OTIs and Ocean Carriers in the U.S. Presentation/media/Files/Events/2014/05/Webinar...OTIs and Ocean...

© Husch Blackwell LLP

OTIs and Ocean Carriers in the U.S.: Impact of Importers Filing for Bankruptcy

Presentation by Benjamin F. Mann & Carlos Rodriguez

With You Today

Benjamin F. Mann [email protected] 816.983.8126

Carlos Rodriguez [email protected] 202.378.2365

© 2014 Husch Blackwell LLP. All rights reserved.

Lenders’ Lien in Goods

Only one source Consensual lien granted in security agreement

Governed by UCC Article 9

3 © 2014 Husch Blackwell LLP. All rights reserved.

Marine Carriers (including NVOCCs) Multiple sources

Common law maritime lien

Statutory Carrier’s lien

Consensual lien


Common Law Maritime Lien Arises from English common law Now part of federal admiralty common law “Maritime” describes variety liens

Lien on ship for repairs, food, provisions, injuries Lien on funds generated by use of ship – “freights” Lien on goods by Carrier Can be asserted by NVOCC as well as physical transporter.

See Logistics Management, Inc. v. One Pyramid Test Arena, 86 F.3d 908, 914 (9th Cir. 1996)

Scope of maritime Carrier’s lien On goods in possession of Carrier for costs to ship those goods only Arises automatically by operation of law Terminates upon surrender of possession

See The Bird of Paradise, 72 U.S. 545, 555 (1866) But, parties can agree to extend lien to survive surrender of possession into warehouse, dock or other third-party. See Arochem Corp. v. Wilomi, Inc., 962 F2d 496, 500 (5th Cir. 1992).


Statutory Carrier’s Lien

Source: UCC 7-307

Applicability: Any Carrier who issues bills of lading so applies to land, air and sea Carriers

Scope: on goods in possession of Carrier for costs to ship those goods only

arises automatically by operation of law

terminates upon surrender of possession


Consensual Lien Must be in writing agreed to by the customer Sufficient credit application signed by the customer

See In re Colortran, Inc., 218 B.R. 507, 509 (9th Cir. BAP, 1997)

Not sufficient invoice issued by Carrier but not signed by the customer See In re CFLC, Inc., 209 B.R. 508, 515-16 (9th Cir. BAP, 1997)

Maybe sufficient bills of lading issued pursuant to tariff agreed to by the customer

See Capital Transportation, Inc. v. United States, 612 F.2d 1312, 1325 (1st Cir. 1979)

Governing law consensual lien is not governed by maritime law but by state UCC law

See In re Colortran, Inc., 218 B.R. 507 (5th Cir. BAP, 1997); Maersk-Sealand v. Eurocargo Express LLC, 2004 WL 1950372 (C. D. Calif. 2004); Paul Harris Stores, Inc. v. Expeditors Int’l of Washington, Inc., 342 B.R. 290 (Bankr. S.D. Ind. 2006)


Perfection of Consensual Lien

Filing UCC-1 – lien can extend to all goods of customer

Possession – lien can only extend to goods in possession of Carrier


Priority of Competing Liens Maritime lien primes Lender’s security interest as to:

Goods in Carrier’s possession for costs to ship those goods only

UCC 9-333 provides that Article 9 security interests are subordinate to statutory liens which arise by operation of law based on possession of the goods and “secure payment on performance of an obligation for services or materials furnished with respect to the goods by a person in the ordinary course of business.” (emphasis added).

Similarly, statutory Carrier’s lien primes Lender’s security interest pursuant to UCC 9-333.


Priority of Competing Liens (cont’d.) Carrier’s consensual lien can be written to grant Carrier’s lien in all

goods of customer for any and all shipping charges not paid but method of perfection may affect priority

Perfection by possession by Carrier occurs when Carrier takes possession whereas perfection by Lender occurs when the UCC-1 is filed and Debtor obtains rights in collateral

UCC 9-322 govern priority of conflicting liens in the same collateral Priority goes to party who was first to file or perfect Competing liens may arise at same time but Lender’s lien is filed before

Carrier’s lien is perfected by possession If Lender and Carrier both file UCC-1’s, then party who files first has priority Whether Lender is Lender to consignor or consignee may impact priority of

carrier’s lien.


Priority of Competing Liens (cont’d.) Effort to create consensual Carrier’s lien that is entitled to priority of Carrier’s maritime lien has been rejected by the only two courts to address issue In re World Imports Ltd., Inc., 2013 WL 4200810 (Bkcy. E. D. Pa. 2013) In re Guildmaster, Inc., (unreported) Case No. 13-06008 (Bkcy. W. D. Mo. 2013) Possibility exists if language in credit application expressly states that general lien on

goods in possession of Carrier for all charges for current and past shipments is governed by federal maritime common law Maritime lien can be expanded by agreement to cover prior shipments

See Eagle Maritime Transport Co. v. A Cargo of Hardwood Chips, 1998 WL 382141 (E. D. La. 1998)

Cases involving non-Carrier maritime liens hold that maritime lien trumps UCC Article 9 lien See Walsh v. Placedo Shipping Corp., 789 F.2d 1406 (9th Cir. 1986); Cornish Shipping Ltd. v. Int’l Nederlanden Bank, 53 F.3d 499 (2nd Cir. 1995); In re Muma Services, 322 B.R. 541 (Bankr. D. Del. 2005)


Bankruptcy of Importer/Exporter Carrier holding goods when customer files for bankruptcy should NOT surrender goods

If does so, possessory lien is lost

Instead file motion with court to require Debtor to satisfy possessory lien (i.e., pay the bill) or provide substitute lien on assets in possession of Debtor (i.e., lien continues per court order in surrendered assets and other assets of Debtor)

Carrier who has been paid in past 90 days on prior shipments may be subject to recovery of payments as preference under § 547 of Bankruptcy Code

Ordinary course of business defense and subsequent new value defense may apply

Carrier acting as customs broker or freight forwarder may also have preference exposure

If payments made to broker/forwarder are then paid to Government (for customs) or Carrier (freight bill), “mere conduit” defense may be asserted, but not if importer is reimbursing for payments already made


Claims Priority for Custom Duties

Good News – custom duties share same claims priority as federal taxes under § 507 of the Bankruptcy Code Bad News – broker who pays customer duties for customer and seeks reimbursement from customer is expressly not subrogated to the claims priority See § 507(d); In re Chalk Line Mfg., Inc., 181 B.R. 605 (Bkcy. N. D. Ala. 1995)


Next Steps:

14

Check your credit application provisions to insure you have language that creates a valid consensual lien.

Review your customers and determine whether, when and where to perfect your consensual lien with a UCC-1 filing.


THANK YOU

Benjamin F. Mann [email protected]

816.983.8126

Carlos Rodriguez [email protected]

202.378.2365


OTIs and Ocean Carriers in the U.S. Presentation/media/Files/Events/2014/05/Webinar...OTIs and Ocean...

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