In 2019, Marine Biology Research, LLC (MBR) borrowed $5.9 million from Century Bank and pledged two vessels as collateral: a 130-foot Westport luxury motor yacht called the Summer 69 and a 42-foot Scout center-console sportfishing boat. Both were secured by preferred ship mortgages.
MBR defaulted. In August 2023, Century Bank filed suit and had both vessels arrested by the U.S. Marshal. The bank then asked the court to appoint a company called National Liquidators, a well-known marine repossession and auction firm, as substitute custodian to care for the vessels during the litigation.
Century Bank didn’t just hire National Liquidators to watch the boats. It also hired National Liquidators as its exclusive sales broker, agreeing to pay a 6% commission on whatever the vessels fetched at auction. National Liquidators thus wore two hats from day one: court-appointed guardian of the vessels, and commissioned salesman with a financial incentive to maximize their value.
To make matters more complicated, shortly after arrest, lightning struck the Summer 69, leaving it unseaworthy with significant damage to its electrical systems, engine computers, and battery banks. MBR, the borrower, did nothing to fix it.
In May 2024, the court granted Century Bank summary judgment on the mortgages and entered a final judgment of $6,438,103.31. In August 2024, the U.S. Marshal auctioned both vessels. The yacht sold for $5.6 million and the Scout for $295,000. After the Marshal’s commission, Century Bank received $5,837,498.34, an amount well short of the judgment. The bank then returned to court seeking to add the shortfall through a series of additional claims: more storage and maintenance costs, a broker’s commission, attorney’s fees, and additional interest bringing its total ask to over $2.25 million in further recovery.
The magistrate judge held a multi-day evidentiary hearing with nearly 100 exhibits and multiple expert witnesses, then issued a detailed report recommending the bank recover approximately $1.97 million. The magistrate judge granted some claims in full, trimmed others significantly, and rejected others outright.
1. Custodia Legis — The Court’s Power Over Custodial Expenses
Under federal admiralty law, when a vessel is arrested and placed under court supervision, the expenses of caring for that vessel are treated as “expenses of justice” and are paid out of the sale proceeds ahead of all other liens, including preferred ship mortgages. The idea is that someone has to pay to keep the boat from sinking while the lawyers argue.
But there are important limits. Southern District of Florida Local Admiralty Rules require that a substitute custodian’s job is to maintain an arrested vessel in its existing condition, not to improve it. And critically, any non-emergency repairs require prior court approval. A custodian who makes improvements without permission risks losing priority or losing the expense claim entirely.
National Liquidators largely ignored these rules. Its emails, introduced at the hearing, showed the firm wasn’t preserving the vessels. Rather it was preparing them for retail sale. Emails referenced “making a prep list to get ready for sale,” “readying the boat for sale,” and arranging sea trials for prospective buyers. The firm replaced control consoles, navigation displays, and four large batteries; cleaned and video-documented the hull; and undertook other significant work all without ever asking the court for permission.
The magistrate judge found these expenses ineligible as custodia legis. The costs were improvements for sale, not preservation of the arrested condition. The court excluded $113,388.18 in non-emergency repair costs from custodial expense treatment.
The court also rejected National Liquidators’ $15,729 in storage fees for the Scout, finding they were 100% profit. The marina charged nothing extra for the Scout’s berth alongside the yacht, and National Liquidators simply invoiced the bank for fees it never paid. Similarly, the court rejected $63,000 in insurance charges because National Liquidators’ representative couldn’t explain at the hearing how the charges were calculated or even what the bank actually paid in premiums.
The legitimate custodia legis expenses, daily custodial fees, actual moorage, routine maintenance, and the custodian’s reasonable 15% contractor markup, were allowed, totaling $178,511.74.
2. The Preferred Ship Mortgage as a Safety Net
Even though the court rejected many of the expenses under the custodia legisdoctrine, it found a separate basis to award them anyway: the language of the preferred ship mortgages themselves.
Both mortgages contained “Additional Advances” provisions, under which MBR agreed that Century Bank could, in its sole discretion, repair the vessels, maintain insurance, and cover storage costs if MBR failed to do so, and that all such advances would be secured by the mortgage lien. The mortgages also contained a broad indemnification clause, requiring MBR to reimburse Century Bank for any expenses arising from the exercise of its rights under the mortgages.
The vessels argued these provisions only applied to non-judicial repossession scenarios, not judicial foreclosure. The court disagreed, pointing to an express “election of remedies” clause allowing the bank to pursue all available remedies simultaneously.
The upshot: even though the non-emergency repairs, Scout storage fees, insurance charges, and the broker’s 6% commission ($353,700) were disqualified as custodia legis expenses, they were all added back into the judgment as mortgage-secured Additional Advances or indemnification obligations. The vessels’ owners (MBR) had contractually agreed to pay for all of it.
3. Attorney’s Fees — Close But Not Quite
The bank sought $209,278.50 in attorney’s fees, authorized by the mortgage documents. The court found the hourly rates reasonable but trimmed the hours by 15% across the board, noting that the vessels had offered essentially no opposition to the lawsuit. They did not contest the arrest or oppose summary judgment, and told the court they were holding back specifically to limit the bank’s fee exposure. The billing records also showed charges for purely administrative tasks and duplicative work by multiple attorneys. The court awarded $177,886.73.
4. Interest — Two Different Rates for Two Different Periods
The promissory notes called for a 21% default interest rate. Century Bank wanted that rate to continue running on the full judgment balance indefinitely. The court said no.
Under federal law (28 U.S.C. § 1961), once a court enters a final judgment, post-judgment interest accrues at the statutory Treasury rate, not the contractual default rate, unless the contract clearly and unambiguously specifies otherwise. The promissory notes here provided for 21% interest upon default, but said nothing about post-judgment interest. That silence was fatal to the bank’s argument.
The court therefore applied three distinct interest periods: the contractual 21% rate from the prior calculation date through the date of judgment; the statutory rate of 5.19% from judgment through the vessel sale; and then a sharply reduced per diem thereafter, recalculated on the remaining deficiency balance after sale proceeds were applied.
The Conclusion
The magistrate judge recommended an Amended Final Judgment of $1,968,558.35, broken down roughly as follows: $178,511.74 in legitimate custodia legis expenses; $546,817.18 in mortgage-based Additional Advances and indemnification (repairs, storage, insurance, broker commission); $177,886.73 in attorney’s fees; $288,192.95 in prejudgment interest at 21%; and $173,189.60 in post-judgment interest at the statutory rate. The court also recommended denying the bank’s request to reserve jurisdiction for future awards. The vessels are sold and gone, and the case should close.
The Takeaway
This case is essential reading for anyone involved in preferred ship mortgage enforcement including lenders, borrowers, custodians, and their counsel alike. Several practical lessons stand out:
Get court approval before making repairs. The local admiralty rules exist for a reason. A substitute custodian who makes non-emergency repairs without prior court authority faces a real risk of losing custodia legis status and priority, and potentially losing the expense claim entirely. The fact that the bank recovered these amounts here was only because the mortgage documents provided an independent legal basis. In a case with competing lienholders, the result could have been much worse.
The “two hats” problem is a real legal risk. Appointing the same firm as both substitute custodian and sales broker creates an inherent conflict. The custodian’s job is to preserve the vessel as-is; the broker’s job is to maximize sale price through improvements. These incentives pull in opposite directions, and courts will scrutinize the resulting expenses carefully.
Draft your mortgage documents to cover enforcement costs explicitly. The reason Century Bank ultimately recovered expenses that failed under custodia legis was because its mortgage documents contained robust Additional Advances and indemnification provisions. Lenders without those provisions could face a much harder fight.
Post-judgment interest follows the statute, not the contract, unless the contract says so clearly. Lenders who want their contractual default rate to continue running after judgment need to say so explicitly in the loan documents. A general default rate provision is not enough.
Get brokerage agreements approved in advance. Several courts in this district have expressly approved sales brokerage arrangements in arrested vessel cases. There was no reason for Century Bank to forego that step. Court approval would have mooted the entire dispute over the $353,700 commission.
