By Charles B. Anderson, Skuld North America

A recent decision by Judge Scheindlin may have a signifciant impact on Rule B attachments in New York.

On February 4th  Federal District Judge Shira Scheindlin issued an opinion which may have a chilling effect on future Rule B applications in New York.  In Cala Rosa Marine v. Sucres et Deneres Group, the plaintiff sought a Rule B attachment to secure a claim for unpaid freight and demurrage.  As is now usual in such applications, the plaintiff also asked the court to order that any process served on a garnishee bank would be deemed continuously served throughout the end of the next business day, and to appoint a special process server (usually a paralegal or messenger from the plaintiff’s lawyers’ firm) to serve process.

Judge Scheindlin granted the request for the Rule B attachment, but denied the request for continuous service and a special process server.  The judge cited a ruling by the Second Circuit Court of Appeals that an attachment is void unless the property which is the subject of the attachment is in the hands of the garnishee at the time of service.  In other words, unless the bank is actually holding a defendant’s EFTs at the time process is served, no funds can be restrained.  Banks may choose to treat the service as continuous, or the court may exercise its discretion to order continuous service, but there is no requirement that it do so.  Quoting from the Second Circuit’s decision, Judge Scheindlin acknowledged that “the rule works, to be sure, to the detriment of an attaching creditor, but that is simply the way the law was intended to operate.”  The court noted that since the Rule B application was made in connection with London arbitration and the parties had no ties to the US, the US had little interest in the dispute, especially when weighed against the enormous strain Rule B attachments have placed on New York banks and the courts.

Recognizing that without the continuous service provision, plaintiffs would “post process servers at bank offices around the clock in order to capture EFTs at the precise moment of their arrival,” Judge Scheindlin authorized only US Marshals to serve Rule B process.  The judge somewhat acerbically noted that “plaintiff’s duty to bear the costs of Marshal-served process will help limit the Marshals’ workload.”

Judge Scheindlin’s ruling will make it much more difficult and expensive for claimants to attach EFTs passing through New York banks.  It is unclear whether other federal court judges will follow her reasoning, but her decision may signal the end of the tidal wave of Rule B attachments that has overwhelmed the New York courts and banks in recent months.