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Itel Containers International Corp. v. Atlanttrafik Express Service Ltd.

Court of Appeals for the Second Circuit
982 F.2d 765 (1992)
ELI5:

Rule of Law:

For a maritime lien for "necessaries" to arise under the Maritime Lien Act, the supplier must furnish them directly to a specific vessel or earmark them for a particular vessel. Furnishing supplies in bulk to a fleet owner for the owner's discretionary allocation among its vessels does not satisfy the statutory requirement of furnishing necessaries "to any vessel."


Facts:

  • Atlanttrafik Express Service Ltd. (AES) operated a container shipping line, chartering several vessels including the M/V Tavara and others.
  • To conduct its operations, AES leased shipping containers in bulk from several lessors, including Itel Containers International Corporation and Textainer, Inc.
  • The container leases were made without designating or earmarking the containers for use on any particular ship.
  • AES leased up to three times more containers than it could carry on its ships at any given time.
  • AES had sole discretion to decide which specific containers would be placed on which of its chartered vessels for transport.
  • In early 1986, AES ceased operations and defaulted on its container lease agreements.

Procedural Posture:

  • Itel and other container lessors (plaintiffs) filed a complaint in the U.S. District Court for the Southern District of New York, asserting in rem claims against several vessels for maritime liens.
  • After a bench trial, the district court found for the defendants and dismissed the plaintiffs' complaints.
  • The plaintiffs appealed to the U.S. Court of Appeals for the Second Circuit.
  • The Second Circuit affirmed the dismissal of other claims but remanded the maritime lien claims to the district court for specific findings of fact and conclusions of law.
  • On remand, the district court sustained the maritime lien claims of the plaintiffs.
  • The vessel owners (intervenors-defendants) appealed the district court's judgment on remand to the U.S. Court of Appeals for the Second Circuit.

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Issue:

Does leasing shipping containers in bulk to a fleet operator, without designating the containers for use on any particular ship, constitute "furnishing" necessaries "to any vessel" sufficient to give rise to a maritime lien against the individual ships under the Maritime Lien Act?


Opinions:

Majority - Van Graafeiland, Circuit Judge

No. Leasing containers in bulk to a fleet operator without designating them for specific vessels does not constitute "furnishing" necessaries "to any vessel" as required to create a maritime lien. The court reasoned that its precedent, Bankers Trust Co., which interpreted the Supreme Court's decision in Piedmont, controls. That precedent establishes that supplies are furnished to the owner, not the vessel, when the supplier authorizes the owner to distribute the supplies among the fleet as the owner sees fit. The statutory language "furnishing ... to any vessel" requires that the supplier, not just the owner, has a role in selecting the vessel that receives the necessaries. Because maritime liens are secret liens that are disfavored by law (stricti juris), they will not be extended by construction or inference. The concept of a lien attaching to a specific vessel (an in rem hypothecation) cannot function if there is no identifiable vessel to which the lien can attach when the debt arises.



Analysis:

This decision solidifies the "earmarking" or "direct delivery" requirement for maritime liens in the Second Circuit, reinforcing the principle that such liens are to be narrowly construed. It creates a significant hurdle for suppliers, such as container lessors, who deal with fleet operators in bulk, compelling them to alter business practices to specifically track and designate supplies for particular vessels if they wish to secure a lien. By aligning with the Ninth Circuit's holding in Foss Launch, the court promotes a more uniform federal appellate view on this issue, providing greater predictability for the maritime supply industry.

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