L&L Electronics, Inc. v. M/V OSPREY
1:10-cv-10083
D. Mass.Feb 16, 2011Background
- Watersedge Group, LLC formed in January 2008 with Prior owning 80% and Baxter 20%.
- Watersedge purchased the M/V Osprey in March 2008 and held title through an interlocutory sale in June 2010.
- Prior loaned Watersedge funds secured by a first preferred ship mortgage on the Osprey, later supplemented and assigned to Tropical.
- L&L Electronics and Essex Boat Works provided necessaries to the Osprey; both asserted maritime liens arising after the Mortgage was recorded.
- Prior remained a manager but did not control Watersedge’s day-to-day operations; Baxter managed operations.
- Tropical purchased the Osprey at the 2010 auction for $140,000 and seeks priority over the liens under the Ship Mortgage Act.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the stranger-to-the-vessel doctrine applies to preferred ship mortgages. | L&L/Essex urge doctrine to bar mortgage priority. | Tropical contends doctrine does not apply to mortgages. | Do not extend doctrine to mortgages; mortgage priority upheld. |
| Whether Tropical's mortgage takes priority over L&L and Essex's maritime liens. | L&L/Essex argue liens prevail over mortgage. | Mortgage should take priority as recorded security interest. | Mortgage priority over liens affirmed. |
| Whether there is fraud or inequitable conduct justifying subordination of the mortgage. | Watersedge/Tropical conduct warrants subordination. | No fraud or inequitable conduct proven. | No subordination based on lack of fraud or inequitable conduct. |
| Whether equitable considerations about Watersedge’s capitalization affect priority. | Undercapitalization justifies subordination. | No economic finding supports subordination. | Equitable subordination rejected; priority remains with mortgage. |
Key Cases Cited
- Custom Fuel Services, Inc. v. Lombas Indus., Inc., 805 F.2d 561 (5th Cir. 1986) (mortgage protection facilitates private investment; fraud required for invalidation)
- P.R. Ports Auth. v. Barge KATY-B, 427 F.3d 93 (1st Cir. 2005) (distinguishes liens and recording; context for priority rules)
- Mullane v. Chambers, 438 F.3d 132 (1st Cir. 2006) (maritime liens’ purpose to facilitate services and open channels of commerce)
- Medina v. Marvirazon Cia. Naviera, S.A., 709 F.2d 124 (1st Cir. 1983) (acknowledges the reach of the stranger to the vessel concept in context)