433 F.2d 1243
FLORIDA BAHAMAS LINES, LTD., a Bahamian Corporation, Plaintiff-Appellant,
v.
THE STEEL BARGE "STAR 800" OF NASSAU, etc., Defendant-Appellee.
CARIBBEAN TANKER SERVICE, INC., a Florida Corporation, Plaintiff-Appellee,
v.
BARGE "STAR 800" etc., Defendant-Appellee.
No. 27796.
United States Court of Appeals, Fifth Circuit.
October 23, 1970.
Stanley Haves, Arthur Roth, Miami, Fla., for plaintiff-appellant.
A. M. Schwitalla, Miami, Fla., for appellees.
Before JOHN R. BROWN, Chief Judge, and TUTTLE and MORGAN, Circuit Judges.
JOHN R. BROWN, Chief Judge:
This case in admiralty presents two questions. First whether a (ordinarily omnipotent) preferred maritime lien for necessaries — wharfage and repairs — will be held to be subordinate to a foreign ship mortgage when the maritime lien was allowed to accrue through the action or inaction of one who is closely related to the lienor in breach of its duty to the mortgagee, especially when a part of the activities constituted deception, concealment or other sharp practices. Second whether a delay of 47 months by the lienor wharfinger in enforcing its lien cuts off the lienor — due to laches — from asserting it thereafter as prior to the mortgage. We answer both questions affirmatively, reverse the judgment of the Court below, and remand the case for further proceedings.
I. Background — Corporate Craft
We are called upon by mortgagee to extricate it from the intricate labyrinth of corporate legerdemain into which it unwittingly wandered, through the tacit encouragement and direction of a corporate triad — Winsen, Ltd., Winson, Inc., and Caribbean Tanker Service, Inc., — determined to have its barge and own it too, all at the expense of the mortgagee in the amount of a L 15,000 ($36,000.00 American) mortgage debt.
Omnipresent in the background and forefront of these three entities is the ubiquitous Joe Brown, organizer, officer, acting business representative, and principal or substantial stockholder.
In October 1964 the steel barge "Star 800", then owned by Winsen, was brought to Miami and berthed at Winson's dock. With the barge still at Winson's dock Winsen, the barge owner, acting through its President Brown executed on May 10, 1965 a foreign ship mortgage on the barge with mortgagee. According to Brown's testimony sometime thereafter in May 1965 he disassociated himself from Winsen. But if this occurred, the mortgagee was unaware of it.
Though the warranty in the mortgage was sufficient guaranty for mortgagee that mortgagor would in effect be responsible for any subsequent obligations incurred against the barge which would impair the mortgage security value, the record contains no evidence which did, or should have, placed the mortgagee on constructive or actual notice of the existence of any claim for wharfage or a superior maritime lien. Brown on the other hand, as a result of the interaction between Winsen and Winson, both of which he was president and acting business agent at the time the mortgage was created, was patently aware that Winsen had never paid any of its wharfage obligation to Winson. What Brown knew so knew Winsen and Winson.
On February 28, 1968 Brown, acting in his capacity as president of Winson, prepared invoices for the wharfage and repairs that had been accruing against Winsen's barge over the previous 46 months. The claim then totaled about $9,500.00. This was the first demonstrable evidence showing that Winsen actually owed for wharfage. It was, moreover, the first claim for wharfage even on Brown's testimony. He testified that Winsen had made no payment to Winson during the 46 months that the barge had been berthed at its dock. On the other hand, Winson had never made a demand for payment, either written or oral. On the same date that Brown had prepared the invoices, Winson (through Brown) assigned them to Caribbean of which Brown was then the acting business agent, an officer, and substantial or majority stockholder.
There is no evidence of the amount of consideration that passed in the assignment, but the invoices had written on them "THIS IS ASSIGNED FOR VALUE RECEIVED". The District Court found as a fact that an assignment had been consummated between Winson and Caribbean, but made no finding on consideration. Since a valid and unqualified assignment operates to transfer to the assignee no greater right or interest than was possessed by the assignor, 6 C.J.S. Assignments § 82, the most Caribbean can claim is that it stands in the shoes of Winson which at best, were ill-fitting if not worn out from the Winsen-Winson dealings at and subsequent to the creation of the ship mortgage, plus even worse, Caribbean was not an arms-length-dealing stranger. This assignment, as was the supposed lien, was a secret one evidenced only by the invoices, which were immediately filed in the offices of Winson and Caribbean, where they remained since the date of the assignment until they were exhumed for the trial.
In March, 1968 Winsen transferred title of the barge to Winson. The consideration was "$10.00, good will, and the obligation to clear the mortgage with Barclay's Bank." Thus Winson, a short period after it had assigned away its maritime lien for no visible consideration, purchased the barge for a consideration of $10.00, with full knowledge that the purchase was subject to the existing foreign ship mortgage of $36,000 and a possible maritime lien in the amount of $9,475. The fine hand of Brown runs throughout this and more so it was the fine hand of Brown that successfully concealed from the Court — an admiralty Court exercising its vast equitable powers, Hadjipateras v. Pacifica, S.A., 5 Cir., 1961, 290 F.2d 697, 1961 A.M.C. 1417 — the real facts as to the official title record of the barge as bearing on the persons executing the bill of sale for Winsen to Winson and the circumstances surrounding it.
Brown's next furtive step was in March 1968 when, acting for Winson, he executed a bill of sale on the barge to John Wolf in consideration of $8,900.00 cash. Even this could not be clean cut. For some unexplained reason the date on the bill of sale was July 1968. In the bill of sale Brown represented the "Star 800" to be free and clear of all liens. The barge was never delivered to Wolf because it was subsequently libeled by the mortgagee for the purpose of foreclosing on the foreign ship mortgage. Consequently Wolf instituted criminal charges against Brown that since have been dropped in accordance with Brown's agreement to reimburse Wolf.
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433 F.2d 1243
FLORIDA BAHAMAS LINES, LTD., a Bahamian Corporation, Plaintiff-Appellant,
v.
THE STEEL BARGE "STAR 800" OF NASSAU, etc., Defendant-Appellee.
CARIBBEAN TANKER SERVICE, INC., a Florida Corporation, Plaintiff-Appellee,
v.
BARGE "STAR 800" etc., Defendant-Appellee.
No. 27796.
United States Court of Appeals, Fifth Circuit.
October 23, 1970.
Stanley Haves, Arthur Roth, Miami, Fla., for plaintiff-appellant.
A. M. Schwitalla, Miami, Fla., for appellees.
Before JOHN R. BROWN, Chief Judge, and TUTTLE and MORGAN, Circuit Judges.
JOHN R. BROWN, Chief Judge:
This case in admiralty presents two questions. First whether a (ordinarily omnipotent) preferred maritime lien for necessaries — wharfage and repairs — will be held to be subordinate to a foreign ship mortgage when the maritime lien was allowed to accrue through the action or inaction of one who is closely related to the lienor in breach of its duty to the mortgagee, especially when a part of the activities constituted deception, concealment or other sharp practices. Second whether a delay of 47 months by the lienor wharfinger in enforcing its lien cuts off the lienor — due to laches — from asserting it thereafter as prior to the mortgage. We answer both questions affirmatively, reverse the judgment of the Court below, and remand the case for further proceedings.
I. Background — Corporate Craft
We are called upon by mortgagee to extricate it from the intricate labyrinth of corporate legerdemain into which it unwittingly wandered, through the tacit encouragement and direction of a corporate triad — Winsen, Ltd., Winson, Inc., and Caribbean Tanker Service, Inc., — determined to have its barge and own it too, all at the expense of the mortgagee in the amount of a L 15,000 ($36,000.00 American) mortgage debt.
Omnipresent in the background and forefront of these three entities is the ubiquitous Joe Brown, organizer, officer, acting business representative, and principal or substantial stockholder.
In October 1964 the steel barge "Star 800", then owned by Winsen, was brought to Miami and berthed at Winson's dock. With the barge still at Winson's dock Winsen, the barge owner, acting through its President Brown executed on May 10, 1965 a foreign ship mortgage on the barge with mortgagee. According to Brown's testimony sometime thereafter in May 1965 he disassociated himself from Winsen. But if this occurred, the mortgagee was unaware of it.
Though the warranty in the mortgage was sufficient guaranty for mortgagee that mortgagor would in effect be responsible for any subsequent obligations incurred against the barge which would impair the mortgage security value, the record contains no evidence which did, or should have, placed the mortgagee on constructive or actual notice of the existence of any claim for wharfage or a superior maritime lien. Brown on the other hand, as a result of the interaction between Winsen and Winson, both of which he was president and acting business agent at the time the mortgage was created, was patently aware that Winsen had never paid any of its wharfage obligation to Winson. What Brown knew so knew Winsen and Winson.
On February 28, 1968 Brown, acting in his capacity as president of Winson, prepared invoices for the wharfage and repairs that had been accruing against Winsen's barge over the previous 46 months. The claim then totaled about $9,500.00. This was the first demonstrable evidence showing that Winsen actually owed for wharfage. It was, moreover, the first claim for wharfage even on Brown's testimony. He testified that Winsen had made no payment to Winson during the 46 months that the barge had been berthed at its dock. On the other hand, Winson had never made a demand for payment, either written or oral. On the same date that Brown had prepared the invoices, Winson (through Brown) assigned them to Caribbean of which Brown was then the acting business agent, an officer, and substantial or majority stockholder.
There is no evidence of the amount of consideration that passed in the assignment, but the invoices had written on them "THIS IS ASSIGNED FOR VALUE RECEIVED". The District Court found as a fact that an assignment had been consummated between Winson and Caribbean, but made no finding on consideration. Since a valid and unqualified assignment operates to transfer to the assignee no greater right or interest than was possessed by the assignor, 6 C.J.S. Assignments § 82, the most Caribbean can claim is that it stands in the shoes of Winson which at best, were ill-fitting if not worn out from the Winsen-Winson dealings at and subsequent to the creation of the ship mortgage, plus even worse, Caribbean was not an arms-length-dealing stranger. This assignment, as was the supposed lien, was a secret one evidenced only by the invoices, which were immediately filed in the offices of Winson and Caribbean, where they remained since the date of the assignment until they were exhumed for the trial.
In March, 1968 Winsen transferred title of the barge to Winson. The consideration was "$10.00, good will, and the obligation to clear the mortgage with Barclay's Bank." Thus Winson, a short period after it had assigned away its maritime lien for no visible consideration, purchased the barge for a consideration of $10.00, with full knowledge that the purchase was subject to the existing foreign ship mortgage of $36,000 and a possible maritime lien in the amount of $9,475. The fine hand of Brown runs throughout this and more so it was the fine hand of Brown that successfully concealed from the Court — an admiralty Court exercising its vast equitable powers, Hadjipateras v. Pacifica, S.A., 5 Cir., 1961, 290 F.2d 697, 1961 A.M.C. 1417 — the real facts as to the official title record of the barge as bearing on the persons executing the bill of sale for Winsen to Winson and the circumstances surrounding it.
Brown's next furtive step was in March 1968 when, acting for Winson, he executed a bill of sale on the barge to John Wolf in consideration of $8,900.00 cash. Even this could not be clean cut. For some unexplained reason the date on the bill of sale was July 1968. In the bill of sale Brown represented the "Star 800" to be free and clear of all liens. The barge was never delivered to Wolf because it was subsequently libeled by the mortgagee for the purpose of foreclosing on the foreign ship mortgage. Consequently Wolf instituted criminal charges against Brown that since have been dropped in accordance with Brown's agreement to reimburse Wolf.
Meanwhile back with the mortgagees, on August 20, 1968 a libel was instituted against Winsen in personam and against the barge in rem to foreclose on the mortgage. Caribbean then initiated its libel in rem against Winson on September 27, 1968 in order to enforce its assigned maritime lien for dockage and repairs but failed to file a notice of pending litigation as is required by Rule 6, subd. D of the Local Rules for the Southern District of Florida.
No claim or answer having been filed the mortgagee obtained a default decree in its libel against Winsen and the barge, and the marshal, who had custody of the barge, was ordered to sell it at public sale. The mortgagee was high bidder and purchased the barge. Caribbean thereupon, in the person of Brown, objected to confirmation of the sale and moved for a consolidation of the two actions. The District Court set aside the sale and consolidated the libels for the purpose of determining priority as between the lien claimants. The Judge found, as a fact, that Winson had acquired a valid maritime lien and, that it had assigned the lien to Caribbean, and held the maritime lien to be "first and best", thereby superior to the ship mortgage. Caribbean was allowed to bid up to the amount of its lien ($10,516.02) without cash deposit, and was high bidder. Thus it now owns the "Star 800" for which it paid no cash or other cognizable consideration, and in one fell swoop extinguished the claimed debt that was originally due from Winsen to Winson, now due from Winson to Caribbean, and completely expunged the foreign ship mortgage in the amount of L 15,000 ($36,000.00) to the total loss of the mortgagee.
II. The Merits
The mortgagee contends: [i] that it was incumbent upon Winsen and its transferee Winson — as mortgagors in possession of the mortgaged barge — by and through their president, Joe Brown, to protect the mortgagee's security interest from being impaired by the accrual of any liens upon the barge especially at the hands of alter egos or close affiliates; and [ii] that Winson and Caribbean are "alter egos" of Joe Brown. Thus we must look to the obligations incurred by Winsen, Winson, and Caribbean.
A. Brown's Actions and Knowledge Infect All
The nature of the facts in this case — which need no embellishment — "[m]ake the entire transaction subject to the sharpest scrutiny". Findley v. Lanasa, 5 Cir., 1960, 276 F.2d 907, 909, 1960 A.M.C. 1444, 1446. After such scrutiny we conclude that to deny priority to the mortgagee — pecuniarily "keel hauled" by the practices and manipulations of Joe Brown — would be to exalt the corporate form and to constitute a denial of justice. Indeed, the circumstances of this case are peculiarly attuned to the gentle strains of admiralty's equity jurisdiction which, in "[i]ts traditional liberality * * * seeks out the intrinsic justice of a cause * * *". Vega v. Malula, 5 Cir., 1961, 291 F.2d 415, 416, 1961 A.M.C. 1698, 1699. This Court has repeatedly given fullest play to the concept that admiralty jurisdiction embraces the resources of equity whenever the need arises. See, e. g., Findley v. Lanasa, 5 Cir., 1960, 276 F.2d 907; Hadjipateras v. Pacifica, S.A., supra, and Compania Anonima Venezolana De Navegacion v. A. J. Perez Export Company, 5 Cir., 1962, 303 F.2d 692, 1962 A.M.C. 1710, in which we said:
"The Chancellor is no longer fixed to the woolsack. He may stride the quarter-deck of maritime jurisprudence and, in the role of admiralty judge, dispense, as would his land-locked brother, that which equity and good conscience impels * * *."
303 F.2d at 699.
When Brown, acting for Winsen mortgaged the barge, he knew two things. First, so his 1968 invoices revealed, there was a lien for wharfage covering October 1964 to May 1, 1965, the date of the mortgage (see item 1 n. 6, supra). Second, despite this he declared solemnly in the mortgage that the vessel was free of all incumbrances (see note 4, supra). He began the relationship of mortgagor-mortgagee with the rawest of deception if not flagrant misrepresentation. And whether he did, as claimed, personally get out of Winsen (see note 5, supra) he knew for Winson, the supposed lienor, that the vessel was mortgaged and that Winsen, the mortgagor and still the owner, had an implied obligation to pay debts which would materialize into liens, but that Winsen was not doing so. And all of this knowledge — gained (i) during the time he was admittedly active in Winsen and (ii) thereafter in his direction of Winson — became doubly positive when (iii) Winson in 1968 became the owner by the mysterious sale of the barge from Winsen to Winson. Although Winson "purchased" the vessel subject to the mortgage, which put on Winson the obligation to pay the mortgage debt, all of its actions were taken to eliminate the mortgagee's interests altogether.
B. Duty to Prevent Waste
Execution of the mortgage made Winsen the mortgagor in possession of the mortgaged property. This placed the burden upon mortgagor Winsen to protect the mortgagee's security interest in the collateral — protection against incumbrance by ranking subsequent liens and, in this instance, certainly against the further accretion of substantial amounts for claims having presumably the status of a maritime lien. When Winson — with full awareness — purchased the barge subject to the mortgage obligation it was undoubtedly exposed to liability for waste since the mortgagee's rights are continuous and the security follows the property until the debt is discharged, 59 C.J.S. Mortgages § 211. The mortgagee was entitled to have the security unimpaired not only by Winsen, but by its vendees as well. 59 C.J.S. Mortgages § 334.
The record compels the conclusion that Brown's actions on behalf of Winsen at the beginning and of Winson at the end — in his failure to take reasonable measures to protect the security interest or for that matter even to advise the mortgagee that the barge was idle and "eating its head off" — amounted to culpable waste. The concept of waste is equitable, and it would be unconscionable to allow the apparent superiority of the maritime liens to be used as an instrument of rewarding the mortgagor for the very consequences of the mortgagor's breach of duty.
We need not determine whether this is the case to pierce the corporate veil or to regard this all as a slick scheme and sham. For seeking to intervene in a pending libel in rem, and more so, to set aside a default decree or a Marshal's sale under it, the door is not opened by some peremptory knock, but by the "gentle wand of equity". United States v. Maryland Casualty Company, 5 Cir., 1956, 235 F.2d 50, 53; see especially, Compania Anonima Venezolana De Navegacion v. A. J. Perez Export Company, 5 Cir., 1962, 303 F.2d 692, 698, 1962 A.M.C. 1710, 1718.
A maritime lien has great prestige. But it is not an instrument of wrong. Against the positive mortgage lien known to Winsen, Winson, and the ubiquitous Brown to exist and to be in default the supposed maritime lienor may not demand that the seagoing chancellor become the engine of unfairness. See Ardell Marine Corp. v. The Mars, D.C. N.Y.1958, 163 F.Supp. 691.
As the epilogue to this section and the prologue to the next one this is the case of inequitable supplication.
C. Laches
Whatever doubts there might be up to this point the lienor's judgment strands on laches. The mortgagee pleaded the statute of limitations as an affirmative defense to the asserted maritime lien. This encompassed as well the equitable doctrine of laches.
Laches is a flexible measure of the time within which a claim in admiralty must be asserted. Gardner v. Panama RR, 1951, 342 U.S. 29, 72 S.Ct. 12, 96 L.Ed. 31; McMahon v. Pan American World Airways, Inc., 5 Cir., 1962, 297 F.2d 268. The two important constituent elements are [i] an unreasonable delay by one party in the assertion of his remedy; and [ii] prejudice to another as a result of the delay. Point Landing, Inc. v. Alabama Dry Dock & Shipbuilding Co., 5 Cir., 1958, 261 F.2d 861, 1959 A.M.C. 148; Morales v. Moore-McCormack Lines, Inc., 5 Cir., 1953, 208 F.2d 218; Akers v. State Marine Lines, Inc., 5 Cir., 1965, 344 F.2d 217. The crucial question is whether it would be inequitable because of the delay to enforce the claim, Czaplicki v. M/V "SS Hoegh Silvercloud", 1955, 351 U.S. 525, 76 S.Ct. 946, 100 L.Ed. 1387, the answer to which will depend upon the particular circumstances of the individual case. Young v. The Key City, 1872, 14 Wall. 653, 81 U.S. 653, 20 L.Ed. 896.
In the long history of the application of laches in admiralty, including lien-priority contests as our own, none is more compelling in terms of equities than this case.
The maritime lien successfully maintained below as prior to the mortgage expressly includes wharfage charges from October 1, 1964 to May 1, 1965 and this despite the express warranty that the mortgaged vessel was free of encumbrances. What started in commercial iniquity continued in inequity. Not until February 1968 — then 41 months after the lien assertedly began to accrue — was there even a demonstrable indication of a debt, its nature, basis or duration. No-where during this extended period did the lienor attempt to give even minimal notice to the mortgagee although, through the ubiquitous Brown, Winsen, Winson, and Caribbean knew of the existence of the mortgage and the fact that it must be in at least substantial default, so much so that Winson's 1968 "purchase" of the barge was expressly subject to the mortgage. More so, failure to give minimal notice — and worse — allowing the charges to accumulate was a positive breach of duty to the mortgagee by the mortgagor Winsen and the subject-to-mortgagor Winson after purchase — a fact known to Winson as supposed lienor through Brown's radar. The mortgagee presumably knew of the non-payment of the mortgage debt, but from the combination of initial iniquitous deception and continued silence, it had no reason to know or even suspect that at the hands of the mortgagor, its leading figure and an assortment of closely related satellites, the mortgagee's reliance on the vessel as the source of ultimate satisfaction of the mortgage debt was itself being scuttled in the high name of maritime liens of prior rank.
With awareness of the mortgage the lienor had the minimum burden of initiating proceedings to judicially enforce the maritime lien within a reasonable time. As an alternative, the lienor could have likely added extended life to the lien by giving some character of notice. But it did neither. Assertion of the maritime lien by judicial proceedings, and certainly by notice, would have afforded the mortgagee the opportunity to determine what course of action it would take — (i) foreclose its mortgage lien without more (subject then to timely asserted maritime liens), (ii) let the "horse eat its head off", or (iii) some in between course.
But from long continued inaction by or silence of the lienor the mortgagee had no need to institute foreclosure proceedings. See 46 U.S.C.A. § 922. Thus the injury to the mortgagee was acute and, more serious, continuous. In this respect the circumstances of the case distinguish it markedly from the ordinary case in which antecedent delay in asserting liens would not cut off by laches assertion of a lien for the charges accruing independently later on. Hence a lien asserted for, say, the last year (February 1967-1968) is not saved by the proceeding filed in February 1968. For the injury to the mortgagee had become cumulatively worse as each month and year went by. The time that equity called either for seasonable judicial proceedings or minimal notice to the mortgagee was in the early stages. This could not be cured by instituting litigation for subsequent periods, no matter how promptly initiated.
This approach likewise eliminates any problem in fixing the period. Whether, as some cases have indicated a 12 month period is the maximum, or from others it is a question of the total circumstances and intervening equities, the filing here — September 1968 — was far too tardy. The lien fails in competition with the mortgage because of (i) delay for which (ii) there was no possible excuse, and (iii) acute, continuing harm to an innocent party.
Winson's difficulties were not eased by the assignment to Caribbean who took the assignment with all of its built-in deficiencies. See Maryland Casualty Co. v. Dulaney Lumber Co., 5 Cir., 1928, 23 F.2d 378, cert. denied, Bank of Ruleville v. Maryland Casualty Co., 1928, 277 U.S. 598, 48 S.Ct. 560, 72 L.Ed. 1007; 6 C.J.S. Assignments § 82. What Winson in good equity could not assert is equally foreclosed to Caribbean. Compania Anonima Venezolana De Navegacion v. A. J. Perez Export Company, supra.
The upshot is that Winson's-Caribbean's claim for wharfage and repairs, whatever its status as a maritime lien against the vessel in view of the relationship of the parties, is barred by laches as against the mortgage claim of the mortgagee. To the full extent of the mortgage debt, with interest, costs and any other incidents for costs, fees, etc., the asserted maritime liens must give way to the mortgage. On remand the District Court shall enter a decree accordingly.
Reversed and remanded.