Attorney's Services are not "Necessary" …

Thursday, October 10, 2002
In March of 1998, the owners of M/V Golden Prince were locked in a wage dispute with current and former crewmembers. The vessel owners hired a law firm from New Orleans, La., to help resolve this wage dispute. The crew sought wages and penalties from the ship owner due to an alleged breach of contract governing their pay. Ultimately, the crewmembers seized M/V Golden Prince to enforce their claims. The law firm rendered over $136,000.00 in legal fees to settle the wage claims and negotiate the release of the seized vessel. These legal fees were never paid by the ship owner.

Subsequently, in January of 1999, creditors of M/V Golden Prince seized the vessel. The vessel was then sold at a public auction for $3.51 million. The Royal Bank of Scotland held a $60 million ship mortgage on M/V Golden Prince. The law firm sought to recover its legal fees by obtaining part of the proceeds of the sale of M/V Golden Prince. However, the only way the law firm could do so was by legally establishing a preferred maritime lien to outrank the Royal Bank of Scotland's ship mortgage. Otherwise, the law firm would receive none of the sale proceeds and its $135,000.00 in legal fees would go unpaid. This issue will only arise if a vessel has to be seized and sold to satisfy its debts. The ship owners are not affected directly as this issue largely concerns which creditors get paid and in what order.

Many maritime contracts involve a vessel owner contracting with a vendor for services to be furnished to the vessel. Under the federal maritime law, for a vendor to have a preferred maritime lien to secure payment for these services furnished to the vessel, the vendor must establish the following: that the services were "necessary"; that the services were actually furnished to the ship; and that the vendor relied solely on the ship's credit for payment of the fees. The advantage of attaining preferred maritime lien status for maritime vendors is that the lien for the services will outrank other creditors in the event that the vessel is ultimately seized and sold to satisfy its debts.

Determining whether the vendor's services enjoy preferred maritime lien status often comes down to the legal definition of "necessary." The U.S. Fifth Circuit Court of Appeals has jurisdiction over Louisiana, Texas, Mississippi, and the Canal Zone. The Fifth Circuit has adopted a broad definition of "necessary" to include most goods or services that are useful to the vessel, keep her out of danger, and enable her to perform her particular function. Services or goods which are "necessary" are the things that a prudent owner would provide to enable a ship to perform well the functions for which she has been engaged. Examples include: money, labor, personal services and materials.

Despite this apparently liberal definition of "necessary" adopted by the Fifth Circuit, personal services and the skills of an attorney hired by a vessel owner are not considered necessary. In the case of M/V Golden Prince for example, the court held that legal services rendered in connection with a dispute concerning a vessel do not qualify as "necessary" for purposes of lien status, because the services primarily benefited the vessel owner and not the vessel itself. Additionally, the law firm relied on the owners of M/V Golden Prince for payment and did not rely solely on the credit of the vessel. Although this issue had never been considered by the Fifth Circuit, the law firm in the M/V Golden Prince matter cited an earlier case that allowed for a maritime lien to vendors providing intangible services, as opposed to supplies or facilities. Nevertheless, the intangible services of an attorney must still be considered a "necessary" by the court. The legal services provided in the M/V Golden Prince case released the vessel from seizure and helped negotiate and settle a wage dispute. It is arguable that the legal services that released M/V Golden Prince and prevented re-arrest enabled her to perform her function and were useful to her. In denying preferred maritime lien status to the law firm, the court reasoned that the legal services were provided to protect the vessel owners from alleged misconduct claims in connection with a wage dispute with current and former crewmembers. The court stated that these expenses were beyond the scope of what was necessary for M/V Golden Prince's "normal operations."

Is it conceivable that there is a situation where legal services provided for a vessel or even to the owner would fall within the vessel's "normal operations"? Arguably, the court's reasoning that the legal services provided in the case of M/V Golden Prince benefited the owners of the vessel as opposed to the vessel itself. It was, after all, a wage dispute. However, unless the dispute concerning the crews' wages was resolved, the vessel would have likely been "unable to perform its function."

Unfortunately, the same law firm involved in the M/V Golden Prince case did not fare much better in the case of M/V Agni. In that case, the legal services provided were to obtain the release of the vessel from seizure and to later prevent the vessel from being re-arrested once the initial seizure was lifted. The court held that the law firm's services rendered in connection with the collection of a debt for necessaries are not for the benefit of the vessel, and thus they are not necessaries subject to a maritime lien. The court stated that even under a broad interpretation of "necessary", the law firm is not entitled to preferred maritime lien status because again, the legal services only incidentally benefited the vessel and were furnished primarily for the benefit of the vessel owner. Even if it is possible to conceive of a situation where legal services are necessary and benefit the vessel itself and not just the owner, have the courts effectively cut off any chance of law firms arguing in those situations that their services were necessary for the function of the vessel itself? The biggest problem so far for law firms has been that the courts are consistently characterizing the work being performed by attorneys as primarily for the benefit of the vessel owner, and not as services that directly aid the vessel in the completion of its mission. The courts have ignored the reality that the legal services for disputes involving the vessel are inextricably tied to the vessel's ability to perform, especially when the vessel is subject to being seized. The legal services for matters involving a vessel will always benefit its owner.

Is there any real justification for courts to treat attorneys differently from other suppliers of necessaries? One court allowed a maritime lien to the vessel's master for his airfare as he attempted to obtain funds from the owners to pay the crew and prevent the vessel's arrest. In another case, preferred maritime lien status was given to a foreign corporation that purchased airline tickets for crewmembers. The court held that the foreign corporation provided a necessary service to keep the ship going because the airline tickets were supplies "necessary to keep the ship going." The case of M/V Golden Prince, although the first to consider this issue, will certainly not be the last to address whether legal services can ever be considered necessaries for purposes of attaining a preferred maritime lien. Authors: James Nader is a partner and C. Devin Faodol is an associate with the law firm of Lobman, Carnahan, Batt, Angelle & Nader in New Orleans, Louisiana. Mr. Nader's trial practice over the last eighteen years has included Admiralty and Maritime Law, an area in which he is an adjunct professor at Tulane University. For more information on the firm, please see its website at www.lcba-law.com, or contact them at 400 Poydras St., Suite 2300, New Orleans, LA 70130, phone (504) 586-9292. This article is for general information and educational purposes only, and should not be construed as legal advice. The authors are available to discuss any specific questions or concerns regarding any issues related to this article with you.

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