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Second Circuit Court of Appeals Confirms a District Court’s Discretion to Reduce Maritime Attachments

On June 23, 2009, the United States Court of Appeals for the Second Circuit, in Transportes Navieros y Terrestres S.A. v. Fairmount Heavy Transport N.V., expressly addressed the circumstances in which a District Court may reduce a maritime attachment pursuant to Rule E (5) or (6) of the Supplemental Rules for Admiralty or Maritime Claims.

In Transportes, the Plaintiff had obtained an order of attachment from the District Court authorizing attachment of the Defendant’s property in an amount up to $10,220,000. Subsequently, upon the Defendant’s motion to vacate, the District Court reduced the amount of the attachment to $15,000. Thereafter, the Plaintiff appealed to the Second Circuit, alleging that the District Court had abused its discretion in reducing the amount of the maritime attachment. The Court found that the District Court had not abused its discretion in reducing the attachment, holding that “a court may assess preliminarily the reasonableness of plaintiff’s damages claim when setting a security under Rule E(5) and may weigh this and other equitable considerations when evaluating whether good cause exists to reduce a security under Rule E(6).” In so holding, the Court noted that “limiting a district court’s discretion to set or reduce a security . . . creates a substantial and unnecessary risk that plaintiffs will abuse the maritime attachment power.” The Court further confirmed that in assessing the reasonableness of a plaintiff’s claim for damages, “the court should be satisfied that the plaintiff’s claims are not frivolous, but it should not require the plaintiff to prove its damages with exactitude.”

To read a copy of the Second Circuit Court of Appeals decision, click here.

For more information concerning this decision, please do not hesitate to call on us at info@chaloslaw.com.

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U.S. Supreme Court Rules in Favor of Shipping Industry and Finds Valdez, Alaska’s Municipal Tax Ordinance Unconstitutional

Petitioner Polar Tankers, Inc., whose vessels transport crude oil from the Alaskan Port of Valdez to refineries in other States, challenged an ordinance that imposes a personal property tax on certain boats and vessels. This municipal ordinance, which was enacted in 1999, contained exceptions that, in effect, limited its applicability to large oil tankers. Polar Tankers, Inc., a subsidiary of ConocoPhillips Company, appealed the Alaskan Supreme Court’s decision to the U.S. Supreme Court, arguing that the tax was unconstitutional under Art. I, §10, cl. 3, which forbids a State without the Consent of Congress, [to] lay any Duty of Tonnage.

Justice Breyer, delivering the opinion of the U.S. Supreme Court, held that Valdez’s tax violated the Tonnage Clause and was therefore unconstitutional. The Tonnage Clause was intended to prevent certain States from obtaining certain “geographical vessel-related tax advantages.” Polar Tankers, Inc., v. City of Valdez, Alaska. 557 U.S. ___ (June 15, 2009). The Court reasoned that the prohibition against tonnage duties embraced all taxes and duties which operate to impose a charge for the privilege of entering, trading in, or lying in a port.

Upon review of the facts, the Court decided that Valdez’s ordinance applied exclusively to large vessels such as oil tankers seeking to enter, trade in or lay in the Port of Valdez, but not to other forms of personal property. Moreover, the tax was closely correlated with cargo capacity. In order to fund services by taxing ships, a State must also impose similar taxes upon other businesses; Valdez failed to satisfy this requirement to equally tax other business property. Based on these findings, the Court, in a 7-2 decision, held that a tax on “boats and vessels of at least 95 feet in length that regularly use the City’s port” was injurious to the interests of other states and violated the Tonnage Clause. Id at 557 U.S. ___ (June 15, 2009).

To read the Supreme Court’s decision, please click here.

To learn more about this decision and how it may impact your business, please feel free to contact us at: info@chaloslaw.com.

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New York Court of Appeals Confirms that Enforcement and Recognition of Foreign Judgments is NOT Limited to Property Found in New York

On June 4, 2009, the New York Court of Appeals, in response to a certified question presented by the United States Court of Appeals for the Second Circuit, issued an opinion in Koehler v. The Bank of Bermuda that will significantly impact the enforcement of foreign judgments in New York. Specifically, the Court held that a New York court with personal jurisdiction over a defendant and/or a garnishee holding a defendant’s property may be ordered to turn over out-of-state property (including property located abroad) regardless of whether the defendant is a judgment debtor or a garnishee.

In reaching its decision, the Court looked to the Civil Practice Law and Rules of the State of New York (CPLR) Article 52, specifically § 5225, which provides that a New York Court may issue a judgment ordering a party to deliver property in which the judgment debtor has an interest to a judgment creditor for payment of the debt. The Court noted that unlike the pre-judgment remedy of attachment, post-judgment enforcement requires only jurisdiction over persons – notover property. CPLR article 52 contains no express language limiting its application to property contained within the State, leading the Court to conclude that “the Legislature intended CPLR article 52 to have extraterritorial reach.”

The full effect of this decision are yet to be seen. However one thing is clear: the NY Court of Appeal’s holding permits any party with an unsatisfied arbitration award or judgment (for any claim, including both maritime and non-maritime matters) to seek to enforce that award against a judgment debtor that is registered to do business in New York or otherwise has property in the possession of a garnishee which is subject to personal jurisdiction in New York. In Koehler, the Bank of Bermuda was ordered to send property from Bermuda to NY to satisfy a judgment, despite lack of jurisdiction over both the Plaintiff and Defendant in the underlying claim matter.

To read a copy of NY Court of Appeals decision in Koehler v. The Bank of Bermuda, click here.

For more information concerning this decision and its potential application in any particular matter, please do not hesitate to call on us at info@chaloslaw.com.

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Second Circuit Court of Appeals Overules Winter Storm Shipping Ltd. v. TPI and Holds That Electronic Fund Transfers (EFTs) Processed By Intermediary Banks Are Not Property Subject to Rule B Attachment

On October 16, 2009, the Second Circuit Court of Appeals issued a decision severely limiting the scope of the type of property that may be attached pursuant to Rule B. In The Shipping Corporation of India Ltd. v. Jaldhi Overseas Pte Ltd., the Court, in sum and substance, held that “electronic fund transfers (“EFTs”) being processed by an intermediary bank are not property subject to attachment under Rule B.”  The Court relied on New York State law, which prohibits the attachment of EFTs in possession of an intermediary bank. Citing the New York Uniform Commercial Code, the Court stated that neither the originator nor the beneficiary of an EFT hold title to the funds in the account at an intermediary bank. Accordingly, the Court found that since EFTs are no longer considered property of either the originator of the beneficiary, they cannot be “defendant’s property” subject to Rule B attachment. In so holding, the Court expressly overruled its 2002 decision in Winter Storm Shipping Ltd. v. TPI.

The Second Circuit’s decision emphasizes the burden that Rule B has placed on the federal courts and international banks operating within the Southern District and suggests that the attachment of EFTs has “threatened the usefulness of the dollar in international transactions.”  The decision stresses the threat posed by the “explosion” of maritime attachments to, inter alia, New York’s position as the center of international banking and finance. The Court stated that, in attempting to avoid Rule B attachments, many potential Rule B defendants conduct their cross-border transactions in a currency other than U.S. Dollars, causing a reduction in the use of the dollar as the preferred currency of international commerce. In addition, the Court cited to The Clearing House Association’s (whose members consist of all major NY garnishee banks) amicus curiae brief, which detailed the large volume of maritime cases filed between October 1, 2008 and January 31, 2009 and the resulting burden that has been placed on the banks and the District Court Judges. The Court’s focus on the aforementioned reasoning and its weak legal rationale for reaching its conclusion suggests that this was a result-driven decision and that the Court has succumbed to intense pressure from the garnishee banks to put an end to Rule B attachments of EFT transfers transiting through New York.

At present, it is unclear what the implications of the Second Circuit’s decision will be. It is likely that defendants in Rule B actions whose EFTs have been attached will bring motions to vacate, which the Judges sitting in the Southern District Court may well be amendable to grant. In Rule B actions that are not challenged but where plaintiffs have restrained funds, it is unclear whether the Court will require these funds to be released (or not).

This decision does not prevent Rule B actions from being commenced, where the defendant has property in the Southern District (other than EFTs, such as bunkers, freight or bank accounts) and cannot be “found.”

Finally, it should be noted that while pre-judgment attachment of EFTs appears to no longer be permissible following the Jaldhi decision, the New York Court of Appeals decision in Koehler v. Bank of Bermuda Ltd., 2009 NY Slip Op. 04297 (June 4, 2009) provides an important post-judgment option for parties wishing to enforce foreign judgments and/or arbitration awards. In that matter, the Court of Appeals held that a New York court with personal jurisdiction over a defendant and/or a garnishee holding a defendant’s property may be ordered to turn over out-of-state property  including property located abroad), regardless of whether the defendant is a judgment debtor or a garnishee. The full effect of this decision in the maritime context still remains to be seen, but according to Koehler, any party with an unsatisfied judgment or arbitration award for any claim may seek to enforce its award against a judgment debtor that has property in the possession of a garnishee subject to personal jurisdiction in New York or against the debtor, itself, that is registered to do business in New York. Read more on the Koehler decision.

Read a copy of the Second Circuit Court of Appeals decision in Jaldhi