Sojitz Corp. v. Prithvi Info Solutions Ltd., 602511/09, 3841 (First Dep’t 3/10/11), is a decision from New York’s intermediate appellate court.  It addresses a matter of first impression in New York, which is one of importance to the development of the law and practice in international litigation:  Whether a creditor may lawfully and constitutionally attach assets in New York, for security purposes, solely in anticipation of an arbitration award that has not yet been rendered but that might be rendered by an arbitral panel in a non-U.S. country, even though there was “no connection to New York by way of subject matter or personal jurisdiction”.   (See our discussion of provisional remedies in our e-book, International Practice: Topics and Trends.)

The Appellate Division held that, pursuant to Section 7502(c) of New York’s Civil Practice Law and Rules (CPLR), a pre-award attachment for an international arbitration was constitutional and lawful. The Appellate Court held that an asset may be attached if it is a “debt owed by an entity domiciled in New York to the party against whom the award was sought”.

The case has obvious importance to international practice. The case involved two companies, a Chinese company and a company domiciled and doing business in India. Sojitz agreed to provide telecommunications equipment produced in China to Prithvi, the respondent, in India. $47+ million in goods were produced and shipped, but Prithvi paid for only $5.6 million. Sojitz sought an order of attachment for $40 million with Sojitz being required to post a $2 million bond. The order being appealed was later dissolved, and in a threshold ruling the Appellate Division first determined that dissolution of the order did not deprive the petitioner of its rights to appeal.

On the central issue, the Appellate Division acknowledged “New York’s status as a global commercial and financial center”.  Against that backdrop, the Court traced the history of CPLR 7502 to its current incarnation, which now reads:

The supreme court [i.e., the trial court] . . . may entertain an application for an order of attachment or for a preliminary injunction in connection with an arbitration that is pending or that is to be commenced inside or outside this state, whether or not it is subject to the [New York Convention – i.e., the Convention for the Recognition and Enforcement of Foreign Arbitral Awards].

Having decided that the statue covered the pre-arbitral attachment, the Court then examined the statute’s constitutionality and found that it was constitutional. The Court relied primarily on the U.S. Supreme Court’s decision in Shaffer v. Heitner, 433 U.S. 186    (1977), which distinguished between types of quasi-in-rem jurisdiction – i.e, those as to which personal jurisdiction was essential and those, including attachments, “merely for the purpose of securing satisfaction of a future judgment”.

Shaffer’s comment in this regard, however, was dictum. The First Department traced the post-Shaffer federal cases and held by analogy that “New York’s attachment statute does not run afoul of Shaffer when it is used for purposes of security rather than to confer in personal jurisdiction”. Far from being “fundamentally unfair”, the Appellate Division found that there were “several substantive and procedural safeguards intended to permit attachment consistent with due process”. Chief among these were 1) the petitioner must show that any award issued by the arbitrator would otherwise be rendered ineffectual if the relief was not granted (which the parties appeared to have agreed was satisfied in this particular case – the Court observed that the respondent had allegedly removed funds from a dedicated escrow account without authorization); and 2) the requirement that the arbitration was required to be commenced within 30 days after the attachment is granted, though the Court did not explain how that was a safeguard.