United States v. The Chandon

Tractug Associates (Tractug) financed the construction of three vessels, including the Chandon (defendant) through a loan from the Federal Maritime Administration (MARAD) (plaintiff), a United States government agency. The notes were secured by government-held mortgages over the vessels. Tractug defaulted on the loan, and MARAD began foreclosure proceedings on the mortgages. Tractug then entered into bankruptcy proceedings. After Tractug had filed for bankruptcy, the bankruptcy court approved a wage-deferral agreement between Tractug and the International Organization of Masters, Mates & Pilots (MMP) for the vessels to continue to operate and for the crew members (plaintiffs) to be paid for the next year. Among other legal proceedings, the United States brought an in rem action against the vessels to foreclose on the mortgages. The crew members intervened in the foreclosure action, seeking to enforce maritime liens for wages earned prior to the bankruptcy and also to recover for wages deferred under the bankruptcy court’s wage-deferral agreement. The court ordered the vessels to be sold and held that the United States, if it was the successful bidder, would be liable for the payment of all valid maritime liens that had priority over the mortgage. However, the court granted the United States’ motion for summary judgment to dismiss the crew members’ claims for post-bankruptcy wages, holding that the automatic-stay provisions of the Bankruptcy Act invalidated those claims. The crew members appealed.