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.
I.
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) Limited, which he 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 10 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
Koehler 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 (544 F3d 78 [2008]).
II.
CPLR article 52 governs the enforcement of money judgments and orders directing the payment of money. By contrast, prejudgment attachment is governed by CPLR article 62. Enforcement proceedings and attachment proceedings, while similar in many ways, differ fundamentally in respect to a court’s jurisdiction. While prejudgment attachment is typically based on jurisdiction over property, postjudgment 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, CPLR 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.
“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 full-fledged test of precisely whom the disputed property or debt belongs to . . . .” (Siegel, NY Prac § 510, at 868 [4th ed].)
By contrast, an article 62 attachment proceeding operates only against property, not any person. By means of attachment, a creditor effects the prejudgment seizure of a debtor’s property, to be held by the sheriff, so as to apply the property to the creditor’s judgment if the creditor should prevail in court. Attachment simply keeps the debtor away from his property or, at least, the free use thereof; it does not transfer the property to the creditor. It is frequently used when the creditor suspects that the debtor is secreting property or removing it from New York and/or when the creditor is unable to serve the debtor, despite diligent efforts, even though the debtor would be within the personal jurisdiction of a New York court (see CPLR 6201). Attachment has also been used to confer jurisdiction. When a debtor is neither a domiciliary nor a resident of New York—so that the creditor cannot obtain personal jurisdiction of the debt- or—but owns assets in New York, courts have exercised jurisdiction over the debtor. This quasi in rem jurisdiction is subject to the due process restrictions outlined by the United States Supreme Court in Shaffer v Heitner (433 US 186 [1977]; see generally Siegel, NY Prac §§ 104, 313, 314 [4th ed]).
In short, article 52 postjudgment enforcement involves a proceeding against a person—its purpose is to demand that a person convert property to money for payment to a creditor— whereas article 62 attachment operates solely on property, keeping it out of a debtor’s hands for a time. We approach the certified question with these differences in mind.
III.
It is well established that, where personal jurisdiction is lacking, a New York court cannot attach property not within its jurisdiction. “[I]t is a fundamental rule that in attachment
CPLR article 52 contains no express territorial limitation barring the entry of a turnover order that requires a garnishee to transfer money or property into New York from another state or country. It would have been an easy matter for the Legislature to have added such a restriction to the reach of article 52 and there is no basis for us to infer it from the broad language presently in the statute. Moreover, we note that the Legislature has recently amended CPLR 5224 so as to facilitate disclosure of materials that would assist judgment creditors in collecting judgments, when those materials are located outside New York. The 2006 amendment adds a subdivision that expressly allows the securing of out-of-state materials by in-state service of a subpoena on the party in control of the materials.* Recent legislation thus supports our conclusion that the Legislature intended CPLR article 52 to have extraterritorial reach.
The First Department of the Appellate Division has expressly held that judgment debtors can be ordered to turn
As that court noted, the key to the reach of the turnover order is personal jurisdiction over a particular defendant. “[A] turnover order merely directs a defendant, over whom the New York court has jurisdiction, to bring its own property into New York” (Gryphon, 41 AD3d at 31). A New York court has the authority to issue a turnover order pertaining to extraterritorial property, if it has personal jurisdiction over a judgment debtor in possession of the property. “As long as the debtor is subject to the court’s personal jurisdiction, a delivery order can be effective even when the property sought is outside the state” (Siegel, NY Prac § 510, at 866 [4th ed]).
Indeed, BBL concedes that, when a judgment debtor is subject to a New York court’s personal jurisdiction, that court has jurisdiction to order the judgment debtor to bring property into the state, because the court’s authority is based on its personal jurisdiction over the judgment debtor. BBL argues, however, that when the judgment debtor—in this case Dodwell—is not within the personal jurisdiction of the New York court, the court’s authority over the judgment debtor’s property must be based on in rem jurisdiction, even if the garnishee is within the court’s personal jurisdiction. Because we find no indication in CPLR 5225 that in rem jurisdiction is required in such circumstances, we disagree.
Both CPLR 5225 (a) and (b) provide that a judgment creditor may obtain an order from a New York court, requiring a defendant who is in possession or custody of money or other personal property in which a judgment debtor has an interest to turn over the property or pay the money to the judgment creditor. CPLR 5225 (a) applies when the property sought is in the
IV
In short, the principle that a New York court may issue a judgment ordering the turnover of out-of-state assets is not limited to judgment debtors, but applies equally to garnishees. Consequently, we conclude that a court sitting in New York that has personal jurisdiction over a garnishee bank can order the bank to produce stock certificates located outside New York, pursuant to CPLR 5225 (b).
Accordingly, the certified question should be answered in the affirmative.
Smith, J. (dissenting). The majority holds in substance that a judgment may be enforced by garnishment in New York if the garnishee is subject to New York jurisdiction, even though the judgment creditor, the judgment debtor and the property that the judgment creditor is trying to seize are all elsewhere. I would not read New York’s garnishment statutes so expansively. Such a broad garnishment remedy is unsupported by any precedent in New York or, apparently, in any other jurisdiction. Its
The majority’s holding opens a forum-shopping opportunity for any judgment creditor trying to reach an asset of any judgment debtor held by a bank (or other garnishee) anywhere in the world. If the bank has a New York branch—either one that is not separately incorporated, or a subsidiary with which the parent’s relationship is close enough to subject the parent to New York jurisdiction—the judgment creditor, having registered the judgment in New York, can obtain an order requiring the asset to be delivered here. It is, apparently, irrelevant whether New York has any relationship with the judgment creditor, the judgment debtor or the dispute between them—indeed, in this case, so far as the record shows, no such relationship exists. And what a judgment creditor can do in New York, he can also do in Alabama, Alaska and 47 other states, if those states interpret their garnishment statutes as the majority interprets ours.
To offer this opportunity to judgment creditors seems to me a recipe for trouble. There may be competing claims to the asset, by parties who think they have as much right to it as the judgment creditor. It is obvious that claims against a single asset should be decided in a single forum—and almost equally obvious that that forum should be, as it traditionally has been, a court of the jurisdiction in which the asset is located. If any court with power over the garnishee can order the garnishee to change the asset’s location, significant disruption in the process of deciding whose rights are superior seems inevitable. And the business of banking itself, for banks with offices in several states or countries, will also be disrupted. The Clearing House Association L.L.C., an association of banks operating in New York and many other domestic and international jurisdictions, has submitted an amicus brief predicting for its members and other banks significant administrative burdens, and risks of being subject to conflicting adjudications, resulting from the rule the majority now adopts. These fears may be exaggerated, but it seems unwise to put that question to the test.
It would not matter, of course, whether the majority’s rule were wise or unwise if our Legislature had enacted it, or if our precedents required us to follow it. But neither is true. The relevant statutes, CPLR 5201 (b) (defining “property”) and 5225 (b) (relating to payment or delivery of property not in the possession of the judgment debtor), say nothing about the
Nor has the judgment creditor cited any case, from New York or anywhere else, in which it has been held that a third-party garnishee that is independent of the judgment debtor may be compelled to bring assets into a state as part of judgment enforcement proceedings. The judgment creditor relies on several Appellate Division cases (Gryphon Dom. VI, LLC v APP Intl. Fin. Co., B.V., 41 AD3d 25 [1st Dept 2007]; Miller v Doniger, 28 AD3d 405 [1st Dept 2006]; Starbare II Partners v Sloan, 216 AD2d 238 [1st Dept 1995]) in which judgment debtors (and, in Miller, family members who had received presumptively fraudulent transfers) were ordered to bring property into the state. But those cases are distinguishable. Judgment debtors who can control where property is located may put it out of reach in order to frustrate enforcement of the judgment, and it may well be reasonable to prevent or thwart such maneuvers by ordering the property brought into New York. But this reasoning does not apply to third parties like the Bank of Bermuda here, which had interests independent of the judgment debtor and was presumably dealing with him at arm’s length.
The case that is perhaps most relevant to the question the Second Circuit has asked us seems to me to support a negative answer. In United States v First Natl. City Bank (321 F2d 14 [1963], revd 379 US 378 [1965]), the United States, trying to collect taxes owed by a Uruguayan corporation, sought an in personam order against a New York bank to freeze, pendente lite, assets of the Uruguayan company that were on deposit in the bank’s branches outside the United States. The Second
The majority’s broad view of New York’s garnishment remedy may cause it to exceed the limits placed on New York’s jurisdiction by the Due Process Clause of the Federal Constitution. In Shaffer v Heitner (433 US 186, 212 [1977]), the Supreme Court held that “all assertions of state-court jurisdiction,” whether labeled in personam, in rem or quasi in rem, must be evaluated according to the standards contained in International Shoe Co. v Washington (326 US 310 [1945])—i.e., according to “traditional notions of fair play and substantial justice” (326 US at 316, quoting Milliken v Meyer, 311 US 457, 463 [1940]). The Supreme Court has never had occasion to apply the International Shoe standard to judgment enforcement proceedings, but a footnote in Shaffer makes clear that the traditional in rem approach of such proceedings—permitting judgments to be enforced against property wherever it may be located—is constitutionally acceptable:
“Once it has been determined by a court of competent jurisdiction that the defendant is a debtor of the plaintiff, there would seem to be no unfairness in allowing an action to realize on that debt in a State where the defendant has property, whether or not that State would have jurisdiction to determine the existence of the debt as an original matter” (433 US at 210 n 36).
It is by no means equally clear that the novel in personam approach to judgment enforcement that the majority adopts today can meet the International Shoe standard. A somewhat similar
In this case, as I have mentioned, the record discloses no New York contact with the parties or the dispute, except the amenability of the Bank of Bermuda, the garnishee, to personal jurisdiction in this state. I have serious doubt that that is enough contact under International Shoe to justify the enforcement of a non-New York judgment by a non-New York creditor against a non-New York debtor, to recover an asset that is located in Bermuda. The constitutional issue, of course, is not before us; the Second Circuit does not turn to us for rulings on federal constitutional law. The constitutional issue may not even be before the federal courts in this action, and if it had been raised there the judgment creditor might have been able to show enough New York contact to make the result he seeks constitutional. Still, I think the majority errs in interpreting New York’s garnishment statutes in a way that will render them, as applied in future cases, subject to constitutional challenge.
I would answer the certified question no.
Chief Judge Lippman and Judges Ciparick and Graffeo concur with Judge Pigott; Judge Smith dissents and votes to answer the certified question in the negative in a separate opinion in which Judges Read and Jones concur.
Following certification of a question by the United States Court of Appeals for the Second Circuit and acceptance of the question by this Court pursuant to section 500.27 of the Rules of Practice of the Court of Appeals (22 NYCRR 500.27), and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, certified question answered in the affirmative.
*.
Specifically, subdivision (a-1) provides that
“[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 company or sole proprietorship doing business, licensed, qualified, or otherwise 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 materials sought are in the possession, custody or control of the subpoenaed person, business or other entity within or without the state” (emphasis added).