Second Circuit Court of Appeals Grants Stay and Agrees To Hear Post-Jaldhi Rule B Case

In a rare move by the Second Circuit Court of Appeals since its landmark decision in The Shipping Corporation of India v. Jaldhi Overseas Pte Ltd., on March 24, 2010, a three (3) judge motions panel has granted a Rule B plaintiff's motion for a stay pending appeal of the District Court's order vacating the plaintiff's maritime attachment pursuant to Jaldhi and ordering the release of funds held in escrow.

In Front Carriers Ltd. v. Transfield ER Cape Ltd., the Plaintiff had successfully restrained EFTs in the amount of USD 15,101,338.00, fully securing its claim against Defendant. Thereafter, District Court Judge Sullivan granted Defendant's application for countersecurity, requiring Plaintiff to post security for Defendant's counterclaim in the amount of USD 5,210,280. The parties then agreed to place all funds into an escrow account pursuant to an escrow agreement. Following Jaldhi, Judge Sullivan ordered Plaintiff to address Jaldhi's application to its case.

After reviewing the parties' respective responses to his post-Jaldhi order and hearing oral argument, Judge Sullivan issued an Order on January 27, 2010, concluding that the attachment was improper under Jaldhi and that the funds must be released. Judge Sullivan rejected Plaintiff's argument that the parties' escrow agreement(s) were binding and removed the funds from Jaldhi's holding, noting that the agreement expressly stated that it "in no way[] shall prejudice the rights of either Party to seek any remedy that is available to it under the Supplemental Rules for Certain Admiralty and Maritime Claims." Judge Sullivan not persuaded by Plaintiff's equitable arguments, noting that "[s]uch an argument would, in essence, penalize Defendant and reward Plaintiff vis-à-vis litigants in other maritime cases simply because the parties deemed it expedient and efficient to execute an escrow agreement when confronted with a pre-Jaldhi attachment" and finding that such a result would be "manifestly inequitable." Thereafter, Judge Sullivan denied Plaintiff's request for a stay pending appeal, finding that Plaintiff did not have a substantial likelihood of success on the merits. Notwithstanding, Judge Sullivan granted Plaintiff a brief extended stay of the Order to allow Plaintiff time to seek a further stay from the Second Circuit.

The Second Circuit has not ruled on the application of the Jaldhi decision to funds initially attached as EFTs by New York intermediary banks but subsequently placed by the parties in the Registry of the Court or, as in this case, a separate escrow account. The District Court judges who have applied Jaldhi to similar situations have reached mixed results.

The Second Circuit has set an expedited briefing schedule for Front Carriers Ltd.'s appeal, with briefing to be completed no later than May 12, 2010. Oral argument will be set as soon as possible thereafter.

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