CONFLICTING INTERPRETATIONS: THE FIFTH CIRCUIT'S DECISION IN VALERO MARKETING & SUPPLY CO. V. M/V ALMI SUN AND THE ROAD TO UNIFORMITY.

• Author: Raya, Kelicia D.

1. Introduction 1 II. Background on Maritime Liens 4 A. Maritime Liens in General 4 B. In Rem 5 C. Liens for Necessaries 6 III. Liens for Necessaries: Lax Interpretation v. Strict Interpretation 7 A. Jurisprudence Applying Lax Interpretations 7 1. General Contractor/Subcontractor Line of Cases 8 2. Principal/Agent Line of Cases 10 B. Circuit Decisions Strictly Construing CIMLA 11 IV. Summary of Valero Mktg. & Supply v. M/V ALMI SUN 15 A. Factual Background 15 B. The Decision 16 C. The Dissent 17 D. Implications of the Decision 17 V. A Proposal 18 VI. Alternative Actions Available to Suppliers 21 VII. Conclusion 22 III. Appendix 23 Various transactions in admiralty jurisdiction give rise to maritime claims. (1) Maritime liens are a privileged claim upon maritime property. However, in recent years, the right to assert these claims has changed. (2) Many maritime liens arise by operation of law, but some are created by statute. (3) One such statute is the Commercial Instruments and Maritime Lien Act (CIMLA). (4) Subtitle III of CIMLA provides that "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" that may be enforced in rem. (5) Over time, debates have transpired as to whether a local supplier of necessaries has the right to assert a maritime claim. The issue arises when courts, guided by subtitle III of CIMLA, apply different interpretations of who can assert a maritime lien. Specifically, courts today are conflicted on whether to apply CIMLA stricti juris (6) or to allow a lax interpretation of the statute that makes it easier for suppliers to assert in rem claims.

   As business relationships become more complex, circumstances may arise that leave parties uncertain as to whether they can assert a maritime claim. There was a time when contracts for necessaries were strictly between the vessel owner and the supplier. The supplier had a right to assert a maritime lien against the vessel from the moment he supplied the necessaries. Today, vessel contracts for necessaries are more compounded. The vessel owner is not contracting directly with the supplier but instead with a trader. That trader contracts with a subsidiary, who then contracts directly with a supplier to obtain necessaries. In this context, it is unclear as to whether the supplier should have a right to assert a maritime lien under CIMLA. Older jurisprudence from the Fifth, Ninth, and Eleventh Circuits has established a more lax interpretation and application of CIMLA, which allowed the local supplier to assert a maritime lien against the vessel that it would not have otherwise had. (7) However, a string of recent decisions by the Second, Fifth, and Ninth Circuits have moved away from that lax interpretation in favor of a more strict constructionist approach to CIMLA. This strict interpretation of CIMLA denies the local supplier a maritime lien in cases where the order for supplies did not come directly from the vessel owner or agent. (8)

   The confusion surrounding whether to interpret CIMLA stricti juris or to allow a more lenient interpretation for local suppliers needs to be addressed, and a common application of CIMLA must be established. If this issue remains unaddressed, many federal circuit courts will continue to make inconsistent rulings that not only vary from their sister circuits, but also create circuit splits and apply different interpretations for one commonly read statute. It is critical to address this issue now, especially in the Fifth Circuit, as its recent decision in Valero Mktg. & Supply Co. v. M/V ALMI SUN brought this problem to the forefront when it departed from the Fifth Circuit's prior precedent established in Lake Charles. v. Professor Vladimir M/V POPOV M/V. (9)

   In Valero Mktg. & Supply Co. v. M/V ALMI SUN, the United States Fifth Circuit Court of Appeals ultimately held that CIMLA should be strictly construed and that maritime liens "are not 'lightly extended by construction, analogy or inference.'" (10) In its departure from the precedential language established in Lake Charles, which applied a lax interpretation of CIMLA, the Valero court created an intercircuit conflict as to the application of CIMLA. This issue is extremely problematic as it will affect future court decisions in which district court judges will not have a clear precedent that CIMLA should be construed stricti juris. It is for this reason this comment proposes a solution. In essence, the Fifth Circuit should grant an en banc review and rule to completely jettison the application of a permissive interpretation of CIMLA, thus ruling to only apply CIMLA stricti juris. This course of action is appropriate as it will create uniformity within the Fifth Circuit moving forward regarding the appropriate interpretation of CIMLA.

   This comment will begin by exploring the historical background of maritime liens and the meaning of "necessaries" under CIMLA. Next, it will compare previous court decisions applying a lax interpretation of CIMLA with those recent decisions strictly construing CIMLA. Third, it will summarize Valero Mktg. & Supply Co. and identify the implications of the court's decision. Fourth, this comment will propose a solution to ease the confusion surrounding a local supplier's right to assert a maritime lien. Finally, this comment will explore alternative actions available for local suppliers who cannot assert a maritime lien.

2. BACKGROUND ON MARITIME LIENS

   1. Maritime Liens in General

      A maritime lien is a claim on maritime property. Generally, a maritime lien arises by operation of law for services rendered or injuries caused by that property. (11) A maritime lien is also considered a special property right. (12) CIMLA is produced within Title 46 of the U.S Code. (13) Currently, this title lists ten categories giving rise to maritime liens under U.S. law, one of which concerns liens for necessaries. (14) In the context of maritime liens, maritime property consists of things such as vessels, cargo, and freights. (15) Under CIMLA, a maritime lien attaches from the moment the service is rendered or injury occurs. (16) The lien is "non-consensual" and does not require recordation to be enforced. (17) Therefore, the creditor owns the right, from the moment the services are rendered, to seize the vessel and sell it to repay the debt owed.

      Additionally, under CIMLA a maritime lien cannot be established through contract. (18) It is purely a creature of statute. (19) In a June 2018 decision, the Second Circuit held that "if a party does not comply with the express provisions of CIMLA, it is not entitled to a maritime lien," (20) thereby reiterating that principles of contract law cannot be used to work around CIMLA provisions. (21) Thus, a local supplier cannot assert a maritime lien on a vessel by contract.

   2. In Rem

      Maritime liens attach to a vessel as an in rem right or a right against the property. An in rem right differs from an in personam right against the vessel owner. (22) "The theoretical basis of the maritime lien...is...the legal fiction that the ship is the wrongdoer." (23) A maritime lien is "a right in the maritime property (jus in re) and a right against the property (jus in rem)." (24) In other words, the creditor asserting the maritime lien can choose to ignore the owner and have a right of action directly against the vessel. (25)

      Maritime liens were created as a security device to protect vessel service providers. (26) This security device helps keep vessels moving in commerce and also prevents them from escaping the debts owed to suppliers and vendors. (27) Maritime liens can also be understood to function as a credit system. (28) Under this system, a vessel need not bring large sums of money on voyages to purchase necessaries such as bunkers, insurance, and supplies. Instead, the vessel can request the necessaries required on credit and pay the debt at a later date. (29) Thus, the vessel stays in commerce by receiving the required necessaries, and the supplier gains a security interest or maritime lien in the vessel. Once a maritime lien is established, the vessel can be arrested, and the owner must then furnish security to cover a potential judgment. (30)

   3. Liens for Necessaries

      Generally, any goods or services that are useful to the vessel to keep it in commerce encompass the term "necessaries." (31) This includes money, skill, bunkers, pilotage services, or wharfage. (32) Additionally, courts have held that unpaid insurance premiums may give rise to maritime liens. (33) In Equilease Corp. v. M/V SAMPSON, the Fifth Circuit Court of Appeals held that vessel insurance is a necessary as a vessel needs insurance to remain in commerce. (34)

      Under Title 46 U.S.C. Section 31301, CIMLA provides the authority for what is considered a necessary. (35) This provision explains that "necessaries" include repairs, towage, bunkers, and the use of drydocks and marine railways. (36) Many scholars agree that the purpose of CIMLA was to make private interests in the shipping industry more attractive by balancing competing interests of suppliers and vessel owners. (37) The suppliers wanted a clear bright-line rule that would allow for a maritime lien to attach to a vessel once the vessel defaulted. (38) Conversely, the vessel owners sought to avoid lien attachments because such attachments would lead to the seizure of vessels. (39) "The Lien Act, first enacted in 1910, conferred a maritime lien on those who furnished repairs, supplies, or other necessaries, including the use of drydock or marine railway.'" (40) However, the Act now reads:

      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; may bring a civil action in rem to enforce the lien; and is not required to allege or prove in the action that credit was given to the vessel. (41)

      Therefore, to assert a lien under...