Rule B Maritime Attachments in New York: A Possible Avoidance Strategy
November 6, 2007
Anne-Mette Andersen- New York
Richard A. "Rick" Crowley- New York
James "Jim" Hohenstein- New York
Overview: The Rule B Situation
The recent expansion of the attachment of electronic fund transfers (EFTs) in New York is well known throughout the maritime industry.1 These attachments were made under the provisions of “Rule B,” which refers to Supplemental Rule for Certain Admiralty and Maritime Claims B, Federal Rules of Civil Procedure. The purpose of this Maritime Alert is to address a way to prevent a Rule B attachment.
A fundamental requirement of the Rule B attachment is that the defendant entity not be “found” in the jurisdiction. Concerning the attachment of EFTs of U.S. dollars being transmitted through New York banks, the relevant jurisdiction is the federal Southern District of New York, which includes Manhattan and the Bronx (in New York City) as well as the upstate counties of Dutchess, Orange, Putnam, Rockland, Sullivan and Westchester (the District).2
Rule B itself does not define what is needed to be “found” in a federal jurisdiction in general or the District in particular but numerous court decisions have set forth the requirements, which are essentially two: first, that the defendant can be found within the District for the purposes of jurisdiction; and second, that the defendant be found in the District for service of process.3 Typically, the second requirement can easily be fulfilled by the formal appointment of a local agent for acceptance of the service of process. The first requirement is more problematic. In order to be “found” within the District, the defendant must have sufficient contacts with the District to meet minimum due process standards. Usually that means that the defendant is doing business in the District on a continuous and systematic basis.4 Factors underlying a continuous and systematic presence include whether the defendant has an office, a bank account or other property, a telephone listing, does public relations work, or if they have an employee permanently located in the District.5 To be “found” not all these factors are required but the more factors that are present, the greater the likelihood a court will find the defendant is “found” in the District and thus a Rule B attachment is not allowed.
Moreover, the party seeking the attachment must submit an affidavit recounting the steps taken to see if a defendant is found in the District. If there is readily available information about being “found” (e.g., registration as a foreign company authorized to do business in New York, identification of a local registered agent for service of process, telephone listing, Web site listing of New York office), the claimant may never seek the Rule B attachment or the court may decline to issue the writ of attachment.
Once an entity is “found” in the District, the entity will be subject to the general jurisdiction of the New York federal and state courts. The New York courts, however, will generally respect and enforce choice of forum clauses in contracts (e.g., arbitration in London). Moreover, in tort cases (e.g., a crew member’s personal injury claim), these courts will also apply such doctrines as forum non conveniens as appropriate.
The Tax Situation
In considering the option to establish a continuous presence (i.e., an office) in New York, it is fair to say that shipowners and operators (as well as those who charter vessels) have concerns about being subject to U.S. taxes. For most companies, increased tax exposure is likely to be minimal.
Most companies that operate cargo or cruise vessels should be able to establish and maintain an office in New York with little additional U.S. federal, state and local tax costs. This observation is based on the situation that the employee or employees stationed in the New York office are not involved in soliciting or booking ocean transportation of cargo or passengers or in soliciting or negotiating vessel charters. However, if the company is covered by an exemption provided in a U.S. double taxation agreement or in the U.S. federal tax code, even those activities may not subject the company to significant additional taxes.
Any company considering establishing an office in New York should consult its U.S. tax advisor about how a New York office would affect the company’s own U.S. federal, New York state and New York City tax liabilities.
Corporate Mechanics
An important component of being “found” within the District is registration as a foreign corporation authorized to do business in New York. This registration is made with the New York Secretary of State in Albany, New York. Although neither particularly difficult nor expensive, there are specific requirements that must be followed in making this registration. For example, current documentation of the foreign corporation’s “good standing” in its jurisdiction of incorporation will be required in connection with the registration. Similarly, the appointment of a local agent for the acceptance of service of process is a relatively straightforward process.
For additional information, please contact the following Holland & Knight lawyers:
Tax Issues:
Richard A. Crowley • 212-513-3244
richard.crowley@hklaw.com
Corporate Registration/Agent Appointment Issues:
Anne-Mette Andersen • 212-513-3224
anne-mette.andersen@hklaw.com
Rule B Litigation Issues:
Michael J. Frevola • 212-513-3516
michael.frevola@hklaw.com
James H. Hohenstein • 212-513-3213
jim.hohenstein@hklaw.com
William J. Honan • 212-513-3300
bill.honan@hklaw.com
Francesca Morris • 212-513-3431
francesca.morris@hklaw.com
John J. Reilly • 212-513-3488
john.reilly@hklaw.com
1 See, e.g., “Electronic Writs Overwhelm Banks,” Lloyd’s List, December 20, 2006 at 6.
2 There is authority that if a defendant is located in an adjacent jurisdiction to the Southern District of New York (for example, the Eastern District of New York which comprises Brooklyn, Queens, Staten Island and Long Island), it is within the district court’s discretion to vacate an attachment. See Aqua Stoli Shipping Ltd. v. Gardner Smith Pty. Ltd., 460 F.3d 434, 445 (2d Cir. 2006). It is unsettled whether the court’s discretion would apply to other jurisdictions and states such as northern New York, New Jersey, and Connecticut. For the purposes of this alert, we have limited our analysis to the Southern and Eastern Districts of New York.
3 Seawind Compania, S.A. v. Crescent Line, 320 F.2d 580, 582 (2d Cir. 1963).
4 The “found” issue is to be determined as of the date of the filing of the action. Parkroad Corp. v. China Worldwide Shipping Co., 05 CV 5085, 2005 U.S. Dist. LEXIS 11122, *3, 2005 A.M.C 1839 (S.D.N.Y. Jun. 6, 2005). As far as the timeframe of being “found”: “A defendant corporation is found within the jurisdiction of a federal district court if in the recent past it has conducted substantial commercial activities in the district and probably will continue to do so in the future.” Oregon Lumber Export Co. v. Tohto Shipping Co., 53 F.R.D. 351, 352 (W.D. Wash. 1970).
5 Erne Shipping Inc. v. HBC Hamburg Bulk Carriers GmbH, 409 F. Supp. 2d 427, 433-34 (S.D.N.Y. 2006).
In accordance with U.S. Treasury Regulations section 10.35 (31 C.F.R. Part 10, §10.35) governing tax practice, we inform you that the tax information contained in this document was not intended or written by us to be used, and cannot be used by any person, for the purpose of avoiding penalties that may be imposed by the U.S. federal tax code. Moreover, the contents of this Maritime Alert are not intended to be, and should not be construed as, legal advice. The assistance of attorneys should be sought with regard to any specific circumstances for which legal advice is required.