Opinion ID: 779793
Heading Depth: 2
Heading Rank: 4

Heading: EFT Funds as Property for Purposes of Maritime Attachment

Text: 54 In determining whether TPI's funds in the hands of BNY during the implementation of an EFT constituted property of TPI for purposes of Admiralty Rule B(1), we confront a question this Circuit left undecided in Reibor, 759 F.2d 262. 55 Plaintiff Reibor chartered its vessel to defendant Cargo, a Canadian company that could not be found within the Southern District of New York. Alleging breaches of charter by Cargo, Reibor served Admiralty Rule B writs of attachment on the New York branches of Manufacturers Hanover Trust Co. (MHT/NY) and the Royal Bank of Canada (RBC/NY). Reibor was attempting to attach funds to be remitted to Cargo under a letter of credit calling for the transfer of funds from the Madrid branch of Manufacturers Hanover (MHT/Madrid) to the Royal Bank of Canada at Montreal (RBC/Montreal). 56 Reibor served two Rule B processes on MHT/NY, one on January 28 and the other on February 8, 1983. But it was not until February 11 that MHT/Madrid instructed MHT/NY to make an interbank transfer to RBC/NY through the Clearing House Interbank Payments System (CHIPS), a system for the electronic transfer of funds among member banks through a central computer. Reibor also served a process on RBC/NY at 10:25 a.m. on February 11, but RBC/NY did not receive the CHIPS credit until 2:21 p.m. on that day. A fourth process, served on February 14 or 15, came too late: RBC/NY had wired the money to RBC/Montreal at 3:22 p.m. on February 11. 759 F.2d at 264. 57 In these circumstances, this Court identified the question on appeal as the validity of a maritime garnishment served before the garnishee comes into possession of the property to be garnished. 759 F.2d at 263. In other words, the issue was whether a Rule B attachment covers after-acquired property, that is, property of a defendant coming into the possession of a garnishee after service of process upon the garnishee. 58 The Reibor court concluded that on the question of after-acquired property, the precedent in federal admiralty law is so thin that we should turn to state law more directly on point. 759 F.2d at 266. The court found that law in N.Y. C.P.L.R. § 6214(b), as explicated in McLaughlin's Practice Commentary: where the order of attachment is left with a third-party garnishee, the levy is absolutely void unless the garnishee has some property belonging to the defendant or owes the defendant a debt at the time the order is left with him. N.Y. C.P.L.R. § 7B (McKinney 1980). Applying that state law principle to Reibor's Admiralty Rule B attachments, and given the chronology summarized above, this Court concluded that Reibor's processes were absolutely void. 7 59 As an alternative basis for vacating the attachments, both MHT/NY and RBC/NY argued that a CHIPS credit is not property subject to attachment under the Admiralty Rules. Reibor, 759 F.2d at 264. This Court did not reach that question in Reibor, preferring to reserve it for another day when somebody has served a writ of attachment on a bank either after it has received instructions from its forwarding bank to transfer a CHIPS credit but before it has made the transfer, or after it has received a CHIPS credit but before it has transferred any funds related thereto. Id. at 268-269. With the present case, that day has dawned. 60 As Reibor indicates, while Federal law generally governs questions as to the validity of Rule B attachments, 759 F.2d at 265, state law may be borrowed if there is no federal admiralty law in point on the particular question presented. In support of this practice the Reibor court cited Det Bergenske Dampskibsselskab v. Sabre Shipping Corp., 341 F.2d 50 (2d Cir.1965), an earlier example in this Circuit of looking to state law for guidance with respect to the effect of a maritime attachment. In Reibor the particular question presented was whether a writ of maritime attachment covered after-acquired property. In Bergenske the question was whether a writ of maritime attachment served on a branch office located in the Eastern District of New York was effective to attach a bank account at a branch office of the same bank located in the Southern District. The Bergenske court, while declaring that [t]his argument must be dealt with according to federal law, also observed that there is no established admiralty doctrine on this question, such as would reflect a predominant federal interest, and accordingly turned to state cases holding that accounts in a foreign branch bank are not subject to attachment or execution by the process of a New York court served in New York on a main office, branch, or agency of the bank. 341 F.2d at 52-53 (citations omitted). 61 Reibor and Bergenske demonstrate that in order to decide whether TPI's funds involved in the EFT constituted TPI's property under Admiralty Rule B, we must first determine whether governing federal law provides the answer, in general terms or otherwise; or whether federal law is silent on the particular question presented, so that recourse may appropriately be had to state law. In Judge Scheindlin's view, [t]he leading Second Circuit case on maritime attachment makes clear that whether a funds transfer at an intermediary bank constitutes property remains unanswered by federal courts, 198 F.Supp.2d at 389, citing Reibor. This overstates Reibor, where this Court deliberately refrained from saying anything about that question, rather than explicitly declaring, as did Bergenske, that there was no pertinent admiralty law with respect to the particular question upon which that case turned. 8 62 Initially examining admiralty law, as we must, we encounter Rule B(1) itself, which provides that a maritime plaintiff may attach the defendant's tangible or intangible personal property. It is difficult to imagine words more broadly inclusive than tangible or intangible. What manner of thing can be neither tangible nor intangible and yet still be property? The phrase is the secular equivalent of the creed's reference to the maker of all there is, seen and unseen. 9 Professor Jarvis has said that 63 Rule B also permits a plaintiff to attach intangible items, such as debts owed to the defendant. Such items may be attached even if they have not yet matured or have only partially matured. Of course, the defendant's entitlement to the credit or interest in the debt must be clear. Jarvis, at 530 (footnotes omitted). 10 64 There is no question that federal admiralty law regards a defendant's bank account as property subject to maritime attachment under Rule B. See, e.g., Aurora, 85 F.3d at 46 (On January 26, 1994, Aurora served [the Hong Kong and Shanghai Banking Corporation Limited] [HSBC] with supplemental process of maritime attachment and garnishment under Rule B and attached Fahem's account with HSBC.). Nor are we able to discern in admiralty law or elsewhere a basis for regarding TPI's funds in BNY's hands prior to their electronic transfer to RBS as anything other than funds held by BNY for the account of TPI. 65 This Circuit has not previously considered in an admiralty case the susceptibility of funds involved in an EFT to attachment under Admiralty Rule B. Unlike the district court, however, we find significant guidance in United States v. Daccarett, 6 F.3d 37 (2d Cir.1993), which involved a civil forfeiture action under federal drug laws. Daccarett holds that an EFT while it takes the form of a bank credit at an intermediary bank is clearly a seizable res under the forfeiture statutes. Id. at 55. The case is instructive in the admiralty field because the attachments of funds in Daccarett were accomplished pursuant to the Admiralty Rules, incorporated by reference into the forfeiture statute. 66 The facts in Daccarett are as follows. In June 1990 Luxembourg police arrested three associates of the Cali, Colombia drug cartel who had deposited large sums for the cartel in hundreds of European banks. Correctly anticipating that the arrests would trigger efforts by the cartel to move these funds to Colombia before they could be confiscated elsewhere, the Luxembourg authorities requested the assistance of several countries, including the United States, in freezing monies related to the cartel. During July and August 1990, a flurry of electronic funds transfers from the suspect accounts ensued, resulting in the seizure of... $12 million in the United States which was 67 the aggregate of dozens of EFTs sent through New York City intermediary banks that had correspondent banking relationships with Panamanian and Colombian banks.... After receiving the subject EFTs, the intermediary banks were supposed to credit the accounts of designated correspondent Colombian banks; the Colombian banks were then supposed to notify the beneficiaries that the funds were available. 68 6 F.3d at 44. 69 The United States government interdicted the funds by serving a number of Admiralty Rule C warrants in rem upon the New York intermediary banks. The Colombian beneficiaries (collectively the claimants) appeared in the district court to contest the seizures and claim the funds. 70 The seizures were made pursuant to 21 U.S.C. § 881(a)(6), which provides for the forfeiture of [a]ll moneys, negotiable instruments, securities, or other things of value furnished or intended to be furnished by any person in exchange for a controlled substance [as well as] all proceeds traceable to such an exchange  (emphasis added), the government proceeding under the italicized phrase. Section 881(b), as it then read, provided that the government could institute civil forfeiture in rem proceedings by following the process set forth in the Admiralty Rules, particularly Rule C, which authorizes the arrest of a vessel or other property to enforce a maritime lien against it. 11 71 That portion of the Daccarett opinion pertinent to the present appeal was prompted by certain contentions of the claimants: 72 Claimants argue that EFTs are not seizable properties for purposes of the civil forfeiture statutes because they are merely electronic communications. They claim that an EFT is not a direct transfer of funds, but rather a series of contractual obligations to pay. Furthermore, they define an EFT as an intangible property, which not only cannot be stopped once transmitted, but the Intermediary Bank upon accepting it cannot alter from the instructions contained therein. Finally, they claim that only after a transmission is complete and the communication is accepted and received by the beneficiary does it become a seizable res. 73 6 F.3d at 54. This is in effect the argument the intermediary banks made in Reibor in an effort to insulate EFTs from maritime attachment under Admiralty Rule B. While the Reibor court declined to decide whether EFTs were subject to attachment under Admiralty B, the Daccarett court squarely held that EFTs are subject to arrest under Admiralty Rule C: 74 The claimants' conception of the intermediary banks as messengers who never hold the goods, but only pass the word along, is inaccurate. On receipt of EFTs from the originating banks, the intermediary banks possess the funds, in the form of bank credits, for some period of time before transferring them on to the destination banks. While claimants would have us believe that modern technology moved the funds from the originating bank through the intermediary bank to their ultimate destination without stopping, that was not the case. With each EFT at least two separate transactions occurred: first, funds moved from the originating bank to the intermediary bank; then the intermediary bank was to transfer the funds to the destination bank, a correspondent bank in Colombia. While the two transactions can occur almost instantaneously, sometimes they are separated by several days. Each of the amounts at issue was seized at the intermediary bank after the first transaction had concluded and before the second had begun. 75 6 F.3d at 54. That is precisely what happened in the instant case. The processes of attachment Winter Storm seeks to enforce were served upon BNY after funds had moved from BA, the originating bank, to BNY as intermediary bank, but before BNY transferred the funds to RBS, the destination bank. 76 The Daccarett court's analysis of an EFT led to its conclusion that an EFT while it takes the form of a bank credit at an intermediary bank is clearly a seizable res under the forfeiture statutes. 6 F.3d at 55. There is no principled basis for applying a different analysis or arriving at a different conclusion in the instant case. 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, or that in Daccarett the government used Admiralty Rule C to arrest the funds while Winter Storm used Rule B to attach them. These are distinctions without a difference because they do not bear upon the decisive question presented, namely, whether EFT funds in the hands of an intermediary bank are subject to interdiction by legal process. Daccarett's holding that such funds are subject to Admiralty Rule C arrest furnishes authority for the conclusion that they are equally subject to Admiralty Rule B attachment. We reach that conclusion in this case. 77 It follows that the broad, inclusive language of Admiralty Rule B(1)(a) and the EFT analysis in Daccarett combine to fashion a rule in this Circuit that EFT funds in the hands of an intermediary bank may be attached pursuant to Admiralty Rule B(1)(a). Because that rule is derived from federal law, there is no occasion to look for guidance in state law. However, the district court looked to state law as embodied in U.C.C. § 4-A-503 and held it was fatal to Winter Storm's attachment. Even if, contrary to the conclusion we have just expressed, it was appropriate to consider state law, this provision of the U.C.C. cannot abrogate Winter Storm's right to a maritime attachment.