UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
September 27, 2012
GUCCI AMERICA, INC.; BALENCIAGA, S.A.; BALENCIAGA AMERICA, INC.; BOTTEGA VENETA, INC.; AND YVES SAINT LAURENT AMERICA, INC., PLAINTIFFS,
BAGSMERCHANT, LLC; BAGSMERCHANT.CO; BAG STORE LTD A/K/A WWW.BAGS-STORE.COM; YUNJING LLC; AUTHENTICTRADING LTD; YI WANG; WU XIANHUI; YU ZHANG; JASON JAMES A/K/A JASON MIOTO A/K/A JERMEN MIOTO; WWW.BAGSDEAL.COM; ALL DOING BUSINESS AS WWW.BAGSMERCHANT.COM; ABC COMPANIES; AND JOHN DOES, DEFENDANTS.
The opinion of the court was delivered by: Shira A. Scheindlin, U.S.D.J.
OPINION AND ORDER
Non-parties China Merchants Bank ("CMB") and Bank of China ("BOC," and collectively, the "Banks") have moved pursuant to Federal Rules of Civil Procedure 59(e), 60(b), and 24(a) and New York Civil Practice Law and Rules ("CPLR") section 5240 to modify or set aside the July 11, 2011 default judgment (the "Default Judgment") entered against defendants "insofar as the judgment directs non-party foreign banks including CMB and BOC to turn over any property of the defaulting Defendants that those banks may hold abroad."*fn1
Plaintiffs oppose the motion on the grounds that: (1) the motion is untimely; (2) the Banks lack standing to alter or amend the judgment; and (3) a court sitting in New York has authority to direct a bank over which it has personal jurisdiction to bring assets into New York to satisfy a judgment.*fn2 The Banks' motion is grantedin part.
Plaintiffs brought suit on April 5, 2010, alleging that defendants
sold counterfeit versions of plaintiffs' products on web sites, in
violation of U.S. trademark laws. On April 12, 2010, Judge Deborah
Batts granted plaintiffs' request for an ex parte temporary
restraining order ("TRO") directing defendants to refrain from various
infringing acts and restraining "Defendants and . . . any banks, . . .
from transferring, disposing of, or secreting any money . . . or other
assets of Defendants or otherwise paying or transferring any money . .
. or other assets to any of the Defendants, or into or out of any accounts
associated with or utilized by any of the Defendants."*fn3
On April 27, 2010, Judge Batts extended the terms of the TRO
(the "TRO Extension Order").*fn4 On May 5, 2010,
plaintiffs delivered the TRO and TRO Extension Order to CMB's New York
branch ("CMBNY") with a letter informing CMB that it was required to
restrain all accounts used by defendants.*fn5
On May 23, 2010, Judge Batts issued a Preliminary Injunction ("PI") containing a nearly identical asset restraint provision to that contained in the TRO and TRO Extension Order.*fn6 Plaintiffs served BOC with the PI and a Rule 45 subpoena at their New York branch ("BOCNY") on October 19, 2010*fn7 and served CMBNY with the PI and a Rule 45 subpoena on October 21, 2010.*fn8 The Banks each served objections and responses to the Rule 45 subpoenas and notified plaintiffs that they had found no responsive documents in their New York branches.*fn9 Plaintiffs did not move to compel or otherwise challenge the responses.*fn10
On July 8, 2011, Judge Batts entered a Default Judgment against defendants, which included a permanent injunction, equitable accounting and statutory damages of $7.8 million.*fn11 The Default Judgment provided:
That, in accordance with Rule 64 of the Federal Rules of Civil Procedure, 15 U.S.C. § 1116(a), Article 52 of New York State's Civil Practice Law and Rules, and this Court's inherent equitable power to issue remedies ancillary to its authority to provide final relief, all Defendants' Asset Holders . . . who receive notice of this order by personal service or otherwise are ordered to liquidate . . . and pay the value of such Defendants' Assets to Plaintiffs . . . regardless of whether the Defendants' Assets are located in the United States or abroad.*fn12
On August 8, 2011, the Banks moved to modify or set aside the Default Judgment "insofar as the judgment directs non-party foreign banks including CMB and BOC to turn over any property of the defaulting Defendants that those banks may hold abroad."*fn13 The case was transferred to this Court on September 11, 2012.*fn14
III. APPLICABLE LAW
A. Section 5240 of the CPLR*fn15
Section 5240, made applicable to this federal action pursuant to Federal Rule of Civil Procedure 69, provides that "the court may at any time, on its own initiative or the motion of any interested person, and upon such notice as it may require, make an order denying, limiting, conditioning, regulating, extending or modifying the use of any enforcement procedure."*fn16
B. Procedure for Turnover Orders Under Section 5225(b)
Article 52 of the CPLR "governs the enforcement of money judgments and
orders directing the payment of money."*fn17
Enforcement under section 5225(b), which deals with property not in
the possession of the judgment debtor, "requires a special proceeding
brought by the judgment creditor against the garnishee."*fn18
The New York Court of Appeals explained that "[t]he reason
for this procedural distinction is that the garnishee, not being a
party to the main action, has to be independently subjected to the
Section 403 of the CPLR provides that garnishees must be served, in the same manner as a summons, with a notice of petition specifying the time and place of the hearing on petition, and any accompanying affidavits, at least eight days in advance of the time at which the petition is noticed to be heard.*fn20 The special proceeding culminates in a judgment which runs directly against the respondent.*fn21
Defendants have standing as "interested person[s]" to request "an order denying, limiting, conditioning, regulating, extending or modifying the use of any enforcement procedure" against them.*fn22 The portion of the Default Judgment directing "all Defendants' Asset Holders . . . who receive notice of this order by personal service or otherwise are ordered to liquidate . . . and pay the value of such Defendants' Assets to Plaintiffs"*fn23 was the equivalent of an ex-parte turnover order, for which third-party asset holders are entitled to a special proceeding involving notice and a hearing under section 5225(b).
The Default Judgment is void insofar as it directs non-parties to liquidate assets of defaulting defendants without affording the non-parties the safeguards of section 5225(b). To the extent that plaintiffs wish to enforce the terms of the Default Judgment against the Banks, they may petition to do so in accordance with section 5225(b).
The Banks' motion is granted and the Default Judgment is set aside to the extent that it operates as an ex-parte turnover order.*fn24 The Clerk of the Court is directed to close this motion (Docket Entry # 21).