IN RE: WORLD IMPORTS, LTD.
MEMORANDUM AND/OR OPINION.SIGNED BY CHIEF JUDGE PETRESE B. TUCKER ON 1/22/15. 1/23/15 ENTERED AND COPIES MAILED AND E-MAILED: COPIES MAILED TO PRO SE PARTY.(kw, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
: CIVIL ACTION
: NO. 13-5085
WORLD IMPORTS, LTD., et al.,
OEC GROUP NEW YORK,
Tucker, C. J.
January 22, 2015
Presently, before this Court is an appeal from a July 25, 2013 Order entered by the
Honorable Stephen Raslavich, United States Bankruptcy Judge for the Eastern District of
Pennsylvania, granting the Complaint for Turnover filed by Appellees World Imports, Ltd.
(“Debtors”). Upon consideration of the parties’ briefs and exhibits, this Court affirms the
judgment of the Bankruptcy Court.
Appellant OEC Group New York (“OEC”) is a non-vessel operating common carrier
(“NVOCC”) that internationally transports merchandise for the Debtors by the sea. The Debtors
are wholesale purchasers of furniture. OEC arranges direct shipping to the Debtors’ warehouse,
pick up of goods at Debtors’ warehouse by Debtors’ domestic carrier, or shipment of the goods
to Debtors’ customers throughout the United States. (See Appellant’s Br. at 3, Doc. 3).
On July 3, 2013, the Debtors petitioned for relief under Chapter 11 of the Bankruptcy
Code. Upon doing so, the Debtors sought to compel the turnover of goods in OEC’s possession.
At that time, OEC held claims against the Debtors for freight, storage, and various shipping
charges relating to the Debtors’ goods in the amount of $1,452,956. Of that amount, $458,251
consisted of charges relating to goods in OEC’s possession at the time of the bankruptcy petition
(the “Landed Goods”); the remaining $994,705 consisted of freight and related charges
associated with goods OEC previously delivered and released to the Debtors (the “Prepetition
Goods”). OEC also held claims for goods in transit, which had not yet arrived at the time
(“Goods in Transit”). OEC claims that the value of the goods in its possession at the time of the
Bankruptcy Court Order was approximately $1,926,363. (See id. at 6). The Debtors offered to
pay to OEC freight charges on the Landed Goods of approximately $120,000 for OEC’s turnover
of the goods in its possession, but OEC refused this offer.
On July 12, 2013, OEC filed a Motion to Lift Stay in the bankruptcy action, asserting that
it was a secured creditor with a possessory lien on goods. OEC claimed that it was entitled to
refuse to release the Landed Goods unless and until the Debtors also paid for the Prepetition
Goods. OEC argued that it had a maritime lien on the goods in its possession that extended to the
Prepetition Goods because the parties agreed to extend the lien on all of the Debtors’ property for
all amounts due OEC. To support this proposition, OEC relied on its tariff and the terms and
conditions of its bills of lading, invoices, and credit agreement with the Debtors. The Debtors
maintained that OEC held a lien on the Landed Goods and the Goods in Transit, but not the
Prepetition Goods because OEC had already released the Prepetition Goods without requiring
On July 18, 2013, the Debtors filed an adversary proceeding against OEC seeking, inter
alia, turnover of the goods in OEC’s possession. The Debtors argued that OEC did not have a
maritime lien or common carrier lien on goods to secure the Prepetition Goods. On July 25,
2013, the Bankruptcy Court granted the Debtors relief and ordered OEC to turn over the goods in
its possession upon the Debtors’ payment of the $120,000 in freight charges for the Landed
Goods. The Bankruptcy Court also held that OEC did not possess a maritime lien for the goods
in its possession for the Prepetition Goods. The Bankruptcy Court issued a written Opinion on
August 14, 2013 in support of its July 25, 2013 Order. In compliance with the Bankruptcy Court
Order, the Debtors remitted the $120,000 freight charges to OEC and OEC subsequently released
the goods in its possession to the Debtors.
On August 1, 2013, OEC appealed the Bankruptcy Court’s Order to this Court requesting
that this Court reverse the Bankruptcy Court’s decision and order the Debtors to pay to OEC all
amounts owed for transportation services. Alternatively, OEC requests that this Court enter an
Order providing OEC with replacement liens on the Debtors’ assets in the amount of $1,926,363,
the amount at which OEC claims the goods in its possession at the time of the Bankruptcy Court
Order were valued. OEC raises two issues on appeal: 1) “Whether express provisions in
maritime contracts giving the transportation provider liens on goods in its possession for freight
charges on those goods, as well as for unpaid charges on prior shipments, are enforceable” and 2)
“whether contractual maritime liens prime Uniform Commercial Code (“UCC”) security
interests.” (Id. at 2).
STANDARD OF REVIEW
Pursuant to 28 U.S.C. § 158(a), jurisdiction is proper in this Court. In reviewing the
Bankruptcy Court’s judgment on appeal, this Court reviews the Bankruptcy Court’s legal
determinations de novo, its factual findings for clear error, and its exercise of discretion for an
abuse thereof. See, e.g., In re Heritage Highgate, Inc., 679 F.3d 132 (3d Cir. 2012); In re
Grayboyes, No. 05-1780, 2006 WL 437546, at *3 (E.D. Pa. Feb. 22, 2006).
A. OEC Does Not Possess A Valid Maritime Lien On the Prepetition Goods
OEC asserts a maritime lien for the freight charges associated with the goods in its
possession at the time of the Debtors’ bankruptcy petition, as well as charges associated with the
Prepetition Goods. OEC maintains that the parties agreed to extend the maritime lien beyond the
charges for goods in its possession. To support its claim that it holds a valid maritime lien, both
for the goods in its possession and for the Prepetition Goods, OEC primarily relies on two cases,
The Bird of Paradise, 72 U.S. 545 (1866) and Gray v. Freights of the Kate, 63 F. 707 (S.D.N.Y.
Maritime liens are an ancient feature of admiralty doctrine providing “security to the
victims of certain maritime torts and contract breaches.” Cardinal Shipping Corp. v. M/S Seisho
Maru, 744 F.2d 461, 466 (5th Cir. 1984). “Under United States law, a shipowner holds a
maritime lien on cargo for charges incurred in the course of carriage.” Eagle Marine Transp. Co.
v. A Cargo of Hardwood Chips, No. 98-1919, 1998 WL 382141, at *2 (E.D. La. July 8, 1998)
(citing Arochem Corp. v. Wilomi, Inc., 962 F.2d 498, 499 (5th Cir. 1992)). Maritime liens exist
to facilitate commerce, providing a security device to keep ships moving in commerce while
preventing them from escaping their debts. See Riffe Petroleum Co. v. Cibro Sales Corp., 601
F.2d 1385, 1389 (10th Cir. 1979). A maritime lien also affords the consignee a lien on the ship,
which is conditional on the delivery of the goods. See The Bird of Paradise, 72 U.S. at 562–63
(“Whenever the owners of the ship constitute one party, and the owners of the cargo the other,
the law of freight applies, and the fundamental rule . . . is that the rights of the respective parties
are reciprocal, and that each has a lien against the other to enforce those rights . . . .”); Bank One,
Louisiana N.A. v. MR. DEAN MV, 293 F.3d 830, 834 (5th Cir. 2002) (“Shipowners contract for
the safe custody, due transport, and right delivery of the cargo, and for the performance of their
contract the ship, her apparel and furniture, are pledged in each particular case, and the shipper,
consignee, or owner of the cargo, contracts to pay the freight and charges, and to the fulfillment
of their contract the cargo is pledged to the ship, and those obligations are reciprocal, and the
maritime law creates reciprocal liens for their enforcement.”) (quoting The Maggie
Hammond, 76 U.S. 435, 450 (1869)).
Maritime liens are established by operation of law. See The Bird of Paradise, 72 U.S. at
555 (stating that a maritime lien “arises from the usages of commerce, independently of the
agreement of the parties, and not from any statutory regulations”); see also, Vestoil, Ltd. v. M/V
M Pioneer, 148 Fed. Appx. 898, 900 (11th Cir. 2005) (“[I]t is settled law in the United States
that a maritime lien can arise only by operation of law, regardless of any agreement between the
parties.”); Marine Oil Trading Ltd. v. Motor Tanker PAROS, 287 F. Supp. 2d 638, 644 (E.D. Va.
2003) (“While a maritime lien does arise by operation of law rather than by agreement between
the parties, there are a number of reasons for including contractual language alerting the parties
to the existence of a lien on the ship. This language does not, however, actually give rise to the
Maritime liens are stricti juris, secretly operating “to the prejudice of general creditors
and purchasers without notice.” Vandewater v. Mills, Claimant of Yankee Blade, 60 U.S. 82
(1856); Osaka Shosen Kaisha v. Pacific Export Lumber Co., 260 U.S. 490, 499 (1923). As a
result, maritime liens cannot be extended by construction, analogy or inference; they must be
strictly construed. See, e.g., Osaka Shosen Kaisha, 260 U.S. at 499; Melwire Trading Co., Inc. v.
M/V Cape Antibes, 811 F.2d 1271, 1273 (9th Cir. 1987).
The maritime lien is possessory in nature, but it “is lost by an unconditional delivery to
the consignee.” In re 4,885 Bags of Linseed, 66 U.S. 108, 113 (1861) (emphasis added); see, e.g.,
Atlantic Richfield Co. v. Good Hope Refineries, Inc., 604 F.2d 865, 872 (5th Cir. 1979); Eagle
Marine Transp. Co., 1998 WL 382141, at *2. If the maritime lien is preserved, the carrier or
shipowner may retain the goods until the amount of the lien is paid.
The Supreme Court has endorsed the contractual modification of maritime liens in a few
limited contexts. For example, parties may “frame their contract as to exclude [the maritime lien]
altogether.” The Bird of Paradise, 72 U.S. at 555. Parties may also affirm the existence of the
maritime lien, or extend or modify it. Id. Where parties choose to extend or modify the maritime
lien, this modification is limited to very specific circumstances. As stated by the Supreme Court
in The Bird of Paradise, parties
may agree that the goods, when the ship arrives at the port of destination, shall be
deposited in the warehouse of the consignee or owner, and that the transfer and
deposit shall not be regarded as the waiver of the lien; and where they so agree,
the settled rule in this court is, that the law will uphold the agreement and support
Id.; see also The Eddy, 72 U.S. 481, 495–96 (1866) (“Parties may agree that the goods shall be
deposited in the warehouse of the consignee or owner, and that the transfer and deposit shall not
be regarded as a waiver of the lien, and where they so agree the courts of admiralty will uphold
the agreement and support the lien . . . .”); In re 4,885 Bags of Linseed, 66 U.S. at 114–15 (“[I]f
it appears by the evidence that such an understanding [that transferring the goods from the ship
to the warehouse shall not be regarded as a waiver of the lien] did exist between the parties,
before or at the time the cargo was placed in the hands of the consignee . . . a court of admiralty
will regard the transaction as a deposit of the goods, for the time in the warehouse, and not as an
absolute delivery; and, on that ground, will consider the ship-owner as still constructively in
possession, so far as to preserve his lien . . . .”). In The Bird of Paradise, the Supreme Court
explains that an agreement will preserve a maritime lien where it would otherwise be lost, when
a shipper transfers goods to the consignee’s warehouse. The agreement authorizes a conditional
Courts permit the extension or modification of maritime liens in the context more fully
described in In re 4,885 Bags of Linseed out of practical concerns – namely to facilitate trade. As
explained in In re 4,885 Bags of Linseed, courts consider equitable principles and the usages and
necessities of trade when executing maritime contracts and liens. 66 U.S. at 114. The necessities
and usages of trade often require that the cargo pass into the hands of the consignee before he
pays the freight. Id. The shipowner’s interest is such that “his vessel should discharge her cargo
as speedily as possible after her arrival at the port of delivery” instead of waiting for the
consignee to pay the freight at the consignee’s convenience or waiting to enforce the lien in
court. Id. The consignee may also want to wait for the cargo to be discharged before paying
freight charges so as to ascertain that all of the goods arrived undamaged. Id. Accordingly, such
a delivery would not waive the lien.
It is in this context, described in The Bird of Paradise and The Eddy, and more fully
detailed in In re 4,885 Bags of Linseed, that the Supreme Court contemplated the extension or
modification of maritime liens. Specifically, those cases, unlike the instant matter, dealt with the
limited context of asserting a maritime lien on an existing shipment for those same goods. No
Supreme Court decision has addressed whether parties may contractually modify a maritime lien
to make the delivery of existing shipments contingent on the consignee’s payment for alreadydelivered shipments. As maritime liens are to be strictly construed, this Court declines OEC’s
invitation to extend or modify maritime liens beyond the circumstances indicated by Supreme
Court precedent. See Osaka Shosen Kaisha, 260 U.S. at 499; Melwire Trading Co., 811 F.2d at
In this case, OEC contends that it contractually extended its maritime lien on the existing
shipment (the goods in its possession at the time of the Debtors’ bankruptcy petition) to secure
payment for the Prepetition Goods. OEC relies on The Bird of Paradise for the premise that
parties may contractually modify or extend a maritime lien as they choose and that courts will
uphold the purported lien. In doing so, OEC broadly construes the Supreme Court’s holding in
The Bird of Paradise and endeavors to persuade this Court that The Bird of Paradise would allow
OEC to extend its maritime lien on an existing shipment to goods previously released and
delivered. However, as detailed above, OEC’s argument is plainly not supported by Supreme
Court precedent or equitable principles.
In The Bird of Paradise, the Supreme Court stated that the parties may “extend or
modify” a maritime lien. 72 U.S. at 555. However, The Bird of Paradise dealt only with the
limited context of extending a maritime lien on goods past the initial delivery of those same
goods. For practical reasons, where there is an understanding between the parties, the discharge
of goods to the consignee prior to payment would not displace the maritime lien. See, e.g., In re
4,885 Bags of Linseed, 66 U.S. at 114. In the instant matter, however, the practical
considerations undergirding the Court’s reasoning in In re 4,885 Bags of Linseed are absent.
There was no situation implicating a speedy discharge of cargo to facilitate commerce. See id.
Here, the Prepetition Goods had already been delivered to the Debtors. OEC only possessed the
Landed Goods and the Goods in Transit at the time of the bankruptcy petition. However, OEC
did not seek to extend its maritime lien to ensure payment of those goods in its possession past
delivery. In fact, the Debtors offered to pay the $120,000 in freight charges for those goods in
OEC’s possessions. Instead, OEC sought to extend its maritime lien for the Prepetition Goods,
which had already been delivered, and perhaps, in the hands of others. Consistent with Supreme
Court precedent, OEC’s maritime lien would have extended only to the existing shipment – the
goods actually in its possession at the time of the bankruptcy petition – not the Prepetition
Goods, those already unconditionally delivered.
In Atlantic Richfield Co. v. Good Hope Refineries, the Fifth Circuit concluded that the
parties did not intend to contractually modify a maritime lien on undelivered cargoes to secure
unpaid charges on already-delivered cargo. 604 F.2d at 873. In refusing to interpret the contract
in this manner, the Court noted that an extended maritime lien would extend to subsequent
cargoes bought by innocent third parties:
The expansive interpretation of this maritime lien clause adopted below would
have consequences far beyond the situation where the cargo belonged to the
charterer and was seized before it left the vessel. The lien for the debts of past
voyages would extend to cargo owned by others, and might, if all the other terms
of the entire clause were literally enforced, follow that cargo after delivery, even
if all freights due for its carriage were paid.
Id. Consequently, the Court declined to adopt such an expansive interpretation of the lien.
Similarly, equitable considerations do not support allowing parties to extend a maritime
lien on current shipments to already-delivered shipments. Doing so could very well prejudice
third-party purchasers of undelivered goods and frustrate trade. Specifically, the shipper’s refusal
to deliver goods on the condition that the consignee pays for already-delivered goods could
prejudice the innocent purchaser of the consignee’s undelivered goods. See id. A third-party
purchaser of the undelivered goods would have no notice that the goods it purchased could be
withheld pursuant to a maritime lien on previously-shipped goods. Accordingly, equitable
considerations do not support permitting the parties to contractually modify a maritime lien in
the manner proposed by OEC.
OEC next relies on Gray v. Freights of the Kate for the proposition that maritime liens
can be extended by contract and will be enforced according to the terms upon which the parties
agreed. 63 F. 707 (S.D.N.Y. 1894). In Freights of the Kate, a banking firm issued lines of credit
to a steamship company on the condition that “all freight moneys earned and to be earned . . . are
hereby pledged and hypothecated to” the banking firm. Id. at 710. The steamship company
failed, and likewise failed to fully compensate the bankers for the funds withdrawn from the
bankers’ line of credit. Id. Accordingly, the banking firm filed suit in equity to impound the
freights pursuant to the express hypothecation. Id. at 711. The court held that the express
hypothecation between the banking firm and the steamship company was a maritime contract,
creating a general lien as to all freights of the company’s line, including future voyages of the
same vessels “except as against subsequent bona fide purchasers or incumbrancers, until the lien
is paid, or lost by laches.” Id. at 714.
Freights of the Kate does not involve a maritime lien between a shipowner or carrier and
a buyer of goods—where the shipowner or carrier may assert a lien on the cargo for the freight
and the buyer may assert a lien on the ship. See The Bird of Paradise, 72 U.S. at 563; Bank One,
Louisiana N.A., 293 F.3d at 834. The maritime lien at issue was between a steamship company
and a banking firm. The banking firm did not seek to purchase the cargo in question. The firm
sought to assert a lien against the freight, not the steamships. This case does not address the
scenario discussed in The Bird of Paradise, where the shipowner’s failure to deliver the cargo
permits the buyer to assert a lien on the ship. The court did not discuss The Bird of Paradise or
the propriety of extending a maritime lien beyond the limited context approved by that case.
Thus, Freights of the Kate is factually distinguishable. Any persuasive value that Freights of the
Kate may have is undercut by the court’s lack of discussion as to the reciprocal obligations of
ship and cargo. See The Bird of Paradise, 72 U.S. at 563; see also Krauss Bros. Lumber Co. v.
Dimon S.S. Corp., 290 U.S. 117, 125 (1933) (explaining the mutual and reciprocal nature of the
obligations of ship and cargo under the contract of affreightment). The present dispute is
factually analogous to The Bird of Paradise, which discussed the reciprocal obligations between
a shipowner and the owner of the ship’s cargo. Accordingly, this court concludes that Freights of
the Kate does not authorize the contractual extension of a maritime lien outside of the limited
context discussed in The Bird of Paradise where, as here, the parties include a buyer of goods
and a carrier.
OEC also relies on Eagle Marine Transp. Co., where the terms of the parties’ contract
purported to extend a maritime lien to previous shipments. 1998 WL 382141. Eagle Marine
Transport Co. (“Eagle”) contracted to ship woodchips for Guthrie Corporation (“Guthrie”). The
contract provided Eagle “a maritime lien on all cargo which it may assert and enforce to ensure
payment of the freight and demurrage on all current en route shipments and earlier completed
shipments.” Id. at *1 (emphasis added). After Guthrie failed to pay freight charges, Eagle
asserted a maritime lien on the woodchips. The court did not specify whether the unpaid freight
charges were for past shipments or the present shipments. At issue was whether Eagle
unconditionally discharged the woodchips, thereby displacing the lien. The court determined that
the parties intended for the lien to survive delivery. The court did not discuss whether a maritime
lien may validly extend to freight charges on past shipments. It is also unclear whether the lien at
issue was asserted to enforce payment of freight charges to previous shipments. Consequently,
Eagle Marine Transp. Co. does not provide any meaningful support for OEC’s position.
OEC unavailingly turns to several other cases to support its effort to extend its maritime
lien to the Prepetition Goods, but the Court is unconvinced. See Capital Transp., Inc. v. U.S., 612
F.2d 1312 (1st Cir. 1979) (holding that relevant tariffs provided that carriers’ liens survived
delivery of goods, but failing to discuss extending lien for already-delivered goods to subsequent
shipments); Arochem Corp., 962 F.2d at 500 (concluding that parties must have intended the
maritime lien to survive delivery for practical purposes; hence delivery was conditional because
“[n]o rational person would establish a lien on cargo for certain costs that are due after delivery
of the cargo but have delivery of the cargo extinguish the lien”); Logistics Mgmt., Inc. v. One (1)
Pyramid Tent Arena, 86 F.3d 908 (9th Cir. 1996) (holding that a NVOCC preserved its cargo
lien by maintaining actual or constructive possession of cargo, but not addressing extension of
lien to prior or future cargo); Cross Equip. Ltd. V. Hyundai Merch. Marine (Am.) Inc., 214 F.3d
1349 (5th Cir. 2000) (discussing whether a carrier had a valid maritime lien over undelivered
cargo where the shipper did not pay repair charges, but failing to discuss the extension of a
maritime lien on already-delivered goods to subsequent shipments); Maersk-Sealand v.
Eurocargo Express, LLC, No. 02-3230-MLG, 2004 WL 1950372 (C.D. Cal. Apr. 8, 2004)
(addressing the enforcement of a general lien, not a maritime lien, where neither party debated
the validity of the lien provision establishing or modifying a maritime lien).
For the foregoing reasons, the Court concludes that the provisions in OEC’s contract with
the Debtors purporting to give OEC a lien on goods in its possession for freight charges for the
Prepetition Goods is unenforceable.
B. Although Maritime Liens Prime UCC Security Interests, OEC Cannot Assert A
Valid Maritime Lien
OEC limits the second question it presents on appeal to this Court to whether contractual
maritime liens prime UCC security interests. (See Appellant’s Br. at 2, Doc. 3). Central to OEC’s
argument is its mistaken assumption that it possessed a valid maritime lien for the Prepetition
Goods. OEC disputes the Bankruptcy Court’s analysis of OEC’s claims under the New York
Uniform Commercial Code (“UCC”), UCC § 7-307(1) contending that the UCC does not govern
maritime liens, which prime UCC security interests. (See id. at 22). Specifically, OEC claims
that its supposed maritime lien “on the goods in its possession primes the lien of any nonmaritime secured creditor, including the security interests of PNC Bank.” (Id. at 24). The
Debtors do not dispute that maritime liens prime UCC security interests, but rather, they argue
that the Prepetition Goods are not secured by a valid maritime lien. (See Appellee’s Br. at 15,
Since this Court has concluded that OEC does not possess a valid maritime lien for the
Prepetition Goods, OEC’s arguments here also fail. OEC correctly argues that maritime liens
prime UCC security interests. See, e.g., The J.E. Rumbell, 148 U.S. 1 (1893); United Shipping
Serv. Three, Inc. v. U.S. Express Lines, Ltd., No. 98-950, 1998 WL 770599, *2–*3 (E.D. Pa.
Nov. 5, 1998) (“Maritime liens customarily have priority over other security interests.”).
However, OEC cannot assert a maritime lien to prime any UCC security interests. The Court
need not address whether OEC’s general lien primed PNC Bank’s security interests on the
Debtors’ property, as this issue was not raised on appeal.
For the foregoing reasons, the Court affirms the July 25, 2013 Bankruptcy Court Order.
An appropriate Order follows.
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
WORLD IMPORTS, LTD., et al.,
OEC GROUP NEW YORK,
: CIVIL ACTION
: NO. 13-5085
AND NOW, this 22nd day of January, 2015, upon consideration of Appellant OEC
Group New York’s Appeal of the Bankruptcy Decision (Doc. 3), Appellees World Imports Ltd.’s
response in opposition thereto (Doc. 6), Appellant’s Reply Brief (Doc. 7), Appellant’s
Supplemental Brief (Doc. 12), Appellee’s Supplemental Brief (Doc. 13), and all other the briefs
and materials submitted by the parties, IT IS HEREBY ORDERED AND DECREED that the
Bankruptcy Decision rendered by Honorable Stephen Raslavich of the United States Bankruptcy
Court for the Eastern District of Pennsylvania in In re World Imports, Ltd., Inc., Bankr. Nos. 1315929, 13-15933, 13-5934, 13-15935, Adv. No. 13-00402 is AFFIRMED.
BY THE COURT:
/s/ Petrese B. Tucker
Hon. Petrese B. Tucker, C.J.
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?