End of the Winter Storm: Second Circuit Reverses Course on Rule B
On October 16, 2009, the Second Circuit Court of Appeals issued its decision of The Shipping Corporation of India v. Jaldhi Overseas PTE, Ltd., reversing its controversial 2002 decision of Winter Storm, Ltd. v. TPI. The Winter Storm court had held that electronic fund transfers (EFTs) could be seized under Admiralty Rule B as they momentarily pass through intermediary banks on the way to their final destination. Because this case applied to New York's intermediary banks, which handle the vast majority of international dollar transactions, the Winter Storm case caused an explosion of Rule B claims being filed in New York courts and against New York banks, attempting to seize funds being sent to and from defendants all over the world. This in turn gave rise to a large "cottage industry" within New York maritime firms, who quickly mastered this Rule B process and used the Winter Storm rule to great advantage for their clients and for themselves.
Although the Jaldhi Overseas court recognized that it should not reverse prior precedents lightly, the court found that (1) the Winter Storm court had incorrectly concluded that prior case law in the circuit supported the finding that EFTs were attachable and (2) in the absence of controlling admiralty law precedent, the court should have used New York state law, which says that EFTs are not the property of the transferor or transferee while in transit. The court also cited the significant and negative consequences of Winter Storm on New York courts and banks as justification for changing the law of the circuit.
Assuming this ruling stands, it is not an exaggeration to say that this case will send a shock wave through the maritime law community, particularly in New York City. Since 2002, hundreds of plaintiffs and their attorneys have used the Winter Storm rule to massively increase the Rule B practice in New York federal courts. This has obviously resulted in a significant new line of business for many New York maritime firms. The Second Circuit’s reversal of Winter Storm will not only change the legal landscape in the circuit, but will also likely deal a blow to the balance sheets and employment prospects of many New York attorneys and firms. In the current economic climate, that will hardly be welcome news for the admiralty bar in the Big Apple.
A longer discussion and description of this decision, is available on our firm website.
You can also view a copy of the Jaldhi Overseas decision.
