Introduction
New York's Highest Court has recently reminded judgment debtors just how far its jurisdiction and powers of enforcement can stretch. While the decision in Koehler v Bank of Bermuda Ltd1 is not groundbreaking, and in fact cites long established New York precedent, it is the first decision of its kind by the New York Court of Appeals. Therefore, while the decision may have attracted more coverage than the 4–3 Court of Appeals majority anticipated, the legal position has remained unchanged for some time now and therefore we do not believe that this area of the law will be subject to substantial change in the near future. This is good news for those considering enforcement in the United States, regardless of whether you have a judgment or an arbitration award and indeed regardless of where in the world your judgment/award was rendered!
The Decision
In summary, Mr Koehler, a citizen of Pennsylvania brought a claim against his former business partner, Mr Dodwell, who was at the relevant time a resident of Bermuda. Mr Koehler obtained a Default Judgment in the District Court of Maryland, registered this Judgment in New York and then filed a petition seeking payment or delivery of property belonging to Mr Dodwell.
What is interesting about this case is that the property Mr Koehler attempted to enforce against was stock of a Bermudan corporation held in the form of certificates pledged to the Bank of Bermuda Limited (BBL) (i.e., well outside of the New York Court's personal jurisdiction). Luckily for Mr Koehler the BBL had a New York subsidiary. This proved sufficient as the Court ruled that there was no territorial limitation barring an order requiring a garnishee (i.e., BBL's New York subsidiary) to transfer money or property into the New York state from another state or country (i.e., Bermuda).
Therefore a claim, which on the face of it appeared totally unconnected with New York, could be enforced by the New York Courts merely by establishing that an entity related to a third party holding the assets of the judgment debtor had a presence in New York, even when the assets themselves were outside of New York. Further, the Koehler decision is equally applicable to an unsatisfied arbitration award.
Discovering Assets/A New York Presence
However, crucial to this case was Mr Koehler's knowledge of the defendant's assets. What if you are having trouble finding assets or identifying potential third parties with a presence in New York? Again New York law assists and provides for the taking of depositions and production of documents. Indeed the Koehler decision notes that the legislature had recently amended New York statute to facilitate disclosure of materials that would assist creditors in enforcing judgments, even when those materials are located outside of New York.
However, in order to utilise the New York laws relating to disclosure there must first be an action pending in the New York Court. This is where the procedure and relative ease of enforcement is dependant upon the jurisdiction in which the original decision was obtained, and whether it is a Court judgment or an arbitration award.
If the decision is a judgment from another US state, as in Mr Koehler's case, then the recognition and enforcement is straightforward under the US Constitution. However, if the decision is a foreign judgment, then the first step is to file a suit in the appropriate US Court requesting that the foreign judgment be recognised and given effect (also known as "domestication" of a foreign judgment). The key to making use of the New York law is founding personal jurisdiction over the defendant in New York (i.e., when a corporation is "doing business" in New York or transacts any business within New York or contracts anywhere to supply goods or services within New York). Other criteria such as having a final and binding judgment which is enforceable where render must also be met in order to enforce a foreign judgment.
The process for recognition and enforcement of foreign arbitration awards is different again. However, the first hurdle for enforcement of any award is the same—the founding of personal jurisdiction over the defendant. Assuming that an award is rendered from a New York Convention country, then as per the Convention's terms, the award will be enforced "in accordance with the rules of procedure of the territory where the award is relied upon."
Relationship with Rule B Attachments
Our recent client alert highlighted the demise of the Rule B Attachments for electronic fund transfers (EDFs) passing through New York after the Jaldhi2 decision. However, it is important to note that the Koehler decision does not apply pre-judgment. The Koehler decision explicitly noted the distinction between post-judgment enforcement (which demands that property is transferred to another party) and the pre-judgment attachment (which operates solely on property to keep it out of a judgment debtor's hands).
Accordingly, the Koehler decision's recognition of the possibility of enforcement against extraterritorial property does not afford any relief to a would-be Rule B plaintiff disappointed by the Jaldhi decision and the recent prohibition on attaching EFTs in the temporary possession of an intermediary bank.
Conclusion
The Koehler decision serves as a useful reminder to judgment creditors of just how far a New York Court can take enforcement. Both as regards finding an asset and subsequently obtaining the asset itself. In light of the demise of the Rule B and the current world wide "credit crunch", such enforcement opportunities could prove useful to those creditors fortunate enough to have a judgment or arbitration award which is enforceable in New York.
- 12 NY 3d
- The Shipping Corporation of India Ltd v Jaldhi Overseas Ltd, 2009 WL 3319675 (2d Cir. October 16, 2009).