Commonwealth of the Northern Mariana Islands v. Millard, Nos. 11 Misc. 99, 11 Misc. 100, 2012 U.S. Dist. LEXIS 24363 (S.D.N.Y. Feb. 28, 2012)

Plaintiff, the Commonwealth of the Northern Mariana Islands (the “Commonwealth”) obtained default judgments for over $36 million against William and Patricia Millard  (the “Millards”) based on allegations of unpaid taxes.  The Commonwealth then registered those judgments in the District Courts for the Southern District of New York and the Middle District of Florida pursuant to 28 U.S.C. § 1963.

In the Southern District of New York, the Commonwealth sought a turnover order pursuant to Section 5225(b) of the New York Civil Practice Law and Rules against a Merrill Lynch account in the name of the Millard Foundation.  The Commonwealth asserted that the Foundation was used as a “front” by the Millards as a means of moving their money from offshore accounts to their children in the United States.  Merrill Lynch took no position on the turnover application, but the Millard Foundation submitted a brief objecting to the application.  At oral argument, the Millard Foundation objected to the court’s exercise of personal jurisdiction over the Foundation.

Following oral argument, the court issued an order setting forth its rulings on four preliminary matters.  First, the court concluded that the turnover application was properly brought as a motion rather than a special proceeding. 

Second, the court held that the turnover proceeding did not need to be stayed in light of an action filed by the children of the Millards in the Middle District of Florida, in which they sought to attack the validity of the underlying default judgments.  The court found that there was no legal support for the Foundation’s argument that the turnover proceeding should be stayed.  Important to the court’s ruling was the fact that the Middle District of Florida refused to stay the execution of the judgments and granted the Commonwealth’s request for writs of execution while the action filed by the Millard children was pending.  In addition, the action in the Southern District of New York was filed well before the Millard children filed their action in Florida and the Millards themselves had not even appeared in the Florida action.

Third, with respect to the Foundation’s personal jurisdiction objection, the court held that the relevant inquiry is whether it has personal jurisdiction over the garnishee Merrill Lynch rather than over the Foundation.  The court recognized that this case was different from the seminal turnover case of Koehler v. Bank of Bermuda, 911 N.E.2d 825 (N.Y. 2009), because the money in question is in an account ostensibly belonging to a third party, the Foundation, rather than an account belonging to the judgment debtors.  Noting that this procedure could be abused by judgment creditors seeking to drag foreign entities into court simply by bare allegations that they possess the money of a judgment debtor, the court held that the judgment creditor must meet a threshold sufficient to convince the court that it can prevail on the merits.  In this case, the Commonwealth met that threshold, having adequately alleged that the Millards have an interest in the Merrill Lynch account and the Commonwealth has a right of possession to the funds in the account superior to that of the Foundation.

Finally, the court held that the Millards may be subpoenaed to testify at an evidentiary hearing in the case because they are the sole corporate officers of the Foundation.  The court cited to Rule 45(c)(3)(A)(ii) of the Federal Rules of Civil Procedure, which states that corporate officers of a party may be subpoenaed and required to travel more than 100 miles from where they reside, are employed, or regularly transact business.