USCA1 Opinion
United States Court of Appeals
United States Court of Appeals
For the First Circuit
For the First Circuit
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No. 94-1959
FANEUIL ADVISORS, INC.,
Plaintiff, Appellant,
v.
O/S SEA HAWK, (O.N. 559409),
HER ENGINES, TACKLE AND APPURTENANCES, IN REM,
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Defendant, Appellee.
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PORTSMOUTH HARBOR TOWING,
Intervenor, Appellee.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Martin F. Loughlin, Senior U.S. District Judge]
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Before
Selya, Boudin and Stahl,
Circuit Judges.
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Harry Barnett with whom Timothy R. McHugh, Lawrence J. Mullen,
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and Hoch & McHugh were on brief for appellant.
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Paul McEachern with whom Shaines & McEachern, P.A. was on brief
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for Portsmouth Harbor Towing, intervenor - appellee.
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March 29, 1995
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STAHL, Circuit Judge. Plaintiff-appellant Faneuil
STAHL, Circuit Judge.
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Advisors, Inc. ("Faneuil"), appeals the district court's
order subordinating Faneuil's preferred ship mortgage on the
O/S Sea Hawk to the salvage claim of intervenor-appellee
Portsmouth Harbor Towing ("PHT"). Because the district court
predicated its order on a misunderstanding of the applicable
law, we reverse.
I.
I.
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BACKGROUND
BACKGROUND
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The Sea Hawk is a forty-five foot Hatteras sport-
fishing boat built in 1974. David Kinchla, its owner during
the time relevant to this case, purchased the boat in January
1988. In August 1988, Kinchla granted a first preferred ship
mortgage on the Sea Hawk to Atlantic Financial Federal
Savings and Loan Association ("Atlantic"), which held
Kinchla's $148,000 note executed in association with his
purchase of the boat. Atlantic eventually went into
receivership and was taken over by the Resolution Trust
Corporation ("RTC"). On April 23, 1993, Faneuil purchased
Kinchla's note and the preferred ship mortgage on the Sea
Hawk from the RTC as part of a pool of fifty-six non-
performing boat loans for a total price of $1,516,000.
As Kinchla's mortgage was making its way through
the receivership netherworld, Kinchla was losing his grip on
the Sea Hawk. He stopped making payments on his note in May
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1991 and filed a Chapter 11 bankruptcy petition on January 6,
1992. On June 3, 1992, the Sea Hawk broke loose from its
mooring in the Hampton-Seabrook Harbor ("Hampton Harbor") and
drifted until it became snagged near the Hampton River
Bridge. Harbormaster William J. Cronin, an employee of the
New Hampshire State Port Authority, enlisted the aid of the
U.S. Coast Guard, which towed the boat to the state pier in
Hampton Harbor. Cronin contacted Kinchla, but Kinchla told
Cronin that he had abandoned his interest in the boat and
that the mortgage-holder intended to foreclose on it. Cronin
testified at his deposition (which was admitted in evidence)
that he attempted to reach the mortgage-holder but had no
success, apparently due to the RTC receivership.1 Because
the state has no facility of its own at Hampton Harbor to
store a boat as large as the Sea Hawk -- the state pier being
a busy, commercial fishing pier -- Cronin arranged for one
Ray Gilmore to take custody of the boat until its ownership
could be sorted out, explaining to Gilmore that he would have
a possessory lien on the boat for reasonable towing and
storage fees.
On July 15, 1992, shortly after 5 a.m., Kinchla and
his son attempted to retake possession of the Sea Hawk by
surreptitiously removing it from Gilmore's mooring in the
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1. The record does not indicate exactly when Atlantic went
into receivership.
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harbor and towing the vessel under the Hampton River Bridge
and out to sea. They did not request an opening of the
drawbridge, however, and in attempting to maneuver the Sea
Hawk under the bridge, lost control of it in the current.
The Sea Hawk slammed broadside into a bridge support,
damaging the vessel's hull, and then slid under the bridge
stern-first, damaging the boat's bridge-superstructure and
outrigger tuna poles. The Coast Guard soon intercepted the
Kinchlas and took them and the Sea Hawk back to the state
pier. Kinchla told Harbormaster Cronin that his attorney had
advised him to retake the boat; both Kinchla and his son were
turned over to the police, and Kinchla was arrested. Gilmore
wanted no further involvement with the Sea Hawk, leaving
Cronin once again with the problem of what to do with the
beleaguered boat.
Here the tales diverge. Stephen Holt, one of PHT's
partners, testified that Cronin contacted him and asked if
PHT would tow the boat to Portsmouth, New Hampshire, and
store it safely in dry storage. Holt claimed that, in a
conference call with the Coast Guard, Cronin specifically
told Holt that this would be a "salvage job." Cronin
testified that he could not remember with whom he spoke at
PHT, whether he mentioned the word "salvage," or even whether
the topic of PHT's compensation ever came up. Cronin
testified that in his mind, this was a tow job. In any
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event, Holt accepted the task, and he and his son went to
Hampton to bring back the Sea Hawk. Both Holt and Cronin
inspected the boat and determined that it was in no danger of
sinking despite the damage it had just sustained.2 Holt and
his son then towed the boat out to open ocean and up the
coast to Portsmouth Harbor, a two-and-one-half-hour trip.
Initially, PHT stored the boat at Patton's Yacht
Yard in Eliot, Maine. Because PHT was paying for this
storage out of its own pocket, however, and, ostensibly, for
insurance reasons, PHT soon moved the Sea Hawk to its own
dock in Portsmouth, where Holt and his partner, Walter
Dunfey, actively maintained the boat and performed some
repairs. PHT attempted to contact the mortgage-holder on
several occasions to establish their claim, but were unable
to locate definitively any party claiming an interest in the
boat.3 PHT never brought an action to foreclose its claimed
salvage lien.
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2. Indeed, Holt was prepared to place his eleven-year-old
son aboard the Sea Hawk to help steer it during the trip back
to Portsmouth, but changed his plans after determining that
the Sea Hawk had lost its steering.
3. On February 10, 1993, an attorney for PHT sent a letter
to Prentiss Properties of Dallas, Texas, which assembled the
loan documents for the RTC's pool of assets that Faneuil
purchased, informing it of PHT's "salvage and storage claim."
Faneuil apparently received this letter at some point,
because it included it in the motion for relief from the
automatic stay it filed in Kinchla's bankruptcy proceeding in
the fall of 1993.
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Finally, on October 26, 1993, with the bankruptcy
court's permission, Faneuil filed a complaint in the district
court initiating this in rem proceeding against the Sea Hawk
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to foreclose its mortgage. Federal marshals arrested the
vessel on December 2, 1993, and moved it to dry storage in
Newington, New Hampshire. PHT intervened in January 1994
asserting its salvage lien. The Sea Hawk was sold at auction
on April 22, 1994, yielding $32,537.20 after deductions for
custodia legis expenses. That amount was placed in escrow,
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pending resolution of PHT's and Faneuil's competing claims to
the sale proceeds. The amount due under Faneuil's mortgage
at the time of trial was $177,676; PHT claimed expenses of
$24,606 plus attorney fees of $6,279.04, or a total of
$30,885.04, in addition to a claimed salvage award of 20% of
the value of the vessel.4 Following a one-day bench trial,
the district court held that, under the law of admiralty and
the federal statutory scheme for disbursing proceeds from a
foreclosure sale of a vessel, PHT had a valid salvage claim
that had priority over Faneuil's preferred ship mortgage, and
also that, because it had expended much time and effort in
preserving the Sea Hawk while Faneuil's purchase of the
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4. PHT's requested expenses included $1,205 in towing and
repairs and $23,101 in marina charges, calculated at $1 per
day per foot, or approximately $1,400 per month for sixteen
months of storage. Great Bay Marina, which stored the Sea
Hawk for the U.S. Marshal pending the foreclosure sale,
charged a total of $900 for a period of approximately five
months.
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mortgage was "a pig in the poke," the equities dictated that
PHT should recover first. Finding all of PHT's expenses
reasonable, the district court awarded PHT $32,885,5
exhausting the sale proceeds. Faneuil now appeals, arguing
that the district court erred in ruling that PHT had a claim
for salvage or any other claim that should prime Faneuil's
mortgage.6
II.
II.
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DISCUSSION
DISCUSSION
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A. Standard of Review
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We may not set aside the district court's factual
findings unless they are clearly erroneous. Dedham Water Co.
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v. Cumberland Farms Dairy, Inc., 972 F.2d 453, 457 (1st Cir.
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1992). Where factual findings are predicated upon errors of
law, however, we accord them diminished deference. Id. See
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also B.V. Bureau Wijsmuller v. United States, 702 F.2d 333,
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342 (2d Cir. 1983) ("Generally an appellate court will not
reverse a salvage award unless the district court yielded to
an erroneous principle, plainly misapprehended the facts . .
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5. This is $2,000 more than claimed. The court's
mathematical error was apparently induced by PHT's trial
brief, which contained the same $2,000 error.
6. Faneuil attacks on appeal other aspects of the district
court's ruling, in particular its failure to make specific
findings justifying the amount of PHT's salvage award. Our
holding as to Faneuil's primary issue on appeal obviates the
need for any discussion on these other issues.
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. or granted an award that was clearly inadequate or
unreasonably excessive.").
B. The Statutory Scheme
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The relative priorities of preferred ship mortgages
and salvage claims are set forth in the Ship Mortgage Act of
1920 (codified as amended in 1988 by Pub. L. No. 100-710, 102
Stat. 4735, at 46 U.S.C. 30101-31343). Congress passed
the Act in order to provide greater protection to private
investment in the shipping industry. Chase Manhattan Fin.
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Servs., Inc. v. McMillian, 896 F.2d 452, 458 (10th Cir.
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1990); Merchants & Marine Bank v. The T.E. Welles, 289 F.2d
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188, 193-94 (5th Cir. 1961). Prior to the Act's passage, a
mortgage on a ship was outranked in admiralty proceedings by
ordinary maritime liens on the ship, even those arising after
the mortgage. McMillian, 896 F.2d at 458. The Act changed
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the law by granting the holders of preferred ship mortgages
"priority over all claims against the vessel (except for
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expenses and fees allowed by the court, costs imposed by the
court, and preferred maritime liens)." 46 U.S.C.
31326(b)(1) (emphasis added). There are just six categories
of preferred maritime liens; one of these categories is liens
for salvage. 46 U.S.C. 31301(5).7 However, liens for
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7. The subsection defines a preferred maritime lien as
a maritime lien on a vessel--
(A) arising before a preferred mortgage
was filed under section 31321 of this
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"necessaries," which include "repairs, supplies, towage, and
the use of a dry dock or marine railway," 46 U.S.C.
31301(4), are ordinary, and are thus subordinate to a
preferred ship mortgage.
C. The Law of Salvage
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The admiralty doctrine of salvage, which rewards
volunteers who save ships from dangers at sea, is an
equitable doctrine that dates back to the Romans.
Wijsmuller, 702 F.2d at 337. To establish a salvage claim,
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PHT must prove three elements: "`1. A marine peril. 2.
Service voluntarily rendered when not required as an existing
duty or from a special contract. 3. Success in whole or in
part, or . . . service [contributing] to such success.'"
Clifford v. M/V Islander, 751 F.2d 1, 5 (1st Cir. 1984)
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(quoting The Sabine, 101 U.S. (11 Otto) 384 (1879)). In this
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case, Faneuil contends that PHT's claim for salvage must fail
because the Sea Hawk was never in "marine peril," which, as
we stated in Clifford,
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title;
(B) for damage arising out of
maritime tort;
(C) for wages of a stevedore
when employed directly by a
person listed in section 31341
of this title;
(D) for wages of the crew of
the vessel;
(E) for general average; or
(F) for salvage, including
contract salvage[.]
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occurs when a vessel is exposed to any
actual or apprehended danger which might
result in her destruction. "All services
rendered at sea to a vessel in distress
are salvage services. It is not
necessary . . . that the distress should
be immediate and absolute; it will be
sufficient if, at the time the assistance
is rendered, the vessel has encountered
any damage or misfortune which might
possibly expose her to destruction if the
services were not rendered." Reasonable
apprehension of peril, whether actual or
not, is enough.
751 F.2d at 5-6 (quoting M. Norris, The Law of Salvage 63,
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at 97). Marine peril has been found to exist in a variety of
circumstances, including where a vessel: had run aground on
a rocky ledge, Wijsmuller, 702 F.2d 333; was adrift with no
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power within a short distance of the coast, The Plymouth
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Rock, 9 F. 413 (S.D.N.Y. 1881); was docked but was close to a
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fire, The John Swan, 50 F. 447 (S.D.N.Y. 1892); was on course
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at sea but where its crew was stricken with yellow fever,
Williamson v. The Alphonso, F. Cas. No 17749 (C.C. Mass.
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1853). On the other hand, courts have found no marine peril
where a vessel: had been holed but was secured in calm
weather and was not sinking, Clifford, 751 F.2d 1; had
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drifted out to sea during a hurricane but subsequently came
to rest and held fast on a mooring in calm waters, Phelan v.
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Minges, 170 F. Supp. 826 (D. Mass. 1959); was adrift as the
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result of bad weather but could have returned to port under
its own power once the weather cleared, The Viola, 52 F. 172
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(C.C. Pa. 1892), aff'd, 55 F. 829 (3d Cir. 1893).
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PHT does not contend, and the district court did
not find, that the damaged Sea Hawk was unseaworthy or in
immediate danger of sinking when PHT took possession of it at
the state pier on July 15, 1992. The district court
apparently predicated its finding that PHT had satisfied its
burden with regard to "marine peril" on the fact that the Sea
Hawk was essentially an orphaned vessel, and eventually
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"would have sunk or deteriorated to the point that it would
have been a derelict or worthless hulk" had PHT not
volunteered as guardian:8
The peril was not immediate or absolute.
Events as already related by this court
showed that there was actual
apprehension, though not of actual
danger. Gilmore had washed his hands and
would not longer deal with the Sea Hawk.
Cronin, who seems to need a mnemonic,
wanted an immediate solution so he would
be freed of an untoward situation. The
Coast Guard did what it had to do and
disembarked from the scene . . . . But
for PHT as heretofore stated and its
expensive remedial action there is no
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8. PHT advances other possible bases for a finding that
marine peril existed: Cronin's testimony that he feared that
Kinchla might return and try to steal the boat again or, even
worse, that he might sink it for insurance proceeds, and that
therefore Cronin had to move the boat out of Hampton Harbor.
This argument is preposterous. First, Kinchla had just been
arrested for trying to retake his boat; he was not likely to
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make another attempt anytime soon. Second, even if another
attempt by Kinchla to seize his boat would have been
unlawful, it would not necessarily have posed any grave peril
to the boat. Third, Cronin's concern about Kinchla sinking
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the boat for insurance seems entirely unfounded: Kinchla was
more than a year behind in his mortgage payments on the boat,
and the record contains no indication that Kinchla was any
more punctual in paying insurance premiums.
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doubt in the court's mind that the boat
would have deteriorated and become
valueless.
Faneuil Advisors v. Seahawk [sic], No. 93-549-L, 1994 WL
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484380, at *4 (D.N.H. Aug. 23, 1994).
In holding that these circumstances constituted a
reasonable apprehension of marine peril, the district court
misreads the salvage cases holding that marine peril need not
be immediate or absolute. While it is true that the threat
need not be imminent, see, e.g., Williamson v. The Alphonso,
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F. Cas. No 17749, the cases make apparent that the threat
must be something more than the inevitable deterioration that
any vessel left untended would suffer; otherwise ordinary
maintenance, repairs and storage -- i.e., "necessaries" --
could easily give rise to salvage liens if a vessel's owner
were particularly negligent in caring for his or her boat.
Such a result could hardly be squared with the intent of the
Ship Mortgage Act.
Moreover, in stating that it had "no doubt" that
the Sea Hawk would have become a worthless hulk without PHT's
intervention, the district court glossed over an important
fact: once the Sea Hawk was intercepted by the Coast Guard
and delivered to Cronin at the state pier, the boat was in
the custody of the State of New Hampshire, which certainly
had the authority, and perhaps the duty, to remove the vessel
from the harbor and store it in a safe location. See, e.g.,
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N.H. Rev. Stat. Ann. 271-A:8 (1987) (giving harbormasters
authority, inter alia, "to require the removal of vessels if
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necessity or an emergency arises"); N.H. Rev. Stat. Ann.
270-B1 to -B7 (1987) (giving director of safety services or
representative authority to impound or order the removal and
storage of abandoned boats, and imposing lien on such boats
for all reasonable charges associated therewith). As already
stated, the Sea Hawk was in no imminent danger of sinking.
We fail to see how such a boat, in the safe custody of a
state officer with statutory authority to provide for its
safekeeping, can possibly be said to be facing "marine
peril," or how any such peril could reasonably be
apprehended.
The district court stated that Cronin "wanted an
immediate solution so he would be freed of an untoward
situation." Id. This is not marine peril; it is mere
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inconvenience, and the state cannot transform an unwanted
tow-and-store job into a salvage job simply by declaring it
to be such (if that is in fact what Cronin attempted to do,
as Holt's testimony suggests). We have scoured the salvage
cases and located not a single one in which a seaworthy
vessel in the safe possession of the state was found to be in
marine peril. Thus, we hold that the district court's
finding that there was reasonable apprehension of marine
peril incorporated clearly erroneous factual assumptions and
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was predicated on an erroneous understanding of the
applicable law. We hold that, under these circumstances, PHT
has failed to prove marine peril or reasonable apprehension
thereof, and therefore it has failed to prove an essential
element of its salvage claim.
D. The District Court's Alternative Holding
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We have also considered whether PHT might be
entitled to recover on the basis of the district court's
implicit alternative ground for its holding -- namely, that
"[i]t is not fair or equitable that the plaintiff should reap
the benefits bestowed on the Sea Hawk by [PHT] when it
contributed nothing to its well being." Faneuil Advisers,
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1994 WL 484380, at *4. Nevertheless, the statutory scheme
permits no contrary conclusion: Congress clearly intended to
afford holders of preferred ship mortgages considerable
protections against irresponsible actions by ship owners, and
the exceptions to their priority status are explicitly
spelled out. See 46 U.S.C. 31301(5), 31326(b)(1). A lien
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for necessaries, even one obtained by the state or its agent
under state law, is not among those exceptions. In fact, any
argument that such a lien might have priority would appear to
be entirely foreclosed by 46 U.S.C. 31307: "This chapter
supersedes any State statute conferring a lien on a vessel to
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the extent the statute establishes a claim to be enforced by
a civil action in rem against the vessel for necessaries."9
While the result we reach may appear harsh, the
priority scheme simply allows for no judicial reordering on
expansive notions of equity where the mortgage holder has
engaged in no inequitable conduct that might justify
subordination of his claim. See Maryland Nat'l Bank v. The
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Vessel Madam Chapel, No. 93-55905, 1995 WL 25833, at *6 (9th
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Cir. 1995) (holding that equitable subordination generally
requires inequitable conduct by mortgagee and reversing order
that had subordinated preferred ship mortgage). It may well
be that other doctrines might supply some basis for relief in
cases such as this one. But no such argument has been made
on appeal, and this is hardly a case for us to attempt to
find a basis on which to remand in order to explore issues
that have never been raised.
CONCLUSION
CONCLUSION
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For the foregoing reasons, the order of the
district court is
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9. That a state statutory lien is superseded should come as
no surprise; not even the federal government's claims against
a vessel are given special dispensation from the priority
scheme. See General Elec. Credit Corp. v. Oil Screw Triton,
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VI, 712 F.2d 991, 995 (5th Cir. 1983) (holding that
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government's claim for expenses in capturing and preserving
vessel seized for violation of narcotics laws -- incurred
before ship came within court's custody -- could not be
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classified as custodia legis expenses, and thus were primed
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by preferred ship mortgage).
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Reversed. Costs to appellant.
Reversed. Costs to appellant.
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