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Fuel Supplier is Denied Maritime Lien Against Vessel in Fallout from O.W. Bunker’s Bankruptcy

On February 8, 2016, in Valero Marketing & Supply Co. v. M/V ALMI SUN, the United States District Court for the Eastern District of Louisiana held that a bunker fuel supplier did not have a maritime lien against the vessel to which it supplied bunkers based on the relationship between the supplier, the intermediary contractor, and the vessel. Valero is one of the multitude of cases arising from unpaid bunker invoices due to the bankruptcy of O.W. Bunker USA and its foreign affiliates in the fall of 2014. Similar cases are pending across the country in which both fuel suppliers and various O.W. Bunker affiliates, through their alleged assignee, ING Bank, are seeking payments from vessels for previously-supplied fuel. Some of the vessel owners have preemptively filed interpleader actions in which they have deposited the value of the fuel into the registry of the court in an attempt to prevent double payment for the fuel. Others have had their vessels seized and are proceeding as defendants in a limited capacity on behalf of their vessel. Valero represents the latter scenario.

In Valero, the owner of the M/V ALMI SUN contracted with O.W. Bunker Malta to supply fuel to the vessel. O.W. Bunker Malta, through O.W. Bunker USA, contracted with Valero to supply the bunker fuel in Corpus Christi, Texas. Valero subsequently supplied 200 metric tons of marine bunker fuel to the vessel worth $124,388.24. O.W. Bunker never paid Valero for the fuel and the vessel never paid O.W. Bunker for the fuel. Valero sued the vessel in rem, and her owner made a limited appearance in the case to defend Valero’s lien claim.

The vessel owner filed a motion for summary judgment seeking dismissal of Valero’s claim based on the argument that Valero did not have a maritime lien against the vessel. In holding that Valero did not have a maritime lien against the M/V ALMI SUN, the court first reiterated that there are three requirements for the formation of a maritime lien for necessaries, which attaches as an operation of law and not by contract. The three requirements are: 1) the party provided necessaries, as defined by the Commercial Instruments and Maritime Liens Act (“CIMLA”) and related jurisprudence; 2) the necessaries were provided to a vessel; and 3) the claimant provided the necessaries on the order of the owner or a person authorized by the owner. The first two elements were clearly satisfied in this case and not in dispute. It was the third element that was at issue in Valero and that remains at issue in the other pending cases.

The court held that Valero did not provide necessaries on the order of the owner or a person authorized by the owner because the owner did not specifically direct O.W. Bunker to hire Valero, as is required for a maritime lien to attach in the United States Court of Appeals for the Fifth Circuit pursuant to Lake Charles Stevedores, Inc. v. M/V PROFESSOR VLADMIR POPOV, 199 F.3d 220 (5th Cir. 1999). The district court was similarly not persuaded by Valero’s argument that it had a maritime lien based on the shipowner’s ratification of the selection of Valero to provide the bunkers. Valero argued that the fact that the shipowner and master knew the bunker fuel would be supplied by a domestic company and were notified that it would be Valero, that the master was given instructions to coordinate with the supplier (Valero), and that the ship’s agent and Valero’s agent ultimately coordinated the supply of bunkers shows that the shipowner ratified the selection of Valero as the fuel supplier and ratified its maritime lien. The district court rejected Valero’s ratification argument, reasoning that the Fifth Circuit rejected the same argument based on similar facts in Lake Charles Stevedores because the shipowner had not selected the supplier.

Finally, the court rejected Valero’s argument that O.W. Bunker Malta could not have a maritime lien because it is a foreign company and CIMLA was enacted to protect American suppliers. The court agreed with Valero’s assessment of the purpose of CIMLA to generally protect American suppliers but stated that it could not overlook the third requirement of CIMLA, that the necessaries be provided on the order of the owner or a person authorized by the owner, simply because O.W. Bunker Malta is a foreign company and Valero is domestic. The court granted the shipowner’s motion for summary judgment and dismissed Valero’s claims with prejudice. The appellate period has not yet run on the court’s judgment, and it is anticipated that the fuel supplier will appeal to the Fifth Circuit.

The district court’s dismissal of the fuel supplier’s lien claim in Valero marks the first dismissal with prejudice by any court in the country of a physical supplier’s lien claim arising out of the O.W. Bunker fallout. Other courts have denied summary judgments filed by both vessel owner interests and fuel suppliers, but to date, no other court has held that a physical supplier did not establish a maritime lien in the myriad of O.W. Bunker litigation. This decision may lead to similar results in the other pending cases around the country. The significance of the decision is that it prevents the shipowners from being subject to potential double payment for the bunkers to its contractual counterparty and the physical supplier (like Valero). Additionally, it likely relegates the physical suppliers to pursue claims in the O.W. Bunker bankruptcy litigation instead of circumventing bankruptcy to directly pursue shipowners.
Source: Jones Walker LLP

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