Recent case law has made New York an extremely beneficial place for a judgment creditor seeking to enforce a judgment against a debtor's foreign assets. If a foreign bank has a branch in New York (which almost all do), then a New York judgment can be enforced against the bank's foreign assets, wherever located.
This recent expansion of New York law offers a special opportunity for judgment creditors around the country, because New York law provides a simple procedure for converting any state or federal judgment to a New York judgment.
New York Enforcement Mechanisms
Under New York law, any federal or state judgment in the country can be rendered a New York judgment by a simple filing procedure, after which the judgment is treated for all purposes, including enforcement, as if it were originally a New York judgment. Once converted, the judgment may be enforced against a judgment debtor's property, wherever located, as long as the debtor or "garnishee" (i.e., a person or entity in possession of assets of the judgment debtor or owing a debt to the judgment debtor) has a branch or office in New York or is otherwise subject to New York jurisdiction. The asset itself may be in a foreign jurisdiction.
Further, New York law makes such enforcement extremely easy by requiring only a New York attorney to sign and serve an ex parte restraining notice or execution on the New York branch or office.
New York law also allows, with a few exceptions, execution upon any intangible interest which could be assigned or transferred, whether it constitutes a future or present interest and whether it is vested or not. Thus, for example, if a judgment debtor possesses rights under a contract, but the contract obligor's performance is not yet due, the judgment creditor may step into the judgment debtor's shoes and receive the benefit of the obligor's future performance. Interestingly, under New York law, a typical non-assignment clause in a contract does not present an obstacle to such enforcement.
Should the judgment debtor and/or garnishee fail to transfer the assets sought in satisfaction of the judgment, the judgment creditor may bring what is known as a "turnover" proceeding in New York courts and obtain an order commanding the debtor or garnishee to turn the assets over to the judgment creditor. Full civil and criminal contempt sanctions are available for violation of a turnover order. NY Enforcement Law Expands.
The most powerful aspect of the recent expansion in this area of New York law is the decision by the New York Court of Appeals (the state's highest court) that, as long as a court has jurisdiction over a garnishee, the judgment creditor may reach the judgment debtor's assets in the hands of that garnishee, regardless of where the assets are located. The judgment debtor need not have any contact with New York; the court need not have jurisdiction over the judgment debtor; and the assets need not be in New York. A branch office or other indicia of doing business in New York is sufficient.
The expansion began with the case Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009), in which the New York Court of Appeals answered a certified question from the United States Court of Appeals for the Second Circuit: can a court order a bank over which it has jurisdiction to turn over property of a judgment debtor (there, stock certificates) located outside New York? The New York Court of Appeals said yes. Koehler had registered a Maryland federal judgment in New York to reach stock certificates that the judgment debtor had pledged to garnishee Bank of Bermuda as collateral for a loan. Relying on its jurisdiction over the bank, which had a presence in New York, the court ordered the bank to turn over the stock certificates, even though they were held on deposit, not in New York, but in Bermuda.
State and federal courts in New York are following Koehler. Most recently, the United States District Court for the Southern District of New York relied on Koehler in directing a German Bank with a branch in New York to turn over funds of the judgment debtor located in Germany. JW Oilfield Equip., LLC v. Commerzbank AG, 2011 WL 507266 (S.D.N.Y. Jan. 14, 2011).
In Koehler, the assets sought were tangible stock certificates. In Commerzbank, the assets were funds. Intangible interests of a judgment debtor may be reached as well, wherever located, as long as the court has jurisdiction over the judgment debtor or garnishee. Hotel 71 Mezz Lender LLC v. Falor, 14 N.Y.3d 303 (2010) (allowing creditor to reach intangible interests of the debtor in various out-of-state companies). However, special rules apply with respect to certificated securities, uncertificated securities and security entitlements (as those terms are defined in the Uniform Commercial Code), which may be reached by garnishment, attachment or other legal process only as provided in the Uniform Commercial Code.
Some Distinctions
Two further caveats. First, the recent expansion in New York judgment enforcement described above applies to post-judgment enforcement efforts; the law with respect to pre-judgment attachment is more restrictive and generally requires the assets to be in New York. Second, efforts to enforce judgments against foreign states (including foreign sovereign banks) are distinguishable from enforcement against corporations or individuals. Enforcement of judgments against foreign sovereigns and their national banks are subject to the additional requirements of the Foreign Sovereign Immunities Act, including the requirement that the assets against which the judgment is sought to be enforced must be used for a commercial activity in the United States. In short, creditors seeking enforcement of judgments against debtors who may be subject to New York jurisdiction or who may have an account with a foreign bank or brokerage with a branch in New York would be well advised to file the judgment in New York to take advantage of the state's liberal judgment enforcement rule
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