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 ...