Supplemental Rule B for Certain Admiralty and Maritime Claims (“Rule B”) provides “If a defendant is not found within the district…, 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.” The remedy had traditionally been used to attach any property of a defendant such as bunkers, real property, and funds held in bank accounts.
In 2002 the United States Court of Appeals for the Second Circuit, in the case of Winter Storm Shipping, Ltd. v. TPI, held that electronic fund transfers (EFTs) could be seized under Federal Supplemental Admiralty Rule B as the funds momentarily pass through intermediary banks on the way to their final destination. 310 F.3d 263 (2d Cir. 2002). Since the Second Circuit’s jurisdiction includes New York, and since a majority of EFTs involving international dollar transactions pass through New York intermediary banks, this ruling meant that a vast array of payments could be seized as they electronically passed through New York, even though the parties and transactions had no relationship with New York or with the intermediary banks. The Winter Storm decision led to an explosion in Rule B cases in New York, and gave rise to a cottage industry of attorneys and others specializing in Rule B collection. Banks have been forced to spend significant time and money responding to Rule B writs and monitoring their transfers. Banks and commercial interests have also argued that this permissive mechanism for seizing EFTs has discouraged international companies from engaging in U.S. dollar transactions or using New York banks for international agreements. Despite criticism of the Winter Storm rule from many quarters the Second Circuit has rejected repeated requests to reverse this ruling, most recently doing so in its 2008 decision of Consub Delaware, LLC v. Schahin Engenharia Limitada, 543 F.3d 104 (2nd Cir. 2008).
However, on October 16, 2009, the Second Circuit issued a decision in The Shipping Corporation of India Ltd. v. Jaldhi Overseas Pte. Ltd., overruling Winter Storm, and finding that EFTs are not the “property” of the defendant while they pass through intermediary banks and are therefore not subject to Rule B attachment while in the hands of those banks. 2009 WL 3319675 (2nd Cir. Oct. 16, 2009). In essence, the Court based its ruling on two grounds: (1) the Winter. Storm court had incorrectly concluded that prior case law supported the finding that EFTs were attachable property and (2) in the absence of controlling admiralty law precedent, the court should have looked to New York state law, which says that EFTs are not the property of the transferor or transferee while in transit. This in effect means that the much used Rule B attachment of funds in New York is over. While this decision in effect ends the common practice of filing Rule B attachments against EFTs in New York, the traditional use of Rule B attachment to attach property still exists.
DRAFTED NOVEMBER 16, 2009