US Court of Appeals Delivers Another Blow to Rule B Attachments


Published: 20 March 2009

The Second Circuit Court of Appeals ruled yesterday that designating an agent for service of process in New York, combined with registration to conduct business in New York, is sufficient to defeat a Rule B attachment.  In STX Pan Ocean v. Glory Wealth Shipping, the court held that where the defendant had designated an in-state agent to receive service, registration with the state to conduct business in New York satisfied Rule B’s second jurisdictional requirement that the defendant be “found” within the district.  The court noted that when a “debtor is registered to do business in New York, there are generally any number of means to prosecute a civil claim and, upon receiving judgment, collect on that claim.”

It is generally understood that Rule B is simply a procedural device to obtain personal jurisdiction over a defendant and security for an eventual judgment; it cannot be used to enforce a judgment or arbitral award, and registration to conduct business in New York does not guarantee that a defendant will have sufficient assets in the state to satisfy a judgment against it.  The Second Circuit’s decision could therefore deprive creditors of pre-judgment security and  leave them without a means of enforcing a judgment against the debtor.  Creditors may, however, be able to use New York state law post-judgment provisional remedies to attach electronic funds transfers (EFTs) in the same manner as Rule B attachments to enforce both domestic and foreign judgments and arbitration awards.

The Second Circuit’s ruling, coupled with the severe restrictions many New York federal court judges have placed on service of Rule B process on New York banks, appears to be yet another “nail in the coffin” of Rule B attachments in New York.  However, members who are considering registration to do business in New York as a means of defeating potential Rule B attachments still face the difficult choice of subjecting themselves to the personal jurisdiction of the New York courts or running the risk that their property in the district, including EFTs, will be attached.  In addition, while the US tax consequences of registration may not be significant for many foreign shipowners, members should be sure to consult with qualified US tax counsel before deciding to register to conduct business in New York.