New York rules that courts can order banks to deliver assets outside of N.Y.

A June 4, 2009, opinion in the case of Koehler v. The Bank of Bermuda makes clear that a New York court can order a bank over which it has personal jurisdiction to turn over to a creditor assets owned by a judgment debtor, even when those assets are located outside of New York. The opinion was issued by the New York Court of Appeals, which is New York’s highest court. It resolves a previously unclear issue in New York law by allowing a New York court, pursuant to CPLR Article 52, to enforce judgments by seizing assets held outside of New York when the New York court has personal jurisdiction over the bank holding the assets.  

In Koehler, a Pennsylvania resident obtained a judgment of over $2 million against his former business partner. Koehler sought to enforce this judgment by seizing stock certificates owned by the business partner that were held by the Bank of Bermuda in Bermuda. The U.S. District Court for the Southern District of New York ordered the Bank of Bermuda to turn over to Koehler the stock certificates or money to pay the judgment. The Bank of Bermuda appealed that order to the U.S. Court of Appeals for the Second Circuit, which then certified the unresolved N.Y. state law issue to the Court of Appeals. While Koehler ostensibly applies only to CPLR 5225(b), which applies to property subject to turnover or delivery orders, the precedent may also have wider potential with respect to other bank-held property.  

For, example, concerns were raised in an amicus brief written on behalf of a major banking association, which asserted that a ruling in favor of Koehler could lead to disastrous practical results, including conflicts between New York and other jurisdictions (since most jurisdictions do not allow assets to be seized outside of a court’s jurisdiction), increased litigation costing banks and their customers a great deal of time and money, forum shopping by plaintiffs seeking to enforce in New York judgments on assets located outside of New York and even some banks, especially foreign banks, choosing to limit or entirely eliminate their New York offices to avoid such consequences for them and their customers.  

Following the New York court’s decision in Koehler, the case will go back to the Second Circuit, where other issues remain to be decided, including some U.S. constitutional law issues. Nevertheless, New York’s highest court seems to have interpreted this important civil procedure provision in such a way as to place New York banks and branch offices in jeopardy of having to turn over their clients’ assets, including assets located in overseas headquarters and branch offices, whenever the court has jurisdiction over the New York branch.