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United States District Court, S.D. New York

July 12, 2005.

BRUCE E. MONES, Petitioner,

The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge



  Petitioner Bruce E. Mones has moved for a finding of contempt against respondent Commercial Bank of Kuwait, S.A.K. ("CBK"). Mones alleges that CBK's failure to comply with this Court's December 23, 2003 Turnover Order constitutes contumacious conduct. Accordingly, Mones requests an order requiring CBK to pay: "(1) the amount owed to him under a prior Judgment by CBK depositors . . .; (2) $1,000 per day since May 24, 2004, when CBK received Mr. Mones' written payment instructions pursuant to the Turnover Order, until CBK has complied with the Turnover Order; and (3) reasonable attorney's fees and expenses incurred in seeking compliance with the Turnover Order, including the briefing, and if applicable, argument of this Motion for Contempt."*fn1 For the following reasons, Mones's motion for contempt is denied and the Turnover Order is vacated.


  On June 18, 2003, Mones obtained a judgment from the United States District Court for the District of Columbia against the Limited Partner Judgment Debtors.*fn2 The "judgment was registered and made a judgment of this Court on August 19, 2003."*fn3

  Pursuant to the judgment, on September 17, 2003, restraining notices were issued and served on CBK at both its New York and Kuwait offices.*fn4 Under the judgment, Mones is entitled to receive funds on deposit with CBK belonging to the Limited Partner Judgment Debtors which are necessary to fully satisfy the judgment against them.*fn5 Accordingly, "the restraining notices prohibit respondent from transferring any property (including money) in which the Limited Partner Judgment Debtors have any interest."*fn6

  On December 4, 2003, Mones filed a Notice of Petition of Issuance of Order for Payment or Delivery of Property of Judgment Debtors in the Possession of CBK ("Petition for Turnover Order").*fn7 On December 11, 2003, the Petition for Turnover was served directly upon CBK at its main office in Kuwait via DHL.*fn8 At a December 23, 2003 hearing on Mones' Petition for a Turnover Order, this court granted the petition against CBK.*fn9 Thereafter, the Clerk of Court mailed a copy of the Turnover Order to all parties, including CBK, at both its New York and Kuwait offices.*fn10

  On January 23, 2004, petitioner's counsel alleges that he wrote to the then-manager of CBK's New York branch, Ms. Elham Y. Mahfouz, as well as to CBK's New York-based counsel at Gibson Dunn & Crutcher.*fn11 The letter requested a response regarding whether CBK intended to comply with the Turnover Order.*fn12 In addition, a copy of the Turnover Order was included.*fn13 Mones' counsel received no response to his inquiry.*fn14

  On May 24, 2004, petitioner's counsel sent another letter to CBK's Chairman & Managing Director, as well as the Chief General Manager & CEO in Kuwait. The letter contained formal payment instructions and demanded payment of the funds necessary to satisfy the judgment.*fn15 On May 27, 2004, the then-Head of Legal & LTO Division in Kuwait, Dr. Ibrahim Makarem, responded to Mones' counsel.*fn16 The letter represented that because CBK's New York branch office had closed, no jurisdiction existed under which the court could issue a valid order.*fn17 Accordingly, Dr. Makarem deemed the court order "ultra vires" and stated that CBK "is not responsible for the execution of said order."*fn18

  In a detailed letter dated May 27, 2004, Mones' counsel responded to CBK's claim that the court lacked jurisdiction.*fn19 The letter explained that the Turnover Order was in no way altered by the closing of CBK's New York branch. This was particularly true in light of the fact that CBK's Kuwait office was personally served with the Petition for Turnover.*fn20 Mones' counsel did not receive a response to his letter.*fn21

  On January 10, 2005, Mones' counsel served a Request for Admissions upon CBK, asking it to admit the following:

1. Admit that CBK has failed to comply in any respect with the Turnover Order, even though CBK has been fully aware of the Turnover Order since at least January 1, 2004.
2. Admit that CBK has failed to comply in any respect to the Written Payment Instructions, even though CBK received the Written Payment Instructions on or about May 24, 2004.
3. Admit that CBK has been in possession of funds of each of the Limited Partner Judgment Debtors . . . at one or more times since September 17, 2003, when the Restraining Notice was served upon CBK.
4. Admit that CBK has failed to comply in any respect with the Restraining Notice.*fn22
  In a response dated January 27, 2005, CBK's Acting Head of Legal & LTO Department confirmed receipt of the Request for Admissions. The letter also informed Mones' counsel that CBK did not consider itself a party to the dispute because petitioner lacked jurisdiction to seek funds from the stakeholder bank. Accordingly, CBK objected to the Request for Admissions.*fn23 Mones' counsel responded to these statements in his letter of February 2, 2005. Counsel advised CBK that its "refusal to respond to the Request for Admissions would result in CBK admitting each of the matters sought by Mones in the Request for Admissions."*fn24 Mones' counsel then requested that CBK contact him in order to resolve the matter amicably.*fn25 Mones' counsel did not receive a response to his February 2, 2005 letter.*fn26

  Mones now moves for an order of contempt against CBK. In support of his motion, petitioner argues that CBK, in violation of the Turnover Order, has repeatedly failed to distribute to him any funds it may hold that are owned by the Limited Partner Judgment Debtors.*fn27 CBK opposes the motion arguing, first, that the Court had no personal jurisdiction over CBK because CBK's New York branch was liquidated before the entry of the judgment in the Southern District of New York and second, that this Court lacked authority under New York law to direct a financial intermediary to transfer to Mones assets whose situs is outside the jurisdiction of the Court.


  A. Personal Jurisdiction

  New York subjects a foreign corporation to general jurisdiction if it is "doing business" in the state.*fn28 Under this test, "a foreign corporation is amenable to suit in New York if it is `engaged in such a continuous and systematic course' of `doing business' here as to warrant a finding of its `presence' in this jurisdiction."*fn29 "[T]he term `doing business' is used in reference to foreign corporations to relate to "the ordinary business which the corporation was organized to do. . . . It is not the occasional contact or simple collateral activity which is included."*fn30 "The doing business standard is a stringent one because a corporation which is amenable to the Court's general jurisdiction may be sued in New York on causes of action wholly unrelated to acts done in New York."*fn31

  "For the purposes of the jurisdictional analysis under New York State law, the Court focuses specifically on the Defendants' amenability to suit at the time the lawsuit was filed, not when the claim arose (and not subsequent changes in their status)."*fn32 To determine whether a foreign corporation is doing business in New York, courts have focused on a traditional set of indicia: (1) whether the company has an office in the state; (2) whether it has any bank accounts or other property in the state; (3) whether it has a phone listing in the state; (4) whether it does any public relations work there; and (5) whether it has individuals permanently located in the state to promote its interests.*fn33 No single criterion is determinative.*fn34 B. Motion for Contempt

  The Supreme Court has held that "`the power to punish for contempt is inherent in all courts.'"*fn35 "`[T]he underlying concern that gave rise to the contempt power was not . . . merely the disrupting of court proceedings . . . [but] disobedience to the orders of the court.'"*fn36 Accordingly, the court's power to punish for contempt "`reaches both conduct before the court and that beyond the court's confines.'"*fn37 Contempt orders are often utilized "`to enforce compliance with an order of the court or to compensate for losses or damages.'"*fn38 Nonetheless, the power should not be misused. In fact, "[t]he Supreme Court has warned against sanctioning a party for contempt `where there is a fair ground of doubt as to the wrongfulness of the party's conduct.'"*fn39 "Judicial sanctions in civil contempt proceedings may, in a proper case, be employed for either or both of two purposes: to coerce the defendant into compliance with the court's order, and to compensate the complainant for losses sustained."*fn40 However, "the right to remedial relief falls with an injunction which events prove was erroneously issued."*fn41


  A. Personal Jurisdiction

  The Court need not reach the question of personal jurisdiction because, even if the Court had jurisdiction over CBK, the Court cannot reach assets held by a financial intermediary outside its jurisdiction. Moreover, whether or not the Court has personal jurisdiction over CBK cannot be determined without further proceedings because of a factual dispute as to when CBK's New York branch was closed.

  New York subjects a foreign corporation to general jurisdiction if it is "doing business" in the state, a standard assessed through the examination of the corporation's contacts with the state. Moreover, jurisdiction over a foreign corporation may be established in New York if the foreign corporation has a New York subsidiary or affiliate which serves as a "mere department" of the corporation.*fn42


[T]he law seems fairly well-settled that the domestic branch of a foreign bank is not a separate legal entity under either New York or federal law. New York has long adhered to the general rule that when considered with relation to the parent bank, branches are not independent agencies; they are what their name imports, merely branches, and are subject to the supervision and control of the parent bank, and are instrumentalities whereby the parent bank carries on its business and are established for its own particular purposes, and their property and assets belong to the parent bank, although nominally held in the names of the particular branches.*fn43
Thus, a bank that maintains a branch in the Southern District of New York is subject to this Court's general jurisdiction because it is considered to be "doing business" in the District.*fn44 Because personal jurisdiction is assessed from the time a petition is filed, whether or not this Court has in personam jurisdiction over CBK depends on the status of CBK's New York branch at the time this proceeding was initiated. If the New York branch was operative at that time, CBK is subject to general jurisdiction in the Southern District because it was doing business in the state. On the other hand, if the New York branch had already closed, then CBK was no longer doing business in the state and is not subject to general jurisdiction.*fn45 However, this Court's jurisdiction over CBK cannot be determined at this juncture because there is a dispute over when CBK's New York branch was closed.*fn46

  B. Validity of the Turnover Order

  Even if the Court had jurisdiction over CBK, the Court lacked authority to order CBK to transfer assets from Kuwait into the Southern District of New York. Federal Rule of Civil Procedure 69(a) authorizes a district court to enforce a judgment by attaching property in accordance with the law of the state in which the district court sits.*fn47 Section 5225 of the CPLR authorizes a court to order the delivery of property that belongs to a judgment debtor but is being held by a third-party.*fn48 Courts have repeatedly held, however, that this power is limited to ordering the delivery of property that is located within the court's jurisdiction. "It is a well-established principle that a New York court cannot attach property not within its jurisdiction."*fn49 A New York court with personal jurisdiction over a judgment debtor may order the debtor himself to deliver property into the jurisdiction;*fn50 however, regardless of the court's jurisdiction over a financial intermediary, "there is no statutory authority under New York law to require . . . a financial intermediary to transfer property from outside this jurisdiction pursuant to Rule 69(a)."*fn51

  Mones cites Mones v. National Bank of Kuwait, S.A.K.,*fn52 an enforcement action predicated on the same judgment as the case currently before the Court, for the proposition that the "otherwise" clause of Rule 69 provides this Court with the power to attach funds held by foreign branches of CBK. In that case, a Turnover Order was issued requiring the delivery of assets held in the judgment debtors' accounts, notwithstanding the fact that those accounts were located at the bank's Kuwait branch. The court held that because it had personal jurisdiction over National Bank of Kuwait ("NBK"), "[t]here appear[ed] to be no valid reason why Petitioner should not be permitted to go forward as to those funds."*fn53 However, the court in Mones v. NBK "does not explain how personal jurisdiction over the Bank of Kuwait led to in rem jurisdiction over the bank's assets, a finding which goes against the weight of prior authority."*fn54

  In Koehler v. Bank of Bermuda Limited, the court discussed the holding of Mones and explicitly rejected the proposition that personal jurisdiction over a financial intermediary authorizes a court to order the intermediary to deliver the property of a judgment debtor into the jurisdiction.*fn55 The court held that there is no "independent New York statutory authority for ordering such a transfer, even if this Court has personal jurisdiction over the [third-party] defendant."*fn56 Similarly, in Fidelity Partners, Inc. v. First Trust Company of New York, the court rejected the argument that it could order a third party to transfer assets into the district, stating that although there is case law supporting a court's authority to order a judgment debtor itself to make such a transfer, there is no precedent indicating that the court has this authority over a financial intermediary.*fn57 Mones further contends that, even if New York law does not authorize an order for the transfer of assets into the jurisdiction by a financial intermediary, Rule 69(a) authorizes this Court to exceed the bounds of state law and order CBK to transfer assets into the jurisdiction. Rule 69 does contain two clauses that arguably provide the Court with power beyond the limitations of state law. First, state law is superceded "where any statute of the United States governs" and second, enforcement of judgments shall be by writ of execution, governed by state procedures, "unless the court directs otherwise."*fn58

  The first exception is irrelevant because no federal statute governs this case.*fn59 However, several courts have discussed the possibility that the second exception, "unless the court directs otherwise," authorizes courts to exceed state procedures governing writs of execution and to enforce money judgments by ordering delivery of a judgment debtor's assets in just these circumstances. While the Second Circuit does not appear to have interpreted Rule 69's "otherwise" clause,*fn60 the First Circuit has held that the "`otherwise' clause is narrowly construed" and that there is no reason to depart from the traditional view that Rule 69(a) "`limit[s] all federal process on money judgments to the type of process available under state law.'"*fn61 The "otherwise" clause should be invoked only in "extraordinary circumstances" and "does not authorize enforcement of a civil money judgment by methods other than a writ of execution, except where `well established principles [so] warrant."*fn62

  In Motorola Credit Corporation v. Uzan, a judgment creditor moved for an order requiring various banks to transfer funds into the court's registry from the accounts of judgment debtors that were held at bank branches outside the court's jurisdiction. Because service of process had been made at each bank's main office rather than at the branch holding the account, the order could only be issued if the court invoked the "otherwise" clause of Rule 69 to set aside New York's separate entity rule, which requires that service be made at the branch holding the account. The court reasoned that even if the Second Circuit does not require the First Circuit's showing of "extraordinary circumstances" to justify resort to the "otherwise" clause, the petitioner would at least have to show "that it does not have an adequate remedy at law" to justify the use of the court's power under the "otherwise" clause.*fn63 Specifically, the petitioner would have to show that an order directing the individual judgment debtors to transfer the funds themselves was unavailing and that "its attempts to enforce its judgment against the relevant bank accounts in the countries in which the funds are actually located have proven nugatory."*fn64

  Although the petition currently before the Court addresses a different provision of New York law, the principle is the same. Petitioner has failed to show any special or extraordinary circumstances that would warrant the invocation of the "otherwise" language in Rule 69, even if this Court considers that clause to authorize the exercise of power beyond the limits of New York law.

  Because this Court lacks the power to direct CBK to transfer assets of the judgment debtors from Kuwait into New York, the Turnover Order was invalid and is hereby vacated.

  C. Motion for Contempt

  As already stated, the Turnover Order was invalid because this Court is without power to order a financial intermediary to transfer assets from Kuwait into this jurisdiction. In light of the purposes behind the civil contempt power, it would be inappropriate to hold CBK in contempt for its non-compliance with an order that the Court must now vacate. First, this Court will not act to coerce compliance with an invalid order. Second, Mones can have suffered no loss as a result of CBK's non-compliance with an invalid order. Although "[i]t is true that the reversal of the decree does not retroactively obliterate the past existence of the violation . . . the right which [the Order] affected to create was no right at all. To let the liability stand for past contumacy would be to give the plaintiff a remedy not for a right but for a wrong, which the law should not do."*fn65 Because the Turnover Order is vacated, Mones's petition for contempt is denied.


  For the foregoing reasons, the Turnover Order is vacated and Mones's motion for contempt is denied. The Clerk of the Court is directed to close this motion (docket #22).


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