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Commonwealth of the Northern Mariana Islands v. Canadian Imperial Bank of Commerce

April 30, 2013

COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS, APPELLANT,
v.
CANADIAN IMPERIAL BANK OF COMMERCE, RESPONDENT, WILLIAM H. MILLARD, DEFENDANT, THE MILLARD FOUNDATION, INTERVENOR.



The opinion of the court was delivered by: Rivera, J.:

This opinion is uncorrected and subject to revision before publication in the New York Reports.

Two questions certified to us by the United States Court of Appeals for the Second Circuit raise issues as to whether a judgment creditor can obtain a CPLR article 52 turnover order against a bank to garnish assets held by the bank's foreign subsidiary. We hold that for a court to issue a post-judgment turnover order pursuant to CPLR 5225 (b) against a banking entity, that entity itself must have actual, not merely constructive, possession or custody of the assets sought. That is, it is not enough that the banking entity's subsidiary might have possession or custody of a judgment debtor's assets.

In 1994, plaintiff, the Commonwealth of the Northern Mariana Islands (the Commonwealth), obtained two separate tax judgments in the United States District Court for the Northern Mariana Islands against William and Patricia Millard (the Millards) for unpaid taxes in the respective amounts of $18,317,980.80 and $18,318,113.41. The Millards, who had previously resided in the Commonwealth since 1987, relocated before the Commonwealth was able to obtain the judgments.*fn1

In March and April 2011, the Commonwealth registered the tax judgments in the United States District Court for the Southern District of New York*fn2 and commenced proceedings as a judgment creditor, pursuant to Federal Rule of Civil Procedure 69(A) (1) and CPLR 5225 (b), seeking a turnover order against garnishees holding assets of the Millards. As relevant here, the Commonwealth named Canadian Imperial Bank of Commerce (CIBC), a Canadian bank headquartered in Toronto, with a branch in New York, as a garnishee under the theory that the Millards maintained accounts in subsidiaries of CIBC, namely, CIBC FirstCaribbean International Bank Limited (CFIB) or CFIB's affiliates in the Cayman Islands. According to the Commonwealth, CFIB is a 92 percent owned-and-controlled direct subsidiary of CIBC.

The Commonwealth moved, by order to show cause, for a turnover order against CIBC and a preliminary injunction, on the ground that "CIBC has the control, power, authority and practical ability to order [CFIB] to turn over funds on deposit in the name of the Millards." In support, the Commonwealth referred to the 92 percent ownership of CFIB, and other indicia of control, asserting that CIBC imposed a governance structure upon CFIB that "affords the parent company full oversight of the risk and control framework of all [of CFIB's] operations." The Commonwealth further argued that the overlap in significant personnel, and CIBC's oversight of CFIB's compliance with various legal requirements, such as the Sarbanes-Oxley Act, demonstrated CIBC's ability to exert actual, practical control over CFIB's operations. In opposition, CIBC contended that CFIB is a "legally separate and independent entit[y]" and that, absent an information sharing agreement, "CIBC is unable to access accounts or account information held by [CFIB] or its subsidiaries."

The District Court denied the motion and maintained a previously issued restraining order that precluded CIBC from engaging in certain activity related to the Millards' accounts. While the District Court found the Commonwealth's "practical ability to control" argument colorable, it observed that the scope of the phrase "possession or custody," contained in CPLR 5225 (b), was an issue suited for this Court's consideration.

Upon appeal, the Second Circuit determined that for the reasons set forth in the District Court's opinion, the resolution of the case turned on unresolved issues of New York law, and certified the following questions to this Court:

"1. May a court issue a turnover order pursuant to N.Y. CPLR § 5225 (b) to an entity that does not have actual possession or custody of a debtor's assets, but whose subsidiary might have possession or custody of such assets?

"2. If the answer to the above question is in the affirmative, what factual considerations should a court take into account in determining whether the issuance of such an order is permissible?" (693 F3d 274, 275 [2d Cir 2012]). We accepted the certified questions and now answer the first in the negative, and as a consequence refrain from answering the second as academic.*fn3

Under CPLR article 52, a special proceeding for a turnover order is the procedural mechanism devised by the Legislature to enforce a judgment against an asset of a judgment debtor, held in the "possession or custody" of a third-party. Section 5225 (b) provides, in pertinent part:

"Upon a special proceeding commenced by the judgment creditor, against a person in possession or custody of money or other personal property in which the judgment debtor has an interest, or against a person who is a transferee of money or other personal property from the judgment debtor, where it is shown that the judgment debtor is entitled to the possession of such property or that the judgment creditor's rights to the property are superior to those of the transferee, 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 and, if the amount to be so paid is insufficient to satisfy the judgment, to deliver any other personal property, or so much of it as is of sufficient value to satisfy the judgment, to a designated sheriff."

The Commonwealth contends that the phrase "possession or custody" inherently encompasses the concept of control, and, therefore, section 5225 (b) is applicable to garnishees with constructive possession of a judgment debtor's assets. As such, the Commonwealth proposes that an actual, practical control test -- i.e., whether the bank could practically order its subsidiary to turn over the assets of the judgment debtor -- should be adopted by this Court as the appropriate standard. We find the Commonwealth's interpretation of section 5225 (b) unpersuasive for the reasons that follow.

In determining the expanse of section 5225 (b) our "starting point" is "the language itself, giving effect to the plain meaning thereof" (Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d 577, 583 [1998]). "[W]here the statutory language is clear and unambiguous, the court should construe it so as to give effect to the plain meaning of the words used" (Patrolmen's Benevolent Assn. of City of N.Y. v City of New York, 41 NY2d 205, 208 [1976] citing Bender v Jamaica Hosp., 40 NY2d 560 [1976]). Moreover, "[i]t is fundamental that a court, in interpreting a statute, should attempt to effectuate the intent of the Legislature" (Majewski, 91 NY2d at 582 citing Patrolmen's Benevolent Assn., 41 NY2d at 208).

The plain language of section 5225 (b) refers only to "possession or custody," excluding any reference to "control." The absence of this word is meaningful and intentional as we have previously observed that the failure of the Legislature to include a term in a statute is a significant indication that its exclusion was intended (see People v Finnegan, 85 NY2d 53, 58 [1995] ["We have firmly held that the failure of the Legislature to include a substantive, significant prescription in a statute is a strong indication that its exclusion was intended"]; Pajak v Pajak, 56 NY2d 394, 397 [1982] ["The failure of the Legislature to provide that mental illness is a valid defense in an action for divorce based upon the ground of cruel and inhuman treatment must be viewed as a matter of legislative design. Any other construction of the statute would amount to judicial ...


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