United States Court of Appeals Fifth Circuit F I L E D IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT September 19, 2003
Charles R. Fulbruge III No. 02-30250 Clerk
EFFJOHN INTERNATIONAL CRUISE HOLDINGS, INC.; EFF-SHIPPING LTD.,
Plaintiffs-Appellants,
versus
A&L SALES, INC.; RELIABLE DISPOSAL CO., INC.; FRERET MARINE SUPPLY; AMWEST SURETY INSURANCE CO.; SWISS REINSURANCE AMERICA CORP.; COOPER/T SMITH STEVEDORING, INC.; CRESCENT TOWING, INC.; MARINE MEDICAL UNIT, INC.; GEORGE OTT TRANSPORTATION, INC.; CASTROL NORTH AMERICA, INC.; ADVANCE MARINE, INC.; SCHEURING SECURITY, INC.,
Intervenor Plaintiffs-Appellees,
ENCHANTED ISLE MV, ETC.; ET AL.,
Defendants.
No. 02-30335
EFFJOHN INTERNATIONAL CRUISE HOLDINGS, INC.; ET AL.,
Plaintiffs,
A&L SALES, INC.; RELIABLE DISPOSAL CO., INC.; FRERET MARINE SUPPLY; AMWEST SURETY INSURANCE CO.; SWISS REINSURANCE AMERICA CORP.; COOPER/T SMITH STEVEDORING, INC.; CRESCENT TOWING, INC.; MARINE MEDICAL UNIT, INC.; GEORGE OTT TRANSPORTATION, INC.; CASTROL NORTH AMERICA, INC.; ADVANCE MARINE, INC.; SCHEURING SECURITY, INC.,
ENCHANTED ISLE MV, ETC.; ET AL., Defendants,
CUSIMANO PRODUCE CO.,
Movant-Appellant.
No. 02-30360
FRERET MARINE SUPPLY, a division of FRERET HARDWARE, INC.,
Plaintiff-Appellee,
NOEL NOLASCO; EDUARDO SEDO; SERGIY BILOGOLOVY; OLEKSANDR ZHUKOV; YURIY PALAMARCHUK; ET AL.,
ENCHANTED CAPRI MV, Etc.
Defendant,
AMWEST SURETY INSURANCE CO.; SWISS REINSURANCE AMERICA CORP.,
Intervenor Plaintiffs-Appellants.
No. 02-30414
EFFJOHN INTERNATIONAL CRUISE HOLDINGS, INC.,
Plaintiff-Appellee, A&L SALES, INC.; RELIABLE DISPOSAL CO., INC.; FRERET MARINE SUPPLY,
versus AMWEST SURETY INSURANCE CO.; SWISS REINSURANCE AMERICA CORP.;
Intervenor Plaintiffs-Appellants,
Appeals from the United States District Court for the Eastern District of Louisiana
Before SMITH and BARKSDALE, Circuit Judges, and DUPLANTIER,
District Judge.*
RHESA H. BARKSDALE, Circuit Judge:
These consolidated interlocutory appeals are from admiralty
proceedings that arise out of the bankruptcy of New Commodore
Cruise Lines and its vessel-owning affiliates and concern maritime
lien claims by creditors of two Commodore cruise ships. Primarily
at issue are: (1) whether denying intervention by two maritime
lien claimants for one of those two vessels constituted an abuse of
discretion; and (2) whether the surety for a passenger vessel
surety bond has a maritime lien on both vessels. AFFIRMED.
* District Judge for the Eastern District of Louisiana, sitting by designation.
3 I.
In December 2000, Commodore and its vessel-owning affiliates
filed for Chapter 11 bankruptcy in the Southern District of
Florida. Two of Commodore’s cruise ships, the M/V ENCHANTED ISLE
and the M/V ENCHANTED CAPRI, were then stranded in New Orleans,
Louisiana, and subject to the automatic bankruptcy stay. The
bankruptcy court in Florida lifted the stay so that these stranded
vessels could be arrested. The district court for the Eastern
District of Louisiana thus obtained admiralty jurisdiction. Each
vessel had numerous creditors, with some asserting maritime liens.
These interlocutory appeals concern such liens. See generally 1
THOMAS J. SCHOENBAUM, ADMIRALTY AND MARITIME LAW § 9 (3d ed. 2001).
A maritime lien is a special property right in a vessel,
giving the lien-holder priority over some claimants. Upon a
vessel’s sale by court order in an in rem action to enforce a lien
on that vessel, all pre-existing claims in the vessel are
terminated and attach in accordance with their priorities to the
sale proceeds. See 46 U.S.C. § 31326. Proceeds go first to
expenses, and fees allowed and costs taxed by the court. See id.
Preferred maritime liens are then satisfied, followed by preferred
mortgage liens, and then non-preferred maritime liens (except that
a preferred mortgage on a foreign vessel not guaranteed under the
Merchant Marine Act is subordinate to maritime liens). See id.
4 Non-maritime claims are not within admiralty jurisdiction and
may not be enforced in an in rem proceeding. See id. Obviously,
creditors prefer to have a maritime lien.
Under the United States Commercial Instruments and Maritime
Lien Act (CIMLA) (formerly Federal Maritime Lien Act), any person
furnishing repairs, supplies, towage, usage of drydock or marine
railway, or other necessaries, to any foreign or domestic vessel
has a maritime lien on that vessel. 46 U.S.C. §§ 31301, 31342.
[A] person providing necessaries to a vessel on the order of the owner or a person authorized by the owner —
(1) has a maritime lien on the vessel;
(2) may bring a civil action in rem to enforce the lien; and
(3) is not required to allege or prove in the action that credit was given to the vessel.
46 U.S.C. § 31342(a).
Maritime liens for necessaries “developed as a necessary
incident of the operation of vessels”. Silver Star Enter., Inc. v.
Saramacca MV, 82 F.3d 666, 668 (5th Cir. 1996) (internal quotation
omitted). They “secure[ ] creditors who provide supplies which are
necessary to keep the ship going”. Id. (internal quotation
omitted).
Because a ship moves from place to place, it is peculiarly subject to the vicissitudes that would compel abandonment of the vessel or voyage, unless repairs and supplies are
5 promptly furnished. Moreover, a ship is often absent from her home port without access to funds and, as a result, must be able to obtain upon her own account needed repairs and supplies. That and the resulting need to ensure that a ship did not sail away from its debts contributed to the creation of the maritime lien.
Racal Survey U.S.A., Inc. v. M/V COUNT FLEET, 231 F.3d 183, 187
(5th Cir. 2000)(internal citation omitted), cert. denied, 532 U.S.
1051 (2001).
The lien arises in favor of the creditor by operation of law
and grants the creditor the right to appropriate the vessel, have
it sold, and be repaid the debt from the proceeds. Silver Star
Enter., 92 F.3d at 668. The lien is against the vessel and only
indirectly connected with the owner. Equilease Corp. v. M/V
SAMPSON, 793 F.2d 598, 602 (5th Cir.), cert. denied, 479 U.S. 984
(1986). “The maritime lien concept thus somewhat personifies a
vessel as an entity with potential liabilities independent and
apart from the personal liability of its owner”. Id.
A.
The M/V ENCHANTED ISLE (ISLE), the first Commodore vessel at
issue, was owned by Almira Enterprises, a Commodore affiliate. The
ISLE’s creditors include, among others, several of the key parties
in these consolidated actions: Effjohn International Cruise
Holdings, Inc.; Freret Marine Supply; Cusimano Produce Co.; and
Amwest Surety Insurance Co. and Swiss Reinsurance America Corp.
6 (Swiss Re; it and Amwest are collectively referred to as the
Sureties).
Effjohn has three claims; at issue is the one it was not
permitted to add to the proceedings. The first claim concerns its
loan to Almira, secured by a foreign preferred ship mortgage
bearing against the ISLE. (At the time of the bankruptcy, Almira
owed Effjohn principal of approximately $4 million.) For this
loan, Effjohn asserts an in rem claim against the ISLE. The second
claim is a maritime lien for custodial expenses (wharfage,
insurance, and related expenses advanced while the vessel was in
legal custody of the bankruptcy court) and crew wage and related
expenses (payments to, and repatriation of, the stranded crew).
Finally, for its third claim, at issue here, Effjohn seeks to
assert domestic maritime lien claims it acquired from former ISLE
creditors by assignment and subrogation for approximately 50 cents
on the dollar. It was not permitted to do so.
Freret provided supplies to the ISLE, on the credit of the
vessel, worth approximately $120,000. It claims “necessaries”
protection under 46 U.S.C. § 31342(a)(1).
Cusimano is a New Orleans produce company. Between October
and December 2000, Cusimano provided fresh produce and supplies
worth approximately $65,000 to the ISLE, for which it was not paid.
Cusimano claims a maritime lien for necessaries based on the
7 supplied produce. It was not permitted to intervene to make this
claim.
The Sureties issued a Federal Maritime Commission Passenger
Vessel Surety Bond (the bond) to Commodore to cover its vessels,
including the ISLE and the M/V ENCHANTED CAPRI, discussed infra.
The bond provided security for passengers who pre-paid for cruises
on one of Commodore’s vessels, but who, through no fault of their
own, never sailed; it required the Sureties to refund unearned
passenger revenues up to $15 million if Commodore was unable to do
so. (Under 46 U.S.C. § 817e and 46 C.F.R. Part 540.1 et seq., a
passenger vessel operator must post such a bond or otherwise prove
financial responsibility.) Swiss Re reinsured the bond and was a
co-surety with Amwest. The Sureties claim a maritime lien for
necessaries against the ISLE, based on the bond. (As discussed
infra, they have the same claim against the M/V ENCHANTED CAPRI.)
Commodore’s bankruptcy filing was in December 2000. In late
August 2001, at Effjohn’s request, the bankruptcy court lifted the
automatic bankruptcy stay for the ISLE, so that Effjohn could
arrest the vessel pursuant to Supplemental Admiralty Rule C of the
Federal Rules of Civil Procedure and foreclose on its mortgage.
Shortly thereafter, Effjohn filed a verified complaint and arrested
the vessel. Numerous other creditors intervened (including Freret
and Amwest).
8 Almira was served on 4 September. In October, at Effjohn’s
request, Almira was defaulted as in rem defendant under FED. R. CIV.
P. 55(a), because Almira had expressed no interest in appearing to
defend its vessel.
That same month (October 2001), Effjohn moved unopposed for an
interlocutory sale, suggesting a sale date of 6 December 2001 and
a minimum bid of $1.5 million. It also requested permission to bid
in its mortgage and other credits (approximately $6 million). The
motion was granted 31 October, with the sale scheduled for 6
December. (31 October was also the date of the last intervention of
record.)
On 1 November 2001, Effjohn requested a second Rule 55(a)
entry of default against Almira; this was against Almira in its
capacity as an in personam defendant. The motion was granted, with
an entry of default on 8 November.
After publishing notice in compliance with Rule 55(a), Effjohn
requested an entry of default against non-parties. The motion was
granted, with entry of default on 8 November against “any person,
natural or juridical, who has not already intervened or filed a
complaint or claim in this action”.
On 21 November (approximately two weeks before the scheduled
sale), the Freret claimants, having formed a syndicate of creditors
and other investors, moved to increase the minimum bid and to allow
the syndicate to make a credit bid at the auction. Increasing the
9 minimum bid was denied as untimely; the unopposed credit bid
request, granted.
The auction was held 6 December 2001. Effjohn was the
successful bidder (approximately $2.6 million; the sale was
confirmed in May 2002).
On the day before the scheduled 6 December sale, and after
publishing notice as required, intervenor Amwest had moved for a
Rule 55(a) entry of default against all non-parties (as had
Effjohn). Shortly after the sale, Amwest’s motion was granted;
another Rule 55(a) entry of default against non-parties was entered
on 11 December 2001. In sum, there were four entries of default,
including two against non-parties.
B.
The M/V ENCHANTED CAPRI (CAPRI) is the other Commodore vessel
at issue. In January 2001, the automatic bankruptcy stay was
lifted against the CAPRI; and Freret arrested the vessel under
Supplemental Admiralty Rule C. Pursuant to 46 U.S.C. § 31342,
Freret claimed a maritime lien for necessaries furnished the CAPRI.
As in the action against the ISLE, several other creditors
intervened, including Effjohn, Cusimano, and the Sureties. At
issue is the Sureties’ claim for a maritime lien for necessaries,
based on the Sureties’ passenger vessel surety bond issued to
Commodore.
10 II.
These consolidated admiralty interlocutory appeals concern
maritime lien claims from different actions. First, Effjohn and
Cusimano appeal the denial of their motions to intervene to assert
such claims in the ISLE action. (A sub-issue concerning Effjohn is
its motion to amend its complaint being construed by the district
court as one to intervene. One concerning Cusimano is the district
court’s refusing to set aside the entry of default.) Second, the
Sureties appeal the dismissal of their claims in the actions
against the ISLE and the CAPRI.
Denial of a motion to intervene, based on its untimeliness, is
reviewed for abuse of discretion as long as the district court
“articulate[s] the reason the motion was untimely”, including
addressing the appropriate factors. John Doe # 1 v. Glickman, 256
F.3d 371, 376 (5th Cir. 2001). A district court’s refusal to set
aside an entry of default is likewise reviewed for abuse of
discretion. CJC Holdings, Inc. v. Wright & Lato, Inc., 979 F.2d
60, 63 (5th Cir. 1992). Factual findings are, of course, reviewed
only for clear error. E.g., id. at 64.
1.
In the ISLE action, three days before the 6 December 2001
sale, Effjohn moved to amend its complaint. Effjohn sought to add
approximately $500,000, the earlier-described claims acquired from
11 other creditors; Freret and the Sureties opposed the motion; and
the district court scheduled a post-sale hearing.
In late December, post-sale and after hearing argument, the
district court denied as “untimely as a matter of law”, Effjohn’s
motion to amend. The court provided the following reasons: (1) it
agreed with Freret that the motion was “an ill-disguised motion for
leave to intervene” and was “not in the nature of a correction”,
because it “assert[ed] the claims of parties who did not timely
assert claims in the ... proceedings”; (2) Effjohn sought, at a
“late date”, to add more than $500,000 in “new claims”; (3) the 7
November entry of default had been at Effjohn’s request; (4) at
Amwest’s request, a second entry of default was entered 11
December; (5) the court would not permit Effjohn to “circumvent the
Entry of Default and the deadline imposed for the filing of
intervention” — the defaults “bar the addition of new claims” and
“[s]ubrogation to claims which have been barred should place the
subrogee in no better stead than the original claimants, whose
interventions were barred”; and (6) the motion to confirm the sale
was pending and, but for Effjohn’s failure to produce acceptable
security, the lien-phase of the action would have been “well on its
way”.
Effjohn moved the court to reconsider, asserting that, even if
its motion was to intervene rather than to amend, it should have
been granted. This motion, opposed by Freret and the Sureties, was
12 denied for the following reasons: (1) “it [wa]s evident that all
parties were aware that this matter was swiftly approaching its
anticipated conclusion and deadlines ... passed unheeded”; (2) the
court had “been apprised of no circumstances that prevented those
potential lien claimants with whom Effjohn was negotiating from
timely asserting their claims, preserving their own right and the
derivative rights of any subrogee or assignee to amend and assert
the claims”; (3) “Effjohn should not be allowed to contradict the
deadlines imposed against all other potential claimants”; (4)
“[t]he facts, circumstances, and stage of this particular case,
considered together with the posturing of the parties, who are all
claimants to a limited fund, do not warrant a ruling commensurate
with the default setting of Rule 15, allowing amendments to the
pleadings liberally”; (5) “[t]he prejudice created by Effjohn’s
undue delay in attempting to add subrogated or newly assigned
claims only three days prior to the sale [was] sufficiently
detailed in [Freret’s opposition memorandum]”; (6) even a Rule 15
motion to amend should not be granted; and (7) Effjohn had
presented no new factors or changes in the controlling law.
Effjohn maintains that the district court erred: (1) in
construing its motion as one to intervene — instead, it was to
amend or supplement a complaint; and (2) in denying the motion.
13 In claiming the motion was not for intervention, Effjohn notes
it was the lead plaintiff and asserts it could not have intervened
in its own action. It insists: the proper analysis would have
been under Rule 15 (amend), which is more lenient than Rule 24(a)
(intervene); and, under Rule 15, its motion would have been
granted. The district court’s construing the motion as one for
intervention is a legal issue, reviewed de novo.
For starters, a court is not bound by how a party labels its
motion. Obviously, “[t]he relief sought, that to be granted, or
within the power of the court to grant, should be determined by
substance, not a label”. Edwards v. City of Houston, 78 F.3d 983,
995 (5th Cir. 1996) (en banc) (alteration in original; internal
quotation omitted). As noted, this principle is more than well
established. E.g., United States v. Buck, 281 F.3d 1336, 1342
(10th Cir. 2002) (“substance of the plea should control, not the
label”), cert. denied, 123 S. Ct. 1784 (2003). In this regard,
courts have applied intervention or joinder standards to motions to
amend when plaintiffs have sought, by that means, to add claims of
additional parties. Montgomery v. Rumsfeld, 572 F.2d 250, 255 (9th
Cir. 1978) (applying Rule 24 intervention standards); Trombino v.
Transit Cas. Co., 110 F.R.D. 139, 141 (D.R.I. 1986)(applying Rule
19 joinder standards).
Effjohn sought to add new claims of other creditors that it
had acquired through assignment and subrogation (at a fifty-percent
14 discount). Had those creditors attempted to assert the claims,
rather than convey them to Effjohn, they would have had to
intervene under Rule 24. Although the claims were acquired (but
not asserted) prior to the default entries, Effjohn’s theory that
amendment was appropriate would allow it to acquire claims post-
default that could no longer be brought and assert them by amending
its complaint. Under these circumstances, the district court did
not err in construing the motion as one for intervention.
Effjohn next maintains that, even if its motion were for
intervention, it was timely under the intervention standards.
Effjohn urges that the denial should be reviewed de novo. However,
because the district court articulated its reasons for denying the
motion as untimely (described supra), including discussing factors
in the four-part framework for determining timeliness (described
infra), we instead review for abuse of discretion. See Glickman,
256 F.3d at 376. (Again, we review factual findings only for clear
error.)
Rule 24(a) governs interventions of right. FED. R. CIV. P.
24(a); Ruiz v. Estelle, 161 F.3d 814, 827 (5th Cir. 1998), cert.
denied, 526 U.S. 158 (1999). Pursuant to that Rule, a party is
entitled to such intervention if: (1) the motion is timely; (2)
the putative intervenor asserts an interest related to the property
or transaction that forms the basis of the controversy in the
15 action into which he seeks to intervene; (3) the disposition of the
action may impair or impede his ability to protect that interest;
and (4) it is not adequately represented by the existing parties.
E.g., Glickman, 256 F.3d at 375. Generally, intervention is proper
“where no one would be hurt and the greater justice could be
attained”. Sierra Club v. Espy, 18 F.3d 1202, 1205 (5th Cir. 1994)
(internal quotation omitted). See generally 6 JAMES W. MOORE, MOORE’S
FEDERAL PRACTICE § 24.03[1][a], at 24-23 (Matthew Bender 3d ed. 2003).
Here, of course, the only factor at issue is timeliness. For
that factor, another four-part framework is applied: (1) how long
the putative intervenor knew, or reasonably should have known, of
its stake in the action; (2) the prejudice, if any, the existing
parties may suffer because the putative intervenor failed to
intervene when it knew, or reasonably should have known, of its
stake; (3) the prejudice, if any, the putative intervenor may
suffer if intervention is not allowed; and (4) any unusual
circumstances weighing in favor of, or against, finding timeliness.
E.g., Glickman, 256 F.3d at 375-76. These factors are “not a
formula for determining timeliness”; instead, it should be
determined based on all the circumstances. Id. at 376 (internal
quotation omitted). See also, e.g., Banco De Credito Industrial,
S.A. v. Tesoreria General, 990 F.2d 827, 832 (5th Cir. 1993)
(timeliness is flexible, based on specific facts and circumstances,
16 and measured by “practical rather than technical yardstick”), cert.
denied, 510 U.S. 1071 (1994).
Regarding how long Effjohn knew, or should have known, of its
stake, this factor weighs heavily against intervention. We
consider “the movant’s failure to apply for intervention as soon as
it knew or reasonably should have known of its interest”. E.g.,
Lelsz v. Kavanagh, 710 F.2d 1040, 1044 (5th Cir. 1983) (internal
quotation omitted; emphasis added). The assignments to Effjohn
were made between 29 June and 20 September 2001; it admits knowing
of its stake in all of these additional claims on 20 September at
the latest. Yet, from the date it acquired the last claim, it
waited approximately two and one-half months — until 3 December,
only three days pre-sale — to bring these claims to the court’s
attention. (This was well past the 8 November default entered at
Effjohn’s request.) Effjohn cites cases in which longer delays
were allowed; again, however, the length of a delay allowed depends
on the particular circumstances. E.g., Sierra Club, 18 F.3d at
1205 (absolute measure of time elapsed is not relevant). As the
lead plaintiff in these proceedings, Effjohn was obviously well
aware of the events in the litigation and cannot claim ignorance.
Prejudice to other parties also weighs against intervention.
The inquiry for this factor is whether other parties were
prejudiced by the delay, not whether they would be prejudiced by
the addition of the claim (obviously, in the sense that they may
17 obtain less, existing parties are always prejudiced by new claims).
See Assoc. of Prof’l Flight Attendants v. Gibbs, 804 F.2d 318, 321
(5th Cir. 1986) (intervention allowed as timely where no more
distressing to other parties at late date than at earlier one). As
the district court found, Freret was prejudiced by the delay
because: it relied on the amounts in Effjohn’s complaint in
determining its bidding strategy; and had it known of these claims,
it could have created a larger syndicate of investors to increase
the sale price and would have been more open to settling its
claims.
Concerning prejudice to the would-be intervenor, Effjohn would
obviously suffer some prejudice by not being allowed to intervene
because it will not be able to assert approximately $500,000 in
maritime lien claims. On the other hand, the prejudice is not as
severe as in many cases in which intervention has been allowed.
E.g., Amberg v. Federal Deposit Ins. Corp., 934 F.2d 681 (5th Cir.
1991) (reversing to allow intervention where party had complied
with statute); Crabtree v. S/S JULIA, 290 F.2d 478 (5th Cir. 1961)
(reversing refusal to allow individual seaman to assert claim for
maintenance and injuries); Point Landing, Inc. v. Alabama Dry Dock
& Shipbuild. Co., 261 F.2d 861 (5th Cir. 1958) (reversal of
intervention denial where maritime lien-holder complied with
conditions stated in notice and court’s decree). Moreover, Effjohn
is not a stranger to the litigation which became aware of its
18 substantial new claim only shortly before the sale; nor, for
example, is it an unsophisticated ward of the court. In short, the
prejudice to Effjohn was of its own making.
Finally, two unusual circumstances weigh against allowing
intervention. First, as mentioned, Effjohn had full knowledge of
the litigation and lacked good cause for delay. It maintains,
apparently without record support, that processing these claims was
delayed by the terrorist events of 11 September 2001 (Effjohn’s New
York office was apparently handling the paperwork). However,
several of the assignments were received well before that date, and
Effjohn’s local counsel was undoubtedly aware of the existence of
the claims. Yet, Effjohn failed to bring them to the court’s
attention until 3 December.
Second, default had been entered at Effjohn’s request.
(Although Effjohn did miss Amwest’s deadline for claims (23
November), the second default against non-parties was entered 11
December at Amwest’s request, after Effjohn moved to amend.)
Effjohn sought to block others by imposing deadlines and an entry
of default; yet, it sat on its own claims. Effjohn makes much of
the fact that the default was at its own request and insists it did
not intend to block itself. However, Effjohn ignores the inequity
of its ensuring other parties could not bring late claims while
attempting to do so itself.
19 Effjohn maintains that the default did not actually bar its
claims, insisting: the default entry did not apply to it, because
it was already a party; and, even if the default did apply to
Effjohn, it should have been set aside. The default entry states:
“DEFAULT IS HEREBY ENTERED as against any person, natural or
juridical, who has not already intervened or filed a complaint or
claim in this action”.
These terms do not expressly apply to Effjohn; it was already
a party. But, they arguably apply to Effjohn’s new claims (which,
as discussed supra, were properly viewed as claims that had to be
brought through intervention). Regardless, the district court did
not hold the claims barred by the default; it considered the
default as one factor in the timeliness inquiry. Even assuming the
default technically did not apply to the claims, the purpose of the
entry of default was to ensure that all claims were before the
court. Effjohn’s delay in bringing new claims is unjustified in
the light of the default.
Under these facts, the district court did not abuse its
discretion in holding Effjohn’s motion untimely. Therefore, the
addition of Effjohn’s new claims was properly denied.
2.
As noted, Cusimano provided produce to the ISLE. When
Commodore and its affiliates filed for bankruptcy, claimants were
required to file proofs of claim in each proceeding. Cusimano
20 received personal notice of the bankruptcy for two of the cases
(those involving Commodore and the CAPRI, not the ISLE) and timely
filed proofs of claim in those proceedings. It neither received
personal notice in the proceedings involving the ISLE nor filed a
proof of claim in them. Accordingly, it did not receive notice of
the bankruptcy stay being lifted and the arrest of the ISLE.
On 7 February 2002 (over two months after the sale of the
ISLE), Cusimano moved to set aside the entry of default and for
leave to intervene. Freret and Amwest opposed the motion.
Following argument, the district court in March 2002 denied the
motion, as follows:
The Court finds that Cusimano has failed to establish good cause for failing to file a timely claim in this proceeding. The legal notice published in this matter was more than adequate, particularly given that Cusimano had actual notice of facts leading up to this in rem proceeding. Equally important is the prejudice that the timely claimants will suffer if the default is set aside and additional claimants allowed to straggle into these proceedings. For these reasons, and for the reasons stated at oral argument by counsel for Freret ... the Court finds that the equities weigh against setting aside the default.
(Emphasis added.)
Cusimano maintains the district court abused its discretion by
refusing: (1) to set aside the entry of default; and (2) to allow
intervention. (Because we determine the district court was within
21 its discretion to refuse to set aside the default, we do not reach
the intervention issue.)
As stated, refusing to set aside a Rule 55(a) entry of default
is reviewed for abuse of discretion. Defaults are not favored and
their strict enforcement “has no place in the Federal Rules”.
Amberg, 934 F.2d at 686. (Our court has left open the question
whether the standard for relief from entries of default (Rule
55(a)) is more lenient than that for a default judgment (Rule
55(b)), CJC Holdings, Inc., 979 F.2d at 63 n.1; however, we
generally examine the same factors. Id. at 64. In any event,
entries of default are serious; “where there are no intervening
equities[,] any doubt should ... be resolved in favor of the movant
to the end of securing a trial upon the merits”. Lacy v. Sitel
Corp., 227 F.3d 290, 292 (5th Cir. 2000) (quotation and citation
omitted).)
“For good cause shown the court may set aside an entry of
default....” FED. R. CIV. P. 55(c) (emphasis added). “[T]he
requirement of ‘good cause’ ... ha[s] generally been interpreted
liberally”. Amberg, 934 F.2d at 685 (internal citation omitted).
Three factors are examined for determining “good cause” vel non:
(1) whether the failure to act was willful; (2) whether setting the
default aside would prejudice the adversary; and (3) whether a
meritorious claim has been presented. Lacy, 227 F.3d at 292.
These factors are not exclusive; instead, they are to be regarded
22 simply as a means to identify good cause. Dierschke v. O’Cheskey,
975 F.2d 181, 184 (5th Cir. 1992). Other factors may be
considered, such as whether the party acted expeditiously to
correct the default. Id.
The first factor (willfulness) weighs in favor of the district
court’s not setting aside the entry of default. The court did not
find that Cusimano’s failure to respond was intentional; instead,
it found Cusimano’s neglect was not excusable. See CJC Holdings,
Inc., 979 F.2d at 64 (“willfulness” inquiry is whether neglect
excusable).
Willfulness vel non is a finding of fact reviewed only for
clear error. See id. This finding was not clearly erroneous.
Cusimano states that it did not become aware of the action
involving the ISLE until early February 2002, shortly before filing
its 8 February intervention motion. On the other hand, Freret
represents that, prior to then, Cusimano had actual notice of the
action. It reasons Cusimano: (1) was a claimant in the
proceedings involving the CAPRI and therefore knew of the initial
underlying facts; (2) received a 20 June 2001 letter from Effjohn
offering to pay 50 percent of the face value for Cusimano’s claim
against the ISLE and responded to that letter; and (3) received a
disclosure statement in either October or November 2001 evidencing
that the ISLE was the subject of admiralty proceedings. The
23 district court found Cusimano had actual notice of the facts
leading up to the in rem proceeding for the ISLE.
Cusimano also contends it had no reason to know of the ISLE-
action because it did not receive personal notice. Freret points
to several publications in the Times-Picayune (New Orleans
newspaper) that it claims constitute at least constructive notice:
(1) Effjohn’s 12 September 2001 publication of notice of the
ISLE’s arrest and the deadline for asserting new claims; (2)
Amwest’s 8 November publication of notice of arrest, providing a
second deadline for the assertion of claims; and (3) three
publications of notice of the interlocutory sale of the ISLE (16,
26, and 30 November). The district court found the published legal
notice “more than adequate”. In short, Cusimano’s neglect was not
excusable.
For the second factor, as earlier-quoted, the court noted the
prejudice caused by allowing additional claimants “to straggle into
these proceedings”. As with Effjohn’s claim, discussed above,
there was some prejudice to other parties caused by the delay.
Regarding the third factor (meritoriousness of Cusimano’s
claim), there is no dispute that Cusimano would have a valid
maritime lien against the ISLE. This favors setting aside the
entry of default.
In sum, although entries of default are not favored, the
district court did not abuse its discretion.
24 B.
The Sureties’ claims involve whether a maritime lien arises
out of their bond that applied to both vessels. The Sureties
intervened in the proceedings involving each vessel, asserting
maritime liens for necessaries. In the ISLE proceedings, Freret
and Effjohn each moved in January 2002 for summary judgment against
the Sureties’ claims, contending: (1) the bond was not a maritime
contract; (2) the Sureties do not have maritime liens against the
ISLE because the bond was not a necessary and was not provided to
a particular vessel; and (3) the Sureties do not have a maritime
lien through the vessel’s passengers. In the CAPRI proceedings,
Freret filed a similar motion, which the crew joined.
Following argument, the district court granted the motions,
ruling: the bond is not a maritime contract; the Sureties do not
have a maritime lien for necessaries; and the Sureties do not have
a maritime lien through the passengers because the passengers do
not have maritime liens.
On appeal, the Sureties maintain: (1) the bond (a) is a
maritime contract (b) that gives rise to a maritime lien for
“necessaries”; and (2) in the alternative, the Sureties are
subrogated to the claims of the passengers, who have maritime liens
against the vessels. A summary judgment is reviewed de novo.
E.g., Taita Chem. Co., Ltd. v. Westlake Styrene Corp., 246 F.3d
25 377, 385 (5th Cir. 2001). See FED. R. CIV. P. 56. There are no
material fact issues.
For the bond, a maritime lien exists only if: (1) the bond is
a maritime contract subject to admiralty jurisdiction, e.g.,
Wilkins v. Commercial Investment Trust Corp., 153 F.3d 1273, 1276
(11th Cir. 1998) (“Maritime jurisdiction is a prerequisite to a
claim against a vessel asserting a maritime lien”); and (2) the
bond is a necessary provided to a vessel, see 46 U.S.C. § 31342(a)
(“[a] person providing necessaries to a vessel on the order of the
owner [or authorized person] ... has a maritime lien on the
vessel...”).
Admiralty jurisdiction’s boundaries for contracts are
difficult to draw. Kossick v. United Fruit Co., 365 U.S. 731, 735
(1961). “[I]n determining whether a contract falls within
admiralty, the true criterion is the nature and subject-matter of
the contract, as whether it was a maritime contract, having
reference to maritime service or maritime transactions”. Exxon
Corp. v. Central Gulf Lines, Inc., 500 U.S. 603, 610 (1991)
(internal quotations omitted). The key is “whether the services
... performed [under] the contract are maritime in nature”. Id. at
612. Along this line, the “character of the work to be performed”
is determinative, not “the [contract’s] value ... to the shipping
industry”. Planned Premium Servs. of Louisiana, Inc. v. Int’l Ins.
26 Agents, Inc., 928 F.2d 164, 166 (5th Cir. 1991) (internal citation
and quotation omitted). If the “essence of the services provided”
under the contract is non-maritime (“identical to or essentially
similar to non-maritime services regularly performed by those not
involved in the operation of vessels”), it is not a maritime
contract. Id.
The Sureties urge a broad test for whether a contract is a
maritime contract, citing Archawksi v. Hanioti, 350 U.S. 532
(1956), for the proposition that, where the underlying contract is
maritime and the controversy grows directly out of a claim for non-
performance on that contract, an admiralty court has jurisdiction,
even where money damages are sought. Accordingly, they insist:
the underlying contract for the transport of passengers is a
maritime contract; and their claim arises out of that contract.
The Sureties take too broad a view of maritime jurisdiction.
“Not every contract that relates to maritime matters warrants the
invocation of admiralty jurisdiction.” Planned Premium Servs. of
Louisiana, 928 F.2d at 166. For example, “a performance bond which
compensates an obligee for loss in the event of nonperformance by
the principal obligor is not a maritime contract”. Aqua-Marine
Constructors, Inc. v. Banks, 110 F.3d 663, 671 (9th Cir. 1997).
Quoting a maritime law treatise, Aqua-Marine stated:
[A] bond securing the performance of a charter party is not a maritime contract for the purposes of admiralty jurisdiction, although
27 the charter party itself is a maritime contract; the surety on the bond neither promises performance of the charter party nor is [s]he authorized to do so; h[er] obligation is merely to pay damages in the event of non-performance. Where, however, there is a promise to perform a charter in the default of another, there is a maritime contract.
Id. (citing 1 STEVEN F. FREIDELL, BENEDICT ON ADMIRALTY § 183, at 12-10
(1996)) (alterations in original).
In addition to the district court in this case, at least one
other court has addressed directly whether a passenger vessel
surety bond is a maritime contract. See Patricia Hayes &
Associates, Inc. v. M/V BIG RED BOAT, II, 2002 A.M.C. 1722
(S.D.N.Y. 2002). Relying on Fednav, Ltd. v. Isoramar, S.A., 925
F.2d 599 (2nd Cir. 1991) (vessel owner’s agreement to contribute to
lessee’s settlement of claim not maritime contract because subject
matter of suit was covenant to pay damages) and Pacific Surety Co.
v. Leatham & Smith Towing & Wrecking Co., 151 F. 440 (7th Cir.
1907) (bond between surety and charterer to guarantee charterer’s
performance of charter party not maritime contract), it held: a
passenger vessel surety bond, under which sureties “merely agreed
to refund passenger monies for unperformed cruises on [the
vessel]”, was not a maritime contract and thus could not give rise
to a maritime lien. Patricia Hayes, 2002 A.M.C. 1722.
The Sureties maintain that Aqua-Marine and Patricia Hayes
conflict with New England Marine Insurance Co. v. Dunham, 78 U.S.
28 1 (1870), which held that a contract of marine insurance was a
maritime contract giving rise to maritime jurisdiction. They
contend maritime insurance is indistinguishable from surety
obligations: like the bond at issue, an insurance policy is an
agreement to pay the debts of the vessel or its owner which have
been contracted under maritime law.
Although insurance creates an obligation for the insurer to
pay damages, rather than to perform the insured’s obligations, it
is distinguishable. Maritime insurance insures against the
considerable “risks of navigation” faced by vessels; these risks
have been long-regarded as maritime and insuring against them has
been part of the “general maritime law of the world”. Dunham, 78
U.S. at 33-34. By contrast, the passenger surety bond is not a
well-established part of maritime law and can only be drawn upon in
the event of non-navigation. Moreover, the Supreme Court has
acknowledged (post-Dunham) that merely agreeing as surety “to pay
damages for another’s breach of a maritime charter is not [a
maritime contract]” while “a contract ... to insure a ship ... is
maritime”. Kossick, 365 U.S. at 735.
The service to be performed under the bond (reimbursing those
who made a deposit for a cruise but never sail) is non-maritime in
nature. The bond is a consumer protection measure, with no direct
relationship to the operation of the vessel. The bond does not
relate to the carriage of passengers; it merely makes good on the
29 owners’ financial obligations by reimbursing the passengers if the
cruise is not performed. In sum, there is nothing inherently
maritime about the Sureties’ business or the bond. Accordingly,
it does not fall within admiralty jurisdiction.
In the alternative, the Sureties claim they have a maritime
lien because they are subrogated to claims of pre-paid prospective
passengers. Of course, the Sureties do not have a maritime lien if
the passengers, involved in this regard in an executory contract,
do not have one. They do not.
An executory contract, of course, is one that has yet to be
fully performed. For example, when passengers pay in advance for
a cruise, the tickets issued them in exchange are wholly executory
until the passengers board the ship and embark.
The breach of an executory contract does not create a maritime lien. This legal principle has gained universal acceptance in American law, and is applied in contracts involving the carriage of goods, transportation of passengers, and the provision of supplies, repairs, and services to a vessel.
SCHOENBAUM at § 9-2. See also BargeCarib, Inc. v. Offshore Supply
Ships, Inc., 168 F.3d 227, 230 (5th Cir. 1999) (“[b]reach of a time
charter by the owner gives rise to a maritime lien as long as the
vessel has been delivered to the charterer and the contract is no
longer executory” (emphasis added)); E.A.S.T., Inc. of Stamford v.
M/V ALAIA, 876 F.2d 1168, 1174 (5th Cir. 1989) (executory contract
30 doctrine “precludes the creation of a maritime lien for breach of
a contract that is merely executory” as a “maritime lien is based
... on the fiction that the vessel may be a defendant in a breach
of contract action when the vessel itself has begun to perform
under the contract” (emphasis in original)); Belvedere v. Compania
Plomari De Vapores, 189 F.2d 148 (5th Cir. 1951) (no in rem claim
for failure to transport cargo where voyage not completed because
of engine trouble, because no cargo was loaded and vessel was never
ready to receive it at the loading port).
The executory contract rule applies to contracts for passage
aboard vessels; and if “the vessel repudiates the contract before
passengers have boarded ... there is no lien for return of prepaid
passage money”. SCHOENBAUM at § 9-2. Likewise, Todd Shipyards Corp.
v. THE CITY OF ATHENS, 83 F. Supp. 67 (D. Md.), aff’d, 177 F.2d 96
(4th Cir. 1949), held that passengers who had not “boarded the ship
for transportation” did not have a maritime lien against the ship
for nonperformance of transportation obligations.
[E]ven if we assume that a common carrier may be sued in tort for failure to fulfill an executory obligation to a passenger, who did not come within the care or control of the carrier[,] ... it does not follow that a breach of such executory contract creates a lien in rem. Thus it may well be that the shipowner in the present case may be sued in tort by the prospective passengers either in the civil courts or even in personam in admiralty, but they have no maritime lien to enforce in rem against the ship. The shipowner, and not the ship as an entity, is the common carrier. The obligation to
31 transport passengers either in accordance with a previous contract or advertised schedule is not the obligation of the vehicle used for transportation, but of the owner or operator of the vehicle. Id. at 76 (internal citations omitted). It noted the detrimental
effect granting passengers maritime liens could have on maritime
commerce.
It is highly important that a ship, especially in a foreign port, be able to obtain supplies or repairs on its own credit in order to continue its voyage. It is for this purpose among others, that admiralty law has created the maritime lien. The credit is extended on the faith of the value of the ship itself, and in further support of that credit the admiralty law gives priority to the last lien rather than to prior liens. ... [I]f the passenger claims are to be established as maritime liens in tort, they would also apparently outrank for priority of payment, liens for very necessary repairs to the ship in a foreign port. Since any duty to the prospective passengers is imposed only on the shipowner, the grant of a maritime lien for any breach of that duty would be inconsistent with the definition and purpose of that type of lien, would destroy the purpose and policy of the lien and would make it synonymous with a right in personam.
Id. at 76 (emphasis added).
Claiming that this executory contract doctrine is outdated,
the Sureties assert that we should disregard it and create a
maritime lien in favor of passengers. They cite no cases in
support of their position, but urge that Congress has shown an
inclination to protect consumers who contract with cruise ship
operators. In so doing, they point to 46 U.S.C. § 817e (enacted in
32 1966, post-Todd Shipyards), which, as stated, requires the
operators to reimburse passengers when a cruise does not occur and
to post a bond or otherwise show financial responsibility
concerning that reimbursement obligation.
If anything, Congress’ enacting 46 U.S.C. § 817e demonstrates
there is no maritime lien on pre-paid passenger fares. Congress
was well aware of the lack of protection for potential passengers
and acted to address it. In other words, Congress (through § 817e)
provided passengers with financial protection in the event their
cruises were cancelled, alleviating any need for a maritime lien.
Congress was capable of creating — but did not create — such a lien
in favor of passengers.
In sum, prospective passengers with possible breach of
contract claims against Commodore for cancelled cruises on the ISLE
or the CAPRI do not have a maritime lien against either vessel.
Accordingly, the Sureties, to the extent they might be subrogated
to such claims, have none.
III.
For the foregoing reasons, the denial of Effjohn’s motion to
amend its complaint (in reality, to intervene); the denial of
Cusimano’s motion to intervene; and the dismissal of the Sureties’
claims are AFFIRMED.
AFFIRMED