pdf

New York Judge Compels Garnishees to Bring Overseas Assets to Satisfy a New York Judgment

October 15, 2009

Introduction

The New York Court of Appeals recently issued a decision of significance for foreign banks subject to jurisdiction in New York.  The court held that a judgment creditor can compel a non-party garnishee, such as a bank, to bring assets from abroad to New York in order to satisfy a New York judgment, even when the judgment creditor, judgment debtor, and property are all located elsewhere.  Koehler v. Bank of Bermuda Ltd.1  As the dissent wrote: “The majority’s holding opens a forum-shopping opportunity for any judgment creditor trying to reach an asset of any judgment debtor held by a bank (or other garnishee) anywhere in the world,” as long as the bank is subject to jurisdiction in New York.

Case Background and Relevant Facts

The case involved a Maryland judgment obtained by a Pennsylvania citizen against his former partner, a resident of Bermuda.  The dispute involved shares of stock in a Bermuda company, and certificates representing the defendant’s shares were in the possession of the Bank of Bermuda Limited (“BBL”) in Bermuda.  The plaintiff then properly converted the Maryland judgment into a New York judgment. After domesticating the judgment in New York, the plaintiff sought to execute the judgment against BBL’s New York subsidiary in New York by seeking “payment or delivery of property of judgment debtor” -- namely, the shares held by the bank in Bermuda. 

The issue for the federal district court, and for the court of appeals on appeal, was whether, under New York judgment enforcement law, a court located in New York could order a garnishee bank located in New York to turn over property of a judgment debtor to a judgment creditor, even when the property is located outside of New York.  Since this was a New York state legal issue of first impression, the United States Court of Appeal for the Second Circuit certified it to the New York State Court of Appeals, which is the court of final review over issues of New York law.

Analysis and Decision of the Court

There was no question that under New York law a court could require a defendant or judgment debtor itself to bring assets from outside the jurisdiction into New York in order to satisfy a New York judgment if the court had jurisdiction over the judgment debtor.  And, a turn-over order against a non-party bank present in New York with respect to assets in New York to satisfy a judgment is nothing new.  The difficult question was whether this same burden could be imposed on non-party garnishees, such as banks, where the court lacked jurisdiction over the judgment debtor itself, and where the property against which the judgment was to be executed was located abroad and therefore not subject to independent jurisdiction. In this context, the foreign bank would be subject to greater burdens than the judgment debtor itself.  Furthermore, requiring a foreign bank to bring assets from abroad to New York could involve cost and other foreign law conflicts relating to competing claims against the assets.  For these reasons, the Clearing House Association, L.L.C., an association of banks operating in New York and elsewhere, filed an amicus curiae brief pointing out the likely administrative burdens, and risks of competing legal adjudications, resulting from the judgment creditor’s position.  

The court rejected the arguments of the bank and the Clearing House Association and concluded that a New York court with personal jurisdiction over the garnishee may order the garnishee to turn over out-of-state property even though the judgment debtor itself could not be required to do so and even though the property was located out of the state.

Implications

The significance of the Kohler decision is clear for banks.  A bank that is subject to personal jurisdiction of the New York courts can be required to bring to the state assets located elsewhere in order to satisfy a New York judgment against a customer.  This is true even if the judgment debtor (customer) himself is located elsewhere and not subject to the jurisdiction of the New York courts and even if the property is located elsewhere and not itself subject to the in rem jurisdiction of the New York courts.  But, notably, the bank itself must be subject to jurisdiction in New York.  In this case, BBL operated in New York through a separately incorporated entity.  Normally, a properly incorporated subsidiary doing business in New York does not necessarily subject its foreign parent to the jurisdiction of a New York court.  But in this case, the court found that BBL’s New York entity, although separately incorporated, was the agent of the parent.  Also, BBL consented to the personal jurisdiction of the Southern District of New York.  Therefore, the court had jurisdiction over the Bermuda parent that held the shares.  This sends an important message to foreign banks that operate in New York through unincorporated entities or through separately incorporated entities that have a close enough relationship to subject the parent to jurisdiction in New York:  they are at risk of being subject to the expansive turnover order in New York and can be required to bring assets of the judgment debtor from outside the state, and even outside the country, to New York in order to satisfy a New York judgment.


Endnotes

 

*1: 12 N.Y.3d 533, 2009 WL 1543698 (N.Y.)