Shipping Corp. of India v. Jaldhi Overseas Pte

• Citation: 585 F.3d 58
• Decision Date: 16 October 2009
• Docket Number: Docket No. 08-3758-cv(XAP).,Docket No. 08-3477-cv(L).
• Parties: The SHIPPING CORPORATION OF INDIA LTD., Plaintiff-Counter-Defendant-Appellant-Cross-Appellee, v. JALDHI OVERSEAS PTE LTD., Defendant-Counter-Claimant-Appellee-Cross-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

585 F.3d 58

The SHIPPING CORPORATION OF INDIA LTD., Plaintiff-Counter-Defendant-Appellant-Cross-Appellee, v. JALDHI OVERSEAS PTE LTD., Defendant-Counter-Claimant-Appellee-Cross-Appellant.

Docket No. 08-3477-cv(L).

Docket No. 08-3758-cv(XAP).

United States Court of Appeals, Second Circuit.

Argued: May 5, 2009.

Decided: October 16, 2009.

Jeremy J.O. Harwood, Blank Rome LLP, New York, NY, for plaintiff counter-defendant-appellant-cross-appellee, The Shipping Corporation of India Ltd.

Rahul Wanchoo, Glen Rock, NJ, for defendant-counter-claimant-appellee-cross-appellant, Jaldhi Overseas Pte Ltd.

Bruce E. Clark, (H. Rodgin Cohen, Michael M. Wiseman, Laurent S. Wiesel, Scott A. Rader, of counsel), Sullivan & Cromwell LLP, New York, NY, for Amicus Curiae The Clearing House Association L.L.C.

Before: FEINBERG, WINTER, and CABRANES Circuit Judges.

JOSÉ A. CABRANES, Circuit Judge:

This case is based on a dispute between a company incorporated in India and a company incorporated in Singapore over an accident that occurred in India while one company was shipping products to China; the dispute was to be arbitrated in England. Because the parties' banks had accounts in New York banks, electronic fund transfers ("EFTs")¹ between one party involved in the dispute and third parties passed through New York electronically for an instant. Under Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263, 278 (2d Cir.2002), this momentary passage was sufficient to vest jurisdiction in the United States District Court of the Southern District of New York.

We are now presented with the question of whether the rule of Winter Storm should be reconsidered and, upon reconsideration, overruled. Specifically, this appeal raises the issue of whether EFTs of which defendants are the beneficiary are attachable property of the defendant pursuant to Rule B of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions of the Federal Rules of Civil Procedure ("Rule B" of "the Admiralty Rules")² under our decisions in Winter Storm, 310 F.3d at 278, Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 436 (2d Cir.2006), and Consub Delaware LLC v. Schahin Engenharia Limitada, 543 F.3d 104, 109 (2d Cir.2008). We now conclude, with the consent of all of the judges of the Court in active service, that Winter Storm was erroneously decided and therefore should no longer be binding precedent in our Circuit.³

Our decision in Winter Storm produced a substantial body of critical commentary. Indeed, within four years of our decision, we ourselves had begun to question the correctness of Winter Storm, see Aqua Stoli, 460 F.3d at 445 n. 6 ("The correctness of our decision in Winter Storm seems open to question ...."), as have, more recently, some judges of the United States District Court for the Southern District of New York, see e.g., Hannah Bros. v. OSK Mktg. & Commc'ns, Inc., 609 F.Supp.2d. 343, 352 n. 3 (S.D.N.Y.2009) ("The discussion above also underscores a point that has become conventional wisdom in this district—that Winter Storm and Aqua Stoli may merit reconsideration...." (emphasis added)). Various commentators and courts have suggested that Winter Storm directly led to strains on federal courts and international banks operating within our Circuit. See, e.g., Permanent Editorial Bd. for the Uniform Commercial Code, PEB Commentary No. 16: Sections 4A-502(d) and 4A-503, at 5 n. 4 (July 1, 2009) ("PEB Commentary") ("[T]he Winter Storm approach is proving to be practically unworkable."). And some have even suggested that Winter Storm has threatened the usefulness of the dollar in international transactions. See generally id. ("[T]his explosion of writs creates an additional threat to the U.S. dollar as the world's primary reserve currency and New York's standing as a center of international banking and finance."); see also Lawrence W. Newman & David Zaslowsky, Is There Finally a Backlash Against Rule B Attachments?, 241 N.Y.L.J. 3 (2009) ("[W]hen lawyers are advising their clients that the best way to avoid Rule B attachments is to conduct maritime and perhaps other transactions in a currency other than U.S. dollars, there are emerging risks of a significant reduction in the use of the dollar as the dominant currency of international commerce.").

The unforeseen consequences of Winter Storm have been significant. According to amicus curiae The Clearing House Association L.L.C.—whose members are ABN AMRO Bank N.V.; Bank of America, National Association; The Bank of New York Mellon; Citibank, National Association; Deutsche Bank Trust Company Americas; HSBC Bank USA, National Association; JPMorgan Chase Bank, National Association; UBS AG; U.S. Bank National Association; and Wells Fargo Bank, National Association—from October 1, 2008 to January 31, 2009 alone "maritime plaintiffs filed 962 lawsuits seeking to attach a total of $1.35 billion. These lawsuits constituted 33% of all lawsuits filed in the Southern District, and the resulting maritime writs only add to the burden of 800 to 900 writs already served daily on the District's banks." Amicus Br. 3-4. Judge Scheindlin recently outlined the effect of Winter Storm on international banks located in New York:

This Court was recently informed that, currently, leading New York banks receive numerous new attachment orders and over 700 supplemental services of existing orders each day. This is confirmed by the striking surge in maritime attachment requests in this district, which now comprise approximately one third of all cases filed in the Southern District of New York. As a consequence, New York banks have hired additional staff, and suffer considerable expenses, to process the attachments. The sheer volume ... leads to many false "hits" of funds subject to attachment, which has allegedly introduced significant uncertainty into the international funds transfer process.

Cala Rosa Marine Co. Ltd. v. Sucres et Deneres Group, 613 F.Supp.2d 426, 431-32 n. 7 (S.D.N.Y.2009) (citation omitted).

Our holding in Winter Storm not only introduced "uncertainty into the international funds transfer process," id., but also undermined the efficiency of New York's international funds transfer business. As the Federal Reserve Bank of New York noted in its amicus curiae brief in support of the motion for rehearing en banc by the defendant in Winter Storm, "efficiency is fostered by protecting the intermediary banks; justice is fostered by expressly telling litigants where the process should be served.... [Winter Storm] disrupt[ed] this balance and threaten[ed] the efficiency of funds transfer systems, perhaps including Fedwire." Amicus Br. of Federal Reserve Bank of New York 9, Winter Storm, 310 F.3d 263 (No. 02-7078). Undermining the efficiency and certainty of fund transfers in New York could, if left uncorrected, discourage dollar-denominated transactions and damage New York's standing as an international financial center. See, e.g., PEB Commentary 6 n. 4 ("Winter Storm and its progeny have had a far greater, and damaging, potential impact on U.S. and foreign banks located in New York than might have been anticipated."); Newman & Zaslowsky, 241 N.Y. L.J. at 3.

Overturning Winter Storm will dramatically affect the law of maritime attachments in our Circuit, but we must not overstate the practical effect of our holding in this case. Since we decided Winter Storm, decisions in both our Court and in the Southern District of New York have cabined Winter Storm to minimize its effects on the courts and banks of New York without overturning Winter Storm directly. See, e.g., STX Panocean (UK) Co. v. Glory Wealth Shipping Pte Ltd., 560 F.3d 127, 133 (2d Cir.2009); Cala Rosa, 613 F.Supp.2d at 432; Marco Polo Shipping Co. Pte v. Supakit Prods. Co., No. 08 Civ. 10940, 2009 WL 562254, at *2, 2009 U.S. Dist. LEXIS 19057, at *4 (S.D.N.Y. Mar. 4, 2009). Although these cases have further complicated the law of Rule B attachments, they have also limited the reach of Winter Storm and thus necessarily limited the effect of our decision in the instant case.

In STX Panocean, we recently held that by merely registering as a domestic corporation with the New York Secretary of State, a defendant is "found" within the district for the purposes of Rule B attachment. 560 F.3d at 133. Because Rule B provides for attachment of defendant's property that is found within the district only if the defendant itself is not found within the district, our ruling in STX Panocean allows an international firm to avoid having its property—including property other than EFTs—attached simply by registering as a domestic corporation in New York State. Although the implications of STX Panocean are unknown, it would not be surprising if many international firms that engage in dollar-denominated transactions register in New York State to avoid attachment of their property.

In Cala Rosa, Judge Scheindlin denied a maritime plaintiff's request for "continuous service" of an attachment on banks—a decision that, if upheld on appeal, would likely further limit the usefulness of attachments of EFTs. 613 F.Supp.2d at 432. In light of our decision in Reibor International Ltd. v. Cargo Carriers Ltd., 759 F.2d 262, 266 (2d Cir.1985), which held that an attachment is void unless a garnishee actually "possesses" defendant's property when the attachment is served, and the instantaneous nature of most EFTs, Judge Scheindlin's decision renders many maritime attachments effectively unenforceable. As Judge Scheindlin explained:

Many courts, including this one, have noted that in light of Reibor a continuous service provision is necessary, in practice, to allow attachment of EFTs. That is no doubt true. But Reibor provides the proper response to this concern: the New York "rule works, to be sure, to the detriment of an attaching creditor, but that is simply the way the law was intended to operate."

Many courts have also expressed concern that...