310 F.3d 263 (2nd Cir. 2002), 02-7078, Winter Storm Shipping, Ltd. v. TPI

• Citation: 310 F.3d 263
• Party Name: WINTER STORM SHIPPING, LTD., Plaintiff-Appellant, v. TPI, a/k/a Thai Petrochemical Industry Public Company Limited, Thai Petrochemical Limited, Thai Petrochemical Industry PCL, TPI Oil (1997) Co., Ltd. and TPI Oil Co. Ltd., Defendants-Appellees.
• Case Date: November 06, 2002
• Court: United States Courts of Appeals, U.S. Court of Appeals — Second Circuit

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310 F.3d 263 (2nd Cir. 2002)

WINTER STORM SHIPPING, LTD., Plaintiff-Appellant,

v.

TPI, a/k/a Thai Petrochemical Industry Public Company Limited, Thai Petrochemical Limited, Thai Petrochemical Industry PCL, TPI Oil (1997) Co., Ltd. and TPI Oil Co. Ltd., Defendants-Appellees.

Docket No. 02-7078.

United States Court of Appeals, Second Circuit

November 6, 2002

Argued June 3, 2002.

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[Copyrighted Material Omitted]

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Patrick F. Lennon, Tisdale & Lennon, LLC, New York, NY, for Plaintiff-Appellant.

John J. Sullivan, Hill, Rivkins & Hayden LLP (Richard H. Webber on the brief), New York, NY, for Defendants-Appellees.

Before: KEARSE, MCLAUGHLIN, Circuit Judges, and HAIGHT, District Judge.^[*]

HAIGHT, Senior District Judge.

Winter Storm Shipping, Ltd. ("Winter Storm") appeals from the January 11, 2002 Opinion and Order, 198 F.Supp.2d 385, and the January 16, 2002 Judgment of the District Court for the Southern District of New York (Shira A. Scheindlin, District Judge ) vacating a maritime attachment of funds of defendants TPI, a/k/a Thai Petrochemical Industry Public Company Limited, Thai Petrochemical Industry PCI, TPI Oil (1997) Co., Ltd. and TPI Oil Co. Ltd. (collectively "TPI") in the hands of garnishee Bank of New York ("BNY") and dismissing Winter Storm's complaint for lack of jurisdiction over TPI. This appeal, involving the interplay between a centuries-old admiralty law procedure and present day banking technology, poses the question whether funds involved in electronic fund transfer ("EFT") between banks are subject to attachment under Rule B(1) of the Supplemental Rules for Certain Admiralty and Maritime Claims. The district court answered in the negative. We vacate the judgment of the district court and remand the case to that court with instructions to reinstate the attachment and retain jurisdiction.

BACKGROUND

Winter Storm, a foreign corporation with a place of business in Malta, chartered its vessel M/V NINEMIA to defendant-appellee TPI, a Thai corporation, to carry an oil cargo from Rabigh, Saudi Arabia, to Rayong, Thailand, in February and March, 2001. Winter Storm claims that TPI breached the charter party by failing to pay the full freight due and owes Winter Storm $361,621.58, an amount that includes interest and anticipated attorneys' and arbitrators' fees. The charter party provides for arbitration of disputes in London.

Winter Storm filed a complaint against TPI in the district court on June 21, 2001, and an amended complaint on June 26, 2001 (hereinafter the "complaint"), characterizing its claim as admiralty and maritime in nature under Rule 9(h), Fed.R.Civ.P., and invoking the district court's admiralty jurisdiction conferred by 28 U.S.C. § 1333. The complaint described the charter party of the NINEMIA, the voyage performed, and TPI's failure to pay the full freight, and asserted that "plaintiff has, or will shortly, nominate its arbitrator pursuant to the arbitration clause set forth in the contract of charter." A-10.¹

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Winter Storm further alleged that TPI could not be "found within this District" within the meaning of Rule B of the Supplemental Rules for Certain Admiralty and Maritime Claims of the Federal Rules of Civil Procedure (the "Admiralty Rules") and sought an order directing the Clerk to issue process of maritime attachment and garnishment pursuant to Rule B and the Federal Arbitration Act ("FAA"), 9 U.S.C. §§1, 8 attaching TPI's assets held by garnishees in the amount of $361,621.58.

Admiralty Rule B(1) provides:

(a) If a defendant is not found within the district, a verified complaint may contain a prayer for process to attach the defendant's tangible or intangible personal property—up to the amount sued for—in the hands of garnishees named in the process.

The process of attachment prayed for by Winter Storm identified "Chase Manhattan Bank and/or Bank of New York" as potential garnishees.

Section 8 of the FAA, 9 U.S.C. § 8, which Winter Storm invoked in addition to Admiralty Rule B, makes maritime attachment available to parties to a maritime contract, such as a charter party, which contains an arbitration clause. The statute provides:

If the basis of jurisdiction be a cause of action otherwise justiciable in admiralty, then, notwithstanding anything herein to the contrary, the party claiming to be aggrieved may begin his proceeding hereunder by libel and seizure of the vessel or other property of the other party according to the usual course of admiralty proceedings, and the court shall then have jurisdiction to direct the parties to proceed with the arbitration and shall retain jurisdiction to enter its decree upon the award.

The district court entered its ex parte order of attachment on June 22, 2002. Process of maritime attachment and garnishment was served upon BNY at 12:19 p.m. and 4:44 p.m. on June 28, 2001, and at 12:50 p.m. and 1:45 p.m. on June 29. At those times BNY did not hold any funds of TPI. However, as a result of these services of process BNY "not later than the close of business on June 28, 2001, placed a stop order on any funds relating to [TPI] passing through" BNY. Affidavit of David Rosenfield ("Rosenfeld affidavit"), BNY's Manager—Legal Process and Senior Counsel, A-33.

TPI maintained an account with a Thai bank in Bangkok, the Bank of Ayudhya ("BA"), which in turn maintained an account at BNY. TPI entered into an unrelated commercial transaction with Oppsal Shipping Co., Ltd. ("Oppsal"), which maintained an account with the Royal Bank of Scotland in London ("RBS"). TPI's contract with Oppsal called for TPI to pay Oppsal in United States dollars. At 6:48 a.m. on July 2, 2001, BNY received from BA a payment order in respect of an EFT in the amount of $1,085,071.41 on behalf of TPI to the account of Oppsal at RBS. The transfer would be made electronically through BNY in New York City. BA was the originating bank and BNY acted as the intermediary bank.

Because BNY, in response to the earlier services of process of attachment procured by Winter Storm, had placed a stop order on TPI funds that might pass through it, BNY did not immediately execute BA's payment order that would have completed the electronic transfer of $1,085,071.41 by BA to RBS. Instead, BNY "placed $361,621.58 from the account of Bank of Ayudhya in a suspense account and issued a payment order in the amount of the balance of $723,449.83 to the account of Oppsal at The Royal Bank of Scotland." Rosenfeld affidavit, A-34. The deducted amount of $361,621.58 represents the total

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amount of Winter Storm's claims against TPI, as recited in the processes of attachment.

That sum was still anchored in BNY's suspense account when, at 10:59 a.m. on July 2, 2001, BNY was served with an additional process of maritime attachment on behalf of Winter Storm. BNY continued to hold these funds, now in obedience to the process. Had BNY not taken the earlier action of placing a stop order on any TPI funds that might pass through the bank, then "[i]n the ordinary course of business, The Bank would have executed the payment order well prior to the next service of process, which occurred at 10:59 a.m. on July 2, 2001." Rosenfield affidavit, A-35.

In these circumstances, TPI moved in the district court to vacate the attachment of the funds held by BNY in the suspense account. Winter Storm opposed TPI's motion. The district court granted TPI's motion to vacate the attachment and, since the attachment formed the sole basis for jurisdiction quasi in rem over TPI, dismissed Winter Storm's complaint for lack of jurisdiction. Judge Scheindlin held that an EFT intercepted at an intermediary bank is not "property" that can be attached under Admiralty Rule B. She reasoned principally that since the Admiralty Rules do not define "property" in this context, and "[t]here is no federal precedent on point," 198 F.Supp, at 388, recourse should be had to state law. That analysis led the district court to § 4-A-503 of the Uniform Commercial Code as adopted in New York, see N.Y. U.C.C. Art. 4A (McKinney 1991). Section 4-A-503 deals with court injunctions or restraining orders with respect to a "funds transfer," and provides that a court may "restrain" only the originator of a payment order (in this case TPI), the originator's bank (here, BA), or the beneficiary's bank (here, RBS). The section concludes: "A court may not otherwise restrain a person from issuing a payment order, paying or receiving payment of a payment order, or otherwise acting with respect to a funds transfer." The statutory scheme is intended to insulate an intermediary bank in a funds transfer bank from judicial restraint. See Official Comment, U.C.C. § 4-A-503 ("This section . . . is designed to prevent interruption of a funds transfer after it has been set in motion[;] . . . [i]n particular, intermediary banks are protected.").

Regarding U.C.C. § 4-A-503 as controlling, the district court vacated Winter Storm's maritime attachment and dismissed its complaint. This appeal followed.

DISCUSSION

I. Standard of Review

We review de novo the constructions of the statutes and rules and the conclusions of law upon which the district court based its opinion.

II. The History and Characteristics of Maritime Attachment

Maritime attachment is centuries old. "The use of the process of attachment in civil causes of maritime jurisdiction by courts of admiralty . . . has prevailed during a period extending as far back as the authentic history of those tribunals can be traced." Atkins v. Fibre Disintegrating Co., 85 U.S. (18 Wall.) 272, 303, 21 L.Ed. 841 (1873). As early as 1825, the Supreme Court was able to say of the right of attachment in in personam admiralty cases that "[t]his Court has entertained such suits too often, without hesitation, to permit the right now to be questioned." Manro v. Almeida, 23 U.S. (10 Wheat.) 473, 486, 6 L.Ed. 369 (1825). "...