New York Court of Appeals Issues Landmark Decision on Judgment Enforcement
June 12, 2009
Michael J. "Mike" Frevola- New York
James "Jim" Hohenstein- New York
The New York Court of Appeals has just issued a decision that has the potential to be a landmark case for judgment enforcement against adversaries worldwide. The decision, issued on Thursday, June 4, 2009, encaptioned Koehler v. The Bank of Bermuda Limited (Koehler) may be reviewed here.
The New York Court of Appeals is the court of final review in the New York State court system and over issues of New York law. No further appeals lie from such a decision unless the matter can be reviewed by the Supreme Court of the United States under federal constitution grounds. Except in that limited circumstance, a New York Court of Appeals decision is the final word on New York law.
Position of the New York Court of Appeals in Koehler
After fighting their dispute in the federal court system, the litigants in Koehler have taken the case to the United States Court of Appeals for the Second Circuit (the regional federal appeals court that includes New York). During the appeal, the Second Circuit issued a “certified question” to the New York Court of Appeals. A certified question essentially is a request to the highest court in New York for an advisory opinion on an issue of New York law that appears unsettled or an issue of first impression. The question asked was whether, under New York judgment enforcement law, a court located in New York could order a garnishee bank located in New York to turn over property of a judgment debtor to a judgment creditor, even when the property is located outside of New York. The New York Court of Appeals held that the answer under New York law is “yes.”
Ramifications of the Decision
The ramifications of this decision potentially are staggering. Under this holding, if a client has an unsatisfied arbitration award or judgment, under certain circumstances (discussed below), it can seek to enforce that award/judgment in New York by obtaining a turnover order against the judgment debtor’s bank. The turnover procedure is a relatively simple process in the litigation, albeit the garnishee bank would be able to raise any defense it has (i.e., a right to set off). The bank will be under court order to turn over the funds of that customer even if the customer’s bank account is at an overseas location of the bank. Furthermore, there is no maritime claim requirement to this rule. Therefore, all suitable judgments/awards are open to enforcement (e.g., sales contracts considered non-maritime, ordinary commercial disputes, etc.).
In Koehler, the judgment debtor was not present or located in New York but the underlying judgment had been obtained as a default judgment in Maryland. As such, the judgment from another state of the United States was entitled to “full faith and credit” (a U.S. constitutional precept) by the New York courts. In other words, there did not need to be personal jurisdiction on this judgment debtor in New York as the judgment was a U.S. domestic judgment. Given that circumstance, where there was jurisdiction over the garnishee bank in New York and the bank was a subsidiary of and agent for its foreign parent, the turnover order reached the assets overseas. Thus, where a judgment debtor has no presence in New York, this remedy arguably will not be available but if the judgment debtor is subject to jurisdiction elsewhere in the U.S. or if an arbitration award is otherwise convertible to a U.S. judgment (such as when the arbitration is conducted in New York), an avenue for applying Koehler perhaps is available.
On the other hand, there is no question that companies that are present in New York (i.e., by being registered in New York) are fully subject to New York jurisdiction. As such, when a New York judgment is obtained against such an entity (such as by bringing a foreign judgment to New York for recognition), under existing law that judgment debtor will be required to bring out-of-state assets to New York to satisfy the judgment. Moreover, under Koehler, garnishees (such as the branch bank of a foreign bank) could also be compelled to bring assets from overseas locations to satisfy a New York judgment.
It is also important to note the dissent to the majority opinion. The dissent raises the many issues implicated by the decision – competing priorities and competing jurisdictions and courts. The dissent raises a legitimate constitutional issue concerning the sweep and purported scope of the decision, and this case, in the further federal proceedings or its progeny, will no doubt be subject to vigorous challenges. It is likely that the losing party in Koehler will seek relief before the U.S. Supreme Court (assuming the Second Circuit finds in favor of the judgment creditor in this case).
Nevertheless, if and until that happens and the federal courts alter the ruling, suitable judgment creditors have an excellent opportunity to take advantage of this ruling. It is important to remember that disregarding a New York court order can lead to sanctions and seeking a blocking order in a foreign court where the property is located would not solve the issue of being held in contempt in New York.
For litigation questions, contact:
James H. Hohenstein
212.513.3213 | jim.hohenstein@hklaw.com
Michael J. Frevola
212.513.3516 | michael.frevola@hklaw.com
For maritime financing questions, contact:
Nancy L. Hengen
212.513.3255 | nancy.hengen@hklaw.com
Jovi Tenev
212.513.3218 | jovi.tenev@hklaw.com
Related Practices