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Requirements for Attachment of Assets under Rule B

Written by: Neil A. Quartaro

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Introduction

In the United States, there is a maritime preliminary remedy whereby a plaintiff can obtain security for its claim by attaching assets belonging to a defendant at the outset of the dispute, irrespective of where the merits of the dispute are being heard. The Federal Rules of Civil Procedure, Rule B of the Supplemental Rules for Admiralty or Maritime Claims (“Rule B”) provides that a plaintiff with a maritime claim can make an ex-parte application in federal court to attach the defendant’s property located in the jurisdiction. The purpose of a Rule B attachment is (i) to obtain security for the claim and (ii) to obtain jurisdiction over a defendant who is not otherwise present in the district. In order to use Rule B, a plaintiff must be able to show that (i) it has a maritime claim against the defendant and (ii) the defendant cannot be found within the judicial district where the Rule B attachment was issued.

The Maritime Claim

The existence of a maritime claim will be determined with reference to U.S. federal law. Under U.S. federal law, maritime jurisdiction generally extends to disputes occurring on navigable waters and involving some aspect of traditional maritime commerce. The breach of a maritime contract gives rise to a maritime claim. Ocean carriage contracts, such as charter parties and bills of lading are maritime contracts, as are, for example, marine insurance policies. There are notable exceptions, for example, shipbuilding contracts and vessel sale agreements, which are not considered maritime in nature because they are preliminary to navigation.

Presence in the District

Rule B requires that a plaintiff search the judicial district in order to determine whether or not the defendant can be “found within the district.” Generally, a defendant can be “found within the district” if it can be effectively served with judicial process to bring it before the Court, which requires that the defendant: (i) have an agent or representative for the service of process in the district; and/or (ii) be doing business in the district. The agent for the service of process must be locatable using due diligence, which is essentially an Internet search. The doing business test is usually satisfied if the defendant has an office or telephone located in the district. If both these factors are satisfied, the defendant is “present” in the district and Rule B will not be available. However, if a due diligence search fails to locate the defendant's agent or business activities in the district, Rule B may be available.

Rule B in New York City

A Rule B attachment can be particularly effective in the Southern District of New York (“SDNY”), which covers Manhattan, because most sizable banks have offices here. Under U.S. law, dollar transactions must clear through U.S. banks, the majority of which operate their wire transfer desks in Manhattan. Among these transactions are electronic funds transfers (“EFTs”). The practical result of this requirement is that dollar-denominated EFTs usually go through New York, even if only briefly. Since many of the parties moving money electronically have no other presence in New York, and electronic funds transfers have been found to constitute attachable property, Rule B is more frequently utilized in the SDNY when compared to other U.S. judicial districts.

Rule B can Secure Claims Being Heard Elsewhere

Rule B is often used in New York to obtain security for claims being adjudicated elsewhere. For example, a plaintiff recently attached a number of EFTs in order to secure a demurrage claim being arbitrated in London. Notably, in that matter the Rule B attachment was carried out prior to the initiation of the arbitration, since Rule B can be used to secure a claim that has not yet gone to litigation or arbitration. However, the litigation or arbitration sought to be secured must be commenced promptly after the Rule B attachment is obtained.

Conclusion

Rule B is a powerful remedy that can be invoked on an ex parte basis to secure a maritime claim. However, the use of Rule B requires both experienced maritime counsel, well-versed in the nuances of applying the Rule to any given factual situation and with experience in identifying and co-ordinating with the garnishee banks. Additionally, the use of Rule B can be limited prior to a Rule B application if a party has reason to beleive that it may become the target of such an application.

DISCLAIMER

The foregoing is offered as a general description of the state of the law, current when this article was written, and is not advanced for any specific purpose. This Article is NOT legal advice, and should not be construed as such. As with all legal matters, the opinion of qualified counsel should be obtained before taking any action or reaching any conclusions about the applicability of generalized observations, such as those contained herein, to any particular factual scenario.

Additional Resources

The Federal Rules of Civil Procedure, Supplemental Rule B for Admiralty or Maritime Claims
Winter Storm Shipping, Ltd., v. TPI, 310 F3d 263 (2d Cir. 2002)
Aqua Stoli Shipping Ltd., v. Gardner Smith Pty Ltd., 460 F3d 434 (2d Cir. 2006)