A bankruptcy filing cannot divest a district court of preexisting maritime jurisdiction over a vessel; the automatic bankruptcy stay does not apply to maritime lien rights, and the bankruptcy court does not have jurisdiction to adjudicate maritime liens, the Ninth Circuit said in a lengthy opinion by Circuit Judge Jacqueline H. Nguyen.
A vessel exploded, injuring a seaman who was unable to work as a result of his injuries. The seaman filed a verified complaint in admiralty in district court against the vessel, the corporation that owned the vessel and the individual who owned the corporation.
In her March 28 opinion for the three-judge panel, Judge Nguyen said the defendants never objected to admiralty jurisdiction, giving the district court in rem jurisdiction over the vessel. The seaman was seeking “maintenance and cure,” maritime terms for an injured seaman’s food, lodging and medical care while unable to work. None of the defendants had insurance to cover the seaman’s maintenance and cure.
Fifteen months into the maritime suit, on the eve of trial to determine the amount of maintenance and cure, the individual defendant and the corporate owner of the vessel filed chapter 13 and 7 petitions, respectively. The district court stayed the maritime suit altogether, citing the Section 362 automatic stay.
Later, the bankruptcy court partially modified the automatic stay to allow the district court to determine the extent and validity of the seaman’s maritime lien against the vessel but specifically barred enforcement of the lien.
Sua sponte, the district judge then dismissed the maritime suit, believing the court lost maritime jurisdiction because the seaman had not verified an amended complaint. Next, the bankruptcy court approved a sale of the vessel “free and clear.” The seaman appealed dismissal of the maritime suit and the loss of his maritime lien rights.
Judge Nguyen reversed in 44-page opinion, making significant pronouncements about the intersection of bankruptcy and maritime jurisdiction.
Important for maritime law but not so much with regard to bankruptcy law, Judge Nguyen held that the failure to verify the amended complaint did not divest the district court of maritime jurisdiction because the defendants never objected to maritime jurisdiction in 15 months of litigation. She therefore reversed the dismissal of the maritime claim for lack of in rem jurisdiction over the vessel.
The defendants argued that the appeal nonetheless was moot because the bankruptcy court in the meantime had sold the vessel free of liens. The argument, Judge Nguyen said, assumes that the bankruptcy court had jurisdiction to dispose of the seaman’s maritime lien. She held, “It did not.”
The district court had ruled that the Section 362 stay enjoined the seaman from enforcing his maritime liens. Again, Judge Nguyen reversed.
Judge Nguyen relied on U.S. v. ZP Chandon, 889 F.2d 233, 238 (9th Cir. 1989), for the proposition that the automatic stay in bankruptcy court does not apply to a maritime lien for a seaman’s wages. She reasoned that the principle in Chandon applies equally to a maritime lien for maintenance and cure, because maritime liens are “sacred liens” when owed to seamen as a consequence of their service. She cited 1893 Supreme Court authority as saying that a seaman’s sacred liens are entitled to protection “as long as a plank of the ship remains.”
Judge Nguyen held that “Congress would not have overruled this ‘sacred’ principle of admiralty law in the Bankruptcy Act sub silentio.” Therefore, she said, the “bankruptcy stay did not apply to [the seaman’s] efforts to enforce his maritime lien for maintenance and cure.”
Next, Judge Nguyen held that the “bankruptcy court lacked jurisdiction to adjudicate [the seaman’s] maritime lien because the admiralty court had already obtained jurisdiction over the [vessel].” To that point, she cited authority saying that “the court which first obtains jurisdiction is entitled to retain it without interference.”
Consequently, the chapter 7 petition by the corporate owner of the vessel “could not have vested the bankruptcy court with the same jurisdiction,” Judge Nguyen said.
Judge Nguyen said commentators are not sure whether a bankruptcy court has power to sell a vessel free of maritime liens. Regardless of the answer to that question, she held that “a maritime lien cannot be extinguished except through application of maritime law.” Even if a bankruptcy court has jurisdiction to release a maritime lien, it “should be required to do so pursuant to maritime law” because priorities are different under the Bankruptcy Code and maritime law. For example, she said, seamen are in a “preferred position.”
Judge Nguyen’s opinion concluded with another extraordinary holding with regard to the seaman’s motions for summary judgment, which had been denied below. Ordinarily, denial of a motion for summary judgment cannot be appealed.
Because she saw the decision below as manifestly incorrect, Judge Nguyen issued a writ of mandamus directing the district court to grant maintenance at a rate of $34 a day, subject to upward modification after trial. In that respect, the opinion is a useful survey of the law regarding mandamus.