Update Rule B Attachment of EFTs Shipping Corporation of India Applies Retroactively

Fowler Rodriguez Valdes-Fauli Partner, Philip C. Brickman, weighs in and provides analysis of recent decision of Second Circuit Court.



On November 13, 2009, the U.S. Second Circuit Court of Appeals again addressed the attachment of electronic fund transfers (“EFTs”) pursuant to Rule B of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions (“Supplemental Rule B” or “Rule B”). In a previous article, this author discussed the Second Circuit Court’s decision in The Shipping Corporation of India v. Jaldhi Overseas Pte., Ltd., 2009 U.S. App. LEXIS 22747 (2d Cir. 2009) (hereinafter “SCI”), where the Court overruled its prior decision and held that EFTs are no longer subject to attachment in the New York Federal District Courts pursuant to Rule B. The Second Circuit has now held that this rule applies retroactively. The Court also held that the failure to assert an argument prior to the announcement of a decision which might support that argument does not constitute a waiver.



In Hawknet, Ltd. v. Overseas Shipping Agencies, the plaintiff, Hawknet, entered into an agreement with defendant, Overseas Shipping Agencies (“OSA”), to charter three vessels to carry steel cargos. OSA failed to pay the charter hire and defaulted on the contract. In June 2007, Hawknet filed a maritime attachment lawsuit in the Southern District of New York pursuant to Supplemental Rule B to obtain security for a potential arbitration award. Hawknet successfully attached EFTs held by an intermediary bank in New York belonging to TOM, an entity alleged to be the alter ego of OSA. The District Court ultimately found that Hawknet did not sufficiently show that an alter ego relationship existed between TOM and OSA and vacated the attachment of TOM’s EFT funds on that basis. Hawknet appealed seeking reinstatement of the attachment order. However, TOM submitted a letter brief shortly after SCI case arguing that the appeal is moot because EFTs are no longer attachable under Rule B. Hawknet argued that SCI case does not apply retroactively. The Second Circuit cited a well-established that a jurisdictional ruling may never be made prospectively only. Further, its ruling in SCI is jurisdictional because it involved quasi in rem jurisdiction over property of an entity not found in the district under Rule B and as such, its ruling in SCI is retroactive.



Hawknet also argued that the defendant could not rely on the SCI decision because it failed to do so in the District Court proceeding. The Second Circuit ruled that a party cannot be deemed to have waived objections or defenses which were not known to be available at the time they could first have been made. In Hawknet, the SCI case provided the defendant with a new objection to the District Court’s jurisdiction which was not known at the time the attachment order was given in 2007. Therefore, the defendant could not have waived its right to object to the District Court’s lack of personal jurisdiction over the EFT due to the SCI decision.



The Hawknet decision effectively gives the Second Circuit and New York Federal District Courts the authority to vacate any existing attachments of EFTs under Supplemental Rule that occurred prior October 16, 2009. In addition, an owner of attached EFTs can raise the SCI decision as a defense on an existing appeal, even if the attachment and appeal occurred before the Second Circuit issued the SCI decision.



For further information on Rule B attachments and the effects of the recent Second Circuit decisions, please contact the author at [email protected].