Fifth Circuit Clarifies Jurisdictional Requirements Over Attached Funds At Riyad Bank

On October 18, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court’s vacatur of a maritime attachment order, providing a detailed analysis of the requirements for personal and in rem jurisdiction over attached property under the Federal Rules of Civil Procedure.

In Ultra Deep Picasso Pte. Limited (Ultra Deep) v. Dynamic Industries Saudi Arabia Limited (Dynamic), Ultra Deep, a contractor specializing in undersea vessel operations for marine construction projects, entered into a subcontract with Dynamic to support a project. After completing work valued at over ten million dollars, Ultra Deep alleged that Dynamic failed to pay, breaching their agreement. To secure its claims in arbitration, Ultra Deep sought a maritime attachment and garnishment of Dynamic’s funds allegedly held by Riyad Bank, a Saudi Arabian bank with what it terms an “agency” in Houston, Texas, but not a full-service branch bank.

The appeal centered on two pivotal questions:

• Does Supplemental Rule B of the Federal Rules of Civil Procedure, which allows a district court to take jurisdiction over a defendant in a maritime action by attaching property of the defendant, require that attached property be found within the district or is it sufficient for the property to be in the hands of garnishees over which the district court has jurisdiction?
• When is a bank account considered “found within the district” for the purposes of Rule B?

First, the Fifth Circuit concluded that for a valid Rule B attachment, the property must indeed be found within the district. The court emphasized that Rule B’s quasi in rem procedure necessitates both in personam jurisdiction over the garnishee and in rem jurisdiction over the property to be attached. The court stated: “A proper Rule B attachment hinges on not just the attaching court’s in personam jurisdiction over a garnishee, but also on its in rem jurisdiction over the asset sought to be attached, i.e., that the asset be ‘present within the geographical jurisdiction of the court.’”

Second, the court delved into whether the presence of Riyad Bank’s “agency” in Houston was sufficient to establish personal jurisdiction over the bank. Ultra Deep argued that the presence of the agency in Houston presence should satisfy Rule B’s requirements. The court disagreed, explaining that the mere presence of a garnishee within the district does not automatically confer personal jurisdiction over the property to be attached. The court highlighted: “The requirement that property sought to be attached be located within the attaching court’s jurisdiction rests on bedrock principles of maritime jurisdiction — on which Rule B is also founded.”

Addressing the location of bank accounts, the court adopted the reasoning from Boland Marine & Industries, LLC v. Bouchard Transportation Company, Inc., holding that bank accounts are located where their funds can be withdrawn. The court explained: “For purposes of Rule B, ‘accounts are “located” wherever they are available for withdrawal by the depositor.’”

In this case, the court found that Ultra Deep failed to demonstrate that Dynamic’s property was located within the Southern District of Texas. The court noted the “Houston Agency’s general manager stated that the Agency only ‘provide[s] loans, guarantees[,] and stand-by letters of credit to U.S. and Canadian companies to facilitate business in Saudi Arabia’; it neither holds or accepts deposits of assets, nor allows clients to withdraw funds, and it cannot access accounts held by Riyad Bank in Saudi Arabia.”

As a result, the Fifth Circuit found the district court properly vacated the attachment order and dismissed Ultra Deep’s claims.

Our Take:

This opinion is more than just a maritime ruling and should be on the reading list of bank lawyers who handle garnishments and attachments. The Fifth Circuit’s requirement that there be both personal jurisdiction and in rem jurisdiction is eerily similar to the Consumer Financial Protection Bureau’s mandate in its May 4, 2022 order relating to garnishments: “To garnish a bank account lawfully, a state court must have jurisdiction over the garnishee (the bank that holds a deposit account) and the property to be garnished (the deposit account).” The decision will likely be utilized by judgment debtors and garnishees in garnishment cases involving intangible assets held in deposit accounts domiciled in states outside of the forum state of the litigation.