US law - New York court reaches assets abroad
01 SEP 2009
US law – New York court reaches assets abroad
A recent opinion by the New York Court of Appeals states that New York courts may require a bank or other garnishee1 subject to their jurisdiction to “turn over” to a judgment creditor any property of the judgment debtor, even if that property is located outside the state (or the country).
New York Court of Appeals’ opinion
The court recognised that under CPLR 5225(b) the court can order a defendant garnishee (other than the judgment debtor) over whom it has personal jurisdiction to turn over assets held by the defendant garnishee even though those assets are not located in New York. The court reasoned that post-judgment enforcement requires only personal jurisdiction over the garnishee (i.e., the bank or other entity which holds property belonging to the judgment debtor) and not jurisdiction over the property or assets themselves. The court noted that judgment enforcement proceedings differ from attachment proceedings (including Rule B) since the latter require that the court have jurisdiction over the attached property (and therefore, the property must be located in the state).3
The court noted that the wording of CPLR article 52 does not prevent the entry of a turnover order requiring the defendant garnishee to deliver assets to New York from elsewhere. Since “[it] would have been an easy matter for the Legislature to have added such a restriction” the court found no reason “to infer it from the broad language presently in the statute”. While the property held in the foreign bank in Koehler was stock certificates, the opinion would clearly also reach funds held in foreign bank accounts.
The enforcing party may then bring a special proceeding against a potential garnishee, such as a bank, naming that financial institution as a defendant, in which it requests an order (known as a “turnover order” or a “delivery order”) requiring the New York branch of a bank located anywhere in the world to deliver all assets of the judgment debtor that it holds in any location, whether inside or outside the United States. Unless certain specific factors can be demonstrated, the order will only be effective as against the specific bank entity subject to jurisdiction in New York. For example, an order against Citibank N.A. (United States) will not be effective against Citibank PLC (London). The factors include, among others, common ownership, lack of corporate formality, and whether the New York bank is a “mere department” of the foreign bank (or vice-versa).
It is important to note that turnover orders reaching assets outside the US are available in all types of cases, not just those involving maritime claims. Nevertheless, this opinion has broad implications for the maritime community. As previously discussed in Gard News,5 in certain circumstances claimants can secure their maritime claims (before judgment) using the much discussed Rule B attachment procedure to attach EFTs (electronic fund transfers) passing through the US banking system. Some defendants have sought to avoid such attachments by registering to do business in New York. As noted above, registering to do business in New York means that a company becomes subject to the general jurisdiction of the New York courts. The Koehler opinion will permit claimants to seek to enforce their judgments or awards by means of a turnover proceeding against companies that have registered to do business in New York.6
Of course, the turnover procedure is not limited to foreign awards or judgments and can also be used to enforce domestic arbitration awards or judgments. Thus, if, for example, the parties have arbitrated in New York and judgment on the award is entered in a New York court, the prevailing party can now seek a turnover order of the defendant’s assets held by a garnishee bank over which New York has jurisdiction, wherever those assets may be located.
Gard News is published quarterly by Gard AS, Arendal, Norway.
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