Second Circuit decision protects electronic funds transfers from Rule B attachment | Practical Law

Second Circuit decision protects electronic funds transfers from Rule B attachment | Practical Law

Daniel J. Leffell (Partner), Marc Falcone (Partner) and Jeffrey D. Kleinman (Associate), Christopher P. DeNicola (Law Clerk), Paul, Weiss, Rifkind, Wharton & Garrison LLP

Second Circuit decision protects electronic funds transfers from Rule B attachment

Practical Law Legal Update 0-500-6681 (Approx. 2 pages)

Second Circuit decision protects electronic funds transfers from Rule B attachment

Published on 05 Nov 2009International, USA
Daniel J. Leffell (Partner), Marc Falcone (Partner) and Jeffrey D. Kleinman (Associate), Christopher P. DeNicola (Law Clerk), Paul, Weiss, Rifkind, Wharton & Garrison LLP
On 16 October 2009, the Second Circuit overruled a prior decision to hold that Rule B of the Supplemental Rules for Admiralty of the Federal Rules of Civil Procedure cannot be used to attach electronic funds transfers. The decision will likely have a significant impact on maritime arbitration.
On 16 October 2009, in Shipping Corp. of India Ltd. v. Jalhdi Overseas PTE Ltd., Nos. 08-3477-cv, 08-3758-cv, (2d Cir. 2009), the Second Circuit overruled its prior decision in Winter Storm Shipping Ltd. v. TPI, 310 F.3d 263 (2d Cir. 2002) to hold that Rule B of the Supplemental Rules for Admiralty of the Federal Rules of Civil Procedure cannot be used to attach electronic funds transfers. Where the claimant has a maritime claim and the defendant is not located within the district, Rule B allows that claimant to attach the defendant's property within the district of New York. The purpose of Rule B attachments is twofold: to obtain security for the claim and to obtain jurisdiction over the defendant. Traditionally, Rule B attachments were used to obtain security over property such as bunkers and funds in bank accounts. However, in the Winter Storm case, the court decided that electronic fund transfers were attachable as they passed through banks. This reasoning was rejected in Jalhdi. The court reasoned that these electronic transfers, which only occur in New York "for an instant," are not "property of either the originator or the beneficiary under New York law," and are thus not subject to attachment under Rule B.
The Second Circuit's decision will likely have a significant impact on maritime arbitration because parties frequently rely on Rule B attachments both to provide security for their claims and to establish jurisdiction over the defendant. After this ruling, banks that had previously attached electronic funds transfers pursuant to Rule B may now be able release them, thereby depriving parties of security for their claims, though the legal position remains undetermined.