The opinion of the court was delivered by: Alvin K. Hellerstein, U.S.D.J.
ORDER AND OPINION DENYING AND GRANTING MOTIONS TO VACATE ATTACHMENTS
Must a garnished bank account, and the funds within that account and within the jurisdiction of the district court, be returned to a party claiming ownership of the garnished funds, regardless of the equities between the party claiming ownership and the party's creditor, if the district court originally lacked jurisdiction to authorize the garnishment?
In Shipping Corp. of India v. Jaldhi, the court of appeals ruled that district courts lack jurisdiction to order attachments of dollar-denominated payments, transmitted by a bank in one nation outside the United States to a payee's account in a bank in some other nation outside the United States, but passing through a bank located in this district for clearance. 585 F.3d 58, 61 (2d Cir. 2009). The court of appeals held that under New York law, the flow of funds did not present an incident of property that could be attached. Id. at 70-71 (citing N.Y. U.C.C. § 4-A-502 & cmt.4; § 4-A-503). In doing so, the court of appeals reversed its earlier decision that authorized such orders of attachment. Winter Storm Shipping, Ltd. v. Thai Petrochemical Industry Public Co. Ltd., 310 F.3d 263, 278 (2d Cir. 2002). In a later case, Hawknet Ltd. v. Overseas Shipping Agencies, the court of appeals held that the rule announced in Shipping Corp. of India applied to all cases still open on direct review. 590 F.3d 87, 91 (2d Cir. 2009).
Based on Shipping Corp. of India, two debtors moved to vacate orders of attachment issued by this Court, and to regain funds held by the clearing banks in suspense accounts subject to the orders of this Court. Arbitration in London is pending in the first case. The second case involves a judgment confirming an arbitral award, and that later became the object of an interpleader action involving other creditors.
A. Americas Bulk Transport Ltd. v. IMT
Plaintiff Americas Bulk Transport Ltd. chartered the M/V Engin Kaptanoglu to Defendant IMT and sued IMT for failing to return the vessel within the period provided by the charter agreement. Americas Bulk claimed damages, inclusive of interest and costs, totaling $3,138,130.34, filed a lawsuit in this Court, and sought an order for attachment in aid of arbitration in London. The order was issued and executed on Wachovia Bank, a federal reserve clearing bank with offices in New York. Wachovia Bank reported that $650,034.45 was caught, in the form of an electronic fund transfer ("EFT") originated by IMT and intended for a third party and transmitted to Wachovia for clearance, and that the funds would be held by it in its "General Ledger Account" subject to further orders of the Court.
The Order for Attachment was conditioned on periodic reports to the Court concerning progress in the arbitration proceedings. 9 U.S.C. § 8. As Americas Bulk has reported, IMT initiated the arbitration proceedings shortly after the EFTs were attached, written statements of claims and defenses have been exchanged, and discovery proceedings are underway.
Following Shipping Corp. of India, IMT filed a limited appearance restricted to its effort to vacate the attachment, and moved by way of an order to show cause why, under Admiralty Rule E, the attachment should not be vacated. Americas Bulk opposed. For the reasons discussed later in this Opinion, I grant IMT's motion and vacate the attachment.
B. Eitzen Bulk A/S v. Ashapura Minechem Ltd.
Pursuant to a contract of affreightment between Plaintiff Eitzen Bulk and Defendant Ashapura Minechem,*fn1 Ashapura agreed to ship cargoes of bauxite in bulk from India to China over a period of three years. Ashapura completed the first two shipments, but then refused to complete any additional shipments, in breach of the contract.
The parties agreed that "[a]ny dispute arising under [the contract would] be settled and referred to Arbitration in London." Contract of Affreightment, Cl. 28 (Jan. 18, 2008). Prior to commencing arbitration, Eitzen Bulk obtained a Rule B writ of attachment from this Court in aid of the arbitration and, by October 2008, attached five EFTs totaling approximately $1.6 million. Over the next several months, Eitzen Bulk attached eight additional EFTs, bringing the total amount attached to $1,783,617.32. The garnishee banks transferred the funds captured by the levies to their respective suspense accounts, where they are held subject to further orders from this Court.
In November 2008, Eitzen Bulk made demand for arbitration pursuant to the contract and served it on Ashapura, but Ashapura ignored the arbitration demand, and ensuing orders of the arbitrator and of the English courts. Eitzen Bulk proceeded with the arbitration, proved its case to the satisfaction of the arbitrator, and obtained an award in the amount of $36,306,104, and an additional $300,665.74 in interest, costs, and fees, for a total of $36,606,769.74. Eitzen Bulk then moved in this Court to confirm the arbitral award and related orders, and to obtain judgment. Order, Eitzen Bulk A/S v. Ashapura Minechem Ltd., 08 Civ. 8319 (AKH) (S.D.N.Y. July 14, 2009) (Doc. No. 28); Order, Eitzen Bulk A/S v. Ashapura Minechem Ltd., 08 Civ. 8319 (AKH) (S.D.N.Y. July 24, 2009) (Doc. No. 32); Judgment, Eitzen Bulk A/S v. Ashapura Minechem Ltd., 08 Civ. 8319 (AKH), (S.D.N.Y. July 24, 2009) (Doc. No. 33).
After Eitzen Bulk moved to confirm the English arbitral award, Ashapura, through its lawyer in India, sent a spate of emails, telegrams and letters to the Court discussing its view of the merits and opposing entry of judgment confirming Eitzen Bulk's arbitral award. The letters mentioned proceedings in India brought by Ashapura to void the English judgment, and also complained of improper service. On July 24, 2009, after considering Eitzen Bulk's motion and Ashapura's submissions, I found Ashapura's complaints about improper service to be unfounded and the proofs showing personal service at Ashapura's Mumbai offices to be adequate. Order, Eitzen Bulk A/S v. Ashapura Minechem Ltd., 08 Civ. 8319 (AKH) (S.D.N.Y. July 24, 2009) (Doc. No. 32) (citing Fed. R. Civ. P. Supp. R. B(2)(a); Fed. R. Civ. P. 4). I also found that, as of July 24, 2009, the Indian court, to which Ashapura's counsel referred, had not entered an order with respect to the enforceability of the English arbitral award. Id. (citing 9 U.S.C. § 207). I entered judgment for Eitzen Bulk in the amount of the English arbitral award and cost orders, interest, and fees, totaling $39,208,936.16, and ordered the garnishee banks to turn over the attached funds. Id.
Pursuant to my Order, the garnishee banks turned over funds that were held in favor of Eitzen Bulk. However, in four separate actions in this District, three creditors of Ashapura asserted their claims to the funds attached by Eitzen Bulk. Armada (Singapore) Pte Ltd. v. Ashapura Minechem Ltd., 08 Civ. 8257 (PKC); Armada (Singapore) Pte Ltd. v. Ashapura Minechem Ltd., 08 Civ. 8258 (CM); IHX (UK) Ltd. v. Ashapura Minechem Ltd., 08 Civ. 9436 (SAS); International Shipping & Logistics FZE v. Bombay Mineral Ltd., 09 Civ. 482 (GEL). The garnishee banks refused to release any funds subject to multiple orders of attachment and claims. Eitzen Bulk subsequently commenced an interpleader action to determine the priority of claims to the attached funds. Eitzen Bulk A/S v. Armada (Singapore) Pte. Ltd., 09 Civ. 7612 (AKH).
Since the interpleader was commenced, claims asserted by two of the creditors, IHX (UK) Ltd. and International Shipping & Logistics FZE, became moot because their underlying attachment actions against Ashapura have either been vacated or voluntarily dismissed. IHK (UK) Ltd. v. Ashapura Minechem Ltd., No. 08 Civ. 9436 (SAS), 2009 U.S. Dist. LEXIS 118582 (S.D.N.Y. Dec. 18, 2009); Notice of Dismissal, International Shipping & Logistics FZE v. Bombay Mineral Ltd., 09 Civ. 482 (GEL) (S.D.N.Y. Sept. 11, 2009) (Doc. No. 5). The remaining creditor, Armada (Singapore) Pte. Ltd., filed for bankruptcy protection, subjecting the interpleader action to a bankruptcy stay. Though Armada voluntarily released the attachment in one case, ...