Leslie S. DIETRICH, Plaintiff-Counter Defendant-Appellant, v. KEY BANK, N.A., Defendant-Counter Plaintiff-Appellee, Gilman Yacht Sales, Inc., Jeffrey Shearer, Cracker Boy Marina, Inc., Defendants.
No. 94-4093.
United States Court of Appeals, Eleventh Circuit.
Jan. 3, 1996.
72 F.3d 1509
Robert D. McIntosh, Paul R. Regensdorf, Ft. Lauderdale, FL, Thomas A. Russell, Long Beach, CA, amicus curiae, David MCl. Williams, P.C., Baltimore, MD, amicus curiae, for appellee.
Before TJOFLAT, Chief Judge, ANDERSON, Circuit Judge, and FAY, Senior Circuit Judge.
ANDERSON, Circuit Judge:
This case involves the construction of the Ship Mortgage Act of 1920,
I. FACTUAL BACKGROUND
On April 30, 1982, Key Bank, N.A. (“Key Bank“) financed Leslie Dietrich‘s purchase of a thirty-five foot, 1980 Mako sport fishing boat. Dietrich signed a security agreement giving Key Bank a security interest in the boat and promising to repay $97,300.00 in monthly installments at an annual interest rate of 18%. The security agreement was to protect the lender until the First Preferred Ship Mortgage was duly recorded. On August 30, 1983, over a year later, Dietrich executed the First Preferred Ship Mortgage.2 Among other things, that mortgage provided for payment of the debt on the same monthly installment terms and with the same interest provided in the security agreement, and for acceleration of the entire debt in the event of default. In the summer of 1986, Dietrich defaulted on her note. After notifying her of the payments she owed, Key Bank accelerated the note and then peacefully repossessed the vessel in December, 1986. The vessel was then sold by Key Bank in a private sale to one of three bidders for $40,000.
Afterwards, Dietrich filed suit against Key Bank alleging breach of contract and conversion,3 and Key Bank filed a counterclaim seeking a deficiency judgment. Dietrich moved for partial summary judgment on Key Bank‘s counterclaim contending that under the Ship Mortgage Act, Key Bank was prohibited from using self-help repossession to enforce the preferred mortgage. She also contended that even if it were lawful to contract for self-help repossession and resale, the contracts in this case did not make such provisions. The district court decided that the contracts between the parties did authorize Key Bank to use Florida law to repossess peacefully and sell its collateral upon the debtor‘s default and that the Ship Mortgage Act did not prohibit Key Bank from pursuing these contracted-for state remedies.4 After a non-jury trial in December of 1993 on the remaining claims,5 the district court entered a deficiency judgment against Dietrich, the amount of which is not at issue in this appeal.
On appeal, Dietrich reasserts the grounds of her summary judgment motion. She contends that the Ship Mortgage Act‘s statutory enforcement scheme, i.e., foreclosure either in rem or in personam in admiralty, is the exclusive remedy for default of a preferred mortgage lien. She also argues that the district court erred in concluding that the underlying contracts provided for state self-help repossession and resale remedies.
We first address whether the underlying contracts provide for state law self-help repossession and resale, and then we determine whether the Ship Mortgage Act precludes such remedies.
Dietrich argues that she did not contract for state law self-help repossession and resale in the mortgage contracts. Her argument fails. It is uncontested that once perfected, the terms of the First Preferred Ship Mortgage governed,6 and that document contemplated repossession and resale. At least three paragraphs in the document explicitly mention the availability of repossession and two mentioned resale after repossession. For example, Paragraph 20 states:
SALE OR USE OF REPOSSESSED VESSEL. If you repossess the Vessel, you may, in my name, lease, charter, operate or otherwise use the Vessel as you think advisable, being accountable for net profits, if any, and keep the Vessel free of charge at my premises or elsewhere, at my expense. For such purpose and subject to any applicable state regulation, you and your agents are irrevocably appointed my true and lawful attorneys-in-fact to make all necessary transfers of the Vessel upon resale after repossession, in my name and stead.
This paragraph unequivocally anticipates both self-help repossession and self-help resale. Both are provided for under Florida law.
Thus, we reject Dietrich‘s argument that the contracts did not allow for self-help repossession and resale upon default. We therefore turn to the Ship Mortgage Act issue.
III. THE SHIP MORTGAGE ACT OF 1920
A. Background
Before the passage of the Ship Mortgage Act of 1920, vessel mortgage liens could not be enforced in admiralty court. See The Thomas Barlum, 293 U.S. 21, 32, 55 S.Ct. 31, 33, 79 L.Ed. 176 (1934). State court enforcement was ineffective because state courts could not affect maritime liens. Thus, a ship mortgagee‘s security interest was not satisfactorily protected. See id. at 39, 55 S.Ct. at
The Act itself did at least three important things—it set forth the requirements for recording preferred mortgages, established that only maritime liens would have priority over ship mortgages, and provided for a means of enforcing preferred mortgage liens in admiralty.
B. Federal Preemption
Dietrich argues that the statutory provisions for enforcement of preferred mortgage liens under the Act,
(b) On default of any term of the preferred mortgage, the mortgage[e] may—
(1) enforce the preferred mortgage lien in a civil action in rem for a documented vessel, a vessel to be documented under chapter 121 of this title, or a foreign vessel; and
(2) enforce a claim for the outstanding indebtedness secured by the mortgaged vessel in—
(A) a civil action in personam in admiralty against the mortgagor, maker, comaker, or guarantor for the amount of the outstanding indebtedness or any deficiency in full payment of that indebtedness; and
(B) a civil action against the mortgagor, maker, comaker, or guarantor for the amount of the outstanding indebtedness or any deficiency in full payment of that indebtedness....
The statute itself makes no statement with respect to state law except in
This chapter supersedes any State statute conferring a lien on a vessel to the extent the statute establishes a claim to be enforced by a civil action in rem against the vessel for necessaries.
The question presented is whether these provisions for enforcement of preferred mortgage liens preempt state law. Recently, the Supreme Court stated:
In the absence of an express congressional command, state law is pre-empted if that law actually conflicts with federal law [cit.] or if federal law so thoroughly occupies a legislative field “as to make reasonable the inference that Congress left no room for the States to supplement it.”
Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516, 112 S.Ct. 2608, 2617, 120 L.Ed.2d 407 (1992) (citations omitted). Because we find no express congressional command, we must determine whether state law actually conflicts with the federal statute or, alternatively, whether federal law thoroughly occupies the legislative field.
1. Whether State Self-help Repossession and Sale Conflicts with Federal Law.
We first determine whether state law is preempted because “it actually conflicts with a federal statute.” International Paper Co. v. Ouellette, 479 U.S. 481, 491, 107 S.Ct. 805, 811, 93 L.Ed.2d 883 (1987) (quoting Ray v. Atlantic Richfield Co., 435 U.S. 151, 158, 98 S.Ct. 988, 991, 55 L.Ed.2d 179 (1978)). “Such a conflict arises when ‘compliance with both federal and state regulations is a
The federal statute provides procedures for judicial foreclosure and sale. As discussed previously,
It cannot be argued that state law stands as an obstacle to the full accomplishment of the purposes and objectives of Congress. The purpose of Congress was to create a means of enforcing mortgages in admiralty in order to promote ship financing. Allowing financiers to contract for state law self-help remedies in addition to their statutory right to foreclose in admiralty does not undermine this purpose. Rather, allowing for supplementation through state law furthers the objectives of Congress by providing another avenue for enforcement of vessel mortgage liens.
2. Whether the Ship Mortgage Act Occupies the Field.
Having determined that the Act did not explicitly preempt state law, and that there is no conflict between the state and federal law, we must determine whether Congress intended to occupy the field. We can infer an “intent to occupy a given field to the exclusion of state law ... where the pervasiveness of the federal regulation precludes supplementation by the States” or “where the federal interest in the field is sufficiently dominant....” Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 300, 108 S.Ct. 1145, 1150, 99 L.Ed.2d 316 (1988). We can also infer an intent to preempt where “the object sought to be obtained by the federal law and the character of the obligations imposed by it” reveal a purpose to preclude the enforcement of the state laws on the same subject. Id. (citation omitted).
Although enforcement of preferred mortgage liens is a federal interest, it is not the sort of uniquely federal interest which is so dominant it would create an inference that Congress intended to preempt state law in that field. Cf. Hines v. Davidowitz, 312 U.S. 52, 61, 61 S.Ct. 399, 401, 85 L.Ed. 581 (1941) (concluding that immigration and foreign affairs were such predominant federal interests). Nor is this a situation in which the enforcement of state law, i.e., self-help repossession and resale, poses a serious danger to the administration of the federal program. Rather, a mortgagee remains free to pursue a federal remedy notwithstanding the fact that he contracted for the option to use a state law remedy. As long as the conveyances and sales are properly recorded with the customs officials, the federal scheme is not endangered.9
The appellant seems to rely on the argument that the pervasiveness of federal regulation precludes supplementation by the states. Her argument is undermined by a close look at the statute itself. The fact that the statute does provide two means to enforce preferred mortgage liens does not, without more, indicate that the federal statute is pervasive.10 Compare International Paper Co. v. Ouellette, 479 U.S. 481, 107 S.Ct. 805, 93 L.Ed.2d 883 (1987) (finding that Congress intended Clean Water Act to establish all-encompassing program of water-pollution regulation where Act applied to all point sources and virtually all bodies of water) and Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 104 S.Ct. 2694, 81 L.Ed.2d 580 (1984) (deciding FCC occupied field where it pervasively regulated importation of distant broadcast signals, signal carriage generally, and technical standards) with Pac. Gas & Elec. v. St. Energy Resources. Conserv., 461 U.S. 190, 103 S.Ct. 1713, 75 L.Ed.2d 752 (1983) (finding that despite comprehensiveness in safety regulations in Atomic Energy Act of 1954, Congress intended states to retain its other traditional roles in regulating utilities, and concluding it almost inconceivable that Congress would leave regulatory vacuum).
Because the language of the Act is permissive—i.e., the Act uses the permissive “may” rather than exclusive “must” with respect to its enforcement procedures—and because the Act is silent with respect to self-help repossession and resale, we are drawn to the conclusion that the federal law is not so pervasive that it thoroughly occupies the field. This reasoning accords with that of a majority of the cases and treatises which have squarely addressed the question. See Merchants & Marine Bank v. T.E. Welles, 289 F.2d 188, 194 (5th Cir.1961) (“With all of its statutory protections, [the Ship Mortgage Act] still has infirmities in contrast to land-based securities” and “the approach ought to be one of harmony with usual security principles.“); First Federal Sav. F.S.B. v. M/Y Sweet Retreat, 844 F.Supp. 99, 102 (D.R.I.1994) (“The text of the act indicates that it is not exclusive.“); Maryland National Bank v. Darovec, 820 F.Supp. 1083, 1087 (N.D.Ill.1993) (concluding that the Act “stops short of pre-empting extra-judicial repossessions and private sales“); Pee Dee State Bank v. The F/V Wild Turkey, 1992 A.M.C. 1896, 1991 WL 355221 (D.S.C.1991); Price v. Seattle-First Nat‘l Bank, 582 F.Supp. 1568 (W.D.Wash.1983); Southland Financial Corp. v. O/S MARY EVELYN, 248 F.Supp. 520, 522 (E.D.La.1965); Chemical Bank v. United States Lines, S.A. (In Re McLean Ind.), 132 B.R. 271 (Bankr.S.D.N.Y.1991); see also 8 Benedict on Admiralty § 1.06[C] (7th ed. 1995); Grant Gilmore & Charles L. Black, Jr., The Law of Admiralty 721 (2d ed. 1975).
The appellant contends that this circuit‘s precedent controls and that such precedent has held that the Ship Mortgage Act is comprehensive and pre-empts state law enforcement remedies. She cites two cases, J. Ray McDermott & Co., Inc. v. The Vessel Morning Star, 457 F.2d 815 (5th Cir.) (en banc),11 cert. denied, 409 U.S. 948, 93 S.Ct. 292, 34 L.Ed.2d 218 (1972), and Nat G. Harrison Over. Corp. v. American Barge Sun Coaster, 475 F.2d 504 (5th Cir.1974). However, both cases can be distinguished from the case at bar.
That holding does not control our decision in this case. This is not a situation in which a party has attempted to supplement the provisions governing the judicial sale of a vessel. Rather, here the mortgagee has chosen to forego judicial foreclosure and sale altogether, opting instead for a self-help remedy. Here there is no direct conflict of law. Although the provisions for judicially-supervised sales might be comprehensive, the statute is silent with regard to self-help remedies which do not invoke judicial supervision.
Despite the narrowness of its holding, the J. Ray McDermott decision did employ broad language in its description of the scope of the Ship Mortgage Act, specifically the following:
It is clear that Congress intended that the ready availability of credit to support interstate commerce should not be impeded by parochial limitations and that the Act would wholly and completely supersede state law and practice in every respect.
Id. at 818. Although J. Ray McDermott represents in effect an en banc decision of this court (sitting then as the former Fifth Circuit), the quoted language is dicta13 and is not controlling in this case. J. Ray McDermott involved a judicially-supervised foreclosure and a direct conflict between federal and state law.
Nor is Nat G. Harrison Overseas Corp., 475 F.2d 504 (5th Cir.1974), controlling. The issue in that case was whether the federal court‘s deficiency judgment should be purged of interest and/or barred because the mortgage interest was usurious under the laws of Georgia. The court concluded that
Thus, neither J. Ray McDermott nor Nat G. Harrison foreclose our holding that the Ship Mortgage Act is not pervasive; we hold that the Act does leave room for the operation of state law self-help remedies when authorized by contract. We acknowledge that our holding is in conflict with Bank of America National Trust & Savings Ass‘n v. Fogle, 637 F.Supp. 305 (N.D.Cal.1985), and Nate Leasing Co., Inc. v. Wiggins, 114 Wash.2d 508, 789 P.2d 89 (1990). Contrary to our holding, the Fogle court held that the Ship Mortgage Act exclusively governs all foreclosures of preferred ship mortgages, and thus preempts any state law provisions allowing for self-help, nonjudicial foreclosure sales. The Fogle court reasoned that because the statute provided for private sales as well as public sales within its procedures for judicially supervised foreclosure, Congress necessarily intended to preclude the use of self-help procedures which also include private sale. In Nate Leasing, the Supreme Court of Washington followed Fogle and relied upon the dicta in J. Ray McDermott, which we have now disavowed.
In our opinion, the better reasoned cases support our holding, and not that of Fogle and Nate Leasing. As noted above, we see no direct conflict between the state law self-help provisions and the federal scheme; we disagree with the Fogle court‘s suggestion that Congress intended to preclude the use of nonjudicial, self-help remedies merely because Congress permitted private sales as well as public sales within its overall scheme of judicially supervised foreclosures. Although the federal scheme may well be comprehensive with respect to judicial foreclosure, the Act is silent with respect to self-help repossession and resale. As noted above, the self-help repossession and resale procedure poses no threat to the administration of the federal program, but rather is entirely consistent with the congressional purpose. The congressional purpose was to facilitate and promote financing for vessels, and in particular to provide an effective means for enforcing ship mortgages. We believe our holding is consistent with and supportive of that purpose. Our holding merely recognizes the availability of an optional remedy—one which may be less cumbersome and expensive in some circumstances14—in addition to the remedies provided by the federal statute. Nor do we believe our holding will undermine any congressional goal of providing uniformity. Not only is the self-help remedy optional, the relevant state law is now itself largely uniform as a result of the widespread adoption of the Uniform Commercial Code.
Finally, our holding is supported by the permissive language used by the federal statute in providing for its foreclosure remedies. We note also that our holding is supported by leading treatises on admiralty law. See 2 Benedict on Admiralty § 70f (7th ed. 1995) (criticizing15 the reasoning in Fogle and the dicta in J. Ray McDermott and indicating that the cases holding that the federal judicial remedies are not exclusive appear to be better reasoned). Accord Grant Gilmore & Charles L. Black, Jr., The Law of Admiralty 718-27 (2d ed. 1975).16
For the foregoing reasons, we hold that the Ship Mortgage Act does not prohibit a mortgagee‘s use of state law self-help enforcement procedures when the parties have authorized those procedures by contract.
AFFIRMED.
R. LANIER ANDERSON III
UNITED STATES CIRCUIT JUDGE
Notes
Unless otherwise agreed a secured party has on default the right to take possession of the collateral. In taking possession a secured party may proceed without judicial process if this can be done without breach of the peace or may proceed by action.
Section 679.504, entitled “Secured party‘s right to dispose of collateral after default; effect of disposition“, states in part:
A secured party after default may sell, lease or otherwise dispose of any or all of the collateral in its then condition or following any commercially reasonable preparation or processing. Any sale of goods is subject to chapter 672.