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Oil Shipping B.V. v. A.S.

argued: October 8, 1993.

OIL SHIPPING (BUNKERING) B.V.; BAYTUR TRADING S.A.; THE ROYAL BANK OF SCOTLAND PLC; TRAMP OIL CORPORATION; PENNSYLVANIA SHIP SUPPLY CO., INC.; INTERNATIONAL MARINE FUELS OF SAN FRANCISCO, INC.; TRAMP OIL AND MARINE LIMITED; BRIDGE OIL LIMITED; MORAN TOWING OF PENNSYLVANIA, INC.
v.
SONMEZ DENIZCILIK VE TICARET A.S.; M/V ZIYA S, HER ENGINES, BOILERS, TACKLE, ETC.; NORTHWEST SHIPPING CORPORATION; K. DAN DALKIRAN BAYTUR TRADING, S.A., APPELLANT



Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. Civil Action No. 92-01793).

Present: Hutchinson, Cowen and Nygaard, Circuit Judges.

Author: Hutchinson

Opinion OF THE COURT

HUTCHINSON, Circuit Judge.

Appellant, Baytur Trading S.A. ("Baytur") appeals an order of the United States District Court for the Eastern District of Pennsylvania granting summary judgment in favor of appellee, The Royal Bank of Scotland plc ("Royal Bank"). In granting the Royal Bank's motion for summary judgment, the district court did not engage in a choice of law analysis but held that the priority of maritime liens and preferred mortgages on a vessel arrested in a United States port is determined by the United States Ship Mortgage Act, 46 U.S.C.A. §§ 31301 -31343 (West Supp. 1993, Partial Revision) (the "Ship Mortgage Act" or the "Act"). See Oil Shipping (Bunkering) B.V. v. Royal Bank of Scot. plc, 817 F. Supp. 1254 (E.D. Pa. 1993). We will affirm the district court.

This maritime action was originally brought by Oil Shipping (Bunkering) B.V. ("Oil Shipping") to obtain payment for certain supplies Oil Shipping provided to the defendant vessel M/V ZIYA S ("ZIYA S"). Baytur intervened to enforce a maritime lien for fuel oil it had delivered to the ZIYA S in Turkey, pursuant to contract. Royal Bank is the holder of a preferred mortgage on the ZIYA S. Under the Ship Mortgage Act, a preferred mortgage is entitled to priority over maritime liens for necessaries. Under Turkish law, however, a maritime lien for necessaries is entitled to priority over a preferred mortgage. In its cross-motion for summary judgment, Baytur contended that standard choice of law principles required application of Turkish law. Royal Bank contended that the Ship Mortgage Act superseded any Judge-made choice of law principles and, accordingly, its mortgage was entitled to priority.

The district court agreed with Royal Bank, applied the Ship Mortgage Act, and concluded that Royal Bank's lien had priority over Baytur's. Accordingly, it entered summary judgment for Royal Bank. We must decide whether priorities of maritime liens and preferred mortgages on vessels in custody within the territorial jurisdiction of the United States are determined by the Ship Mortgage Act without an analysis under Judge-made principles governing conflict of laws. There is a split of authority on this issue among the courts that have considered it. We agree with those which have decided that Congress intended the Ship Mortgage Act to control issues of priority arising in district courts sitting in admiralty. We will, therefore, affirm.

I. Factual & Procedural History

The ZIYA S is a bulk carrier ship which flew the flag of the sovereign state of Turkey. At the time of her seizure, she was nominally owned by Northwest Shipping Corporation ("Northwest"), a Panamanian entity. When this case arose, she was bareboat chartered to Sonmez Denizcilik ve Ticaret A.S. ("Sonmez") and its wholly controlled subsidiary Ziden Denizcilik ve Ticaret ("Ziden"). She is so listed in the Turkish Bareboat registry. Sonmez is a Turkish company with its primary place of business in Istanbul, Turkey. Sonmez, once among the most important ship owners in Turkey, has recently been afflicted by financial problems.

On April 28, 1989, to refinance the ZIYA S's acquisition loan, Northwest borrowed eleven million dollars from Royal Bank under a loan agreement executed on the same date. Simultaneously, Northwest executed and delivered a First Preferred Panamanian Ship Mortgage (the "Mortgage") in favor of Royal Bank. The Mortgage was executed and registered in the public registry in Panama. Sonmez, as operator of the ZIYA S, acted as guarantor of the loan from Royal Bank to Northwest.

The loan agreement included a clause stating that it was to be governed and construed in accord with English law but that the Mortgage was to be construed under the laws of Panama. Northwest and Sonmez also agreed to submit to the jurisdiction of any court in which Royal Bank, as mortgagee, might choose to bring any legal action concerning the Mortgage.

Throughout 1991 and 1992, Sonmez entered into various contracts for supplying to the ZIYA S fuel oil, marine diesel oil, and other services.*fn1 Among the ship's suppliers were Oil Shipping, a Dutch based company; Baytur, a Swiss based company; and Tramp Oil Corporation/Tramp Oil Marine Ltd. ("Tramp"), a British based company. Oil Shipping delivered bunkers to the ZIYA S at Gibraltar and Suez; Tramp delivered bunkers to the ZIYA S at Kaosiung (Taiwan), Singapore, and Puerto Ordaz, Venezuela; and Baytur delivered bunkers at Iskenderun, Turkey, on August 4, 1991, October 8, 1991, and October 13, 1991. By March 27, 1992, Sonmez owed Oil Shipping approximately $270,000.00; Tramp about $263,450.00; and Baytur $85,525,40. In addition, Northwest and Sonmez had defaulted $3,500,000.00 in payments to Royal Bank exclusive of interest and costs.

Around this time the ZIYA S arrived in Philadelphia. There, on March 27, 1992, Oil Shipping precipitated this litigation by filing claims in the district court against the ZIYA S, in rem, and against Sonmez, in personam . In them, it sought recovery of the value of the bunkers it had supplied to the ZIYA S at Gibraltar and Suez. On March 29, 1992, acting under an arrest warrant, the United States Marshals Service arrested the ZIYA S while it was berthed at Pier 122, South Wharves, Philadelphia, Pennsylvania. [Id. ] At least one company, International Marine Fuels of San Francisco ("IMF"), provided bunkers subsequent to the ZIYA S's seizure. The status of its lien in the amount of $200,781.73 is the subject of a separate appeal disposed of by our opinion in Oil Shipping (Bunkering) B.V. v. Royal Bank of Scot. plc, No. 93-1342 (3d Cir. __________).

On April 2, 1992, Royal Bank intervened in Oil Shipping's action asserting claims under the Ship Mortgage Act against both Sonmez and Northwest, in personam, and against the ZIYA S, in rem, for the $3,500,000.00 plus interest, costs, and fees due it in damages arising out of Sonmez's ...


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