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Rule B: The New “Plan A” An Overview of the Rule and Recent Developments Concerning Maritime Attachment in New York Larry Kahn Freehill Hogan & Mahar Stephenson.

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Presentation on theme: "Rule B: The New “Plan A” An Overview of the Rule and Recent Developments Concerning Maritime Attachment in New York Larry Kahn Freehill Hogan & Mahar Stephenson."— Presentation transcript:

1 Rule B: The New “Plan A” An Overview of the Rule and Recent Developments Concerning Maritime Attachment in New York Larry Kahn Freehill Hogan & Mahar Stephenson Harwood One St. Paul’s Churchyard London EC4M 8SH July 16, 2008

2 Outline I Maritime Attachment Generally II Fighting the Attachment Remedy: Can an attachment be vacated? III Avoiding Attachment IV Counter-security: Is the Best Defense a Strong Offense? V Q & A

3 Maritime Attachment a. What is it and where did it come from? b. How do I use Rule B? c. When is an attachment appropriate? d. Why is New York the focus of maritime attachment?

4 Origin of the Rule

5 Common Problems Affect the Bottom Line Unpaid or Partially Paid Freight Unpaid or Partially Paid Freight Unpaid or Partially Paid Charter Hire Unpaid or Partially Paid Charter Hire Unpaid Damage to Ships or Cargo Unpaid Damage to Ships or Cargo Unpaid Judgments and Awards Unpaid Judgments and Awards Damages from Bill of Lading Fraud Damages from Bill of Lading Fraud Difficulties in collection often result in loss, even when the claim is meritorious.

6 Needs of Commerce For commerce to move, a credit facility was needed that would encourage loans to visiting ships Creditors need security, or at least a means of obtaining security for claims

7 Maritime Arrest and Attachment Maritime Arrest and Attachment Answered the Need by Allowing Creditors to Restrain Mobile Property to Enforce Maritime Claims

8 How is a Creditor to Evaluate Which Claims to Attempt to Collect? Agreement in advance to a contractual dispute resolution clause that specifies the forum and law to be applied is helpful, but in the end provides only part of the answer. This is because the creditor will be able to take advice from counsel as to whether its claim is likely to see a successful result on the law in the chosen forum, but ordinarily counsel will not be in a position to predict whether the creditor will actually be able to collect on a resulting award or judgment. When it comes to the bottom line, a successful award or judgment is not worth the paper it is printed on if it is uncollectible.

9 How is a Creditor to Evaluate Which Claims to Attempt to Collect? Pursuit of claims only against large, well- established companies can be impractical: often, more is owed (collectively) by smaller companies Pursuit of claims only against large, well- established companies can be impractical: often, more is owed (collectively) by smaller companies Pursuit of claims only against small companies can be difficult, because available assets are sometimes hard to trace, and can be even harder to collect Pursuit of claims only against small companies can be difficult, because available assets are sometimes hard to trace, and can be even harder to collect

10 How is a Creditor to Evaluate Which Claims to Attempt to Collect? Ultimately, the best claims to pursue are those that can be secured (or at least partially secured) in advance. Ultimately, the best claims to pursue are those that can be secured (or at least partially secured) in advance. Optimally, the method used to obtain security needs to be quick, inexpensive, and dependable. Optimally, the method used to obtain security needs to be quick, inexpensive, and dependable.

11 Vessel Arrest Vessel arrest permits a creditor to cause an alleged debtor’s ship to be restrained in order to secure a maritime claim that gives rise to a lien.

12 Problems with Vessel Arrest The debtor needs to have ownership interest in a vessel The debtor needs to have ownership interest in a vessel The vessel needs to be in the district in which the arrest is sought The vessel needs to be in the district in which the arrest is sought The vessel needs to be involved in the claim – sister ship arrests are not permitted in the U.S. The vessel needs to be involved in the claim – sister ship arrests are not permitted in the U.S. Only certain types of maritime claims give rise to maritime liens which permit vessel arrest Only certain types of maritime claims give rise to maritime liens which permit vessel arrest Vessel arrest requires an advance sum (which varies from district to district), paid to the Marshal in order to actually arrest the vessel Vessel arrest requires an advance sum (which varies from district to district), paid to the Marshal in order to actually arrest the vessel

13 Problems with Vessel Arrest (cont’d) If substitute security is not provided, sale of the ship at auction may yield unsatisfactory results: All creditors (including higher-ranking creditors) must be notified of the sale, and they will take from the proceeds ahead of the claimant All creditors (including higher-ranking creditors) must be notified of the sale, and they will take from the proceeds ahead of the claimant Auction costs, which include advertising, can be high, and are deducted from the sale price Auction costs, which include advertising, can be high, and are deducted from the sale price A “fire sale” result – not fair market value – is often the best case A “fire sale” result – not fair market value – is often the best case Auction and post-auction court proceedings (confirming the sale) take time and add to essentially unrecoverable legal costs Auction and post-auction court proceedings (confirming the sale) take time and add to essentially unrecoverable legal costs

14 Maritime Attachment – Rule B Rule B can be used against almost any debtor not “found” in the district Rule B can be used against almost any debtor not “found” in the district The debtor need only have an identifiable interest in property in the district The debtor need only have an identifiable interest in property in the district The property to be attached need not have any connection to the claim The property to be attached need not have any connection to the claim Rule B can be used with respect to almost any maritime claim Rule B can be used with respect to almost any maritime claim Other creditors need not be notified Other creditors need not be notified The procedure is quick, inexpensive, and reliable The procedure is quick, inexpensive, and reliable

15 What Does Rule B Provide? Rule B(1)(a) In an in personam action: If a defendant is not found within the district when a verified complaint praying for attachment and the affidavit required by Rule B(1)(b) are filed, 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.

16 Analysis of the Rule Rule B(1)(a) In an in personam action: If a defendant is not found within the district when a verified complaint praying for attachment and the affidavit required by Rule B(1)(b) are filed, 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. In an in personam action This requirement mandates that the action must be one that is directly against the person (or business)

17 Analysis of the Rule (cont’d) Rule B(1)(a) In an in personam action: If a defendant is not found within the district when a verified complaint praying for attachment and the affidavit required by Rule B(1)(b) are filed, 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. If a defendant is not “found” within the district To be “found” for purposes of Rule B requires a 2-step analysis: (1) Can the defendant be personally served with process in the district? (2) Is the defendant “doing business” within the district in terms of minimum contacts? Both answers must “yes” for the defendant to be found

18 Analysis of the Rule (cont’d) Rule B(1)(a) In an in personam action: If a defendant is not found within the district when a verified complaint praying for attachment and the affidavit required by Rule B(1)(b) are filed, 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. when a verified complaint praying for attachment and the affidavit required by Rule B(1)(b) are filed Timing for a determination of when the defendant may be “found” is based on the commencement of the action, not some earlier (or later) point.

19 Analysis of the Rule (cont’d) Rule B(1)(a) In an in personam action: If a defendant is not found within the district when a verified complaint praying for attachment and the affidavit required by Rule B(1)(b) are filed, 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. a verified complaint may contain a prayer for process to attach the defendant’s tangible or intangible personal property Essentially, all property is restrainable under this formulation. In the words of the Second Circuit Court of Appeals, the formulation is like the Maker’s Creed: all things seen and unseen.* *For historic reasons, though, real property is not restrainable.

20 Analysis of the Rule (cont’d) Rule B(1)(a) In an in personam action: If a defendant is not found within the district when a verified complaint praying for attachment and the affidavit required by Rule B(1)(b) are filed, 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. - up to the amount sued for - This explains the quantum that may be sought in an attachment, which most judges in the Southern District of New York take literally (though some judges interpret this phrase as meaning only the principal claim amount sought without any interest or costs component).

21 Analysis of the Rule (cont’d) Rule B(1)(a) In an in personam action: If a defendant is not found within the district when a verified complaint praying for attachment and the affidavit required by Rule B(1)(b) are filed, 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. in the hands of garnishees named in the process. For property to be restrained, it must actually be “in the hands” of a garnishee who is named in the process (writ).

22 When is an attachment appropriate? The remedy may be used in aid of either domestic or foreign cases (litigation or arbitration), but may only be used in conjunction with ripe maritime claims.

23 What Types of Claims are Maritime? The term is, surprisingly perhaps, not well- defined. Essentially, the question lies with the Court as to whether the claim seems “salty enough”. This policy has led to some peculiar results.

24 Maritime v. Non-Maritime Claims Contract to repair a vessel Contract to repair a vessel Demurrage claims in charter parties Demurrage claims in charter parties Torts occurring at sea and affecting ships in navigation Torts occurring at sea and affecting ships in navigation A claim that is maritime in the place where the merits are to be heard, even if not in America A claim that is maritime in the place where the merits are to be heard, even if not in America Contract to build a vessel Contract to build a vessel Demurrage claims in (certain) sales contracts Demurrage claims in (certain) sales contracts Torts occurring on land regardless of impact on ships at sea Torts occurring on land regardless of impact on ships at sea A claim that is maritime in America, even if not in the place where the merits are to be heard A claim that is maritime in America, even if not in the place where the merits are to be heard

25 Possible Effect of Kirby The Courts had long held that the boundaries of maritime tort jurisdiction were well-defined, but that the boundaries of maritime contract jurisdiction were less clear. In 2004, however, in Norfolk Southern Ry. v. James N. Kirby Pty. Ltd., the U.S. Supreme Court significantly expanded the concept of maritime jurisdiction. Even though the loss in that case, under a multimodal b/l was land based and the carriage involved significant inland rail carriage in addition to the ocean voyage, the court nonetheless found maritime jurisdiction to be present. The key, the Supreme Court found, was whether the principal objective of the contract was maritime commerce.

26 Kirby’s Development Following the Supreme Court’s lead in Kirby, the 11 th Circuit Court of Appeals held that a sexual assault on land by an off-duty crewmember against a cruise ship passenger gave rise to admiralty tort jurisdiction. Doe v. Celebrity Cruises, Inc. Legal scholars now agree that courts have continued to expand admiralty jurisdiction where changes in the industry merit those expansions and where broadened definitions will provide greater recourse to justice for individuals who participate in the industry.

27 Ripeness and Timing Only a ripe maritime claim is securable under Rule B A claim is ripe if it is direct and in personam against the defendant. Contingent indemnity claims are generally found “unripe”. Subject to the Court’s discretion, a Contingent indemnity claim may be “ripe enough” for an attachment, however if: The plaintiff itself has already been sued and/or The plaintiff itself has already been sued and/or The plaintiff itself has already provided security to another party in the chain The plaintiff itself has already provided security to another party in the chain

28 Timing Under the Arbitration Act (9 U.S.C. §8), in a case “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….”

29 Timing No similar provision of the U.S. Code exists to allow an attachment in aid of a foreign or domestic litigation, but the Courts have (thus far) found no reason to give litigants fewer rights than those who have chosen to arbitrate.

30 The time to seek an attachment is at or before the commencement of proceedings

31 Not the time to be sporting! In a recent case in which London arbitration proceedings had already begun, the claimant became concerned that the respondent would be unable to pay the award and asked for security. Over the period of about two months, the parties negotiated over security, including quantum, terms and conditions of an escrow, and other matters.

32 In the meanwhile…

33 Back in New York, the respondent created a bona fide business presence in New York, thereby rendering itself “found” within the district.

34 Negotiations thereafter (predictably, perhaps) broke off without any posting of security.

35 By the time New York counsel were asked to seek security pursuant to Rule B, the defendant was already “found” in New York and an attachment was precluded.

36 The Geographical Focus Maritime attachment practice in the United States is pursuant to Supplemental Rule B, which is applicable in every district court nationwide. New York, however, is the undeniable epicenter of maritime attachment practice. Why is this?

37

38 International wire transfers of U.S. dollars pass through New York C Transport Panamax Ltd. v. Pacific Ocean Resources Ltd., 06 CIV (RJH) (unreported). In C Transport, plaintiff commenced a Rule B action against defendant and a wire transfer was restrained while en route from a non-party’s Chinese Bank to the defendant’s Swiss Bank. The wire instructions specified that the funds were to be wired through the Swiss Bank’s US dollar account in Connecticut.

39 C Transport In the motion to vacate the attachment on the basis that the funds were restrained outside of the district (in Connecticut), the court undertook an analysis of the banking system, which included testimony from UBS Bank.

40 C Transport Findings The Court found that the subject wire, like all US dollar wire transfers, passed through CHIPS (Clearing House Interbank Payment System), which is physically located at the Federal Reserve Bank in New York. While those funds were temporarily at the Fed en route to Connecticut, they became subject to the jurisdiction of the New York Court Order Authorizing the attachment. Since UBS Bank maintained an office in New York, and had been served with the writ at its New York location, it was subject to the New York Court Order Authorizing the attachment.

41 C Transport Conclusion As a result, the plaintiff’s attachment was maintained and no court has since questioned the correctness of the C Transport decision. And the parties’ counsel each withdrew the protective suits they had filed in Connecticut.

42 Fighting Attachment - Vacature

43 Bases for Opposing an Attachment A party whose property has been restrained may seek a prompt post-attachment hearing pursuant to Rule E(4)(f) at which the validity of the attachment may be tested. Local Rules in New York provide that “prompt” means within three court days, unless the court directs otherwise.

44 The E(4)(f) Hearing Rule E(4)(f) makes clear that the burden is on the plaintiff to demonstrate why the attachment should be maintained, otherwise the attachment is to be vacated. There are otherwise no set guidelines concerning how a Rule E(4)(f) hearing is to be presented, leaving such issues to the creativity of the parties in presenting their positions.

45 Rule E(4)(f) Hearings Decisions on whether to submit documents, hear witnesses, and even to hold oral argument, are made on a case-by-case basis pursuant to the requests of the parties and the discretion of the district judge.

46 Rule E(4)(f) Hearings The primary guidance given to judges is not found in any rule or code section, but rather in the official commentary to the Rule, which states: “Rule E(4)(f) is designed to…[guarantee] a prompt post-seizure hearing at which [the defendant] can attack the complaint, the arrest, the security demanded, or any other alleged deficiency in the proceedings”.

47 Rule E(4)(f) Hearings To this we add the bases for vacature set forth in Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434 (2d Cir. 2006): “a district court must vacate an attachment if the plaintiff fails to sustain his burden of showing that he has satisfied the requirements of Rules B and E….a district court may vacate the attachment if the defendant shows at the Rule E hearing that 1) the defendant is subject to suit in a convenient adjacent jurisdiction; 2) the plaintiff could obtain in personam jurisdiction over the defendant in the district where the plaintiff is located; or 3) the plaintiff has already obtained sufficient security for the potential judgment, by attachment or otherwise.”

48 The only rule may be that there are no rules Ultimately, in determining the rules to be applied to a Rule E(4)(f) hearing, it has been consistently held that “[t]he inherent power to adapt an admiralty rule to the equities of a particular situation is entrusted to the sound discretion of the district judge sitting as an admiralty judge.” Greenwich Marine Inc. v. S.S. ALEXANDRA, 339 F.2d 901, 905 (2d Cir. 1965).

49 Avoiding Attachment: How to Dodge a Bullet

50 Strategy 1: Avoid restraint of your payment One strategy employed by those concerned about a possible attachment is to attempt to avoid having a payment caught. Generally, this involves making and receiving payments through a “paying agent”.

51 Paying Agents There are problems with using paying agents, though: 1. While you can control how payments are made by you, you cannot control how payments are made to you. Sometimes, your debtor will (deliberately or inadvertently) reference the Rule B defendant’s name in the wire instructions, which will lead to restraint by the bank’s interdiction software.

52 Paying Agents 2. There may be commercial pressure to explain why all payments are routed through a third party, or word may get out “on the street” that payments to ABC Corp. are routinely routed through BCD Corp. If word gets out, plaintiff’s counsel will ask the Court to permit restraints of BCD Corp. funds as funds being transferred “for or on behalf of” the defendant.

53 Paying Agents 3. Ultimately, a company’s trading pattern becomes known and funds of the paying agent will be captured. The defendant can engage in an endless circle of creating new paying agencies, but this inevitably will have commercial impact as it will become plain that the defendant is attempting to avoid a creditor.

54 Alter egos Many companies are part of a group of companies. To avoid attachment of the debtor group member’s property, the organization will act as a unified whole, disregarding the debtor member’s independence and conducting the debtor’s business as its own or through other arms of the organization.

55 Alter egos Under these circumstances, U.S. law permits restraint of an alter ego’s property as property of the main defendant. The plaintiff need only make a prima facie showing of either fraud or domination and control. Ulisses Shipping Corp. v. FAL Shipping Co. Ltd., 415 F.Supp.2d 318 (S.D.N.Y. 2006).

56 Alter egos Ultimately, alter egos become subject to attachment in the same way as paying agents. The fact that the alter ego may be a viable separate entity is generally of no assistance, particularly when the merits of the underlying dispute are being addressed in a foreign forum.

57 Alter egos One theory, though, that remains to be fully explored is the extent of the application of foreign law: i.e., why should a foreign company be subject to U.S. federal law on alter ego liability? What if the foreign entity is behaving in a manner consistent with its own law but which would give rise to corporate veil-piercing in the U.S.? Under the right circumstances, it may be possible to vacate an alter ego restraint. Under the right circumstances, it may be possible to vacate an alter ego restraint.

58 Strategy 2: Undermine the Rule The second strategy typically employed is to undermine Rule B by disrupting the plaintiff’s ability to apply for an attachment in the first place. Clearly, the potential defendant cannot make its activities giving rise to the claim “non-maritime” and cannot prevent the claim from lying in personam against it.

59 “Found within the District” A potential defendant can, however, attempt to render itself “found” within the district for purposes of Rule B. As seen above, this requires the defendant’s presence in terms where it would need to be both (a) capable of being served in the district and (b) doing business in the district.

60 “Found within the District” Many companies fearing Rule B attachment have obtained a license to conduct business in New York, which under well-established New York state law means that the entity is actually “conducting business” throughout the state, regardless of the level of actual activity. Such companies typically appoint their New York counsel as agents for service of process, thereby theoretically rendering themselves “found”.

61 “Found” In the past two months, there have been six separate decisions all finding that such incorporation tactics will successfully preclude attachment under Rule B. These decisions find fault with a Magistrate Judge decision from approximately 18 months ago which found that a company that had done the same thing – plus had actual business contacts in the district and was actively seeking office space in New York – was still not sufficiently “found”, maintaining the Rule B attachment.

62 Sidebar / Related Topic: Convenient Adjacent District

63 Are the decisions correct? Older case law, which recalls the original purpose of maritime attachment – to allow restraint of a foreign entity’s assets within the district so as to be able to secure a potential judgment – holds that the appointment of counsel for the purpose of avoiding attachment is a nullity. Under older case law too, the business contacts with the district must be “substantial”, “continuous”, and “likely to continue in the future”. These requirements are not met by the paper companies that are now routinely being established.

64 Will New York incorporation / licensure kill Rule B? Likely not. As indicated, it won’t be long before a challenge arises based on the older case law. If the older case law prevails, then the current fad of New York incorporation / licensure will likely fade. Even if incorporation / licensure does preclude Rule B attachment, actions can still be brought in other U.S. jurisdictions where property (likely debts) of the defendant can be found.

65 Counter-security: fighting back

66 Counter-security Rules E(2) and E(7) concern counter- security. Rule E(2) provides counter- security for certain statutory “costs” (under the American Rule, “costs” do not include legal fees). More important for our purposes is Rule E(7).

67 Rule E(7) When a person who has given security for damages in the original action asserts a counterclaim that arises from the transaction or occurrence that is the subject of the original action, a plaintiff for whose benefit the security has been given must give security for damages demanded in the counterclaim unless the court for cause shown, directs otherwise. Proceedings on the original claim must be stayed until this security is given unless the court directs otherwise.

68 Rule E(7) When a person who has given security for damages in the original action asserts a counterclaim that arises from the transaction or occurrence that is the subject of the original action, a plaintiff for whose benefit the security has been given must give security for damages demanded in the counterclaim unless the court for cause shown, directs otherwise. Proceedings on the original claim must be stayed until this security is given unless the court directs otherwise. When a person who has given security for damages in the original action It is established that the requirement to “give” security is not taken to require any degree of voluntary giving. Restraint of property is “giving security”.

69 Rule E(7) When a person who has given security for damages in the original action asserts a counterclaim that arises from the transaction or occurrence that is the subject of the original action, a plaintiff for whose benefit the security has been given must give security for damages demanded in the counterclaim unless the court for cause shown, directs otherwise. Proceedings on the original claim must be stayed until this security is given unless the court directs otherwise. asserts a counterclaim that arises from the transaction or occurrence that is the subject of the original action The counterclaim must (a) be asserted and (b) arise from the transaction or occurrence that is the subject of the original action. The counterclaim need not be maritime in nature, however, to earn counter- security. A counterclaim that seeks damages for wrongful restraint under Rule B does not “arise” from the transaction or occurrence that is the subject of the original action.

70 Rule E(7) When a person who has given security for damages in the original action asserts a counterclaim that arises from the transaction or occurrence that is the subject of the original action, a plaintiff for whose benefit the security has been given must give security for damages demanded in the counterclaim unless the court for cause shown, directs otherwise. Proceedings on the original claim must be stayed until this security is given unless the court directs otherwise. a plaintiff for whose benefit the security has been given must give security for damages demanded in the counterclaim Counter-security only secures “damages”. Whether “damages” includes recoverable interest, disbursements, “costs” (including fees) is a divided issue.

71 Rule E(7) When a person who has given security for damages in the original action asserts a counterclaim that arises from the transaction or occurrence that is the subject of the original action, a plaintiff for whose benefit the security has been given must give security for damages demanded in the counterclaim unless the court for cause shown, directs otherwise. Proceedings on the original claim must be stayed until this security is given unless the court directs otherwise. unless the court for cause shown, directs otherwise. Counter-security is nearly automatic and usually can only be avoided in cases where counter-security would be inequitable, often based on the impecuniosity of the plaintiff (such as an injured seaman). For a corporation to succeed on this basis, it must show that the counter-security demanded would act as a bar to seeking Rule B relief in the first instance. Though there have been attempts, no current case has allowed such avoidance.

72 Rule E(7) When a person who has given security for damages in the original action asserts a counterclaim that arises from the transaction or occurrence that is the subject of the original action, a plaintiff for whose benefit the security has been given must give security for damages demanded in the counterclaim unless the court for cause shown, directs otherwise. Proceedings on the original claim must be stayed until this security is given unless the court directs otherwise. Proceedings on the original claim must be stayed until this security is given unless the court directs otherwise. Courts have held that even where the merits are being decided in a foreign forum, the Court is still within its power to enjoin the plaintiff from proceeding until counter-security is posted. Advancing the claim under such circumstances is treated as contempt of court.

73 Recent Decisions - Countersecurity Chiquita Int’l Ltd. v. M/V BOSSE, 518 F.Supp.2d 589 (S.D.N.Y. 2007). In Chiquita, plaintiff secured a Rule B against defendant. Defendant, having a counter-claim related to the same action, but wishing to be able to secure interest, costs and other damages, sought its own Rule B against plaintiff.

74 Chiquita The Chiquita Court held that the defendant was required to raise its request for counter-security within the context of the already filed action and therefore vacated the defendant’s Rule B as procedurally invalid, denying the defendant any counter-security.

75 Recent Decisions - Countersecurity Naias Marine S.A. v. Trans Pacific Carriers Co. Ltd., 2008 U.S. Dist. LEXIS 2438 (S.D.N.Y. Jan. 10, 2008). In Naias, the defendant had initially commenced a Rule B against the plaintiff. That action was terminated when plaintiff provided full security to Trans Pacific. Plaintiff then commenced its own Rule B against defendant to secure a potential costs judgment (it had no counterclaim per se).

76 Naias Trans Pacific successfully vacated Naias’ attachment because a costs judgment would not “arise from” the same transaction or occurrence as the original action. The Court also concluded that Naias’ time to seek security for such costs was while Trans Pacific’s case was still active. Naias’ failure to act at that time precluded security for such costs (which might have been awarded had they been requested) now.

77 Recent Decisions - Countersecurity Bhatia Shipping and Agencies Pvt. Ltd. v. Alcobex Metals Ltd., 07 CIV 9346 (BSJ) (S.D.N.Y. July 3, 2008) (not yet reported) Facts: Bhatia agreed to deliver Alcobex’s pipes to England. Bhatia appears to have mistakenly delivered those pipes without surrender of original bs/l. Alcobex was not paid and made a demand against Bhatia. Bhatia admitted the error and asked its underwriter to pay the claim. No payment was made and Alcobex did not timely advance its claim. Bhatia moved the English High Court for declaratory judgment on time bar. Months later, Alcobex brought its own action, in India, for damages. The English Court granted Bhatia’s action and awarded costs.

78 Bhatia Bhatia sought to enforce its judgment via a Rule B attachment. Funds were secured and Alcobex moved to vacate on the following grounds: 1) Bhatia's costs judgment was not maritime under Naias Marine 2) Bhatia's claim was not maritime in any event and the court lacked admiralty jurisdiction 3) Both parties were Indian 4) Bhatia's English action was brought in bad faith since Bhatia was not the injured party and since India was a more convenient and less expensive forum 5) Even if admiralty jurisdiction existed, under equitable principles, this court should vacate the attachment and deny recognition of the English judgment which was rendered by default

79 Bhatia Alcobex's arguments were all rejected by the Court. 1) While a claim merely for costs without more may not be maritime (Naias), a judgment by a maritime court for money damages (to either side), even solely for costs, is maritime. 2) The enforcement of a foreign admiralty judgment is an exercise of this court's admiralty judgment (citing Victrix) 3) The proper place to challenge jurisdiction is not in the court where an enforcement action is taking place (SDNY), but rather in either the place where the court's jurisdiction is subject to question (England) or where jurisdiction is proper and brought in the alternative (India)

80 Maritime Attachment: Anything but Static

81 Q & A Larry Kahn Freehill Hogan & Mahar, LLP 80 Pine Street New York, NY (212) (212)


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