LIENING IN: Best Practices for Suppliers Navigating CIMLA – Part 2

This post is the second installment in a series examining the elements suppliers of maritime goods or services must prove to establish and enforce the supplier’s potential maritime lien under the Commercial Instruments and Maritime Liens Act (“CIMLA”), 46 U.S. Code § 31342 et. seq. Previously, we discussed examples of goods or services that constitute “necessaries.” This installment examines the requirement that the necessaries be provided “to a vessel.” Suppliers should pay particular attention to this element because it often turns on something that is wholly or partially within the supplier’s control: sales and invoicing practices.

Explicit designation of each vessel supplied is particularly important in bulk contracts or when services are provided to a fleet of vessels. Merely showing that the necessaries ended up on a particular vessel is insufficient to establish that the necessaries were provided to the vessel by the supplier, rather than by the vessel owner. A supplier who fails to document the specific vessel for which services or supplies are intended risks a finding that the services or goods were provided to the vessel owner or charterer personally rather than to a particular vessel. In that situation, no lien attaches. See Silver Star Enterprises, Inc. v. Saramacca MV, 82 F.3d 666, 670 (5th Cir. 1996) (A supplier furnishing containers to a fleet of vessels was not entitled to a maritime lien because the containers “were leased in bulk and not earmarked for use on board the M/V SARAMACCA”); Itel Containers Int’l Corp. v. Atlanttrafik Express Serv. Ltd., 982 F.2d 765, 769 (2d Cir. 1992) (The container supplier “did not ‘furnish’ the containers ‘to any vessel’” as required by CIMLA).

Explicitly earmark necessaries for a named vessel

The most effective way to ensure that necessaries are provided to a vessel within the meaning of CIMLA is to explicitly earmark the necessaries for a named vessel. This can be accomplished (1) in instruments generated prior to the actual contract, such as quotes, RFPs, or bid proposals; or (2) in sales order confirmations. Courts also view invoices and receipts naming the vessel to which goods or services were provided as evidence that the supplier delivered the necessaries to the named vessel. If necessaries are furnished to multiple vessels, the supplier may issue a separate invoice for each vessel. Alternatively, an invoice may be itemized by vessel to ensure that the specific vessel to which particular necessaries were provided is clearly identifiable.

In the next installment, we will discuss on whose order necessaries must be provided to a vessel to give rise to a maritime lien under CIMLA. Future installments will analyze the remaining substantive requirements for a necessaries lien under CIMLA as well as defenses to and priority of the maritime lien for necessaries.

Read Part 1: What Qualifies as Necessaries Under the Commercial Instruments and Maritime Liens Act?

NuStar Energy Services v. M/V COSCO AUCKLANDIn NuStar Energy Services, Inc. v. M/V COSCO AUCKLAND, No. 17-20246 (5th Cir. Jan. 14, 2019), the U.S. Fifth Circuit concluded NuStar, the physical supplier of bunkers/marine fuel to the M/V COSCO AUCKLAND, lacked standing to appeal the district court’s ruling that O.W. Bunker Far East (S) Pte Ltd., the contract supplier of bunkers, had validly assigned its maritime lien against that vessel to ING Bank N.V. In line with its earlier decision of Valero Mktg. & Supply Co. v. M/V ALMI SUN, 893 F.3d 290, 295 (5th Cir. 2018) and other decisions of the Second, Ninth and Eleventh Circuits, the Fifth Circuit concluded that NuStar did not hold a maritime lien against the vessel even though the vessel interests were aware that NuStar would physically supply the bunkers, and the vessel’s employees oversaw and accepted the delivery of the fuel.

Because NuStar did not have a valid maritime lien, the district court’s conclusion that OW Far East had assigned its maritime liens to ING Bank would not affect NuStar in any concrete way and thereby rendered NuStar’s interest in challenging the validity of the assignment moot. Accordingly, the Fifth Circuit concluded it lacked jurisdiction to review the district court’s ruling that OW Far East validly assigned its maritime lien to ING Bank.

The Fifth Circuit noted in closing: “Of course, our inability to review the district court’s judgment as to ING means that this case is not resulting in circuit precedent on the question whether the liens are assignable to ING. So to the extent this issue arises in other OW Bunker cases in this circuit, it remains an open question.”  While there still is no precedent emanating from the U.S. Fifth Circuit concerning the validity of the assignments of maritime liens to ING Bank, the decisions of other courts have confirmed the validity of such assignments.  See Barcliff, LLC v. M/V DEEP BLUE, 876 F.3d 1063, 1074-75 (11th Cir. 2017); ING Bank N.V. v. M/V TEMARA, ___ F. Supp. 3d ___ (S.D.N.Y. 2018), on remand; NuStar Energy Servs., Inc. v. M/V COSCO AUCKLAND, 2016 WL 9307626 at *6 (S.D. Tex. 2016), appeal dismissed on this point.

NOTE: King & Jurgens, LLC and its predecessor, King, Krebs & Jurgens, PLLC, have represented ING Bank N.V. in scores of maritime arrests and attachments of vessels in the ports of the United States to collect for non-payment of bunkers contractually supplied by the OW Bunker Group. King & Jurgens, LLC, however, was not involved in the NuStar litigation discussed in this blog post.

LIENING IN: Best Practices for Suppliers Navigating CIMLA – Part 1

Under the Commercial Instruments and Maritime Liens Act (“CIMLA”), 46 U.S. Code § 31342 et. seq., “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.” This post is the first installment in a series examining the elements suppliers of maritime goods or services must prove to establish and enforce the supplier’s potential maritime lien.

The term “necessary” applies not only to goods and services that are required for the vessel to operate, but also “includes most goods or services that are useful to the vessel, keep her out of danger, and enable her to perform her particular function…. What is a ‘necessary’ is to be determined relative to the requirements of the ship.” Equilease Corp. v. M/V SAMPSON, 793 F.2d 598, 603 (5th Cir.) (en banc), cert. denied, 479 U.S. 984 (1986). Goods or services that are essential for the vessel to perform its mission should be considered necessaries. Items that courts have found to constitute necessaries under CIMLA include: fixed gas detection systems required for subsea pipe repair activities conducted from a vessel; bunkers/fuel; insurance; payments which stevedoring companies are required to make to longshore employees under collective bargaining agreements; services to secure, prepare, and file documents in connection with marine mortgages; and, transporting drilling equipment to a drilling vessel via supply boat.

Thus, if a supplier can establish that its goods or services were related to the purpose for which the vessel was operating, then they should qualify as necessaries. One cautionary note: once the vessel ceases operating for the purpose for which the supplies are provided, the supplies may no longer constitute necessaries. Similarly, superfluous or redundant pieces of equipment are not necessaries, even if the type of equipment is necessary for the vessel’s function. See Equilease, 793 F.2d at 604 (“Anchors and cables are generally considered to be necessaries, but if the vessel is fully supplied with them, the furnishing of another anchor or cable is not ‘necessary’.”).

In the upcoming installments, we will analyze the remaining substantive requirements for a necessaries lien under CIMLA as well as defenses to and priority of the maritime lien for necessaries.

Read Part 2: Explicit Designation of Vessels Key for Suppliers Navigating CIMLA

Bunker Holdings, Inc. v. Yang Ming Liberia Corp.Many physical suppliers of bunkers/marine fuel, who were unpaid by their contractual counterparties, have relied on a decision of the United States Court of Appeals for the Ninth Circuit, Marine Fuel Supply & Towing, Inc. v. M/V KEY LUCKY, 869 F.2d 473 (9th Cir. 1988), as jurisprudential support for the concept that the physical supplier has a maritime lien against the vessel supplied with the fuel, even though the physical supplier did not take the order for the fuel from the vessel’s owner, charterer or agent. A close reading of the KEN LUCKY decision indicated that the Ninth Circuit reached its conclusion based upon the vessel interests’ admission in the pleadings that Bulkferts, the subcharterer of the vessel, had ordered the fuel from Marine Fuel. Id. at 476-77. (The actual chain of contracts was Bulkferts ordered the fuel from Brook Oil, who then ordered the fuel from Marine Fuel.) Because the vessel interests had admitted that their subcharterer had ordered the fuel directly from the physical supplier, the physical supplier was entitled to a maritime lien. Since that time, KEN LUCKY has been routinely cited by physical suppliers as standing for the overly broad proposition that they have a maritime lien against the vessel, regardless of whether the vessel owner, charterer or agent order the necessaries from the physical supplier.

Recently, the Ninth Circuit revisited this issue in Bunker Holdings, Inc. v. Yang Ming Liberia Corp., No. 16-35539 (9th Cir. Oct. 11, 2018). The Ninth Circuit followed the prior decisions of the Eleventh, Second and Fifth Circuits in concluding that a physical supplier of fuel that received the fuel order from a bunker broker or bunker intermediary, and not the vessel owner or charterer, does not have a maritime lien against the vessel under the Commercial Instruments and Maritime Lien Act. Id. at 5.

Perhaps more significantly, the Ninth Circuit has expressly limited the KEN LUCKY decision to its unique procedural posture:

The defendant admitted that Marine Fuel sold the bunkers to Bulkferts, pursuant to an order originating from Bulkferts. Based on that admission, we treated the case as though Bulkferts had ordered the bunkers directly from Marine Fuel and hence assumed that Marine Fuel had supplied the bunkers “on the order of” Bulkferts. Since Bulkferts was one of the entities with presumed authority to bind the vessel, each of the statutory requirements for a maritime lien was satisfied. In ruling for Marine Fuel, we explicitly refused to consider whether Brook Oil was authorized to bind the ship as Bulkfert’s agent.

Id. at 6 (original italics, citations omitted).

Because that critical factual admission present in KEN LUCKY was not made by the vessel interests in Bunker Holdings, the physical supplier could derive no support from that decision. In other words, the Ninth Circuit has finally relegated the KEN LUCKY decision to its own procedural peculiarity. In the future, vessel interests can rebut the suggestion that KEN LUCKY provides a bunker sub-contractor with a maritime lien by citing Bunker Holdings and paraphrasing Judge Higginbotham’s observation in the ALMI SUN decision: “In determining the law of the [Ninth] Circuit, we prefer its own statement of the law.” ALMI SUN, 893 F.3d at 296.