HT to Gary Born and Thomas Snider, whose recent post at the Kluwer Arbitration Blog brought to light the Case of the Day, Sojitz Corp. v. Prithvi Information Solutions Ltd. (App. Div. 2011). (Conflict of Laws.net also has a post on the case). Sojitz involves an aspect of judicial assistance that we haven’t previously considered here, namely, prejudgment remedies to provide security for an eventual arbitral award that the plaintiff expects to obtain. This seems to fall within the “enforcement of judgments” prong of the Letters Blogatory scope of coverage, and it will require a little reprogramming of my top-secret Letters Blogatory Westlaw query to try to capture similar cases going forward.

The facts of the case were nothing exceptional. Sojitz, a Japanese company, had a contract to sell telecommunications equipment made in China to Prithvi, an Indian company. The contract was governed by English law and provided for arbitration in Singapore. Although Sojitz shipped and Prithvi accepted more than $47 million in equipment, Prithvi paid only $5.6 million.

But while the underlying facts were nothing unusual, what happened next was pretty odd. Before commencing an arbitration in Singapore, Sojitz moved, ex parte, for a $40 million attachment in New York. The Supreme Court granted the motion and ordered Prithvi to post a $2 million bond. Ultimately, Sojitz was able to attach only $18,480, which was a debt that one of Prithvi’s New York customers owed to Prithvi. The Supreme Court then vacated the $40 million attachment, confirmed the $18,480 attachment, reduced the bond to $900, and permitted Sojitz to attach other assets in New York, if it could find any. The Supreme Court denied Prithvi’s motion to stay its order pending appeal but provided that the attachment would dissolve in 90 days. The attachment dissolved accordingly, and the court discharged the bond. Prithvi then appealed order granting the attachment and reducing the bond to $900.

This is all very strange. Why would Sojitz have gone to the trouble of seeking an attachment in New York if it could only locate $18,000 in assets? Why would Prithvi appeal after the attachment had been dissolved (the court briefly addressed and rejected an argument that the appeal was moot), and why would it appeal such an insignificant attachment in the first place? If I didn’t know better, I would suspect that this was a collusive test case!

In any event, the issue before the Appellate Division was this: it was agreed that Prithvi did not do enough business in New York to subject it to the court’s general personal jurisdiction, and the transaction at issue in the case had no link with New York so as to bring Prithvi within the court’s specific personal jurisdiction. By statute, New York permits prejudgment attachments in aid of international arbitrations, but does the statute apply where the court lacks personal jursidiction over the respondent?

(When I put the question like that, I wonder why Born & Snider write that the case “bolsters New York’s reputation as a jurisdiction friendly to international arbitration.” It seems to me that the issue really relates to the permisibility of quasi in rem jurisdiction, and that issue arises whether the foreign proceeding is an arbitration or a lawsuit. New York took the real step towards accommodating arbitrations in its scheme of prejudgment remedies several years ago, when it enacted a statute, N.Y. C.P.L.R. § 7502(c), which overruled a precedent that had held that attachments were simply not available in aid of foreign arbitrations).

The key case is Shaffer v. Heitner, 433 U.S. 186 (1977), which held that the same rules that governed the constitutionality of in personam jurisdiction—the defendant must have sufficient minimum contacts with the forum state, or else the exercise of jurisdiction is a denial of due process of law—applied in quasi in rem cases as well. In other words, the mere presence of the defendant’s property in the forum was held insufficient to justify quasi in rem jurisdiction; Shaffer thus rejected the rule of Pennoyer v. Neff, 95 U.S. 714( 1877), in quasi in rem cases just as International Shoe Co. v. Washington, 326 U.S. 310 (1945), had rejected it in in personam cases. But a dictum in Shaffer held open the possibility that there might be an exception to the general rule where the plaintiff sought to proceed solely to obtain security for a judgment being sought in another forum. The Appellate Division, citing to cases elsewhere holding that such an exception did indeed exist, held that the attachment here did not run afoul of Shaffer.

There are two other strange components to the case. First, the statute required Sojitz to prove “that the award to which [it] may be entitled may be rendered ineffectual without … provisional relief.” The court recognizes this requirement as one safeguard against unfair use of the statute that could raise concerns similar to the concerns in Shaffer. But Prithvi didn’t argue on appeal that Sojitz had failed to make this showing (again: test case?) It’s difficult to understand why Prithvi wouldn’t have zeroed in on this argument, given the very limited attachment Sojitz was able to obtain relative to the size of the award Sojitz hoped to win in the arbitration.

Second, it is surprising to me, as a Massachusetts lawyer, to see an attachment granted without any finding that the plaintiff’s claim was potentially meritorious. Our law requires a showing of reasonable likelihood of success and has additional, onerous requirements before the court can grant an attachment ex parte. I think these are healthy safeguards.