United States: New York Taps The Brakes On Foreign Judgment Collection

Four years ago, the New York Court of Appeals, in Koehler v. Bank of Bermuda,1 greatly broadened the judgment enforcement power of New York courts, a decision of note especially for global financial institutions with customer assets in faraway places. This split decision by the state's highest court accorded judgment creditors worldwide the long arm of New York's new enforcement law, enabling them to reach far beyond New York's borders to grab debtors' assets. But what if the underlying litigation, the parties themselves, and the targeted assets bear no connection to New York? It does not matter.

Although the court recently shortened, somewhat, the long arms bestowed by Koehler, the far-reaching implications of these two decisions on international enterprises—especially financial institutions—subject to jurisdiction in New York (and their business counterparties) command attention. Ignorance of the evolving jurisprudence might prove expensive.

Foreign Judgment Enforcement in New York Under Koehler

In 2009, the Koehler court held that New York courts could enforce a domesticated foreign judgment against assets outside the state if a garnishee bank is subject to jurisdiction in New York. See Koehler ("a court sitting in New York that has personal jurisdiction over a garnishee bank can order the bank to produce [assets] located outside New York, pursuant to [New York's CPLR §] 5225(b).").2 It reasoned that under CPLR § 5225, the "key to the reach of the turnover order is personal jurisdiction" over the garnishee, not in rem jurisdiction over the assets.3 In other words, the focus is squarely on the bank's nexus with the forum and not on anything else.

Take, for example, a bank headquartered in London and subject to personal jurisdiction in New York (perhaps because it has a branch in the state). Assume that bank has a Texas customer with a Texas judgment against it in favor of a California entity. Koehler bestows on New York courts the power to order that bank to deliver to the California creditor the customer's assets located in London whether the judgment debtor, itself, has any assets in or is subject to jurisdiction in New York, and regardless of whether there exists any connection between the underlying lawsuit and the state. As the Koehler court explained, because "personal jurisdiction is the linchpin of authority under § 5225(b)," all that is required is personal jurisdiction over the garnishee (that person or entity holding the assets of the judgment debtor) no matter where in the world the garnishee actually holds those assets.

Understandably, the implications of Koehler raised concerns in the international banking community, since a bank subject to personal jurisdiction in New York might be compelled to turn over assets located anywhere in the world, even if its debtor-client has no connection to New York.4

Not specifically addressed by the court was the question of whether the longstanding "separate entity" doctrine—which provides that "each branch of a bank is a separate entity"5—survived in light of Koehler's long-reach holding. This was of obvious concern to the garnishees of choice in the banking industry, who feared that foreign assets held by foreign affiliates would be delivered into the waiting hands of judgment creditors in New York.

At the same time, the decision was music to the ears of foreign judgment creditors. Legal pundits predicted that a wave of judgment enforcement litigation would hit New York courts. Indeed, many judgment creditors have tried to use Koehler to reach assets all over the world. Some have even argued that if an international bank is subject to jurisdiction in New York, Koehler allows New York courts to exercise jurisdiction over the bank's entire worldwide operations and assets.

But a recent unanimous decision by the New York Court of Appeals in Commonwealth of the Northern Mariana Islands v. Canadian Imperial Bank of Commerce ("CIBC")6 appears to tap on the brakes of Koehler. The CIBC decision articulates some limits on judgment collection in New York against debtors who have assets at international banks with a New York presence. In particular, it provides some protection for assets held at foreign affiliates of New York garnishees as long as the New York entity is not deemed in "custody" of its affiliates' assets. Thus, does the New York operation have custody? What does custody even mean?

The CIBC Decision

In 1994, the Commonwealth of the Northern Mariana Islands obtained tax judgments against a couple in the U.S. District Court for the Northern Mariana Islands. In 2011, the Commonwealth commenced proceedings under CPLR § 5225(b) against Canadian Imperial Bank of Commerce ("CIBC") in the Southern District of New York seeking to collect assets that the couple had deposited with CIBC FirstCaribbean International Bank Limited ("CFIB-Cayman"), an affiliate of CIBC in the Cayman Islands. Relying on Koehler, the Commonwealth tried to transitively reach through CIBC (located in and subject to jurisdiction in New York) to its Cayman affiliate CFIB-Cayman (not subject to personal jurisdiction in New York) to seize, and have delivered to it in New York, foreign assets held by CFIB-Cayman to satisfy the judgment. The District Court denied the Commonwealth's motion for a turnover order, and on appeal, the U.S. Court of Appeals for the Second Circuit certified the following question to the New York Court of Appeals:

May a court issue a turnover order pursuant to CPLR § 5225(b) to an entity that does not have actual possession or custody of a debtor's assets, but whose subsidiary might have possession or custody of such assets?

The New York Court of Appeals in CIBC recently answered that question in the negative.7 The court held that "for a court to issue a post-judgment turnover order pursuant to CPLR § 5225 against a banking entity, that entity itself must have actual, not merely constructive, possession or custody of the assets sought. That is, it is not enough that the banking entity's subsidiary might have possession or custody of a judgment debtor's assets."8 The court focused on the language of CPLR § 5225(b) that refers to "a person in possession or custody of money or other personal property in which the judgment debtor has an interest," rejecting the Commonwealth's argument that the court should read the word "control" into the statute.9

Thus, the court held, a New York court could order a garnishee to turn over out-of-state property if the garnishee is itself subject to personal jurisdiction in New York and that garnishee should rightly be considered as having custody of a judgment debtor's property, even though not physically in New York.10 Addressing its earlier decision, the court found that nothing in Koehler required otherwise. Further, the court found no cases interpreting its earlier decision that supported "the Commonwealth's attempt to broadly construe Koehler and require that a garnishee be compelled to direct another entity, which is not subject to this state's personal jurisdiction, to deliver assets held in a foreign jurisdiction.11

Conclusion

The CIBC decision clearly limits the reach of CPLR § 5225(b), alleviating some of the concerns raised by the court's earlier decision in Koehler. Significantly, the court's decision appears to preserve legal barriers between parent, subsidiary, and affiliate companies (at least with respect to judgment enforcement). However, the decision—while encouraging to many international businesses (especially banks) and their clients—leaves key practical questions unanswered and does not afford the bulletproof protection to foreign entities that it may appear to at first glance.

For example, the linchpin for judgment enforcement under CPLR § 5225(b) remains, as articulated in Koehler, personal jurisdiction, which may be established even over foreign entities with no physical presence in New York (but that, nonetheless, engage in a continuous and systematic course of business in the state). Moreover, uncertainties regarding the viability and practical impact of the separate entity doctrine remain, including the extent to which foreign affiliates or branches of international banks can evade the long reach of Koehler—even with CIBC's limitations—since questions of jurisdiction, possession, and custody turn on many specific facts and often require deep analysis.

Thus, due to the broad powers and long reach of New York courts and the remaining uncertainties, international businesses should, at a minimum, analyze the potential implications these issues may have on their businesses (and clients) and seek the advice of counsel to address concerns, such as whether, under the law, a company is subject to personal jurisdiction in New York and, even so, whether it has legal "custody" of assets located far beyond state borders.

Footnotes

1 Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (N.Y. 2009).

2 Koehler, 12 N.Y.3d at 541.

3 Koehler, 12 N.Y.3d at 540.

4 Sevan Ogulluk and Alan Schwartzwald, "New York's High Court Beckons Foreign Judgment Creditors to New York – but Does Koehler Loosen Cornerstone of New York's Economy?," Bloomberg Law Reports, New York Law, Vol. 1, No 14 (October 26, 2009).

5 Cronan v. Schilling, 100 N.Y.S.2d 474, 476 (N.Y. Sup. Ct. N.Y. County 1950), aff'd. 126 N.Y.S.2d 192 (1st Dep't 1953).

6 Commonwealth of the Northern Mariana Islands v. Canadian Imperial Bank of Commerce, 2013 WL 1798585 (N.Y. April 30, 2013).

7 CIBC, 2013 WL 1798585, at *1-2.

8 CIBC, 2013 WL 1798585, at *1 (emphasis added).

9 CIBC, 2013 WL 1798585, at *5 (emphasis added).

10 Id.

11 CIBC, 2013 WL 1798585, at *6.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.