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Court Grants No Leniency for Maritime Lien Claim

Sweet Pea Marine, LTD. v. APJ Marine, Inc., 411 F.3d 1242 (11th Cir. 2005)

Jonathan P. Lew, 2L, Roger Williams University School of Law

In June the U.S. Court of Appeals for the Eleventh Circuit refused to apply a maritime lien to a yacht after a contract dispute, finding that such liens encumber commerce and should be strictly construed. In a case involving the remodeling of the yacht Sweet Pea, the court found that the party enforcing the lien failed to prove that the prices it was charging the vessel owner for products were reasonable. This reasonable price element was also necessary to prove the breach of a maritime contract claim, which failed as well.

Background
Sweet Pea Marine, Ltd. (Sweet Pea) contracted with APJ Marine, Inc. (APJ), to outfit and remodel the 127-foot pleasure yacht Sweet Pea. The contract included pay scales for labor, including skilled laborers at $56/hour, semi-skilled laborers at $36/hour, and unskilled laborers at $26/hour. In addition, the contract authorized APJ to add a 15 percent mark-up to the cost of materials and supplies bought for the job. Problems arose when Sweet Pea discovered that unskilled workers were used and billed as skilled workers at a much higher cost. As a result, Sweet Pea terminated the contract in November 2001. In March 2002, APJ sent Sweet Pea a bill for outstanding costs; Sweet Pea refused to pay and this lawsuit commenced.

Sweet Pea filed a complaint in federal court against APJ for breach of contract, negligent misrepresentation, fraud, and breach of fiduciary duties. APJ responded, claiming breach of an oral maritime contract and requesting a maritime lien be placed on the Sweet Pea. The district court found for APJ and awarded the company $244,000 for the 15 percent mark-up for goods and materials it purchased. The district court also imposed a maritime lien on the vessel in the same amount.

On appeal, the Eleventh Circuit reversed the district court’s holding for APJ, finding that the company failed to prove that the prices it paid for the marked-up materials were reasonable. According to the court, by granting APJ’s claims the district court overlooked the reasonable price element, which is essential to both the breach of contract claim and the maritime lien.

Maritime Lien Claim
The Federal Maritime Lien Act provides a maritime lien on a vessel to a person that provides necessaries at a reasonable price to a vessel if the services are maritime in nature and facilitate the “vessel’s use in navigation or maritime commerce.”1 Here, APJ’s contract to remodel the Sweet Pea is sufficient because “there is no question that necessaries as defined in the Federal Maritime Act specifically include vessel repairs.”2 However, APJ failed to prove that the materials it purchased for remodeling the Sweet Pea were purchased at a reasonable price.

The Eleventh Circuit viewed the district court’s judgment as “clearly erroneous” because APJ failed to prove that the prices it had paid for materials used on the Sweet Pea were reasonable according to industry custom and in accord with prevailing charges for the work done and the materials furnished.3 APJ did not present any evidence to show that the prices submitted to Sweet Pea were reasonable. In its defense, APJ argued that Sweet Pea waived its ability to contest reasonableness by agreeing to the 15 percent mark-up on materials purchased. But the circuit court found this argument unpersuasive because an agreement to a mark-up does not indicate a reasonable price. Even though the 15 percent mark-up may be standard for the industry, this fact alone did not establish that the underlying prices were reasonable. Moreover, testimony that the labor rates used were industry standard also had no bearing on the reasonableness for the prices of the goods and materials. Thus, without any direct evidence of reasonable price (such as testimony that the price paid by APJ was industry standard for goods) the Eleventh Circuit refused to award APJ the maritime lien.

Maritime Contract Claim
The reasonable price element was essential to both of APJ’s maritime claims. For APJ to recover on its claim that an oral contract regarding the repair of a vessel was breached it had to prove the terms of the maritime contract, the breach, and the reasonable value of the purported damages.4 Consequently, APJ’s failure to prove reasonable price had a conclusive effect on its maritime lien claim.

Diversity of Jurisdiction
Finally, the court found that jurisdiction in the federal district court was proper. APJ invoked admiralty jurisdiction when it claimed its oral contract with Sweet Pea was breached. The U.S. Constitution grants federal courts original jurisdiction in all civil cases involving admiralty or maritime jurisdiction.5 A maritime contract is defined to be one having reference to commerce or navigation. The particular element essential to give it a maritime character is direct connection with commercial transactions or navigation.6 Because APJ’s contract involved the repairing of the Sweet Pea, the admiralty jurisdiction requirement was met.7

Conclusion
Maritime liens were created to grant a vessel credit in order for her to complete her voyage; thus the lien was created for the benefit of the vessel, not the benefit of the creditor.8 The completion of her voyage remained paramount to any individual debt a vessel might accrue.

Here, the Eleventh Circuit strictly construed the Federal Maritime Lien Act because the maritime lien was not offered as credit to Sweet Pea so it could continue on its voyage. Rather, the lien acted as an insurance policy for APJ so the company could be guaranteed compensation. APJ’s failure to proffer any direct evidence in regard to the reasonable price element of both maritime claims was clearly erroneous and granting an award and a maritime lien would impede the vessel’s ability to participate in commerce.

ENDNOTES
1. 46 U.S.C. § 31342; E.S. Binnings, Inc. v. M/V Saudi Riyadh, 815 F.2d 660, 666 (11th Cir. 1987).
2. Boland Marine & Mfg. Co., Inc. v. M/V HER AN, 1998 U.S. Dist. LEXIS 6809 (D.La. 1998).
3. Ex parte Easton, 95 U.S. 68, 77 (U.S. 1877); Shelley Tractor & Equip. Co. v. The Boots, 140 F.Supp. 425, 426 (E.D.N.C. 1956).
4. See Exxon Corp. v. Cent. Gulf Lines, Inc., 500 U.S. 603, 605-06 (U.S. 1991).
5. U.S. Const. art. III, § 2, cl. 1.
6.See Hatteras of Lauderdale, Inc. v. Gemini Lady, 853 F.2d 848, 850 (11th Cir. 1988).
7.Repair of a ship is distinguished from construction of a ship because until a vessel is completed and launched it does not become a ship in the legal sense and cannot become in “direct connection with commercial transactions or navigation.” Id.
8. In re Hydraulic Steam Dredge, 80 F. 545 (7th Cir. 1897).

University of Mississippi