## Facts

- Topgallant Lines, Inc. (Topgallant) owned and operated a vessel used in its shipping business and generated freight and hire from the vessel’s operations.
- Various admiralty claimants, including First American Bulk Carrier Corporation and other service providers (collectively, the maritime creditors), furnished services or supplies to the vessel and asserted maritime liens under federal maritime law.
- Separately, Topgallant entered a financing/factoring arrangement with Ambassador Factors (Ambassador).
- Under that arrangement, Topgallant granted Ambassador a security interest (and assignment rights) in Topgallant’s accounts receivable, inventory, equipment, and other personal property.
- Ambassador perfected its state-law security interests by recording/filing financing statements in Georgia and New Jersey.
- Topgallant later filed a Chapter 11 bankruptcy petition in the U.S. Bankruptcy Court for the Southern District of Georgia.
- In the bankruptcy case, the maritime creditors moved for summary judgment, arguing their maritime liens had priority over Ambassador’s perfected security interests to the extent Ambassador claimed vessel-generated freight and hire as “accounts receivable” or proceeds.
- The bankruptcy court granted summary judgment for the maritime creditors, and Ambassador appealed to the U.S. District Court for the Southern District of Georgia.

## Issues

1. Do maritime liens held by vessel service providers have priority over a factor’s perfected Article 9 security interest/assignment in the shipowner’s accounts receivable when the accounts represent freight and hire earned by the vessel?
2. Is the debtor’s assignment/security interest in favor of the factor valid, and if valid, what rank does it take against earlier-arising maritime liens on vessel earnings?
3. Was summary judgment proper where the dispute turned on the legal ranking of maritime liens versus a perfected state-law security interest?

## Decision

- The district court affirmed the bankruptcy court’s grant of summary judgment for the maritime creditors.
- The court held the maritime creditors’ liens had superior rank over Ambassador’s perfected security interests to the extent the contested receivables were freight and hire (earnings) of the vessel subject to maritime lien rights.
- The court accepted that Ambassador’s security interest/assignment could be valid under state commercial law, but held it was junior to the maritime liens as to vessel-related earnings.
- Because the material facts were not genuinely disputed and the outcome depended on legal priority rules, summary judgment was appropriate.

## Legal Principles

- Maritime liens arise by operation of federal maritime law when qualifying services or supplies are furnished to a vessel; they are not dependent on state-law filing systems.
- A maritime lien attaches to the vessel and may reach the vessel’s earnings, such as freight and hire, when those earnings are treated as part of the lien’s security.
- When a state-law Article 9 security interest conflicts with federal maritime lien priority rules over vessel-related earnings, federal maritime law controls the ranking.
- A perfected UCC security interest in a debtor’s accounts receivable can be enforceable under state law while still being subordinate, as a matter of federal maritime priority, to earlier maritime liens in freight and hire.
- In bankruptcy, lien validity and rank are generally determined by nonbankruptcy law; bankruptcy does not reorder federal maritime lien priorities.
- Summary judgment is proper when the relevant liens, security interests, and perfection steps are established and only legal priority remains for decision.

## Conclusion

In In re Topgallant Lines, Inc., the district court upheld summary judgment for maritime lienholders, ruling that maritime liens on a vessel and its freight/hire have priority over a factoring company’s perfected UCC security interest and assignment in the shipowner’s accounts receivable to the extent those receivables represent vessel earnings, leaving the factor to recover only after satisfaction of the maritime liens.


In re Topgallant Lines, Inc., 154 B.R. 368 (1993)