Navalmar (U.K.) v. Welspun Gujarat Stahl Rohren

• Decision Date: 24 April 2007
• Docket Number: No. 07 Civ. 372(AKH).,07 Civ. 372(AKH).
• Parties: NAVALMAR (U.K.) LTD., Plaintiff, v. WELSPUN GUJARAT STAHL ROHREN, LTD., Defendant.
• Court: U.S. District Court — Southern District of New York

485 F.Supp.2d 399

NAVALMAR (U.K.) LTD., Plaintiff, v. WELSPUN GUJARAT STAHL ROHREN, LTD., Defendant.

No. 07 Civ. 372(AKH).

United States District Court, S.D. New York.

April 24, 2007.

Kirk M.H. Lyons, Lyons & Flood, L.L.P., New York, NY, for Plaintiff.

OPINION AND ORDER DENYING MOTION TO VACATE MARITIME ATTACHMENT

HELLERSTEIN, District Judge.

I consider in this opinion Defendant's motion to vacate a maritime attachment. The issues raised by the motion are important in maritime law, and are the subjects of divided opinions among district judges in the Second Circuit as to: (a) whether electronic funds transfers through New York clearing banks can be attached; (b) whether a vessel owner can bring an admiralty claim in this Court and obtain an attachment of the charterer's money and property to secure the vessel owner's claim in arbitration against the charterer for indemnification; and (c) whether the order of attachment, once having been served personally, may thereafter be served electronically and in the manner required by the garnishee.

On January 17, 2007, Plaintiff Navalmar (U.K.) Ltd. ("Navalmar") filed a complaint in this court against defendant Welspun Gujarat Stahl Rohren, Ltd. (""WGSR") and moved immediately and ex parte, pursuant to Rule B of the Supplemental Rules for Certain Admiralty and Maritime Claims, Fed.R.Civ.P. (hereinafter "Admiralty Rule B"), to attach and garnish the property of the defendant in this district. I granted the motion and issued an order of attachment.

On February 7, 2007, WGSR moved to vacate the attachment, pursuant to Rule E of the Supplemental Rules for Certain Admiralty and Maritime Claims, Fed.R.Civ.P. (hereinafter "Admiralty Rule E"). I heard oral argument on February 21, 2007, and reserved decision. For the reasons stated below, I deny Defendant's motion.

Background

Plaintiff Navalmar alleges that it was the owner of the M/V Patara, and that, on February 2, 2004, it time-chartered the vessel to defendant WGSR for a year, plus or minus one month at charterer's option. In February 2005, the charterer embarked on a voyage from Turkey to Yemen, carrying steel reinforcing bars. During discharge of the cargo in the port of Aden, completed March 27, 2005, the consignee complained of damage to cargo, filed suit in the Aden Commercial Court, and caused the vessel to be arrested as security for the consignee's claim of damaged cargo. Plaintiff Navalmar retained attorneys, the affected parties retained surveyors to investigate and evaluate the damage and, following their reports, the Aden court fixed security in the amount of one million dollars, to be satisfied by bank guarantee. Navalmar, the owner, filed the security and obtained release of the ship on May 2, 2005. Meanwhile, Plaintiff alleges, Defendant withheld hire in breach of the charter,¹ causing it to sustain further damage. Proceedings in the Aden Commercial Court between the consignee and Navalmar remain pending.

Arbitration in London followed between Navalmar and WGSR, the vessel owner and the charterer, respectively. On November 18, 2005, the arbitrators granted Navalmar an interim award for withholding hire of $271,350 plus interest, finding that WGSR's loss of use of the vessel was not "the consequence of any breach of charter on the part of [Navalmar]." Clyne Aff., Ex. A ¶ 19. WGSR declined to pay the award. Plaintiff Navalmar then brought this action, against WGSR pursuant to 9 U.S.C. § 8, in aid of Navalmar's claims against WGSR in the London arbitration, seeking to attach and recover (a) the interim award granted by the arbitrators plus interest ($298,559.20); (b) as counter-security for the bank guarantee of $1,000,000 given in the Aden Commercial Court to free the M/V Patara, an attachment in like amount; (c) the expense of procuring the bank guarantee ($38,462.78); (d) the legal fees and costs in connection with the London arbitration (£76,787.74); and (e) the legal fees and costs in connection with the defense of the cargo claims in Aden ($356,433.16). In total, Plaintiff sought to attach approximately $1,900,000 to secure its claims for damages and indemnification.² I granted the request and issued an order of attachment.

Plaintiff made personal service of the attachment order on garnishee Citibank, N.A. ("Citibank") on January 18, 2007, but no property belonging to Defendant was then in Citibank's possession. Citibank advised Plaintiff that its compliance with renewed levies of the order of attachment would depend on adherence to Citibank's established procedures: electronic service by fax or email within designated hours to a designated center, rather than personal service on a branch manager or bank officer; and, in the event of such compliance, that funds passing through the bank at any point of the business day, whether before or after the time of electronic service and resulting from either a send or receive order of or on behalf of respondent, would be considered as garnished and held subject to the order of attachment. Navalmar complied with Citibank's procedures, issuing daily electronic levy each business day following January 18, 2007. The order of attachment authorized renewed levies within a certain period until the amount provided was secured.³

On February 2, 2007, Citibank advised Navalmar that it had received an electronic funds transfer ("EFT"), originated at the order of WGSR, in the amount of $3,289,159.00, and that it would hold sufficient of this amount subject to the order of attachment. See Lyons Decl., Ex. H; Praveer Decl., ¶ 23. On February 7, 2007, defendant moved, pursuant to Admiralty Rule E(4)(f), to vacate the attachment. I now must decide the validity of the attachment.

Discussion

I. The Admiralty Rules of Attachment

The Admiralty Rules provide that where a Defendant cannot be found in the district in which the complaint is filed, the 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." Admiralty Rule B(1)(a). The plaintiff or plaintiffs attorney must sign and file with the complaint an affidavit stating that, to the affiant's knowledge, or on information and belief, the defendant cannot be found within the district. Admiralty Rule B(1)(b). The court must review the complaint and affidavit and, if the conditions set out in Rule B appear to exist — namely, that the defendant is not found in the district — the court must enter an order authorizing process of attachment and garnishment. Id. The clerk may enter supplemental process enforcing the court's order upon application without further court order. Id.

Admiralty Rules B and E govern the procedure for service of process of maritime attachment and garnishment. If the property to be attached is a vessel or property on board a vessel, the process must be delivered to the marshal for service; if otherwise, service of process may be made by either the marshal or an individual appointed by the court. Admiralty Rule B(1)(d). If intangible property is to be attached, the process server "shall execute the process by leaving with the garnishee or other obligor a copy of the complaint and process requiring the garnishee or other obligor to answer as provided in [the Admiralty Rules]."

Admiralty Rule E provides that "[w]henever 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 ...." Admiralty Rule E(4)(f). The text of Admiralty Rule E(4)(f) does not explain, however, "under what circumstances the district court should vacate the attachment." Aqua Stoli v. Gardner Smith Pty. Ltd., 460 F.3d 434, 438 (2d Cir.2006). For the relevant standard of review, the Court looks to the Second Circuit's decision in Aqua Stoli, supra, which addressed the showing a plaintiff must make to sustain a maritime attachment following defendant's motion to vacate.

II. Aqua Stoli and the District Court's Standard of Review

In Aqua Stoli, the defendant charter party, Gardner Smith, refused to load cargo at a port in Brazil, claiming that the chartered vessel, owned by Aqua Stoli, was not seaworthy. Aqua Stoli denied unseaworthiness, and commenced arbitration proceedings in London. Gardner Smith counterclaimed, and attached Aqua Stoli's vessel as security. Aqua Stoli, claiming entitlement to counter-security, filed suit in the Southern District of New York and moved ex parte under Admiralty Rule B for an order of attachment. The district court granted the motion. See id. at 436-37.

Gardner Smith then moved pursuant to Admiralty Rule E(4)(f) to vacate the New York attachment. The district judge, observing that there were no criteria provided by Rule E(4)(f), fashioned a balancing test and vacated the attachment as not needed under the circumstances. Aqua Stoli v. Gardner Smith Pty Ltd., 384 F.Supp.2d 726 (S.D.N.Y.2005). The Second Circuit reversed, holding that "once a plaintiff has carried his burden to show that his attachment satisfies the requirements of [Admiralty Rule B], a district court may vacate an attachment only upon circumstances not present in [Aqua Stoli]." Aqua Stoli, 460 F.3d at 436.

The Second Circuit ruled that the party seeking an attachment has the burden to show that "1) it has a valid prima facie admiralty claim against the defendant; 2) the defendant cannot be found within the district; 3) the defendant's property may be found within the district; and 4) there is no statutory or maritime law bar to the attachment." Aqua Stoli, 460 F.3d at 445. If a party satisfies that burden, and meets the filing and service requirements of Admiralty Rules B and E, the attachment may not be vacated, except in limited circumstances not relevant here. See id. (suggesting circumstances that would permit the district court to vacate a...