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Howard Bank v. M/V "Mothership"

United States District Court, D. Maryland

May 10, 2019

HOWARD BANK, Plaintiff,
v.
M/V “MOTHERSHIP, ” et al. Defendants.

          MEMORANDUM

          Ellen Lipton Hollander United States District Judge.

         This case involves the intersection of bankruptcy and admiralty law. The Court wades into murky waters in an effort to determine whether the district court may allow the bankruptcy court to administer the sale of a vessel that is at issue in both courts.

         I. Background

         On October 31, 2018, plaintiff Howard Bank filed a verified complaint in district court, seeking foreclosure against defendants M/V “Mothership” (the “Vessel”), Timothy Edward Horan, and Valerie Jo Horan, asserting admiralty jurisdiction. See ECF 1 (the “Complaint). In particular, plaintiff alleged breach of contract as to the Horans, jointly and severally (Count I), and sought foreclosure of a preferred ship mortgage as to the Vessel (Count II). Plaintiff claimed exigent circumstances, and provided a sworn statement (id. at 5) in support of that contention. Id. ¶ 7.

         In addition, plaintiff moved for appointment of substitute custodian (ECF 2) for the Vessel and for issuance of a warrant in rem (ECF 3), ordering the United States Marshal to take and retain custody of the Vessel. The Court granted the motions on November 1, 2019 (ECF 11; ECF 12), and the warrant was executed the next day. ECF 17. On November 2, 2019, the Court granted plaintiff's second “Motion for Order Appointing Substitute Custodian for the Vessel ‘Mothership.'” ECF 15; ECF 16.

         Since 2017, Mr. Horan has filed for bankruptcy three times, and Ms. Horan has filed for bankruptcy twice. See In re Timothy & Valerie Horan, Nos. TJC-17-16732, TJC-19-10407 (D. Md.); In re Timothy Horan, No TJC-18-25040. On November 14, 2018, after this suit was filed, Mr. Horan filed for bankruptcy. ECF 21-3. But, on December 21, 2018, Howard Bank notified the Court of the termination of the automatic stay in In re Timothy & Valerie Horan, No. TJC-17-16732. ECF 21 at 2.

         Then, on January 30, 2019, Howard Bank notified the Court that the Horans had filed for bankruptcy on January 11, 2019. ECF 23; In re Timothy & Valerie Horan, No. TJC-19-10407. However, Howard Bank asserted that no automatic stay went into effect because of the Horans' prior bankruptcy filings. ECF 23; see also 11 U.S.C. § 362(c)(4)(a)(i). As discussed, infra, that assertion was not entirely correct.

         On February 5, 2019, Howard Bank moved for judgment and sale of the Vessel (ECF 24), supported by several exhibits (ECF 24-1 to ECF 24-7), as corrected on February 6, 2019. ECF 25. Upon consideration of Howard Bank's motion, and by Order of February 6, 2019, the Court authorized the United States Marshal to sell the Vessel within thirty days. ECF 26.

         Thereafter, on February 21, 2019, the Horans, who are self-represented in this Court, filed a consolidated “Response to Plaintiff's Motion for Judgment and Sale of Vessel ‘Mothership” and a “Motion for the Return of the Vessel to the Defendants, and Motion to Dismiss or, in the Alternative, Motion for Summary Judgment and/or Request for Hearing.” ECF 27 (the “Motion”). Pursuant to Supplemental Federal Admiralty Rule E(4)(f), on February 25, 2019, the Court stayed the Order of February 6, 2019, pending resolution of the defendants' Motion. ECF 28.

         On March 6, 2019, this Court held a status conference (ECF 31) with the parties, in open court, and on the record. During the status conference, counsel for plaintiff stated that in his earlier notification to the Court (ECF 23), he had mistakenly informed the Court that there was no automatic stay in In re Timothy & Valerie Horan, No. TJC-19-10407.

         Instead, at that time, an automatic stay was imposed at least as to the property of Ms. Horan's bankruptcy estate, which includes the Vessel. On March 1, 2019, the bankruptcy court terminated the stay “with respect to the debtor Timothy Edward Horan and property of his estate, and to Valerie Horan, personally, but not to property of the estate of Valerie Horan.” In re Timothy & Valerie Horan, No. TJC-19-10407, ECF 44 (D. Md. Mar. 1, 2019). Because Ms. Horan owns an interest as a tenant in the entirety in the Vessel, a stay remained in effect as to the Vessel. Id.

         The parties also addressed the significant cost of the custodial supervision of the Vessel, and Mr. Horan's belief that he could sell the Vessel for more than the Bank would obtain, and with while incurring far less in costs. See, e.g., ECF 15, ¶ 8. In an Order of March 7, 2019 (ECF 32), I expressed concern about the potentially avoidable costs and expenses inherent in the storage of the Vessel, but noted that I was unable to take any action as to the Vessel because of the stay. Further, I directed the parties to notify the Court if and when the stay is lifted. Id.

         On April 24, 2019, Bankruptcy Judge Thomas J. Catliota issued an order in the case of In re Timothy & Valerie Horan, No. TJC-19-10407, ECF 88. The order addressed two motions. In the first motion, Howard Bank sought relief from the stay so that it could proceed with foreclosure on the Vessel. In the second motion, the Horans sought turnover of the Vessel, pursuant to 11 U.S.C. § 542.

         The bankruptcy court concluded that the motions could be easily resolved as a matter of bankruptcy law. In re Timothy & Valerie Horan, No. TJC-19-10407, ECF 88 at 3. It concluded that the Horans should have the first opportunity to sell the Vessel, by the end of the summer, provided the Horans make monthly payments of $960 to Howard Bank, maintain adequate insurance, ...


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