The legal battle over rule B attachments of electronic funds transfers during the global recession of 2008-2010.
Up until the fall of 2009, international and domestic maritime plaintiffs had enjoyed a boon in securing their claims against defendants. While bringing their underlying claims in other courts and arbitration tribunals around the world, maritime plaintiffs were able to use Rule B, the federal rule governing maritime attachment procedures, to "freeze" electronic funds transfers (EFTs), also known as U.S. dollar wire transfers. The rule gave plaintiffs access to money directed to or from the allegedly offending party while intermediary banks were holding them in transit in the Southern District of New York. Because the majority of shipping transactions were and still are conducted in dollars, (1) the rule also gave maritime plaintiffs tremendous reach over defendants in the shipping industry, regardless of the nationality, place of business, or place of performance of the involved parties or their banks. (2)
Formally known as Rule B of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture, which augment the Federal Rules of Civil Procedure, this federal procedural rule is still available in all federal courts for attachments regarding all kinds of property. Yet the rule was most often used between 2002 and 2009 on EFTs running through New York. (3) The United States Court of Appeals for the Second Circuit recently changed all of that in Shipping Corporation v. Jaldhi Overseas Pte. Ltd. by overturning previous precedent on Rule B attachment of EFTs. Plaintiffs in the case have filed with the Supreme Court for a writ of certiorari. If the ruling stands, it will end what maritime plaintiffs had deemed their "go-to" weapon for obtaining security for maritime court judgments and arbitration awards in such harsh economic times. (4)
The Second Circuit's ruling was undoubtedly decided against the backdrop of the 2008-2010 global recession. World trade had suffered its worst collapse since World War II. (5) Market rates for goods and services in the shipping industry in particular, which accounts for 90 percent of all world trade, (6) nosedived by amounts as large as 80%. (7)
Consequently, the painful adjustment to new market realities had brought a wave of commercial legal disputes around the globe seeking to rectify various unfilled obligations and financial losses. (8) There were repeated instances of traders either unable or unwilling to pay for goods upon delivery, of charterers intentionally breaching their agreements, and of owners refusing to accept new ships they had bought. (9)
In turn, maritime plaintiffs leaned heavily on Rule B for security given the environment; (10) Defendants responded by launching a fury of new defenses against the rule. (11) The result was a legal battle in the shipping industry over the expansion and restriction of EFT attachment. (12)
The maritime law and banking law communities, represented by the Maritime Law Association (MLA) and the Clearing House Association L.L.C. respectively, joined the fight with competing Amicus Curiae briefs over the validity of EFT attachment, something both sides had consistently done in each EFT attachment case before the Second Circuit since the process was first allowed in 2002. Up until the Jaldhi decision, the Second Circuit had consistently upheld attachment of EFTs, primarily on maritime policy grounds. However, with the world recession in full swing, the Second Circuit drastically reversed course and eliminated the EFT attachment process all together. The court cited concerns over the threat posed to the dollar's status as the world's currency in addition to the court's own concerns over an overloaded Southern District court docket as the major reasons behind its decision.
The court's decision is likely to have a significant impact on how international commercial parties transact with one another in the future. This paper seeks to track and analyze the brief history of EFT attachment from a U.S. case law perspective and to discuss the legal and practical consequences that are likely to result from the court's overturning of EFT attachment.
1. LEGAL BACKGROUND AND BASIS OF RULE B
1.1. What Rule B is: Getting Jurisdiction and/or Security
As stated above, Rule B is part of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions, which augment the Federal Rules of Civil Rules of Procedure. Paragraph (l)(a) of Rule B reads as follows:
Rule B. In Personam Actions: Attachment and Garnishment
(1) When Available; Complaint, Affidavit, Judicial Authorization, and Process. In an in personam action:
(a) If a defendant is not found within the district when a verified complaint praying for attachment and the affidavit required by Rule B(1)(b) are filed, a verified complaint may contain a prayer for process to attach the defendant's tangible or intangible personal property--up to the amount sued for--in the hands of garnishees named in the process. (13)
Rule B provides the availability of a temporary prejudgment remedy (14) to the plaintiff via the attachment and garnishment of the defendant's property in an in personam claim, as opposed to the arrest of a defendant's property in an in rem claim, which is governed by Rule C. (15) Rule B is applicable only when the defendant's property is present within the district but the defendant himself is "not found within the district."
The type of jurisdiction a court asserts over a defendant under Rule B is quasi in rem, though in some cases, it can later become in personam, (16) In rem jurisdiction is based on the principle that courts have jurisdictional authority over property that is present "within the geographical jurisdiction of the court." (17) In quasi in rem jurisdiction, a court has jurisdiction over an absent defendant via the presence of the defendant's property in the court's geographical jurisdiction irrespective of the relationship between the property and the claim. (18) Thus, under a Rule B attachment, "the court derives its jurisdiction over the defendant solely from its authority over the attached property or its substitute security." (19)
The writ of the attachment itself, however, does not provide the court with its jurisdictional authority over the defendant or his property. (20) It is the presence of the defendant's property within the district that provides the court with its jurisdictional authority. (21) It should also be noted that while quasi in rem jurisdiction is said to exercise jurisdiction over a thing, i.e property, it is more accurate to describe quasi in rem as using property as the predicate from which the court asserts jurisdiction over the defendant. (22)
Under quasi in rem jurisdiction in a Rule B action, the defendant's liability is limited to the value of the attached property. (23) A Rule B defendant's liability may be extended to the value of the entire claim if he appears before the court to contest the case on the merits, which would constitute a "general appearance" via the defendant's consent to the court's personal jurisdiction over him. (24) However, a defendant can make a "restricted appearance" under Rule E(8) to avoid the assertion of personal jurisdiction over him while defending the suit. (25)
In addition to the assertion of jurisdiction over the defendant, plaintiffs can use Rule B for the sole purpose of obtaining security while commencing proceedings for the underlying maritime claim in other jurisdictions, including non-U.S. jurisdictions. (26)
Thus, Rule B serves two purposes: 1) to secure jurisdiction over an absent party and/or 2) to assure satisfaction of any judgments in the plaintiff's favor. (27)
1.2. How to Obtain a Rule B Attachment: The Complaint, Affidavit, and Attachment Order
A party seeking a Rule B attachment starts by filing a verified complaint with the district court. (28) The complaint must be for an admiralty or maritime claim as stipulated by scope of the Supplemental Rules in Rule A. (29)
What exactly constitutes a maritime claim has been the subject of a long case law review of admiralty and maritime jurisdiction, (30) but it generally includes claims for breach of contract as it relates to charter party and bill of lading disputes, collision damages, maritime torts, commodities sales, and anything else with a "genuinely salty flavor" directly related to maritime commerce. (31) For the purposes of the complaint, the Rule B Advisory Committee Notes state that a prima-facie maritime claim is all that is necessary. (32)
In addition to a complaint praying for attachment, Paragraph (l)(b) states that a plaintiff also has to provide an accompanying affidavit attesting that the defendant "cannot be found in the district." (33) Neither the rule nor its advisory committee notes gives an explicit definition of the phrase "not found within the district," (34) but a two-pronged test developed by the Second Circuit in Seawind Compania v. Crescent Line has become the general standard for evaluation. (35) The Seawind test considers whether the defendant has minimum contacts with the jurisdiction (as defined by International Shoe Co. v. Washington (36) and its progeny) and if the defendant can be found within the district for service of process. (37)
If the defendant has minimum contacts with the district and is available for service of process within the district, then Rule B is not applicable because the defendant can be found within the district. If the defendant is either lacking minimum contacts with the district or unavailable for service of process within in the district, then Rule B is applicable because the defendant cannot be found within the district. (38)
The counter-intuitive manner of the test is a way of ensuring that maritime attachment, an exceptional measure, is used only in quasi in rem situations and is not abused by maritime plaintiffs that have normal civil proceedings readily available to them. (39)
For the purposes of filing with the court, the plaintiffs affidavit must simply attest that the defendant is not found within the district and that the plaintiff executed "due diligence" in attempting to find the defendant, though an exhaustive search is not required. (40) Under Rule E(3)(a), process may only be served within the district, which prohibits the use of other established means of process to be made outside the district such as Rule 4(e), (f), and (k). (41)
The court must then review the complaint and the affidavit. If the conditions set out in Rule B appear to exist, it enters an exparte order stating and authorizing the process of attachment and garnishment, which commands the United States Marshal Service or other designated process server to attach any and all of the defendant's property within the district up to the amount sued for. (42)
Process to attach tangible property on board a vessel must be delivered by the Marshal Service. (43) Process to attach other tangible or intangible property belonging to the defendant can be delivered by someone specially appointed by the court. (44) Plaintiffs can submit requests on the appointment of agents to serve process to the court in the complaint, affidavit, or even after process to attach has been issued. (45)
In summary, all that is generally required for the initial attachment of a defendant's property is a prima-facie maritime claim, an affidavit from the plaintiff attesting that the defendant cannot be found within the district, the presence of the defendant's property within the district, and no maritime or statutory bar to the attachment's issuance. (46)
1.3. What Happens Next: The Post Attachment Hearing, Proceeding to Trial, and Default Judgment
Under Supplemental Rule E(4)(f), the defendant is entitled to a prompt hearing following attachment where the plaintiff "shall be required to show why the arrest or attachment should not be vacated or other relief granted consistent with these rules." (47)
A posting of counter-security is available under Rule E (7) when the defendant advances a counter claim arising from "the same transaction or occurrence" as the plaintiffs claim. (48) The issuance of counter-security rests largely with the judge's discretion (49) and is generally not as easily obtained as the original security. (50)
1.4. Why Rule B is Designed the Way It is: The Elusive Maritime Defendant
Though English courts abandoned the practice of maritime attachment in the early 1800s, U.S. courts retained and developed the practice to create a unique set of case law that remains in current U.S. law. (51) Consequently, in analyzing Rule B and U.S. maritime attachment case law, it is important to note the commonly accepted policy justifications underlying an ex-parte attachment that asserts quasi in rem jurisdiction over a defendant.
Specifically, courts have recognized a plaintiffs particular needs in dealing with maritime defendants that are highly mobile and likely to have mobile assets. (52) Courts have also recognized that maritime defendants can be elusive when it comes to the nature of their assets. (53) In many companies, the ship is the only asset and/or the ownership structure itself is very difficult to determine, which makes it easier for potential defendants and their property to avoid litigation. (54)
Additionally, courts have traditionally recognized the international level that maritime commerce operates on and the foreign parties that a maritime plaintiff is constantly in contact with. (55) As the Supreme Court noted in In re The Louisville Underwriters, always making maritime plaintiffs go to the home of the defendant "would not only often put them to great delay, inconvenience, and expense, but would in many cases amount to a denial of justice." (56)
It is worth noting that the maritime plaintiffs needs in the modern era have changed from their original justification. Forum selection clauses have provided plaintiffs with a viable alternative forum option for pursuing potential claims against maritime defendants. (57) Additionally, some commentators have questioned whether the needs of the maritime plaintiff are truly unique to maritime commerce in the modern era, given the technological and global environment that many of today's industries operate in. (58)
Nevertheless, federal courts before the Jaldhi decision had explicitly and consistently supported the maritime policy justifications behind Rule B, including EFT attachment. (59) The validity of EFT attachment today in the face of other conflicting legal issues is discussed in Section 4 of this paper.
2. RULE B ATTACHMENTS PRE-ELECTRONIC FUNDS TRANSFERS
2.1. The Constitutional Challenge: Despite Shaffer, Rule B Remains Good Law
The most fundamental challenge to Rule B attachments, both before and after EFT attachment was allowed, was a constitutional one. (60) Mainly, defendants contended that an ex-parte attachment of the defendant's property based on quasi in rem jurisdiction violated both procedural and substantive due process rights as defined by the 5th and 14th Amendments. (61)
Indeed, by its very definition a Rule B attachment requires a violation of what would otherwise be considered a defendant's due process rights; Rule B applies only when "a defendant is not found within district," i.e. when the defendant cannot be served process within district, or when the defendant lacks minimum contacts with the district. (62)
Despite this seemingly blatant contradiction with International Shoe and its progeny, the quasi in rem nature of Rule B's jurisdictional basis necessitates a different evaluation in that "quasi in rem jurisdiction is traditionally based on attachment or seizure of property present in the jurisdiction, not on contacts between the defendant and the State." (63)
Shaffer v. Heitner, the landmark Supreme Court case on quasi in rem jurisdiction, addressed the dilemma of quasi in rem jurisdiction in light of International Shoe. The decision overturned a Delaware Supreme Court ruling that allowed for a state court to assert quasi in rem jurisdiction over a defendants' property that was unrelated to the claim but which compelled the defendants' general appearance and submission to in personam jurisdiction. The Court said such an assertion of jurisdiction violated the Due Process Clause and was unconstitutional. (64)
According to Shaffer, all assertions of jurisdiction, including quasi in rem assertions, require the minimum contacts standards set out in International Shoe. (65) The Court specifically addressed the situation where the property that served as the basis for a court's jurisdiction over a defendant is completely unrelated to the plaintiffs cause of action.
In such cases, if a direct assertion of personal jurisdiction over the defendant would violate the Constitution, it would seem that an indirect assertion of that jurisdiction should be equally impermissible ... (66)
The phrase, 'judicial jurisdiction over a thing', [sic] is a customary elliptical way of referring to jurisdiction over the interests of persons in a thing. The standard for determining whether an exercise of jurisdiction over the interests of persons is consistent with the Due Process Clause is the minimum-contacts standard elucidated in International Shoe. (67)
Thus, if the property used as a basis for jurisdiction over a defendant is unrelated to the claim, and there are no other minimum contacts with the forum, then such an assertion of jurisdiction violates a defendant's substantive due process rights and is unconstitutional. (68)
Based on the ruling in Shaffer, Rule B itself would seem to be at least in part unconstitutional given its use of quasi in rem jurisdiction without minimum contacts. Shaffer even went so far as to reject some of the typical justifications for Rule B's quasi in rem assertion of jurisdiction. (69)
Primarily, Shaffer was unconvinced that the threat of the defendant avoiding his obligations by removing his assets to a place where he is not subject to an in personam suit justified quasi in rem jurisdiction. The Full Faith and Credit Clause, the Court said, would still ensure the enforcement of a judgment in all other states even if the defendant were to move his assets to another district. (70)
The Court also rejected the notion that quasi in rem assures the plaintiff a forum where the uncertainty of the application of International Shoe may not produce a readily apparent one. International Shoe could in fact be easily applied in most cases, the Court said, and when not, "the cost of simplifying the litigation by avoiding the jurisdictional question may be the sacrifice of 'fair play and substantial justice'. That cost is too high." (71)
Perhaps most damaging, the Court rejected the Delaware Court's defense of quasi in rem as an ancient practice to be respected, quoting an earlier decision the Court made in Ownbey v. Morgan:
"Traditional notions of fair play and substantial justice" can be readily offended by the perpetuation of ancient forms that are no longer justified as by the adoption of new procedures that are inconsistent with the basic values of our constitutional heritage. (72)
Not surprisingly, Rule B faced a wave of challenges following the ruling and the Supreme Court was forced to amend some procedural aspects of the rule in 1985 in response. (73) Despite all of this, courts have consistently upheld Rule B and the practice of maritime attachment after Shaffer, (74)
The main argument that courts have used to uphold Rule B is that maritime law is different and Shaffer did not take this into consideration. As the Second Circuit said in Amoco Overseas v. Compagnie Nationale Algerienne de Navigation:
Shaffer did not consider assertion of jurisdiction over property in the admiralty context. Because the perpetrators of maritime injury are likely to be peripatetic, and since the constitutional power of the federal courts is separately derived in admiralty, U.S. Constitution Art. III [section] 2, suits under admiralty jurisdiction involve separate policies to some extent. This tradition suggests not only that jurisdiction by attachment of property should be accorded special deference in the admiralty context, but also that maritime actors must reasonably expect to be sued where their property may be found. (75)
The Court's failure in Shaffer to address the international circumstances of maritime commerce is evidenced by the Court's mention of other "states" employing the Full Faith and Credit Clause and the International Shoe standard. Consequently, Shaffer was not attempting to place these expectations on foreign states, which were not bound by those principles.
Additionally, the Federal Rules of Civil Procedure still allow for certain uses of quasi in rem jurisdiction in civil actions under Rule 4(n), which states that quasi in rem may be used, "on a showing that personal jurisdiction over a defendant cannot be obtained in the district where the action is brought by reasonable efforts to serve a summons under this rule. (76)
Finally, the Supreme Court has had over 30 years and a number of appellate cases challenging maritime attachment on substantive due process grounds to declare Rule B inconsistent with Shaffer. (77) Congress even assigned the Supreme Court to amend Rule B in 1985, several years after Shaffer and some of the subsequent cases that challenged Rule B on substantive due process grounds had occurred, yet the Supreme Court made changes only to the procedural aspects of the rule. (78) Thus, it appears that the Supreme Court has tacitly accepted the constitutionality of Rule B and its function in admiralty matters.
2.2. Forum Selection Clauses: Attachment doesn't fit neatly within "dispute"
Since a defendant had to begrudgingly accept that Rule B is constitutional, forum selection clauses appeared to be the next best defense given that forum selection clauses explicitly express a party's will to submit to the jurisdiction of their choice while excluding other jurisdictions they do not choose. A Rule B attachment, on the other hand, asserts jurisdiction over a defendant by seizing his property against his will.
Additionally, federal courts have consistently recognized and enforced forum selection clauses ever since the Supreme Court ruled in Bremen v. Zapata, which was also an admiralty case. (79) In that case, the Supreme Court stated: "The elimination of all such uncertainties by agreeing in advance on a forum acceptable to both parties is an indispensable element in international trade, commerce, and contracting." (80) Contrarily, a party's uncertainty of forum under the ex-parte attachments of Rule B, and the disturbance to international trade and commerce that result, (81) appears to conflict with the underlying rational applied of Bremen.
In Polar Shipping v. Oriental Shipping, the Ninth Circuit Court of Appeals confronted the question of whether a forum selection clause pre-empts a plaintiff from seeking a Rule B attachment. (82) Plaintiffs Polar Shipping Limited as owners had chartered their vessel to defendants Oriental Shipping as charterers for a nine-year period with the option of extending the charter or redelivering the ship. After nine years, Polar claimed expiration of the charter agreement and demanded redelivery of the vessel.
When defendants failed to redeliver the vessel, Polar brought a breach of charter claim for $1,000,000 and sought an attachment of defendant's property, which it successfully obtained for approximately the full amount of the claim. Defendants stated, among other defenses, that the charter agreement's forum selection clause, which stipulated for English courts, prohibited the plaintiff from seeking attachment in a U.S. court. (83)
When the case came up on appeal to the Ninth Circuit, the Court looked to the intent of the parties by examining the language in the contract just as the Supreme Court had done in Bremen. The forum selection clause read: "Any dispute arising under this charter shall be decided by the English Courts." (84) From this, the Court determined the relevant question to be "what does the contract permit or require?" (85)
The answer, the court said, was that while intending to litigate the merits of any dispute arising out of the contract with the English Court, the parties did not indicate an intention to limit proceedings to obtain prejudgment security or post-judgment enforcement to that forum. If they had, they could have easily worded the forum selection to say so. Likewise any inference to the contrary is not a natural one because attachment does not fit neatly within the word "dispute." (86)
The Court also looked to see how English law would interpret the forum selection clause in relation to attachment since the parties chose English law in their contract. The Court determined that English law would have come to the same conclusion that the forum selection clause did not preclude the plaintiff from obtaining prejudgment security or post-judgment enforcement in another forum. (87)
Perhaps most convincingly, the court offered policy reasons in support of its conclusion. Citing Bremen, the Court said,
A primary reason for parties to agree to a foreign court selection clause, particularly one that names the English courts, is to achieve a neutral forum and to take advantage of that forum's expertise in admiralty litigation. In many admiralty actions, it would be merely fortuitous if the foreign forum, selected for its neutrality and expertise, also had available assets of the defendant to ensure that a judgment rendered by that forum would be enforceable there ... for the court to infer that parties to a clause, which provides that all disputes under the charter shall be determined by a selected foreign court, intended that proceedings to obtain prejudgment security be limited to that foreign forum, could substantially prejudice an admiralty plaintiff, by leaving it without an effective remedy. (88)
Therefore, the Court ruled that forum selection clauses do not pre-empt the obtainment of prejudgment security unless explicitly stated otherwise. (89)
The implications of the Polar Shipping decision were quite significant for the general maritime plaintiff. Implicit in the Court's decision was the recognition that a party could use Rule B for the sole purpose of obtaining security without a need to gain jurisdiction over the defendant in the same forum. (90)
Allowing a maritime plaintiff to use Rule B for the sole purpose of obtaining security, combined with the prominent use and recognition of forum selection clauses by courts, also implied that different plaintiffs may have differing needs when using attachment as a remedy. Consequently, the underlying purpose of maritime attachment remained the same after Polar Shipping but needed to be qualified to account for the implications of using a forum selection clause in conjunction with attachment: To compel the defendant's appearance, in whichever forum proceedings on the merits are to take place, and/or to provide security to assure a potentially successful judgment.
Polar Shipping's interpretation of a forum selection clause in relation to a Rule B attachment was also adopted in the Second Circuit, whose district courts repeatedly cited Polar Shipping as persuasive authority on the issue. (91)
In the specific case of EFTs, though it was possible for parties to explicitly prohibit EFT attachment by forum selection clause, it was unlikely they would do so. First, parties could not have always known which side of a potential litigation they were to be on, (92) and Rule B was such an effective tool for plaintiffs that parties were reluctant to take it completely out of the equation. Second, choosing a forum for potential disputes amidst contract negotiations was one thing, but nitpicking over potential forums for prejudgment security remedies would likely have disrupted parties' attempts to come to an agreement.
3. RULE B ATTACHMENTS OF ELECTRONIC FUND TRANSFERS
3.1. How the Attachment of EFTs Worked: A Critical Time Laps
Attachment of EFTs involves "the interplay between a centuries-old admiralty law procedure and present day banking technology." (93) The normal EFT process can be described as follows:
A customer ("the originator") commences an EFT by instructing its bank ("the originating bank") to transfer funds to a beneficiary. Because the beneficiary is not located in the United States, it only maintains an account with a foreign bank ("the beneficiary's bank"). The beneficiary's bank, because it does not operate in the United States, maintains a U.S. dollar account with an American bank ("the intermediary bank"). The originating bank sends the originator's payment instructions to the intermediary bank, including the name and account number of the intended beneficiary. The intermediary bank executes those instructions by crediting funds into the beneficiary bank's U.S. dollar account at the intermediary bank. Subsequently, the beneficiary's bank pays the beneficiary by crediting the appropriate sum in the beneficiary's account at the beneficiary's bank. (94)
Attachment of an EFT comes into play during the critical time lapse between when the intermediary bank receives payment from the originator's bank and when the intermediary banks credits the corresponding payment to the beneficiary bank. (95) Though the payment is "electronic," this time lapse can occur "almost instantaneously" or it can take as long as a couple of days. (96)
In the landmark case from the Second Circuit on EFT attachment, Winter Storm v. TPI, the Court said for the first time that EFTs were attachable property for the purposes of maritime attachment under Rule B. (97) Plaintiff Winter Storm, a foreign corporation with its place of business in Malta, had chartered its vessel to the defendant TPI, a Thai corporation, to carry an oil cargo from Saudi Arabia to Thailand. The charter party provided for arbitration of disputes in London. (98)
Winter Storm alleged that it was due $361,621.58 in freight, interest, and anticipated attorney and arbitration fees. Shortly thereafter, Winter Storm sought the attachment of TPI's assets held by potential garnishees in the Southern District of New York for the amount of its arbitration claim and had process served on two New York banks. (99) At or around the same time, TPI entered into an unrelated commercial transaction, which was to be made in U.S. dollars, with a party whose bank was based in London. TPI's Thai bank attempted to send the payment to London through one of the two New York banks as an intermediary, at which point a portion of the payment was held by the New York bank according to the attachment order. (100)
Overruling the district court's holding in the post-attachment hearing, the Second Circuit found that controlling federal precedent and the language of Rule B itself deemed an EFT to be "property" for the purposes of Rule B. In doing so, it described an EFT as a credit temporarily in the possession of the intermediary bank, and as such, parties filing a complaint praying for attachment can seek the attachment of them. (101)
Though it was perhaps not evident at the time, Winter Storm paved the way for Rule B's widespread use as a powerful litigation tool for international maritime claims. (102) The ruling also became the basis for the continued legal battle over EFT attachment.
3.2. EFT Property Issues: Is an EFT Really Property? If so, then whose?
While Winter Storm said EFT funds were seizable property under Rule B, district courts thereafter were still unsure whose property they were, mainly the originator's or the beneficiary's. (103) In Winter Storm, the defendant was the originator of an EFT that was attached. Nevertheless, the courts following Winter Storm's precedent allowed attachment of EFT funds both going from defendants (104) or coming to defendants, (105)
A careful reading of Winter Storm lends support to the notion that the Court intended for EFT funds in transit to be defined as the property of the originator. On at least two occasions the court refers to "TPI's funds in the hands of BNY," with TPI being the defendant-originator and BNY being the intermediary bank. (106) Though the Court never said the exact words, "EFT funds at the critical time lapse belong to the originator," the Court's language used to describe TPI's funds said just as much. (107)
With this definition in place, allowing attachment of EFT funds on their way to a defendant as the beneficiary appeared on its face to be problematic. Property under Rule B, whether tangible or intangible, must belong to the defendant in order to be attached. (108) If an EFT at the critical time lapse belongs to the originator, then it is not yet the beneficiary's property, and thus cannot be attached as the beneficiary's property. Likewise, the originator and the beneficiary cannot both "own" the EFT funds simultaneously. (109)
However, the prevailing view among judges in the Southern District was that an EFT fund represents the concurrent property interests of both originator and beneficiary in that an EFT fund can also be viewed as a debt owed to the beneficiary. (110) As Winter Storm noted,
Rule B also permits a plaintiff to attach intangible items, such as debts owed to the defendant. Such items may be attached even if they have not yet matured or have only partially matured. Of course, the defendant's entitlement to the credit or interest in the debt must be clear. (111)
Consequently, district courts held that Rule B's broad language allowed EFTs to be seized going in either direction. (112)
Defendants in Winter Storm and subsequent EFT attachment cases before the Second Circuit, as well as the banking industry in supporting briefs of Amicus Curiae, defiantly took an alternative view of the property issue. (113) Their position was that a funds transfer at an intermediary bank is the property of neither the originator nor the beneficiary. (114) As the banking industry stated, "[t]he funds transfer is in fact not subject to the possession, use or enjoyment of either the originator or the beneficiary. If either walked into an intermediary bank to claim those 'funds,' those claims would be rejected ... (115)
They derive their position from New York's Uniform Commercial Code, which is state law. Section 4-A-503 provides:
For proper cause and in compliance with applicable law, a court may restrain (i) a person from issuing a payment order to initiate a funds transfer, (ii) an originator's bank from executing the payment order of the originator, or (iii) the beneficiary's bank from releasing funds to the beneficiary or the beneficiary from withdrawing the funds. A court may not otherwise restrain a person from issuing a payment order, paying or receiving payment of a payment order, or otherwise acting with respect to a funds transfer. (116)
Under this wording, the interdiction of funds when they are with the intermediary bank is prohibited. Defendants and the banking industry reasoned that EFTs were the property of the intermediary banks, with the originator maintaining control over the fund, by saying "[an EFT] is a debt owed by the intermediary bank to the next bank (if the intermediary bank accepts the payment order), or to its sender if the funds transfer is not 'completed.'" (117)
However, prior to the Jaldhi ruling, the Second Circuit in Winter Storm and its progeny had consistently rejected the banking industry's position on the property issue for two reasons. First, the Second Circuit had continually held that there was federal law on point that pre-empted any use of state law on the matter. (118) Second, citing Article III Section 2 of the Constitution, which grants federal courts exclusive jurisdiction over maritime cases, the court in Winter Storm held that any use of state law to help govern an issue in a maritime case was only allowable if it did not prejudice a fundamental characteristic of maritime law. (119)
In support of its first assertion that there was existing federal law on point to establish EFT attachment, the Court in Winter Storm cited United States u. Daccarett, a civil forfeiture case brought under federal drug laws in which the Court permitted plaintiffs to seize EFTs. The Court in Daccarett had determined EFT to be property by saying, "an EFT while it takes the form of a bank credit at an intermediary bank is clearly a seizable res under the forfeiture statutes." (120) The Court in Winter Storm found Daccarett particularly relevant because "the attachments of funds in Daccarett were accomplished pursuant to the Admiralty Rules, incorporated by reference into the forfeiture statute." 121 Thus, Winter Storm concluded that:
[T]he broad, inclusive language of Admiralty Rule B(l)(a) and the EFT analysis in Daccarett combine to fashion a rule in this Circuit that EFT funds in the hands of an intermediary bank may be attached pursuant to Admiralty Rule B(l)(a). Because that rule is derived from federal law, there is no occasion to look for guidance in state law. (122)
In support of its second assertion that state law could not eliminate a characteristic feature of maritime law, the Court in Winter Storm quoted the Supreme Court in American Dredging Co. v. Miller:
[I]t is "the consequence of exclusive federal jurisdiction that state courts may not provide a remedy in rem for any cause of action within the admiralty jurisdiction," in exercising in personam jurisdiction "a state may adopt such remedies, and ... attach to them such incidents, as it sees fit so long as it does not attempt to make changes in the substantive maritime law"; that latter proviso "is violated when the state remedy works material prejudice to the characteristic features of the general maritime law or interferes with the proper harmony and uniformity of that law in its international and interstate relations." (123)
Consequently, the Court ruled that the state statute, if employed, would have the effect of eliminate a plaintiffs use of Rule B maritime attachment, which was not allowed since attachment is a characteristic feature of maritime law. (124)
3.4. Rule B's Practical Effect in the Modern Era: The Aggressive Maritime Plaintiff
With the addition of EFTs as attachable property, maritime defendants' property became exposed in a way like never before. (125) Not coincidentally, this emboldened maritime plaintiffs to become even more aggressive given the low standard Rule B sets to seize the property. (126)
Furthermore, Rule B failed to distinguish the evasive defendant from the available defendant acting in good faith in the period leading up to the global recession. A well-known, reputable maritime company amenable to suit in multiple jurisdictions with a secure amount of assets to satisfy all claims against it was a good example. The justifications for a surprise ex-parte attachment and an additional forum provided to the plaintiff were not nearly as strong in the case of this defendant. Yet this defendant's property was seizable just the same.
Knowing this, an aggressive plaintiff, or a group of aggressive plaintiffs, was able to cause havoc on a company's finances and its business relationships in certain instances during the recession. Essentially, plaintiffs used Rule B attachments strategically to induce quick settlements. (127) As liquidity and credit tightened, along with the spread of insolvency rumors, companies with potential maritime claims tended to file Rule B attachments en masse against companies perceived to have liquidity problems, or those that would have if they had to endure more Rule B attachments. (128) The prophecy at times became self-fulfilling as a company's cash flow did indeed dry up from the stack of attachments levied against it. (129)
The irony is that while Rule B was designed to obtain jurisdiction and/or security over undercapitalized, elusive, foreign defendants, it was the adequately capitalized, available defendants that likely suffered the most from it. (130)
What was at times even more vexing to many maritime defendants was Rule B's incredibly long reach in the case of EFT attachment. Take for example, a scenario not unlike what occurred in the Winter Storm case. Two non-U.S. parties that are also foreign to one another enter into a contract for the shipment of goods. They have no intention of having any contact with United States either commercially via their trade route or legally via their forum selection clause. They could even perform this transaction in a currency other than U.S. dollars. (131) A dispute arising from this contract could still lead to a Rule B attachment in New York if one of those parties seeks a Rule B attachment while the other party is attempting to perform an unrelated U.S. dollar transaction with a third party. Such was often the case in the modern era of Rule B attachments of EFTs between 2002 and 2009.
4. RULE B DEVELOPMENTS DURING THE GLOBAL RECESSION
4.1. The Legal Ground Beneath Rule B: Shifting Back and Forth
As the global recession took hold, neither plaintiffs nor defendants were willing to accept Rule B's status quo. The rise in payment defaults, breaches of contract, and trading partners with sub-par credit status caused plaintiffs to lean on the rule more than ever for security purposes and search for wider uses of the rule. (132) Likewise, defendants trying to navigate a barren credit and liquidity environment threw both new and old defenses at Rule B attachments in an effort to stop the mass freezing of capital. (133) The result was that the legal ground beneath Rule B was shifting backand-forth. (134)
In several cases plaintiffs stretched the interpretation of what constituted a "maritime claim" in pursuit of Rule B attachments to new areas. For example, in Kalafrana Shipping Ltd v Sea Gull Shipping Co Ltd, a Southern District judge expanded the definition to include vessel sale contracts if the ship already existed. (135) Similarly, plaintiffs attempted to use Rule B in commodity sales contracts where maritime transport was only "tangentially" related. (136) Plaintiffs also used the rule in bankruptcy claims where a Rule B attachment allowed a would-be creditor to jump the line of other creditors. (137) Plaintiffs even attempted to use the rule as a post-judgment remedy to enforce already-granted awards and decisions. (138)
However, in other cases judges improvised their attachment rulings to limit what they sensed were growing abuses of the rule. For example, in Cala Rosa Co. Ltd. v Sucres ET Deneres Group, the judge refused to allow anyone other than the Marshall's office to serve the attachment order, which drives up the costs of the plaintiff, and also refused to allow one service of process on a bank to count as continual service throughout the day. In justifying her decision to stray from normal practice, the judge explicitly cited the strain on both the banks and the court system caused by the massive amount of Rule B attachments. (139)
Perhaps Lloyd's List in a March 2009 article described it best when it said the latest news out of New York was, "Long live Rule B; Rule B is Dead". (140) Though the push and pull over Rule B attachments had intensified, in truth it was a manifestation of the same tension that had always been inherent in maritime attachment. Intentionally low barriers to obtain attachment aid an otherwise disadvantaged plaintiff but can also be abused.
Yet the nature of EFTs as a modern form of intangible property that is more easily attached than traditional property had raised several new procedural questions. (141) For example, given the lack of transparency of an EFT, did the plaintiff have to demonstrate any material belief or fact that the defendant's property would be in the district in the future or was satisfaction of the technical requirements of Rule B sufficient?
Stemming from this dilemma, questions also arose as to how long a period an attachment order could be valid. In order to preserve an ex-parte attachment's element of surprise, judges were also asked to temporarily seal attachment orders from the public record. And even if property was found, it was unclear if a judge could place time restrictions or requirements on the plaintiffs initiation and continuation of adversary proceedings in a foreign court or arbitration. These were all potential areas of abuse that Rule B case law had not yet definitively addressed. Consequently, they were also areas of discrepancy between district court judges. (142)
Indeed, the Southern District courts were also feeling the pressure. With Rule B attachments making up one third of the district's civil docket, five judges from the district took part in a series of behind-the-scenes meetings with maritime and banking lawyers from the Rule B Subcommittee of the New York City Bar Admiralty Committee. (143) The judges wanted to see, "how the Court might be able to deal more efficiently with the proliferation of Rule B applications" that were "consuming a significant portion of their docket." (144) As one observer described the situation at the time, "[y]ou have a procedure here that is absolutely suffocating the court and they need a way out." (145)
Thus, it was clear that pressure from all sides meant that the status quo on Rule B would not hold. The three most important Rule B cases the Second Circuit decided during the global recession, Consub Delaware v. Schahin and Stx Panocean v. Glory Wealth Shipping and The Shipping Corp. of India v. Jaldhi Pte Ltd. illustrate this dynamic.
4.2. Long Live Rule B: Consub Delaware LLC u. Schahin Engenharia Limitada
Of the various Rule B legal issues that emerged during the financial crisis, the first one to reach the Second Circuit was left over from before such hard times. In Consub Delaware LLC v Schahin Engenharia Limitada, the court faced yet again whether EFT funds in the hands of intermediary banks were attachable property, and whether federal or state law governed that determination. Though the courts had been in relative agreement on the matter following Winter Storm, it was an ominous footnote from a previous decision in Aqua Stoli that had left Winter Storm open to a potential overruling. (146)
The parties Consub Delaware and Schahin had entered into an agreement where Consub agreed to perform for Schahin maintenance and reporting on submarine fiber-optic cables located on the high seas. After performance of its activities, Consub Delaware eventually commenced proceedings in London in accordance with the agreement's forum selection clause alleging almost $6 million in unpaid wages. (147)
In support of that claim, Consub Delaware later obtained a Rule B attachment in the Southern District of New York of over $4.2 million, which was a payment that Schahin was trying to send to an unrelated third party in Switzerland. Schahin sought to vacate the attachment order and argued that funds in transit via EFT were not "property" within the meaning of Rule B. (148) Schahin's original motion to vacate had been denied by the district court, which was then appealed to the Second Circuit. (149)
The crux of the Schahin's defense was to re-challenge the property issue decided in Winter Storm. The court rejected Schahin's argument on procedural and substantive grounds. First, only a ruling by the Supreme Court or a ruling en banc by the Second Circuit could overturn Winter Storm, (150) which was itself a Second Circuit ruling by a standard panel of three Circuit judges. Neither another Second Circuit panel nor a footnote from another panel decision had the authority to overrule Winter Storm. Second, the court said there was applicable federal law that governed the determination of EFT property issues. In affirming Winter Storm's analysis on the property issue, the court in Consub Delaware essentially repeated the reasoning the Second Circuit gave in Winter Storm.
The Court also cited policy reasons for upholding Winter Storm. The Court said there was a desire to maintain the uniformity of maritime law, especially since attachment was a principal and well-established feature in admiralty jurisprudence. (151) The Court even went so far as to recognize that, "EFT funds should be particularly susceptible to Rule B attachments, given the ease of mobility of both funds and defendants." (152)
Consub Delaware also left an important footnote in its decision, which stated that, "[w]e do not reach today the question of whether funds involved in an EFT en route to a defendant are subject to a Rule B attachment." (153) This question question, of course, was later presented to the Second Circuit in The Shipping Corporation of India v. Jaldhi Overseas.
Despite the footnote, the message coming from the Second Circuit in Consub Delaware was that even in the face of the pressures of economic hard times, the Court was willing to uphold both the legal and policy justifications of EFT attachment established in Winter Storm.
4.3. Courts Take a Step Back on EFT Attachment: STX Panocean v. Glory Wealth Shipping
Following the surge of Rule B attachments, defendants also focused on appointing an agent to accept service of process within the district and registering to do business in the district with the state of New York pursuant to state statute [section]1304. (154) The thought was that if a company were registered and had an agent for service of process within the district, it would be subject to general in personam jurisdiction and could be "found within the district." Such a finding would block any Rule B attachments, since use of the rule requires that the defendant "not be found within the district." (155) This defense had previously been validated in most district courts, (156) but there was still some uncertainty as to just how much more "contact," if any, a party should have with the district in addition to registering. (157)
In STX Panocean (UK) Co., Ltd. v. Glory Wealth Shipping Pte Ltd., the Second Circuit ruled on just such a case. The Southern District Court had vacated a Rule B attachment after the foreign defendant was able to demonstrate that it could have been "found within the district" at the time of attachment via its appointment of a service agent within the district and its registration with the State of New York to do business in the district. (158)
In its review of the case, the Second Circuit reasoned that Rule B provided potential defendants with, "... the choice between subjecting themselves to the jurisdiction of the courts of the district in question, or making themselves vulnerable to the possibility that their property in the district will be attached." (159)
In analyzing whether the defendant could be "found within the district," the Court employed the "two-pronged inquiry" known as the Seawind test, which again states that a defendant must have minimum contacts with the district and be available for service of process within the district to considered found within the district. Regarding the second part of the test, it was undisputed that the defendant had designated an agent to receive service of process within the district. (160)
Regarding the first part of the test, the Court determined that the defendant had sufficient minimum contacts with the district via the defendant's registration with the New York Department of State pursuant to state statute [section]1304. New York law considers registration under [section]1304 to be sufficient minimum contact with the district for a court to assert personal jurisdiction over the registered company. (161) Therefore, the defendant satisfied both parts of the test and could be found within the district. Since the defendant could be found within the district, Rule B was not applicable. The District Court's vacatur of the attachment was affirmed. (162)
The Second Circuit Court made a point to reject Erne Shipping Inc.v. HBC Hamburg Bulk Carriers, GmbH & Co., the one district court case that said that a mere filing for authorization to do business was insufficient under Rule B and a defendant required more systematic and continuous contacts with the district to be considered found. Citing policy reasons, the court stated:
In the modern era, although maritime commerce is still international and maritime assets are still transitory, companies that have both appointed an agent for service of process and registered in New York, consenting to jurisdiction, do not pose the same needs for maritime attachment ... Rather, when that debtor is registered to do business in New York, there are generally any number of means to prosecute a civil claim and, upon receiving judgment, collect on that claim. (163)
The court did not elaborate on what those other means were and how they should be executed. Nevertheless, the signal to future defendants looking to avoid Rule B attachments was clear: if you register to do business in the district with the New York Department of State and appoint an agent for service of process, you will not be subject to Rule B attachments.
What the ruling did not mention was that registering could be obtained by paying a mere $225 via fax or credit card and that no office or actual business activities in the district were required. (164) In fact, the Court failed to address several key considerations, especially within the context of its own reasoning.
For example, the Court cited Integrated Container, a case with a similar fact pattern in which the defendants also claimed to be "found" within the district pursuant to registration with the State under New York Statute [section]1304 but did not have any other existing contacts with the district. (165) "Amenability to suit," the Court said while citing Integrated Container, "rather than a party's economic and physical activities in the district at issue, is the touchstone of the first prong of the Seawind Test." (166)
While Integrated Container did indeed support this contention, the Court failed to recognize that Integrated Container had come to a much different final conclusion. Mainly, though Integrated Container considered the defendants to have literally complied with the "found" requirements of the Seawind test via registration with New York Department of State, Integrated Container nevertheless refused to vacate the attachment. (167) Integrated Container explicitly rejected using registration to defeat a maritime attachment because the long-arm jurisdiction statute was designed to prevent foreign parties from escaping judicial reckoning but not for escaping maritime attachment:
There is some anomaly in the use of this rule to defeat a claimant's opportunity to secure a more meaningful judgment ... If bending of the Rule is countenanced in the decision whether in fairness to sustain a maritime attachment, the present circumstances press decidedly in plaintiffs favor. (168)
In addition to citing Integrated Container, STX Panocean made a critical error in its assessment of current maritime practice. The court had reasoned that registration served the same primary purpose as attachment's primary purpose; to provide the plaintiff with jurisdiction over the defendant in an available forum. (169)
However, attachment's primary purpose in modern maritime commerce is not necessarily to provide the plaintiff with jurisdiction. Rule B serves a dual purpose: to compel the defendant's appearance, wherever the proceedings on the merits may take place, and/or to provide security to assure a favorable judgment. Additionally, in the case of EFTs and the wave of Rule B attachments that emerged during the financial crisis, security, not jurisdiction, was undoubtedly the driving factor. (170)
The court's mistake in STX Panocean came when it asserted that security cannot be obtained except as an adjunct to obtaining jurisdiction. It had relied on Seawind by quoting the judgment verbatim from the part that stated, "the two purposes [of attachment] may not be separated, however, for security cannot be obtained except as an adjunct to obtaining jurisdiction." (171)
However, Seawind was decided in 1963, before the Supreme Court ruled in Bremen u. Zapata and before the Ninth Circuit ruled in Polar Shipping. (172) Consequently, in citing Seawind, the Second Circuit in STX Panocean failed to recognize that the court itself in its previous Rule B decisions after Seawind had accepted as common practice the use of Rule B for the sole purpose of obtaining security while litigating the merits of the underling claim in another forum. (173)
STX Panocean's failure to recognize the dual purpose of Rule B was particularly puzzling considering how it cited Aqua Stoli, a case in which plaintiffs used Rule B for the sole purpose of security:
Thus, the traditional policy underlying maritime attachment has been to permit the attachment of assets wherever they can be found, thereby obviating the need for a plaintiff to "scour the globe" to find a proper forum for suit, or property of the defendant sufficient to satisfy a judgment. (174) (Emphasis added)
Additionally, the Second Circuit's other key rulings on EFT attachment, including Winter Storm and Consub Delaware, were also cases where plaintiffs used Rule B for the sole purpose of security. Consub Delaware even explicitly adopted as persuasive authority the analysis in Polar Shipping that allowed plaintiffs to use Rule B for the sole purpose of obtaining security while using a forum selection clause to secure jurisdiction in another forum. (175)
In failing to properly address the security purpose behind Rule B, STX Panocean also failed to address perhaps the most critical policy question underlying the surge in Rule B attachments during the world recession: did the original policy justifications underlying Rule B allow foreign plaintiffs to use American courts to obtain security over a foreign defendant in pursuit of a claim that is to take place in a foreign forum while disrupting the domestic banking industry and overwhelming the Southern District Court? In other words, were the policy justifications underlying Rule B, which have always been an important calculus in evaluating maritime attachment, still intact when the federal courts in New York became the primary prejudgment security apparatus for maritime commerce across the globe?
The answers to these questions were critical in resolving the battle over Rule B attachments of EFTs. Consequently, the Second Circuit addressed these issues head on in its next major Rule B EFT attachment case, Shipping Corporation of India v. Jaldhi Pte. Ltd.
4.4. EFT Attachment is Dead: Jaldhi Overrules Winter Storm
In Jaldhi, a dispute arose from a charter party agreement in which the Shipping Corporation of India ("SCI" or "plaintiff') chartered its vessel to Jaldhi Overseas Pte Ltd. ("Jaldhi" or "defendant"), incorporated in Singapore, to transport iron ore from India to China. (176) A crane on board the vessel collapsed, killing the crane operator and causing the suspension of cargo operations on the ship. The parties then began disputing over which days the ship was on hire. (177) Pursuant to Rule B, SCI sought an ex parte order of attachment of Jaldhi's funds passing through the Southern District of New York for the amount of $4,816,218. The attachment was granted and $4,590,678.60 worth of funds that were being electronically transferred through New York banks to Jaldhi from three different foreign third parties was subsequently attached. Jaldhi filed for a motion of vacatur, which was granted by one of the few district court judges that did not recognize attachment of funds going to a defendant-beneficiary. (178) The case was then sent to the Second Circuit on interlocutory appeal while the underlying dispute was still to be arbitrated in England.
The question before the Second Circuit was whether Rule B allowed the attachment of funds going to a defendant-beneficiary, a question that the court in Consub Delaware said was unresolved. However, the Court took it upon itself to review the threshold issue of whether any EFT, either coming from or going to a defendant, was attachable property. Circulating its opinion to all of the active members of the bench in the Second Circuit, a process known as "mini-en banc," (179) the Court held that EFTs going in either direction were not attachable property under Rule B.
The Court stated that its reasoning was twofold. First, the court held that Winter Storm had erroneously relied on Daccarett, the civil forfeiture case that Winter Storm used as federal precedent for attaching EFTs. Without Daccarett, the court held that there was no other federal law on point. The Court then turned to New York state law on EFT attachment, which stated that EFT attachment in either direction was not allowed. Second, the Court noted that the effects of EFT attachment on the federal courts and international banks were too significant to let the error in Winter Storm go uncorrected.
While the Court's critique of the Winter Storm case was not without merit, the scope of its decision was questionable. The issue presented to the Court in Jaldhi on appeal was the validity of attaching funds going to defendant-beneficiary, a much narrower issue than the one they decided. Additionally, in every single major EFT attachment case before Second Circuit since Winter Storm, the Court had repeatedly and definitively upheld that Winter Storm's reliance on Daccarett was acceptable and that EFTs coming from a defendant-originator were attachable. (180)
Thus, while the Court may have had some issues with the reasoning in Winter Storm, it is more accurate to say that the real issue the Court was addressing was the public policy effects of EFT attachment in the midst of a recession. The Court cited threats to the dollar's status as the world's primary reserve currency, the heavy burden on New York banks to execute Rule B EFT attachments, and the high amount of EFT attachment requests that sapped the Southern District Court.
Additionally, because the issue presented to the Court was narrow in scope, the parties to the dispute as was well other relevant potential third parties did not have the chance to fully advocate the public policy issues that the court addressed in its holding. As the Maritime Law Association noted, "A question that the Panel thought merited deliberation by the entire Circuit should surely be decided with the benefit of the parties' arguments ..." (181)
Another issue that the Court failed to properly address was the applicability of state law to maritime attachment given that federal courts have exclusive jurisdiction over maritime cases. As the court in Winter Storm noted when it quoted and paraphrased the Supreme Court in American Dredging, maritime attachment is a characteristic feature of general maritime law that cannot be denied by state law. (182) What would happen to the uniformity of federal maritime law if state law were allowed to govern attachments procedures? The Shipping Corporation of India has filed a petition for a writ of certiorari to United States Supreme Court on this issue. (183)
The Court's holding in Jaldhi also raises a puzzling proposition in regards to the ownership of funds in transit that are being electronically transferred. According to New York state law, neither the originator nor the beneficiary owns the funds in an EFT while they are transit. That means that either no one owns the funds while they are in transit or the intermediary bank owns the funds. The Court in Jaldhi stated in a footnote that perhaps New York law envisaged EFTs as property of the intermediary bank, though the court noted that this issue was not directly before the court. Either one of these possibilities present significant issues. First, the funds have to belong to someone even while they are in transit. Second, if they belong to the intermediary bank, it cannot mean that the intermediary bank can actually exercise ownership rights over the funds if it wants to. In reality, it seems more likely that the funds start out belonging to the originator, are then held by his agent (an intermediary bank), who then gives the funds to the beneficiary's agent, who then deposits the money to the beneficiary.
Despite the shortcomings of the Jaldhi decision, the Court was ultimately correct in deciding it was time "to definitively untangle the doctrinal knot created by Winter Storm and its progeny." The Court had traded one legal fiction for another as the policy issues underlying EFT attachment under Rule B shifted from a maritime perspective in the beginning to a banking perspective more recently. The result was a piecemeal judicial application of Rule B attachments to EFTs.
However, given the unique technological nature of EFTs, the high amount of money at stake, and the needs of both maritime plaintiffs and the banking industry in such critical economic times, attachment of EFTs likely requires a comprehensive legislative approach in order to work for all sides.
Until then, maritime plaintiffs will have to revert to the traditional methods of securing their claims like ship arrest in the various forums around the world where defendants or their property can be found.
(1.) Rajesh Joshi, Rule B dealt a crippling blow, Lloyd's List, Feb. 16, 2009.
(2.) Keith Wallis, The B all and end all of litigation?, Lloyd's List, Jan. 9, 2009.
(4.) Rust, Another 'victory' on fund freezing, TradeWinds, Sept. 25, 2008. (Discussing how Rule B attachment had become the preferred method for obtaining security even over ship arrests).
(5.) John Miller, Shipping lines take it slow in hard times, THE WALL STREET JOURNAL EUROPE, Apr. 9, 2009; Michelle Wiese Bockmann, Another 31 idle boxships join the lay-up list, Lloyd's List, Mar. 19, 2009.
(6.) The International Chamber of Shipping, Shipping and World Trade: Key Facts, http://www.marisec.org/shippingfacts/(last visited Mar. 31, 2010).
(7.) Geoff Garfield, Default by one party setting off other claims down hire chain, TradeWinds, Jan 9, 2009.
(8.) Keith Wallis, The B all and end all of litigation?, Lloyd's List, Jan. 9, 2009; Sandra Speares, Security takes centre stage in pursuit of maritime claims; Rule B attachments gaining in popularity, Lloyd's List, Feb. 18, 2009; Sandra Speares, Arbitrators on call as contract disputes soar, Lloyd's List, Jan. 22, 2009.
(9.) Keith Wallis, The B all and end all of litigation?, Lloyd's List, Jan. 9, 2009; Sandra Speares, Security takes centre stage in pursuit of maritime claims; Rule B attachments gaining in popularity, Lloyd's List, Feb. 18, 2009; Sandra Speares, Arbitrators on call as contract disputes soar, Lloyd's List, Jan. 22, 2009.
(10.) Kalafrana Shipping Ltd. v. Sea Gull Shipping Co. Ltd., 591 F. Supp. 2d 505 (S.D.N.Y. 2008); Stolt-Nielsen Transp. Group, BV v. Lio Yag Sanayi ve Ticaret A.S., 330 Fed. Appx. 207 (2d. Cir. 2009); Jim Mulrenan, Britannia battle, TradeWinds, Dec. 31, 2008; Bob Rust, US judge gets tough on non-maritime fund freezing, TradeWinds, Oct. 9, 2008.
(11.) Summary of February 3, 2009 Meeting Between Rule B Subcommittee of the City Bar Admiralty Committee and SDNY Judges; Lloyd's List, Arbitrators on call as contract disputes soar, Jan. 22, 2009.
(12.) Rajesh Joshi, Following the Money, Lloyd's List, Mar. 10, 2009.
(13.) Fed. R. Civ. P. Supp. B(1).
(14.) Stolt-Nielsen Transp. Group, BV v. Lio Yag Sanayi ve Ticaret A.S., 330 Fed. Appx. 207, 208 (2d. Cir. 2009); Williamson v. Recovoery Ltd. P'ship, 542 F.3d 43, 48 (2d Cir. 2008); Frevola, Maritime Arrests and Attachments in the United States, Lloyd's Maritime Academy's 13th Annual Comprehensive Guide to Ship Arrest 2007, London, England, November 2007, p. 6-8.
(15.) Fed. R. Civ. P. Supp. C. A Rule C Arrest, which is most often known as "ship arrest," is an action in rem available under Rule C of the Supplemental Rules. Unlike in arrest, however, property attached under Rule B does not have to be maritime-related and there doesn't have to be an existing lien on the property. Rule B attachment requires only an in personam maritime claim and any tangible property (which could include the ship itself) or intangible property in the district belonging to the defendant. Plaintiffs can use these two maritime security features in tandem with one another, which is a unique feature of U.S. law, if the total security demanded for the claim is large enough to warrant it. William Tetley, Arrest, Attachment, and Related Maritime Law Procedures, 73 Tul. L. Rev. 1895, 1905-1935 (1999); Frevola, Maritime Arrests and Attachments in the United States, in: Lloyd's Maritime Academy's 13th Annual Comprehensive Guide to Ship Arrest 2007, London, England, November 2007, p. 6-8).
(16.) Teyseer Cement Co. v. Halla Maritime Corp., 794 F.2d 472 (9th Cir. 1986).
(17.) Great Prize, S.A. v. Mariner Shipping Pty, Ltd., 967 F.2d 157, 159 (5th Cir. 1992).
(18.) The effect of the landmark Supreme Court case on quasi in rem jurisdiction, Shaffer v. Heitner, on maritime attachment is discussed in Section 3.1.
(19.) Teyseer Cement Co. v. Halla Maritime Corp., 794 F.2d 472, 477 (9th Cir. 1986).
(20.) Great Prize, S.A. v. Mariner Shipping Pty., Ltd., 967 F.2d 157 (5th Cir. 1992).
(21.) Id at 160.
(22.) Freer, p. 42-46.
(23.) Teyseer Cement Co. v. Halla Maritime Corp., 794 F.2d 472, 476-77 (9th Cir. 1986).
(24.) Id. at 477-478.
(26.) Polar Shipping Ltd. v. Oriental Shipping Corp., 680 F.2d 627 (9th Cir. 1982); Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263 (2d Cir. 2002); Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434 (2d Cir. 2006); Consub Delaware LLC v. Schahin Engenharia Limitada, 543 F.3d 104 (2d. Cir. 2008); Frevola, Maritime Arrests and Attachments in the United States, in: Lloyd's Maritime Academy's 13th Annual Comprehensive Guide to Ship Arrest 2007, London, England, November 2007, p. 7.
(27.) Swift & Co. Packers v. Compania Colombiana Del Caribe, 339 U.S. 684, 693 (1950). In Seawind Compania, S.A. v. Crescent Line, Inc., the Second Circuit stated that the purpose of Rule B is for a plaintiff to obtain in personam jurisdiction over a defendant through his property, citing the Supreme Court decision Swift & Co. Packers v. Compania Colombiana del Caribe. Seawind arguably overstates, what the Supreme Court in Swift & Co. Packers actually said. The relevant passage from Swift & Co. Packers reads, "[t] he process of foreign attachment is known of old in admiralty. It has two purposes: to secure a respondent's appearance and to assure satisfaction in case the suit is successful." Swift & Co. Packers v. Compania Colombiana del Caribe, S.A., 339 U.S. 684, 693 (1950) (citing Manro v. Almeida, 23 U.S. (10 Wheat.) 473, 489 (1825)). Though federal courts have agreed that, "to secure a respondent's appearance" meant the assertion of jurisdiction over a defendant, there has been some discrepancy over whether the type of jurisdiction to be asserted over the defendant is in personam or quasi in rem. Compare Great Prize, S.A. v. Mariner Shipping Pty, Ltd., 967 F.2d 157 (5th Cir. 1992) with East Asiatic Co. v. Indomar, Ltd., 422 F. Supp 1335 (S.D.N.Y 1976). Consequently, it is not uncommon to read in some court decisions and law review articles that a Rule B attachment asserts in personam jurisdiction over a defendant, or at the very least, it compels the assertion of in personam jurisdiction over the defendant. However, the Ninth Circuit squarely addressed the "nature of Rule B jurisdiction" in Teyseer Cement Co. v. Halla Maritime Corp. and ruled that, "the nature of the jurisdiction the court acquires by a Rule B attachment is properly denominated 'quasi in rem' because any judgment rendered is limited to the value of the attached property." Teyseer Cement Co. v. Halla Maritime Corp., 794 F.2d 472, 477 (9th Cir. 1986). More recent decisions from the Second Circuit such as Winter Storm Shipping u. TPI and Aqua Stoli Shipping v. Gardner Smith Party, Ltd. have not adopted the Seawind position that the purpose of Rule B is to necessarily gain in personam jurisdiction.
(28.) Fed. R. Civ. P. Supp. B(1).
(29.) Fed. R. Civ. P. Supp. A.
(30.) Dove, Admiralty and Maritime Law Conference 2007, p. 6.
(31.) Kossick v. United Fruit Co., 365 U.S. 731, 742 (1961); Kalafrana Shipping Ltd. v. Sea Gull Shipping Co. Ltd., 591 F. Supp. 2d 505 (S.D.N.Y. 2008); Hohenstein, Pratt's Journal of Bankruptcy Law September 2008, p. 540-542; Sandra Speares, Security takes centre stage in pursuit of maritime claims; Rule B attachments gaining in popularity, Lloyd's List, Feb. 18, 2009.
(32.) Fed. R. Civ. P. Supp. B advisory committee notes (hereinafter "Advisory Committee Notes") to the 1966, 1985, and 2000 amendments; Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 445 (2d. Cir. 2006).
(33.) "The plaintiff or the plaintiffs attorney must sign and file with the complaint an affidavit stating that, to the affiant's knowledge, or on information and belief, the defendant cannot be found within the district. The court must review the complaint and affidavit and, if the conditions of this Rule B appear to exist, enter an order so stating and authorizing process of attachment and garnishment. The clerk may issue supplemental process enforcing the court's order upon application without further court order." Fed. R. Civ. P. Supp. B(l).
(34.) Advisory Committee Notes.
(35.) Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 443 (2d. Cir. 2006) (citing Seawind Compania, S.A. v. Crescent Line, Inc., 320 F.2d 580, 582 (2d. Cir. 1963)).
(36.) International Shoe Co. v. Washington, 326 U.S. 310 (1945).
(37.) Seawind Compania, S.A. v. Crescent Line, Inc. 320 F.2d 580, 582 (2d. Cir. 1963).
(38.) Seawind Compania, S.A. v. Crescent Line, Inc. 320 F.2d 580, 582 (2d. Cir. 1963).
(39.) Seawind Compania, S.A. v. Crescent Line, Inc. 320 F.2d 580, 582 (2d. Cir. 1963); Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 442 (2d. Cir. 2006). In Integrated Container Serv. Inc. v. Starlines Container Shipping, Ltd., the court criticized the Seawind test as "arbitrary" and stated that "[n]o matter how convincingly demonstrated the plaintiffs need for security, it will not authorize attachment against a defendant who is present in the district in both senses. On the other hand, the fact that a defendant can be subjected to the court's in personam jurisdiction by virtue of the presence of a resident agent for service of process will not suffice to defeat the attachment if the defendant is not otherwise present in the district in the jurisdictional sense; nor will the fact that the defendant is present in the jurisdictional sense suffice, if he cannot be found for service of process within the district. This test amounts to a somewhat arbitrary compromise which assumes that the plaintiff will not require the protection of an attachment for security, nor should the defendant be subjected to it, if the defendant is present in both senses, and assumes on the other hand that the plaintiffs interests are not adequately protected despite the ability to perfect in personam jurisdiction if the defendant is not present in both senses." Integrated Container Serv., Inc. v. Starlines Container Shipping, Ltd., 476 F. Supp. 119, 122 (S.D.N.Y. 1979)).
(40.) Seawind Compania, S.A. v. Crescent Line, Inc. 320 F.2d 580, 582 (2d. Cir. 1963); Dove, Admiralty and Maritime Law Conference 2007, p. 14.
(41.) Fed. R. Civ. P. Supp. E(3)(a); Dove, Admiralty and Maritime Law Conference 2007, p. 17-20.
(42.) Fed. R. Civ. P. Supp. B(l).
(43.) Fed. R. Civ. P. Supp. B(l)(d)(i).
(44.) Fed. R. Civ. P. Supp. B(l)(d)(ii).
(45.) Dove, Admiralty and Maritime Law Conference 2007, p. 18-20.
(46.) Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 445 (2d. Cir. 2006).
(47.) Fed. R. Civ. P. Supp. E(4)(f).
(48.) Fed. R. Civ. P. Supp. E(7); Frevola, Rule E(7) Counter-Security in the U.S.--A New Trend in Rule B Maritime Attachments, Vol 14, Issue 3 J. Int'l Maritime, 260-263 (2008).
(49.) Rule E(7) Counter-Security in the U.S.--A New Trend in Rule B Maritime Attachments, in: The Journal of International Maritime Law 2008, 260-263; Dove, Admiralty and Maritime Law Conference 2007, p. 30-31.
(50.) Dove, Admiralty and Maritime Law Conference 2007, p. 30-31.
(51.) Tetley, supra note 16, at 1898. The Supreme Court in Manro u. Almeida called maritime attachment an "ancient" practice that predated the Constitution in both the civil and common-law traditions. Manro v. Almeida, 23 U.S. (10 Wheat.) 473, 479 (1825). Similarly, the Second Circuit in Aqui Stoli noted that, "[t]he power to grant attachments in admiralty is an inherent component of the admiralty jurisdiction given to the federal courts under Article III of the Constitution." Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 437 (2d Cir. 2006)). After being codified in 1844 as Admiralty Rule 2, maritime attachment became available under Rule B in 1966 as part of the Supplemental Rules. The rule was further amended in 1985 to address constitutional inconsistencies raised by some recent Supreme Court decisions on jurisdiction. Advisory Committee Notes.
(52.) Tetley, supra note 16, p. 1898.
(53.) Jillian L. Benda, No Calm After the Storm: The Rise of the Rule B Attachment Cottage Industry, 31 Tul. Mar. L. J. 95, 97-98 (2006).
(55.) Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263, 273 (2d Cir. 2002); Schiffahartsgesellschaft Leonhardt & Co. v. A. Bottacchi S.A. de Navegacion, 773 F.2d 1528, 1531-32 (11th Cir. 1985).
(56.) In re Louisville Underwriters, 134 U.S. 488, 493 (1890).
(57.) Polar Shipping Ltd. v. Oriental Shipping Corp., 680 F.2d 627 (9th Cir. 1982). See Section 3.2 for a full discussion of the effect of forum selection clauses on Rule B attachments.
(58.) Benda, supra note 54, 97-98. "Modern maritime practice may not be any more transient, and maritime companies may not be any more financially insolvent or judgment-prone than other modern industries subject to general civil procedure's more stringent strictures. In an increasingly technological world, even maritime companies must adapt." Id. It would perhaps be fair to say that the needs of the maritime plaintiff in the modern era are very much the same as they were before, but the modern maritime plaintiffs needs in comparison to other plaintiffs needs may not be as'unique as they once were.
(59.) Consub Delaware LLC v. Schahin Engenharia Limitada, 543 F.3d 104, 11213 (2d. Cir. 2008); Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263 (2d Cir. 2002).
(60.) Dove, Admiralty and Maritime Law Conference 2007, p. 50.
(61.) Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263, 268-74 (2d Cir. 2002).
(62.) Seawind Compania, S.A. v. Crescent Line, Inc. 320 F.2d 580 (2d. Cir. 1963); See also James E. Hildebrandt, A Substantive Due Process Analysis of Supplemental Rule B in Admiralty: Does Due Process Require "Minimum Contacts" to Maintain In Personam Jurisdiction Against a Nonresident Defendant?, 8 U.S.F. Mar. L.J. 339 (1996).
(63.) Shaffer v. Heitner, 433 U.S. 186 (1977).
(64.) Shaffer v. Heitner, 433 U.S. 186, (1977).
(66.) Id. at 209.
(67.) Id. at 207 (internal citations omitted).
(69.) Dove, Admiralty and Maritime Law Conference 2007, p. 50; Advisory Committee Notes, 1985 Amendments. Discussed further in Section 1.4.
(70.) Shaffer v. Heitner, 433 U.S. 186, 210 (1977).
(71.) Id. at 211.
(72.) Id. at 212 (citing Ownbey v. Morgan, 256 U.S. 94 (1921)).
(73.) Dove, Admiralty and Maritime Law Conference 2007, p. 50. A large portion of the constitutional challenges to Rule B were procedural challenges to the exparte attachment of a defendant's property and lack of notice of process. See, e.g., Sniadach v. Family Finance Corp. 395 U.S. 337 (1969)). The 1985 Amendments appear to have resolved most these challenges and consequently this paper does not address these challenges in detail. See the Advisory Committee Notes to 1985 Amendments.
(74.) Amoco Overseas Oil Co. v. Compagnie Nationale Algerienne de Navigation, 605 F.2d 648 (2d Cir. 1979); Polar Shipping Ltd. v. Oriental Shipping Corp., 680 F.2d 627 (9th Cir. 1982); Schiffahartsgesellschaft Leonhardt & Co. v. A. Bottacchi S.A. de Navegacion, 773 F.2d 1528 (11th Cir. 1985); Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263 (2d Cir. 2002).
(75.) Amoco Overseas Oil Co. v. Compagnie Nationale Algerienne de Navigation, 605 F.2d 648, 655 (2d Cir. 1979).
(76.) Fed. R. Civ. P. 4(n)76.
(77.) Amoco Overseas Oil Co. v. Compagnie Nationale Algerienne de Navigation, 605 F.2d 648 (2d Cir. 1979); Polar Shipping Ltd. v. Oriental Shipping Corp., 680 F.2d 627 (9th Cir. 1982); Schiffahartsgesellschaft Leonhardt & Co. v. A. Bottacchi S.A. de Navegacion, 773 F.2d 1528 (11th Cir. 1985); Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263 (2d Cir. 2002).
(78.) Advisory Committee Notes, 1985 Amendments.
(79.) M/S Bremen and Unterweser Reederei, GmBH v. Zapata Off-Shore Company, 407 U.S. 1 (1972). Bremen also involved a ship arrest, though it was the ability to bring the underlying maritime claim for damages in the forum that was at dispute and not the arrest itself. See also Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991).
(80.) M/S Bremen and Unterweser Reederei, GmBH v. Zapata Off-Shore Company, 407 U.S. 1, 13-14 (1972).
(81.) Brief of The Clearing House Association L.L.C., as Amicus Curiae Supporting Defendant-Appellee, The Shipping Corporation of India Ltd. v. Jaldhi Overseas Pte Ltd., 585 F.3d 58 (2d Cir. 2009).
(82.) Polar Shipping Ltd. v. Oriental Shipping Corp., 680 F.2d 627 (9th Cir. 1982). The Circuit Court recognized that neither it nor the Supreme Court in Bremen had addressed this issue before.
(84.) Id. at 629.
(85.) Id. at 632
(87.) Id. at 632-33.
(88.) Polar Shipping, 680 F.2d at 33. (internal citations omitted).
(90.) Polar Shipping Ltd. v. Oriental Shipping Corp., 680 F.2d 627 (9th Cir. 1982); Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263 (2d Cir. 2002), Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434 (2d Cir. 2006), Consub Delaware LLC v. Schahin Engenharia Limitada, 543 F.3d 104 (2d. Cir. 2008).
(91.) Consub Delaware LLC v. Schahin Engenharia Limitada, 543 F.3d 104 (2d. Cir. 2008)
(92.) Keith Wallis, The B all and end all of litigation?, Lloyd's List, Jan. 9, 2009.
(93.) Winter Storm Shipping, Ltd., v. TPI, 310 F.3d 263 (2d Cir. 2002).
(94.) Noble Shipping, Inc. v. Euro-Maritime Chartering Ltd., 2003 WL 23021974, *3 (S.D.N.Y. 2003); U.S. v. Daccarett, 6 F.3d 37, 43-44 (2nd Cir. 1993); Dove, Admiralty and Maritime Law Conference 2007, p. 33-34
(95.) Navalmar (U.K.) Ltd. v. Welspun Gujarat Stahl Rohren, Ltd., 485 F. Supp. 2d 399, 406 (S.D.N.Y Apr. 24, 2007).
(96.) Winter Storm Shipping, Ltd., v. TPI, 310 F.3d 263, 278 (2d Cir. 2002).
(97.) Id. at 273.
(98.) Id. at 265.
(99.) Id. at 266.
(100.) Id. at 265-268.
(101.) Winter Storm Shipping, Ltd., v. TPI, 310 F.3d 263 (2d Cir. 2002).
(102.) Dove, Admiralty and Maritime Law Conference 2007, p. 34 - 41.
(103.) Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 445-46 (2d Cir. 2006); Seamar Shipping Corp. v. Kremikovtzi Trade Ltd., 461 F. Supp. 2d 222, 224-26 (S.D.N.Y. 2006).
(104.) Navalmar (U.K.) Ltd. v. Welspun Gujarat Stahl Rohren, Ltd., 485 F. Supp. 2d 399 (S.D.N.Y 2007).
(105.) General Tankers Pte. Ltd., v. Kundan Rice Mills Ltd., 475 F. Supp. 2d 396 (S.D.N.Y. 2007).
(106.) Winter Storm Shipping, Ltd., v. TPI, 310 F.3d 263, 274-79 (2d Cir. 2002).
(108.) Fed. R. Civ. P. Supp. B
(109.) Brief of The Clearing House Association L.L.C., as Amicus Curiae Supporting Defendant-Appellee, The Shipping Corporation of India Ltd. v. Jaldhi Overseas Pte Ltd., 585 F.3d 58 (2d Cir. 2009).
(110.) General Tankers Pte. Ltd., v. Kundan Rice Mills Ltd., 475 F. Supp. 2d 396, 399 (S.D.N.Y. 2007). Regardless, at least one court in the Southern District of New York has continued to view EFTs in terms of exclusive property interests and does not allow the attachment of EFTs en route to the defendant as the beneficiary. The court argues that such an interpretation comes from the precedent set in Winter Storm, which was a narrow holding that only condoned EFT attachment when the defendant was originator. Seamar Shipping Corp. v. Kremikovtzi Trade Ltd., 461 F. Supp. 2d 222, 224-25 (S.D.N.Y. 2006). This analysis has been widely rejected by other judges in the district, as they have interpreted the language in Winter Storm regarding debts that haven't matured yet as attachable property to allow the attachment of EFTs. Navalmar (U.K.) Ltd. v. Welspun Gujarat Stahl Rohren, Ltd., 485 F. Supp. 2d 399, 407 (S.D.N.Y 2007); General Tankers Pte. Ltd., v. Kundan Rice Mills Ltd., 475 F. Supp. 2d 396, 298-99 (S.D.N.Y. 2007).
(111.) Winter Storm Shipping, Ltd., v. TPI, 310 F.3d 263, 276 (2d Cir. 2002).
(112.) General Tankers Pte. Ltd., v. Kundan Rice Mills Ltd., 475 F. Supp. 2d 396, 399 (S.D.N.Y. 2007). "Between Winter Storm and Aqua Stoli, courts in this Circuit quickly accepted beneficiaries as well as the originators of EFTs have a property interest in those funds while in transit." Id.
(113.) Brief of The Clearing House Association L.L.C., as Amicus Curiae Supporting Defendant-Appellee, The Shipping Corporation of India Ltd. v. Jaldhi Overseas Pte Ltd., 585 F.3d 58 (2d Cir. 2009); Brief of The Clearing House Association L.L.C., as Amicus Curiae Supporting Defendant-Appellee, Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 445-46 (2d Cir. 2006), 2006 WL 4802067; Brief of New York Clearing House Association L.L.C., as Amicus Curiae Supporting Defendant-Appellees, Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263 (2d Cir. 2002), 2002 WL 32422969.
(114.) Consub Delaware LLC v. Schahin Engenharia Limitada, 543 F.3d 104, 109 (2d. Cir. 2008).
(115.) Brief of The Clearing House Association L.L.C., as Amicus Curiae Supporting Defendant-Appellee, The Shipping Corporation of India Ltd. v. Jaldhi Overseas Pte Ltd., 585 F.3d 58 (2d Cir. 2009).
(116.) N.Y. U.C.C. Law [section] 4-A-503; Winter Storm said that this rule was made in favor of banks and worked an unacceptable prejudice to maritime attachment. Winter Storm Shipping, Ltd., v. TPI, 310 F.3d 263, 279-80 (2d Cir. 2002).
(117.) The Clearing House Association L.L.C., Brief of Amicus Curiae in The Shipping Corporation of India Ltd. v. Jaldhi Overseas Pte Ltd. (2009); Consub Delaware LLC v. Schahin Engenharia Limitada, 543 F.3d 104 (2d. Cir. 2008).
(118.) Winter Storm Shipping, Ltd., v. TPI, 310 F.3d 263, 275-78 (2d Cir. 2002).
(119.) Id. at 278-280.
(120.) Id. at 276 (citing United States v. Daccarett, 6 F.3d 37, 55 (2d Cir 1993)).
(121.) Id. at 277.
(122.) Id. at 278.
(123.) Id. at 279 (citing American Dredging Co. v. Miller, 510 U.S. 443, 446-47 (1994)).
(124.) Winter Storm Shipping, Ltd., 310 F.3d 279-80.
(125.) Jillian L. Benda, No Calm After the Storm: The Rise of the Rule B Attachment Cottage Industry, 31 Tul. Mar. L. J. 95, 103-108 (2006),.
(126.) Keith Wallis, The B all and end all of litigation?, Lloyd's List, Jan. 9, 2009.
(127.) Frevola, Maritime Arrests and Attachments in the United States, in: Lloyd's Maritime Academy's 13th Annual Comprehensive Guide to Ship Arrest 2007, London, England, November 2007, p. 11.
(128.) Bob Rust, Ambassador intervenes in Rusal battle, TradeWinds, Apr. 3, 2009; Lloyd's List, Korea Line swamped by claims; $1.8 deluge comes as three other claims end, Jan. 23, 2009.
(129.) Bob Rust, Ailing operator wins some time, TradeWinds, Oct. 27, 2008; Lloyd's List, Korea Line swamped by claims; $1.8 deluge comes as three other claims end, Jan. 23, 2009; Jerry Frank, Bunker suppliers get tough on unpaid bills, Lloyd's List, Jan. 22, 2009.
(130.) Bob Rust, Big Freeze, TradeWinds, Dec. 17, 2008. "The special US rules for freezing cash in maritime disputes have made defaulting on maritime contracts a dicey undertaking for foreign companies that are too big to hide their assets." Id.
(131.) It is likely, however, that this transaction would in fact be done in dollars. See Rajesh Joshi, Rule B dealt a crippling blow, Lloyd's List, Feb. 16, 2009
(132.) Kalafrana Shipping Ltd. v. Sea Gull Shipping Co. Ltd., 591 F. Supp. 2d 505 (S.D.N.Y. 2008); Stolt-Nielsen Transp. Group, BV v. Lio Yag Sanayi ve Ticaret A.S., 330 Fed. Appx. 207 (2d. Cir. 2009); Bob Rust, US judge gets tough on non-maritime fund freezing, TradeWinds, Oct. 9, 2008; Jim Mulrenan, Britannia battle, TradeWinds, Dec. 31, 2008.
(133.) Consub Delaware LLC v. Schahin Engenharia Limitada, 543 F.3d 104 (2d. Cir. 2008); STX Panocean (UK) Co., Ltd. v. Glory Wealth Shipping Pte Ltd., 560 F.3d 127 (2d Cir. 2009).
(134.) Rajesh Joshi, Following the Money, Lloyd's List, Mar. 10, 2009.
(135.) Kalafrana Shipping Ltd. v. Sea Gull Shipping Co. Ltd., 591 F. Supp. 2d 505 (S.D.N.Y. 2008).
(136.) Bob Rust, US judge gets tough on non-maritime fund freezing, TradeWinds, Oct. 9, 2008.
(137.) Jim Mulrenan, Britannia battle, TradeWinds, Dec. 31, 2008; Jim Mulrenan, Relief for Armada, TradeWinds, Jan. 16, 2009.
(138.) Stolt-Nielsen Transp. Group, BV v. Lio Yag Sanayi ve Ticaret A.S., 330 Fed. Appx. 207 (2d. Cir. 2009).
(139.) Cala Rosa Marine Co. Ltd. v. Sucres et Deneres Group, 613 F. Supp. 2d 426 (S.D.N.Y. 2009).
(140.) Rajesh Joshi, Following the Money, Lloyd's List, Mar. 10, 2009.
(141.) Summary of February 3, 2009 Meeting Between Rule B Subcommittee of the New York City Bar Admiralty Committee and SDNY Judges.
(142.) Id. See also, Rajesh Joshi, NY judges move to standardize Rule B orders, Lloyd's List, Apr. 8, 2009.
(143.) Summary of February 3, 2009 Meeting Between Rule B Subcommittee of the City Bar Admiralty Committee and SDNY Judges; Bob Rust, Judge slams 'Rule B' rodeo, TradeWinds, Feb. 13, 2009.
(144.) Id. Summary of February 3, 2009 Meeting Between Rule B Subcommittee of the City Bar Admiralty Committee and SDNY Judges.
(145.) Bob Rust, Judge slams 'Rule B' rodeo, TradeWinds, Feb. 13, 2009.
(146.) Consub Delaware LLC v. Schahin Engenharia Limitada, 543 F.3d 104, 10809 (2d. Cir. 2008).
(147.) Id. at 106.
(148.) Id. at 107.
(150.) Id. at 109. Schahin petitioned the Second Circuit for a hearing en banc but the Court denied the petition.
(152.) Consub Delaware LLC, 543 F.3d at 112.
(153.) Id. at 109.
(154.) Bob Rust, Clarification of 'Rule B' moves one step closer, TradeWinds, Feb. 20, 2009.
(155.) Seawind Compania, S.A. v. Crescent Line, Inc., 320 F.2d 580, 582 (2d Cir. 1963); Fed. R. Civ. P. Supp. B.
(156.) STX Panocean (UK) Co., Ltd. v. Glory Wealth Shipping Pte Ltd., 560 F.3d 127, 133 (2d Cir. 2009) (citing Marimed Shipping, Inc. v. Persian Gulf Shipping Co., 567 F. Supp. 2d 524 (S.D.N.Y. 2008)).
(157.) Erne Shipping Inc. v. HBC Hamburg Bulk Carriers GMBH & Co. KG, 409 F. Supp. 2d 427 (S.D.N.Y. 2006).
(158.) STX Panocean (UK) Co., Ltd. v. Glory Wealth Shipping Pte Ltd., 560 F.3d 127 (2d Cir. 2009).
(159.) Id. at 130.
(160.) Id. at 130-31.
(161.) Id. at 132. The court notes that, although presiding over a federal law matter, it is common practice for states to define what constitutes minimum contacts to obtain personal jurisdiction in that state within the boundaries of federal law precedent and due process requirements of the Constitution. Additionally, the court specifically cited federal cases that had upheld the New York state practice of recognizing personal jurisdiction from registering with the state.
(162.) Id at 134.
(163.) Id. at 133.
(164.) Eric Martin, Rule B 'blow,' TradeWinds, Mar. 20, 2009.
(165.) Integrated Container Serv. Inc. v. Starlines Container Shipping, Ltd., 476 F. Supp. 119 (S.D.N.Y. 1979).
(166.) STX Panocean (UK) Co., Ltd., 560 F.3d at 131-32.
(167.) Integrated Container Serv. Inc. v. Starlines Container Shipping, Ltd., 476 F. Supp. 119 (S.D.N.Y. 1979).
(168.) Id at 124.
(169.) STX Panocean (UK) Co., Ltd., 560 F.3d at 132-33.
(170.) Sandra Speares, Security takes centre stage in pursuit of maritime claims; Rule B attachments gaining in popularity, Lloyd's List, Feb. 18, 2009.
(171.) STX Panocean (UK) Co., Ltd., 560 F.3d at 130 (quoting Seawind Compania, S.A. v. Crescent Line, Inc., 320 F.2d 580, 582 (2d Cir. 1963)).
(172.) M/S Bremen and Unterweser Reederei, GmBH v. Zapata Off-Shore Company, 407 U.S. 1 (1972).
(173.) Polar Shipping Ltd. v. Oriental Shipping Corp., 680 F.2d 627 (9th Cir. 1982); Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263 (2d Cir. 2002); Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434 (2d Cir. 2006); Consub Delaware LLC v. Schahin Engenharia Limitada, 543 F.3d 104 (2d. Cir. 2008).
(174.) STX Panocean (UK) Co., Ltd., 560 F.3d at 130.
(175.) Consub Delaware LLC v. Schahin Engenharia Limitada, 543 F.3d 104 (2d. Cir. 2008).
(176.) The Shipping Corporation of India Ltd. v. Jaldhi Overseas Pte Ltd.. 585 F.3d 58, 64 (2d Cir. 2009).
(177.) Id at 64-65.
(178.) Id. at 65-66.
(179.) Id. at 67.
(180.) Winter Storm Shipping, Ltd., v. TPI, 310 F.3d 263 (2d Cir. 2002); Consub Delaware LLC v. Schahin Engenharia Limitada, 543 F.3d 104, 108-09 (2d. Cir. 2008); STX Panocean (UK) Co., Ltd. v. Glory Wealth Shipping Pte Ltd., 560 F.3d 127 (2d Cir. 2009). But see The Shipping Corporation of India Ltd. v. Jaldhi Overseas Pte Ltd. "Upon further consideration, we find Winter Storm's reasons unpersuasive and its consequences untenable" Overseas Pte Ltd., 585 F.3d at 69,
(181.) Brief of the Maritime Law Association, as Amicus Curiae, The Shipping Corporation of India Ltd. v. Jaldhi Overseas Pte Ltd., 585 F.3d 58 (2d Cir. 2009).
(182.) Winter Storm Shipping, Ltd., 310 F.3d at 279
(183.) Id., petition for cert. Filed, 78 USLW 3447, 78 USLW 3542, 78 USLW 3548 (U.S. Mar 22, 2010) (NO. 09-849).
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|Title Annotation:||Federal Rules of Civil Procedure|
|Publication:||Loyola Maritime Law Journal|
|Date:||Sep 22, 2010|
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