Opinion ID: 2462
Heading Depth: 2
Heading Rank: 2

Heading: EFTs as Attachable Property

Text: Rule B of the Admiralty Rules permits attachment of the defendant's tangible or intangible personal property. Fed. R.Civ.P. Supp. R. B(1)(a). [8] From a plain reading of the text, it is clear that to attach an EFT under Rule B, the EFT must both (1) be tangible or intangible property and (2) be the defendant's. Id. Before we can reach the question presented squarely in this appealwhether an EFT is defendant's property when defendant is the beneficiary of that EFT we must first consider the threshold issue of whether EFTs are indeed defendant's property subject at all to attachment under the Admiralty Rules. We first held that EFTs were in fact attachable property under Rule B seven years ago in Winter Storm. Although we have subsequently applied Winter Storm in numerous cases, see, e.g., Consub Del., 543 F.3d 104; Aqua Stoli, 460 F.3d 434, we now conclude, as noted earlier, that Winter Storm was erroneously decided and should no longer be binding precedent in this Circuit. We readily acknowledge that a panel of our Court is bound by the decisions of prior panels until such time as they are overruled either by an en banc panel of our Court or by the Supreme Court, United States v. Wilkerson, 361 F.3d 717, 732 (2d Cir.2004), and thus that it would ordinarily be neither appropriate nor possible for us to reverse an existing Circuit precedent. In this case, however, we have circulated this opinion to all active members of this Court prior to filing and have received no objection. See, e.g., United States v. Crosby, 397 F.3d 103, 105 n. 1 (2d Cir.2005); Jacobson v. Fireman's Fund Ins. Co., 111 F.3d 261, 268 n. 9 (2d Cir.1997). [9] Our reasons for reversing a relatively recent case are twofold. First, and most importantly, we conclude that the holding in Winter Storm erroneously relied on Daccarett, 6 F.3d 37, to conclude that EFTs are attachable property. Winter Storm, 310 F.3d at 276-78. Second, as noted above, the effects of Winter Storm on the federal courts and international banks in New York are too significant to let this error go uncorrected simply to avoid overturning a recent precedent. Beginning in Winter Storm, we have held that EFT funds in the hands of an intermediary bank are subject to Admiralty Rule B attachment. Id. at 278. In that case, plaintiff sought to attach an EFT that originated in defendant's account with the Bank of Ayudhyabased in Bangkok, Thailandwhile it was en route to a third party who maintained an account with the Royal Bank of Scotland in London. Id. at 266. The EFT passed through the Bank of New Yorkthe intermediary bankwhich is headquartered in Manhattan. Id. The District Court vacated the attachment of the EFT because, in its view, the EFT was not property within the meaning of Rule B. Id. at 267. Specifically, she concluded that there was no federal law on point and that state lawNew York's version of the Uniform Commercial Codeforbade courts from attaching funds in an intermediary bank. See id.; see also N.Y. U.C.C. § 4-A-503. On appeal, a panel of our Court concluded that relevant federal law indicated that EFTs were indeed property that could be attached in a Rule B proceeding and therefore recourse to state law was unnecessary. Winter Storm, 310 F.3d at 278. In a comprehensive opinion, Judge Haight, sitting by designation, offered three reasons to support this decision. First, the panel observed that Rule B itselfwhich covers defendant's tangible or intangible personal property, Fed. R.Civ.P. Supp. R. B(1)(a)is written in very broad language. It is difficult to imagine words more broadly inclusive than `tangible or intangible.' ... The phrase is the secular equivalent of the creed's reference to the maker `of all there is, seen and unseen.' Winter Storm, 310 F.3d at 276. This broad language, the panel reasoned, sweeps sufficiently far to encompass even ephemeral EFTs. Second, the panel stated that [t]here is no question that federal admiralty law regards a defendant's bank account as property subject to maritime attachment under Rule B. Id. (emphasis added). By extension, the panel reasoned, [we are un]able to discern in admiralty law or elsewhere a basis for regarding [the defendant's] funds in [the intermediary bank's] hands prior to their electronic transfer to [the beneficiary] as anything other than the funds held by [the intermediary bank] for the account of [the defendant]. Id. Since a defendant's bank account was attachable property, the panel reasoned, the effectively equivalent EFTs should also be attachable property of the defendant. Third, the panel observed that in Daccarett we had upheld the seizure of EFTs that passed through intermediary banks in New York City, where the EFTs were used by a Colombian criminal cartel to transfer funds from accounts in Luxembourg to accounts in Panama and Colombia. 6 F.3d at 44, 54; see also id. at 55 (holding 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). The seizures in that criminal case were made pursuant to 21 U.S.C. § 881, a penal statute which borrows the procedures for asserting maritime liens under Admiralty Rule C. [10] The panel reasoned that there was no principled basis for applying the procedures outlined in Admiralty Rule C to a seizure of an EFT in a forfeiture action, but not to a maritime attachment under Rule B. Winter Storm, 310 F.3d at 278. Relying on these three reasonseach of which was based on federal lawthe Winter Storm panel concluded that EFT funds in the hands of an intermediary bank may be attached pursuant to Admiralty Rule B(1)(a). Id. Accordingly, the panel had no occasion to look to state law, as Judge Scheindlin had done, to determine whether EFTs were attachable. [11] Id. Upon further consideration, we find Winter Storm 's reasons unpersuasive and its consequences untenable. Most importantly, we find that Winter Storm 's reliance on Daccarett was misplaced. Daccarett did not decide that the originator or beneficiary of an EFT had a property interest in the EFT; it held only that funds traceable to an illegal activity were subject to forfeiture under 21 U.S.C. § 881. See Aqua Stoli, 460 F.3d at 445 n. 6 (Because Daccarett was a forfeiture case, its holding that EFTs are attachable assets does not answer the more salient question of whose assets they are while in transit.). Under the forfeiture laws, funds can be seized even if they do not constitute property of the defendant because no property right shall exist in ... [all] moneys ... traceable to [a violation of Title 21, Chapter 13, Subchapter I of the United States Code]. 21 U.S.C. § 881(a). To be eligible for forfeiture, the EFTs needed only to be traceable to the illegal activities, and thus the court in Daccarett was required only to assess whether the EFTs in that case were in fact traceable to illegal activities. No further inquiry into the identity of the owner of the EFTs was necessaryindeed, that question was wholly irrelevant. For maritime attachments under Rule B, however, the question of ownership is critical. As a remedy quasi in rem, the validity of a Rule B attachment depends entirely on the determination that the res at issue is the property of the defendant at the moment the res is attached. See, e.g., Transportes Navieros y Terrestres S.A. de C.V. v. Fairmount Heavy Transp. N.V., 572 F.3d 96, 108 (2d Cir.2009). Because a requirement of Rule B attachments is that the defendant is not found within the district, the res is the only means by which a court can obtain jurisdiction over the defendant. [12] If the res is not the property of the defendant, then the court lacks jurisdiction. In contrast, civil forfeiture is a remedy in rem. In rem jurisdiction is based on the well-established theory that the thing is itself treated as the offender and made the defendant by name or description. California v. Deep Sea Research, Inc., 523 U.S. 491, 501, 118 S.Ct. 1464, 140 L.Ed.2d 626 (1998). Thus, for in rem remedies such as forfeitures, ownership of the res is irrelevant, as the court has personal jurisdiction regardless of who owns the res at issue. Although not considered by the Winter Storm panel, this distinction provides, in our view, a principled basis for allowing EFTs to be subject to forfeiture but not attachment. In sum, Daccarett provides no persuasive guidance on the validity of Rule B attachments of EFTs and should not serve as the foundation for a rule that allows the attachment of EFTs under Rule B. Without the support of Daccarett, we are unpersuaded that either the text of Rule B or our past maritime holdings relating to defendants' bank accounts compel us to conclude as a matter of federal law that an EFT is  defendant's ... personal property. Fed.R.Civ.P. Supp. R. B(1)(a) (emphasis added). Moreover, we are unaware of any historical rationale that justifies the extension of federal maritime common law to support the Rule B practices that have taken place under the rule of Winter Storm. One of the primary grounds for the historical development of Rule B attachments was that [a] ship may be here today and gone tomorrow. Polar Shipping Ltd. v. Oriental Shipping Corp., 680 F.2d 627, 637 (9th Cir.1982); see also Schiffahartsgesellschaft Leonhardt & Co. v. A. Bottacchi S.A. De Navegacion, 732 F.2d 1543, 1547 (11th Cir.1984) (noting that a relevant commercial ... consideration[] relating to Rule B practices is that a ship's ability to dock, unload cargo, and fill its hold with goods intended for another destinationall within twenty four hoursimposes tremendous pressure on creditors desiring to attach a vessel or property located aboard). EFTs, like ships in a port, are transitory. Streamlined Rule B practices, however, developed out of the concern that ships might set sail quickly, not because the courts intended to arm maritime plaintiffs with writs of attachment prior to the arrival of the ship in port. Under Winter Storm, however, maritime plaintiffs now seek writs of attachment pursuant to Rule B long before the defendant's property enters the relevant district, often based solely on the speculative hope or expectation that the defendant will engage in a dollar-denominated transaction that involves an EFT during the period the attachment order is in effect. See, e.g., TJ Shipping & Logistics v. Havi Ocean, LLC, No. 09 Civ. 1555, 2009 WL 454137, at -3 (S.D.N.Y. Feb.19, 2009). Such practices, which have increased dramatically since Winter Storm, bear little, if any, relation to the text of Rule B or to our jurisprudence relating to the bank accounts of maritime defendants. When there is no federal maritime law to guide our decision, we generally look to state law to determine property rights. See, e.g., Reibor, 759 F.2d at 266 (citing California ex rel. State Lands Comm'n v. United States, 457 U.S. 273, 283, 102 S.Ct. 2432, 73 L.Ed.2d 1 (1982)) (considering state law where federal admiralty law is thin and a decision ... contrary to the general rule of the state might have disruptive consequences for the state banking system (internal quotation marks omitted)). Accordingly, we now look to state law to determine whether EFTs can be considered a defendant's property for purposes of attachment under Rule B. New York State does not permit attachment of EFTs that are in the possession of an intermediary bank. Specifically, New York law states that a court may restrain ... the beneficiary's bank from releasing funds to the beneficiary or the beneficiary from withdrawing the funds. N.Y. U.C.C. § 4-A-503; see also id. § 4-A-503 cmt. 1 (After the funds transfer is completed by acceptance of a payment order by the beneficiary's bank, [the beneficiary's] bank can be enjoined from releasing funds to the beneficiary or the beneficiary can be enjoined from withdrawing funds.). As for those interested in obtaining the originator's funds, New York law is also clear. Specifically, a court may restrain... an originator's bank from executing the payment order of the originator. Id. § 4-A-503; see also id. § 4-A-502 cmt. 4 (A creditor of the originator can levy on the account of the originator in the originator's bank before the funds transfer is initiated .... The creditor of the originator cannot reach any other funds because no property of the originator is being transferred.  (emphases added)). Apart from these injunctions, [a] court may not otherwise restrain [any activity] with respect to a funds transfer. Id. § 4-A-503; see also European Am. Bank v. Bank of N.S., 12 A.D.3d 189, 784 N.Y.S.2d 99, 100-01 (1st Dep't 2004) (noting that attachments served on intermediary banks cannot be enforced); N.Y. U.C.C. § 4-A-503 cmt. 1 ( No other injunction is permitted. In particular, intermediary banks are protected .... (emphases added)). Finally, an authoritative comment accompanying the New York Uniform Commercial Code states that a beneficiary has no property interest in an EFT because until the funds transfer is completed by acceptance by the beneficiary's bank of a payment order for the benefit of the beneficiary, the beneficiary has no property interest in the funds transfer which the beneficiary's creditor can reach. N.Y. U.C.C. § 4-A-502 cmt. 4 (emphasis added); cf. Sigmoil Res., N.V. v. Pan Ocean Oil Corp. (Nigeria), 234 A.D.2d 103, 650 N.Y.S.2d 726, 727 (1st Dep't 1996) (Neither the originator who initiates payment nor the beneficiary who receives it holds title to the funds in the account at the correspondent bank.). Taken together, these provisions of New York law establish that EFTs are neither the property of the originator nor the beneficiary while briefly in the possession of an intermediary bank. Because EFTs in the temporary possession of an intermediary bank are not property of either the originator or the beneficiary under New York law, they cannot be subject to attachment under Rule B. As stated earlier, Rule B allows attachment only of  defendant's ... property. Fed.R.Civ.P. Supp. R. B(1)(a) (emphasis added). If the EFTs are not the property of either the originator or the beneficiary, then they cannot be defendant's ... property and therefore are not subject to Rule B attachment. [13] In sum, because there is no governing federal law on the issue and New York law clearly prohibits attachment of EFTs, we conclude that EFTs being processed by an intermediary bank in New York are not subject to Rule B attachment. Accordingly, we conclude that the District Court did not err in vacating the portions of the order in this action affecting EFTs of which defendant was the beneficiary. We remand the cause to the District Court with directions to consider whether there are grounds for not vacating the remaining portions of the attachment order affecting EFTs of which defendant was the originator.