Page 4 - Complex Litigation

S4 | MONDAY, JUNE 2, 2014 | Complex Litigation
| NYLJ.COM

Will ‘Daimler’
relied on the longstanding rule that a court

BY MATTHEW INGBER, could order the judgment debtor to bring his
CHRIS HOUPT
own property to New York for turnover, but
AND DAVID LIZMI
Take the Air
as the three-judge dissent pointed out, that
Trule had never been applied to banks holding
he New York Court of Appeals’ much the property of others.
commented-upon decision in Koehler v.
Bank of Bermuda Limited ushered in a ‘Koehler’?
new era of confusion over the jurisdictional Out of The Fallout From ‘Koehler’
rules that apply to banks that are based in, Following Koehler, lower courts attempted

or have branches in, New York. Narrow as it to reconcile the decision with the separate-
was, the holding—that a foreign bank that entity rule. Some courts read Koehler as
had submitted to New York jurisdiction may eliminating the rule altogether—after all, if the
be ordered to bring a customer’s stock cer- Recent developments in cross-border only requirement was ordinary personal juris-
tiicates into the state for turnover to a credi- diction, and a court could order “the bank”
tor of the customer—came as something of litigation particularly afect banks.
to move assets around the globe, where did
a surprise to many observers. But of even the separate-entity rule it in? Other courts,
greater signiicance—and concern—was how however, continued to apply the rule between

disruptive it would be to previously settled branches of the same bank, and prohibited
doctrines governing New York courts’ power judgment debtors from obtaining assets held
and discretion to adjudicate, including the by other branches of a bank.
separate-entity rule, the recognition of cor- The Court of Appeals set an outer bound on
porate separateness, and jurisdictional limits Koehler in Commonwealth of Northern Mari-
on discovery.
ana Islands (CNMI) v. Canadian Imperial Bank
In the last few years, the dust has begun of Commerce,5 again answering certiied ques-
to settle, with banks’ darkest post-Koehler tions. There, the court held that CPLR 5225
fears left mostly unrealized. New York state did not obligate a bank to turn over assets

and federal courts have largely declined to over which it merely had “control,” rather
expand on Koehler and have reasserted some than “possession or custody.” Speciically,
territorial limits. Given New York’s status as a the court held that a bank with a New York
magnet for cross-border litigation, however, branch could not be required to pay over
it is no surprise that courts continue to hear non-New York debts owed by its corporate
novel issues, and perfect uniformity remains grandchild. It explained that in Koehler and
elusive. Nonetheless, at least one more piece related cases “the garnishee was directed to
of the new landscape is likely to be resolved deliver assets already within its possession.”
soon (like Koehler, on a question certiied by By contrast, the court would not “broadly

the Second Circuit).
construe Koehler and require that a garnishee
Meanwhile, the U.S. Supreme Court’s recent be compelled to direct another entity, which
decisions on jurisdiction have introduced is not subject to this state’s personal juris-
what should be a powerful constraint on diction, to deliver assets held in a foreign
any state’s extraterritorial ambitions and may jurisdiction.” While CNMI came as a relief to
require rethinking Koehler. Those decisions, many banks, it was hardly a surprise—the two
particularly Daimler v. Bauman, could affect banks really were separate corporate entities.
a wide range of litigation issues and may lead The court left open another question that the

banks to reevaluate the organization of their case presented, namely, whether a New York
New York operations. For one thing, though court could order turnover of a debt (such as
beyond the scope of this article, Daimler casts a bank account), where the court could not
doubt on the ability of litigants to access non- guarantee that a foreign jurisdiction would CK
U.S. documents through service of a subpoena follow CPLR 5209 and recognize an offset of TO
on a New York branch ofice. The desire not the garnishee’s debt to the judgment debtor.
BIGS
to subject a corporate parent to New York The court also made explicit what it
jurisdiction is one reason that many banks thought Koehler stood for. That case, it
choose to separately incorporate their New wrote, “is only signiicant in holding that per-

York ofices, rather than open branches. On sonal jurisdiction is the linchpin of authority”
the other hand, a New York-based subsidiary for requiring the turnover of property held
is unquestionably subject to New York juris- outside of New York. Those words set the
diction. Recent and upcoming decisions on stage for a reexamination of Koehler when
the separate-entity rule, the power of courts the Supreme Court changed the rules on
to reach across corporate boundaries, juris- personal jurisdiction, as we discuss below.
diction over foreign defendants, and the appli- While some cases immediately after New York.1 As the First Department recently control.”4 These constraints are important,
cation of these new rules to discovery, invite Koehler made bold (and somewhat contra- reminded, the rule is limited to proceedings among other reasons, to ensure that the bank
reconsideration of those issues.
dictory) predictions about its effect on the against speciic assets, not to claims that seek is adequately discharged of liability to its cus-

separate-entity rule, later decisions have to impose liability on the bank itself.2
tomer, a result that may be uncertain if New
The Separate Entity Rule and ‘Koehler’
danced around the question. For example, in The S.D.N.Y. tried to throw out the rule York orders turnover of an asset or debt that
Ayyash v. Koleilat, the Supreme Court denied in Digitrex v. Johnson,3 reasoning that the is located in another jurisdiction. Thus, New
New York’s separate-entity rule is thought a discovery request that it thought would computerization of bank records made it York courts still did not permit attachment
to mean that, for purposes of asset attach- require “negat[ing] the well-established sepa- easy for banks to notify other branches of of foreign assets through service on a New
ment and garnishment, each branch of a rate entity rule.”6 But when the First Depart- attachment orders. But while later decisions York ofice.
bank is treated as a separate corporate entity ment afirmed that decision this spring, it did followed Digitrex, they limited its exception In Koehler, the Court of Appeals noted that
from a branch of the same bank outside of
not mention the rule at all, or the trial court’s to cases in which “the restraining notice is post-judgment execution proceedings—as dis-

reliance on it.7 Instead, it found that the lower served on the bank’s main ofice; the main tinct from pre-judgment attachment—are in
court had “providently exercised its discre- ofice and the branches where the accounts personam, not in rem. Accordingly, it held that
MATTHEW INGBER and CHRIS HOUPT are litigation tion, pursuant to CPLR 5240, in denying the in question are maintained are within the a Bermudan bank that had consented to New
partners, and DAVID LIZMI is a litigation associate, enforcement procedures sought by plaintiff same jurisdiction; and the bank branches are York jurisdiction could be ordered to bring
at Mayer Brown in New York, specializing in complex since they would likely cause great annoyance connected to the main ofice by high-speed stock certiicates into New York for turnover
commercial and inancial services litigation.
and expense to respondents or » Page S10
computers and are under its centralized
to a creditor of the stock’s owner. The court