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State Bank and Trust Co. v. Lil Al M/V

United States District Court, E.D. Louisiana

June 12, 2018

STATE BANK AND TRUST CO.
v.
LIL AL M/V ET AL.

         SECTION: “H” (2)

          ORDER AND REASONS

          JANE TRICHE MILAZZO UNITED STATES DISTRICT JUDGE

         Before the Court is Defendants' Motion to Stay Pending Appeal (Doc. 112). For the following reasons, the Motion is GRANTED.

         BACKGROUND

         Plaintiff State Bank & Trust Company (“State Bank”) is a financial institution that loaned money to Defendant C & G Liftboats, LLC (“C&G”). On July 16, 2014, C&G executed a promissory note in the sum of $8, 055, 000.00 payable to State Bank (the “Hand Note”). The Hand Note was secured by the pledge of a first preferred ship mortgage note dated May 7, 2014 in the sum of $8, 500, 000.00. The preferred ship mortgage note was secured by a first preferred mortgage on the vessel M/V Lil Al. The Hand Note was further secured by the pledge of preferred ship mortgage notes in the form of collateral chattel mortgages by A.M.C. Liftboats, Inc. (“AMC”) on the M/V Mr. Alan and the M/V L/B Whitney. AMC also granted a commercial guaranty to State Bank to guarantee the Hand Note. Finally, Polly and Adam Cheramie, the owners of C&G and AMC, granted personal guarantees on the Hand Note.

         Plaintiff alleges that on December 15, 2015, C&G defaulted on the Hand Note, and Plaintiff made demand on Defendants C&G, AMC, and the Cheramies. The failure of any Defendant to satisfy their obligation to State Bank resulted in the filing of the instant action.

         Plaintiff moved for summary judgment recognizing its preferred ship mortgages on the M/V Lil Al, the M/V Mr. Alan, and the M/V L/B Whitney pursuant to the Ship Mortgage Act. This Court recognized Plaintiff's preferred ship mortgage on the M/V Lil Al, and Defendants have appealed that ruling. The Court also held that the ne varietur notes securing the mortgages on the M/V Mr. Alan and the M/V L/B Whitney were facially prescribed at the time they were pledged to secure C&G's indebtedness unless prescription was interrupted.

         Now pending before this Court are five motions. First, the parties have filed cross-motions for summary judgment on the issue of prescription as to the M/V Mr. Alan and M/V Lil Al. Therein, Defendants concede that Plaintiff has set forth sufficient evidence to show that prescription was interrupted as to the M/V Mr. Alan. Plaintiff has also moved for summary judgment on its in personam claims. In addition, Plaintiff move for an order authorizing the interlocutory sale of all three vessels and allowing it to credit bid at the sale of the vessels.

         In the instant motion, Defendants move for a stay of this matter and decisions on the aforementioned motions pending their appeal of this Court's ruling as to the M/V Lil Al. Defendants oppose a stay.

         LAW AND ANALYSIS

         Defendants ask this Court to stay this matter pending the interlocutory appeal of the finding that Plaintiff is entitled to a judgment recognizing its ship mortgage on the M/V Lil Al. In considering a stay pending appeal, a court should consider four factors: “(1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies.”[1] This Court will consider these factors in turn.

         As to the first factor, the Court notes that the issue on appeal before the Fifth Circuit is one of first impression. Defendants have appealed this Court's decision regarding whether a collateral chattel mortgage can constitute a preferred ship mortgage under the Ship Mortgage Act. When a serious legal question is involved, “the movant need only present a substantial case on the merits . . . and show that the balance of the equities weighs heavily in favor of granting the stay.”[2] Although this Court feels confident that its holding was correct, there is certainly room for argument otherwise, and Defendants have submitted a substantial case thereto. In addition, the resolution of this issue will have implications far beyond this matter. Accordingly, this factor weighs in favor of a stay.

         In addition, the second factor also weighs heavily in favor of a stay. Defendants have shown that they may be irreparably harmed if this matter is not stayed pending appeal. As noted above, also pending before this Court is Plaintiff's Motion for Interlocutory Sale of the vessels at issue.[3] In that Motion, Plaintiff seeks an order authorizing the U.S. Marshal to conduct an interlocutory sale of all of the vessels at issue and authorizing Plaintiff to credit bid on the vessels in the amount that it alleges it is owed by Defendants. Defendants correctly argue that granting this motion may result in the dismissal of their appeal.

         Although it is well settled that the court of appeals does not lose jurisdiction over an in rem action when the court loses control over the res, the Fifth Circuit has recognized an exception to this doctrine in the “useless judgment rule.”[4] The Fifth Circuit has dismissed appeals where “the absence of the res would render the judgment useless.”[5] A judgment is considered “useless” if “the thing could neither be delivered to the libellants, nor restored to the claimants.”[6] The useless judgment rule does not apply where there is a substitute res.[7] When a vessel is sold on credit bid, no money changes hands and there is therefore no substitute res.[8] Moreover, when a vessel is sold at marshal's sale, all liens against the ship are discharged and the purchaser receives title to the vessel free and clear of liens.[9] Accordingly, if Plaintiff is allowed to sell the vessels on credit bid, a judgment from the appellate court would have no effect and would be effectively unenforceable because there would be nothing in Plaintiff's possession that could be regarded as the res.[10]In the event of a reversal by the Fifth Circuit, Defendants could not recover the res or proceeds ...


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