U.S. Supplemental Admiralty Rule B is an amazing rule and, in many ways, unlike anything else in the US judicial system. This rule allows a plaintiff with a maritime claim against another party that is not within the district in which the lawsuit is commenced to seize the defendant’s assets without having to post a bond. To put it bluntly, one party can seize millions of dollars of another party’s assets without notice and without having to post a bond. This is an incredibly strong mechanism to collect money from a defendant.
Rule B was originally instituted mostly to aid vessel suppliers in recovering from non-paying vessel owning companies without a local presence that would allow them to be sued locally.
But there have always been a fair number of judges who have hated this rule due to its lack of procedural or monetary safeguards and those judges typically will not issue the attachment order unless the plaintiff has dotted every “i” and crossed every single “t”.
In 2002, the U.S. Federal Court of Appeals (this is the court that covers New York) held that plaintiffs could seize electronic fund transfers (EFTs) under Federal Supplemental Admiralty Rule B. This ruling created a cottage industry of which my firm was a more than willing participant. Let me explain.
Any time there is a bank to bank dollar transaction, the funds “ping” a bank in New York (I borrowed the word ping from the computer world because I think it fits what actually happens). So if a company in Hong Kong pays a company in Japan $600,000, that $600,000 will almost certainly go through a New York City intermediary bank, at least for a split second in time. Or if a company in Nebraska sends $950,000 to a company in China, the same thing will happen. Likewise, if a company in Russia pays a company in Seattle.
Now here is why it matters.
Since nearly all dollar denominated international transactions pass through New York intermediary banks, the ruling meant that a massive number of payments could be seized as they electronically pinged these New York banks, without need even for the posting of a bond.
Something around one third of all federal court cases in the Southern District of New York (New York City) involved plaintiffs seeking Rule B attachments.
And my firm was always in the thick of things as a number of our clients are in the business of supply fuel or spare parts to vessels and a number of our clients are in the fishing and other maritime related industries. Our international maritime litigators first arrested cargo in China, way back in 2003!
And we loved the New York seizures most of all because there is nothing better to seize than real money. In just the last year or so, we had the following successes:
- We successfully seized funds in New York City that were going from Japan to Hong Kong to collect on debt owed to a Singapore client.
- We successfully seized funds in New York City that were going from a Korean company to a Russian company to collect on a debt owed to our Hong Kong client.
- We successfully seized funds in New York City that were going from a German company to a Chinese company to collect on debt owed to our U.S. client.
And in all these cases, we not only collected every penny owed, plus interest, we also managed to recover our clients’ attorneys fees.
If you are a foreign company and your funds have been seized in the United States and you really do owe the money, it just does not make a lot of sense to hire an expensive New York City lawyer to fight it, especially if your creditor’s contract states that the prevailing party gets interest and attorneys’ fees.
But these Rule B EFT cases in New York have always been controversial and, even more so than the traditional Rule B cases, there are judges who hate them. In New York (or so we have been told by NYC lawyers) there were judges who would sit on these cases in the hopes it would be too late by the time they ruled.
Banks never much liked the Rule either because they were forced to spend large amounts of time and money dealing with the courts’ rule B orders. And probably most importantly, there has been a growing feeling that maybe the United States should not be doing things right now that encourage foreign transactions to be conducted in a currency other than the U.S. dollar.
But on October 16, 2009 (mere days after my law firm and our local NYC counsel had just secured a Rule B order from a New York court against a Russian fishing company that owed my client money) the Federal Court of Appeals, in the case of The Shipping Corporation of India v. Jaldhi Overseas reversed its 2002 decision permitting such transfer seizures. The court held that its 2002 decision was wrong for finding EFTs to be attachable property.
In our case that was pending at the time Jaldhi came down, we are still fighting for the money on various grounds on which the Jaldhi case has no applicability. But the days of easy seizures of money appear to be over and what was in many cases the best avenue for collecting debt from a Chinese company has just disappeared.
We had a case against a Chinese company waiting in the wings, but that is now on indefinite hold.
It was a good seven years.