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

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.

Fiscal implications

EFFECTIVE DATE: Immediate