Lee N. Koehler, Appellant,
The Bank of Bermuda Limited, Respondent.
Paul F. Newhouse, for appellant.
Daniel B. Rapport, for respondent.
The Clearing House Association L.L.C., amicus curiae.
The United States Court of Appeals for the Second Circuit, by certified question, asks us to decide 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. We answer the certified question in the affirmative.
Sixteen years ago, on June 4, 1993, the United States District Court for the District of Maryland awarded Lee N. Koehler, a citizen of Pennsylvania, a default judgment in the sum of $2,096,343 against his former business partner, A. David Dodwell. Koehler duly registered the Maryland judgment in the United States District Court for the Southern District of New York. At that time, Dodwell, a resident of Bermuda, owned stock in a Bermuda corporation, of which he and Koehler had been shareholders, and certificates representing Dodwell's shares were in the possession of the Bank of Bermuda Limited ("BBL"), and located in that country. Dodwell had pledged the shares to BBL as collateral for a loan.
On October 27, 1993, Koehler filed a petition against BBL in the United States District Court for the Southern District of New York, seeking "payment or delivery of property of judgment debtor," and citing CPLR article 52. Koehler served the petition upon an officer of the Bank of Bermuda (New York) Ltd., which it claimed to be a New York subsidiary and agent of BBL. On October 29, 1993, the District Court ordered BBL to deliver the stock certificates, or monies sufficient to pay the judgment, to Koehler. It is this turnover order that is the subject of the certified question before us.
BBL argued before the District Court that service upon the New York bank did not subject BBL to the personal jurisdiction of the court. Although this jurisdictional issue was the subject of litigation in federal court for some ten years, BBL eventually consented, by letter dated October 9, 2003, to the personal jurisdiction of the court as of the time that Koehler had commenced the proceeding.
In 2004, BBL revealed that the stock certificates were no longer in its possession. The obligations for which BBL had held the certificates as collateral had been satisfied and BBL — despite the District Court's turnover order — had transferred the stock to a Bermudan company existing for Dodwell's benefit in July 1994. On March 9, 2005, the District Court dismissed Koehler's petition, on several grounds, including that the federal court had no in rem jurisdiction over Dodwell's shares. In doing so, the District Court relied on the principle that a New York court cannot attach property that is not within the state.
BBL appealed to the Second Circuit, which observed that New York law does not make clear whether a court sitting in New York has the authority under CPLR 5225 (b) to order a defendant, other than the judgment debtor himself, to deliver assets into New York, when the court has personal jurisdiction over the defendant but the assets are not located in New York. The Second Circuit, finding no controlling precedent from our Court, certified this dispositive jurisdictional question to us. ]
CPLR article 52 governs the enforcement of money judgments and orders directing the payment of money. By contrast, pre-judgment attachment is governed by article 62. Enforcement proceedings and attachment proceedings, while similar in many ways, differ fundamentally in respect to a court's jurisdiction. While pre-judgment attachment is typically based on jurisdiction over property, post-judgment enforcement requires only jurisdiction over persons.
Article 52 authorizes a judgment creditor to file a motion against a judgment debtor to compel turnover of assets or, when the property sought is not in the possession of the judgment debtor himself, to commence a special proceeding against a garnishee who holds the assets. CPLR 5225, the provision applicable here, supplies judgment creditors with a device known as a "delivery order" or "turnover order." With respect to garnishees, 5225 (b) allows a New York court to issue a judgment ordering a party to deliver the property in which the judgment debtor has an interest, or to convert it to money for payment of the debt. "[W]here it is shown that the judgment debtor is entitled to the possession of such property..., the court shall require such person to pay the money, or so much of it as is sufficient to satisfy the judgment, to the judgment creditor" (CPLR 5225 [b]). Disobedience of a turnover order is contempt of court and punishable as such.
The requirement that the judgment creditor proceed against the garnishee, rather than by a device operating on the property alone, recognizes the possibility that the garnishee, or a fourth party, may assert its own interests in the property. "If there are any other claimants to the property or money involved, they can be allowed to intervene, if, indeed the judgment creditor has not already joined them in the first place, or the garnishee interpleaded them.... The special proceeding, in short, can be converted into a ...