OTIs and Ocean Carriers in the U.S.:
Impact of Importers Filing for
Bankruptcy
Presentation by
Benjamin F. Mann &
Carlos Rodriguez
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With You Today
Carlos Rodriguez
carlos.rodriguez@huschblackwell.com
202.378.2365
Benjamin F. Mann
benjamin.mann@huschblacwell.com
816.983.8126
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Lenders’ Lien in Goods
 Only one source
̶ Consensual lien granted in security agreement
̶ Governed by UCC Article 9
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Marine Carriers (including NVOCCs)
 Multiple sources
̶ Common law maritime lien
̶ Statutory Carrier’s lien
̶ Consensual lien
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Common Law Maritime Lien



Arises from English common law
Now part of federal admiralty common law
“Maritime” describes variety liens
̶
Lien on ship for repairs, food, provisions, injuries
̶ Lien on funds generated by use of ship – “freights”
̶ Lien on goods by Carrier
̶ Can be asserted by NVOCC as well as physical transporter.
See Logistics Management, Inc. v. One Pyramid Test Arena, 86 F.3d 908, 914 (9th Cir. 1996)

Scope of maritime Carrier’s lien
̶
On goods in possession of Carrier for costs to ship those goods only
̶ Arises automatically by operation of law
̶ Terminates upon surrender of possession
See The Bird of Paradise, 72 U.S. 545, 555 (1866)
But, parties can agree to extend lien to survive surrender of possession into warehouse, dock or
other third-party. See Arochem Corp. v. Wilomi, Inc., 962 F2d 496, 500 (5th Cir. 1992).
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Statutory Carrier’s Lien
 Source: UCC 7-307
 Applicability: Any Carrier who issues bills of lading so applies to
land, air and sea Carriers
 Scope:
̶ on goods in possession of Carrier for costs to ship those goods only
̶ arises automatically by operation of law
̶ terminates upon surrender of possession
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Consensual Lien
Must be in writing agreed to by the customer

Sufficient
credit application signed by the customer
See In re Colortran, Inc., 218 B.R. 507, 509 (9th Cir. BAP, 1997)

Not sufficient
invoice issued by Carrier but not signed by the customer
See In re CFLC, Inc., 209 B.R. 508, 515-16 (9th Cir. BAP, 1997)

Maybe sufficient
bills of lading issued pursuant to tariff agreed to by the customer
See Capital Transportation, Inc. v. United States, 612 F.2d 1312, 1325 (1st
Cir. 1979)

Governing law
consensual lien is not governed by maritime law but by state UCC law
See In re Colortran, Inc., 218 B.R. 507 (5th Cir. BAP, 1997); Maersk-Sealand
v. Eurocargo Express LLC, 2004 WL 1950372 (C. D. Calif. 2004); Paul
Harris Stores, Inc. v. Expeditors Int’l of Washington, Inc., 342 B.R. 290
(Bankr. S.D. Ind. 2006)
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Perfection of Consensual Lien
 Filing UCC-1 – lien can extend to all goods of customer
 Possession – lien can only extend to goods in
possession of Carrier
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Priority of Competing Liens
 Maritime lien primes Lender’s security interest as to:
̶ Goods in Carrier’s possession for costs to ship those goods only
UCC 9-333 provides that Article 9 security interests are subordinate
to statutory liens which arise by operation of law based on
possession of the goods and “secure payment on performance of
an obligation for services or materials furnished with respect to the
goods by a person in the ordinary course of business.” (emphasis
added).
Similarly, statutory Carrier’s lien primes Lender’s security interest
pursuant to UCC 9-333.
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Priority of Competing Liens (cont’d.)
 Carrier’s consensual lien can be written to grant Carrier’s lien in all
goods of customer for any and all shipping charges not paid but method
of perfection may affect priority
 Perfection by possession by Carrier occurs when Carrier takes
possession whereas perfection by Lender occurs when the UCC-1 is
filed and Debtor obtains rights in collateral
 UCC 9-322 govern priority of conflicting liens in the same collateral
̶
̶
̶
̶
Priority goes to party who was first to file or perfect
Competing liens may arise at same time but Lender’s lien is filed before
Carrier’s lien is perfected by possession
If Lender and Carrier both file UCC-1’s, then party who files first has priority
Whether Lender is Lender to consignor or consignee may impact priority of
carrier’s lien.
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Priority of Competing Liens (cont’d.)
Effort to create consensual Carrier’s lien that is entitled to priority of Carrier’s maritime lien has
been rejected by the only two courts to address issue
In re World Imports Ltd., Inc., 2013 WL 4200810 (Bkcy. E. D. Pa. 2013)
In re Guildmaster, Inc., (unreported) Case No. 13-06008 (Bkcy. W. D. Mo. 2013)

Possibility exists if language in credit application expressly states that general lien on
goods in possession of Carrier for all charges for current and past shipments is governed
by federal maritime common law
̶
̶
Maritime lien can be expanded by agreement to cover prior shipments
See Eagle Maritime Transport Co. v. A Cargo of Hardwood Chips, 1998 WL 382141 (E. D. La.
1998)
Cases involving non-Carrier maritime liens hold that maritime lien trumps UCC Article 9 lien
See Walsh v. Placedo Shipping Corp., 789 F.2d 1406 (9th Cir. 1986); Cornish Shipping Ltd. v.
Int’l Nederlanden Bank, 53 F.3d 499 (2nd Cir. 1995); In re Muma Services, 322 B.R. 541
(Bankr. D. Del. 2005)
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Bankruptcy of Importer/Exporter
Carrier holding goods when customer files for bankruptcy should NOT surrender goods
̶
If does so, possessory lien is lost
̶
Instead file motion with court to require Debtor to satisfy possessory lien (i.e., pay the bill) or
provide substitute lien on assets in possession of Debtor (i.e., lien continues per court order
in surrendered assets and other assets of Debtor)
Carrier who has been paid in past 90 days on prior shipments may be subject to recovery of
payments as preference under § 547 of Bankruptcy Code
̶
Ordinary course of business defense and subsequent new value defense may apply
Carrier acting as customs broker or freight forwarder may also have preference exposure
̶
If payments made to broker/forwarder are then paid to Government (for customs) or Carrier
(freight bill), “mere conduit” defense may be asserted, but not if importer is reimbursing for
payments already made
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Claims Priority for Custom Duties
Good News – custom duties share same claims priority as
federal taxes under § 507 of the Bankruptcy Code
Bad News – broker who pays customer duties for customer
and seeks reimbursement from customer is expressly not
subrogated to the claims priority
See § 507(d); In re Chalk Line Mfg., Inc., 181 B.R. 605
(Bkcy. N. D. Ala. 1995)
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Next Steps:
 Check your credit application provisions to insure you
have language that creates a valid consensual lien.
 Review your customers and determine whether, when
and where to perfect your consensual lien with a UCC-1
filing.
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THANK YOU
Benjamin F. Mann
benjamin.mann@huschblackwell.com
816.983.8126
Carlos Rodriguez
carlos.rodriguez@huschblackwell.com
202.378.2365
© 2014 Husch Blackwell LLP. All rights reserved.
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Questions?
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© 2014 Husch Blackwell LLP. All rights reserved.