Chalos & Co, P.C. to be Featured in Upcoming IBA Maritime Newsletter

The following article was prepared by George M. Chalos and will be featured in an upcoming issue of the International Bar Association's ("IBA") Maritime Newsletter.  The IBA is was established in 1947 and is the world's leading organization of international legal practitioners, bar associations, and law societies, with a membership of more than 45,000 individual lawyers and over 200 bar associations and law societies spanning all continents. For more information about the IBA, please visit their website at

Mr. Chalos's Article, entitled   "The Creative Use of Rule B Following SCI v. Jaldhi", discusses the various ways that maritime claimants have continued to successfully pursue Rule B attachments in the United States in the years following the Second Circuit Court of Appeals' decision in The Shipping Corporation of India v. Jaldhi Overseas Pte. LtdThe Creative Use of Rule B Following SCI v. Jaldhi

The Creative Use of Rule B Following SCI v. Jaldhi

When the Second Circuit Court of Appeals issued its landmark decision in The Shipping Corporation of India v. Jalhi Overseas Pte. Ltd. in October 2009, maritime claimants worldwide feared that Rule B had died.  Jaldhi held, in sum and substance, that electronic fund transfers ("EFTs") in the temporary possession of an intermediary bank were no longer attachable property of a defendant under Rule B.  The Second Circuit's decisions in Jaldhi and Hawknet, Ltd. v. Overseas Shipping Agencies (which held that Jaldhi applied retroactively) resulted in the vacatur of hundreds of Rule B EFT attachments then-pending in the United States District Court for the Southern District of New York, leaving shipping companies, marine insurers, and foreign solicitors throughout the world without security and, often times, with an unenforceable arbitration award or judgment.  What many foreign claimants did not realize, however, is that Jaldhi did not eliminate or modify the rights and remedies available under traditional maritime attachment principals.  Although the attachment of EFTs is "off-limits" in the United States, "old fashioned attachment" of a party's tangible or intangible property within a U.S. judicial district remains very much alive, provided that the other requirements of Rule B have been met (i.e. - that the plaintiff has a prima facie maritime claim against a defendant who cannot be "found" in the district where the attachment is sought).

In the months following Jaldhi, a new twist developed on traditional Rule B attachments, as claimants began to seek security and/or enforcement of uncollected arbitration awards and judgments from other parties as purported "alter-egos" of the defaulting party.  Under U.S. law, in order to "pierce the corporate veil" and impose liability upon a party on an "alter-ego" theory, one party must have used the other party to perpetuate a fraud or have so dominated and disregarded the other party's corporate form that the other party primarily transacted the alleged alter-ego's business rather than its own.  Courts throughout the United States have developed a myriad of factors to consider in imposing alter-ego liability, including, inter alia, disregard of corporate formalities; inadequate capitalization; intermingling of funds; overlap in ownership, officers, directors and personnel; common office space, address and telephone numbers of corporate entities; degree of discretion shown by the allegedly dominated corporation; whether the dealings between the entities are at arm's length; whether the corporations are treated as independent profit centers; payment or guarantee of the corporation's debts by the dominating entity; intermingling of property between the entities; common or overlapping stock ownership between a parent and subsidiary; whether the parent existed solely as a holding company for its subsidiaries; the parent's use of the subsidiary's property and assets as its own; incorporation of the subsidiary being caused by the parent; and/or the existence of fraud, wrong-doing, or injustice to third parties.  Although the factors to be considered vary from Circuit to Circuit, all courts agree that no one (1) factor is determinative and that many of the above-reference factors relate to routine business practices.  The Courts will look to the totality of the circumstances and, upon balancing the relevant factors, will decide whether (or not) to impose alter-ego liability. 

Rule B attachments have also successfully been pursued based on principles of "reverse veil piercing."  Unlike traditional veil piercing, where a party seeks to hold a shareholder liable for the acts of the corporation, the essence of reverse veil piercing is to hold a corporation liable for the acts of its shareholder(s).  The end result under both methods of veil piercing is the same: two (2) separate entities are treated as one (1) for purposes of a Rule B attachment.

In addition to alter-ego attachments, a number of other creative uses of Rule B have been seen throughout the country in the years since Jaldhi/Hawknet were decided.  In recent months, Rule B claimants have successfully pursued the attachment of debtors' property including, inter alia, vessels; bunkers; containers; bank accounts (including those maintained by U.S. agents on behalf of foreign debtor(s)); the debtor's own Rule B attachment(s) of a third-party's property as security for its own affirmative claim; port agent disbursements; charter hire, freight, or other obligations from sub-charterers; stocks; and dividend payments.  The unexpected attachment of these types of "non-traditional" property interests of a debtor (or those of a debtor's related companies) frequently results in the debtor promptly posting substitute security or settling the debt for terms favorable to the claimant.  This is especially effective when the attached property is a vessel (or property on board a vessel) which is subject to time-sensitive contractual obligations to third-parties.

In conclusion, Rule B continues to broadly permit the attachment of any "tangible or intangible personal property" belonging to a debtor.  With the creative use of the attachment process throughout the country following the abolishment of EFT attachments, Rule B has proven to be more powerful a tool than ever before for maritime claimants seeking to obtain security in the United States.

For more information, please do not hesitate to contact Chalos & Co, P.C. – International Law Firm at:

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