Tuesday, October 05, 2010
Robyn Monaco, Rutgers Newark School of Law '11 and Political Science Masters Candidate '12, writes about her experience with Maritime Writs of Attachment in the New York banking industry and the veritable blizzard of filings brought on by a single court decision...
Maritime Writs of Attachment under Federal Admiralty Rule B rose to prominence in New York as a result of Winter Storm Shipping Ltd v. TPI. The decision in Winter Storm allowed money to be seized as it passed through New York intermediary banks in the form of an EFT. Rule B allows a claimant to file an ex parte verified complaint against a defendant who cannot be found within the jurisdiction. A writ is issued to attach the defendant's tangible or intangible property held with a garnishee in the district. Winter Storm interpreted "tangible or intangible property" to include EFTs moving through intermediary banks within the Southern District of New York. Pursuant to Winter Storm, after the initial personal service, supplemental service could be faxed or e-mailed daily per the garnishee bank's permission.
By 2007 over two hundred writs were being faxed to New York intermediary banks every day, each one seeking an average of two to three million dollars in damages. Each EFT wire passing through an intermediary bank was scanned for the defendant's name and if found, a maritime attorney would review the matter. If the defendant was either the originating party or beneficiary, the funds were suspended pending judgment. The attachment of the funds in New York then served as property for the purposes of jurisdiction over the foreign defendant. Only then could a judgment be entered to turn over the funds.
Due to the effect of Winter Storm in the Second Circuit, the Rule B attachment business in New York grew exponentially. By early 2009, my bank was receiving over six hundred writs by fax daily, representing over a billion dollars in damages. The judges were faced with a constant stream of Rule B matters in the courtroom. Plaintiffs had filed over nine hundred lawsuits - one third of new matters in the Southern District. Each day, I processed up to twenty EFTs stopped by the scan. The bank's attorney would notify the plaintiff's attorney, and no funds could be released without the plaintiff's consent.
To deal with the substantial increase in volume, my bank purchased four more double fax machines to handle the ten reams of paper printed every day. The bank did not recoup any costs for increased operating expenditures. Three full-time employees were devoted to the maritime attachments. It was my responsibility to process the wires when they were stopped and notify the attorney. I kept spreadsheets of the money that was being stopped and released or held. The delay caused great distress for the banks and their customers. As these were ex parte orders, a wire stop was the first time a defendant was even aware that there was any legal action pending. In addition, the other party to the wire transfer had nothing to do with the dispute, and did not know or understand why funds could not go through. The banks were subject to the court order, and were powerless to release the funds. I was intrigued by this area of the law, and discussed these new developments with the attorneys. It was also a prominent topic of discussion in the Southern District courts.
Industry-wide meetings were held to discuss the phenomenon of the Rule B attachment. Solutions ranged from model forms for the court to bank charges for serving the writs. In addition to the burden on the courts and the banks, if Rule B attachments on EFTs continued, the use of the U.S. dollar in international transactions could have been compromised. Companies began using another currency to conduct maritime transactions, trying to avoid the uncertainty of an intercepted wire transfer thwarting international commerce. The possibility that New York would eventually cease to be the center of international finance was also a concern of the banks.
The flurry of Rule B activity came to an abrupt halt in October of 2009 with the sweeping decision in The Shipping Corp. of India Ltd v. Jaldhi Overseas PTE Ltd. Jaldhi held that electronic funds transfers are not subject to Rule B attachments while in the temporary "possession" of intermediary banks, overruling Winter Storm. The court looked to New York law, which does not allow attachment of EFTs, stating that funds are neither the originator's nor the beneficiary's when passing through intermediary banks (N.Y.U.C.C. Law § § 4-A-502-04).
In furtherance of Jaldhi, Hawknet, Ltd. v. Overseas Shipping Agencies concluded that Jaldhi applied retroactively to any outstanding Rule B attachment. The holding severely affected some law firms. There were cottage industries that had relied primarily on Rule B attachments during an already crippling economy. In addition, Rule B attachments were no longer available to those who had suffered damages in shipping transactions.
When the Shipping Corp. of India (SCI) petitioned the United States Supreme Court for certiorari, I checked almost daily for an update. The Clearing House Association L.L.C. submitted an amicus curiae brief in opposition to the petition. Then the Maritime Law Association motioned for leave to file an amicus curiae brief in support of the petitioner. I discussed the issue from every angle with co-workers and attorneys. Which party did the funds belong to during an electronic funds transfer? Was this a federal admiralty issue under the United States Code or did New York state law apply? In an age of technological advances like the World Wide Web, is personal jurisdiction an outdated concept? We were hoping the Supreme Court would answer some of these questions. Unfortunately, certiorari was denied on March 22, 2010. The decision in Jaldhi would stand, which pleased the banks and courts. By not hearing the case, the Supreme Court left the door open for future adjustments within the Southern District of New York.
Ambitious maritime lawyers saw no reason to let the matter rest, seeking to re-attach those funds still being held at intermediary banks. However, the Second Circuit found that wrongly attached funds will not establish a presence in the jurisdiction and the retroactive application in Hawknet will not be mitigated by equitable concerns. See, e.g., Cosco Bulk Carrier Co. v. Stratus Shipping Pty. Ltd. Further, retroactivity will not be reviewed on a case-by-case rebuttable presumption. See, e.g., Scanscot Shipping Servs. GmbH v. Metales Tracomex Ltd..
Thankfully I still have my job with the bank, and have moved on to other things. Occasionally I will process a release of funds when a court order is issued. My goal is to continue learning about international transactions and global compliance. Technological advances in global finance have created a world virtually free of borders for international commerce. When disputes arise, savvy attorneys will be in demand to unravel the conflicts between international, federal, and state law.
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