Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd.

• Citation: 460 F.3d 434
• Decision Date: 31 July 2006
• Docket Number: Docket No. 05-5385-CV.
• Parties: AQUA STOLI SHIPPING LTD., Plaintiff-Appellant, v. GARDNER SMITH PTY LTD., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

460 F.3d 434

AQUA STOLI SHIPPING LTD., Plaintiff-Appellant, v. GARDNER SMITH PTY LTD., Defendant-Appellee.

Docket No. 05-5385-CV.

United States Court of Appeals, Second Circuit.

Argued: March 2, 2006.

Decided: July 31, 2006.

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

Leroy Lambert, Healy & Baillie, LLP (William N. France, Jack A. Greenbaum, of counsel), for Defendant-Appellee.

Bruce E. Clark (H. Rodgin Cohen, Michael M. Wiseman, Patricia Cyr, of counsel), Sullivan & Cromwell, L.L.C., New York, NY, for amicus curiae The Clearing House Association L.L.C. in support of Defendant-Appellee.

Thomas C. Baxter, Jr. (Stephanie A. Heller, Shari D. Levethal, Joseph H. Sommer, of counsel), Federal Reserve Bank of New York, for amicus curiae Federal Reserve Bank of New York in support of Defendant-Appellee.

Before WALKER, Chief Judge, CARDAMONE and SOTOMAYOR, Circuit Judges.

JOHN M. WALKER, JR., Chief Judge.

Maritime attachment, used by parties in admiralty cases to secure jurisdiction over an absent party and to get security for a potential judgment where the absent party's assets are transitory, is of ancient origins. In more recent times, admiralty litigants have creatively deployed this procedure to attach bank credits used in electronic fund transfers ("EFTs") to or from parties absent from the district. Plaintiff Aqua Stoli Shipping Ltd. ("Aqua Stoli") moved for an ex parte order of maritime attachment on such of defendant Gardner Smith Pty Ltd.'s ("Gardner Smith") assets as were located within the Southern District of New York. The district court (Jed S. Rakoff, Judge) granted the order, subject to a later hearing, and Aqua Stoli served the order on certain banks within the district, attaching EFTs to or from Gardner Smith as they passed through those institutions.

We hold that, once a plaintiff has carried his burden to show that his attachment satisfies the requirements of Supplemental Rule B, a district court may vacate an attachment only upon circumstances not present in this case. Circumstances that may justify a vacatur can occur where 1) the defendant is present in a convenient adjacent jurisdiction; 2) the defendant is present in the district where the plaintiff is located; or 3) the plaintiff has already obtained sufficient security for a judgment.

BACKGROUND

In April 2005, Aqua Stoli, a Liberian company, chartered its ship, the M/V Aqua Stoli, to Gardner Smith to carry a cargo of tallow from Brazil to Pakistan. When the M/V Aqua Stoli arrived in Brazil, Gardner Smith refused to load the tallow on the belief that the ship was not sufficiently seaworthy to make the trip. Aqua Stoli disputed this rejection and began an arbitration proceeding in London under the arbitration provision of the charter, claiming $1.45 million in damages. Gardner Smith counterclaimed in the arbitration for a similar amount and obtained security by seizing the M/V Aqua Stoli in Singapore, which was later released after Aqua Stoli posted security. Aqua Stoli is presently litigating the amount of security in a Singapore court.

Aqua Stoli in turn asked Gardner Smith to post security voluntarily for its claim in the London arbitration. After Gardner Smith refused, Aqua Stoli brought this action in the Southern District of New York. Aqua Stoli sought an ex parte attachment order under Supplemental Rule B, Fed.R.Civ.P. Supp. Rule B, to attach any assets of Gardner Smith's located within the district. The district court granted the ex parte order, subject to the subsequent hearing provided by Rule E(4)(f), id. Supp. Rule E(4)(f), at which Gardner Smith could contest the attachment. Aqua Stoli served the attachment order on banks in the district that, although they did not hold accounts in Gardner Smith's name, temporarily handled wire transfers in U.S. dollars to or from Gardner Smith. Under the law of this circuit, EFTs to or from a party are attachable by a court as they pass through banks located in that court's jurisdiction. See Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263 (2d Cir.2002).¹

Gardner Smith contested the attachment under Rule E of the Supplemental Rules for Certain Admiralty and Maritime Claims to the Federal Rules of Civil Procedure. The district court held that Rule E authorized it to vacate any attachment, although facially valid, if the plaintiff failed to demonstrate at a subsequent hearing that the attachment was necessary to obtain personal jurisdiction over the defendant or to secure payment of a potential judgment. It further held that, even if the plaintiff could establish such necessity, the attachment could nevertheless be vacated if the defendant proved that the attachment was sought "simply to gain a tactical advantage" or that the prejudice to the defendant outweighed the benefit to the plaintiff. Applying these rules, the district court decided that Aqua Stoli had no need for the attachment because Gardner Smith was a substantial on-going business with sufficient assets outside the district to satisfy any potential judgment. It also found that the burden of the attachment on Gardner Smith outweighed the benefit to Aqua Stoli because the interception of EFTs substantially impaired Gardner Smith's ability to move money internationally. The district court vacated the attachment, and this appeal followed. Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 384 F.Supp.2d 726 (S.D.N.Y.2005).

DISCUSSION

I. Maritime Attachment Generally

"[M]aritime attachment is a feature of admiralty jurisprudence that antedates both the congressional grant of admiralty jurisdiction to the federal district courts and the promulgation of the first Supreme Court Admiralty Rules in 1844." Aurora Mar. Co. v. Abdullah Mohamed Fahem & Co., 85 F.3d 44, 47 (2d Cir.1996). In fact, "[t]he 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. The Disintegrating Co., 85 U.S. (18 Wall.) 272, 303, 21 L.Ed. 841 (1874). The power to grant attachments in admiralty is an inherent component of the admiralty jurisdiction given to the federal courts under Article III of the Constitution. U.S. Const. art. III, § 2. The power's historical purpose has been two-fold: first, to gain jurisdiction over an absent defendant; and second, to assure satisfaction of a judgment. Swift & Co. Packers v. Compania Colombiana Del Caribe, S.A., 339 U.S. 684, 693, 70 S.Ct. 861, 94 L.Ed. 1206 (1950).

The first uniform federal rules for admiralty and maritime proceedings ("Admiralty Rules") were promulgated by the Supreme Court in 1844, and a revised version was released in 1920. See R. of Prac. for the Cts. of the U.S. in Adm. & Mar. Jurisdiction, 254 U.S. 671 (1920); R. of Prac. of the Cts. of the U.S. in Causes of Adm. & Mar. Jurisdiction, 44 U.S. (3 How.) at i (1845); see generally Charles Allen Wright & Arthur R. Miller, 4 Federal Practice and Procedure Civil 3d § 1014, at 72 (2002). However, by the middle of the last century, the need for general reform became apparent. See Wright & Miller, supra, § 1014, at 73. Therefore, under the Rules Enabling Act, 28 U.S.C. § 2073, the Supreme Court in 1966 established the Supplemental Rules for Certain Admiralty and Maritime Claims, 383 U.S. 1071 (1966), a reformed and comprehensive codification of admiralty rules to govern the practice of the federal courts. Periodic amendments have followed.

Two of these Supplemental Rules are relevant to this case. First, Rule B governs the process by which a party may attach another party's assets. Rule B provides in relevant part:

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 court must review the complaint and affidavit and, if the conditions of this Rule B appear to exist, enter an order so stating and authorizing process of attachment and garnishment. The clerk may issue supplemental process enforcing the court's order upon application without further court order.

Fed.R.Civ.P. Supp. Rule B(1). To begin the process, a plaintiff must file a verified complaint praying for an attachment and an affidavit stating that, to the best of the plaintiff's knowledge, the defendant cannot be found within the judicial district. Id. If the plaintiff's filings comply with these conditions, the court must enter an order authorizing the attachment, which the plaintiff may then serve on any persons in possession of the defendant's property located within the district. The order of attachment may be requested and granted ex parte, though notice of the attachment to the defendant via appropriate service is required. Id. Supp. Rules B(2), E(3).

Second, the defendant has an opportunity under Rule E(4)(f) to appear before the district court to contest the attachment once its property has been restrained. Rule E(4)(f) provides, in relevant part:

Whenever property is arrested or attached, any person claiming an interest in it shall be entitled to a prompt hearing at which the plaintiff shall be required to show why the arrest or attachment should not be vacated or other relief granted consistent with these rules. . . .

Id. Supp. Rule E(4)(f).

The text of Rule E(4)(f) itself does not explain under what circumstances the district court should vacate the attachment. Without doubt the Rule E(4)(f) hearing provides defendants with an opportunity to argue that the requirements of Rule B were not in fact met—for example, that the defendant turned out to be "found within the district." Id. Supp. Rule B(1)(a). The question presented in this case is to what extent the district court may require a showing by the plaintiff beyond the simple fact that the textual requirements of...