Coastal Marine Management, v. M/V SEA HUNTER (O.N. 598425), et al

Filing 105

Judge Nathaniel M. Gorton: MEMORANDUM AND ORDER entered. Plaintiffs motion for disbursement of sale proceeds and for order apportioning custodia legis expenses amongst the plaintiff and intervening parties (Docket No. 98 ) is ALLOWED. So ordered.(McDonagh, Christina)

Case 1:16-cv-11616-NMG Document 105 Filed 12/20/18 Page 1 of 10

United States District Court
District of Massachusetts
)
Coastal Marine Management, LLC
)
d/b/a Boston Harbor Shipyard and )
Marina,
)
)
Plaintiff,
)
)
v.
)
)
Additional Return, LLC,
)
)
Intervenor.
)
)
)

Civil Action No.
16-11616-NMG

MEMORANDUM & ORDER
GORTON, J.
This case arises out of a dispute over custodia legis
expenses that Boston Harbor Shipyard and Marina has incurred as
the custodian of an abandoned vessel under foreclosure.

The

plaintiff is seeking to enforce an award of custodia legis
expenses and claims that it is 1) entitled to the proceeds of
the sale of the vessel and 2) that one of the mortgagees,
Additional Return, LLC (“Additional Return” or “the intervenor”)
is required to pay its pro rata share of expenses as an
intervenor in this case.

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Case 1:16-cv-11616-NMG Document 105 Filed 12/20/18 Page 2 of 10

I.

Background
In 2008, the purported owners of an abandoned vessel moored

at Boston Harbor Shipyard and Marina (“the Shipyard” or “the
plaintiff”) failed to make payments to the Shipyard for the
storage of the vessel and related fees.

In August, 2016, the

Shipyard filed a complaint against the owners of the vessel for
1) enforcement of its maritime lien for necessaries against the
subject vessel and 2) breach of maritime contract.

That month,

the United States Marshals served an in rem warrant on the
vessel and arrested it.

This Court subsequently appointed the

Shipyard as custodian of the vessel and, on August 16, 2016
(Docket No. 9), ordered that expenses incurred by the Shipyard
as custodian would be subject to the following provisions:
all reasonable expenditures which may be incurred by BHS as
substitute custodian, or any party advancing funds to BHS
as substitute custodian, in safekeeping or maintaining the
vessel while she is in custodia legis, shall be deemed
administrative expenses and the first charge on the
[v]essel herein, to [be] paid prior to the release of the
[v]essel or distribution of the proceeds of its sale;
any intervenor shall owe debt to any party that has
previously advanced funds to cover the expenses of the
United States Marshals Service and/or substitute custodian,
enforceable on motion, consisting of the intervenor’s share
of such fees and expenses in the proportion that the
intervenor’s claim bears to the sum of all claims.
Following that order, Additional Return filed a statement
of claim or interest with respect to the vessel for $430,000
(Docket No. 33).

Additional Return submitted that it was filing

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the claim to inform the Court that 1) it had a duly perfected
mortgage on the vessel, 2) it had no intention of waiving its
rights and 3) it did not agree to contribute to payment of fees
or expenses incurred by the plaintiff.

Additional Return

further noted that it was not seeking to foreclose its mortgage
on the vessel at that time.
In January, 2017, the Shipyard moved for interlocutory sale
of the vessel and for the right to credit bid up to the amount
of the indebtedness of the vessel at such sale.

Additional

Return filed an objection to the sale, whereupon this Court
entered an order that allowed plaintiff’s motion for
interlocutory sale but, at the same time, 1) required an
appraisal of the vessel prior to the sale and 2) instructed
Additional Return to show cause why the Court should not dismiss
its claim of interest in the vessel.

Shortly thereafter, in its

response, Additional Return asserted that it did not need to
intervene in this matter to have standing to object to the sale
but then, in a separate pleading on the same day, moved to
intervene, provisionally, so that it would have standing to
object to the interlocutory sale of the vessel (See Docket No.
66).
After the initial sale of the vessel, this Court held a
confirmation hearing with respect to the sale during which it
allowed Additional Return’s motion to intervene on condition
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that the mortgagee share in the custodia legis expenses (See
Docket No. 78 and transcript from the hearing).

Despite

receiving notice of the hearing, counsel for Additional Return
did not appear nor did it object to the Court’s subsequent
ruling.
Within one week of the confirmation hearing, the plaintiff
filed an emergency motion to reopen the sale at foreclosure
because a third party had filed an upset bid on the vessel.
This Court allowed that motion but spelled out in detail the
procedure to be followed with respect to the re-sale (See Docket
No. 86).

The vessel was eventually sold for $100,000 and the

proceeds of the sale, less the costs incurred by the U.S.
Marshals, is currently held in escrow by the Court ($98,391.90).
Following the final sale of the vessel, the plaintiff filed
a motion for the disbursement of sale proceeds and apportionment
of custodia legis expenses, which is pending before this Court.
II.

Legal Analysis

A. Legal Standard
Expenses incurred with respect to custodia legis are
afforded administrative priority because they are necessary to
preserve the res. See The Poznan, 274 U.S. 117, 121 (1927).
Interested parties, including the preferred ship mortgagee, were
clearly informed about that priority when this Court authorized

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the initial sale of the subject vessel in August, 2017 (See
Docket No. 59).
To be entitled to an award of custodia legis expenses after
a pending sale of a vessel, however, the custodian must show
that the expenses incurred were “upon the authority of the court
or its officer” and were for the “common benefit of those
interested in a fund administered by the court”. The Poznan, 274
U.S. at 121.
B. Motion for Disbursement of Sale Proceeds and for Order
Apportioning Custodia Legis Expenses Amongst Plaintiff and
Intervening Parties
The Shipyard, in its motion for disbursement 1) proffers
evidence of its custodia legis expenses for which it seeks
reimbursement from the proceeds of the vessel sale and 2) seeks
entry of judgment against the mortgagee-intervenor for expenses
incurred as custodian.
1. Expenses Incurred for the Common Benefit and Upon the
Authority of the Court or the United States Marshals
Service
The Shipyard submits that all of the charges claimed as
substitute custodian were for the common benefit of all claimed
lienholders and incurred upon the authority of the Court or the
United States Marshals Service for the District of
Massachusetts.

The plaintiff claims the right to be reimbursed

for the following expenses:

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1) insurance premiums to cover the vessel as required by
the United States Marshals Service ($4,700);
2) cost of appraisal by a licensed appraiser, Surveyor
Collyer ($823.50);
3) labor and material for dock lines for the vessel ($3,145
and $2,500);
4) towing services ($2,500);
5) fees to the United States Marshals Service to arrest the
vessel ($4,300);
6) advertising the foreclosure sale of the vessel
($4,165.20);
7) second towing of the vessel to ensure adequate
monitoring ($2,860);
8) wharfage, storage and safekeeping of the vessel for
approximately 36 months pursuant to the customary rate in
Boston Harbor until the sale of the vessel ($282,100); and
9) daily walkthrough and inspection of the vessel to ensure
its safekeeping, seaworthiness and security ($35,154).
The total custodia legis expenses amount to $342,247.70.
In its “objection” to the plaintiff’s motion, Additional
Return does not specifically dispute any of the alleged expenses
incurred but implies generally that they are excessive.

The

plaintiff responds that because Additional Return has not
specifically objected to the plaintiff receiving the proceeds
currently held in escrow ($98,391.90), those proceeds should be
promptly awarded to the plaintiff.
Although the Court agrees with the mortgagee that some of
the expenses claimed appear to be excessive, because 1) no party

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has objected to specific expenses, 2) no party has objected to
the award of proceeds from the sale of the vessel to the
plaintiff and 3) plaintiff has demonstrated that it has incurred
expenses as custodian for the benefit of claimed lienholders at
least equal to the funds held in escrow, this Court will allow
plaintiff’s motion with respect to the award of sale proceeds.
2. Apportionment of Custodia Legis Expenses
In addition to being awarded sale proceeds from the vessel,
the Shipyard seeks to recover the remaining custodia legis
expenses of approximately $243,000 from the other plaintiff
intervenors. 1

All intervenors other than Additional Return have

apparently settled with the plaintiff.
The Shipyard avers that, pursuant to this Court’s prior
order, any intervenor, including Additional Return, must
contribute its pro rata share of custodia legis expenses.

In

support of this claim, the Shipyard cites Additional Return’s
motion to intervene and this Court’s allowance of that motion.
Based on Additional Return’s status as an intervenor, the
Shipyard submits that its pro rata share of custodia legis
expenses is 26.6%, i.e., the ratio between Additional Return’s
unpaid mortgage ($430,000) and the total lien claims against the

1

This figure represents the total custodia legis fees allegedly
incurred (approximately $342,000) less the proceeds of the sale
(approximately $98,000).
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vessel (approximately $1.6 million).

The computed percentage of

Additional Return’s custodia legis expenses is approximately
$64,000.
Additional Return contends that there is no justification
for requiring the mortgagee to pay any portion of custodial
expenses.

It argues that it filed its initial claim in this

case simply to inform the Court that it had not sought to
foreclose on the mortgage but that it was entitled to a priority
position as the holder of several mortgages on the vessel.

It

further contends that the Shipyard asserted that the mortgagee
was obligated to appear or the mortgage would become void.
Moreover, Additional Return submits that it filed its
motion to intervene only provisionally in the event that the
Court rejected its standing to object to the interlocutory sale
absent its intervention.

Additional Return maintains that the

Court never ruled on its motion to intervene and that at the
time it raised its objections to the sale, it believed there was
a likelihood that net proceeds would be available to
lienholders.
Admiralty law provides that an arresting plaintiff and all
other intervening plaintiffs are to share in the costs of
maintaining the res until resolution of the case, even when the
proceeds of the sale do not exceed the custodia legis expenses.
Lubricantes Venoco, Int’l, C.A. v. M/V NEVERIS, 60 F. App’x 835,
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842 (1st Cir. 2003); see also Forsht Associates, Inc. v.
Transamerican ICS, Inc., 821 F.2d 1556, 1561 (11th Cir. 1987)
(holding that it is inconceivable that the first party to arrest
a vessel should thereby become wholly liable for the
administrative expense of maintaining it); Beauregard, Inc. v.
Sword Servs., LLC, 107 F.3d 351, 353 (5th Cir. 1997) (holding
that even when a single litigant advances the cost of
maintenance, all claimants are eventually required to share in
such cost).
During an October, 2017, hearing at which counsel for
Additional Return did not appear, this Court allowed its motion
to intervene on the condition that Additional Return share the
custodia legis fees pursuant to the terms of this Court’s prior
order.

While this Court acknowledges the apparent ambush of the

plaintiff in seeking to enforce Additional Return’s motion to
intervene knowing full well that the proceeds of the sale would
not likely cover its custodia legis expenses, Additional Return
failed to object to its status as an intervenor after this Court
entered its order and after the sale was finalized.

As such,

Additional Return, as an intervenor, is subject to this Court’s
initial order concerning the pro rata sharing of custodia legis
expenses.

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ORDER
Plaintiff’s motion for disbursement of sale proceeds and
for order apportioning custodia legis expenses amongst the
plaintiff and intervening parties (Docket No. 98) is ALLOWED.

So ordered.

_/s/ Nathaniel M. Gorton____
Nathaniel M. Gorton
United States District Judge
Dated December 20, 2018

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