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The traditional maritime remedy of attachment does not violate due process where the asset involved is an electronic funds transfer, the 2nd U.S. Circuit Court of Appeals ruled Wednesday. Deciding a case of first impression, the 2nd Circuit held that “when an individual or company transfers funds by means of an EFT [electronic funds transfer], those funds may be subjected to maritime attachment in the hands of an intermediary bank without violating constitutional process.” In Winter Storm Shipping v. TPI, 02-7078, the circuit said the ruling holds “whether or not the initiator of the transfer knew which intermediary bank would be used to effect it.” The appeal was brought by Winter Storm Shipping after Southern District Judge Shira Scheindlin refused to allow the attachment of more than $360,000 from TPI, a Thailand-based company that had contracted to ship oil from Saudi Arabia to Thailand in 2001. Judge Scheindlin entered an ex parte order of attachment in favor of Winter Storm on June 22, and process was served on the Bank of New York. Although the bank at that moment held no funds belonging to TPI, it entered a stop order on any funds relating to TPI that were “passing through” it effective June 28. Judge Scheindlin later granted TPI’s motion to vacate the attachment, finding that a funds transfer intercepted by an intermediary bank is not attachable “property” under Rule B(1) of the Supplemental Rules for Certain Admiralty and Maritime Claims. The judge, noting that there was “no federal precedent on this point,” went on to state that permitting “wire transfer credits to be attached at unforeseen and unknown intermediary banks runs contrary to the (minimal) due process accorded maritime defendants.” On the appeal to the 2nd Circuit, Southern District Senior Judge Charles S. Haight Jr., sitting by designation, said that, under Rule B(1) “the property attached need not have a direct connection to the claim sued upon, since Rule B(1)(a), broadly phrased, allows attachment of ‘the defendant’s tangible or intangible personal property,’ limited only by ‘the amount sued for.’ “ “The case at bar is illustrative,” Judge Haight said. “TPI’s funds attached by Winter Storm in the hand of Bank of New York were generated by a transaction bearing no relationship to the charter party underlying Winter Storm’s claim.” Judge Haight said that “the drafters of the rules amended Rule B(1) in 1985 in order to address any possible due process concerns,” including concerns about the fairness of ex parte attachment. Rule B(1), he said, now requires a plaintiff to appear before a judge, instead of a court clerk, to obtain the attachment, and the party whose assets are being attached is entitled, under the new Rule E(4)(f), to notice and a prompt hearing to challenge the action. DUE PROCESS CONCERNS “It does not appear that any court subsequent to the 1985 amendments has questioned the constitutionality of maritime attachment under Rule B, let alone holding the Rule and the admiralty practice under it constitutionally infirm on due process grounds,” Judge Haight said. He said the practical effect of Judge Scheindlin’s ruling was that “funds in an EFT can never be subjected to maritime attachment unless the defendant also had specific advance knowledge of the name and address of the intermediary bank.” “We regard the due process safeguards added by the 1985 amendments to Admiralty Rules B and E as sufficient to satisfy constitutional requirements, and discern in the due process clause no basis for rendering the traditional remedy of maritime attachment inapplicable to electronic transfers of funds familiar to those engaged in international trade and increasingly used by them,” Judge Haight said. Judge Scheindlin had said the “leading 2nd Circuit case on maritime attachment makes clear that whether a funds transfer at an intermediary bank constitutes property remains unanswered by the federal courts.” That case was Reibor International Ltd. v. Cargo Carriers (KACZ-CO.) Ltd., 759 F.2d 262 (2d Cir. 1985). But Judge Haight said Judge Scheindlin “overstates Reibor,” where the 2nd Circuit “deliberately refrained from saying anything about that question. “ Instead, Judge Haight turned to 2nd Circuit case law on electronic funds transfers in context of drug trafficking and the forfeiture laws, U.S. v. Daccarett, 6 F.3d 37 (2d Cir. 1993). There the 2nd Circuit rejected arguments that electronic fund transfers were not property and could not be legally seized. “It is of no moment that Daccarett was a drug case and this is an admiralty case, or that the civil forfeiture statute and the Admiralty Rules differ in their descriptions of the circumstances justifying process against property,” Judge Haight said. Senior Judges Amalya Kearse and Joseph M. McLaughlin joined in the opinion. Patrick F. Lennon of Tisdale & Lennon represented Winter Storm. John J. Sullivan and Richard H. Webber of Hill, Rivkins & Hayden represented TPI.

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