Rule B maritime attachment and garnishment under US law
BY their very nature, ships are here today and gone tomorrow, perhaps never to return. Unfortunately, shipowners and charterers often leave unpaid debts and damage claims behind in their wake.
In the US, if a maritime lien exists and the vessel can be located, prejudgment security is commonly secured via arrest of the vessel under Rule C of the Supplemental Rules for Certain Admiralty Procedures. However, two preconditions to the availability of a Rule C arrest often render that option unavailable: the existence of a "maritime lien" as defined under US maritime law, and the physical location of the vessel in the judicial district where the arrest is to occur.
In practice, however, controlling law may not give rise to a maritime lien under United States law, and catching a vessel in a US port may prove difficult given the realities of today's here-today-and-gone-tomorrow shipping world.
Local rules in many districts allow for the recovery of attorneys' fees in cases where the Rule B attachment is improper. Given the relatively quick post-attachment hearing, practitioners should have their evidence and witnesses ready to appear in court and justify the attachment when the complaint is filed.
The sometimes overlooked procedure of maritime attachment and garnishment, or so-called "quasi in rem" actions under Rule B of the Supplemental Rules for Certain Admiralty and Maritime Claims, provides an alternative to a Rule C arrest. Rule B attachment has several advantages not available to claimants under Rule C. For example, unlike in the traditional Rule C action, a claimant may use Rule B to garnish property, cash, credits or any other identifiable asset owned by the debtor but in the hands of a third party. The asset seized, e.g., a ship, need not be the vessel which gave rise to the claim. It need only be an asset of the debtor. Rule B may be used to obtain prejudgment security from, and in personam jurisdiction over, a debtor with no presence in the judicial district where the asset is attached. Rule B may also be used concurrently with Rule C to provide a supplemental basis for seizing a vessel if the Rule C claim is marginal.
In practice, Rule B attachment and garnishment is useful in numerous situations. For example, in cases where goods or services are provided to a vessel in a foreign jurisdiction, and where those goods and services would not give rise to a maritime lien as recognised under US law, the claimant may nevertheless utilise the Rule B procedures to "arrest" the debtor vessel or a sister vessel if common ownership exists.
A Rule B claim is an in personam claim against the debtor, as opposed to an in rem claim against a ship or cargo. Rule B attachments were historically used to obtain jurisdiction over non-resident defendants by attaching their goods and thereby forcing them to appear in the jurisdiction to defend the suit under penalty of forfeiture of the asset seized, hence, the name "quasi-in-rem".
In instances where the debtor does not regularly transact business in the US but has assets or accounts in the district, Rule B allows attachment of those assets, thereby providing valuable prejudgment security to the claimant even though a maritime lien does not exist.
Consider the following real examples:
A shipyard provides repair services in the Caribbean under a contract which calls for the application of English law. The shipyard allows the vessel to sail prior to full payment, and the debt goes unpaid. The ship sails into a US port where the shipowner has no presence. Under English law, no maritime lien, as defined by the US courts, exists on the vessel, so the ship is not subject to a Rule C arrest. Under Rule B, however, the shipyard may attach the debtor vessel, a sister vessel, or any other assets of the debtor found in the jurisdiction even if they are in the hands of a third party.
A US-based cargo owner contracted with a Colombian shipowner, who does not maintain offices in the US, to transport a cargo of sugar from Colombia to Haiti. The ship sank in heavy weather with a total loss of ship and cargo. A hull insurance claim was presented and insurance proceeds were deposited into an American bank account owned by a principal of the shipowning company.
Cargo owners filed an in personam suit against the Colombian shipowner for loss of the cargo and used Rule B to garnish the hull insurance proceeds in the account of the shipowner's principal, claiming that they were the assets of the shipowner. Thus, the cargo claimant was able to obtain prejudgment security and jurisdiction over the Colombian shipowner, notwithstanding that the shipowner did not maintain offices in the US and no in rem claim existed.
A tug owner instituted an in personam suit against a charterer for unpaid charter hire. In another jurisdiction the charterer had previously demanded arbitration with a subcharterer for property damage, unpaid charter hire, and consequential damages due to the subcharterers' breach of the subcharter. An arbitration award was rendered in favour of the charterer but, before the arbitration award could be paid to the charterer, it was garnished by the tug owner under Rule B while still in the hands of the subcharterer. The tug owner was therefore able to attach the arbitration award before it was paid to the charterer and thereby obtain prejudgment security.
History and background of Rule B
Rule B maritime attachments are firmly rooted in American jurisprudence and can be traced back to the Process Act of 1972. In 1825, the United States Supreme Court noted of maritime attachments:
"Upon the whole, we are of opinion, that for a maritime trespass, even though it savors of piracy, the person injured may have his action in personam, and compel appearance by the process of attachment on the goods of the trespasser, according to the forms of the civil law, as engrafted upon the admiralty practice. And we think it indispensable to the purposes of justice, and the due exercise of the admiralty jurisdiction, that the remedy should be applied, even in cases where the same goods may have been attachable under the process of foreign attachment issuing from the common-law courts." (Manro v. Almeida, 23 U.S. (10 Wheat.) 473, 495-96 (1825).
In 1844, congress enacted special admiralty rules, including Admiralty Rule 2, the predecessor of modern Rule B. No substantial change in the fundamental nature of maritime attachments occurred when Admiralty Rule 2 became Rule B of the modern admiralty rules. Piracy analogies notwithstanding, Rule B has survived numerous constitutional attacks over the years. Claimants have argued that Rule B does not provide adequate due process protection prior to the taking of one's property and thereby does not provide adequate due process protection as provided by the United States Constitution.
Attacks on the constitutionality of Rule B centre on the lack of pre-attachment notice and hearing. Supporters of Rule B cite the requirement of judicial review prior to attachment, the right to an immediate post-attachment evidentiary hearing, and the public policy encouraging maritime commerce by providing creditors with an effective means of obtaining prejudgment security as justification for Rule B. The United States Supreme Court has supported Rule B consistently and held that Rule B is constitutional as drafted and applied.
Rule B attachment requirements
Modern maritime attachments and garnishments, or so called quasi in rem actions, are governed by the Supplemental Rules for Certain Admiralty and Maritime Claims. Rule B(1) for Certain Admiralty and Maritime Claims provides, in pertinent part:
"With res pect to any admiralty or maritime claim in personam, a verified complaint may contain a prayer for process to attach the defendant's goods and chattels, or credits and effects in the hands of garnishees to be named in the process to the amount sued for, if the defendant shall not be found within the district. Such a complaint shall be accompanied by an affidavit signed by the plaintiff or his attorney that, to the affiant's knowledge, or to the best of his information and belief, the defendant cannot be found within the district. The verified complaint and affidavit shall be reviewed by the court and, if the conditions set forth in this rule appear to exist, an order so stating and authorising process of attachment and garnishment shall issue...."
The following must exist for a proper Rule B attachment or garnishment to issue:
- The complaint must be verified by the claimant (or its attorney);
- The complaint must be accompanied by an affidavit demonstrating that the defendant cannot "be found within the district";
- The nature of the claim must be maritime in nature so as to give rise to admiralty jurisdiction;
- The assets or credits of the debtor must be physically located within the district.
Except in "exigent circumstances", the United States district judge to whom the case is assigned is required to review the claimant's initial pleadings to verify that the essential elements for a maritime attachment or garnishment have been adequately alleged. No pre-attachment / garnishment notice or hearing is necessary. If the district judge is satisfied that the requirements of Rule B(1) have been alleged, the Writ of Maritime Attachment and Garnishment is issued and in turn provided to the United States Marshal for execution.
Each of the judicial districts within the United States has its own variation of the meaning of the term "not found within the district". But the term has been strictly construed in most districts. That is to say, if service of the complaint cannot be accomplished on the defendant within the physical boundaries of the judicial district as provided by the Federal Rules of Civil Procedure, the "not found within the district" element is satisfied. The filing of a general appearance or an offer to accept service of process in the district after the attachment has already been effected cannot defeat the Rule B attachment. An offer to accept service of a complaint in the district or the designation of a registered agent for acceptance of service of the complaint before the attachment is issued, however, would presumably defeat a Rule B attachment.
In the case of garnishment of accounts, funds or assets in the hands of a third party, the specific asset to be seized and the name of the garnishee need not be delineated in the complaint. The subsequently issued writ of garnishment may simply specify the asset to be seized and the name of the garnishee. Following service of the writ and seizure of the asset, the garnishee is required to appear and state whether it is in possession of the debtor's assets or credits.
A Rule B claim is an in personam claim against the debtor, as opposed to an in rem claim against a ship or cargo. Rule B attachments were historically used to obtain jurisdiction over non-resident defendants by attaching their goods and thereby forcing them to appear in the jurisdiction to defend the suit under penalty of forfeiture of the asset seized hence, the name "quasi-in-rem". American courts have held that a Rule B attachment is proper even where the "primary intent" of the attachment is to obtain prejudgment security rather than jurisdiction over the defendant. (Oil Transport v Hilton Oil Transport, 1994 AMC 2817 (SD TX 1994); Western Bulk Carriers (Australia), PTY Ltd v PS International Ltd, 991 AMC 2828 (SD Ohio 1991))
Rule B is unique in that it provides a vehicle for garnishing cash, assets or credits in the hands of third parties and thereby obtaining prejudgment security and jurisdiction for in personam claims where the debtor cannot be found in the judicial district
In order to satisfy constitutional due process requirements, the defendant is entitled to a "prompt hearing" to preliminarily determine the propriety of the attachment or garnishment. In practice, post-attachment hearings are routinely conducted within several days of the claimant's request. The hearing is an evidentiary one where the claimant bears the burden of demonstrating that the attachment was proper and why it should not be vacated. In practice, the hearing is critical as the trial judge will necessarily be required to make a snapshot determination of the claim based upon a brief evidentiary hearing.
Local rules in many districts allow for the recovery of attorneys' fees in cases where the Rule B attachment is improper.
Given the relatively quick post-attachment hearing, practitioners should have their evidence and witnesses ready to appear in court and justify the attachment when the complaint is filed.
Practical advantages of Rule B attachment
Rule B attachments are often used to attach sister vessels where the offending vessel is not within the judicial district. Rule B is also used to attach bunkers or equipment owned by a debtor (e.g., a charterer) in cases where the vessel upon which the bunkers or equipment are located is not owned by the debtor, thereby precluding the arrest of the ship itself under Rule C.
In the case of unpaid charter hire, Rule B could be utilised to attach credits, bunkers, supplies or equipment owned by the charterer even though the vessel on which the bunkers or supplies are to be found is not owned by the debtor. In cases where certain maritime lien claims are marginal and may not give rise to a maritime lien under Rule C, Rule B provides a valuable alternative basis for the vessel's seizure.
Rule B is an effective yet often overlooked alternative or supplement to Rule C arrests. Rule B is unique in that it provides a vehicle for garnishing cash, assets or credits in the hands of third parties and thereby obtaining prejudgment security and jurisdiction for in personam claims where the debtor cannot be found in the judicial district. Care should be taken, however, to ensure that the property attached or garnished is the property of the debtor and that the debtor cannot be found in the judicial district where the attachment or garnishment is to occur. Claimants should be prepared to immediately appear in court to justify the attachment or garnishment at a post-attachment evidentiary hearing.