In Portland Development Corporation v. M/V Nova Star, the United States district Court for the District of Maine (the “District Court”) recently concluded that loan advances made by Portland Development Corporation (“PDC”) to help develop an international ferry service were insufficient to provide PDC with a maritime lien against the M/V NOVA STAR (the “Vessel”).
In 2013, Nova Star Cruises Ltd., the Vessel’s charterer, began operating an international ferry service between Yarmouth, Nova Scotia and Portland, Maine. The City of Portland owned the Portland ferry terminal and agreed to lease the terminal to Nova Star Cruises for the embarkation and debarkation of passengers, private vehicles, and commercial vehicles. The lease provided Nova Star Cruises with exclusive access to the terminal’s office and ticketing space, a six-hour time limited use during ferry season of an area for queuing passengers and private and commercial vehicles through U.S. Customs, and a four-hour time limited use during ferry season of the berthing channel.
U.S. Customs and Border Protection (“CBP”) requirements necessitated certain modifications and alterations to the Portland ferry terminal. PDC entered into a loan agreement with Nova Star Cruises to advance up to $250,000 to fund the necessary alterations, payable, with interest, over six years. After the Vessel’s owner refused to provide loan guarantees, and Nova Star Cruises rebuffed several efforts by PDC to take a secured asset position, PDC ultimately determined that it would provide an unsecured loan with the condition that the City of Portland would own any assets at the ferry terminal that the PDC loan financed. Nova Star Cruises agreed and Mark Amundsen, president of Nova Star Cruises, signed the promissory note. PDC leased a trailer for CBP’s use and purchased additional fencing, installed wireless communications and bulletproof glass, and made certain electrical and sewer modifications at the ferry terminal.
Nova Star Cruises terminated ferry service in 2015 after two seasons. A replacement ferry company continued to use the improvements (with the exception of the wireless communications) after 2015. PDC filed suit against Nova Star Cruises’ vessel for the outstanding unpaid advance, and argued that the advance was for “necessaries” furnished to the vessel and entitled to lien status.
Following a trial, the District Court’s analysis began with the language of the Maritime Lien statute, 46 U.S.C. § 31342: “a person providing necessaries to a vessel on the order of the owner or a person authorized by the owner . . . has a maritime lien on the vessel . . . and . . . is not required to allege or prove in the action that credit was given to the vessel.”
Based on the facts of the case, the District Court summarily concluded that Nova Star Cruises, as the Vessel’s charterer, and Mark Amundsen, the charterer’s president, had sufficient authority to procure necessaries for the Vessel.
Turning to whether the loan advances made to Nova Star Cruises were for necessaries, the District Court cited to Tramp Oil & Marine, Ltd. v. M/V Mermaid I, 805 F.2d 42, 45 (1st Cir. 1986) for the following requirements: (1) money had to be advanced to a vessel; (2) on the order of the master or person authorized, and (3) that the money had to be used to satisfied either an outstanding or future lien claim. The District Court concluded that the advances from PDC would be used for fencing, bulletproof glass, and other additions and improvements made to the Portland ferry terminal, analogized those improvements to “wharfage and embarkation services” that other courts had found to be necessaries, and concluded that the PDC advances were for the provision of necessaries.
However, the District Court also found that even though PDC provided necessaries on the on the order of an authorized person, such necessaries were not provided to the Vessel. Citing Cianbro Corp. v. George H. Dean, Inc., 596 F.3d 10, 14 (1st Cir. 2010), the District Court determined that the necessaries were neither physically delivered to the vessel, nor dispatched to the vessel’s owner or authorized agent for use on the designated vessel (constructive delivery to the Vessel). The improvements made to the Portland ferry terminal were land-based improvements that could not be physically delivered to the Vessel. Because the City of Portland owned all of the improvements (per Nova Star Cruises’ loan agreement with PDC) and Nova Star Cruises was only a tenant of the ferry terminal for specific limited time periods (per the lease agreement with the City of Portland), the Court concluded that the improvements had not been provided to the Vessel’s owner for the Vessel’s sole use. Therefore, PDC did not have a maritime lien.
Despite concluding that PDC did not have a maritime lien under the Maritime Lien statute, the District Court went a step further and considered whether PDC’s conduct amounted to a waiver of its right to a maritime lien under the theory that PDC had not relied on the Vessel’s credit when providing necessaries. Noting that a presumption existed that a party supplying necessaries was entitled to a maritime lien and PDC was not required to prove it relied on the Vessel’s credit when asserting its lien, the District Court acknowledged that the presumption could be rebutted by demonstrating that the supplier relied on the owner’s or charterer’s credit instead of the Vessel’s credit. In concluding that PDC did not rely on the Vessel’s credit, the District Court noted that PDC, which ultimately agreed to an unsecured loan, initially attempted to get loan guarantees from the Vessel’s owner and sought a security interest in Nova Star Cruises’ assets. Further, the District Court concluded that testimony from a PDC officer that PDC never intended to waive its maritime lien rights was insufficient to preserve the presumption; instead, PDC’s course of negotiations with Nova Star Cruises demonstrated that PDC originally looked to the Vessel’s owner’s and charterer’s credit before making an unsecured loan on behalf of the Vessel.
Based on the above, the District Court ruled that PDC’s claim did not give rise to a maritime lien. PDC did not appeal the judgment.