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Green River Marina, LLC v. Meredith

United States District Court, W.D. Kentucky, Bowling Green Division

March 22, 2017



          Greg N. Stivers, Judge.

         This matter comes before the Court on Plaintiff Green River Marina, LLC's Motion for Confirmation of Sale and Disbursement of Funds (DN 44), Defendant Bank of America, N.A.'s Objections (DN 45), Plaintiff's Updated Report of Costs (DN 50), and Defendant's Objections to the Updated Report of Costs (DN 51). For the reasons outlined below, the motion is GRANTED, and the objections are OVERRULED.

         I. BACKGROUND

         Plaintiff Green River Marina, LLC (“GRM”) filed this action in Taylor Circuit Court against Defendants Don Meredith (“Meredith”) and Bank of America, N.A. (“BANA”) seeking to enforce its rights in a lien on the vessel Copacetic, Hull No. MWC60352L586 (“the Vessel”). (Notice of Removal Ex. A, DN 1-1 [hereinafter Compl.]). BANA subsequently removed the case to this Court. (Notice of Removal, DN 1). On May 26, 2016, this Court granted a default judgment against Meredith and awarded a first lien on the Vessel to BANA and a second lien to GRM. (Default J. & Order of Sale 2, DN 35). In the Order, the Court ordered the public sale of the Vessel and directed the Marshal to deliver the proceeds of the sale, “after first deducting Marshal's expenses, court costs and attorney's fees, first to Defendant Bank of America, N.A., and secondly to the Plaintiff, Green River Marina.” (Default J. & Order of Sale 4-5). Thereafter, the Clerk of the Court issued a warrant of arrest in rem on the Vessel to the Marshal of the Western District of Kentucky. (Warrant of Arrest In Rem, DN 38). The Court appointed GRM as substitute custodian of the Vessel to be compensated at a rate of $25.00 per day. (Order Appointing Substitute Custodian, DN 42).

         The public sale of the Vessel was held on September 23, 2016, at the William H. Natcher Federal Building in Bowling Green, with prior published notice. (Marshal's Report of Sale 1, DN 47). The only and highest bidder was GRM, and the Vessel was thereby sold to GRM for $10, 000. (Marshal's Report of Sale 1). GRM subsequently filed a motion for disbursement of funds seeking confirmation of the sale, an authorization of payment of costs and fees, direction of the bill of sale and distribution of proceeds. (Pl.'s Mot. Disbursement Funds, DN 44, [hereinafter Pl.'s Mot.]). BANA filed its objections thereto. (Def.'s Obj. Pl.'s Mot.

         Disbursement Funds, DN 45 [hereinafter Def.'s Obj.]).


         A. BANA's lien is extinguished upon sale of the Vessel

         BANA argues that its preferred mortgage lien in the Vessel is not extinguished by the sale because this Court previously ruled that BANA holds “a preferred mortgage in Copacetic that is superior to any lien or claim that [GRM] may have on the proceeds from the sale of the watercraft.”[1] (Order 4, DN 19). This Court's ruling that BANA had priority in the proceeds of the Vessel does not equate with the notion that BANA's lien remains on the Vessel after the sale is completed.

         BANA's contention is answered by 46 U.S.C. § 31326(a), which provides:

When a vessel is sold by order of a district court in a civil action in rem brought to enforce a preferred mortgage lien or a maritime lien, any claim in the vessel existing on the date of sale is terminated, including a possessory common law lien of which a person is deprived under section 31325(e)(2) of this title, and the vessel is sold free of all those claims.

46 U.S.C. § 31326(a) (emphasis added); see also United States v. The Zarco, 187 F.Supp. 371, 374 (S.D. Cal. 1960) (“It is hornbook law that a sale of a vessel in rem passes title thereto free of all liens.”); Avondale Shipyards v. Tank Barge ETS 2303, No. CIV.A. 82-1347, 1987 WL 4858, at *6 (E.D. La. May 27, 1987) (“In addition, there is little question but that the judicial sale of a vessel automatically discharges all prior liens against that vessel.” (citations omitted)). GRM brought this action to enforce its “contractual and statutory lien on the vessel.” (Compl. ¶ 10; Warrant Arrest In Rem). The sale of the Vessel occurred on September 23, 2016, pursuant to this Court's Order of Sale. (Mot. Confirmation Sale, DN 44; Order Sale, DN 35). Thus, in accordance with 46 U.S.C. § 31326, BANA's preferred mortgage lien in the Vessel was terminated on September 23, 2016, and attached to the proceeds of the sale. See 46 U.S.C. § 31326(b) (“Each of the claims terminated under subsection (a) of this section attaches, in the same amount and in accordance with their priorities to the proceeds of the sale . . . .”).

         B. Costs of Sale and Custodial Fees

         GRM does not dispute that BANA has priority in the proceeds of the sale, but contends that it is entitled to a total of $3, 653.52 from the distribution of the proceeds because of this Court's Order. (Default J. & Order Sale 4-5). Specifically, GRM claims $1, 853.52 in expenses associated with the sale of the Vessel which were advanced to the Marshal (i.e., insurance, advertising, and auction costs) and custodial fees at a rate of $25 per day starting August 2, 2016, and ending October 13, 2016 (the date GRM filed its motion for disbursement of funds) for an additional $1, 800. (Pl.'s Mot. ¶ 5; Updated Report Costs, Ex. B, DN 50-2). Section 31326 provides that “the preferred mortgage lien . . . has priority over all claims ...

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