March 11, 2010

U.S. Supreme Court Deciding Whether to Hear Jaldhi Appeal on Rule B Attachment of Electronic Funds Transfers: Timeline and Commentary

Holland & Knight Alert
Michael J. Frevola

The United States Supreme Court could soon determine whether or not it will accept an appeal of the Second Circuit Court of Appeals decision in The Shipping Corporation of India v. Jaldhi Overseas Pte Ltd.1 The Court’s docket indicates that the petition for a writ of certiorari filed by the Shipping Corporation of India on January 14, 2010 (and related submissions) were distributed to the justices and their law clerks on February 24, 2010 for an internal conference on March 19, 2010. It is likely – but not certain – that a decision on whether to grant certiorari will be made then. This alert provides a short summary of the seminal Supplemental Rule B Jaldhi appeal, the certiorari process before the Court, the process if certiorari is granted, and the ways in which Jaldhi has affected the Supplemental Rule B process during the past six months.

Background on Jaldhi

As we have previously reported, in Jaldhi, the Second Circuit overruled the holdings of Winter Storm Shipping, Ltd. v. TPI2 and its progeny that held that electronic funds transfers (EFTs) passing through New York intermediary banks are attachable property of the defendant under federal maritime law. In particular, the text of Supplemental Rule B is very broad, allowing for the attachment of “tangible or intangible” property of the defendant. The appeals court did not rely on this broad language. Instead, it ruled that New York law, not federal maritime law, governed the question of property interests in EFTs for the purposes of Supplemental Rule B. In so holding, the Jaldhi court concluded that: (1) New York Uniform Commercial Code § 4A-503 “does not permit” attachment of EFTs, and (2) under New York law, neither originators nor beneficiaries have a property interest in EFTs.

Jaldhi resulted in a flurry of activity in pending Supplemental Rule B cases in the lower courts, including the immediate release of security in a number of Supplemental Rule B matters, on the theory that the Second Circuit’s decision was broad enough to encompass a variety of security restrained from EFTs in bank suspense accounts, to monies in the form of independent surety bonds, to monies in the district court registry (the CRIS account), to monies in escrow. However, a minority of judges have ruled that monies originally restrained as EFTs and currently attached in the form of bonds or escrow accounts are outside the holding of Jaldhi and may continue to be held as security in support of primarily foreign arbitrations and court proceedings.

The Second Circuit sought to clarify the effects of its Jaldhi holding less than a month after it was issued in Hawknet, Ltd. v. Overseas Shipping Agencies (Hawknet I).3 The court found that Jaldhi relates to the manner in which the court acquires personal jurisdiction over defendants; also, that because it is a “jurisdictional ruling,” it has retroactive application.4 Thus, prior attachments of EFTs at intermediary banks should be vacated even if a party did not previously argue that such an attachment was improper.5 Hawknet I, however, contained flaws in the legal authority it relied upon for such a sweeping conclusion – a recognition that was implicitly acknowledged when the panel in Hawknet I vacated its own opinion and superseded it with the Hawknet II decision, which contained notable modifications. Significantly, in Hawknet II, the Second Circuit stated that the equities in that case were “insufficient to overcome the presumption of retroactivity set forth in Harper v. Virginia Department of Taxation, 509 U.S. 86 (1993).”6 Under the legal definition of the term “presumption,” a party can overcome that presumption and show retroactive application is improper by means of, for example, the conduct of the parties or arguably the equities of a particular situation.

The Jaldhi and Hawknet decisions have resulted in a number of unanswered questions, some of which may be resolved by pending appeals if those appeals go to decision. These issues include Jaldhi’s effect on court registry monies, monies held in bonds and monies in escrow accounts. As one district court judge observed at a hearing last December (in the context of Jaldhi’s effect on monies held by an escrow agent pursuant to an escrow agreement): “I don’t think the Second Circuit fully bargained for what was likely to follow, because there are a lot of questions that are left unresolved that will require probably, or certainly if it doesn’t require it, it certainly [will] result in additional appeals, I would imagine.”7

The Writ of Certiorari

Turning again to the Jaldhi appeal, the Shipping Corporation of India filed its writ of certiorari on January 14, 2010. It argued primarily that the circuit court ruling erroneously relied on New York State law in determining property rights in EFTs, as opposed to federal common law otherwise known as the general maritime law of the United States. According to the appellant, doing so “destroys” the uniformity of maritime law – something the Supreme Court has acknowledged is an important expectation. The Maritime Law Association of the United States supported this argument in its amicus brief filed on February 17. On the same day, the Clearing House Association LLC filed its amicus brief in opposition to a writ of certiorari being granted. The Clearing House is a consortium of banks in New York, and its filing was not unexpected – especially because its amicus brief in the Second Circuit was heavily relied upon in the appeal. It had argued that New York State law was properly determinative of the property issue; also, that in any event, there is no need for the Supreme Court to consider what is essentially an issue limited to New York jurisprudence and practice.

If you are interested in following future filings and determinations, the Court’s docket is open to the public free of charge and can be searched on its website.8

How Certiorari Petitions Are Considered

Again, the fate of the Shipping Corporation of India’s appeal is now in the hands of the justices and their clerks. For those unfamiliar with the process, thousands of incoming certiorari petitions are distributed to the clerks of the justices who participate in the “pool.” One of the clerks in the pool prepares a memorandum as to whether or not the certiorari petition should be granted, and the memorandum is sent to all the justices before a final determination is made. At least four justices must agree to hear a case for the Supreme Court to issue a writ of certiorari. The role of the newest justice on the Supreme Court, Sonia Sotomayor, who joined the bench in August 2009, is unknown. Because Justice Sotomayor was a Second Circuit judge when Jaldhi was pending in 2009 (and when President Obama nominated her to the Court), she may recuse herself from the certiorari decision, and, perhaps, the ruling should the case be accepted. If the case is accepted, legal briefs by the parties and amici would be filed in spring and summer 2010, with oral argument during the next term, which begins in October. 

It is difficult to predict whether the appeal will be accepted. For example, according to the most recent Year-End Report on the Federal Judiciary, authored by Chief Justice John Roberts on December 31, 2009, a total of 7,738 cases were filed in the 2008 term, but only 87 of those cases were actually argued.9 In the last past few years, the Supreme Court has heard two to four cases per term involving some aspect of maritime law – ranging from maritime contract jurisdiction issues, to nautical boundary rights between the states, to the awarding of punitive damages in certain circumstances. This term, for example, the Court is deciding such maritime issues as whether the Carmack Amendment governs the inland leg of international multimodal shipments originating in a non-adjacent foreign country, and if whether, under an ASBATANKVOY or VEGOILVOY charter, an arbitration panel has the authority to authorize class action arbitration when the governing arbitration clauses are otherwise silent on this issue.

Jaldhi’s Effect on the Supplemental B Process

As for Jaldhi’s effect on the Supplemental Rule B process in the last six months, there have been far fewer Supplemental Rule B filings in New York, and those filings have focused on the attachment of vessels, physical bank checks and monies in bank accounts. In such states as Florida, Delaware, Texas and Louisiana, Holland & Knight has been involved in obtaining or opposing attachment orders for bank accounts, vessels and other physical property, including bunkers and cargo aboard a vessel and in storage facilities awaiting transport. Not surprisingly, these restraints have resulted in the commencement of arbitrations once security was obtained or matters were settled outright.

Federal courts around the country rely primarily on the Supplemental Rule B law that has developed in New York over the last decade and have not been particularly interested in the Second Circuit’s restrictive language in Jaldhi. To the contrary, judges around the country have viewed Jaldhi as a narrow ruling, and determine the merits of attaching property based on the broad language of Supplemental Rule B itself.

In the coming months, we will keep you updated on the Supreme Court’s decision concerning the granting or denial of the Shipping Corporation of India’s certiorari petition, as well as on the Supplemental Rule B process.


1 585 F.3d 58, 2009 A.M.C. 2409 (2d Cir. Oct. 16, 2009).
2 310 F.3d 263 (2d Cir. 2002).
3 Hawknet Ltd. v. Overseas Shipping Agencies, 587 F.3d 127, 2009 A.M.C. 2705 (2d Cir. 2009), opinion vacated and superseded on r’hrg, 590 F.3d 87 (2d Cir. 2009) (hereinafter referred to as “Hawknet II”).
4 Id. at *6.
5 Id
6 Hawknet II, 590 F.3d at 89 n.7 (emphasis added).
7 Citation withheld as the appeal is pending.
8 Enter in the search docket section: 09-849, the docket number assigned to the Jaldhi case, and the docket will appear. 

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