That Ship Has Sailed – The Fifth Circuit Re-Affirms the “Useless Judgment” Doctrine

The United States Fifth Circuit Court of Appeal of Community Bank of Lafourche v. M/V MARY ANN VIZIER, 2013 WL 5615738 (5th Cir. Oct. 15, 2013) recently re-affirmed the historic but infrequently applied “useless judgment” doctrine, which precludes subject matter jurisdiction in the federal appellate courts when the losing litigant in an in rem proceeding before the district court fails to protect the federal courts’ in rem jurisdiction by either seeking a stay and/or substitution of security (cash, supersedeas bond) for the res to perpetuate in rem jurisdiction. See Republic Nat’l Bank of Miami v. United States, 506 U.S. 80 (1992); Newpark Shipbuilding & Repair, Inc. v. M/V TRINTON BRUTE, 2 F.3d 572 (5th Cir. 1993); Eurasia Int’l, Ltd. v. Holman Shipping, 411 F.3d 578 (5th Cir. 2005). This doctrine is particularly relevant in cases of maritime in rem practice, given that the interlocutory sale of a vessel not only liquidates the res but also erases any prior liens or encumbrances against the Vessel. The result in Community Bank is of particular note for vessel mortgagees, maritime lienors, and vessel owners engaged in in rem litigation, because failing to take the necessary steps to protect jurisdiction can result in preclusion of an appeal from an adverse ruling in the district court.

The Vizier case began when Community Bank of Lafourche (“Community Bank”) filed a lawsuit involving the M/V MARY ANN VIZIER, a hundred foot offshore supply vessel (“the Vessel,” owned by Lori Ann Vizier, Inc.) pursuant to an undisputedly valid and properly recorded ship mortgage against the Vessel securing a promissory note that was in default. Community Bank sued the owner in personam and the Vessel in rem pursuant to the promissory note and mortgage, and arrested the Vessel pursuant to Rule C. Community Bank thereafter obtained a default judgment against the Vessel owner under the promissory note and mortgage. Meanwhile, Kevin Gross Offshore, LLC (“KGO”) intervened in the Rule C proceeding and asserted in rem maritime lien claims against the Vessel (without any in personam claim against the owner) pursuant to a so-called “Bareboat Charter and Vessel Management Agreement.” KGO claimed that because the owner had breached this agreement, the breach should be deemed retroactive to the date of the alleged charter (pursuant to the Fifth Circuit’s decision in Mr. Dean) and thus its alleged maritime lien should prime Community Bank’s mortgage.

In response, Community Bank moved for summary judgment dismissing KGO’s claims on the basis that the agreement was not a bareboat charter and/or that KGO as a joint-venturer with the Vessel owner and thus could not hold a lien against the Vessel. The District Court granted Community Bank’s motion for summary judgment and dismissed KGO’s maritime lien claims, and Community Bank then proceeded with a properly advertised and authorized interlocutory sale of the Vessel.

Community Bank then purchased he Vessel at the United States Marshal’s sale via credit bid (in the amount of its default judgment) as authorized by the District Court’s Order setting the interlocutory sale. Critically, the marshal issued a bill of sale indicating that the Vessel had been sold free and clear of all liens pursuant to Community Bank’s credit bid. However, exactly 30 days after the District Court’s summary judgment ruling (on the last day for timely filing), KGO moved for reconsideration of the District Court’s dismissal of its alleged maritime lien claims. Critically, in the interim, KGO did not participate in or attend the interlocutory sale; did not move for a stay of the sale pending a ruling on its motion to reconsider; and did not file any written objection to the sale (as expressly required by Local Rule 64.6). Accordingly, under the plain language of Local Rule 64.6, the interlocutory sale of the Vessel was confirmed ipso facto after three days passed without objection after the sale.

In the meantime, shortly after KGO filed its motion for reconsideration, Community Bank moved to confirm the interlocutory sale of the Vessel, which would render it free and clear of all liens as a matter of law. KGO opposed Community Bank’s motion to confirm; however, KGO did not move to stay the effect of the District Court’s summary judgment ruling pending any appeal. The only mention by KGO of any issue with respect to the loss of in rem jurisdiction came in the final paragraph of its reply memorandum regarding its motion for new trial (and not in any formally filed pleading requesting any relief) in which KGO acknowledge that confirming the sale would destroy jurisdiction in the appellate court.

Ultimately, the District Court granted Community Bank’s motion to confirm the sale, and denied KGO’s motion to reconsider. KGO then filed a timely notice of appeal of the District Court’s summary judgment ruling, but did not request any stay in the District Court (viz. confirmation of the sale or the sale itself), nor approval of any supersedeas bond, pending its appeal. Community Bank immediately moved to dismiss the appeal for lack of jurisdiction pursuant to the “useless judgment” doctrine. The Fifth Circuit declined to rule initially on Community Bank’s motion to dismiss, and instead carried the motion with the case pending briefing on the merits.

However, the appellate court ultimately granted Community Bank’s motion to dismiss KGO’s appeal and re-affirmed the validity of the historic “useless judgment” doctrine. Thus, because KGO had not taken any steps to protect federal in rem subject matter jurisdiction by either seeking a stay and/or ensuring the presence of some substitute res in the District Court, KGO’s merits-based appeal of the District Court’s maritime lien ruling was dismissed:

Whether a court can continue to exercise jurisdiction following the release of the res and whether that court, nonetheless, can afford concrete and valuable relief to the successful appellant are related, yet separate, inquiries. In this case, the answer to the first inquiry is, undoubtedly, yes. . . The release of the res from the [D]istrict [C]ourt’s custody did not necessarily divest jurisdiction. . . But this does not end the jurisdictional inquiry under [the “useless judgment” doctrine] because . . . an exception to our jurisdiction exists when loss of the res would render any judgment “useless.” . . Here . . . the sole relief that [KGO] seeks is an in rem judgment permitting [it] to recover the Vessel. [KGO] does not suggest that a judgment in this suit would benefit [it] in future litigation. Because the Vessel is no longer recoverable, and [KGO] has not pointed to any concrete benefit to it of a judgment in its favor, the useless judgment exception to our jurisdiction applies.

KGO has sought en banc review of the panel opinion dismissing its appeal, although this request is unlikely to succeed insofar as it raises issues under Local Rule 64.4 that were never raised in the District Court or before the original panel, and which have thus been waived. Bottom line, the historic “useless judgment” doctrine is alive and well in the Fifth Circuit, and any parties engaged in maritime financial transactions need to be aware of the doctrine in order to protect their rights accordingly.