as a
"preferred maritime lien," the Bank's preferred mortgage on the
vessel in question has priority under the federal admiralty
scheme. The marina appears to have established a normal
"maritime lien" under section 31342 in that it has provided
"necessaries" to the vessel, defined as including repairs and
use of a dry dock. However, providing necessaries is not one of
the six categories of liens that qualifies as a "preferred
maritime lien" under section 31301(5).
The defendant marina concedes that, if plaintiff has secured
a valid preferred ship mortgage, plaintiff would have a lien
superior to its own maritime lien. However, defendant asserts
that when Sheldon and the Bank agreed to the mortgage on
December 30, 1986, the houseboat in question was statutorily
excluded from the class of vessels subject to a preferred ship
mortgage. Section 922 of title 46, United States Code App.,
which was then in effect, stated that a preferred mortgage
would include any valid mortgage "which at the time it is made
includes the whole of any vessel of the United States (other
than a . . . barge . . . of less than twenty five gross tons)."
46 U.S.C. App. § 922(a) (1920), repealed by 46 U.S.C. § 30101
Without addressing the issue of why the old statute would
still be applicable, both sides have submitted a variety of
arguments, none dispositive, on the definition of a "barge"
under the old section 922(a). Section 911 of title 46, which
provided definitions for that chapter, was silent on the
definition of a "barge." The marina asserts that, because
46 U.S.C. § 2101(2) now defines a "barge" as meaning a vessel that
is not self-propelled, the houseboat qualifies as a barge under
25 tons and is therefore excluded. However, as plaintiff points
out, 46 U.S.C. App. § 922 was enacted as part of the Ship
Mortgage Act of 1920, which was amended in 1935 and 1961. It
therefore could not have contemplated the definition of barge
made in 46 U.S.C. § 2101, which was not enacted until 1983.
Moreover, the definitions contained in section 2101
specifically apply only to subtitle II of title 46 and not to
subtitle III relating to maritime liability.
Plaintiff's citation of case law which demonstrates that
houseboats constitute "vessels" that are subject to admiralty
law jurisdiction is also not on point. These cases only
demonstrate that houseboats that are not self-propelled, like
barges, may be the subject of an ordinary maritime lien.
See Hudson Harbor 79th Street Boat Basin, Inc. v. Sea Casa,
469 F. Supp. 987 (S.D.N.Y. 1979). They do not establish that
houseboats are vessels inappropriately classified as "barges"
for the purpose of a preferred mortgage or lien.
However, examination of the legislative history of 42 U.S.C.
App. § 922 indicates that the definition of a barge was not
meant to include a houseboat or any other pleasure craft. Up
until 1935, the preferred mortgages statute excluded all ships
of under 200 gross tons, a provision that excluded practically
the entire commercial fishing fleet, as well as pleasure craft.
In 1935, a proposal was made to dispense with the tonnage
requirement entirely and make
the act applicable to "any vessel of the United States." G.
Gilmore & C. Black, The Law of Admiralty 696 (2d ed. 1975).
However, in response to pressure from the New York Towboat
Association, which was concerned about losing priority on their
liens against harborcraft, the provision was rewritten to
exclude a "towboat, barge, scow, lighter, carfloat, canal boat,
or tank vessel of less than two hundred gross tons." Id. In
1961, the Act was again amended to reduce the tonnage
requirement to 25 tons. Given that the statutory exception was
originally carved out for commercial tugboats and the like,
there is a strong presumption that pleasure boats like
houseboats were not placed in the same category. As at least
one commentator has concluded, the 1935 amendment "brought
within the Act the greater part of the commercial fishing fleet
as well as pleasure craft." A. Parks, The Law of Tug, Tow, and
Pilotage 845-46 (2d ed. 1982); see also Bass River Assoc. v.
Bass River Township, 573 F. Supp. 205 (D.N.J. 1983) (noting that
houseboats are subject to preferred ship mortgages).
Moreover, as the marina acknowledges, 46 U.S.C. App. § 922
was repealed by and re-enacted as 46 U.S.C. § 30101-31343. The
new statute defining a preferred mortgage, 46 U.S.C. § 31322
(from which the language excluding barges, etc., has been
omitted), was explicitly made effective January 1989, or
January 1990 for vessels for which an application for
documentation had been filed. See Note to 46 U.S.C.A. § 31322;
Pub.L. 100-710, Title I, § 107(a), Nov. 23, 1988. Moreover, the
language of section 31322 states that "a preferred mortgage is
a mortgage, whenever made," that complies with the specified
conditions. Because the Bank's mortgage, although agreed to in
1986, now complies with the conditions of this statute, it
qualifies as a preferred mortgage. Nothing in the language of
this section or the exceptions to the effective date indicate
that section 31322 only applies to mortgages made after the
effective date. Indeed, the fact that section 31322
specifically does not apply to any civil action filed before
January 1, 1989, indicates that it governs all subsequently
filed actions, regardless of when the mortgage was originally
Rule C(2) of the Supplemental Rules for Admiralty and
Maritime Claims provides that, in order to institute an action
in rem, the complaint must be verified, the property must be
described with reasonable particularity, and the complaint must
state that the property is in the district or will be during
the pendency of the action. The original complaint filed by
plaintiff was not verified. Plaintiff has now submitted a
verified complaint that specifically describes the boat in
question. The complaint also states that the boat is in the
possession of the marina based in Freeport, Long Island, within
Having determined that the conditions for an action in rem
exist, the Court authorizes a warrant for the arrest of the
subject vessel to be issued, which warrant shall be delivered
by the Clerk of the Court to the U.S. Marshal for service. See
Supplemental Rule C(3). Pursuant to Rule E(4)(b), the marshal
shall take the ship into the marshal's possession for safe
custody. Pursuant to 46 U.S.C. § 31326(a), the Court orders
that the vessel be sold in order to enforce the Bank's
preferred mortgage lien. Any remaining funds shall be paid to
the marina toward satisfaction of its subordinate maritime
lien.*fn1 Id. In accordance with Supplemental Rule E(9)(c),
sale of the property shall be made by the marshal or deputy
marshal, and the proceeds of the sale shall be paid into the
court registry to be disposed of according to law.