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March 10, 2004.

LEE N. KOEHLER, Petitioner, -against- THE BANK OF BERMUDA LIMITED, Respondent

The opinion of the court was delivered by: CHARLES HAIGHT, District Judge


In this proceeding that began as one for garnishment, two motions are presently pending before the Court.

Respondent the Bank of Bermuda Ltd. ("BBL"), a Bermudian company, moves for partial summary judgment under Rule 56, F.R.Civ.P., in respect of a Petition filed in this Court by Lee N. Koehler, a Pennsylvania resident, against BBL as garnishee in an effort to collect on an unsatisfied judgment Koehler obtained in the District of Maryland against A. David Dodwell, a Bermudian resident.

  Koehler had earlier moved under Rule 25(c) for an order "substituting BBL as defendant judgment debtor in place of Dodwell, or joining BBL as defendant judgment debtor along with Dodwell" in respect of Koehler's Maryland judgment against Dodwell. Brief in support of Rule 25(c) Motion at 14. A decision on that motion was deferred during protracted discovery proceedings and litigation before Magistrate Judge Dolinger and this Court in respect of BBL's contention that this Court lacked personal jurisdiction over it, an issue that was recently resolved by BBL's unconditional consent to this Court's jurisdiction. Koehler now moves for an order treating his prior Page 2 motion under Rule 25(c) to substitute BBL for or join with Dodwell as a respondent in the garnishment proceeding as an amendment to the Petition to add a claim against BBL for fraudulent conveyance, or in the alternative, granting Koehler leave to file and serve such an amended pleading.

  Each party opposes the other's motion.

  BBL bases its motion for partial summary judgment principally upon three foreign judgments it has obtained against Koehler. The parties dispute whether those judgments are entitled to recognition by this Court, and if so, the nature and extent of their preclusive effect upon the other issues in the case.

  For the reasons stated below, the Court holds that the three foreign judgments are entitled to recognition by this Court. That is the only question this opinion addresses. Further submissions by the parties are necessary before the Court is in a position to resolve the remaining disputed issues.


  The disputes between Koehler and Dodwell, two former partners previously engaged in failed efforts and defaulted loans in respect of efforts to develop resort properties, have engaged the energies of this District, the District of Maryland, the Second and Fourth Circuits, and courts in Arizona, Bermuda, and Nevis. These courts have issued a plethora of opinions, orders, and judgments. The most helpful decisions in furnishing the background relevant to the present motions are cited in the margin.*fn1 Familiarity with those opinions is assumed. The factual background will Page 3 be recited here only to the extent necessary to explain this Opinion and its accompanying Order.

 A. Acquisition of The Reefs

  Koehler is a resident of Maryland. Dodwell is a resident of Bermuda, an Overseas Territory of the United Kingdom. Koehler met Dodwell in 1977 when Dodwell was the general manager of The Reefs, a Bermuda resort hotel. They entered into a business relationship which had not progressed very far when Dodwell learned that The Reefs was for sale by its then owner.

  In 1981 Dodwell, Koehler and Haussner's Restaurant, Inc. ("Haussner's"), a Maryland corporation, acquired The Reefs Beach Club Ltd. (or "The Reefs"), the parent company of The Reefs hotel. Dodwell acquired 51 percent of the stock, Koehler acquired 29 percent, and Haussner's the remaining 20 percent. Haussner's is not involved in the events giving rise to this litigation. It appears that BBL was a creditor of The Reefs Beach Club Ltd. before its acquisition and remained one thereafter, although the details of that banking relationship are not clear and in any event are not central to the present issues.

 B. The Windward Properties Transaction

  In 1989 Koehler and Dodwell formed a Nevis, West Indies corporation called Windward Properties Ltd. ("Windward") to acquire the Nisbet Plantation Inn ("Nisbet"), a resort on the island of Nevis. On May 2, 1989, BBL's Luxembourg subsidiary, Bank of Bermuda (Luxembourg) S.A. Page 4 ("BBL-Lux") made three loans in the aggregate amount of $5.5 million to finance the acquisition of Nisbet. First, BBL loaned $2 million against a mortgage in that amount on Windward's real and personal property, further secured by individual personal guarantees of $1 million each from Dodwell and Koehler, and by a joint guarantee from both for $1 million. Second, a $1.75 million personal loan to Koehler by BBL-Lux was secured by a letter of credit from BBL, which was in turn secured by a pledge of all of Koehler's stock in The Reefs Beach Club Ltd. Third, a $1.75 million personal loan to Dodwell by BBL-Lux was secured in the same fashion. The amounts obtained by Koehler and Dodwell from the personal loans were promptly reloaned to Windward. As did the Second Circuit in Koehler V, I will refer to these loans as "the Nisbet loans."

  It is important to note at this juncture that the pledges of their Reefs stock given by Koehler and Dodwell to obtain their personal Nisbet loans from BBL took the form of identical documents, each dated May 2, 1989 (the day the Nisbet loans closed), and captioned "The Bank of Bermuda Limited — Memorandum of Deposit" (hereinafter "Memorandum of Deposit"). The Memorandum of Deposit executed by Koehler recited that Koehler "hereby charges by way of a fixed charge in favour of, and pledges and assigns to" BBL the shares Koehler held in The Reefs (as identified in the Schedule accompanying the Memorandum of Deposit). The Memorandum of Deposit provided that the security "shall forthwith become enforceable" if, inter alia, "the Customer [Koehler] fails to pay when due to the Bank any sums in respect of the Letter of Credit in accordance with the [loan] Application." ¶ l(i).

  The Memorandum of Deposit also provided at ¶ 13:

  This Agreement shall be governed by and construed in accordance with the laws of Bermuda. The Customer and the Bank submit to the jurisdiction of the courts of Bermuda but without prejudice to the Page 5 right of the Bank to pursue its remedies in any other jurisdiction it thinks fit.

 C. The Mansion Club Acquisition

  On November 2, 1989, Dodwell, Koehler, and another individual named Southworth formed the Mansion Club Limited Partnership (the "Mansion Partnership"), a Maryland limited partnership, to acquire the Mansion Club, a private dining club in Phoenix, Arizona. Initially, Koehler owned 30 percent of the Mansion Partnership and Malvern Properties, Inc. (a corporation wholly owned by Dodwell) also owned 30 percent. To finance this acquisition, BBL's New York subsidiary, Bank of Bermuda (New York) Ltd. ("BBL-NY"), loaned $4.5 million to the Mansion Partnership, secured by Mansion Partnership assets (including the Mansion Club), personal guarantees of Southworth, Koehler, Dodwell, and Malvern Properties in the respective amounts of $ 1.8 million, $1.35 million, $ 1.35 million, and $ 1.35 million, and a pledge of equity in two other corporations (collectively "the New York loan'). The loan closed on December 22, 1989.

  While these facts are described in detail in the papers submitted on the present motions, the recitation appearing in Parts LA, B, and C of this Opinion is taken principally from the Second Circuit's opinion in Koehler V, 209 F.3d at 133-134. The Court of Appeals added the observation that "Bank Bermuda, Ltd. employees were deeply involved in the structuring of both the Nisbet loans and the New York loan." Id. at 134. Quite clearly, Koehler and Dodwell were equally involved in structuring these loans with BBL.

 D. Financial Difficulties

  The Nisbet loans went into default almost immediately, on August 2, 1989. By early 1991 the loans were several payments in arrears. On March 20, 1991, BBL-Lux called upon BBL to pay Page 6 the letter of credit BBL issued in respect of BBL-Lux's loan to Koehler. BBL paid BBL-Lux under the letter of credit and transferred the loan to itself On May 2, 1991 BBL sent Koehler a demand note for the unpaid Nisbet loan to him and a cover letter requesting that Koehler assent to the new loan arrangement. On May 14, 1991 Koehler executed the demand note and cover letter.

  By early 1991 it was also clear that the New York loan, like the Nisbet loans, was in trouble. On October 8, 1991, BBL-NY bought the Mansion Club for $3 million at a foreclosure sale, resulting in an alleged deficiency on the New York loan of over $2.5 million. Thereupon BBL-NY assigned the New York loan to BBL.

  Not surprisingly, BBL approached Koehler and Dodwell with a request for a debt restructuring plan. On June 27, 1990 Koehler and Dodwell had agreed among themselves that any debt restructuring would require a pledge of their combined 80 percent equity interest in The Reefs Beach Club Ltd.; and, on January 25, 1991, Koehler and Dodwell responded to BBL by proposing a debt restructuring plan, called the "Combined Equity Plan," which would include a pledge of their combined equity in The Reefs. At least with respect to Koehler, the proposed Combined Equity Plan conferred a limited benefit upon BBL, since Koehler's stock in The Reefs had previously been pledged to secure BBL-Lux's Nisbet loan to Koehler.*fn2

 E. The Recapitalization

  In October and December, 1991, discussions about a debt restructuring took place between Dodwell, Koehler, and BBL officers, at which BBL's chief executive officer appeared to express an Page 7 preference for an refinancing arrangement consistent with Koehler and Dodwell's Combined Equity Plan. However, that changed on February 14, 1992, when BBL presented a debt restructuring plan that, in the Second Circuit's words, "would pay off almost all of Dodwell's obligations but leave Koehler substantially in debt, and would transfer $5 million in new preferred shares in The Reefs Ltd. to a subsidiary of the bank." 209 F.3d at 134. The proposal did not address the defaulted Nisbet loans.

  Koehler received this revised plan on February 17, 1992 and was not happy. The Second Circuit notes:
Koehler expressed his opposition to it and his strong preference for the Combined Equity Plan in conversations with high-level bank officers (a senior vice-president and corporate counsel) on April 3, 1992 and May 3, 1992. In both conversations, these officers stated that Bank Bermuda, Ltd. intended to proceed with the recapitalization plan substantively as presented to Dodwell*fn3 on February 17, 1992. On May 7, 1992 Dodwell wrote Koehler and stated that he would no longer participate in the Combined Equity Plan.
209 F.3d at 134.

  Notwithstanding Koehler's objections, BBL persisted in its February 1992 debt reconstruction proposal, which had acquired the name "Macdonald Plan." A revised version of BBL's Macdonald Plan was submitted to Koehler's attorney by letter dated September 28, 1992, and on October 20, 1993 the Macdonald Plan Recapitalization was executed.

  Under the Recapitalization, BBL sold the shares in The Reefs and applied the sales proceeds against Dodwell's and Koehler's outstanding loans in respect of the Nisbet and Mansion Club transactions. That application resulted in the satisfaction of many of Koehler's and Dodwell's obligations to BBL, including full satisfaction of the loans that had financed the purchase of the Page 8 Mansion Club property in Arizona. However, even after the Recapitalization Koehler still owed BBL approximately $1.5 million on his personal Nevis loan. That indebtedness gave rise to BBL's 1994 action against Koehler in the Supreme Court of Bermuda, described in Part II. A. 1., infra.

 F. Koehler's Judgment against Dodwell in the District of Maryland

  A further indication of the worsening relationship between Koehler and Dodwell is furnished by an action Koehler commenced in 1992 against Dodwell in the United Sates District Court for the District of Maryland.*fn4 Koehler's complaint arose out of budget overruns Windward encountered in renovating the Nisbet resort in Nevis. Koehler alleged two causes of action against Dodwell: a Windward shareholder's derivative claim that Dodwell not only caused the cost overruns by failing to use his best efforts to complete the project within budget, but also concealed the overruns, thereby preventing Windward from restructuring its debt to deal with the problem; and a claim for negligent misrepresentation, alleging that Dodwell's false representations of his own financial intentions induced Koehler to pledge his own stock in another company (presumably The Reefs) as collateral for one of the Nisbet loans.

  In the District of Maryland action, Koehler effected service upon Dodwell under the Hague Service Convention, as ratified by the United Kingdom on Bermuda's behalf. Dodwell defaulted in appearance. The District Court entered a judgment dated June 4, 1993 in favor of Koehler and against Dodwell in the amount of $2,096,343. Dodwell moved to vacate the judgment for lack of personal jurisdiction. The District Court agreed, holding the service upon Dodwell had been ineffective, and vacated the judgment. The Fourth Circuit reversed the District Court in Koehler III. Koehler's Page 9 judgment against Dodwell was reinstated. It remains unpaid.

 G. The Present Proceeding Before This Court

  Koehler registered his District of Maryland judgment against Dodwell in this District, and on October 27, 1993 filed in this Court a "Petition and Motion for Payment or Delivery of Property to Judgment Debtor." The Respondent identified in the caption was BBL. The Petition recited the existence of the Maryland judgment, and alleged inter alia that "Respondent is in possession of stock certificates on The Reefs Beach Club Limited, which are owned by A. David Dodwell, Judgment Debtor," ¶ 8; that "Respondent holds said stock certificates as security for a loan Respondent made to A. David Dodwell, Judgment Debtor," ¶ 9; and that to the extent "some of the aforementioned stock certificates no longer represent security for Respondent's loan to A. David Dodwell," the stock certificates should be delivered by BBL to Koehler pursuant to N.Y. CPLR § 5225 or their value paid by BBL to Koehler pursuant to N.Y. CPLR § 5227, ¶¶ 13, 14, those New York procedures being made applicable to proceedings in this Court by Rule 69(a), Fed.R.Civ.P.*fn5

  Koehler sought to obtain personal jurisdiction in this Court over BBL by serving his Petition upon BBL's New York subsidiary, BBL-NY. BBL contended that this service did not subject it to personal jurisdiction in this Court. Motion practice ensued. The Second Circuit considered the question in Koehler II, which remanded the case to this Court for discovery limited to the existence vel non of personal jurisdiction over BBL. That discovery, which led to contentious litigation, was supervised by Magistrate Judge Dolinger. I need not consider the issue further because, following Page 10 substitution of counsel, BBL withdrew its objection and acknowledged that it was subject to personal jurisdiction in this Court.

  This sets the stage for the present motions.


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