Collecting from a debtor who does not reside within New York State and who may not otherwise be subject to the “long-arm” jurisdiction of New York courts (especially after the U.S. Supreme Court’s decision in Daimler AG v. Bauman, 134 S. Ct. 746 (2014)) can be made much easier if the creditor can identify a specific asset in New York, such as a bank account. Under Article 62 of New York’s Civil Practice Law and Rules (“CPLR”), a creditor-plaintiff can simultaneously file a summons and complaint to collect from the debtor-defendant and move the court for what is known as an order of attachment, which allows the plaintiff to have a Sheriff seize the asset pending the outcome of the law suit. The attachment procedure can be a very effective tool for preserving a debtor’s asset as security throughout the law suit and to prevent the asset’s disappearance once the debtor becomes aware of the law suit. Also, under the proper circumstance, the asset itself provides a means to obtain jurisdiction over a foreign defendant, commonly referred to as in rem jurisdiction.
CPLR Section 6201 sets forth the basis upon which an order of attachment can be obtained:
An order of attachment may be granted in any action, except a matrimonial action, where the plaintiff has demanded and would be entitled, in whole or in part, or in the alternative, to a money judgment against one or more defendants, when:
1. the defendant is a nondomiciliary residing without the state, or is a foreign corporation not qualified to do business in the state….
In order to obtain a pre-judgment order of attachment, in its moving papers, the creditor-plaintiff must establish the following elements under CPLR 6212 (a):
a. That there is a cause of action and that the action is one in which plaintiff would be entitled to a money judgment;
b. That it is probable that plaintiff will succeed on the merits;
c. That one or more of the grounds for the attachment set forth in CPLR 6201 exist; and
d. That the amount demanded from the defendant exceeds all counterclaims known to plaintiff.
Also, the plaintiff moving for an order of attachment will be required to file a bond or undertaking to be determined by the court “but not less than five hundred dollars, a specified part thereof conditioned that the plaintiff shall pay to the defendant all costs and damages, including reasonable attorney’s fees, which may be sustained by reason of the attachment if the defendant recovers judgment or if it is finally decided that the plaintiff was not entitled to an attachment of the defendant’s property…”
CPLR Section 6202 also defines which property of the debtor is subject to attachment. Essentially, any property that is subject to execution under New York law (see CPLR 5201) is appropriate for an attachment order. A debtor’s bank account is usually the first thing a creditor will seek to attach. If the debtor’s account is located in a New York bank and specifically located in a New York branch of the bank, there is no question that the asset is suitable for attachment. The issue becomes more complicated when the debtor’s bank account is ostensibly located in a bank branch outside of New York, but the particular bank has branches and is otherwise subject to jurisdiction in New York. In the area of attachments, New York has followed what is traditionally known as the separate entity rule, meaning that each branch for purposes of attachment is treated as a separate entity. Therefore, if the bank account is in a branch outside of New York, it will not be subject to attachment simply by serving a New York branch of the particular bank. However, a growing tension has arisen in New York law with the decision of New York’s highest court in Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009) (“Koehler”), where the court held that in a post-judgment context under CPLR Article 52 as long as the court had personal jurisdiction over the non-resident bank, the separate entity rule was not a bar to execution. Adding to the tension, New York’s highest court then decided Motorola Credit Corp. v. Standard Chartered Bank, — N.E.3d —- (2014) wherein the Court re-affirmed the separate entity rule as it applied to international banking in the context of post-judgment executions, but declined to extend its ruling to domestic banking.
What is clear, however, is that seizing a debtor’s asset prior to judgment will cause a debtor interminable tension and significantly improve a creditor’s chance of successfully collecting on the debt.