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Court Permits Interlocutory Sale of Vessel

Branch Banking & Trust Company v. Fishing Vessel TOPLESSS
Civil Action No. ELH-12-2364 (D.Md. November 29, 2012)
by Gregory L. Arbogast, Associate
Semmes, Bowen & Semmes (www.semmes.com)

In Branch Banking & Trust Company v. Fishing Vessel TOPLESSS, Judge Hollander of the United States District Court for the District of Maryland permitted Branch Banking & Trust Company (“BB&T”) to institute an interlocutory sale of the fishing vessel TOPLESSS (the “Vessel”) in its foreclosure proceedings of the ship’s preferred mortgage. Judge Hollander found that the Vessel is likely to deteriorate or decay and that there was an unreasonable delay in securing the release of the Vessel; therefore, Judge Hollander permitted BB&T to liquidate the property and turn it into cash. Additionally, Judge Hollander denied Defendant’s Motion to Stay the Sale pending resolution of a related proceeding in state court.

On May 12, 2008, Steelesoft, Inc. obtained from BB&T a commercial promissory line of credit in the amount of $5,875,000 with Sportfishing executing a Guaranty Agreement, which guaranteed the obligations of Steelesoft. As security for the line of credit, Sportfishing and Steelesoft executed a preferred ship’s fleet mortgage covering the two vessels: the TOPLESSS and the TOPLESSS II. BB&T alleged that Sportfishing and Steelesoft have failed to make any payments on the note since March 2011.

On January 4, 2012, BB&T filed a Complaint and Confession of Judgment against Steelesoft and Sportfishing in the Circuit Court for Baltimore City for breach of the promissory line of credit and the Guaranty Agreement. On January 6, 2012, the state court granted judgment in favor of BB&T and denied Defendant’s Motion to Vacate.

Following the judgment against Defendants, BB&T initiated the proceeding in Federal Court which alleged that Steelesoft and Sportfishing breach the preferred ship mortgage, which is governed by Federal law. The United States District Court issued a warrant of arrest for the Vessel, which was executed the very same day. A BB&T appraisal of the vessel determined its value to be 1.1 million dollars. The low value of the Vessel allegedly resulted from neglectful maintenance. The appraiser also recommended that the parties undertake several significant repairs before further use of the Vessel. The appraiser also noted that the approximate cost of maintaining the vessel is 4,000 dollars per month.

BB&T filed a Motion for Interlocutory Sale of the Vessel in which it requested that the United States District Court permit the sale of the Vessel prior to resolution of its claims against Defendants, so that the Vessel’s value would not be further diminished and so that BB&T would not be forced to continue to incur the 4,000 dollars per month cost of maintaining the vessel. Defendants also filed a Motion for Stay of Sale pending an en banc review of the State Court’s decision not to vacate judgment.

With respect to the Motion for Interlocutory Sale, the Court considered: (1) whether the attached property is perishable, liable to deterioration, decay or injury by being detained in custody pending the action; (2) the expense of keeping the property is excessive or disproportionate; or (3) there is an unreasonable delay in securing the release of the property. The District Court found that the Vessel was liable to deterioration or decay and that there was unreasonable delay in securing the release of the property. The District Court, however, did not find the expense of keeping the property excessive or disproportionate. Specifically, the District Court found that as a result of prior decay and Defendants’ failure to maintain the Vessel, it had substantially decreased in value. The Court found the Vessel’s value of $1.1 million to be well short of the approximately $4.5 million required to satisfy the Defendants’ outstanding obligations under the mortgage. Therefore, the Court found that it was in the interest of all parties to have the vessel liquidated as soon as possible such that Plaintiff was able to recover as much money on the mortgage as possible, given the already large deficiency. The Court, however, did not find that the 4,000 dollar per month cost of maintaining the Vessel was disproportionately large to the Vessel’s $1.1 million in value. However, the Court need only find one of the factors to grant an interlocutory appeal. It did not need to find all three before granting an interlocutory appeal.

With respect to Defendants’ Motion for Stay, the Court found that the state court action and Federal Court action were separate and distinct. While the state court action was related to the Federal Court action, they were not one and the same. The Federal Court action was initiated based upon the preferred ship mortgage under Federal law. The state court proceeding was based on the general default of a loan and the Guaranty Agreement, which is not based on Federal law. Therefore, the Federal Court proceeding was not contingent upon the findings of the state court proceeding. As such, the Federal Court was not required to stay its own proceedings pending final resolution of the State Court’s proceedings.

Upon making her findings, Judge Hollander granted plaintiff’s Motion for Interlocutory Sale of the Vessel and denied defendant’s Motion for Stay of Sale of the Vessel.