Relates to clarifying the geographic scope of restraining notices, subpoenas, turnover orders or judgments, and levies on property by service of execution or similar legal process.
TITLE OF BILL: An act to amend the civil practice law and rules, in relation to clarifying the geographic scope of restraining notices, subpoenas, turnover orders or judgments, and levies on property by service of execution or similar legal process
PURPOSE: To amend the Civil Practice Law and Rules in order to clarify the geographic scope of restraining notices, turnover orders or judgments, subpoenas, and levies on property by service of execution or similar legal process in light of the Court of Appeals' decisions in Koehler v. Bank of Bermuda, Northern Mariana Islands v Canadian Imperial Bank of Commerce, and other cases.
SUMMARY OF PROVISIONS: The bill would amend sections 5222, 5223, 5224(a-1), 5225, 5227, and 5232(a) of the Civil Practice Law and Rules (CPLR).
Section 1 would amend § 5222 of the CPLR to provide that a restraining notice that seeks to restrain property held or debts payable outside of the United States shall have no effect except when it is served on the judgment debtor or obligor, and operates only on the judgment debtor or obligor.
Section 2 would amend § 5223 of the CPLR to provide that no recipient of a subpoena shall be compelled to disclose a matter that is protected from disclosure by a foreign law.
Section 3 would amend § 5224(a-1) of the CPLR to provide that a subpoena filed under this section would also be subject to the protection against disclosures that would violate foreign law.
Section 4 would amend § .522.5 of the CPLR to provide that an order to a person to transfer money or other property held outside of the United States into the United States is effective only against a judgment debtor
Section 5 would amend § 5227 to provide that an order to a person to pay a debt that is owing and payable outside of the United States or to pay the balance of an account held outside the United States is effective only against a judgment debtor,
Section 6 would amend § 5232(a) of the CPLR to make it clear that a levy by service of execution upon a garnishee would have no effect with respect to property, debts, accounts, or monetary obligations outside of the United States,
JUSTIFICATION: In Koehler v. Bank of Bermuda Ltd , 12 N.Y.3d 533 (2009), the New York Court of Appeals held that a court with personal jurisdiction over a garnishee bank could order that bank to bring stock certificates of the judgment debtor held at an affiliated bank office in Bermuda to the United States in order to satisfy the judgment. Since then, Koehler has been used by judgment creditors in numerous cases to demand that banks conduct worldwide searches for information and to restrain or transfer foreign assets, regardless of whether disclosure of such information or restraint or transfer of such assets would violate foreign law or would expose the bank to
double liability if the bank's obligation to its foreign customer is not extinguished by the turnover, as it would be under New York law for assets held in New York.
Koehler broke new ground. Prior to the decision, it was clear that a court with personal jurisdiction over the judgment debtor could order the judgment debtor to bring property to New York to pay the amount owing to the judgment creditor and that it could also order the seizure of any of the property of the judgment debtor subject to the court's jurisdiction to pay the judgment creditor. The Koehler decision took the unprecedented step of allowing a court to order any person holding property of the judgment debtor in another, jurisdiction to bring the property to New York so it could be turned over to the judgment creditor.
This new practice is problematic for several reasons. New York is recognized as one of the great banking centers in the world. Because it is the center of the money markets for the world's reserve currency, and because of the centrality of New York banks and funds-transfer systems to the world's dollar payment, clearing, and settlement mechanisms, many New York banks are global institutions with offices all over the world, and many foreign banks have established offices in or near New York in order to be close to dollar markets and to facilitate the business of their home-country customers. Because of the Koehler decision, however, a New York presence also carries a great potential for liability in that New York could become a magnet for plaintiffs seeking to use New York banks and the New York offices of foreign banks as worldwide collection agents.
Separate offices of banks have been considered as separate banks for a variety of legal purposes, and foreign governments are not required to give full faith and credit to the judgments of U.S. courts, meaning that a discharge provided by a court in New York to a bank under a turnover order might not be recognized by foreign authorities and could result in double liability to the bank. Moreover, many foreign governments have laws that would prevent banks under their jurisdiction from providing information about their customers unless specifically authorized by local law, subjecting banks that responded to information subpoenas to liability if they obeyed the court orders.
While the Court of Appeals' more recent decision in Northern Marianna Islands v Canadian Imperial Bank of Commerce, 2013 WL 1798585 (N.Y ), 2013 N Y. Slip Op. 03018 (Apr. 30, 2013), clarifies that Koehler does not extend to a situation where the foreign bank affiliate is a separate corporate entity, the impact of Koehler on foreign branches is still an open question.
International banks do not open offices in New York expecting that their presence here will force them to violate laws of their home country or other foreign countries, or make them responsible for paying off obligations of their overseas customers, possibly with a risk that their own obligations to their customers are not reduced by the amount of any such payments.
Koehler is a problem unique to New York Several major foreign banks already have substantial operations in New Jersey and Connecticut, and it would be a simple matter for these banks to consolidate their
operations at those offices Other foreign banks operating in New York have clear incentives to reassess their New York presence, and those not operating in New York may decide to avoid establishing a New York presence altogether in favor of doing business in another state After one major bank moves, it could create momentum that would be nearly impossible to reverse. Once banks are entrenched in another state, which would undoubtedly have an incentive to encourage them to stay, it could be difficult to convince them to move back to New York even if the Koehler problem is fixed.
The proposed amendments would correct the problem caused by Koehler by restoring the clear rules that were in effect before the decision. A New York court will still have authority to order a judgment debtor to bring property into New York to satisfy a judgment, and it will still be able to attach the judgment debtor's property in New York. But it will no longer be able to order a third party with no connection to the case to move property from another jurisdiction to New York so that it can then be used to pay a judgment debtor's obligation. The amendments would also clarify that a person who owes a debt to a judgment debtor (legally, a bank account is the bank's obligation to pay the depositor) in another jurisdiction need not pay the debt in New York, and would protect banks from violating foreign bank secrecy laws by responding to information subpoenas issued by New York courts.
EFFECTIVE DATE: Immediate
STATE OF NEW YORK ________________________________________________________________________ 5734 2013-2014 Regular Sessions IN SENATE June 10, 2013 ___________Introduced by Sen. FARLEY -- read twice and ordered printed, and when printed to be committed to the Committee on Judiciary AN ACT to amend the civil practice law and rules, in relation to clari- fying the geographic scope of restraining notices, subpoenas, turnover orders or judgments, and levies on property by service of execution or similar legal process THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Section 5222 of the civil practice law and rules is amended by adding a new subdivision (c-1) to read as follows: (C-1) PROPERTY HELD OR DEBTS OR AMOUNTS PAYABLE OUTSIDE THE UNITED STATES. A RESTRAINING NOTICE THAT SEEKS TO RESTRAIN ANY PROPERTY HELD OR DEBT OR AMOUNT PAYABLE OUTSIDE THE UNITED STATES SHALL HAVE NO EFFECT EXCEPT TO THE EXTENT SUCH RESTRAINING NOTICE IS SERVED UPON THE JUDGMENT DEBTOR OR OBLIGOR AND OPERATES ONLY ON THE JUDGMENT DEBTOR OR OBLIGOR. S 2. Section 5223 of the civil practice law and rules, as added by chapter 315 of the laws of 1962, is amended to read as follows: S 5223. Disclosure REQUIRED. (A) At any time before a judgment is satisfied or vacated, the judgment creditor may compel disclosure of all matter relevant to the satisfaction of the judgment, SUBJECT TO SUBDIVI- SION (B) OF THIS SECTION, by serving upon any person a subpoena, which shall specify all of the parties to the action, the date of the judg- ment, the court in which it was entered, the amount of the judgment and the amount then due thereon, and shall state that false swearing or failure to comply with the subpoena is punishable as a contempt of court. (B) CONFLICTS WITH FOREIGN LAWS. NO RECIPIENT OF A SUBPOENA AUTHORIZED BY THIS ARTICLE SHALL BE COMPELLED TO DISCLOSE ANY MATTER PROTECTED FROM DISCLOSURE BY THE LAW OF A SOVEREIGN OUTSIDE THE UNITED STATES.EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD11383-01-3 S. 5734 2
S 3. Subdivision (a-1) of rule 5224 of the civil practice law and rules, as added by chapter 257 of the laws of 2006, is amended to read as follows: (a-1) Scope of subpoena duces tecum. A subpoena duces tecum authorized by this rule and served on a judgment debtor, or on any individual while in the state, or on a corporation, partnership, limited liability compa- ny or sole proprietorship doing business, licensed, qualified, or other- wise entitled to do business in the state, shall subject the person or other entity or business served to the full disclosure prescribed by section fifty-two hundred twenty-three of this article whether the mate- rials sought are in the possession, custody or control of the subpoenaed person, business or other entity within or without the state, SUBJECT TO SUBDIVISION (B) OF SECTION FIFTY-TWO HUNDRED TWENTY-THREE OF THIS ARTI- CLE. Section fifty-two hundred twenty-nine of this article shall also apply to disclosure under this rule. S 4. Subdivisions (b) and (c) of section 5225 of the civil practice law and rules, as relettered by chapter 315 of the laws of 1962, subdi- vision (b) as amended by chapter 388 of the laws of 1964, are amended to read as follows: (b) Property not in the possession of judgment debtor. 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 judg- ment, 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. Costs of the proceeding shall not be awarded against a person who did not dispute the judgment debtor's interest or right to possession. Notice of the proceeding shall also be served upon the judgment debtor in the same manner as a summons or by registered or certified mail, return receipt requested. The court may permit the judgment debtor to intervene in the proceeding. The court may permit any adverse claimant to intervene in the proceeding and may determine his rights in accordance with section 5239 OF THIS ARTICLE. (c) NO TRANSFER REQUIRED EXCEPT BY THE JUDGMENT DEBTOR. NO PERSON THAT IS NOT THE JUDGMENT DEBTOR SHALL BE REQUIRED TO TRANSFER MONEY, DEBT OR OTHER PERSONAL PROPERTY HELD OUTSIDE THE UNITED STATES INTO THE UNITED STATES, OR OTHERWISE TO SATISFY THE JUDGMENT OR ORDER USING ANY MONEY, DEBT OR OTHER PERSONAL PROPERTY HELD OUTSIDE THE UNITED STATES. (D) Documents to effect payment or delivery. The court may order any person to execute and deliver any document necessary to effect payment or delivery AS PERMITTED BY SUBDIVISION (A) OR (B) OF THIS SECTION. S 5. Section 5227 of the civil practice law and rules, as amended by chapter 532 of the laws of 1963, is amended to read as follows: S 5227. Payment of debts owed to judgment debtor. (A) Upon a special proceeding commenced by the judgment creditor, against any person who it is shown is or will become indebted to the judgment debtor, the court may require such person to pay to the judgment creditor the debt upon maturity, or so much of it as is sufficient to satisfy the judgment, and to execute and deliver any document necessary to effect payment; or it may direct that a judgment be entered against such person in favor ofS. 5734 3
the judgment creditor. Costs of the proceeding shall not be awarded against a person who did not dispute the indebtedness, AND NO ASSERTION BY ANY PERSON WHO IS NOT THE JUDGMENT DEBTOR THAT THE JUDGMENT CREDITOR MUST COMPLY WITH THE REQUIREMENTS OF THIS ARTICLE SHALL BE CONSTRUED AS DISPUTING THE INDEBTEDNESS FOR THE PURPOSE OF AWARDING COSTS. Notice of the proceeding shall also be served upon the judgment debtor in the same manner as a summons or by registered or certified mail, return receipt requested. The court may permit the judgment debtor to intervene in the proceeding. The court may permit any adverse claimant to intervene in the proceeding and may determine his rights in accordance with section 5239 OF THIS ARTICLE. (B) NO PAYMENT OF DEBTS OWING OR PAYABLE OUTSIDE OF THE UNITED STATES. NO PERSON SHALL BE REQUIRED TO PAY DEBTS OR OTHER OBLIGATIONS OWING OR PAYABLE OUTSIDE THE UNITED STATES OR THE BALANCE OF ANY ACCOUNT HELD OUTSIDE THE UNITED STATES TO SATISFY A JUDGMENT OR ORDER UNDER THIS SECTION. S 6. Subdivision (a) of section 5232 of the civil practice law and rules, as amended by chapter 59 of the laws of 1993, is amended to read as follows: (a) Levy by service of execution. The sheriff or support collection unit designated by the appropriate social services district shall levy upon any interest of the judgment debtor or obligor in personal property not capable of delivery, or upon any debt owed to the judgment debtor or obligor, by serving a copy of the execution upon the garnishee, in the same manner as a summons, except that such service shall not be made by delivery to a person authorized to receive service of summons solely by a designation filed pursuant to a provision of law other than rule 318. In the event the garnishee is the state of New York, such levy shall be made in the same manner as an income execution pursuant to section 5231 of this article. A levy by service of the execution is effective only if, at the time of service, the person served owes a debt to the judg- ment debtor or obligor or he or she is in the possession or custody of property not capable of delivery in which he or she knows or has reason to believe the judgment debtor or obligor has an interest, or if the judgment creditor or support collection unit has stated in a notice which shall be served with the execution that a specified debt is owed by the person served to the judgment debtor or obligor or that the judg- ment debtor or obligor has an interest in specified property not capable of delivery in the possession or custody of the person served. All prop- erty not capable of delivery in which the judgment debtor or obligor is known or believed to have an interest then in or thereafter coming into the possession or custody of such a person, including any specified in the notice, and all debts of such a person, including any specified in the notice, then due or thereafter coming due to the judgment debtor or obligor, shall be subject to the levy. The person served with the execution shall forthwith transfer all such property, and pay all such debts upon maturity, to the sheriff or to the support collection unit and execute any document necessary to effect the transfer or payment. After such transfer or payment, property coming into the possession or custody of the garnishee, or debt incurred by him, or her shall not be subject to the levy. Until such transfer or payment is made, or until the expiration of ninety days after the service of the execution upon him or her, or of such further time as is provided by any order of the court served upon him or her, whichever event first occurs, the garnish- ee is forbidden to make or suffer any sale, assignment or transfer of, or any interference with, any such property, or pay over or otherwiseS. 5734 4
dispose of any such debt, to any person other than the sheriff or the support collection unit, except upon direction of the sheriff or the support collection unit or pursuant to an order of the court. A LEVY BY SERVICE OF EXECUTION UPON A GARNISHEE SHALL HAVE NO EFFECT WITH RESPECT TO PROPERTY LOCATED OUTSIDE THE UNITED STATES OR DEBTS OR OTHER MONETARY OBLIGATIONS LOCATED OUTSIDE THE UNITED STATES OR THE BALANCE OF ANY ACCOUNT HELD OUTSIDE THE UNITED STATES. At the expiration of ninety days after a levy is made by service of the execution, or of such further time as the court, upon motion of the judgment creditor or support collection unit has provided, the levy shall be void except as to prop- erty or debts which have been transferred or paid to the sheriff or to the support collection unit or as to which a proceeding under sections 5225 or 5227 OF THIS ARTICLE has been brought. A judgment creditor who, or support collection unit which, has specified personal property or debt to be levied upon in a notice served with an execution shall be liable to the owner of the property or the person to whom the debt is owed, if other than the judgment debtor or obligor, for any damages sustained by reason of the levy. S 7. This act shall take effect immediately.