Attachment in Aid of Arbitration under New York Law – Key Points to Remember for Foreign Counsel and Clients
You advise an international business based outside of the US. You have just been informed by your client that its counterparty under a significant commercial agreement has breached its contractual obligations. The resulting damages are likely to exceed hundreds of millions of dollars. Efforts to negotiate an amicable resolution have failed and substantial harm to your client’s business continues by the day. The dispute resolution clause in the parties’ agreement provides for ICC arbitration in Zurich, Switzerland. The governing law is Luxembourg law. After further discussions with your client, you learn that the counterparty has bank accounts in New York. Your client fears that the counterparty is attempting to dissipate its assets held in New York.
What is the first thing you might advise your client?
You could advise them to initiate emergency arbitration in Switzerland and seek injunctive relief against the counterparty. A perfectly sensible choice and one very much worth considering.
You could advise them to engage Luxembourg counsel to determine what remedies may exist under Luxembourg law. Another sensible choice that must be considered and eventually undertaken.
You could advise them to engage New York counsel to seek injunctive relief and attach the counterparty’s assets in New York before they are possibly dissipated and out of your client’s reach.
Which of these three options seems the most appropriate? Given the title of this brief article, I think you know what I would recommend: engage New York counsel to seek an injunction and attachment of the counterparty’s assets in New York.
Here is why I would recommend such an approach and would strongly recommend that you consider it if you have a client that may have a similar situation. One of our clients had such a situation for which we were recently engaged.
First, New York law permits a party to seek injunctive relief and attachment in aid of arbitration. Under New York law, the arbitration must be “pending” or “to be commenced,” which generally means the arbitration must be started within 30 days after the court issues the attachment order. See N.Y. C.P.L.R. § 7502(c). In addition, New York law authorizes attachment when, among other things, the defendant (i) is a “foreign corporation not qualified to do business in the state” and (ii) “with intent to defraud his creditors or frustrate the enforcement of a judgment that might be rendered in plaintiff's favor, has assigned, disposed of, encumbered or secreted property, or removed it from the state or is about to do any of these acts.” N.Y. C.P.L.R. §§ 6201(1) & (3). Moreover, New York law also permits attachment on an ex parte basis, which means your client may be able to move quickly and successfully attach the counterparty’s assets in New York before they have notice of such attachment. N.Y. C.P.L.R. § 6211(a).
Second, although certain basic requirements must be satisfied, securing an attachment in New York is not overly burdensome. A plaintiff must show (1) there is a cause of action, (2) it is probable that the plaintiff will succeed on the merits, and (3) the amount demanded from the defendant exceeds all counterclaims known to the plaintiff. See Iraq Telecom Ltd. v. IBL Bank S.A.L., 43 F.4th 263, 269 (2d Cir. 2022) (citing N.Y. C.P.L.R. 6212(a)). Ultimately, the court will have discretion whether to grant attachment, so nothing is ever guaranteed. A strong factual and legal showing must always be made. But if your client has already started an arbitration (or intends to start an arbitration promptly, which by itself may constitute a “cause of action” under New York law), your client has credible contractual claims under the governing law, and such claims would exceed any potential counterclaims brought by the counterparty, you should advise your client to strongly consider seeking an attachment in New York.
Third, successfully attaching assets in New York will only increase your client’s negotiating leverage and help them achieve a commercially favorable outcome. When dealing with counterparties that refuse to negotiate fairly or that make outrageous demands, you need to be aware of all the available tools at your disposal. A successful attachment of a counterparty’s assets in New York, coupled with an arbitration (or emergency arbitration if necessary), will give you and your clients the confidence that if they ultimately receive a favorable award from an arbitral tribunal that they will be able to enforce and collect on that award. This will often strongly incentivize a recalcitrant counterparty to return to the negotiating table. So, please do not miss out on an opportunity to provide further value to your clients if you learn that one of their counterparties has assets in New York.
Please feel free to reach out to me by email (justin.lee@wg-law.com), by LinkedIn (linkedin.com/in/justinplee1), or by phone (212-509-6312), if you have any questions, comments, or feedback relating to the above article. We would love to hear from you and have your thoughts.
This article has been prepared for general informational purposes only and does not constitute legal advice. This article may be construed as attorney advertising.