All[state] is Fair in Love and War: Underlying Claim Determines Amount in Controversy Rather than Insurance Policy Limit

Windspeed Enter. Ltd. v. M/V Semi 1, No. 22-12242, 2023 WL 3477365; No. 22-12242, 2023 U.S. App. LEXIS 11887 (11th Cir. May 16, 2023).

Authored By: Emma Aucoin

           In the matter of Windspeed Enterprises v. M/V Semi 1, the United States Court of Appeals for the Eleventh Circuit reviewed the trial court’s decision to vacate the arrest of two vessels for lack of admiralty jurisdiction as the plaintiffs had no maritime lien on the vessels. Incidentally, this issue led the court to discuss whether or not a contract to purchase vessels gave rise to a maritime lien under the Commercial Instruments and Maritime Liens Act (CIMLA).  

           Plaintiff-Appellant Windspeed Enterprises Limited entered into a purchase-and-sale agreement with Semi Sub Services BV to purchase two vessels: M/V SEMI 1 and M/V SEMI 2 (vessels). When the parties entered into the agreement, the vessels were inactive and being leased by another company. As provided for in the agreement, Windspeed supplied the vessels with items, a crew, and services to prepare them for their eventual transport when the change of ownership took place. The parties were unable to close on the agreement due to complications presented by the COVID-19 pandemic. Accordingly, the agreement expired by its own terms and Modern American Recycling & Repairs Services LLC (MARRS) bought the vessels instead.

           This event triggered the plaintiff’s in rem complaint to arrest the Vessels, asserting a maritime lien existed. The lien allegedly arose pursuant to the agreement’s provision that allowed Windspeed to supply the vessels with certain items, a crew, and services, thus qualifying as “necessaries” under CIMLA which would create a lien on the vessels. Under CIMLA, one who provides necessaries to a vessel has a maritime lien in the vessel and may bring an action in rem to enforce such a lien as Windspeed has attempted in the present case. On the contrary, MARRS argued that the items, crew, and services were merely conditions to the agreement and did not amount to necessaries under CIMLA.

           The district court ultimately ruled against Windspeed by vacating the arrest of the vessels, finding that the contract for the sale did not give rise to a maritime lien and thus no admiralty jurisdiction.

           On appeal, the Eleventh Circuit reviewed the lower court’s decision with an assessment of the nature of the contract between the parties: “[T]he Agreement at the heart of this case is a contract for the sale of the Vessels. Consequently, the Agreement is not a maritime contract, so it does not create a maritime lien, and it does not give rise to maritime jurisdiction.”[1] More specifically, the court looked to whether the contract was related to maritime services or transactions. In this case, the appellate panel clearly stated that the agreement was not maritime related, given its nature as a contract for the sale of certain vessels. Therefore, the contract did not create a maritime lien in the vessels and would not fall under the court’s admiralty jurisdiction. The panel further noted that an in rem claim requires a maritime lien as its foundation which Windspeed did not have.

           As for whether the relevant provision in the agreement for crew, supplies, and other items qualified as “necessaries” or not, the Eleventh Circuit elected to revert the discussion back to the basics, because a post-arrest hearing is not meant for dispute resolution; rather, a court must only determine whether there were reasonable grounds for a vessel’s arrest in the first place.

           The Court of Appeals affirmed the district court’s ruling and held that Windspeed could not rely on the purchase-and-sale agreement to create a maritime lien on the vessels, thus leaving Windspeed without sufficient evidence to provide reasonable grounds for the vessels’ arrest.

[1] 2023 WL 3477365 at *3.