## Facts

- WonderNet, Ltd. (WonderNet) was an Israeli technology company with its principal place of business in Israel and was not qualified to do business in New York.
- SiVault Systems, Inc. (SiVault), a Nevada corporation with its principal place of business in New York (formerly known as Security Biometrics, Inc.), entered into a technology-licensing relationship with WonderNet.
- In 2003, WonderNet represented that it held intellectual-property rights in certain security-biometrics technology in specified territories.
- Under an August 2003 agreement, SiVault delivered 2,500,000 shares of restricted SiVault stock (pre-reverse split), plus cash, to WonderNet in exchange for a license to use the technology.
- SiVault later asserted it discovered that WonderNet had misrepresented the extent of its rights, and that the licensed technology infringed existing patents in certain territories and was otherwise without value.
- On January 13, 2005, SiVault filed a demand for arbitration with the American Arbitration Association in New York, seeking rescission and the return of stock and money with a claimed value exceeding $350,000.
- WonderNet contended that the SiVault shares were consideration not only for the 2003 agreement but also for rights granted under a 2002 agreement; WonderNet also asserted it had potential claims against SiVault for breaches of the 2003 agreement and another agreement, although it had not filed counterclaims in the arbitration at the time of the petition.
- On January 26, 2005, shortly after commencing arbitration, SiVault petitioned the U.S. District Court for the Southern District of New York for an order of attachment against WonderNet’s SiVault shares (including shares represented by certificate no. 3281) as security in aid of the arbitration, supported by affidavits and evidence concerning its claims and WonderNet’s financial condition.

## Issues

1. Whether the court could issue an order of attachment in aid of a pending New York arbitration under Fed. R. Civ. P. 64 and N.Y. C.P.L.R. § 7502(c).
2. Whether SiVault satisfied the requirements for attachment under C.P.L.R. § 7502(c) and Article 62, including a statutory ground under C.P.L.R. § 6201, probability of success on the merits, and the statutory showing concerning counterclaims and the need to secure an eventual award.

## Decision

- The court granted SiVault’s petition for an order of attachment in aid of arbitration.
- The court directed that an order of attachment issue against WonderNet’s SiVault stock, authorizing a levy on the identified shares to secure any eventual arbitral award.
- The court conditioned the attachment on SiVault posting a mandatory undertaking in the form of a $225,000 bond.

## Legal Principles

- Under Fed. R. Civ. P. 64, a federal court may apply state-law provisional remedies, including attachment, when such relief is available under the law of the forum state.
- C.P.L.R. § 7502(c) authorizes provisional relief, including attachment, in connection with an arbitration that is pending or to be commenced, when necessary to secure the effectiveness of the award.
- In seeking attachment in aid of arbitration, the applicant must satisfy the attachment requirements that would apply in a plenary action under C.P.L.R. Article 62, including:
  - a “cause of action” (for these purposes, a pending arbitration may qualify);
  - a probability of success on the merits of the claims being arbitrated;
  - a statutory ground for attachment under C.P.L.R. § 6201; and
  - a showing that the amount demanded exceeds all counterclaims known to the petitioner.
- A statutory ground exists under C.P.L.R. § 6201(1) when the respondent is a foreign corporation not qualified to do business in New York, and the court may attach property within the court’s reach, including shares of stock.
- The court may require an undertaking (bond) as a condition of attachment to protect the respondent from damages if the attachment is later found unwarranted.

## Conclusion

The Southern District of New York granted SiVault’s request to attach WonderNet’s SiVault shares as security for a New York-seated AAA arbitration, finding that attachment in aid of arbitration was available under C.P.L.R. § 7502(c) and that SiVault met the Article 62 elements, including a statutory basis for attachment because WonderNet was a foreign corporation not qualified to do business in New York, a sufficient showing of likely success for provisional-relief purposes, and satisfaction of the statutory requirements concerning known counterclaims and the need to secure any eventual award, subject to a $225,000 bond.


SiVault Systems, Inc. v. WonderNet, Ltd., 2005 WL 681457 (2005)