American Samoa Establishes Maritime Precedent Disallowing the Inclusion of Attorney’s Fees as Custodia Legis Expenses
On August 17, 2016, WH Fisheries filed a complaint against Vasco Enterprises Inc. , the owner of the F/V Carol Linda, a 274-foot fishing vessel located in Pago Pago, American Samoa. The Complaint sought foreclosure of WH Fisheries' mortgage on the F/V Carol Linda, and the High Court of American Samoa issued a warrant for the arrest of the vessel on the same day. Thereafter, the United States of America, through local American Samoan counsel at RDA Law Firm, filed a Complaint-in-Intervention for foreclosure of the First Preferred Ship Mortgage on the vessel. There were numerous other creditors and claimants seeking recovery when the F/V Carol Linda was to be auctioned off in February 2016. Since marine surveys and reasonable estimates had placed the value of the F/V Carol Linda between $7 Million and $9 Million, there were reasonable expectations that the sale of the vessel would allow many, if not all, of the creditors, to share in the recovery. Unfortunately that is not what happened.
While WH Fisheries initiated the action and arrested the vessel claiming a total debt of over $1.8 Million, the United States intervened and was standing at the front of the line with its First Preferred Ship Mortgage for which over $2.4 Million was still owed.
To the surprise of many, there was only one bid placed at the public auction on the vessel: a sole $2.5 Million credit bid by the United States of America at the minimum bid amount set for the auction. The sale of the vessel, free and clear of all creditors and claims, was approved by the High Court on March 7, 2016. Unfortunately for WH Fisheries and the rest of the creditors, their claims against the vessel were essentially washed away by the auction sale of the vessel to the USA.
However, WH Fisheries filed a rare motion asking the High Court to classify over $300,000 expended for attorney's fees in San Diego and American Samoa as custodia legis fees to be immediately disbursed above other claims on the vessel. After negotiations prior to the hearing on the motion, WH Fisheries voluntarily reduced its claim for attorney's fees to $61,000. Nevertheless, the USA and its advocates at RDA Law Firm pushed back, arguing that none of WH Fisheries' attorney's fees warranted classification as custodia legis expenses.
Under maritime law, custodia legis expenses are recoverable from the proceeds of a judicial sale and have priority over all other claims. 46 U.S.C. § 31326. In order to qualify as custodia legis expenses, the services or goods for which payment or reimbursement is sought must have been necessary for the care and preservation of the vessel and for the common benefit of all parties who have a claim to the vessel. The USA and the High Court (in its Opinion) noted the scarcity of cases where Courts have seen fit to classify attorney's fees as custodia legis expenses.
However, with the Carol Linda, it was clear that WH Fisheries was the driving force behind the arrest of the vessel and the retention of both insurance and a substitute custodian to maintain the vessel while it was under arrest. By arguing it had taken legal action to preserve the vessel for WH and for other creditors as well, WH urged the High Court to consider a partial award of legal expenses as custodia legis expenses- but to no avail.
Richard deSaulles and Joshua Rovelli, local attorneys for the United States of America, effectively distinguished the scant caselaw supporting an award of attorneys' fees as custodia legis expenses and highlighted the notable absence of facts establishing that the attorneys' fees claimed were either necessary for the care and preservation of the vessel or beneficial to all parties with a claim to the vessel.
While WH's claim for other ordinary custodia legis expenses related to the preservation of the vessel (such as maintenance and fuel) was unopposed by the USA and granted by the High Court, the High Court soundly denied WH's effort to recoup attorney's fees as custodia legis expenses. In his Opinion, High Court Associate Justice Lyle L. Richmond stated:
"The holding in F/V Don Juan [31 A.S.R.2d 193, 194 (Trial Div. 1997)] and the still existing lack of precedence for the inclusion of attorneys' fees in custodia legis expenses convinces this Court that the $61,440.07 listed as attorneys' fees have not been established as properly included as custodia legis expenses in this action. This amount is therefore excluded." (WH Fisheries Inc., et al. v. Carol Linda, et al., AS High Court Case No.40-15; Order of August 29, 2016, page 7.)
According to RDA Law Firm's Managing Attorney, Richard deSaulles:
"Any time a client inquires about arresting a vessel, I am certain to explain all of the risks and significant expenses involved. I do my best to fully articulate the many expected costs of a vessel arrest and emphasize the reality that claims of secondary creditors, regardless of the magnitude, sometimes get 'washed away.' This makes vessel arrests by subordinate creditors or lienholders a very risky enterprise."
The WH Fisheries Inc. case has established that the lack of precedence for creditors recouping attorneys’ fees as custodia legis expenses demands that any party seeking to do so must prove that the attorneys' fees claimed were necessary for the care and preservation of the vessel and beneficial to all parties with a claim to the vessel.
Note from RDA Law Firm’s Managing Attorney
RDA Law Firm Managing Attorney Richard deSaulles specifically acknowledged the skilled arguments and analysis contained in the briefs drafted by Senior Associate Attorney Joshua Rovelli on behalf of the United States of America in the Carol Linda case.
According to Mr. deSaulles, "Josh has quickly established himself as a top litigator in American Samoa and I am proud to have him on our team at RDA Law Firm."
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