Establishes requirements for jurisdiction over a party which holds the property of a judgment debtor in an action brought by the judgment creditor

Summary of provisions of bill

This bill would amend subdivision (b) of section 5225 of the Civil Practice Law and Rules to set forth the required jurisdictional predicates when the plaintiff judgment creditor seeks property located outside the state.

The bill will make clear that where a plaintiff judgment creditor seeks property outside the state, the judgment creditor will have to estab- lish:

1. That the person or entity against whom the proceeding is commenced has custody of the judgment debtor's property (as per current law), and

2. That the plaintiff judgment creditor has personal jurisdiction over the judgment debtor, or

* there exists a nexus between New York State and the property being sought necessary to satisfy the requirements of due process under the US Constitution, or

* there exists a nexus between New York State and the underlying contro- versy necessary to satisfy the requirements of due process under the US Constitution.

Justification

Like most states, New York permits a victorious judgment creditor to come to New York, register his judgment and commence a turn- over proceeding under section 5225 of the CPLR to satisfy it. In a turn- over proceeding, the defendant is not necessarily the judgment debtor. Instead it may be a person or entity that has possession of the judgment debtor's property, a so-called garnishee. The judgment debtor need not even be a party to these types of proceedings.

Recently, in Koehler v. Bank of Bermuda, 12 NY3d 533 {2009}, the New York Court of Appeals had occasion to answer a certified question from the Second Circuit, Court of Appeals which asked:

"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."

The Court of Appeals answered the question in the affirmative. This led the federal court to order the garnishee, an out-of-state entity with a NY presence, to deliver the judgment debtor's property (or its monetary equivalent) to the New York court for distribution to the judgment cred- itor.

The dissent raised the issue that the decision could have the effect, in some cases, of creating a conflict with federal case law concerning the reach of state jurisdiction under the US Constitution. This was due to the fact that in Koehler, the record showed no relationship between New York and the judgment debtor, the underlying dispute at issue or the property in question. New York's sole contact appeared to be the judg- ment creditor's decision to commence a turnover proceeding in the state after registering the judgment. The dissent noted that the constitu- tional issue had not been raised by the parties, and no record had been made of any NY contacts with the judgment debtor, the property or the underlying dispute.

There are limits on the jurisdiction of all state courts. Before a party can be called into a New York court and be bound by its rulings, the plaintiff in the case must establish some sort of jurisdictional predi- cate which satisfies the requirements of procedural due process under the US Constitution. This is easy to understand since it would be deeply unfair for a New York resident to be bound by an Alaskan court's deci- sions unless the New York resident had minimum contacts with Alaska. This has been expressed by the US Supreme Court beginning with Interna- tional Shoe Co. v. Washington, 326 US 310 {1945} and the line of cases which followed. These cases require the existence of minimum contacts with the jurisdiction before the parties to the case can be bound by its rulings. These minimum contacts must comport with traditional notions of fair play and substantial justice.

This bill would require a plaintiff who seeks out-of-state property in a turnover proceeding in New York to establish:

1. That the person or entity against whom the proceeding is commenced has custody of the judgment debtor's property (as per current law), and

2. That the plaintiff judgment creditor has personal jurisdiction over the judgment debtor, or

* there exists a nexus between New York State and the property being sought necessary to satisfy the requirements of due process under the US Constitution, or

* there exists a nexus between New York State and the underlying contro- versy necessary to satisfy the requirements of due process under the US Constitution.

The bill uses the term "nexus" because it expresses both a territorial connection to NY as well as a NY interest in the matter. The bill restates the required showing that the plaintiff judgment creditor in

the turnover proceeding establish that the defendant has possession of the judgment debtor's property. The bill then makes clear that the NY presence of the garnishee-the turnover proceeding's defendant in New York--is not itself a sufficient nexus. The judgment creditor must show that either subdivision (i) or (ii) is satisfied.

Subdivision (1) makes plain that where there is personal jurisdiction over the judgment debtor, that the court is empowered to recover the judgment debtor's property outside the state. It will also clarify the point in time at which the judgment debtor's presence in NY is relevant for purposes of enforcement against his out-of-state property.

Subdivision (ii) encompasses situations where, despite the lack of personal jurisdiction over the judgment debtor, New York nevertheless possesses minimum contacts necessary to satisfy the requirements of procedural due process under the US Constitution. For example, NY could have a sufficient constitutional nexus to out-of-state property for judgment enforcement purposes if the property's usual situs is NY but it is temporarily outside the state, or the property played a role in the underlying transaction and was located in NY at the time of the trans- action. Subdivision (ii) will also encompass situations where despite the lack of a NY nexus to the out-of-state property itself, the court could still allow the proceeding to reach the out-of-state property where NY has a sufficient connection to the underlying controversy necessary to satisfy constitutional due process.

Application of this broad and flexible constitutional standard elimi- nates any need for the court to consult the categories for personal jurisdiction under New York's long-arm statute. Further, the bill does not introduce new terms to the CPLR. For example, a reference to the federal constitutional standard was recently adopted for the litigation of claims based on "libel terrorism" (CPLR 302(d)).

It is important to bear in mind it is not suggested herein that the Koehler case was incorrectly decided by the New York Court of Appeals. As previously noted, the constitutional issue was not raised in Koehler. The bill therefore ensures that when the property at issue is located outside NY, the judgment creditor must show, and the court must find, that the contacts required by due process are satisfied.

Accordingly, this bill is necessary to ensure that CPLR turnover proceedings comport with the requirements of procedural due process under the US Constitution when the plaintiff judgment creditor seeks property located outside the state. This will inform bench and bar of what is required when using the New York Courts to reach out-of-state property through a CPLR 5225 turnover proceeding.

Legislative history

New bill, 2010

Fiscal implications for state and local governments

None.

Effective date

30 days after becoming law.