It is Not a Bridge Too Far – Reaching a Debtor’s Bank Deposits Located in Another State

New York’s post-judgment enforcement laws as set forth in Article 52 of the Civil Practice Law and Rules (“CPLR”) and a seminal decision of the New York Court of Appeals, New York’s highest court, in Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009) (“Koehler”) allow a New York judgment creditor to, in effect, levy upon the bank deposits of a judgment debtor located in a bank account of a different state provided the bank in question is subject to personal jurisdiction in New York. Given the current state of electronic and internet money transfers, New York’s approach to this extra-territorial reach of enforcement remedies makes economic and practical sense in the modern world of banking.

The place to start is CPLR Section 5225 (b), New York’s enforcement statute which allows a judgment creditor to commence a proceeding to force any one holding property of the judgment debtor, and subject to personal jurisdiction in New York, to “turn-over” the property to the judgment creditor or a designated Sheriff. Section 5225 (b) specifically provides that: “where it is shown that the judgment debtor is entitled to the possession of such property or that the judgment creditor’s rights to the property are superior to those of the transferee, the court shall require such person to pay the money, or so much of it as is sufficient to satisfy the judgment”.

In Koehler, New York’s highest court interpreted Article 52 and stated clearly that a New York court has the authority to issue a turnover order pertaining to extraterritorial property, if it has personal jurisdiction over the person in possession of the property. While the facts in Koehler involved stock of a judgment debtor being held by the foreign parent of the bank served in New York, subsequent cases, relying on Koehler, have had no problem applying the extra-territorial reach of Article 52 to deposits of debtors technically held by out of state branches of the bank served in New York. See for example, McCarthy v. Wachovia Bank, N.A., 759 F.Supp.2d 265, 275 (E.D.N.Y. 2011), where the court explained that “because Wachovia has branches within New York—and therefore conducts business in New York—it is subject to the jurisdiction of the New York courts. Accordingly, under the Court of Appeals’ holding in Koehler, it was permissible for defendants to issue and honor the restraining notice served pursuant to New York CPLR Section 5222.4.”

Notwithstanding, its decision in Koehler, New York’s highest court recently had occasion to revisit its ruling in Koehler, but limited its review to the applicability of Article 52 enforcement to branches of foreign banks operating in New York and subject to jurisdiction here. Affirming the application of a century old common law doctrine known as the separate entity rule, the New York Court of Appeals held that branches of foreign international banks are really separate entities, distinct from the branches of international banks operating outside of the United States. New York’s highest court determined that the separate entity rule was necessary in order to promote international banking and finance in New York as foreign banks could not subject themselves to the burden of monitoring accounts in different countries as well as the possibility of being subject to conflicting rules in different countries. See Motorola Credit Corp. v. Standard Chartered Bank, — N.E.3d —- (2014) (“Motorola Credit”).
The dissent in Motorola Credit harshly criticized the majority’s ruling, questioning the majority’s reasoning in distinguishing Koehler as well as the wisdom in preserving the separate entity doctrine in light of the modern world of electronic and computerized banking.

However, when it comes to domestic banking, New York will allow a judgment creditor to enforce a judgment against any bank which is subject to personal jurisdiction in New York.