No Lien for You:Vessel Management Agreement Does Not Create Maritime Lien
No Lien for You
(With all due respects to Seinfeld)
Vessel Management Agreement Does Not Create Maritime Lien
By: Max Schellenberg
Comar Marine, Corp. v. Raider Marine Logistics, L.L.C., 2015 U.S. App. LEXIS 11592 (5th Cir. July 6, 2015); no WestLaw cite yetChris St. Amand and Tracy Lirette purchased four vessels from Comar Marine and then placed them into LLC’s (Owners). Three purchases were financed through JP Morgan Chase and the fourth one financed through Allegiance Bank of Texas. A condition of the sale required the Owners to enter into a management agreement with Comar which would market, manage, and operate the vessels for which Comar would receive the greater of $3,000 per month or 10% of the gross income from each vessel each month. Due to the decline in the offshore Gulf market, the Owners terminated the Comar agreements and entered into another agreement with another company. Comar then filed suit in personam against the individuals and in rem against the vessels maintaining a breach of contract including over $1 million in outstanding expenses and contractual termination fees. The banks which held preferred ship mortgages on the vessels interevened and maintained that Comar did not have maritime liens on the vessels. The trial court agreed and granted summary judgment for the banks and then held trial on the claims of Comar and the Owners which resulted in a determination that the termination fee in the contract was penal and unenforceable and that the vessels were wrongfully arrested however declined to award damages for wrongful arrest.On appeal a unanimous panel of the Fifth Circuit upheld the trial court. Comar maintained that the management agreements were analogous to a charter party sufficiently to confer a maritime lien. The Court stated that the agreements in this case are not the functional equivalent to bareboat charters and do not impose practically identical responsibilities as charters. Recognizing that the management agreements stated that Comar relied on the credit of the vessel and that Comar would have a maritime lien, the Court reiterated the precedent of the U.S. Supreme Court that maritime liens are not established by an agreement between the parties but result from the nature and object of the contract.The Court further affirmed the district court’s decision that the termination fees in the agreement were penal in nature and thus unenforceable. The termination provision required the Owners to pay Comar 50% of what Comar would have earned as a fee had the agreement not been terminated. The contract further defined “what Comar would have earned.” The Court affirmed the trial judge who determined that the agreement did not approximate the loss anticipated and thus was penal in nature. In lieu of the termination fee, the trial court awarded Comar $3,000 per month for each vessel from the date of termination until the contract termination date. This finding of fact was not clearly erroneous.Finally, Comar also challenged the determination that the arrest was unlawful. The trial judge found that Comar was in bad faith as if Comar had collected and applied all outstanding accounts receivable, Comar would have owed the Owners money absent any termination fees. The Owners who sought damages for wrongful arrest for the lost profit and lost equity were denied recovery for failing to introduce evidence to determine detention damages and lost equity claim. The Fifth Circuit affirmed and noted that it was unresolved whether lost equity damages were available in a maritime context “which is a question we need not resolve.”The Court of Appeals affirmed the judgment against the individual owners in personam applying Louisiana law to the guaranty agreement. Finally, it also affirmed the denial of prejudgment interest as “the record reveals a peculiar circumstance on which the district court could have reasonably based its denial of prejudgment interest.”
