An earlier entry on the Seattle Maritime Law Blog reported the appeal in Consub Delaware, in which the defendant had requested that the Second Circuit Court of Appeals overturn its prior decision in Winter Storm v. TPI regarding Admiralty Rule B attachment of Electronic Fund Transfers (“EFTs”) to satisfy maritime claims. See Federal Appeals Court Considers Key Maritime Attachment Case (June 10, 2008).
The defendant in Consub Delaware argued that the Winter Storm court was incorrect in ruling that Rule B could be used to attach EFTs passing through New York banks, even if the claim had no relationship to New York and regardless of whether the defendant knew the funds would be passing through the jurisdiction. Consub Del. LLC v. Schahin Engenharia Limitada, 2008 U.S. App. LEXIS 20097 (2d Cir. N.Y. Sept. 23, 2008). The defendant also argued that the Winter Storm case was inconsistent with New York state law, which arguably provides that EFT payments are not the property of the sender or the recipient while in the hands of the intermediary bank. Id.
On September 23, 2008, the Second Circuit issued its decision in Consub Delaware, upholding Winter Storm and affirming the principle that EFTs can be attached while in the hands of intermediary banks, even when the underlying dispute has no relationship with either New York or with the funds being attached. Holding that prior decisions should only be overruled under certain narrow circumstances, the Consub Delaware court declined to overrule its prior decision and found that the Winter Storm case was correctly decided in any event. The court also held that New York law does not apply to Rule B actions, since federal law requires that the Admiralty Rules be applied uniformly and without regard to local law.
Interestingly, the Consub Delaware court stated in a footnote that “[w]e do not reach today the question of whether funds involved in an EFT en route to a defendant are subject to Rule B attachment.” 2008 U.S. App. LEXIS 20097 at p. *13 (emphasis in original). Although this suggests that the question remains open, prior Second Circuit cases have made clear that “EFTs to or from a party are attachable by a court as they pass through banks located in that court's jurisdiction." Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 436 (2d Cir. 2006) (citing Winter Storm, 310 F.2d at 263). Therefore, this footnote may pose somewhat of a puzzle for observers, but offers little hope to those who want future courts to hold that EFT payments from defendants are outside the scope of Rule B attachment suits.
While the Winter Storm rule will remain controversial, the Consub Delaware decision has made clear that this is the established law of the Second Circuit. Since New York banks continue to play a prominent role in international business, those who may be involved in maritime claims should be aware of this rule and plan accordingly.
A link to the Second Circuit’s decision of Consub Delaware can be found here.
