Second Circuit Court of Appeals Affirms Order Vacating Attachment of Released Funds from Court's Registry

On December 13, 2011, the United States Court of Appeals for the Second Circuit affirmed the decision of the Southern District of New York in India Steamship Company Limited v. Kobil Petroleum Limited, holding that wrongfully attached electronic fund transfers (EFTs) do not become attachable property when placed in the Court's Registry Investment System (CRIS). Accordingly, the Second Circuit affirmed the District Court's order vacating the attachment of funds released from the Court's CRIS account in the form of a check.

On February 8, 2008, India Steamship Company Limited (hereinafter "ISC") commenced a Rule B action against Kobil Petroleum Limited (hereinafter "Kobil"), in order to obtain security for London arbitration, initiated by ISC. A Rule B order of attachment (hereinafter "initial attachment") was issued and EFTs belonging to Kobil were attached at a New York bank. The funds, totaling USD 1,653,168.00, were then transferred into the Southern District's CRIS account, by agreement of the parties. The District Court subsequently issued an order dismissing the action without prejudice, pending the outcome of the London arbitration.

While the funds were held in the CRIS account, the Second Circuit issued its decision in The Shipping Corporation of Indiav. Jaldhi Overseas Pte. Ltd., 585 F.3d 58 (2d. Cir. 2009), holding that EFTs did not provide a basis for Rule B attachment. On October 20, 2009, at the request of Kobil's counsel, the District Court ordered that the case be reopened to allow Kobil to move for release of the funds. Thereafter, the District Court granted Kobil's motion for the release of funds, and directed that the funds held in the Court's CRIS account be released. The Court then closed the case. ISC requested a stay to prevent the release of the funds, which the District Court denied. On October 26, 2009, ISC filed a notice of appeal of the matter to the Second Circuit Court of Appeals.

On October 30, 2009, in accordance with the District Court's order directing that the funds be released, Kobil's counsel obtained from the Clerk of the Southern District a check from the Court's CRIS account payable to Kobil. While the check was in the possession of Kobil's counsel, ISC obtained and served on counsel a supplemental writ of attachment for the funds (hereinafter "supplemental attachment"). Kobil's counsel requested that the case be reopened to permit Kobil to move for vacatur of the supplemental attachment. However, the District Court declined to address Kobil's request while ISC's appeal was pending. Accordingly, the check remained with Kobil's counsel, in accordance with the supplemental order of attachment.

Several months later, the Second Circuit affirmed the District Court's 2009 order vacating the initial attachment. As a result, the District Court entered an order vacating ISC's supplemental attachment of the CRIS account check, stating that it was improper for ISC to obtain a supplemental attachment in a then closed case. ISC then appealed the District Court's vacatur of its supplemental attachment. The Second Circuit held that under Jaldhi, the supplemental attachment of the CRIS account check was no more lawful than the initial (improper) attachment of the EFT. The Second Circuit reasoned that because ISC made no showing that the funds in the CRIS account were attachable property, the order of attachment must be vacated.

Read a copy of the Second Circuit's decision

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