US court ruling moves the goalposts for Rule B cases

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Rajesh Joshi, New York - Friday 20 March 2009

 

AN appellate court decision in New York has substantially changed the landscape for ‘Rule B’ cases.
The decision finds that registering to do business in the state is sufficient to avert such lawsuits, which, in turn, is expected to impede the flow of such lawsuits.
The US Court of Appeals for the Second Circuit, ruling on STX Pan Ocean (UK) Vs Glory Wealth Shipping, held that foreign entities that register at the New York Department of State and appoint an agent within the Southern District are deemed “found” in the jurisdiction.
This would preclude plaintiffs bringing Rule B actions against such parties, with the intention of attaching dollar-denominated monies associated with the alleged defaulter as they pass through New York’s electronic money network.
Rule B cases have been brought by the hundreds by shipping industry plaintiffs since last autumn, mainly in connection with unpaid charter hire caused by idle ships, cargoes committed but not delivered, and other unforeseen situations that disrupted normal business.
The amounts due and defaulted are usually denominated in US dollars. All dollar-denominated payments in the world must pass through the electronic funds transfer network in the US, where Rule B has proven a potent tool.
James Power, of Holland & Knight, who represented Glory Wealth in the case, told Lloyd’s List that the decision would have multiple ramifications.
Mr Power believes it would cut down on ‘frivolous’ Rule B lawsuits, where plaintiffs have been seen to go ‘judge-shopping’ in hopes that a Rule B attachment could be in hand, and use these to immediately effect ex parte attachments of wire transfers.
A lot of money has already been attached in the last six to eight months in this fashion, which will now have to be freed up, Mr Power said.
The other major implication of such a cleaning-up, he went on, is that Rule B attachment actions would now return to the ‘basics’.
This implies using Rule B to effect more traditional form of attachments, such as the arrests of ships or bunkers on ships, instead of electronic money transfers, with which Rule B has almost become synonymous in recent years.
One-third of the court docket in the Southern District today is Rule B cases. There are 44 judges, who as a bloc are known to be harried by the sudden flood of such cases.
Bruce Paulsen, of Seward & Kissel, said the Second Circuit verdict is consistent with the view held by a majority of New York judges.