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Second Circuit Court of Appeals to Consider Issue of Whether Jaldhi Applies to Funds in Suspense Accounts

In a move that is expected to clarify some unanswered questions raised by last year's landmark decision in The Shipping Corporation of India v. Jaldhi Overseas Pte Ltd., the Second Circuit Court of Appeals recently agreed to hear the merits of a Rule B plaintiff's appeal of the District Court's post-Jaldhi decision to vacate its attachment of funds in a garnishee bank's suspense account which were initially attached as electronic fund transfers ("EFTs").  Scanscot Shipping Services (Deutschland) GmbH v. Metales Tracomex LTDA,Docket No. 09-5280-cv (2d Cir. 2010).

In Scanscot, District Judge Gardephe issued a sua sponte order following the Second Circuit's decision in Jaldhi, directing the Plaintiff to show cause why its pending attachment (of EFTs being processed one or more intermediary banks) should not be dismissed. In response, the Plaintiff argued, inter alia, that the funds had been deposited by the intermediary bank into a suspense account and that the Defendant had an interest in the suspended funds that could properly be attached through re-service of the attachment order on the garnishee bank. Judge Gardephe, like the numerous other District Court judges considering similar arguments, rejected Plaintiff's argument, ruling that "[n]o legal transformation thereby occurs conferring jurisdiction on this Court."  Finding that the Plaintiff had failed to show cause why the funds should remain attached, Judge Gardephe vacated the attachment order and dismissed the action. Shortly thereafter, the Plaintiff filed a motion for a stay preventing the release of the previously attached funds pending appeal of the Vacatur Order. Judge Gardephe granted Plaintiff's motion and Plaintiff timely filed its Notice of Appeal on December 23, 2010.

On February 4, the Defendant-Appellee filed a motion for summary adjudication of the appeal or, in the alternative, to vacate the District Court's Order staying the release of the funds pending appeal. At the completion of briefing by the parties, the motion was referred to a motions panel and scheduled for oral argument. Counsel for the Plaintiff again argued that the subsequent attachment of the funds in the garnishee bank's suspense account was a valid attachment of the Defendant's property notwithstanding Jaldhi. Recognizing that the Court's decision in Jaldhi never specifically addressed the issue of EFTs transferred to suspense accounts, the three (3) judge motions panel, consisting of Circuit Judges Newman, Walker and Lynch, issued an Order denying Appellee's motion for summary adjudication of the appeal and denying the alternative motion to vacate the stay. The Court further ordered the parties to simultaneously file initial and response briefs addressing the merits of the appeal, which would then be referred to the same panel for a decision on the merits. Briefing was completed by the parties on June 4, 2010. The panel has not yet decided whether to hear further oral argument prior to issuing its decision.

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