Relates to clarifying the geographic scope of restraining notices, turnover orders or judgments, and levies on property

Summary of provisions

Section 1 - Amends subdivision (b) of CPLR Section 5222 to clarify the limitation of the extraterritorial effect of a restraining notice served on a person other than a judgment debtor by expressly stating that such a restraining notice has effect only on property in New York.

Section 2 - Amends subdivision (b) of CPLR Section 5225 to make clear that a New York court's authority to order a financial institution or other garnishee to turn over a judgment debtor's property is limited to property in New York or accounts at a branch of that bank in New York.

Section 3 - Amends CLPR Section 5227 to clarify that when the garnishee is a financial institution, a New York court has authority pursuant to that section to issue a turnover order only with respect to debts or accounts maintained at a branch or office of that financial institution in New York.

Section 4 - Amends subdivision (a) of CPLR Section 5232 to clarify that a levy by service of execution on a garnishee is effective only as to property located within New York and, if the garnishee is financial institution, only as to property, debts or accounts at a branch or office of that financial institution in New York.

Section 5 - Is the effective date.

Justification

The Court of Appeals' recent Koehler decision threatens New York's position as the world's leading financial center. That decision departs from prior law and permits a New York court to order any financial institution with a New York office to deliver property of a judgment debtor held by another branch of the same financial institution located anywhere in the world to satisfy a judgment in a litigation to which the bank was not a party -- even if the plaintiff, the defendant, the underlying dispute and the property sought have absolutely nothing to do with New York.

Under this new, expansive regime, New York will become the destination for forum-shopping plaintiffs seeking extraterritorial turnover

orders to collect judgments that have absolutely nothing to do with this state. The consequences to international and U.s. financial institutions with offices in New York will be severe:

* Because Koehler places New York law in conflict with the laws of virtually all other jurisdictions, financial institutions around the world could face criminal, civil or regulatory liability under foreign laws to which they are subject for complying with orders issued under Koehler.

* Financial institutions will be forced to devote significant resources to the task of complying with such orders merely because they have an office in New York.

* Financial institutions will be forced to become frequent participants in cross-border legal disputes as their customers or foreign regulators seek to prevent transfers. Customers may be reluctant to make deposits in, or otherwise have property in the possession of, financial institutions that have offices in New York.

The consequences to New York will be severe as well:

* International financial institutions confronted with this new burden created by Koehler will face clear incentives to cease doing business in New York. * Opportunistic plaintiffs flocking to New York to exploit Koehler will place an unnecessary and unwelcome burden on the courts and the taxpayers who fund them. * New York-based financial institutions with operations overseas could be compelled to transfer property from New York to foreign countries where courts have been emboldened and follow Koehler's lead.

This bill will encourage plaintiffs to collect their debts in logical jurisdictions rather than pursuing them indiscriminately in New York. It will accomplish that goal and prevent the harm sure to befall the financial industry and New York should the Court of Appeals' Koehler decision otherwise go uncorrected.

Legislative history

New bill.

Fiscal implications for state and local governments

None.

Effective date

Immediately.