As a practicing attorney at Chamberlain Hrdlicka in Houston, the focus of my practice is two-fold: I represent companies and individuals in civil litigation. I also do extensive work (of both a litigation and transactional nature) in the Admiralty, Maritime, and Energy fields.
I have been licensed to practice law since 2003. During that time, I've first and second chaired several trials to verdicts, as well as handled hundreds of other cases to amicable resolutions.
I'm a product of public schools, specifically Friendswood High School in Friendswood, Texas (Class of 1996), The University of Texas at Austin (BA-2000) and The University of Texas School of Law (JD-2003).
Super Lawyers named me a Rising Star in Maritime & Transportation law every year since 2011. H Texas Magazine named me a Top Lawyer in Houston every year since 2012. Houstonia Magazine named me a Top Lawyer in Houston every year since 2013.
Chamberlain Hrdlicka Blawgs
The focus of this post is maritime liens, which are a common commercial claim asserted against a vessel in rem, meaning the claimant sues the vessel directly. Usually this happens in Federal Court under Rule 9(h), but some states, such as Florida, allow for assertion of maritime liens in state court.
An Overview of What Constitutes a Maritime Lien
Maritime liens are both a creature of common law judicial custom and statute. Thomas Schoenbaum, a noted admiralty commentator, lists the most common maritime liens in his treatise Admiralty and Maritime Law as follows:
- Wages for the ship master/crew
- General Average
- Claims for breach of a charter party/vessel lease
- Preferred ship mortgages
- Claims under maritime contracts for repairs and other necessaries
- Maritime tort claims, including claims for personal injury, death, or collision
- Cargo damage or loss
- Unpaid freight/demurrage
- Pollution Claims
Schoenbaum, Thomas J., Admiralty and Maritime Law §9-1 pp. 687-689 (5th Ed. Practitioner Treatise Series 2011).
In my experience, claims for necessaries provided to the vessel form the basis of many lien claims. In order to make such a claim, a party must demonstrate they provided (a) necessaries (b) to a vessel (c) upon request or order of a person or entity authorized to bind the vessel. See Lake Charles Stevedores, Inc. v. Professor Vladimir Popov, MV, 199 F.3d 220 (5th Cir. 1999).
Once proved, those elements establish a right to recover the value of the lien, plus attorney’s fees and, in many instances, court costs, from the vessel or the in personam owner.
Who’s in Charge Here?
There is an ample body of case law concerning what does or does not constitute a necessary to a vessel. That is another post for another day. Instead, we turn our focus to the last element of a maritime lien claim: is the necessary provided on request of someone with authority to bind the vessel? Guidance in this area comes from the Commercial Instruments and Maritime Liens Act (“CIMLA”), which is a federal statute outlining the procedure to obtain a maritime lien, including who has authority to procure necessaries for a vessel. See 46 U.S.C. § 31341. Those persons are:
- The owner
- The master or captain
- A person entrusted with the management of the vessel at the port of supply; or
- An officer or agent appointed by:
- The owner
- A charterer
- An owner pro hac vice
- An agreed buyer in possession of the vessel
46 U.S.C. § 31343(a)(1-(a)(4). In 1999, the Fifth Circuit read the CIMLA (then called the MCILA) to create a presumption that those individuals listed in 31341(a) had authority to act on behalf of the vessel. Lake Charles Stevedores, 199 F.3d at 224-225. However, the presumption can be rebutted. Id.
When there is an absence of a contract between the vessel/vessel owner and the party asserting the maritime lien (which, due to the nature of the shipping business, is quite common), the jurisprudence, according to the Fifth Circuit in Lake Charles Stevedores, breaks down into 2 lines of cases:
- The general contractor/subcontractor line, an example of which is Crescent City Marine, Inc. v. M/V Nunki, 20 F.3d 665 (5th Cir. 1994); and
- The principal/agent line, applied in Belcher Co. v. M/V Martha Mariner, 724 F.2d 1161 (5th Cir. 1984).
In a general contractor situation, the subcontractor cannot assert a maritime lien against a vessel – only the general contractor, acting in privity with the vessel or the vessel’s agent, can do so. See 199 F.3d at 229. The only time a subcontractor can have a maritime lien is when “it can be shown that an entity authorized to bind the ship controlled the selection of the subcontractor and/or its performance.” Id. In Lake Charles Stevedores, the entity that hired the stevedores did not cede any control of the selection of the stevedore group, and the general contractor accepted all of the risk. 199 F.3d at 230.
The principal/agent theory is also referred to as the “middle-man” line of cases. A good example of this, according to the Fifth Circuit, is found in Marine Fuel Supply & Towing, Inc. v. M/V Ken Lucky, 869 F.2d 473 (9th Cir. 1988). Therein, the subcharterer of a vessel ordered fuel from its managing agent, who, in turn hired a fuel trader, who in turn hired a bunkering service who then bought fuel from a physical supplier, Marine Fuel Supply & Towing. 869 F.2d 473, 475. On those facts, the Ninth Circuit found that since the order originated with the subcharterer, it originated from an entity having authority to bind the vessel.
New Decision Offers Guidance
On June 19, 2018, the Fifth Circuit Court of Appeals issued a 2-1 panel decision in the case of Valero Marketing & Supply Co. v. M/V Almi Sun, et al., ____ F.3d _____, 2018 U.S. App. LEXIS 16525, No. 16-30194 (5th Cir. 2018).
Verna Marine Co., Ltd. (“Verna”) owned the Almi Sun. Verna’s agent for the Almi Sun was Almi Tankers, S.A. (“Tankers”), and Tankers hired a fuel trader named O.W. Bunker Malta, Ltd. (“O.W.”) to procure fuel bunkers for the Almi Sun while she was in Corpus Christi, Texas. Tankers later inquired of O.W. who the actual supplier would be for the fuel, and O.W. advised Tankers it was Valero Marketing & Supply Company (“Valero”).
Valero provided the fuel, at O.W.’s instruction, directly to the Almi Sun. The vessel agents verified the bunker quality, and an officer of the Almi Sun signed the bunkering certificate. Valero then submitted an invoice to O.W., who did not pay it and instead later filed for bankruptcy. 2018 U.S. App. Lexis 16525 at *2-3.
Valero then sued in rem, asserting a maritime lien against the Almi Sun. Verna appeared for the vessel and contested the validity of the lien, arguing that Valero did not have a contract with Tankers (the vessel’s agent) but rather O.W., who Verna claimed did not have authority under the CMILA to bind the vessel. Id. at *3.
The district court ruled in favor of Verna, holding O.W. did not have the required authority for a maritime lien to exist. In a 2-1 decision, the Fifth Circuit upheld the district court’s reasoning, ultimately holding that this case fell into the general/subcontractor genre. Id. at *8.
Judge Higginbotham, writing for the majority, noted that the facts of the case did not establish that O.W. was “a ‘person presumed to have authority to procure necessaries’” because, among other things, Valero “dealt with O.W., not Verna or Tankers, and the record does not establish” O.W. acted as Verna or Tankers’ agent. With this observation, the majority found the facts did not reach the necessary level of privity so as to invoke the principal/agent line of cases.
There was some evidence that the vessel interests knew of O.W.’s retention of Valero. Obviously, the vessel crew signed paperwork and certified the quality of the fuel. Also, at some point in time Tankers expressed concern about O.W.’s ability to pay Valero. 2018 U.S. App. LEXIS 16525 at *7-8.
The dissent, from Judge Haynes, asserted two basic arguments. First, the Lake Charles Stevedores decision adopted a two-tiered analysis on whether a subcontractor could have a maritime lien: either a § 31341(a) person/entity directed the general contractor to hire a particular subcontractor OR the subcontractor was identified and accepted by a §31341(a) person/entity prior to performance. 2018 U.S. App. LEXIS 16525 at *16. Second, Judge Haynes argued the facts of this case fell into the second line of subcontractor cases, and the majority did not follow Lake Charles Stevedores, creating “an unnecessary circuit split with the Eleventh Circuit.” 2018 U.S. App. LEXIS 16525 at *15. Unfortunately, for Judge Haynes, these arguments could not persuade Judge Jones, who sided with Judge Higginbotham in the majority.
What lessons can a vessel owner take from Valero Marketing & Supply to minimize the potential existence of a maritime lien in the Fifth Circuit?
First, I think this decision could encourage vessel owners and their designated managing agents/local agents to remove themselves from any decision-making as to who provides the necessaries for their vessels. On the one hand, this already seems to occur, especially with foreign vessel owners who rely upon
On the other hand, some safety concerns (fuel quality, the source of food for the crew members, etc.) may require persons or entities with § 31341 authority to learn more about the origin point of the vessel’s necessaries.
Second, I think this decision may encourage persons with § 31341 authority to avoid exclusivity agreements. In the insurance industry, many large insurance companies have such agreements with law firms, legal support providers, private investigation firms, etc. wherein, in exchange for being the sole and exclusive provider of those services, the service providers accept below-market rates for their services. These savings ostensibly either serve as part of the profit margin or are passed back to the ultimate consumers.
Third, as the operative standard in the general contractor line of cases is control (according to the Valero Marketing & Supply majority), the decision could lead to a conscious decision by vessels and persons/entities empowered by § 31341 to remove themselves not only from the selection of their necessaries providers, but also control of any operations related to the provision of those necessaries before performance occurs. Obviously, the vessel has to certify fuel quality and confirm that the right amount of containers were loaded. However, these things occur during or after performance. Could a safety meeting between the Master of the vessel or the ship’s agent and a stevedoring company hired by the terminal constitute an exercise of control?