## Facts

- A bank financed vessel owners with a loan secured by first preferred ship mortgages on two vessels, including the M/V MARIA S.J.
- The loan agreements required the borrower to pay debts that could create maritime liens and to provide evidence that crew wages were being paid regularly.
- The vessel entered the Mississippi River with unpaid obligations and crew wage arrearages; liens exceeded the vessel’s value.
- The bank filed an admiralty action to foreclose its preferred mortgage against the vessel in rem and the owner in personam, and the vessel was arrested.
- Over 100 seamen pursued unpaid wages and later intervened in the foreclosure proceeding, asserting (1) earned but unpaid wages and (2) statutory “penalty wages” for delayed payment under 46 U.S.C. § 10313(g).
- The bank paid certain wage arrearages earned through the arrest date in exchange for an assignment of those wage liens.
- The vessel was sold at judicial auction for about $3.7 million via a credit bid by the bank; more than $15 million remained outstanding on the mortgage, leaving no residual equity for the owner or master after higher-priority costs and liens.

## Issues

1. Whether a seaman’s claim for 46 U.S.C. § 10313(g) “penalty wages” is enforceable in rem against the vessel or its judicial sale proceeds.
2. Whether, when sale proceeds are insufficient to satisfy a preferred mortgage (leaving no owner/master equity), penalty wages may nonetheless be paid from the sale fund despite § 10313(g)’s statement that the “master or owner shall pay.”

## Decision

- The Fifth Circuit affirmed an admiralty interlocutory decree determining lien enforceability and priorities.
- Seamen’s liens for earned wages were enforceable against the vessel and paid from sale proceeds with priority over the preferred mortgage.
- Although the court accepted that penalty wages may be characterized as a preferred maritime lien, the penalty wage liability created by § 10313(g) runs only against the master or owner.
- Because the foreclosure sale proceeds were insufficient to satisfy the preferred mortgage and thus left no residual interest for the master or owner, penalty wages could not be satisfied from the sale proceeds.

## Legal Principles

- Seamen have preferred maritime liens for earned wages that are enforceable in rem against the vessel and its sale proceeds and generally outrank a preferred ship mortgage.
- The penalty wage provision of 46 U.S.C. § 10313(g) imposes liability on the vessel’s “master or owner,” and that statutory allocation limits recovery from a foreclosure sale fund when the owner has no equity in the proceeds.
- In an admiralty foreclosure, when sale proceeds are entirely absorbed by custodia legis expenses and claims senior to or secured against the res (including a preferred mortgage), claims that are statutorily chargeable only to the master or owner are not payable from the sale fund absent an owner/master residual interest.

## Conclusion

The court held that seamen could recover earned unpaid wages from the vessel’s sale proceeds ahead of the mortgagee, but they could not recover § 10313(g) penalty wages from the foreclosure proceeds where the statute places liability solely on the master or owner and the sale generated no surplus for the owner.


Governor & Co. of Bank of Scot. v. M/V Maria S.J., 211 F.3d 261 (5th Cir. 2000)