New York Law Review

Tag: Turnover Order

  • Commonwealth of the Northern Mariana Islands v. Canadian Imperial Bank of Commerce, 21 N.Y.3d 55 (2013): Limits on Turnover Orders Against Banks

    Commonwealth of the Northern Mariana Islands v. Canadian Imperial Bank of Commerce, 21 N.Y.3d 55 (2013)

    To issue a post-judgment turnover order under CPLR 5225(b) against a banking entity, that entity must have actual possession or custody of the assets sought, not merely constructive possession through a subsidiary.

    Summary

    The Commonwealth sought a turnover order against CIBC, a Canadian bank with a New York branch, arguing it controlled assets held by its subsidiary, CFIB, in the Cayman Islands. The Commonwealth asserted CIBC’s 92% ownership and governance structure gave it the practical ability to order CFIB to turn over the Millards’ funds. CIBC argued CFIB was a separate entity and it lacked access to CFIB’s account information. The Second Circuit certified to the New York Court of Appeals the question of whether a turnover order can be issued to an entity without actual possession, but whose subsidiary might have possession. The Court of Appeals held that CPLR 5225(b) requires actual possession or custody by the entity against whom the order is sought.

    Facts

    The Commonwealth obtained tax judgments against the Millards in the Northern Mariana Islands in 1994.

    The Millards moved from the Commonwealth before the judgments could be enforced.

    In 2011, the Commonwealth registered the judgments in the Southern District of New York and sought a turnover order against CIBC, claiming the Millards had accounts in CIBC’s subsidiaries, CFIB, in the Cayman Islands.

    The Commonwealth argued CIBC’s control over CFIB allowed it to compel the turnover of the Millards’ assets.

    CIBC countered that CFIB was an independent entity and CIBC lacked access to its account information.

    Procedural History

    The District Court denied the Commonwealth’s motion for a turnover order, but maintained a restraining order on CIBC related to the Millards’ accounts.

    The Second Circuit appealed to the New York Court of Appeals the question of whether a turnover order can be issued to an entity without actual possession.

    The New York Court of Appeals accepted the certified questions.

    Issue(s)

    Whether a court may issue a turnover order under N.Y. C.P.L.R. § 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?

    Holding

    No, because CPLR 5225(b) requires the entity against whom the turnover order is sought to have actual possession or custody of the assets; constructive possession through a subsidiary is insufficient.

    Court’s Reasoning

    The Court’s reasoning hinged on the plain language of CPLR 5225(b), which refers only to “possession or custody,” and not “control.” The Court stated, “The plain language of section 5225 (b) refers only to ‘possession or custody,’ excluding any reference to ‘control.’ The absence of this word is meaningful and intentional.” The court emphasized the legislative intent to exclude the concept of “control,” noting that prior statutes included “control,” but the legislature intentionally removed it when enacting CPLR 5225(b). The Court reasoned that if the legislature intended to include “control,” it would have explicitly done so, as it has in other CPLR provisions (e.g., CPLR 3111 regarding discovery). The court distinguished the standard for documentary discovery, where “possession, custody, or control” has been interpreted to include constructive possession, from the narrower “possession or custody” standard applicable to the disposition of property, such as in CPLR 5225(b). The court reasoned that the legislature has applied a higher standard to ensure the proper disposition of property. The Court also clarified that its prior decision in Koehler v. Bank of Bermuda Ltd. did not alter the meaning of “possession or custody,” but only emphasized that personal jurisdiction over the garnishee is essential for a turnover order. The court stated, “Koehler does not interpret the meaning of the phrase ‘possession or custody,’ and is only significant in holding that personal jurisdiction is the linchpin of authority under section 5225 (b).” The court concluded that compelling a garnishee to direct an entity not subject to the state’s jurisdiction to deliver assets held in a foreign jurisdiction would be an unwarranted expansion of CPLR 5225(b).

  • Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009): Enforceability of Turnover Orders for Out-of-State Assets

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

    A New York court with personal jurisdiction over a garnishee can order the garnishee to produce assets located outside of New York to satisfy a judgment, regardless of whether the judgment debtor is subject to the court’s jurisdiction.

    Summary

    Koehler, a judgment creditor, sought to enforce a Maryland judgment against Dodwell, a judgment debtor, by compelling the Bank of Bermuda (BBL) to turn over Dodwell’s stock certificates held as collateral in Bermuda. The New York Court of Appeals addressed whether a New York court, with personal jurisdiction over BBL, could order the turnover of assets located outside New York. The Court held that personal jurisdiction over the garnishee (BBL) allows the court to order the turnover of out-of-state assets, even if the judgment debtor (Dodwell) is not subject to the court’s jurisdiction. This decision clarifies the reach of CPLR Article 52, facilitating judgment enforcement against entities with a presence in New York, regardless of the asset’s location.

    Facts

    Koehler obtained a judgment against Dodwell in Maryland and registered it in the Southern District of New York. Dodwell owned stock certificates in a Bermuda corporation, held by BBL in Bermuda as collateral for a loan. Koehler initiated a proceeding in the Southern District of New York, seeking a turnover order against BBL to compel delivery of the stock certificates or their equivalent value. BBL initially contested personal jurisdiction but later consented to it.

    Procedural History

    The U.S. District Court for the Southern District of New York initially dismissed Koehler’s petition, citing a lack of in rem jurisdiction over the shares. The Second Circuit Court of Appeals certified a question to the New York Court of Appeals: whether a New York court, with personal jurisdiction over a defendant other than the judgment debtor, can order the delivery of assets located outside New York. The New York Court of Appeals accepted the certified question.

    Issue(s)

    Whether a court sitting in New York may order a bank over which it has personal jurisdiction to deliver stock certificates owned by a judgment debtor (or cash equal to their value) to a judgment creditor, pursuant to CPLR article 52, when those stock certificates are located outside New York?

    Holding

    Yes, because CPLR Article 52 contains no express territorial limitation, and having personal jurisdiction over the garnishee allows the court to compel observance of its decrees via proceedings in personam.

    Court’s Reasoning

    The Court reasoned that CPLR Article 52 governs post-judgment enforcement, requiring personal jurisdiction over the person against whom the order is issued, unlike pre-judgment attachment under Article 62, which requires jurisdiction over the property. The Court emphasized that no express territorial limitation exists within Article 52 barring a turnover order requiring a garnishee to transfer assets into New York. The Court cited the First Department’s holding in Gryphon Dom. VI, LLC v APP Intl. Fin. Co., 41 AD3d 25 (1st Dept 2007), affirming that New York courts can order judgment debtors to turn over out-of-state assets under CPLR article 52 because the court had personal jurisdiction over the defendant. The court stated, “[H]aving acquired jurisdiction of the person, the court[ ] can compel observance of its decrees by proceedings in personam against the owner within the jurisdiction”. The court further stated that “As long as the debtor is subject to the court’s personal jurisdiction, a delivery order can be effective even when the property sought is outside the state”. The Court distinguished this situation from attachment proceedings, where jurisdiction is based on the property’s location within New York. The dissent argued that the majority’s holding creates an expansive garnishment remedy, unsupported by precedent, and raises concerns about forum shopping and potential constitutional issues under Shaffer v. Heitner, 433 U.S. 186 (1977). The dissent argued that the judgment creditor should not be permitted to do what the judgment debtor could not do, citing United States v First Natl. City Bank, 321 F2d 14 (1963). Nonetheless, the majority held that personal jurisdiction over a defendant, be it a judgment debtor or garnishee, allows a New York court to order the turnover of out-of-state property.

  • Koffman v. A. O. Brokaw Co., 40 N.Y.2d 880 (1976): Availability of Turnover Order Without Prior Execution

    Koffman v. A. O. Brokaw Co., 40 N.Y.2d 880 (1976)

    A judgment creditor is not required to obtain priority by execution before using other enforcement devices under CPLR Article 52, including seeking a turnover order, and may challenge fraudulent conveyances in such proceedings.

    Summary

    This case addresses whether a judgment creditor must levy execution on a judgment debtor’s assets before seeking a turnover order against a third party allegedly holding property belonging to the debtor. The Court of Appeals held that no such requirement exists. A judgment creditor can pursue remedies like turnover orders and actions to set aside fraudulent conveyances without first obtaining priority through execution. The Appellate Division erred in requiring prior execution. The case was remitted to the Appellate Division to consider the fraudulent conveyance claim, including the relevance of Section 273-a of the Debtor and Creditor Law.

    Facts

    The petitioner, Koffman, obtained a judgment against P.D.C. Koffman then sought a turnover order against the Hoffman Group, alleging that the Hoffman Group held property belonging to P.D.C. or that P.D.C. fraudulently conveyed property to the Hoffman Group or Bella Vista Apartments, Inc. The petitioner sought to satisfy its judgment against P.D.C. by obtaining assets held by the Hoffman Group.

    Procedural History

    The trial court ruled against Koffman. The Appellate Division affirmed, based on the premise that Koffman could not secure a turnover order because there had not been a levy of execution on the Koffman Group under petitioner’s judgment against P.D.C. The Court of Appeals reversed the Appellate Division’s order and remitted the matter for further consideration.

    Issue(s)

    Whether a judgment creditor must levy execution on a judgment debtor’s assets before seeking a turnover order against a third party alleged to be holding property belonging to the judgment debtor under CPLR 5225(b) and 5227?

    Holding

    No, because there is no requirement that a judgment creditor obtain priority by way of execution before resorting to one of the other enforcement devices provided by CPLR article 52.

    Court’s Reasoning

    The Court of Appeals found that the Appellate Division’s requirement of prior execution was erroneous. The court emphasized that CPLR Article 52 provides various enforcement devices, and a judgment creditor is not obligated to pursue execution before utilizing other remedies like turnover orders or actions to set aside fraudulent conveyances. The Court cited Weinstein-Korn-Miller, Manual CPLR 30-17, 30-18, stating that a judgment creditor need not obtain priority by execution before using other enforcement devices. Specifically, the court noted: “plaintiffs right to set aside as fraudulent a conveyance of property by P. D. C. to the Hoffman Group or to Bella Vista Apartments, Inc., may be determined in the present proceeding (6 Weinstein-KornMiller, NY Civ Prac, pars 5225.16, 5225.17, pp 52-375, 52-376).” The court directed the Appellate Division to consider Section 273-a of the Debtor and Creditor Law, which addresses conveyances made without fair consideration that leave the grantor with unreasonably small capital.