Thorsteinsson v. M/V Drangur
891 F.2d 1547, 15 Fed. R. Serv. 3d 1033, 1990 WL 40 (1990)
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Rule of Law:
For a U.S. court to recognize a foreign judicial sale of a vessel as validly extinguishing pre-existing maritime liens, the foreign court must have obtained in rem jurisdiction through the actual physical seizure of the vessel. Seizure of the res provides the constructive notice required by due process to bind all potential lienholders worldwide.
Facts:
- Thorsteinsson, a dual U.S./Icelandic citizen, and Havardsson, an Icelandic citizen, worked as seamen on the M/V Drangur, a vessel of Icelandic registry.
- The seamen's employer, Vikur Shipping, allegedly failed to pay them wages and cover other costs, including personal expenditures on the vessel's behalf, repatriation, and medical treatment.
- In late 1987, while the seamen's claims were outstanding, various Icelandic creditors initiated proceedings against the Drangur in an Icelandic court.
- The Icelandic court provided notice of the action by publication in an Icelandic legal gazette but did not physically arrest or seize the vessel, as Icelandic law allowed jurisdiction based on the vessel's registration in the district.
- On November 27, 1987, the Drangur was sold at a judicial auction in Iceland to Utvegs-banki Islands HF ('the Bank'), which was a mortgage holder on the vessel.
- The Icelandic court issued a bill of sale to the Bank on December 18, 1987.
- Thorsteinsson and Havardsson were not parties to the Icelandic action and did not file their claims in that proceeding.
Procedural Posture:
- Thorsteinsson and Havardsson (plaintiffs) filed suit in U.S. District Court asserting in rem maritime liens against the M/V Drangur and in personam claims against Vikur Shipping.
- The district court issued a warrant of arrest, and the M/V Drangur was seized in the U.S. on February 26, 1988.
- The Bank, the new owner, filed a 'Claim of Owner' and posted a bond to secure the vessel's release.
- The Bank moved for summary judgment, arguing as an affirmative defense that its purchase of the vessel at an Icelandic judicial sale extinguished the plaintiffs' liens.
- The plaintiffs filed a cross-motion for summary judgment.
- The district court granted summary judgment in favor of the Bank (defendant-appellee), holding that the Icelandic sale was valid and extinguished all prior liens.
- Thorsteinsson and Havardsson (plaintiffs-appellants) appealed the summary judgment order to the U.S. Court of Appeals for the Eleventh Circuit.
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Issue:
Does a foreign judicial sale of a vessel, conducted by a court with jurisdiction but without an actual in rem arrest (physical seizure) of the vessel, extinguish pre-existing maritime liens such that the sale must be recognized by a U.S. court?
Opinions:
Majority - Fay, Circuit Judge
No. A foreign judicial sale of a vessel conducted without its actual physical seizure does not extinguish prior maritime liens in a manner that is enforceable in a U.S. court. The cornerstone of a valid in rem proceeding in admiralty is the court's jurisdiction over the res (the vessel), which is established by actual seizure. This seizure serves as the constitutionally required constructive notice to all potential claimants worldwide, consistent with due process. While foreign law may permit jurisdiction based on a vessel's registration papers, U.S. courts will not recognize such a sale as extinguishing the high-priority liens of seamen without the fundamental notice provided by seizure. The district court also erred in placing the burden on the plaintiffs to nullify the foreign sale; the burden rests on the Bank to prove its affirmative defense that the sale validly extinguished the liens.
Analysis:
This decision reaffirms the paramount importance of physical seizure in American admiralty law for in rem proceedings that affect the rights of third parties. It clarifies that a foreign judgment's power to extinguish maritime liens is contingent on meeting U.S. constitutional due process standards, for which seizure is the primary form of notice. The ruling protects the 'sacred' liens of seamen and suppliers from being eliminated by foreign proceedings that lack this fundamental procedural safeguard. The court leaves open the narrow possibility that actual notice to a lienholder might substitute for seizure, setting the stage for future litigation on what constitutes sufficient notice in this context.
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