Summary
In Noble Shipping, the defendant challenged the attachment of an EFT sent by a third-party customer as payment to the defendant as a beneficiary, and attached by the plaintiff while the EFT was at an intermediary bank.
Summary of this case from HBC Hamburg Bulk Carriers GMBH Co. v. OleicosOpinion
03 Civ. 6039 (DLC)
December 24, 2003
Patrick F. Lennon, Esq., Tisdale Lennon, LLC, New York, New York, for the Plaintiff
Kirk M. H. Lyons, Esq., Lyons, Skoufalos, Proios Flood, LLP, New York, New York, for the Defendant
OPINION AND ORDER
On August 11, 2003, Noble Shipping, Inc. ("Noble"), a British corporation, applied ex parte for an order of maritime attachment pursuant to the Federal Arbitration Act, 9 U.S.C. § 8, and Rule B(1) of the Supplemental Rules for Certain Admiralty and Maritime Claims ("Rule B" or "Rule B(1)"). The order of attachment was granted. Defendant Euro-Maritime Chartering Limited ("EMC"), also a British corporation, now moves to vacate the attachment of funds held by HSBC Bank USA ("HSBC USA"). For the reasons set forth below, EMC's motion to vacate the attachment is denied.
The Court has jurisdiction over this case pursuant to 28 U.S.C. § 1333.
Background
On May 23, 2003, EMC entered into a maritime contract with Noble. During the course of the charter, certain disputes arose between Noble and EMC, the details of which are immaterial to this action. As a result, it is alleged that EMC failed to pay Noble $229,450.00. The contract of charter provided that any disputes arising under the charter would be subject to arbitration in London. Both parties have appointed arbitrators, and the arbitration in that city is proceeding.
On August 11, 2003, Noble brought an action in this Court seeking to secure its claim in the London arbitration proceeding. In its verified complaint, Noble alleged that EMC could not be found within this district under the meaning of Rule B, but that HSBC USA had or would soon have assets here "believed to be due and owing" to EMC. Satisfied that the plaintiff had made a prima facie showing under Rule B, this Court issued a writ of attachment ("the Writ") enabling Noble to attach EMC's assets in this district. The Writ provided that
The verified complaint sought to attach $413,867.50, which, in addition to the principal claim in the amount of $229,450.00, included attorneys' fees, costs, and two years of interest at 7.5% per annum. The Writ only authorized the attachment of the principal amount.
process of maritime attachment and garnishment shall issue against all tangible or intangible property belonging to, claimed by or being held for the defendant by HSBC Bank USA in an amount up to and including $229,450.00.00.
Noble served garnishee HSBC USA with the process of garnishment twice on August 12, 2003. Process was served two more times on August 13, and again on August 14.
Meanwhile, in an unrelated transaction, EMC had entered into a contract of charter with the Marubeni Corporation ("Marubeni"), a Japanese company. As payment for its services, EMC billed Marubeni for freight in the agreed upon amount of $1,780,096.50. The invoice contained payment instructions making the freight payable by wire transfer to EMC's account at HSBC Bank PLC, located in Piraeus, Greece ("HSBC Greece"). Because the payment was in United States dollars, it had to be routed through HSBC Greece's account with an American bank, in this case, HSBC USA. The invoice contained EMC's account number at HSBC Greece, and specified that payment to HSBC USA was for the benefit of EMC.
On August 15, 2003, Marubeni America Corporation ("MAC"), a subsidiary of Marubeni located in New York, wired funds to EMC on behalf of its parent corporation in the amount of $1,757,274.75. As the funds passed through HSBC USA on their way to HSBC Greece, $229,450.00 was segregated and frozen pursuant to the Writ. HSBC USA wired a message to HSBC Greece indicating that $1,527,824.75 had been credited to HSBC Greece's account for the benefit of EMC, but that HSBC USA had frozen the remaining balance pursuant to an ex parte order of maritime attachment.
Noble again served HSBC USA with the process of garnishment on August 18 and 19. On August 26, HSBC USA placed the previously segregated $229,450.00 into an interest-bearing time deposit account for the benefit of EMC. The account was titled "Blocked FDS [funds] — Euro Maritime Chartering Ltd c/o HSBC Bank USA Central Services." According to HSBC USA, the only inquiries received by the bank with respect to the $229,450.00 have been from attorneys representing the plaintiff and defendant in this action. Neither MAC nor Marubeni have made any claim upon HSBC USA or this Court regarding the attached funds.
Discussion
EMC asserts that the Writ is void and should be vacated because the attached funds were not the "property" of EMC within the meaning of Rule B. EMC contends that both federal maritime law and New York State law support a finding that the funds frozen by HSBC USA pursuant to the Writ remain the property of Marubeni because the funds never reached EMC's account at HSBC Greece.
"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." Winter Storm Shipping, Ltd, v. TPI, 310 F.3d 263, 267 (2d Cir. 2002) (quoting Atkins v. Fibre Disintegrating Co., 85 U.S. (18 Wall.) 272, 303 (1873)). Maritime attachment is a broad remedy that is "inextricably linked to a plaintiff's substantive right to recover." Aurora Maritime Co. v. Abdullah Mohamed Fahem Co., 85 F.3d 44, 48 (2d Cir. 1996). Attachment not only provides the plaintiff with a means to assure satisfaction if his suit is successful, it can also "insure the defendant's appearance in an action." Id. Rule B, the modern source of authority for attachment of property in maritime actions, is "simply an extension of this ancient practice." Winter Storm, 310 F.3d at 268 (citation omitted).
Under Rule B, "[i]f 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." Fed.R.Civ.P. Supp. R. B(1). The property attached need not have a direct connection to the claim sued upon. See Winter Storm, 310 F.3d at 268; see also ContiChem LPG v. Parsons Shipping Co., Ltd., 229 F.3d 426, 434 (2d Cir. 2000). When the validity of an attachment is challenged, the burden is on the plaintiff to show why the attachment should not be vacated. Fed.R.Civ.P. Supp. R. E(4)(f).
Rule E(4)(f) provides, in relevant part, "[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. . . ." Fed.R.Civ.P. Supp. R. E(4)(f).
Debts owed to a creditor are indisputably property subject to attachment. See, e.g., N.Y. C.P.L.R. 5201, 6214 (McKinney 2003). In maritime actions, it is no different. Rule B permits "a plaintiff to attach intangible items, such as debts owed to the defendant. Such items may be attached even if they have not yet matured or have only partially matured." Winter Storm, 310 F.3d at 276 (citing Robert M. Jarvis, An Introduction to Maritime Attachment Practice Under Rule B, 20 J. Mar. L. Com. 521, 530 (Oct. 1989)).
Maritime attachment of an electronic funds transfer ("EFT") involves "the interplay between a centuries-old admiralty law procedure and present day banking technology." Winter Storm, 310 F.3d at 265. EFTs have become widespread in the shipping industry, and when payments are made between foreign countries, the payment often clears through New York. Id. at 273. EFTs are property subject to attachment under Rule B. Id. at 278.
Simply stated, the mechanics of an electronic transfer between two foreign parties transacting business in U.S. dollars are the following. A customer ("the originator") commences an EFT by instructing its bank ("the originating bank") to transfer funds to a beneficiary. Because the beneficiary is not located in the United States, it only maintains an account with a foreign bank ("the beneficiary's bank"). The beneficiary's bank, because it does not operate in the United States, maintains a U.S. dollar account with an American bank ("the intermediary bank"). The originating bank sends the originator's payment instructions to the intermediary bank, including the name and account number of the intended beneficiary. The intermediary bank executes those instructions by crediting funds into the beneficiary bank's U.S. dollar account at the intermediary bank. Subsequently, the beneficiary's bank pays the beneficiary by crediting the appropriate sum in the beneficiary's account at the beneficiary's bank. See United States v. Daccarret, 6 F.3d 37, 43-44 (2d Cir. 1993).
The $229,450.00 at issue here was a debt due and owing to EMC. Therefore, the attachment of those funds at HSBC USA was proper. Neither the location of the debt at the time of its attachment, nor the fact that this case arises under maritime law, changes the basic principle that debts are property subject to attachment.
EMC relies on Winter Storm to argue that the attached funds were not its property. EMC emphasizes that the funds seized inWinter Storm belonged to the originating party. According to EMC, since it was the EFT's intended beneficiary, rather than its originator, the funds at HSBC USA were not EMC's property at the time they were attached.
The Winter Storm court held that EFTs in the hands of an intermediary bank were property within the meaning of Rule B, and subject to maritime attachment. Winter Storm, 310 F.3d at 278. That principle allows attachment of a debt being paid through an EFT. Indeed,Winter Storm itself relied on a case in which the defendants who sought unsuccessfully to vacate attachments were the intended beneficiaries of the EFT. Id. In Daccarett, the court approved the attachment of EFTs being sent to the defendant beneficiaries. Daccarett, 6 F.3d at 44, 54.
EMC contends that Article 4A of the N.Y. U.C.C. provides useful guidance on the issue of what party holds title to funds transmitted by an EFT. Although "state law may be borrowed if there is no federal admiralty law" on point, Winter Storm, 310 F.3d at 275, there is federal law that dictates the result here. Under Rule B, a debt transferred pursuant to an EFT may be attached as the property of the debt's intended beneficiary. To the extent N.Y. U.C.C. Art. 4A conflicts with Rule B, it is preempted.Id. at 279.
Conclusion
The motion by Euro-Maritime Chartering Limited to vacate the attachment is denied.
SO ORDERED.