New York Court of Appeals Clarifies Scope of 2009 Koehler Decision
In 2009, the New York Court of Appeals issued its decision in Koehler v. Bank of Bermuda Ltd. ("Koehler"), addressing the scope of § 5225 of New York's Civil Practice Law and Rules ("CPLR") and holding that a New York Court with personal jurisdiction over a defendant could order that defendant to turn over out-of-state property to a judgment creditor, regardless of whether the defendant was a judgment debtor or a garnishee. Four years later, in Commonwealth of the Northern Mariana Islands v. Canadian Imperial Bank of Commerce ("Mariana"), the New York Court of Appeals has provided further clarification with respect to Koehler's holding, concluding that "for a court to issue a post-judgment turnover order pursuant to CPLR 5225(b) against a banking entity, that entity itself must have actual, not merely constructive possession or custody of the assets sought." 2013 N.Y. LEXIS 839, * 1 (Apr. 30, 2013).
In Mariana, the Plaintiff ("the Commonwealth") had obtained two (2) separate tax judgments against the Defendants, the Millards, for unpaid taxes in excess of USD 18 million each. The Commonwealth subsequently registered both of the tax judgments in the United States District Court for the Southern District of New York, so that it could take advantage of post-judgment enforcement remedies under New York's CPLR. Among the remedies pursued by the Commonwealth was the commencement of proceedings under CPLR § 5225(b) against Canadian Imperial Bank of Commerce ("CIBC"), a Canadian bank with a branch in New York. The Commonwealth sought a turnover order against CIBC, as a garnishee, based on claims that the judgment debtors maintained accounts in subsidiaries of CIBC, namely, CIBC FirstCaribbean International Bank Limited ("CFIB") or its affiliates in the Cayman Islands. The Commonwealth argued that CIBC owned and controlled 92% of CFIB and "had the power, authority and practical ability to order [CFIB] to turn over funds on deposit in the name of the Millards." Id. at * 3. In respond, CIBC argued that CFIB is a "legally separate and independent entit[y]" and, unless an information sharing agreement was in place (which it was not), CIBC did not have the ability to access accounts or account information held by CFIB or its subsidiaries. The District Court rejected these arguments, and the Commonwealth appealed.
On appeal, the Second Circuit Court of Appeals recognized that resolution of the matter necessarily required the resolution of unresolved issues of New York law, and certified two (2) questions to the New York Court of Appeals (i.e. – the highest state court in New York State):
(1) May a court issue a turnover order pursuant to N.Y. 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?
(2) If the answer to the above question is in the affirmative, what factual considerations should a court take into account in determining whether the issuance of such an order is permissible?
Id. at * 4-5.
Accepting the certified questions, the NY Court of Appeals determined that a New York Court could not issue a turnover order under § 5225(b) to an entity without actual possession or custody of a debtor's assets. In reaching this conclusion, the Court looked to the plain meaning of the language used in § 5225(b); namely, that a special proceeding may commenced "against a person in possession or custody of money or other personal property in which the judgment debtor has an interest. C.P.L.R. § 5225(b) (emphasis added). The Court found that the plain language of the statute refers only to "possession or custody", without any reference to "control". Considering the legislative history of § 5225(b), along with the language of the predecessor statute to § 5225(b), the Court determined that the absence of the word "control" was intentional and meaningful, and the Court interpreted this omission as an indication that "possession or custody" under § 5225(b) requires actual possession. Accordingly, the Court concluded that a § 5225(b) turnover order could not be issued against a garnishee that was not in actual possession or custody of a judgment debtor's assets or property. Having resolved the first certified question in the negative, the Court refrained from reaching the second certified question.
Finally, the Court addressed the effect of its holding on its prior decision in Koehler, noting that Koehler did not require a different reading of § 5225(b) than that held by the Mariana Court. The Court clarified that Koehler did not interpret the meaning of the phrase "possession or custody", and that Koehler's only significance was its holding that "personal jurisdiction is the linchpin of authority under section 5225(b)". Id. at * 15. The Court rejected the Commonwealth's arguments that Koehler could be broadly construed to require that a garnishee be compelled to direct another entity, which is not subject to personal jurisdiction in New York, to deliver assets held in a foreign jurisdiction, as "[s]uch an expansion is inconsistent with the plain language and scope of section 5225(b)."
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