2 IN THE UNITED STATES DISTRICT COURT
3 FOR THE DISTRICT OF ALASKA
4 KANAWAY SEAFOODS, INC., et al.,
5 Plaintiffs,
6 v. Case No. 3:22-cv-00027-JMK-KFR
7 PACIFIC PREDATOR, et al.
8 Defendants.
10 FINDINGS AND RECOMMENDATIONS ON MOTIONS TO DISMISS UNDER 12(b)(1) 11
12 The Court recommends Defendants’ Motions to Dismiss at Dockets 66 and 76,
13 each seeking dismissal of portions of Plaintiffs’ Amended Complaint pursuant to
14 Federal Rule of Civil Procedure 12(b)(1) be denied. Plaintiffs’ Amended Complaint
15 contains allegations that on their face are sufficient to invoke federal jurisdiction.
16 Specifically, as it relates to money advanced by Plaintiffs for Defendan ts’ purchase
17 of three limited entry fishing permits, maritime jurisdiction under 46 U.S.C. § 31342
18 exists as these permits can properly be considered necessaries essential for the
19 operation of Defendants commercial fishing enterprise. In addition, Plaintiffs’
20 action for possession of the Pacific Predator is a proper basis for jurisdiction
21 pursuant to Supplemental Admiralty Rule D. 22 I. Relevant Proffered Facts and Allegations1
23 Starting in 2019, Defendants Dana and Bryan Howey entered into a series of
24 agreements with Plaintiffs Liberty Packing, LLC (“Liberty”), and Kanaway Seafoods
25 Inc. (“Kanaway”), doing business as Alaska General Seafoods (“AGS”). On or about
27 1 The Relevant Proffered Facts are limited to those facts necessary to decide the motions before the Court. The Court does not intend for the Relevant Proffered Facts to constitute 28 binding findings of fact should this matter proceed to trial. 1 April 17, 2019, Defendants Dana and Bryan Howey entered into a Loan and Security
2 Agreement with Liberty (“the Loan Agreement”).2 Under the Loan Agreement,
3 Liberty loaned Defendants $800,000 to pay off Defendants’ outstanding loan to a
4 third party.3 In exchange for this loan from Liberty, Defendants Bryan and Dana
5 Howey agreed to enter into a Fishing Agre ement with AGS to deliver and sell seafood 6 products to AGS for a fixed period.4 The Liberty loan was further documented by a 7 Promissory Note dated April 17, 2019, reciting the applicable loan terms (“the 8 Liberty Note”).5 9 On or about June 30, 2019, Defendant Bryan Howey entered into a Promissory 10 Note with AGS for $23,949.32 (“the AGS Note”), documenting a loan from AGS to 11 Howey in that amount.6 On or about July 12, 2019, Howey purchased a limited entry 12 fishing permit for the 2019 season in the amount of the AGS Note.7 Howey could 13 repay the loan personally no later than September 30, 2019, or repayment could be 14 made by that date through the “deliver[y of] sufficient product to [AGS].”8 15 In addition to the AGS Note, AGS loaned Defendant Bryan Howey additional 16 sums on an “open account” between 2019 and 2021 to be repaid under AGS’s 17 standard terms and conditions, which included interest on the open amounts at 10% 18 per annum (“AGS Open Account Loan”). These funds were loaned on the credit of 19 Defendant Howeys’ fishing vessel, the Pacific Predator (“the Vessel”), and some of 20 these funds were used by Defendants for necessaries for the Vessel, including vessel 21 permits for the 2020 and 2021 fishing seasons.9 22 23
24 2 Doc 64-1. 3 Doc. 64 at 3. 25 4 Id. 26 5 Id. at 4. 6 Id. at 5. 27 7 Doc. 64-3 at 1. 8 Id. 28 9 Doc. 64 at 5; see also Doc. 64-3 at 3 and 5. 1 As to each of these loans, Plaintiffs’ Amended Complaint alleges that
2 Defendants have failed to comply with their terms. According to Plaintiffs,
3 Defendants Bryan and Dana Howey, individually and through their company AWE,
4 defaulted on the obligations in the Liberty Loan Agreement and Liberty Note by
5 failing to make agreed principal and inte rest payments, and failing to register the 6 Vessel in Washington and provide documentation of that registration to Liberty.10 7 Plaintiffs contend that these, and other acts and omissions of Defendants, constitute 8 default under both the Loan Agreement and Note.11 Plaintiffs state that as of January 9 14, 2022, the principal due on the Liberty Loan was $746,666.67 and the accrued 10 interest as of February 1, 2022, was $113,166.62, with interest continuing to accrue 11 at a rate of $368.22 per day.12 12 With regard to the AGS matters, Plaintiffs allege that Defendant Bryan Howey 13 never repaid the AGS Note nor fully repaid the AGS Open Account Loan. Plaintiffs 14 claim that Howey failed to repay the sums loaned to him under the AGS Note by 15 September 30, 2019, and that the $23,949.32 balance on the note remains unpaid 16 with interest continuing to accrue.13 In addition, Plaintiffs state that by making 17 deliveries of fish to AGS, Howey repaid a total of $326,644.13 that had been advanced 18 to him by AGS.14 The result Plaintiffs allege is that the unpaid balance on these two 19 AGS loans stood at $115,953.48, with interest accruing.15 Plaintiffs further state that 20 AGS advanced additional sums after 2021.16 21 22 10 Doc. 64 at 5. 23 11 Id. 12 Id. 24 13 Id. 14 Id. at 7. Plaintiffs state that “AGS applied these payments to interest first, then to 25 unsecured amounts advanced, and then to sums advanced for necessaries under both the 26 AGS Note and AGS Open Account Loan.” Defendants’ motion to dismiss at Docket 66 challenges how payments were applied by AGS. The Court views this issue as one for the 27 trier of fact to decide at trial, not an issue for this Court to decide in a motion to dismiss. 15 Id. 28 16 Id. 1 According to Plaintiffs’ Amended Complaint, Plaintiffs Kanaway and AGS are
2 affiliated corporations organized under the laws of the State of Delaware.17 Plaintiff
3 Liberty is a limited liability company operating under the laws of the State of
4 Washington.18 Defendants Bryan and Dana Howey are residents of the State of
5 Alaska.19 Defendant AWE is a limited liab ility company organized under the laws of 6 the State of Alaska, and Defendant Bryan Howey is the governing person and 7 authorized agent of AWE.20 At all times material herein, in rem Defendant Vessel was 8 registered in the State of Alaska and is within the District of Alaska during the 9 pendency of this action and subject to the jurisdiction of this Court.21 The Vessel is 10 owned by Defendant Bryan Howey and/or Defendant AWE.22 11 Plaintiffs’ Amended Complaint raises three causes of action. In their first 12 cause of action, Plaintiffs allege a breach of contract and promissory note. 13 Specifically, Plaintiffs allege that Defendants Bryan and Dana Howey breached the 14 terms of the Liberty Loan and Liberty Note by failing to make principal and interest 15 payments on the loan and note, and by failing to register the vessel in Washington 16 State and provide documentation of that registration.23 Plaintiffs’ second cause of 17 action seeks to foreclose on their maritime and state lien rights as a result of 18 Defendants’ failure to repay money advanced to Defendants under the AGS Note and 19 AGS Open Account Loan for “the maintenance and operation of the [V]essel as 20 necessaries.”24 Plaintiffs also seek to foreclose on the Vessel pursuant to 21 Supplemental Admiralty Rule D as a result of Defendants’ alleged default on the 22 23
24 17 Id. at 2. 18 Id. 25 19 Id. at 3. 26 20 Id. 21 Id. at 2-3. 27 22 Id. 23 Id. at 7-8. 28 24 Id. at 9. 1 Liberty Loan.25 Plaintiffs’ third cause of action alleges corporate disregard, and seeks
2 to have the Court disregard AWE as an entity.26
3 Plaintiffs seek declaratory and monetary judgment against Defendants over
4 the $75,000 threshold for diversity jurisdiction.27 On the face of the amended
5 complaint, Plaintiffs assert jurisdiction u nder 46 U.S.C. § 31322, § 31325, and § 6 31342; under Supplemental Admiralty Rules C and D; and within the meaning of Fed. 7 R. Civ. P. 9(h). Plaintiffs further state that venue is proper because the Court has 8 personal jurisdiction over the parties to this matter since the Vessel is currently 9 located in this District, and Defendants are located and do business in the State of 10 Alaska. 11 II. Procedural History and Motions Presented 12 On February 23, 2022, Plaintiffs filed a complaint, in rem and in personam, 13 against Defendants for breach of contract and promissory note, corporate disregard, 14 to foreclose maritime liens, and for a warrant to arrest the Vessel, pursuant to Rule 15 C(3) of the Supplemental Rules for Certain Admiralty and Maritime Claims 16 (hereinafter “Admiralty Rule or Rules”).28 17 This Court issued a warrant for the arrest of the Vessel on March 16, 2022.29 18 Upon the execution of the arrest warrant, Defendants filed a motion for a hearing to 19 either vacate the arrest pursuant to Admiralty Rule E(4)(f), or set the amount of a 20 special bond to secure the release of the Vessel under Admiralty Rule E(4)-(5).30 The 21 Court heard argument on the motion on May 3, 202231 and directed additional 22 briefing on the matter, which the parties provided. 23 On July 29, 2022, the Court denied the motion to vacate the arrest, and granted 24 25 Id. 25 26 Id. at 10. 26 27 Id. 28 Docs. 1 and 3. 27 29 Doc. 7. 30 Doc. 15. 28 31 Doc. 28. 1 the motion to set a special bond to secure the release of the Vessel in the amount of
2 $148,500. In that order, the Court found that maritime liens existed, thus creating
3 subject matter jurisdiction over Plaintiffs’ claims. The Court declined to issue a
4 ruling on the strength of Defendants’ argument that a “maritime lien cannot attach
5 to a limited entry permit,” and whether $46,964.32 of the unpaid balance, plus 6 interest, must be discounted from the bond amount.32 7 Plaintiffs filed an Amended Complaint on September 7, 2022.33 8 On September 25, 2022, Defendants filed a motion to dismiss a portion of the 9 Amended Complaint under Federal Rule of Civil Procedure 12(b)(1) for lack of 10 admiralty jurisdiction (hereinafter “Fed. R. Civ. P.” or “Rule”). The portion of the 11 Amended Complaint Defendants sought to have dismissed involved a claim relating 12 to money loaned by AGS to Defendants that was used by Defendants to pay for the 13 temporary emergency transfer of Alaska State limited entry fishing permits.34 The 14 motion also sought to reduce the Court’s previously-ordered special bond under 15 Admiralty Rule E(6) by the amount of the money advanced for the permits.35 16 Plaintiffs responded in opposition, and Defendants replied.36 17 Shortly after, Defendants filed a second motion to dismiss the Amended 18 Complaint under Rule 12(b)(6) for failure to state a claim regarding the AGS Note 19 and for an award of attorney’s fees and costs, along with another Admiralty Rule 20 E(6) motion to reduce security and costs, to which Plaintiffs responded in opposition 21 and Defendants replied.37 22 Defendants then filed a third motion to dismiss the Amended Complaint under 23 Rule 12(b)(1) for lack of admiralty jurisdiction regarding Rule D “Petitory Action” 24 32 Doc. 52. 25 33 Doc. 64. The amended complaint included an itemized accounting of the losses alleged by 26 Plaintiffs. All of the original claims remained unchanged. 34 Doc. 66. 27 35 Id. 36 Docs. 77 and 80. 28 37 Docs. 71, 78, 81. 1 and under the Preferred Ship Mortgage Act. Plaintiffs opposed the motion to
2 dismiss.38
3 In this Order, the Court considers all filings related to both motions to dismiss
4 the Amended Complaint under Rule 12(b)(1). Defendants’ motion to dismiss the
5 Amended Complaint pursuant to Rule 12(b )(6) will be addressed in a separate order. 6 III. Applicable Law 7 a. Subject Matter Jurisdiction 8 “Federal courts are courts of limited jurisdiction, possessing only that power 9 authorized by Constitution and statute.”39 Congress has statutorily implemented the 10 federal courts' original subject matter jurisdiction under Article III of the 11 Constitution by categorizing all cases arising under the Constitution, laws, or 12 treaties of the United States under 28 U.S.C. § 1331; and cases involving citizens of 13 diverse states under 28 U.S.C. § 1332. In addition, 28 U.S.C. § 1333 grants federal 14 district courts the power to entertain “[a]ny civil case of admiralty or maritime 15 jurisdiction.” Supplemental jurisdiction over state claims pursuant to 28 U.S.C. § 16 1367 may also exist when those claims are “so related to claims in the action within 17 [the district court's] original jurisdiction that they form part of the same case or 18 controversy under Article III[.]”40 “It is to be presumed that a cause lies outside of 19 federal courts’ limited jurisdiction, and the burden of establishing the contrary rests 20 upon the party asserting jurisdiction.”41 21 The standard for determining whether a plaintiff has asserted a valid basis for 22 admiralty jurisdiction is the “prima facie standard,” rather than the more demanding 23 24 38 Docs. 76, 82, 83. 25 39 Gunn v. Minton, 568 U.S. 251 (2013) (citing Kokkonen v. Guardian Life Ins. Co. of America, 26 511 U.S. 375, 377 (1994) (internal quotation marks omitted)). 40 D'Onofrio v. Vacation Publications, Inc., 888 F.3d 197, 206 (5th Cir. 2018) (internal 27 citations omitted). 41 Columbia Riverkeeper v. U.S. Coast Guard, 761 F.3d 1084, 1091 (9th Cir. 2014) (citing 28 Kokkonen, 511 U.S. at 377). 1 “fair probability” or “reasonable grounds” standards.42 The “inquiry focuses on
2 whether the plaintiff has [pled] a claim cognizable in admiralty.”43 It is well settled
3 that the plaintiff bears the initial burden of pleading in his complaint the appropriate
4 jurisdictional facts to establish both the court's jurisdiction over the subject matter
5 of the action and over the parties to the ac tion, including proper service of process.44 6 b. Facial Challenges to Motion to Dismiss under 12(b)(1) 7 A court's subject matter jurisdiction may be challenged under Fed. R. Civ. P. 8 12(b)(1). Such challenges may be either “facial” or “factual.”45 In a facial attack, 9 “the challenger asserts that the allegations contained in a complaint are insufficient 10 on their face to invoke federal jurisdiction.”46 When opposing a facial attack on 11 subject matter jurisdiction, the nonmoving party is not required to provide evidence 12 outside the pleadings.47 In deciding a facial Rule 12(b)(1) motion, the court must 13 assume the plaintiff's allegations in the complaint to be true and draw all reasonable 14 inferences in his favor.48 By contrast, in a factual attack, “the challenger disputes 15 the truth of the allegations that, by themselves, would otherwise invoke federal 16 jurisdiction.”49 17 IV. Analysis 18 a. Motion to Dismiss for Lack of Subject Matter Jurisdiction Money 19 Advanced by AGS for Acquisition of Limited Entry Permits and for 20 Reduction in Bond at Docket 66 21 22 42 Padre Shipping, Inc. v. Yong He Shipping, 553 F.Supp.2d 328, 331-32 (S.D.N.Y. 2008). 23 43 Ronda Ship Mgmt. v. Doha Asian Games Org. Comm., 511 F.Supp.2d 399, 404 (S.D.N.Y. 2007). 24 44 102 A.L.R. Fed. 811 (originally published in 1991). 45 Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004). 25 46 Id. (quoting Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004)). 26 47 Wolfe, 392 F.3d at 362; see Doe v. Holy See, 557 F.3d 1066, 1073 (9th Cir. 2009) (treating defendant's challenge to subject matter jurisdiction as facial because defendant “introduced 27 no evidence contesting any of the allegations” of the complaint). 48 Wolfe, 392 F.3d at 362 (citations omitted). 28 49 Id. at 362 (quoting Safe Air, 373 F.3d at 1039). 1 Defendants make a facial challenge to a portion of Plaintiffs’ Amended
2 Complaint, claiming that the money advanced by AGS that was used by Defendants
3 to obtain three limited entry salmon seining permits cannot form a basis for federal
4 jurisdiction, because such transactions do not give rise to maritime liens.50
5 Defendants argue that such transactions are precluded by Alaska law,51 and that 6 limited entry permits are not “necessaries” as required for a maritime lien under 7 maritime law.52 In addition to dismissal for lack of subject matter jurisdiction of 8 those portions of Plaintiffs’ Amended Complaint relating to the monies advanced to 9 purchase the limited entry permits, which Defendants claim totaled approximately 10 $46,964.32, Plaintiffs also seek a reduction in the Vessel’s bond by that amount.53 11 In their opposition Plaintiffs raise several arguments. First, Plaintiffs state 12 that Defendants’ motion to dismiss improperly seeks reconsideration of this Court’s 13 prior decision in which the Court ruled that items purchased by Defendants with 14 money advanced by AGS, which included the limited entry fishing permits, were 15 properly considered “necessaries.”54 Second, Plaintiffs argue that AGS’ debt and lien 16 claims against the Vessel do not implicate Alaska law or regulations regarding 17 fishing permits. Moreover, Plaintiffs argue that Alaska law cannot alter federal 18 jurisdiction, which is properly found in this case given that the permits fall within 19 the “’broad meaning’ of necessaries” under federal law for which maritime 20 jurisdiction properly exists.55 21 Finally, Plaintiffs submit that because admiralty jurisdiction is proper over all 22 claims within their Amended Complaint, including those related to money used to 23 purchase the limited entry permit, there is no justification to reduce the bond 24 50 Doc. 66 at 2. 25 51 Id. at 10-13. 26 52 Id. at 13-14. 53 Id. at 2, 16-18. 27 54 Doc. 77 at 5-6 (citing to Court’s Order Denying Motion to Vacate at Doc. 52). 55 Id. at 7-11 (quoting at pages 7 and 8 Farwest Steel Corp. v. Barge Sea-Span, 769 F.2d 620, 28 623 (9th Cir. 1985). 1 amount set by the Court.56 Furthermore, even if the amounts used to purchase the
2 limited entry permits was improperly included, reduction of the bond amount is
3 unwarranted as the currently set bond amount is reasonable because it is still less
4 than what would be permitted under a recalculated total.
5 The Court views the issues Defend ants raise of whether subject matter and 6 admiralty jurisdiction exist in this case, whether the limited entry permits give rise 7 to admiralty jurisdiction, and whether the limited entry permits give rise to a 8 maritime lien as three related, but distinct issues. Ultimately, consistent with the 9 Court’s previous order at Docket 52 and the District Court’s order regarding a similar 10 limited entry permit in Finney v. Howey,57 the Court finds that subject matter and 11 admiralty jurisdiction exist over all claims as it relates to the allegations in Plaintiffs’ 12 Amended Complaint relating to money provided by AGS that was used by Defendants 13 to purchase limited entry permits. The Court recommends denial of Defendants’ 14 Rule 12(b)(1) motion at Docket 66. 15 i. A Maritime Lien Exists Giving the Court Jurisdiction. 16 Federal courts may exercise their maritime jurisdiction granted by 28 U.S.C. 17 § 1333 if an action is based on a maritime lien pursuant to the Commercial 18 Instruments and Maritime Liens Act (“CIMLA”), 46 U.S.C. § 31342, or if an action is 19 based on a maritime contract.58 As stated in the Court’s order at Docket 52, for 20 purposes of determining when a maritime lien exists, and therefore federal maritime 21 jurisdiction, the relevant portion of the statute reads:
22 [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 23 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 24
25 56 Id. at 11-13. 26 57 Finney v. Howey, 3:20-cv-00289-SLG-FKR, Doc. 31 (D. Alaska, Dec. 19, 2022). 58 See Farwest Steel Corp., 769 F.2d at 620 (A maritime contract may be enforced in federal 27 court without any other basis of subject matter jurisdiction). See Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 23 (2004) (a federal action can “be sustained under the admiralty 28 jurisdiction by virtue of the maritime contracts involved.”). 1 vessel.59
2 A necessary is “any item which is reasonably needed for a venture in which the ship 3 is engaged”60 and should be given “broad meaning.”61 Necessaries can include
4 amounts paid for “goods, services and intangibles that a careful and provident owner
5 would provide to enable a vessel to contin ue to perform well the functions for which 6 she has been designed and engaged.”62 7 In Ventura Packers, Inc. v. Kathleen, the Ninth Circuit explained that CIMLA 8 supplied a basis for maritime jurisdiction, and that the Plaintiff may show that it has 9 a maritime necessaries lien under certain conditions.
10 We, therefore, follow the Supreme Court's lead in Tallentire and conclude that [CIMLA] supplies a basis for admiralty jurisdiction 11 independent from those bases available at common law. In so interpreting [CIMLA], we neither add nor subtract from what Congress 12 passed into law. Specifically, we hold [the plaintiff] must demonstrate that: (1) it provided necessaries; (2) to a vessel; (3) by order of the 13 owner or a person authorized by the owner. … If [the Plaintiff] demonstrates these elements, it may invoke the admiralty jurisdiction 14 of the federal courts to enforce a necessaries lien in rem.”63 15 In this case, the Court finds that the Amended Complaint does allege sufficient 16 facts establishing maritime jurisdiction. As stated in the Amended Complaint, whose 17 allegations the Court must consider true in light of the facial attack on jurisdiction 18 made by Defendants in their motion to dismiss, “[t]he funds loaned to [Defendant] 19 Howey as documented by the AGS Note were loaned on the credit of the Vessel and 20 intended to be used for necessaries for the Vessel, including but not limited to a 21 vessel permit lease.”64 Furthermore, as it relates to amounts advanced by AGS under 22 59 46 U.S.C. § 31342(a). 23 60 Foss Launch & Tug Co. v. Char Ching Shipping U.S.A., Ltd., 808 F.2d 697, 699 (9th Cir. 1987); see also Equilease Corp. v. M/V Sampson, 793 F.2d 598, 603 (5th Cir. 1986) 24 (interpreting necessaries as anything that facilitates or enables a vessel to perform its mission or occupation). 25 61 Farwest Steel, 769 F.2d at 623. 26 62 Zitano v. F/V Diamond Girl, 963 F.Supp. 109, 112 (D.R.I. 1997) (citing Farrell Ocean Services, Inc. v. United States, 681 F.2d 91, 92–93 (1st Cir. 1982); Payne v. S.S. Tropic Breeze, 27 423 F.2d 236, 241 (1st Cir. 1970)). 63 Ventura Packers, 305 F.3d at 919. 28 64 Doc. 64 at 5. 1 the AGS Open Account Loan, Plaintiffs’ amended complaint similarly alleges that
2 some of this money was used for the purchase of “necessaries.”65 Plaintiffs’
3 accounting of funds advanced under the AGS Open Account loan documents the
4 acquisition of the permit acquired with the AGS Note,66 as well as two additional
5 limited entry permits using the AGS Open Account Loan.67 6 Alaska limited entry permits are informed by the Limited Entry Act (LEA), 7 which was enacted in 1973 after a rising crisis brought on by poor salmon returns, 8 declining fishing incomes, and a rising number of nonresident fishermen.68 Alaska’s 9 LEA was developed to “keep fishing rights in the hands of Alaskans dependent on 10 fisheries, especially rural residents with limited economic opportunity.”69 The LEA 11 was designed to “promote the conservation and the sustained yield management of 12 Alaska’s fishery resource and the economic health and stability of commercial fishing 13 in Alaska by regulating and controlling entry of participants and vessels into the 14 commercial fisheries in the public interest and without unjust discrimination.”70 15 In its Order Denying Motion to Vacate Arrest and Setting Bond, this Court 16 previously analyzed the standards and elements required to determine that Plaintiffs 17
18 65 Id. at 6-7. 66 See Doc. 64-4 at 1 (“ET SE Seine Permit Lease – Anthony -George” in the amount of 19 $23,949.32). 67 Id. at 3 (“Copper River Boats/Permit S01E-56824E/B. Howey” in the amount of $9,965), 20 and 5 (“ACH to Dock Street Brocker/SE Permit Lease/B Howey” in the amount of $13,050). In determining whether a complaint states a claim for relief, a court may consider facts 21 contained in documents attached to the complaint. See Nat'l Ass'n for the Advancement of 22 Psychoanalysis v. Cal. Bd. of Psychology, 228 F.3d 1043, 1049 (9th Cir. 2000). Defendants’ motion to dismiss states that “each year [Defendants] fished for AGS under the Fishing 23 Agreement, AGS would advance the owner/transferor the purchase price of the [permit].” 68 Frank Homan, “30 Years of Limited Entry,” chrome- 24 extension://efaidnbmnnnibpcajpcglclefindmkaj/https://seagrant.uaf.edu/events/fish- com2/ppts/homan-limitedentry.pdf; “A Bristol Bay Fisheries Policy Retrospective,” The 25 Nature Conservancy, September 11, 2021, https://www.nature.org/en- 26 us/newsroom/alaska-bristol-bay fisheries-righting-the- hip/#:~:text=A%20key%20objective%20of%20Alaska's,residents%20with%20limited%2 27 0economic%20opportunity. 69 Id. 28 70 AK ST § 16.43.010(a). 1 adequately showed a fair or reasonable probability that it has a maritime lien against
2 the Vessel and that, in accordance with the Rule of Advances, necessaries were
3 advanced.71 There is no basis to disturb the Court’s prior findings on this issue, nor
4 its conclusion that the money advanced by AGS to Defendants was for the purpose
5 of acquiring necessaries for the successf ul operation of the Vessel. Among those 6 necessary items were the three limited entry permits at issue in this motion, items 7 not only “reasonably needed” for the activities in which the Vessel was engaged, but 8 essential to its success. 72 9 Defendants write in their own motion to dismiss that to engage in the 10 Southeast Alaska fishery, the location Defendants sought to fish in order to meet 11 their obligations to Plaintiffs, “required a salmon seine limited entry permit issued 12 by the Alaska Commercial Fisheries Entry Commission.”73 Because of this 13 requirement, AGS’s advancement of money to purchase the permits was no less 14 necessary to the success of the fishing operation at issue in this case than money 15 advanced to purchase fuel to power the Vessel’s run to the fishery, or nets with which 16 to catch fish upon its arrival at its intended location. Like other intangibles such as 17 insurance, the permit was “an asset that [kept] the vessel ‘active’ and [was] 18 necessary to the ‘continued operation’ of the vessel.”74 By alleging facts in the 19 amended complaint that the funds from the AGS Note and AGS Open Account Loan 20 were provided to Defendants for the purpose of acquiring necessaries, which 21
22 71 Doc. 52; Doc. 77 at 4-5. 72 See Bradford Marine, Inc. v. M/V Sea Falcon, 64 F.3d 585, (11th Cir. 1996) (“Necessaries 23 are the things that a prudent owner would provide to enable a ship to perform well the functions for which she has been engaged.”) 24 73 Doc. 66 at 4 (emphasis added). 74 Zitano, 963 F.Supp at 112; see also First Bank v. Exodus, 598 F.Supp.3d 1077 (W.D. Wash. 25 April 8, 2022) (noting there is “no general objection to treating an intangible as an 26 appurtenance,” and when considering whether a fishing permit qualified as an appurtenance, noting that it was “the rights themselves” rather than the physical permit 27 itself that determined the market value and creditworthiness of the vessel, as much as its engine, physical dimensions, and navigation equipment) (quoting Gowen, Inc. v. F/V Quality 28 One, 244 F.3d 64, 67-68 (1st Cir. 2001)). 1 included the limited entry permits, Plaintiffs have met their burden and established
2 a cognizable claim in admiralty under 46 U.S.C. § 31342. 75 Subject matter
3 jurisdiction on that basis is proper.
4 Defendants’ reliance on Alaska state law and regulation governing the
5 possession and transfer of limited entry pe rmits is unavailing. As Plaintiffs correctly 6 argue, the issue at hand is not the assertion of a lien against the permits themselves, 7 but rather, against the Vessel based upon the advancement of funds to the Vessel’s 8 owners that were then used to acquire the permits. The Court does not believe that 9 Defendants’ arguments based upon state-imposed limitations on the attachment of 10 these permits or whether or not they can be the subject of a maritime lien under 11 Alaska laws are relevant to the issue of subject matter jurisdiction. 12 Moreover, Defendants’ arguments relating to Alaska state law ignore federal 13 supremacy when the issues concern federal substantive rights under admiralty law. 14 While “[s]tate law may supplement maritime law, [] it must yield when it interferes 15 with harmony and uniformity, or where it would defeat reasonably settled 16 expectations of maritime actors.”76 Even if the Court were to assume a conflict 17 between Alaska law and regulation and federal maritime law, federal admiralty 18 jurisdiction would remain. 19 ii. The Court’s Reasoning in Finney v. Howey Is Not Inconsistent 20 with Its Findings and Recommendation in this Case. 21 Defendants reference Finney v. Howey, in which this Court recommended 22 denying a motion to vacate judgment for lack of admiralty jurisdiction regarding a 23 contract for the transfer of a similar limited entry permit.77 However, the outcome 24 in that case is not directly applicable to the issues in this motion to dismiss given the
25 75 Padre Shipping, 553 F.Supp.2d at 331-32; Ronda Ship Mgmt., 511 F.Supp.2d at 404. 26 76 Bank of Pacific v. F/V ZOEA, 2017 WL 823298 at *2 (W.D. Wash. March 2, 2017) (citing Am. Dredging Co. v. Miller, 510 U.S. 443, 447 (1994) and Persson v. Scotia Prince Cruises, 27 Ltd., 330 F.3d 28, 32 (1st Cir. 2003)). 77 Finney v. Howey, 3:20-cv-00289-SLG-FKR, Doc. 28 (D. Alaska, Nov. 14, 2022) (hereinafter 28 “Finney”). 1 arguments raised by the parties in each respective matter. In Finney v. Howey,
2 Defendant Bryan Howey argued that his agreement to purchase a seasonal limited
3 use permit from Plaintiff in exchange for $27,500 did not give rise to maritime
4 jurisdiction because, among other arguments, Plaintiff did not and could not assert
5 a maritime lien, nor was the transfer a maritime contract.78 In their response, 6 Plaintiffs did not argue that a maritime lien existed, asserting instead that admiralty 7 jurisdiction was proper because the agreement to transfer the permit was a maritime 8 contract.79 9 The District Court disagreed with Defendants’ arguments, adopting this 10 court’s Report and Recommendation finding that the transaction at issue – the 11 transfer of a fishing permit – was a maritime contract, and that therefore federal 12 maritime jurisdiction was proper.80 As Plaintiff did not argue that a maritime lien 13 existed, neither the District Court nor the Magistrate Court addressed this issue. In 14 addition, the Court dismissed Defendants’ reliance on case law asserting that 15 Alaska’s regulation of fishing permits placed the transaction outside of admiralty 16 jurisdiction, noting that the contract at issue did not involve any state actors, but 17 rather, was between two private parties, and that it conflicted “neither with the 18 admiralty jurisdiction of any court of the United States conferred by Congress, nor 19 with any law of congress whatsoever.”81 20 In this case, however, the entirety of both parties’ arguments are based on 21 whether or not an agreement to advance money to Defendants to be used for the 22 purchase of limited entry permits from a third party was sufficient to establish a 23 maritime lien, and therefore maritime jurisdiction. The parties do not raise, and the 24 Court is not making any findings or recommendations as to whether or not the AGS
25 78 Finney at Doc. 17. 26 79 Finney at Doc. 19. In their opposition, Plaintiffs stated that they mistakenly asserted a maritime lien in their complaint, but did not seek to enforce any lien rights, thereby making 27 “the factual and legal discussion on this point…irrelevant.” 80 Finney Doc. 31 at 2-3. 28 81 Finney at 3-4 (D. Alaska, Dec. 19, 2022). 1 Note and AGS Open Account Loan were maritime contracts, and whether or not
2 maritime jurisdiction exists on that alternative basis.
3 The Court believes its reasoning in both cases to be consistent and that
4 depending upon the facts of each particular case, agreements for the purchase of
5 fishing permits can involve both necessar ies, and be a contract whose “nature and 6 subject matter” is central to the business of maritime commerce.82 Moreover, 7 jurisdiction on this basis is not an either or proposition as “[s]ome maritime liens 8 [may be] based on an underlying breach of contract[.]”83 9 iii. There Is No Basis to Reduce the Previously-Ordered Security 10 Under Rule E(6) at Docket 66 11 As detailed above, the Court finds Plaintiffs’ Amended Complaint properly 12 establishes admiralty jurisdiction pursuant to 46 U.S.C. § 31342. The Court 13 previously set a bond amount of $148,500, and in making that determination 14 considered, but did not expressly determine as it does here, Defendants’ argument 15 that monies used for limited entry permits cannot give rise to a maritime lien.84 16 However, the Court did state that even if it were to accept this argument, a bond of 17 $148,500 would still be reasonable given that it was significantly less than the bond 18 amount authorized under the law.85 This fact remains true and the Court’s findings 19 and recommendations herein provides no basis to disturb its prior ruling. 20 Accordingly, as it relates to the advances for the three limited entry permits, the 21 Court recommends that Defendants’ request to reduce its security for lack of 22 jurisdiction be denied. 23 // 24 // 25 // 26 82 Exxon Corp. v. Central Gulf Lines, Inc., 500 U.S. 603, 608 (1991). 27 83 Ventura Packers, 305 F.3d at 920-21 (citing Farwest Steel Corp., 769 F.2d at 621)). 84 Doc. 52 at 14. 28 85 Id. at 13-14 (citing Supplemental Admiralty & Maritime Claims Rule E(5)(a)). 1 b. Motion to Dismiss for Lack of Admiralty Jurisdiction re Rule D
2 “Petitory Action” and Under Preferred Ship Mortgage Act at Docket
3 76
4 Defendants move to dismiss for lack of subject matter jurisdiction claims
5 made in Plaintiffs’ Amended Complaint re lating to petitory relief, as well as claims 6 invoking the Preferred Ship Mortgage Act under 46 U.S.C. §§ 31322 and 31325.86 7 Defendants claim that Plaintiffs lack legal title to the vessel, and thus lack admiralty 8 jurisdiction to support a claim of petitory relief under Admiralty Rule D.87 9 Defendants also argue that because the Vessel is not a United States documented 10 vessel, it does not meet the requirements under 46 U.S.C. § 31322 necessary to create 11 admiralty jurisdiction. Similarly, Defendants argue that no admiralty jurisdiction 12 exists under 46 U.S.C. § 31325 because there is no preferred mortgage.88 Finally, 13 Defendants claim that Plaintiffs failed to assert supplemental jurisdiction in their 14 Amended Complaint.89 15 Plaintiffs respond that Admiralty Rule D applies to Plaintiff Liberty’s claims, 16 creating admiralty jurisdiction, that supplemental jurisdiction exists because the 17 claims derive from a common nucleus of operative facts, and that diversity 18 jurisdiction also exists, which although not plead in its amended complaint, the 19 Court may infer on its own.90 20 For the reasons stated below, the Court recommends that Defendants’ motion 21 to dismiss for lack of admiralty jurisdiction regarding the Rule D “Petitory Action” 22 be denied. In light of its findings on this issue, the Court declines to consider 23 Defendants’ request to dismiss under the Preferred Ship Mortgage Act. 24 //
25 86 Doc. 76. 26 87 Id. at 2. 88 Id. at 7. 27 89 Id. at 4. 90 Doc. 82 at 10. See Mir v. Fosburg, 646 F.2d 342, 346-347 (9th Cir. 1980); Merricks- 28 Barragan v. Maidenform, Inc., 2011 WL 5173653 (C.D. Cal. Oct. 31, 2011). 1 i. Jurisdiction under Admiralty Rule D
2 Admiralty Rule D provides a basis to bring in federal court “all actions for
3 possession, partition, and to try title maintainable according to the course of the
4 admiralty practice with respect to a vessel.” In the Amended Complaint, Plaintiff
5 states that this action has been broug ht “in personam arising from maritime 6 contracts, as well as in rem against the Vessel for provision of necessaries and for 7 petitory relief under Supplemental Admiralty Rule D.”91 A petitory suit seeks to try 8 title to a vessel and “is to some extent akin to the terrestrial suit to quiet title, 9 although, as opposed to a quiet title suit in which title is perfected against the world, 10 the admiralty procedure to try title afforded by a petitory action can only be utilized 11 with a specific adversary in mind.”92 A petitory action to try title under Rule D 12 “requires [a] plaintiff to assert a legal title to the vessel; mere assertion of an 13 equitable interest is insufficient.”93 14 Plaintiff Liberty’s Amended Complaint references petitory relief and goes on 15 to specifically assert as a basis for federal jurisdiction CIMLA and Supplemental Rule 16 C and D.94 Defendants are correct that the Amended Complaint does not assert a 17 right to title against the Vessel sufficient to support petitory relief. However, 18 Defendants are incorrect that this is a basis upon which to grant their motion to 19 dismiss. 20 What Defendants call a “petitory action” does not accurately state the 21 substance of the allegation contained within the Amended Complaint. A reading of 22 the Amended Complaint shows that Plaintiff Liberty is not seeking to try title to the 23 Vessel. Rather, Plaintiff Liberty seeks to execute its lien rights, sell, or possess the 24
25 91 Doc. 64 at 2. 26 92 Kawa Leasing, Ltd. V. Yacht Sequoia, 544 F.Supp. 1050, 1063 (D. Md. July 9, 1982) (citing 7A Moore's Federal Practice P D.03, at D-25). 27 93 Gulf Coast Shell and Aggregate LP v. Newlin, 623 F.3d 235, 239 (5th Cir. 2010) (citing Silver v. Sloop Silver Cloud, 259 F.Supp. 187, 191 (S.D.N.Y. 1966). 28 94 Doc. 64 at 2. 1 Vessel.95 As stated in its Amended Complaint and exhibits filed therewith,
2 Defendants entered into a Loan and Security Agreement that gave Plaintiff Liberty a
3 security interest in the Vessel.96 That agreement explicitly granted Plaintiff Liberty
4 the right of “seizure and sale” of the Vessel if default occurred, and though disputed,
5 Plaintiffs’ Amended Complaint presen ts sufficient facts alleging Defendants 6 defaulted under the agreement.97 7 Plaintiff Liberty’s “legal claim to possession” of the Vessel is a proper basis 8 under Rule D to proceed in an admiralty claim.98 “It does not appear, either from 9 Rule D or from other court opinions, that dispute of legal title is required for a Rule 10 D possessory action. Rule D makes note both of actions for possession and of actions 11 to quiet title.”99 Accordingly, Plaintiffs need only assert the right to possess the 12 Vessel to maintain a Rule D action in federal court, which Plaintiff Liberty did in its 13 Amended Complaint.100 14 15
16 95 Doc. 64 at 9. 96 Docs. 64 and 64-1. 17 97 See Gallagher v. Unenrolled Motor Vessel River Queen, 475 F.2d 117 (5th Cir. 1973) 18 (recognizing that suits for possession based on the claimant's right to title are properly within the admiralty jurisdiction of the federal judiciary (citing Ward v. Peck, 59 U.S. 267 19 (1855)). 98 Cary Marine, Inc. v. M/V Papillon, 701 F.Supp. 604, 606 (N.D. Ohio 1988), aff'd, 872 F.2d 20 751 (6th Cir. 1989); see also Newlin, 623 F.Supp. at 1063. 99 FED. R. CIV. P. SUPP. D; Warhurst v. One Twenty Foot Bertran, Civil Action No. 14-00245- 21 N, 2015 U.S. Dist. LEXIS 31008, at *5-7 (S.D. Ala. Mar. 13, 2015); see also The Tietjen & Lang 22 No. 2, 53 Supp. 459, 1944 A.M.C. 518 (D.N.J. 1944) (finding jurisdiction since “[p]ossessory actions are actions to recover ships or other property to which a party is of right entitled,” 23 which are analogous to suits for replevin). 100 Doc. 82 at 7-8 FN 6; see also Jones v. One Fifty Foot Gulfstar Motor Sailing Yacht, Hull No. 24 01, 625 F. 44, 47 (5th Cir. 1980) (jurisdiction is proper in a Rule D possessory suit where the Plaintiff alleges “ownership, right to immediate possession, [and] an unlawful ... 25 detention by defendant ...”); Ward v. Peck, 59 U.S. 267, 267 (1855); Gallagher v. Unenrolled 26 Motor Vessel River Queen, 475 F.2d 117, 119 (5th Cir. 1973); Matsuda v. Wada, 128 F.Supp.2d 659 (D. Hawaii, 2000); Ogner v. M/V KILOHANA, O.N. 1208577, 2017 WL 5892196, at *2 (D. 27 Hawaii, 2017); Schatek v. Tsui, 2010 WL 5169006, at *1 (E.D. Cal. Dec. 14, 2010); Offshore Express, Inc. v. Begeron Boats, Inc. 1978 A.M.C. 1504 (E.D. La 1977); Hunt v. A Cargo of 28 Petroleum Prods. Laden on the Steam Tanker Hilda, 378 F. Supp. 701, 703-04 (E.D. Pa. 1974). 1 Ultimately, whether Defendants defaulted or not is up to the trier of fact to
2 decide, not this Court in the present motion to dismiss. Since this Court must assume
3 Plaintiffs’ proffered facts as true, Plaintiff Liberty has the right under Rule D to an
4 action to determine possession in federal court and jurisdiction exists for the Court
5 to hear those claims. 6 ii. Additional Bases for Jurisdiction 7 Two additional bases of federal jurisdiction exist in this case - supplemental 8 jurisdiction under 28 U.S.C. § 1367 and diversity jurisdiction pursuant to 28 U.S.C. 9 § 1332. The Court finds that supplemental jurisdiction is proper because Plaintiff 10 Liberty’s claims derive from the same nucleus of operative facts as Plaintiff AGS’ 11 maritime lien claims.101 As stated in the Amended Complaint and accompanying 12 exhibits, Plaintiff AGS entered into a Fishing Agreement with Defendants in 2019, 13 whereby Defendants agreed to fish the Vessel for Plaintiff AGS for a 15-year term 14 under certain terms and conditions. The Fishing Agreement was simultaneously 15 made with the $800,000 rescue loan from Plaintiff Liberty, which also had a 15-year 16 repayment term.102 All of the loans by both companies involved the same debtors 17 and the same vessel, and Liberty’s claims can fairly be considered part of the same 18 case or controversy as those presented by AGS.103 19 Additionally, diversity jurisdiction exists in this case. Plaintiffs concede that 20 they did not plead diversity jurisdiction in their Amended Complaint.104 However, 21 this fact is not dispositive so long as sufficient facts are alleged upon which the Court 22 may determine jurisdiction.105 Federal Rule of Civil Procedure 12(h)(3) provides that 23 a court may raise the question of subject matter jurisdiction, sua sponte, at any time 24
25 101 Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966). 26 102 Doc. 78 at 2. 103 Doc. 82 at 9. 27 104 Doc. 82 at 10. 105 See Mir v. Fosburg, 646 F.2d at 346-347; see also Arbaugh v. Y&H Corp., 546 U.S. 500, 513 28 (2006). 1 during the pendency of the action.”106 “[W]hile a complaint must present certain
2 quite particular allegations of diversity jurisdiction in order to be adequate, the
3 actual existence of diversity jurisdiction, ab initio, does not depend on the
4 complaint's compliance with these procedural requirements.” The “essential
5 elements of diversity jurisdiction” mus t be “affirmatively allege[d],” and “the 6 burden of proving” diversity jurisdiction “is on the party asserting” it. 7 Plaintiffs have met their burden in this case. Although Plaintiffs did not 8 specifically allege diversity jurisdiction in their Amended Complaint, they did plead 9 the essential elements of diversity jurisdiction for the Court to find that such 10 jurisdiction exists. As stated in the Amended Complaint, Plaintiff Liberty is a 11 Washington company doing business in Washington, and Plaintiff AGS is a Delaware 12 company doing business in Washington. Defendants Bryan and Dana Howey are both 13 citizens of Alaska, the Vessel is registered in Alaska, and Defendant AWE is 14 incorporated in Alaska. Finally, the jurisdictional threshold amount of over $75,000 15 is met for suit in federal court. Accepting Plaintiffs’ allegations as true, considering 16 the facts alleged, and drawing all reasonable inferences in favor of Plaintiffs,107 the 17 Court finds that Plaintiffs’ claims, on their face, sufficiently invoke federal diversity 18 jurisdiction under the Rule 12(b)(1) standard. 19 iii. Motion to Dismiss Under Preferred Ship Mortgage Act at 20 Docket 76 21 Plaintiffs do not specifically address whether there is jurisdiction under either 22 46 U.S.C. § 31322, and § 31325, Preferred Ship Mortgage Act. Since jurisdiction exists 23 on multiple other grounds, the Court declines to consider this issue at this time. 24 // 25 // 26
27 106 See Snell v. Cleveland, Inc., 316 F.3d 822, 826 (9th Cir. 2002); see also Qingdao Youli Century Guarantee Co., Ltd. v. Shaoqiang Chen, 2018 WL 6264971, at *1 (C.D. Cal., 2018). 28 107 See Safe Air, 373 F.3d at 1039. 1 V. Conclusion
2 Plaintiffs’ Amended Complaint alleges sufficient facts to support federal
3 jurisdiction over monies advanced by AGS to Plaintiffs for the acquisition of
4 necessary limited entry permits. Similarly, admiralty jurisdiction exists as it relates
5 to Plaintiff Liberty’s action for possessio n of the Vessel pursuant to Supplemental 6 Admiralty Rule D, as does supplemental and diversity jurisdiction. For the reasons 7 stated above, the Court recommends that Defendants’ Motions to Dismiss at Dockets 8 66 and 76 be DENIED. 9 DATED this 24th day of January, 2023 at Anchorage, Alaska.
10 s/ Kyle F. Reardon KYLE F. REARDON 11 United States Magistrate Judge District of Alaska 12 13 NOTICE OF RIGHT TO OBJECT 14 Under 28 U.S.C. § 636(b)(1), a district court may designate a magistrate judge 15 to hear and determine matters pending before the Court. For dispositive matters, a 16 magistrate judge reports findings of fact and provides recommendations to the 17 presiding district court judge.108 A district court judge may accept, reject, or modify, 18 in whole or in part, the magistrate judge’s order.109 19 A party may file written objections to the magistrate judge’s order within 20 fourteen (14) days.110 Objections and responses are limited to five (5) pages in length 21 and should not merely reargue positions previously presented. Rather, objections 22 and responses should specifically identify the findings or recommendations objected 23 to, the basis of the objection, and any legal authority in support. Reports and 24 recommendations are not appealable orders. Any notice of appeal pursuant to Fed. 25 R. App. P. 4(a)(1) should not be filed until entry of the district court’s judgment.111 26 108 28 U.S.C. § 636(b)(1)(B). 27 109 28 U.S.C. § 636(b)(1)(C). 110 Id. 28 111 See Hilliard v. Kincheloe, 796 F.2d 308 (9th Cir. 1986).