Ask A Maritime Attorney: Does Maritime law allow a boat to be “arrested” after already being sold and no money is owed?

Question:

            I was in a very small accident in the waters adjacent to my marina in early 2021.  The other boat alleged that my boat had nicked his swim step. My insurance company paid him for the repair, and I thought the matter had concluded.  I was wrong.  A year later the owner of the boat hired a law firm to allege that he was injured, and he threatened to sue me. There has been no movement on the lawsuit, and I sold the boat earlier this year.  I am reaching out to you now because I received a letter from the law firm last week, advising that the owner of the other boat somehow managed to get a lien on my old boat.  I have no interest in the boat at all, and even if I did there is no judgement against me. Does Maritime law allow a boat to be “arrested” when I no longer own the boat and when there is no money owed?

Answer

Our reader has a few different issues on the table.  Let’s start with the most basic: She should immediately forward the attorney’s letter to her insurance agent or broker.  The policy that covered the property damage claim will also cover the injury claim. The fact that the injury claim may be frivolous doesn’t matter.  Even if it is frivolous, it will cost her thousands of dollars to prove her position to a judge, and she won’t be able to recover those costs associated with that defense.  I cannot say this strongly enough to anyone in this position – – – Work with your insurance company. This is why you have liability coverage with your boat policy.

The “lien” is a separate issue altogether, but before we get into this, we need to distinguish between a “lien” and a “Notice of Claim of Lien.” A lien is a financial security device that provides collateral to secure payment of an obligation.  Different types of liens may arise from different types of claims, and they may have different requirements for enforcement. A maritime lien, for example, may be enforced by filing a lawsuit in Federal Court without recording anything with the Coast Guard.  Conversely, as the name of the document suggests, a “Notice of Claim of Lien” (a “NCL”) is just that – a NOTICE that somebody has a claim. Basically, they claim to have a lien, but it cannot be conclusively determined until it is litigated.  The instrument that is recorded with the Coast Guard is a “Notice of Claim of Lien,” not a “lien.”

Under most circumstances, the filing and recording of a NCL with the Coast Guard has absolutely no legal effect. In our reader’s case, they did not “somehow manage to get a lien” as she suggests in her inquiry.  The owner of the other boat (or their attorney) simply filled out some paperwork and sent it to the Coast Guard for recording.  The Coast Guard takes no position as to whether a recorded NCL is filed in support of a valid lien. They accept everything for recording as long as it includes a statement from the claimant that it is being filed in good faith and the claimant’s signature is notarized.

A NCL has no legal effect, but it does have a practical effect – – – it “clouds” the title.  The recorded NCL may have no legal effect, but a prospective lender or buyer of the boat will not want to deal with it.  So, it does make it harder to sell the boat or get a mortgage.

Unfortunately, there is another side to this.  It is true that the recording of a NCL has no legal effect. But a claimant may still have a valid lien, regardless of whether anything has been filed with the Coast Guard. When our reader asked about the boat being “arrested,” she was referring to the most common method for enforcing a maritime lien.  As noted above, it requires the filing of a lawsuit in Federal Court and the issuance of a warrant for the “civil arrest” of the vessel.  The U.S. Marshals execute the warrant by taking the boat into custody.  The boat is then held by a commercial custodian while the lawsuit moves forward like any Federal Court lawsuit.

In a lien foreclosure lawsuit, the boat may be seized (“arrested”) without filing anything with the Coast Guard, as long as the person with the claim states facts under penalty of perjury that would, if proven in court, give rise to a valid lien.  Filing and recording a Notice of Claim of Lien with the Coast Guard is not a prerequisite to arresting a boat. In fact, most vessel arrests proceed without recording an NCL.  The arresting party prefers a “sneak attack”, so the boat does not escape in the middle of the night.

Our reader’s question about whether maritime law allows a boat to be arrested when no money is owed is not really asked in the right way. A vessel arrest is conducted at the beginning of a lawsuit that is filed in Federal Court.  The purpose of the arrest is to secure the boat as collateral before the lawsuit is initiated. The plaintiff in the lawsuit will claim that he or she is owed money, but we don’t really know how much is owed at that time, and we won’t know until the end of the lawsuit. If a court decides that no money is owed, the boat will be returned to the boat owners, and they may be able to recover some of their costs.

Finally, a maritime lien will travel with the boat after it is sold, even if the seller or buyer had no knowledge of the claim.  Most yacht purchase agreements include language requiring the seller to indemnify the buyer against any claims that arose prior to the sale of the boat.  Our reader will therefore probably be responsible for the defense of this claim, even though she no longer owns the boat.

This is one of those cases where I emphasize the importance of qualified legal representation.  This is a complicated legal minefield that warrants the hiring of an experienced maritime attorney.  But as noted at the top of this article, your first call in a case like this should be to your insurance broker or agent.

David Weil is licensed to practice law in the state of California and as such, some of the information provided in this column may not be applicable in a jurisdiction outside of California. Please note also that no two legal situations are alike, and it is impossible to provide accurate legal advice without knowing all the facts of a particular situation. Therefore, the information provided in this column should not be regarded as individual legal advice, and readers should not act upon this information without seeking the opinion of an attorney in their home state.

David Weil is the managing attorney at Weil & Associates in Seal Beach. He is certified as a Specialist in Admiralty and Maritime Law by the State Bar of California Board of Legal Specialization and a “Proctor in Admiralty” Member of the Maritime Law Association of the United States, an adjunct professor of Admiralty Law, and former legal counsel to the California Yacht Brokers Association. If you have a maritime law question for Weil, he can be contacted at (562) 799-5508, through his website at www.weilmaritime.com,  or via email at dweil@weilmaritime.com.