Tire Eng'g & Distrib, L.L.C. v. Bank of China Ltd., Motorola ( 2014 )

13-1519-cv, 13-2535-cv(L), 13-2639-cv(con)
Tire Eng'g & Distrib, L.L.C., et al. v. Bank of China Ltd., Motorola Credit Corp. v. Standard Chartered Bank
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term 2013
(Argued: October 11, 2013 Decided: January 14, 2014)
Docket Nos. 13-1519-cv, 13-2535-cv(L), 13-2639-cv(con)
TIRE ENGINEERING AND DISTRIBUTION L.L.C., JORDAN FISHMAN, BEARCAT TIRE
A.R.L.,
Plaintiffs-Appellants,
BCATCO A.R.L.,
Plaintiff,
v.
BANK OF CHINA LIMITED,
Defendant-Appellee.
MOTOROLA CREDIT CORPORATION,
Plaintiff-Counter-Defendant-
Appellant-Cross Appellee,
NOKIA CORPORATION,
Plaintiff-Counter-Defendant,
MOTOROLA, INC., KROLL ASSOCIATES INC., CHRISTOPHER B. GALVIN, KEITH J. BANE,
WALTER KEATING, ED HUGHES, ERNST KRAMER,
Counter Defendants,
v.
STANDARD CHARTERED BANK,
Appellee-Cross Appellant,
MURAT HAKAN UZAN, CEM CENGIZ UZAN,
Defendants-Counter-Claimants,
KEMAL UZAN, LIBANANCO HOLDINGS CO. LIMITED, MELAHAT UZAN, AYSEGUL
AKAY, ANTONIO LUNA BETANCOURT, UNIKOM ILETISM HIZMETLERI PAZARLAMA
A.S., STANDART PAZARLAMA A.S., STANDART TELEKOMUNIKAYSON BILGISAYAR
HIZMETLERI A.S.,
Defendants.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
Before:
CALABRESI, CHIN, and DRONEY, Circuit Judges.
Appeals heard in tandem from orders of the United States District
Court for the Southern District of New York (Carter, J., and Rakoff, J.) holding
that the "separate entity rule" precludes a court from ordering a garnishee bank
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operating branches in New York to turn over or restrain assets of judgment
debtors held in foreign branches of the bank.
DECISION RESERVED AND QUESTIONS CERTIFIED.
WILLIAM EDGAR COPLEY, III (Stephen Adam Weisbrod,
on the brief), Weisbrod Matteis & Copley PLLC,
Washington, D.C., and Stephen Zoltan Starr, Starr
& Starr, PLLC, New York, New York, for Tire
Engineering and Distribution, L.L.C., Bcatco A.R.L.,
Jordan Fishman, and Bearcat Tire A.R.L.
PAMELA CHEPIGA (Andrew Rhys Davies, Molly
Spieczny, on the brief), Allen & Overy LLP, New
York, New York, for Bank of China Limited.
HOWARD H. STAHL (George R. Calhoun, on the brief),
Fried, Frank, Harris, Shriver & Jacobson LLP,
Washington D.C., for Motorola Credit Corporation,
and Nokia Corporation.
BRUCE EDWARD CLARK (Patrick B. Berarducci, Sharon L.
Nelles, Bradley P. Smith, on the brief), Sullivan &
Cromwell LLP, New York, New York, for
Standard Chartered Bank.
Dwight A. Healy, White & Case LLP, for Amici Curiae
Institute of International Bankers, The Clearing
House, European Banking Federation, and New York
Bankers Association.
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CHIN, Circuit Judge
These appeals, heard in tandem, challenge two orders entered in the
United States District Court for the Southern District of New York (Carter, J., and
Rakoff, J.), holding that the separate entity rule precludes a court from ordering a
garnishee bank with branches in New York to turn over or restrain assets of
judgment debtors held in foreign branches of the bank. In both cases, the
plaintiff judgment creditors ("plaintiffs") contend that the decision of the New
York Court of Appeals in Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009),
makes clear that post-judgment relief under Article 52 of the New York Civil
Practice Law and Rules ("CPLR") is dependent only on personal jurisdiction over
the garnishee banks, and therefore its remedies are available to reach property of
judgment debtors held in foreign branches of those banks. The defendant
garnishee banks ("defendants") argue that Koehler did not silently overrule New
York's longstanding separate entity rule as applied to banks with branches in
New York and other countries.
These appeals present the following unresolved questions of New
York law:
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First, whether the separate entity rule precludes a judgment creditor
from ordering a garnishee bank operating branches in New York to turn over a
debtor's assets held in foreign branches of the bank; and
Second, whether the separate entity rule precludes a judgment
creditor from ordering a garnishee bank operating branches in New York to
restrain a debtor's assets held in foreign branches of the bank.
Because these unresolved questions implicate significant New York
state interests and are determinative of these appeals, we reserve decision and
certify these questions to the New York Court of Appeals.
BACKGROUND
A. CPLR Article 52 and the Separate Entity Rule
CPLR article 52 governs the enforcement and collection of money
judgments in New York. See N.Y. C.P.L.R. 5201 et seq. (McKinney 2013). Sections
5222 and 5225(b) apply to third parties that possess assets in which a judgment
debtor has an interest. Section 5222 authorizes the issuance of a restraining
notice to prohibit a third party from disposing of a debt owed to the judgment
debtor for one year after service of the restraining notice or until the judgment is
satisfied or vacated, whichever comes first.1 Section 5225(b) allows a judgment
1
C.P.L.R. § 5222 provides, in relevant part:
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creditor to commence a proceeding to order a third party to turn over the
judgment debtors' assets.2 As the New York Court of Appeals explained in
Koehler, "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." 12 N.Y.3d at 538. Accordingly, "personal jurisdiction is
A restraining notice served upon a person other than the judgment debtor
or obligor is effective only if, at the time of service, he or she owes a debt
to the judgment debtor or obligor . . . or if the judgment creditor . . . has
stated in the notice that a specified debt is owed by the person served to
the judgment debtor or obligor . . . . Such a person is forbidden to make or
suffer any sale, assignment or transfer of, or any interference with, any
such property, or pay over or otherwise dispose of any such debt, to any
person other than the sheriff or the support collection unit . . . except upon
the direction of the sheriff or pursuant to an order of the court, until the
expiration of one year after the notice is served upon him or her, or until
the judgment or order is satisfied or vacated, whichever event first occurs.
N.Y. C.P.L.R. § 5222(b) (McKinney 2013).
2 C.P.L.R. § 5225(b) provides, in relevant part:
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 . . . the court shall require such person to pay the money . . .
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.
N.Y. C.P.L.R. § 5225(b) (McKinney 2013).
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the linchpin of authority under section 5225(b)." Commw. of the N. Mariana Islands
v. Canadian Imperial Bank of Commerce, 21 N.Y.3d 55, 64 (2013) ("NMI").
Nevertheless, New York courts have long applied the separate entity
rule to garnishee banks operating branches both in New York and elsewhere.
The rule provides that even if a bank is subject to personal jurisdiction due to the
presence of a New York branch, the other branches of the bank will be treated as
separate entities for certain purposes, such as attachments, restraints, and
turnover orders.3 Indeed, as the rule has been historically applied, even branches
of a bank located in the same city are separate entities for purposes of
attachment.4 Although the rule has no apparent mooring in the text of the CPLR,
3
See, e.g., In re Nat'l Union Fire Ins. Co. of Pittsburgh Pa. v. Advanced Emp't.
Concepts, 703 N.Y.S.2d 3, 4 (1st Dep't 2000) (applying the "long-standing general rule in
New York that each bank is a separate entity and that in order to reach a particular
bank account, the branch of the bank where the account is maintained must be served");
Cronan v. Schilling, 100 N.Y.S.2d 474, 476 (Sup. Ct. N.Y. Cnty. 1950), aff'd, 126 N.Y.S.2d
192 (1st Dep't 1953) ("The law seems well established that . . . . for purposes of
attachment, among others, each branch of a bank is a separate entity, in no way
concerned with accounts maintained by depositors in other branches or at the home
office."); see also Det Bergenske Dampskibsselskab v. Sabre Shipping Corp., 341 F.2d 50, 52-53
(2d Cir. 1965) ("A review of the New York cases indicates a consistent line of authority
holding that accounts in a foreign branch bank are not subject to attachment or
execution by the process of a New York court served in New York on a main office,
branch, or agency of the bank.").
4
See Sabre Shipping Corp., 341 F.2d at 53-54 (noting "both the theory and the
policy of the rule . . . apply with almost equal force to attachment of bank accounts at
other branch offices within New York City" (citing Chrzanowska v. Corn Exch. Bank, 159
N.Y.S. 385 (1916)).
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the principle that branches of banks are regarded as separate entities for some
purposes is reflected in New York's Uniform Commercial Code.5
The original rationale for the rule was that "[e]ach time a warrant of
attachment is served upon one branch, every other branch and the main office
would have to be notified[,] . . . plac[ing] an intolerable burden upon banking
and commerce, particularly where the branches are numerous, as is often the
case." Cronan v. Schilling, 100 N.Y.S.2d 474, 476 (Sup. Ct. N.Y. Cnty. 1950), aff'd,
126 N.Y.S.2d 192 (1st Dep't 1953). In Digitrex, Inc. v. Johnson, the Southern
District of New York (Knapp, J.) concluded that the separate entity rule was
outdated in light of technological advances in the banking industry. 491 F. Supp.
66, 69 (S.D.N.Y. 1980) (holding restraining notice served on bank's main office
sufficient and legally effective, as applied to assets in branch of bank). State and
federal courts applying New York law have limited Digitrex's reach, however,
and apply its exception to the separate entity rule only where "the restraining
notice is served on the bank's main office; the main office and the branches where
the accounts in question are maintained are within the same jurisdiction; and the
bank branches are connected to the main office by high-speed computers and are
5
See, e.g., N.Y. U.C.C. § 4-A-105(1)(b) (McKinney 2013) ("A branch or
separate office of a bank is a separate bank for purposes of this article.").
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under its centralized control." In re Nat'l Union Fire Ins. Co. of Pittsburgh Pa. v.
Adv. Emp't. Concepts, 703 N.Y.S.2d 3, 4 (1st Dep't 2000) (emphasis in original).6
Accordingly, courts have routinely applied the separate entity rule to
post-judgment proceedings involving branches of banks in different sovereign
nations.7
B. Tire Engineering and Distribution, L.L.C. v. Bank of China Ltd.
On October 28, 2010, the District Court for the Eastern District of
Virginia entered a judgment in favor of Tire Engineering and Distribution, L.L.C.
("Tire Engineering") against six foreign companies based in China and Dubai (the
"judgment debtors") for copyright infringement and conversion. The Fourth
Circuit affirmed in part, upholding the jury's $26 million damages award. See
Tire Eng'g & Distrib., LLC v. Shandong Linglong Rubber Co., 682 F.3d 292 (4th Cir.
2012). The judgment debtors have refused to pay the judgment.
6 See also Limonium Mar., S.A. v. Mizushima Marinera, S.A., 961 F. Supp. 600,
607-08 (S.D.N.Y. 1997) ("A rule providing that service of a restraining notice on one
bank branch (e.g., New York) suffices to reach assets in another bank branch in a city in
a different country (e.g., London) would cause substantial interference with routine
banking business, and no case has been cited . . . where such a restraint was held to be
effective.); Therm-X-Chem. & Oil Corp. v. Extebank, 444 N.Y.S.2d 26 (2d Dep't 1981)
(applying rule to bank without centralized system).
7
See, e.g., Fidelity Partners, Inc. v. Philippine Export & Foreign Loan Guarantee
Corp., 921 F. Supp. 1113, 1120 (S.D.N.Y. 1996) (applying separate entity rule to branches
in different countries because New York branch has "neither control nor managerial
direction over . . . [the extraterritorial] main office").
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Tire Engineering eventually learned that one of the judgment
debtors had assets at the Bank of China ("BOC"). BOC is controlled and owned,
at least in part, by the People's Republic of China. BOC operates two branches in
New York City.
On December 18, 2012, Tire Engineering filed this action in the
Southern District of New York seeking a turnover order against BOC pursuant to
CPLR § 5225(b), alleging that BOC possesses assets of at least one of the
judgment debtors. Tire Engineering asked that BOC be ordered to turn over "all
money or other personal property in its possession in which one or more of the
[j]udgment [d]ebtors have an interest, regardless of whether [BOC] possesses
that money or other personal property in New York, China, the United Arab
Emirates, or elsewhere." First Amend. Compl. ¶ 40. Tire Engineering also
served a restraining notice on BOC pursuant to Federal Rule of Civil Procedure
69(a) and CPLR § 5222, prohibiting it from selling, assigning, or transferring any
property of the judgment debtors in its possession. The district court (Carter, J.)
entered an order directing BOC to show cause as to why a preliminary injunction
should not be granted.
In response, BOC confirmed it had no accounts or property
belonging to any of the judgment debtors in its New York branches. BOC filed a
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motion to dismiss, arguing, among other things, that the separate entity rule
precluded the relief Tire Engineering requested. Further, it argued that a
preliminary injunction was inappropriate due to the substantial harm that
freezing assets belonging to the judgment debtors would cause BOC. In support,
BOC submitted declarations of two professors, explaining that Chinese banking
laws prohibit Chinese commercial banks from complying with U.S. court orders
by freezing customer bank accounts in China and that accordingly BOC could
face regulatory sanctions and civil litigation in China if it complied with the
turnover order.
On April 12, 2013, the district court granted BOC's motion to
dismiss, holding that the separate entity rule precluded Tire Engineering's
request for relief. The district court granted Tire Engineering's request for a stay
pending appeal, permitting the restraining notice to remain in place until the
appeal was decided.
C. Motorola Credit Corp. v. Standard Charter Bank
Between April 1998 and September 2000, members of the Uzan
family (the "Uzans") induced Motorola Credit Corporation ("Motorola") to loan
more than $2 billion to a Turkish company they controlled. See Motorola Credit
Corp. v. Uzan, 274 F. Supp. 2d 481, 490 (S.D.N.Y. 2003). The Uzans diverted much
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of these funds. Id. On July 31, 2003, the district court (Rakoff, J.) entered a
judgment against the Uzans in favor of Motorola for compensatory damages in
the amount of $2,132,896,905.66. Id. at 580. In addition, on June 20, 2006, the
district court awarded Motorola $1 billion in punitive damages. See Motorola
Credit Corp. v. Uzan, 413 F. Supp. 2d 346, 353 (S.D.N.Y. 2006).
The Uzans have attempted to avoid paying these judgments. See
Motorola Credit Corp. v. Uzan, 561 F.3d 123, 127 (2d Cir. 2009) (finding the Uzans
"have persistently endeavored to evade the lawful jurisdiction of the District
Court and undermine its careful and determined work"). Indeed, the Uzans
remain in contempt of court for failure to comply with the District Court's orders
and are subject to arrest if they enter the United States. See id. at 128. Motorola
has accordingly pursued collection of the judgment through independent
investigation and third-party discovery, and the district court has conducted
post-judgment proceedings ex parte and under seal. On February 13, 2013, the
district court issued a restraining order pursuant to Federal Rules of Civil
Procedure 65 and 69 and CPLR § 5222, enjoining the Uzans, their agents, and
anyone with notice of the order from selling, assigning, or transferring their
property (the "restraining order"). The restraining order prohibited any parties
served with it from disclosing the restraining order or its contents to the Uzans.
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Motorola served the restraining order on Standard Chartered Bank
("SCB"). SCB is a foreign banking corporation, incorporated under the laws of
and headquartered in the United Kingdom, with branches in many countries, as
well as a branch in New York. SCB did not find any Uzan property in its New
York branch. After a global search in late April 2013, however, SCB identified
relevant assets connected with its branches in the United Arab Emirates
("U.A.E."). Motorola asked SCB to freeze the assets. As SCB sought to comply
with the restraining order, regulatory authorities in Jordan and the U.A.E.
intervened. The Central Bank of Jordan sent an auditor to seize documents from
SCB's branch office in Jordan. The U.A.E. Central Bank debited SCB's account
with its bank.
On May 14, 2013, SCB filed a motion for relief from the restraining
order. SCB argued, among other things, that placing a restraint on the
repayment of the interbank placements is contrary to the law in the U.A.E. and
subjects SCB to legal and regulatory risk. Further, it argued that, in light of the
separate entity rule, the restraining order should not have extraterritorial reach.
Finally, SCB argued that subjecting its foreign branches to the restraining order
violates the Due Process Clause of the Fourteenth Amendment by exposing SCB
to double liability.
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In a sealed order dated May 30, 2013, the district court found, in
relevant part, that the separate entity rule precludes Motorola from restraining
assets held by SCB's foreign branches. Noting that the law was unsettled as to
the viability of the separate entity rule, the district court stayed the release of the
restraint on the assets pending appeal. The district court subsequently issued a
sealed opinion, explaining its order in more detail.
These appeals followed.
DISCUSSION
A. Applicable Law
1. Standard of Review
We review an appeal from a district court's interpretation of
questions of state and federal law de novo. Am. Intern. Group, Inc. v. Bank of Am.
Corp., 712 F.3d 775, 778 (2d Cir. 2013).
2. Certification to the New York Court of Appeals
This Court may certify questions "where the New York Court of
Appeals has not spoken clearly on an issue and we are unable to predict, based
on other decisions by New York courts, how the Court of Appeals would answer
a certain question." Giordano v. Market Am. Inc., 599 F.3d 87, 100 (2d Cir. 2010).
"The Local Rules of the New York Court of Appeals permit certification of
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questions by this court when we encounter 'determinative questions of New
York law . . . for which no controlling precedent of the Court of Appeals exist.'"
Caronia v. Philip Morris USA, Inc., 715 F.3d 417, 450 (2d Cir. 2013) (quoting N.Y.
Ct. App. Local R. 500.27(a)).
Certification is appropriate "'where an unsettled question of state
law raises important issues of public policy, where the question is likely to recur,
and where the result may significantly impact a highly regulated industry.'"
Cruz v. TD Bank, N.A., 711 F.3d 261, 267-68 (2d Cir. 2013) (quoting State Farm
Mut. Auto. Ins. Co. v. Mallela, 372 F.3d 500, 505 (2d Cir. 2004)). In deciding
whether to certify a question, we consider: "(1) whether the New York Court of
Appeals has addressed the issue and, if not, whether the decisions of other New
York courts permit us to predict how the Court of Appeals would resolve it; (2)
whether the question is of importance to the state and may require value
judgments and public policy choices; and (3) whether the certified question is
determinative of a claim before us." In re Thelen LLP, 736 F.3d 213, 224 (2d Cir.
2013) (quoting Barenboim v. Starbucks Corp., 698 F.3d 104, 109 (2d Cir. 2012)).
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B. Application
We conclude that these appeals turn on unsettled and important
questions of New York law. Accordingly, we certify those questions to the New
York Court of Appeals.
1. The Absence of Controlling Precedent
The New York Court of Appeals has never addressed whether the
separate entity rule applies to post-judgment enforcement proceedings. Indeed,
it has not explicitly addressed the separate entity rule in any context. Instead, it
has affirmed, without opinion, intermediate courts' application of the separate
entity rule in cases that did not involve post-judgment enforcement proceedings.
See McCloskey v. Chase Manhattan Bank, 11 N.Y.2d 936 (1962) (affirming denial of
plaintiff's request for order of attachment against deposit account at bank branch
in Germany by serving warrant of attachment on bank's office in New York
City); Chrzanowska v. Corn Exch. Bank, 159 N.Y.S. 385, 387 (1st Dep't 1916), aff'd,
225 N.Y. 728 (1919) (interpreting provisions of New York Banking Law and
finding "different branches were as separate and distinct from one another as
from any other bank"). Accordingly, despite its application by lower courts
discussed above, the New York Court of Appeals has never unequivocally
approved or disapproved of the separate entity rule.
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The New York Court of Appeals has instructed that in determining
"the expanse of section 5225(b) [the] 'starting point' is 'the language itself, giving
effect to the plain meaning thereof.'" NMI, 21 N.Y.3d at 60 (quoting Majewski v.
Broadalbin-Perth Cent. Sch. Dist., 91 N.Y.2d 577, 583 (1998)). As plaintiffs point
out, the plain language of Sections 5222 and 5225(b) supports the authority of
New York courts to order garnishee banks subject to personal jurisdiction in
New York to turn over or restrain judgment debtors' assets. Article 52 makes no
specific references to foreign banks operating New York branches, and the
separate entity rule is not the product of a textual analysis of the CPLR. Instead,
it is a judicially created doctrine reflecting policy considerations over time, as
discussed below. Accordingly, while we are mindful that the New York Court of
Appeals has determined that "the failure of the legislature to include a term in
[article 52] is a significant indication that its exclusion was intended," NMI, 21
N.Y.3d at 60, we find this principle inapposite for a wholly judicially created
doctrine not tethered to the CPLR's text.
Plaintiffs contend that the decision of the New York Court of
Appeals decision in Koehler settles the issues we face here. In Koehler, the Court
addressed the question, certified by this Court, "whether a court sitting in New
York may order a bank over which it has personal jurisdiction to deliver stock
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certificates owned by a judgment debtor (or cash equal to their value) to a
judgment creditor, pursuant to CPLR article 52, when [the] stock certificates are
located outside New York." Koehler, 12 N.Y.3d at 536. Answering the question in
the affirmative, the Koehler Court explained that "the Legislature intended CPLR
article 52 to have extraterritorial reach" and "the key to the reach of the turnover
order is personal jurisdiction over a particular defendant." Id. at 539-40. In short,
the Koehler Court concluded that "[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." Id. at 540
(internal quotation marks and citation omitted). Plaintiffs urge us to find that
this holding in Koehler definitively forecloses the application of the separate
entity rule to post-judgment enforcement proceedings. While we acknowledge
that Koehler may be so read,8 we decline to reach the issue.
The separate entity rule was briefed in Koehler. See Br. of the
Clearing House Ass'n L.L.C. as Amicus Curiae in Support of Respondent, Koehler,
12 N.Y.3d 533 (No. 2009-0082), 2009 WL 1615261 at *18 ("The Court should not
answer the certified question in a manner that conflicts with the separate entity
8
See, e.g., JW Oilfield Equip., LLC v. Commerzbank, AG, 764 F. Supp. 2d 587,
595 (S.D.N.Y. 2011).
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rule."). The deeply divided Koehler Court did not, however, address the issue. In
light of the longstanding application of the separate entity rule in New York, as
discussed above, we doubt that the Court of Appeals intended to silently
overrule the doctrine.9 New York courts considering the rule's application to
post-judgment enforcement orders after Koehler have so held.10
Moreover, on the facts before it, the Court in Koehler did not need to
address the separate entity rule. The defendant in Koehler was a foreign bank
that had consented to personal jurisdiction in New York through the service of
its wholly owned New York subsidiary. Koehler, 12 N.Y3d at 536. Further, the
judgment creditor in Koehler sought the turnover of physical stock certificates in
the bank's possession. Id. As the separate entity rule precludes courts from
ordering branches of foreign banks to turn over or restrain assets in a judgment
9 Indeed, prior to Koehler, the First Department recognized that an
extension of exceptions to the separate entity rule "would require . . . a pronouncement
from the Court of Appeals or an act of the Legislature." In re Nat'l Ins. Co. of Pittsburgh,
Pa., 703 N.Y.S.2d at 3; accord Sabre Shipping Corp., 341 F.2d 53 (refusing to abandon the
separate entity rule because "[w]e may not alter an established rule of New York law
when there has been no indication by the New York lawmakers that they have changed
their point of view").
10
See, e.g., Global Tech., Inc. v. Royal Bank of Canada, No. 150141/2011, 2012
WL 89823, at *13 (Sup. Ct. N.Y. Cnty. Jan. 11, 2012); Samsun Logix Corp. v. Bank of China,
No. 105262/10, 2011 WL 1844061, at *4 (Sup. Ct. N.Y. Cnty. May 12, 2011); Parbulk II AS
v. Heritage Maritime, SA, 935 N.Y.S.2d 829, 832 (Sup. Ct. N.Y. Cnty. 2011); see also Shaheen
Sports, Inc. v. Asia Ins. Co., Ltd., Nos. 98-cv-5951 LAP, 11-CV-920 LAP, 2012 WL 919664,
at *4-*5 (S.D.N.Y. Mar. 14, 2012).
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debtor's account, nothing required the Koehler Court to consider the rule's
application to a foreign bank operating a subsidiary in New York that was
ordered to turn over stock certificates it physically possessed. Here, in contrast,
plaintiffs' claims turn on the crux of the separate entity rule -- whether
defendants are subject to post-judgment enforcement orders where they operate
a branch in New York and hold assets of judgment debtors in accounts in foreign
branches.
Although both parties present theories as to why the Court in
Koehler did not address the separate entity rule, only the Court of Appeals can
tell us definitively the significance -- if any -- of its decision not to address the
question, whether it intended to silently overrule the doctrine, and whether the
rule applies to post-judgment enforcement orders. Accordingly, we conclude
that there is no "controlling precedent" in New York that governs this case.
2. The Certified Questions Involve Important Issues of State Law
The questions presented by these appeals involve important issues
of New York state law and policy that are likely to recur and may have
important effects on a highly regulated industry. Indeed, the separate entity rule
is a judicially created doctrine that reflects policy choices over time and courts,
the legislature, and the banking industry in New York and abroad may have
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acquiesced in or relied on its principles. Hence, we find certification here is
particularly compelling.
As defendants and amici note, international banks are subject to the
competing laws of multiple jurisdictions, and turnover or restraining orders by
New York courts may cause conflicts with the regulations, laws, and policies of
other sovereign jurisdictions. As SCB's experience highlights, in complying with
post-judgment orders from United States courts, banks may face regulatory and
financial repercussions and due process concerns in foreign jurisdictions.11
Moreover, as amici point out, the original concern that treating all branches of a
bank as a single entity would place an "intolerable burden upon banking and
commerce," Cronan, 100 N.Y.S.2d at 476, may still be relevant for world-wide
post-judgment orders. State courts continue to acknowledge that banks face
practical constraints and considerable costs in determining whether a judgment
11
See, e.g., Global Tech., Inc., 2012 WL 89823, at *13 ("The separate entity rule
can be harmonized with the modern due process framework of personal jurisdiction,
when the separate entity rule is understood as akin to a rule governing service of
process."); Samsun, 2011 WL 1844061, at *6 (explaining due process concerns for
garnishee-banks exposed to double liability); accord Shaffer v. Heitner, 433 U.S. 186, 212
(1977) ("[A]ll assertions of state-court jurisdiction must be evaluated according to the
standards [of fair play and substantial justice] set forth in International Shoe and its
progeny.").
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debtor's property is located in any branch in the world.12 Finally, amici contend
that the applicability, or not, of the separate entity rule to post-judgment
enforcement orders may have unintended consequences for New York's banking
industry and New York courts. A decision that branches of a bank anywhere in
the world are subject to post-judgment enforcement orders if that bank maintains
a New York branch could potentially affect decisions of international banks to
maintain New York branches.13
On the other hand, as plaintiffs argue, the original basis for the
separate entity rule may have weakened or even disappeared over time. Further,
as plaintiffs' experiences show, the applicability of the rule may facilitate efforts
of judgment debtors to frustrate and evade the collection of judgments. Indeed,
Motorola has been attempting to collect its judgment from the Uzans for nearly a
decade. Moreover, the rule may permit banks operating branches in New York
12
See, e.g., Samsun, 2011 WL 1844061, at *4 ("[T]he banks submitted
numerous affidavits to the effect that the computer systems in the New York branches
of the Banks do not provide access to customer account information at the head office or
at branches outside of the United States."); Lok Prakashan Ltd. v. India Abroad Publ's Inc.,
No. 00 Civ. 5852(LAP), 2002 WL 1585820, at * 1 (S.D.N.Y. July 16, 2002) ("The Bank's
New York branch does not have access to any information for accounts in the Bhadra
branch.").
13
See Damien H. Weinstein, Comment, New York: The Next Mecca for
Judgment Creditors? An Analysis of Koehler v. Bank of Bermuda Ltd., 78 FORDHAM L. REV.
3161, 3200 (2010).
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to avoid the consequences of choosing to do business in New York and provide a
competitive advantage to foreign banks. Indeed, courts in New York have
suggested that the risk of double liability is "'assumed as part of the business of a
bank.'" JPMorgan Chase Bank, N.A. v. Motorola, Inc., 846 N.Y.S.2d 171, 184 (1st
Dep't 2007) (quoting Petrogardsky Mejdunarodny Kommerchesky Bank v. Nat'l City
Bank of N.Y., 253 N.Y.2d 23, 40 (1930) and noting "the risk [arising from disputes
over title to deposit accounts] is a foreseeable one that banks presumably
consider").
Both sides raise important policy concerns, and questions involving
such policy concerns, we believe, are more appropriately resolved by the Court
of Appeals. See Barenboim, 698 F.3d at 117.
3. The Answers to the Certified Questions May Be Determinative
The response of the Court of Appeals to the certified questions will
likely determine the outcome of these appeals. Specifically, if the Court of
Appeals holds that the separate entity rule is not applicable to turnover orders
pursuant to § 5225(b) or to restraining orders pursuant to § 5222, then the district
court orders will be vacated. On the other hand, if the Court of Appeals
determines that the separate entity rule is applicable to turnover orders,
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restraining orders, or both, the district court orders will be upheld accordingly
and plaintiffs' requests for relief denied.
CONCLUSION
In sum, we reserve decision and certify the following questions for
these tandem cases to the New York Court of Appeals:
First, whether the separate entity rule precludes a judgment creditor
from ordering a garnishee bank operating branches in New York to turn over a
debtor's assets held in foreign branches of the bank; and
Second, whether the separate entity rule precludes a judgment
creditor from ordering a garnishee bank operating branches in New York to
restrain a debtor's assets held in foreign branches of the bank.
We do not bind the Court of Appeals to the particular questions
stated. Rather, the Court of Appeals may expand the certified questions to
address any other issues that may pertain to the circumstances presented in these
appeals.
This panel retains jurisdiction and will consider any issues that
remain on appeal once the New York Court of Appeals has either provided us
with guidance or declined certification.
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It is therefore ORDERED that the Clerk of this Court transmit to the
Clerk of the Court of Appeals of the State of New York a Certificate, as set forth
below, together with complete sets of briefs and appendices, and the records
filed in this Court by the parties.
CERTIFICATE
The foregoing is hereby certified to the Court of Appeals of the State
of New York pursuant to Second Circuit Local Rule 27.2 and New York Codes,
Rules, and Regulations Title 22, § 500.27(a), as ordered by the United States
Court of Appeals for the Second Circuit.
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