To be Argued by: SCOTT D. MUSOFF (Time Requested: 30 Minutes) Court of Appeals Case No. 229 Second Circuit Docket No. 12-1857-cv Court of Appeals of the State of New York COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS, Plaintiff-Appellant, - against - CANADIAN IMPERIAL BANK OF COMMERCE, Garnishee-Respondent, WILLIAM H. MILLARD, Defendant, THE MILLARD FOUNDATION, Intervenor. BRIEF FOR GARNISHEE-RESPONDENT SCOTT D. MUSOFF TIMOTHY G. NELSON GREGORY A. LITT SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Attorneys for Garnishee-Respondent Four Times Square New York, New York 10036 Tel.: (212) 735-3000 Fax: (212) 735-2000 Date Completed: February 1, 2013 CORPORATE DISCLOSURE STATEMENT Pursuant to Rule 500.1(f) of the Rules of the Court of Appeals, Garnishee-Respondent Canadian Imperial Bank of Commerce advises the Court that it has no corporate parents but that it has many subsidiaries and/or affiliates, which are too numerous to list in total, but which include the following: CIBC Asset Management Holdings Inc., CIBC Asset Management Inc., CIBC BA Limited Toronto, CIBC Global Asset Management Inc., CIBC Private Investment Counsel Inc., CIBC Investor Services Inc., CIBC Life Insurance Company Limited, CIBC Mortgages Inc., 3877337 Canada Inc. (Home Loans Canada), CIBC Securities Inc., CIBC Trust Corporation, CIBC World Markets Inc., CIBC WM Real Estate Ltd., CIBC WM Real Estate (Quebec) Ltd., CIBC Wood Gundy Financial Services Inc., CIBC Wood Gundy Financial Services (Quebec) Inc., CIBC Delaware Holdings Inc., CIBC World Markets Holdings Inc., CIBC World Markets Corp., Canadian Imperial Holdings Inc., CIBC Inc., CIBC Capital Corporation, INTRIA Items Inc., CIBC Capital Funding IV, L.P., CIBC Holdings (Cayman) Limited, CIBC Investments (Cayman) Limited, FirstCaribbean International Bank Limited, CIBC Bank and Trust Company (Cayman) Limited, CIBC Trust Company (Bahamas) Limited, FirstCaribbean International Bank (Bahamas) Limited, FirstCaribbean International Bank (Barbados) Limited, FirstCaribbean International Bank (Cayman) Limited, FirstCaribbean International Bank (Jamaica) Limited, FirstCaribbean International Bank (Trinidad and Tobago) Limited, FirstCaribbean International Wealth Management Bank (Barbados) Limited, CIBC International (Barbados) Inc., CIBC Offshore Banking Services Corporation, CIBC Reinsurance Company Limited, CIBC World Markets Securities Ireland Limited Co., CIBC World Markets plc London, CIBC World Markets (Japan) Inc. and CIBC Australia Ltd. i TABLE OF CONTENTS Page COUNTER-STATEMENT OF THE CASE ............................................................. 1 SUMMARY OF THE ARGUMENT ........................................................................ 3 COUNTER-STATEMENT OF THE FACTS AND CASE ...................................... 8 A. The Parties ............................................................................................. 8 B. Appellant's Application of March 2012 and the Continuing Restraints, Purportedly Directed Against CIBC ................................... 9 C. As Appellant Has Conceded, CIBC Possesses a Separate Corporate Identity From That of Its Partial, Indirect Cayman Subsidiaries ......................................................................................... 10 D. The District Court Denies the Application for a Turnover Order ....... 11 E. The Present Appeal ............................................................................. 12 F. The Certified Questions ...................................................................... 13 ARGUMENT ........................................................................................................... 14 I. A BANK THAT HOLDS NO PROPERTY OR ACCOUNTS OF THE RELEVANT DEBTOR SHOULD NOT BE COMPELLED TO TURN OVER MONEY OR ASSETS DEPOSITED AT ITS FOREIGN SUBSIDIARY BANKS .............................................................. 14 A. On their Face, the Turnover Statutes Apply Only to Companies Served with a Turnover Application, Not their Subsidiaries .............. 14 B. In Cases Involving Turnover of Bank Accounts, CPLR § 5227 Governs ............................................................................................... 16 C. Appellant's Interpretation of the Turnover Statutes is Unprecedented ..................................................................................... 19 ii D. Koehler v. Bank of Bermuda Did Not Address Situations Such as the Present Case - And Does not Support Appellant's Position ................................................................................................ 28 E. Appellant's Interpretation of CPLR § 5225(b) as Reaching Assets Held by Subsidiaries "Controlled" by a Parent Finds No Textual or Contextual Support ............................................................ 32 F. The Legislative History and Pre-1964 Position Support CIBC .......... 40 G. Whatever the Current Status of the "Separate Entity Rule," The Cases on this Issue Show that the Turnover Statutes, When Applied to Bank Garnishees, Should Be Interpreted Narrowly .......... 45 II. THE TURNOVER STATUTES COULD VALIDLY BE APPLIED TO CORPORATE AFFILIATES ONLY IF VEIL-PIERCING WERE ESTABLISHED ............................................................................................ 50 A. Because Post-Judgment Proceedings Affect Title and Rights Over Property Held by the Garnishee, a Turnover Order Should Only Reach Subsidiaries that are True Alter Egos of the Garnishee ............................................................................................. 50 B. If the Turnover Statutes Permitted Unlimited Recourse to the Property of Foreign Non-Party Affiliates, This Would Have Obvious - and Negative - Due Process Implications ......................... 53 C. The Discovery Test of "Possession, Custody or Control" Has No Relevance in the Turnover Context ............................................... 58 D. There Has been No Final Determination of "Control" in this Case ..................................................................................................... 60 CONCLUSION ........................................................................................................ 63 iii TABLE OF AUTHORITIES Page AG Worldwide v. Red Cube Mgmt. AG, No. 01 CIV 1228(GEL), 2002 WL 417251 (S.D.N.Y. Mar. 15, 2002) .................................................... 22 Ahern Painting Contractors, Inc. v. Dist. Council of New York City & Vicinity of United Bhd. of Carpenters & Joiners of America, 141 A.D.2d 791 (2d Dep't 1988) .................................................................... 42 Alliance Bond Fund, Inc. v. Grupo Mexicano de Desarrollo, S.A., 190 F.3d 16 (2d Cir. 1999) ............................................................................. 18 Allied Mar., Inc. v. Descatrade SA, 620 F.3d 70 (2d Cir. 2010) ....................... 48 Amorosi v. South Colonie Indep. Cent. School Dist., 9 N.Y.3d 367 (2007) ..... 41 In re ATM Fee Antitrust Litig., 233 F.R.D. 542 (N.D. Cal. 2005) .................... 59 Auerbach v. Bd. of Educ. of City School Dist. of City of N.Y., 86 N.Y.2d 198 (1995) ................................................................................................ 41 Aurelius Capital Partners v. Rep. of Argentina, No. 07 Civ. 2715(TPG), 2012 WL 983564 (S.D.N.Y. Mar. 22, 2012) .......................................... 27 Ayyash v. Koleilat, 2012 N.Y. Slip. Op. 22396 (Sup. Ct. N.Y. County Oct. 22, 2012) ................................................................................... passim Banco Ambrosiano, S.p.A. v. Artoc Bank & Trust, Ltd., 62 N.Y.2d 65, 464 N.E.2d 432 (1984) ................................................................................... 49 Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964) ............................. 8 iv Bank of N. Y. v. Nickel, 14 A.D.3d 140 (1st Dep't 2004) ............................ 33, 34 Bay Shore Family Partners, L.P. v. Found. of Jewish Philanthropies of Jewish Fed'n of Greater Fort Lauderdale, 239 A.D.2d 373 (2d Dep't 1997) ............................................................................................... 44 BDP Int'l v. First Affiliated, No. 0600409/0409, 2006 N.Y. Slip Op. 30083(U) (Sup. Ct. N.Y. County Apr. 10, 2006) .................................... 46 Bellomo v. Pennsylvania Life Co., 488 F. Supp. 744 (S.D.N.Y. 1980) ............. 52 Billy v. Consol.Mach. Tool Corp., 51 N.Y.2d 152 (1980)................................. 26 Bluebird Partners L.P. v. First Fid. Bank, N.A., 97 N.Y.2d 456 (2002) ...................................................................................................... 33 Bluebird Undergarment Corp. v. Gomez, 139 Misc. 742 (City Court N.Y. County 1931) ........................................................................................... 47 Bradford v. Chase Nat'l Bank, 24 F. Supp. 28 (S.D.N.Y. 1938) ....................... 16 Brigham v. McCabe, 20 N.Y. 2d 525 (1967) ..................................................... 16 In re Citric Acid Litig., 191 F.3d 1090 (9th Cir. 1999) ..................................... 60 Clinton Trust Co. v. Compania Azucarera Central Romona S.A., 172 Misc. 148 (Sup. Ct. N.Y. County) ........................................................... 46 Comprehensive Sports Planning Inc. v. Pleasant Valley Country Club, 73 Misc. 2d 477 (Civ. Ct. N.Y. County 1973) ............................................. 52 Cronan v. Schlling, 100 N.Y.S.2d 474 (Sup. Ct. N.Y. County 1950) ............... 46 v Cruz v. TD Bank, N.A., 855 F. Supp. 2d 157 (S.D.N.Y. Mar. 2, 2012) ............. 16 DaimlerChrysler Corp. v. Spitzer, 7 N.Y.3d 653 (2006) .................................. 33 Davis v. Gamesa Tech. Corp., Civil Action No. 08-4536, 2009 WL 3473391 (E.D. Pa. Oct. 20, 2009) ........................................................... 59 Day v. Corner Bank (Overseas) Ltd., 789 F. Supp. 2d 150 (D.D.C. 2011) .......................................................................................... 61 In re Delaney, 256 N.Y. 315 (1931) .................................................................. 16 Det Bergenske Dampskibsselskab v. Sabre Shipping Corp., 341 F.2d 50 (2d Cir. 1965) ........................................................................................... 47 Dewar v. Bangkok Bank, 37 Misc. 3d 1231(A), 2012 NY Slip Op. 52254(U) (Sup. Ct. N.Y. County 2012) .................................................. 30 Dietrich v. Bauer, 198 F.R.D. 397 (S.D.N.Y. 2001) ......................................... 59 Dietrich v. Bauer, No. 95 Civ. 7051(RWS), 2000 WL 1171132 (S.D.N.Y. Aug. 16, 2000) ......................................................................................... 59 Dole Food Co. v. Patrickson, 538 U.S. 468 (2003) ........................................... 27 Dorchester Financial Securities. v. Banco BRJ, S.A., No. 02 Civ. 7504 (KMW)(KNF), 2009 WL 5033954 (S.D.N.Y. Dec. 23, 2009) ............... 21 Eitzen Bulk A/S v. Bank of India, 827 F. Supp. 2d 234 (S.D.N.Y. Oct. 5, 2011) ........................................................................................................ 48 EM Ltd. v. Rep. of Argentina, 473 F.3d 463 (2d Cir. 2007) .............................. 27 vi First Nat'll City Bank of N. Y. v. Internal Revenue Service, 271 F.2d 616 (2d Cir. 1959) ........................................................................................... 60 Florentia Contracting Corp. v. Resolution Trust Corp., No. 92 Civ. 1188(PKL), 1993 WL 127187 (S.D.N.Y. April 22, 1993)...................... 59 Ford Motor Credit Co. v. Hickey Ford Sales, Inc., 62 N.Y.2d 291 (1984) ...... 33 Frummer v. Hilton Hotels Int'l, 19 N.Y.2d 533 (1967) ..................................... 52 Gallant v. Kanterman, 198 A.D.2d 76 (1st Dep't 1993) .................................... 28 Geler v. Nat'l Westminster Bank USA, 770 F. Supp. 210 (S.D.N.Y. 1991) ...... 17 In re Gilmore, 87 A.D.3d 145 (2d Dep't 2011) ................................................. 33 Global Tech., Inc. v. Royal Bank of Canada, 34 Misc. 3d 1209(A), 2012 N.Y. Slip Op. 50023(U) (Sup. Ct. N.Y. County 2012) ..................... 18, 46 Goldberg & Connolly v. Xavier Constr.Co., 94 A.D.3d 1117 (2d Dep't 2012) ........................................................................................................ 23 Grain Traders, Inc. v. Citibank, N.A., 960 F. Supp. 784 (S.D.N.Y. 1997) ....... 16 Greenberg, Trager & Herbst, LLP v. HSBC Bank USA, 17 N.Y.3d 565 (2011) ....................................................................................................... 16 Gryphon Domestic VI, LLC v. APP Int'l Fin. Co., 41 A.D.3d 25 (1st Dep't 2007) ....................................................................................................... 25 Harris v. Balk, 198 U.S. 215 (1905) .................................................................. 57 vii IRB-Brasil Resseguros, S.A. v. Inepar Investments, S.A., 2012 N.Y. Slip Op. 08669 (2012) ........................................................................................ 6, 53 Ings v. Ferguson, 282 F.2d 149 (2d Cir. 1960) ................................................. 21 Ins. Co. of N. Am. v. EMCOR Group Inc., 9 A.D.3d 319 (1st Dep't 2004) ....... 52 Janssen v. Vill. of Rockville Ctr., 59 A.D.3d 15 (2d Dep’t 2008) ......... 33, 37, 44 Joseph v. Athanasopoulos, 648 F.3d 58 (2d Cir. 2011) ..................................... 13 JPMorgan Chase Bank v. Malarkey, 65 A.D.3d 718 (3d Dep't 2009) .............. 27 JPMorgan Chase Bank v. Motorola, Inc., 47 A.D.3d 293 (1st Dep't 2007)............................................................................ 18, 56, 57 JW Oilfield Equip. LLC v. Commerzbank, AG, 764 F. Supp. 2d 587 (S.D.N.Y. 2011) ................................................................................. 23, 48 Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009) .......................... passim Koehler v. Bank of Bermuda Ltd., 544 F.3d 78 (2d Cir. 2008) ................... 19, 29 Lloyd v. Grella, 83 N.Y.2d 537 (1994) .............................................................. 41 Majewski v. Broadalbin-Perth Cent. School Dist., 91 N.Y.2d 577 (1998) ....................................................................................................... 33 Middle E. Banking Co. v. State St. Bank Int'l, 821 F.2d 897 (2d Cir. 1987) ........................................................................................... 17 Miller v. Wells Fargo Bank Int'l Corp., 540 F.2d 548 (2d Cir. 1976) ........... 4, 16 viii Moreau v. RPM, Inc., 20 A.D.3d 456 (2d Dep't 2005) ...................................... 52 Morgenthau v. Avion Resources Ltd., 49 A.D.3d 50 (1st Dept 2007), modified on other grounds, 11 N.Y.3d 383 (2008) ................................. 30 Morris v. State Dep't of Taxation & Finance, 82 N.Y.2d 135 (1993) ............... 26 Motorola Credit Corp. v. Uzan, No. 02 Civ. 666(JSR)(FM), 2003 WL 203011 (S.D.N.Y. Jan. 29, 2003) ............................................................ 61 Nat'l Union Fire Ins. Co. v. Advanced Employment Concepts, Inc., 269 A.D. 2d 101 (1st Dep't 2000) ............................................................. 46, 49 O'Brien-Kreitzberg & Assocs. v. K.P., Inc., 218 A.D.2d 519 (1st Dep't 1995) ........................................................................................................ 23 Oppenheimer v. Dresdner Bank, A.G., 50 A.D.2d 434 (2d Dep't 1975) ........... 57 Palmer v. Spaulding, 299 N.Y. 368 (1949) ................................................. 33, 35 Parbulk II AS v. Heritage Maritime, SA, 35 Misc. 3d 235 (Sup. Ct. N.Y. County 2011) ........................................................................................... 47 Payne v. Garnett McKeen Lab. Inc., 232 A.D.2d 419 (2d Dep't 1996) ............ 24 Raritan Dev. Corp. v. Silva, 91 N.Y.2d 98 (1997) ............................................ 41 River Seafoods, Inc. v. JPMorganChase Bank, 19 A.D.3d 120 (1st Dep't 2005) ........................................................................................................ 28 Sachs v. Zito, 28 Misc. 3d 567 (Sup. Ct. Orange County 2010) ....................... 44 ix Samsun Logix Corp. v. Bank of China, 31 Misc. 3d 1226(A), 2011 N.Y. Slip Op. 50861(U) (Sup. Ct. N.Y. County 2011) .................................... 46 Shaheen Sports, Inc. v. Asia Ins., No. 11-cv-920 (LAP), 2012 WL 919664 (S.D.N.Y. Mar. 14, 2012) ........................................................................ 48 Shipping Corp. of India Ltd. v. Jaldhi Overseas Pte Ltd., 585 F.3d 58 (2d Cir. 2009) ................................................................................................. 45 Solicitor for Affairs of His Majesty's Treasury v. Bankers Trust Co., 304 N.Y. 282 (1952) ....................................................................................... 16 Sundail Const. Co. v. Liberty Bank, 277 N.Y. 137 (1938) ................................ 16 TD Bank N.A. v. South Shore Motor Group, Inc., 35 Misc. 3d 1233(A), 2012 N.Y. Slip Op. 50986(U) (Sup. Ct. Nassau County 2012) .......... 5, 22 TNS Holdings, Inc. v. MKI Sec. Corp., 92 N.Y.2d 335 (1998) ......................... 26 Tri City Roofers, Inc. v. Northeastern Indus. Park, 61 N.Y.2d 779 (1984) ................................................................................................ 37, 54 United States v. Funds Held in Name or for the Benefit of Wetterer, 210 F.3d 96 (2d Cir. 2000) ............................................................................. 27 Universal Trading & Inv. Co. v. Credit Suisse (Guernsey) Ltd., No. 12 Civ. 0198 (PAC), 2012 WL 6186598 (S.D.N.Y. Dec. 12, 2012) ........... 23 Western Union Telegraph Co. v. Pennsylvania, 368 U.S. 71 (1961) ................ 56 Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263 (2d Cir. 2002) .................... 45 x STATUTES N.Y. CPLR § 105(i) .................................................................................... 36, 39 N.Y. CPLR § 2701 ....................................................................................... 38, 39 N.Y. CPLR Rule 3120 .......................................................................... 34, 35, 59 N.Y. CPLR Rule 3211 ................................................................................ 37, 44 N.Y. CPLR § 5209 ................................................................................. 37, 54, 56 N.Y. CPLR. § 5225 ..................................................................................... passim N.Y. CPLR § 5227 ..................................................................................... passim N.Y. CPLR § 5239 ...................................................................................... 15, 51 N.Y. CPLR § 6202 ............................................................................................. 37 N.Y. CPLR § 6204 ............................................................................................ 54 N.Y. CPLR § 6214 ....................................................................................... 28, 37 N.Y. General Obligations Law § 5-1401 ........................................................... 53 31 U.S.C. 5318 .................................................................................................. 61 Fed. R. Civ. P. 26 .............................................................................................. 59 Fed. R. Civ. P. 34 .................................................................................. 34, 58, 59 xi Fed. R. Civ. P. 69 .............................................................................................. 14 LEGISLATIVE HISTORY N.Y. Stat. § 193 .................................................................................................. 44 N.Y. Stat. § 73 ................................................................................................... 36 N.Y. Stat. § 74 ................................................................................................... 44 N.Y. Stat. § 94 ................................................................................................... 33 N.Y. Stat. § 97 ................................................................................................... 33 Civil Practice Act § 796 .................................................................................... 42 Civil Practice Act § 978 .................................................................................... 39 Legislative Studies & Report for CPLR § 2701, 3rd Report Leg. Doc. (1959) ................................................................... 39 Legislative Studies & Report for CPLR § 5225, 3rd Report Leg. Doc. (1959) ................................................................... 39 Legislative Studies & Report for CPLR § 2701, 5th Report Leg. Doc. (1961) .................................................................... 39 OTHER AUTHORITIES Black's Law Dictionary (9th ed. 2009) ............................................................. 40 J.R. Clevenger, Clevenger's Annual Practice of New York, (J.R. Clevenger ed. 1962) ............................................................................................ 39, 43 xii 38 C.J.S. Garnishment § 217 (2012).................................................................. 43 John Romain Rood, A Treatise on the Law of Garnishment § 6 (1896) ........... 43 John Romain Rood, A Treatise on the Law of Garnishment § 10 (1896) ......... 43 John Romain Rood, A Treatise on the Law of Garnishment § 52 (1896) ......... 43 David D. Siegel, New York Practice (5th ed. 2012) .......................................... 42 2 William Pratt Wade, A Treatise on the Law of Attachment and Garnishment § 413 (1886) ....................................................................... 43 2 William Pratt Wade, A Treatise on the Law of Attachment and Garnishment § 446 (1886) ....................................................................... 43 Jack B. Weinstein, Proposed Revision of New York Civil Practice, 60 Colum. L. Rev. 50 (1960) ..................................................................................... 42 COUNTER-STATEMENT OF THE CASE On March 5, 2012, Plaintiff-Appellant Commonwealth of the Northern Mariana Islands ("Appellant") applied pursuant to CPLR § 5225(b) to the United States District Court for the Southern District of New York (the "District Court") for an order that Third-Party Garnishee-Respondent Canadian Imperial Bank of Commerce ("CIBC"), a Canadian bank organized under Canadian law, ignore corporate formalities and pay Appellant the money equivalent of assets or funds allegedly deposited by the judgment debtors - Williams and Patricia Millard - at separately-incorporated and indirectly- owned subsidiary banks located in the Cayman Islands. The only basis for this unprecedented application was that CIBC - not its Cayman indirect subsidiary banks - had a branch located in New York. Neither of these Cayman Islands bank are subject to New York jurisdiction and neither was named party to Appellants' application. CIBC opposed this application, presenting undisputed evidence that it had no accounts in the names of the judgment debtors or their alleged related entities, and that it neither possessed, nor had custody of, any of their property. Additionally, CIBC argued that under New York law, the assets of a foreign bank subsidiary could not properly be made the subject of a turnover order served on a branch of a corporate affiliate. CIBC also showed that it had 2 no legal entitlement to access customer accounts or information in the hands of its Cayman subsidiaries (and, indeed, any attempt to extract customer moneys or information in the hands of those subsidiary banks would violate Cayman Islands law). Appellant, accepting that there was no basis to pierce the corporate veil between CIBC and its subsidiaries, claimed it was entitled nevertheless to a turnover order on the theory that CIBC - as indirect majority shareholder - "controlled" the two Cayman bank subsidiaries and thus somehow had the power to access property in their hands and/or draw on accounts administered by them. (A-83.) But this is simply not the case. Appellant did not and cannot demonstrate that CIBC had the actual authority or control to withdraw customer funds on deposit at a separately-incorporated foreign bank that was subject to foreign law merely because it indirectly owned 92% of its shares. On April 3, 2012, the District Court denied Appellant's application for a turnover order, finding that the turnover statute could not be utilized in order to force CIBC to extract property, assets or other funds from the non- party Cayman banks. Appellant appealed that decision to the United States Court of Appeals for the Second Circuit. On September 5, 2012, the Second Circuit referred to this Court the following two certified questions. (A-24.) These questions present for this Court's consideration the proper scope and 3 application of New York's turnover statutes in situations, as here, involving assets and/or accounts in the hands of foreign subsidiaries of a garnishee bank: 1. May a court issue a turnover order pursuant to N.Y. C.P.L.R. § 5225(b) to an entity that does not have actual possession or custody of a debtor’s assets, but whose subsidiary might have possession or custody of such assets? 2. If the answer to the above question is in the affirmative, what factual considerations should a court take into account in determining whether the issuance of such an order is permissible? SUMMARY OF THE ARGUMENT The Second Circuit has asked this Court whether a turnover order may be issued against "an entity that does not have actual possession or custody of a debtor's assets, but whose subsidiary might have possession or custody of such assets." (A-24.) All courts to consider this question previously have answered that question in the negative, and, indeed, the grant of a turnover order against an entity that does not itself hold the debtor's assets would be wholly inconsistent with both the text of the turnover statutes and this Court's own jurisprudence. Since the first question plainly should be answered in the negative, it is unnecessary to reach the second question. The two turnover statutes in question are CPLR § 5225(b), which allows a judgment creditor to seek a turnover order from a "person" in "possession or custody" of the judgment debtor's property or money, and CPLR 4 § 5227, covering the specific situation of bank accounts, 1 which entitles a judgment creditor to obtain a turnover order from a "person" who is indebted to the judgment debtor - i.e., the bank that actually holds the deposit for the customer. Nothing in these statutes suggests, much less states, that a judgment creditor can force a company to extract assets or moneys in the hands of one of its subsidiaries, or pay debts owed by its subsidiaries, much less partially- owned subsidiaries that are not subject to jurisdiction in New York and were not made party to the application. Not surprisingly, Appellant fails to cite a single case interpreting CPLR § 5225(b) or § 5227 so as to reach overseas assets in the hands of a foreign affiliate of a garnishee bank. On the contrary, courts of this State have rejected the notion that the turnover statutes can be utilized to reach assets in 1 CPLR § 5227 governs situations where the garnishee owes a "debt" to the judgment debtor. This applies to bank deposits because, as an elementary matter of banking law, deposits held in a bank account represents a debt owed by the bank to the customer (i.e., the customer does not actually "own" the cash in the bank's safe, but instead holds a chose in action against the bank equal to the amount of its deposit). See Miller v. Wells Fargo Bank Int'l Corp., 540 F.2d 548, 560-61 (2d Cir. 1976). As discussed below, it is CPLR § 5227, not CPLR § 5225(b), that properly governs Appellant's application to the extent it seeks bank accounts (even though Appellant failed to cite CPLR § 5227 in its originating application). 5 the hands of persons other than the actual garnishee.2 Lacking any precedential basis for its interpretation of the turnover statutes, Appellant instead relies on a misapplication and selective quotation from Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009), to somehow argue that this Court held that New York's turnover statutes allow access to accounts under the "control" of a bank's subsidiary. But Koehler does not address the position of bank subsidiaries, much less interpret CPLR § 5225(b) or § 5227 in the unprecedented and overly broad manner for which Appellant contends. On the contrary, Koehler merely answered a limited certified question about whether share certificates that were actually in the possession of the very bank garnishee that was subject to the turnover proceeding and the jurisdiction of the court - even if held outside New York - could be made to bring the property into New York. Neither Koehler nor any other case holds that a bank can be ordered to extract (or pay the value of) a judgment debtor's assets or deposits held or administered at a foreign bank subsidiary that itself is not subject to 2 See, e.g., Ayyash v. Koleilat, Index No. 151471/12, 2012 N.Y. Slip Op. 22396 at *7 (Sup. Ct. N.Y. County Oct. 22, 2012) (rejecting efforts to obtain data about foreign accounts in the hands of affiliates of the target banks; recognizing that a turnover order for such accounts would be improper); TD Bank N.A. v. South Shore Motor Group, Inc., 35 Misc. 3d 1233(A), 2012 N.Y. Slip Op. 50986(U) (Sup. Ct. Nassau County Apr. 27, 2012) (rejecting attempts to utilize CPLR § 5225(b) to force turnover of property allegedly held by corporate affiliates of the judgment debtor). 6 jurisdiction in New York. Were this otherwise, there would be serious Due Process issues, because it could subject a garnishee to a form of double liability - once to the judgment creditor in the New York turnover proceedings, and once to the judgment debtor in overseas proceedings, when the judgment debtor seeks to recover its deposits in the courts of the jurisdiction where the deposits were made. In other words, if the Appellant's position is adopted, banks with a presence in New York that also own foreign subsidiaries would be at risk of being forced to pay an amount to satisfy a turnover order issued by a New York court, while at the same time having no recourse against the actual assets that are the subject of the turnover order, because the assets would remain on deposit in a foreign bank or be withdrawn by the judgment debtor, protected by foreign law and beyond the jurisdiction of the New York courts. This result also would run directly counter to the policy goals identified recently by this Court in IRB-Brasil Resseguros, S.A. v. Inepar Investments, S.A., 2012 N.Y. Slip Op. 08669 at *3 (2012), where the Court noted that the Legislature had amended the General Obligations Law in order to preserve "the standing of New York as a commercial and financial center." Id. at *3 (citation omitted). Indeed, Appellant had no meaningful response when confronted at Second Circuit oral argument with the observation of the Institute of International Bankers - who, as amicus curiae, warned that turnover orders 7 aimed at foreign subsidiaries will "create pressure not only on non-U.S. banks, but even on some U.S. Banks, not to operate in New York" (A-201) - Appellant merely suggested that if banks with operations in New York found the risks of turnover applications unacceptable, they could "relinquish control" of "property" under their "control." Appellant's response confirms the Institute's warning that banks will reconsider whether to operate in New York if Appellants' theory of "control" is accepted. After all, under that theory, the only way to truly "relinquish control" over a foreign subsidiary would be sever ties with (i.e., divest) that subsidiary. The alternative, of course, would be for the foreign bank to keep its foreign subsidiary and sever ties with this State. Thus, there can be no doubt that Appellant's position, if accepted, would undermine the "standing of New York as a commercial center." In all events, CIBC, does not itself administer any bank accounts held by the Millards or their related entities, and cannot properly be made subject to a turnover order with respect to accounts at CIBC's indirectly-held foreign subsidiaries, First Cayman and Cayman TrustCo - two separately- incorporated, independently-licensed banks with no presence in New York. The turnover statutes simply do not allow Appellant to extract from CIBC the value of the Millards' alleged Cayman Islands assets. 8 The first question posed by the Second Circuit should therefore be answered in the negative. The second question need not be reached.3 COUNTER-STATEMENT OF THE FACTS AND CASE A. The Parties Appellant is an internal government of a United States territory. The Defendants, William and Patricia Millard,4 are judgment debtors as a result of two tax judgments against them in the United States District Court for the Northern Mariana Islands (which judgments have been registered in the Federal District Court). (A-2-3.)5 The Millards have not actively participated in this appeal or the relevant proceedings involving CIBC. 3 As discussed below, if the Court were to reach the second question, the only situation that would justify a turnover against foreign non-party affiliate banks would be if veil-piercing were established. Given that Appellant has conceded that veil-piercing cannot be established, there could be no basis for turnover. (See infra § II.) 4 Appellant also seeks turnover of property alleged to be in the names of several entities it claims are controlled by the Millards. (A-84.) 5 The evidence before the District Court indicated that Appellant's tax judgments against the Millards are unenforceable in the Cayman Islands, because the Cayman Islands (along with most common law countries including the United States) do not accord recognition to foreign revenue judgments. See generally Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 413 (1964) (noting that many U.S. jurisdictions have adhered to the principle that "a court need not give effect to the penal or revenue laws of foreign countries"). 9 CIBC is a Canadian bank headquartered in Toronto, with a branch in New York. (A-84.) It is a foreign reporting company with the Securities and Exchange Commission. (Id.) CIBC's relationship with its partial subsidiary CIBC FirstCaribbean International Bank Limited ("FirstCaribbean"), incorporated in Barbados (see id.), as well as FirstCaribbean's affiliates in the Cayman Islands, where the Millards are alleged to have deposited funds, is addressed further below. B. Appellant's Application of March 2012 and the Continuing Restraints, Purportedly Directed Against CIBC On March 5, 2012, Appellant made an application in the Federal District Court for a turnover order against CIBC pursuant to CPLR § 5225(b). (A-3.) The application appears to have been based on a claim that the Millards deposited funds at Cayman Islands subsidiaries of FirstCaribbean. Appellant described the two partially owned, indirect bank subsidiaries of CIBC located in the Cayman Islands as "CIBC FirstCaribbean in the Cayman Islands." (A-3, A-85 (internal quotations omitted).) They are: • CIBC First Caribbean International Bank (Cayman) Limited ("First Cayman"); and • CIBC Bank & Trust Company (Cayman) Limited ("Cayman TrustCo"). (A-85.) In bringing its application, Appellant also obtained ex parte temporary restraining orders against CIBC, purporting to freeze any Millard 10 accounts held by CIBC or any of its subsidiaries (even though, as explained below, CIBC itself does not hold any accounts for the Millards). Those restraints, although judged invalid, remain in force pending the current appeal. C. As Appellant Has Conceded, CIBC Possesses a Separate Corporate Identity From That of Its Partial, Indirect Cayman Subsidiaries The record shows, and Judge Kaplan accepted, that CIBC does not hold any accounts in the names of the Millards or any entities identified by Appellant as being associated with the Millards. (A-18.) The uncontradicted record evidence also showed that both First Cayman and Cayman TrustCo are incorporated in the Cayman Islands, both holding banking licenses issued by the appropriate Cayman Island regulator. (A-3-5, A-87 (describing how these two subsidiaries function as separate and distinct corporations).) These two companies are direct subsidiaries of FirstCaribbean. FirstCaribbean, in turn, is 92% owned by CIBC. (A-88.) During oral argument before the District Court, Appellant essentially conceded that there was no basis to challenge the evidence showing that each of CIBC, FirstCaribbean, First Cayman and CaymanTrustCo are separate and distinct companies. (A-88.) Indeed (as was inevitable, given the 11 clear proof), Appellant explicitly eschewed any veil-piercing theory. (Id.)6 It nevertheless claimed it was entitled to a turnover order against CIBC on the theory that CIBC, by virtue of its status as 92% indirect parent, "controlled" its two indirect Cayman subsidiaries. The evidence also showed that: (1) due to banker-customer confidentiality requirements in the Cayman Islands, CIBC is not permitted access to information concerning the identity of depositors at First Cayman and CaymanTrustCo; (2) Cayman Islands law prohibits a Cayman Islands bank, such as First Cayman or CaymanTrustCo, from divulging customer information without prior authorization by a Cayman Islands court; and (3) that CIBC does not and cannot access such information simply because it is a majority shareholder.7 D. The District Court Denies the Application for a Turnover Order On April 3, 2012, the District Court dismissed Appellant's application for turnover by CIBC. The Court found that Appellant had made 6 See also Pl. J. Creditor's Reply Mem. in Supp. of its Turnover Order Pursuant to CPLR § 5225(b) and Order to Show Cause Why Prelim. Inj. Should Not Be Entered at 1, ECF No. 92. 7 The court below was ultimately able to resolve the dispute below without addressing the impact of these legal restrictions. CIBC reserves its right to argue, in this or other proceedings, that it should not be required to divulge information or answer subpoenas in a manner that would cause it or its subsidiaries to act in conflict with Cayman law. 12 no showing that CIBC was in possession or custody of the Millards' property, and it rejected Appellant's contention that a garnishee may be required to turn over funds on the basis of its alleged control of a separately-incorporated foreign entity where the judgment debtors deposited funds. (A-2.) Judge Kaplan contrasted portions of the CPLR that require "possession or custody" from those that require "possession, custody, or control," noting that "[m]any courts, in construing practically the phrase 'possession, custody, or control,' have focused specifically on the word 'control' and distinguished it from mere 'possession.'" (A-12 (footnote omitted).) His Honor further held that "[w]hen different terms are used in various parts of a statute or rule, it is reasonable to assume that a distinction between them is intended," thus it was apparent that CPLR § 5225(b) was not intended to reach assets in the hands of a garnishee's subsidiary. (A-13 (alterations in original) (citation omitted).) E. The Present Appeal Pursuant to leave granted by the District Court, Appellant appealed the decision to the United States Court of Appeals for the Second Circuit, which granted the appeal expedited treatment. By order of the District Court, the purported restraint on CIBC was continued, pending the appeal. Briefing took place according to the Second Circuit's expedited schedule, with oral argument on August 22, 2012. 13 F. The Certified Questions On September 5, 2012, the Second Circuit certified the following questions: 1. May a court issue a turnover order pursuant to N.Y. C.P.L.R. § 5225(b) to an entity that does not have actual possession or custody of a debtor’s assets, but whose subsidiary might have possession or custody of such assets? 2. If the answer to the above question is in the affirmative, what factual considerations should a court take into account in determining whether the issuance of such an order is permissible? (A-24.) The Second Circuit further stated: "As is our practice, we do not intend to limit the scope of the Court of Appeals' analysis through the formulation of our question, and we invite the Court of Appeals to expand upon or alter [these] question[s] as it should deem appropriate." (Id. (quoting Joseph v. Athanasopoulos, 648 F.3d 58, 68 (2d Cir. 2011)).) By order dated October 18, 2012, this Court accepted the certified questions. 14 ARGUMENT I. A BANK THAT HOLDS NO PROPERTY OR ACCOUNTS OF THE RELEVANT DEBTOR SHOULD NOT BE COMPELLED TO TURN OVER MONEY OR ASSETS DEPOSITED AT ITS FOREIGN SUBSIDIARY BANKS A. On their Face, the Turnover Statutes Apply Only to Companies Served with a Turnover Application, Not their Subsidiaries The Second Circuit's first question calls upon this Court to determine the proper scope and effect of New York's turnover statutes in a situation involving banks and bank accounts. The turnover statute referenced in the Second Circuit's question, CPLR § 5225(b),8 states relevantly: Upon a special proceeding commenced by the judgment creditor, against a person in possession or custody of money or other personal property in which the judgment debtor has an interest, or against a person who is a transferee of money or other personal property from the judgment debtor, 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, to the judgment creditor and, if the amount to be so paid is insufficient to satisfy the judgment, to deliver any other personal property, or so much of it as is of sufficient value to satisfy the judgment, to a designated sheriff… 8 In this regard, Fed. R. Civ. P. 69 provides that a federal district court shall apply state law and civil procedure in enforcing judgments made within the district. (A-7.) 15 CPLR §5225(b) (McKinney 1997) (emphasis added). By its terms, CPLR § 5225(b) authorizes a turnover order only against the "person" against whom the subject turnover application is brought (and against whom jurisdiction can be maintained) - not its subsidiaries or affiliates, much less foreign subsidiaries outside the jurisdiction of the courts of this State. The same is true of CPLR § 5227, the turnover statute applicable where, as here, attempts are made to garnish bank accounts. It states relevantly: Upon a special proceeding commenced by the judgment creditor, against any person who it is shown is or will become indebted to the judgment debtor, the court may require such person to pay to the judgment creditor the debt upon maturity, or so much of it as is sufficient to satisfy the judgment, and to execute and deliver any document necessary to effect payment; or it may direct that a judgment be entered against such person in favor of the judgment creditor. Costs of the proceeding shall not be awarded against a person who did not dispute the indebtedness. Notice of the proceeding shall also be served upon the judgment debtor in the same manner as a summons or by registered or certified mail, return receipt requested. The court may permit the judgment debtor to intervene in the proceeding. The court may permit any adverse claimant to intervene in the proceeding and may determine his rights in accordance with section 5239. CPLR § 5227 (McKinney 1997) (emphasis added). Like CPLR § 5225(b), CPLR § 5227 by its terms applies only against the "person" that in fact owes a debt to the judgment debtor - not its subsidiaries or affiliates. 16 Appellant has been unable to identify a single case in which, absent veil-piercing, a turnover order was made against a person or entity that did not itself hold the judgment debtor's money or assets. B. In Cases Involving Turnover of Bank Accounts, CPLR § 5227 Governs CPLR § 5227 authorizes turnover orders where the garnishee owes "debt" to the judgment debtor. Bank deposits represent a "debt" owed by the bank to the customer (i.e., the moneys deposited are not the "property" of the customer; rather they represent a chose in action possessed by the customer).9 9 Wells Fargo, 540 F.2d at 560-61 ("Money deposited in a general account at a bank does not remain the property of the depositor. Upon deposit of funds at a bank, the money deposited becomes the property of the depositary bank; the property of the depositor is the indebtedness of the bank to it, a mere chose in action.") (citing, inter alia, Sundail Constr. Co. v. Liberty Bank, 277 N.Y. 137, 141 (1938); In re Delaney, 256 N.Y. 315, 321 (1931)); see also Greenberg, Trager & Herbst, LLP v. HSBC Bank USA, 17 N.Y.3d 565, 578 (2011) ("'[T]he relationship between a bank and its depositor is one of debtor and creditor.'") (quoting Brigham v. McCabe, 20 N.Y.2d 525 (1967)); Solicitor for Affairs of His Majesty's Treasury v. Bankers Trust Co., 304 N.Y. 282, 291 (1952) ("[T]he relation of the defendant bank to, Mrs. Maitland-Tennent, as its depositor, is that of debtor and creditor, with all the legal implications that relationship connotes."); Cruz v. TD Bank, N.A., 855 F. Supp. 2d 157, 175 (S.D.N.Y. 2012) ("[F]unds deposited with a bank become an asset of the bank . . . "); Grain Traders, Inc. v. Citibank, N.A., 960 F. Supp. 784 (S.D.N.Y. 1997) (a "depositor loses title to money deposited in a general account at the moment those funds are deposited"); Bradford v. Chase Nat'l Bank, 24 F. Supp. 28, 38 (S.D.N.Y. 1938) ("[T]he best, if not the only, way in which the possession of a chose in action - such as a bank account - can be shown, is by showing in whose name the account stands, for the person in whose name the account stands has absolute control (cont’d) 17 Thus, even though Appellant did not move under CPLR § 5227, it is this statute that applies, rather than CPLR § 5225(b), to attempts to turnover of bank accounts.10 Notably, although Appellant's arguments turn heavily on the phrase "possession or custody" (as it appears in CPLR § 5225(b)), that same phrase is nowhere present in CPLR § 5227. Rather, the latter statute looks to whether the garnishee itself is "indebted" to the judgment debtor. This reinforces the conclusion that the turnover statutes should not be targeted at a bank that does not actually hold accounts in the name of the judgment debtor. ________________________ (cont’d from previous page) of it and that is all possession of a chose in action can mean."); Middle E. Banking Co. v. State St. Bank Int'l, 821 F.2d 897, 901 (2d Cir. 1987) (citations omitted) ("It is well established under New York law that the relationship between a bank and its customer for whose account funds have been deposited 'is that of debtor and creditor.'"); see also Geler v. Nat'l Westminster Bank USA, 770 F. Supp. 210, 214 (S.D.N.Y. 1991) ("It is well- settled . . . that the relationship of a bank to its depositors is the contractual relation of a debtor to its creditors."). 10 During briefing before the Second Circuit, Appellant argued that CIBC "waived" any argument that CPLR § 5227 rather than CPLR § 5225(b) applies to the issue of garnishment of debts. This argument is not only inaccurate - there was no "waiver" by CIBC of its legal arguments, and in any event it was Appellant's burden to cite CPLR § 5227 to reach bank accounts - it is also nonsensical. Neither party can "waive" what CPLR § 5225(b) or CPLR § 5227 actually say, no more than it could ask the Court to ignore the actual terms of those statutes. And to be absolutely clear, CIBC's certification that it itself holds no Millard accounts or assets (see supra p. 7) applies to bank accounts and deposits. 18 That CPLR § 5227, and not CPLR § 5225(b), applies in cases of bank accounts has been emphasized recently by the First Department, which held that "[w]here the asset held by the garnishee is a "debt" the garnishee owes to the judgment debtor, the statute authorizing the proceeding is CPLR 5227." JPMorgan Chase Bank v. Motorola, Inc., 47 A.D.3d 293, 301-02 (1st Dep't 2007) (emphasis added); see also Alliance Bond Fund, Inc. v. Grupo Mexicano de Desarrollo, S.A., 190 F.3d 16, 21 (2d Cir. 1999) ("[U]nder § 5227, a judgment creditor seeking to collect a debt that is owed to the judgment debtor must proceed against the person who owes the debt: the judgment debtor's debtor"); Global Tech., Inc. v. Royal Bank of Can., 34 Misc. 3d 1209(A), 2012 N.Y. Slip Op. 50023(U), at *18 (Sup. Ct. N.Y. County Jan. 11, 2012) (acknowledging the potential operation of CPLR § 5227, "[a]ssuming that the banking relationship between [bank] respondent and Moto was a debtor-creditor relationship," but holding the statute inapplicable because garnishee bank did not owe any "debt" to judgment debtor at the relevant time). The Second Circuit also acknowledged the separate role of CPLR § 5227 in Koehler, when it observed: Section 5225 authorizes a court to order the delivery of property that belongs to a judgment debtor but is not in his possession. N.Y. C.P.L.R. 5225(b). A similar proceeding is available when a debt is sought from a person who is or will be indebted to the judgment debtor. N.Y. C.P.L.R. 5227. 19 Koehler v. Bank of Bermuda Ltd., 544 F.3d 78, 85 (2d Cir. 2008). Ultimately, however, the Koehler case proceeded under CPLR § 5225(b) because "personal property" (stock certificates) were involved. Here, the undisputed facts establish that CIBC does not owe money to the Millards (or their related entities) because it does not hold any deposits from them. (A-3-4.) Indeed the payment of money by CIBC to Appellant would not necessarily operate to discharge the indebtedness to the Millards (if any) of the two Cayman non-party banks. In those circumstances, CPLR § 5227 could not properly be invoked against CIBC with reference to the alleged Cayman bank accounts.11 C. Appellant's Interpretation of the Turnover Statutes is Unprecedented Regardless of whether CPLR § 5227 or § 5225(b) applies, past decisions of this State's courts and of federal courts applying New York law have consistently refused to allow turnover applications to be used to reach property in the hands of corporate affiliates of a garnishee bank. In Ayyash, a judgment creditor served various banks with post-judgment information subpoenas, purportedly under CPLR Rule 5224, seeking information about any 11 As discussed further below, such an order would raise serious Due Process concerns because it would potentially leave CIBC's Cayman subsidiaries exposed to litigation by the Millards for the full amount of their alleged deposits. (See infra § II.B.) 20 assets "held by 'any branch or office [of the recipient bank] maintained in a foreign country.'" Ayyash v. Koleilat, Index No. 151471/12, 2012 N.Y. Slip Op. 22396, at *5 (Sup. Ct. N.Y. County Oct. 22, 2012). The Supreme Court observed: [P]laintiff's counsel included in each information subpoena the certificate required by CPLR 5224 of his "reasonable belief" that the party receiving the subpoena has "in its possession" information about the debtor that will assist the creditor in collecting the judgment. Tellingly, the subpoenas refer variously to subsidiaries other than those served with the subpoenas, to accounts maintained in other countries, and in one instance, to a non-existent entity (UBS, Inc.). . . . Counsel's rote repetition of the certification language, combined with, in some instances, the absence of any support therefor, or in others, the scattershot nature of his requests, suggests that there may have been less than adequate 'reasonable belief' to support issuance of the subpoenas in the first place. Rather, it suggests the validity of the argument of the financial institutions: that notwithstanding the absence of any connection of the parties, the underlying controversy, or any res in New York, plaintiff is attempting to use the New York courts as a springboard for a massive, multi-jurisdictional international exercise in supplementary proceedings, instead of simply complying with the laws of the countries in which the judgment debtor's assets are actually located. Id. at *7 (emphasis added). The court thus refused to enforce the information subpoenas, on the grounds that their "ultimate goal" namely, "subsequent attachment and turn-over," was "unavailable in this jurisdiction." Id.12 Ayyash 12 The Ayyash court also noted that the garnishee banks' foreign branches or affiliates operated under banking confidentiality or data protection laws that would expose themselves, "their officers and/or employees . . . to civil or (cont’d) 21 thus is squarely contrary to Appellant's position, because it explicitly refused to countenance an application that targeted property in the hands of a "subsidiary" of a subpoena recipient. Similarly, in Dorchester Financial Securities, Inc. v. Banco BRJ, S.A., No. 02 Civ. 7504 (KMW)(KNF), 2009 WL 5033954 (S.D.N.Y. Dec. 23, 2009), Dorchester, a judgment creditor, sought a turnover order under CPLR § 5225(b) against Banco Bilbao Vizcaya - Mexico, S.A. ("BBVA-Mexico"), based on cashiers' checks allegedly issued by that foreign bank. Id. at *1. While dismissing the proceeding on different grounds (i.e., that the checks were the result of forgery), the Court remarked it appears Dorchester has served the wrong party. Dorchester served its motion at 1345 Avenue of the Americas, New York, NY, 10015, which is a branch of Banco Bilbao Vizcaya Argentaria ________________________ (cont’d from previous page) criminal penalties" for complying with the subpoenas. Ayyash, 2012 N.Y. Slip Op. 22396, at *8. The court, applying the rule of "international comity" that "a New York court should not encroach upon another country's sovereignty by requiring citizens to take actions within their home country that would contravene their home country's laws," id. (citing Ings v. Ferguson, 282 F.2d 149, 152 (2d Cir. 1960), held that it would be "unjust and inappropriate in the circumstances" to require compliance with the information subpoenas. Id. As noted above (see supra p. 11), similar policy considerations arise here due to the strict confidentiality requirements of Cayman Islands law. As in Ayyash, therefore, the judgment creditor's application is not only improper (in that it contemplates turnover of foreign property in the hands of non-parties), but unfair (in that it attempts to force CIBC to extract information in a manner that would violate Cayman Islands law). 22 ("BBVA"). BBVA is the parent company of the bank that purportedly issued the checks, BBVA-Mexico, a separate legal entity now known as BBVA-Bancomer. Id. at *3 (emphasis added). Also instructive is TD Bank N.A. v. South Shore Motor Group, Inc., 35 Misc. 3d 1233(A), 2012 N.Y. Slip Op. 50986(U) (Sup. Ct. Nassau County Apr. 27, 2012). In that case, a judgment creditor attempted to utilize CPLR § 5225(b) to force turnover of property allegedly held by corporate affiliates of the judgment debtor. Rejecting this application, the court held that, because these entities had not themselves been made party to the turnover application, "[t]here [was] . . . no basis to order a turnover with respect to said entities." South Shore, 2012 N.Y. Slip Op. 50986(U), at *3. In the same vein, in AG Worldwide v. Red Cube Mgmt., No. 01 CIV 1228 (GEL), 2002 WL 417251 (S.D.N.Y. Mar. 15, 2002), turnover orders were sought from a Swiss individual and two Swiss companies allegedly affiliated with the judgment debtor. See id. at *2-3. After finding as a factual matter that there was no basis for piercing the corporate veil of the defendant to reach the individual and affiliated Swiss entities,13 the court held that the Swiss individual and entities had not properly 13 Likewise here, there is no basis for veil-piercing; indeed, Appellant has eschewed any veil-piercing theory. (See supra p. 10-11.) 23 been made party to any CPLR § 5225(b) proceeding and were not bound by any restraints issued therein. See id. at *2, *8.14 The decided cases thus completely vindicate the District Court's observation that the difference between a mere branch of the same bank, on the one hand, and "a separately incorporated subsidiary" of a bank, on the other, is "a distinction of enormous consequences here." (A-16-17.)15 14 See also Goldberg & Connolly v. Xavier Constr. Co., 94 A.D.3d 1117, 1118 (2d Dep't 2012) (although a company called "Xavier Contracting" appeared to be related to the judgment debtor, the facts nevertheless showed they were separate entities; declining to enforce judgment against assets of "Xavier Contracting"); O'Brien-Kreitzberg & Assocs. v. K.P., Inc., 218 A.D.2d 519, 520 (1st Dep't 1995) (similar holding with respect to a company, Kamon Personnel, that appeared to be related to the judgment debtor; holding that plaintiff had failed to put forward evidence to support piercing the corporate veil as to the related entity); Universal Trading & Inv. Co. v. Credit Suisse (Guernsey) Ltd., No. 12 Civ. 0198 (PAC), 2012 WL 6186598 at *5 (S.D.N.Y. Dec. 12, 2012) (dismissing a cause of action to recover a judgment debtor's assets allegedly transferred to Credit Suisse AG because CPLR § 5225(b) was not satisfied where "[p]laintiffs ha[d] not alleged that [Credit Suisse AG], as opposed to its corporate affiliates, ever held assets on behalf of [debtor], and [their] vague statement that [they] believed the assets are now held in unspecified 'Credit Suisse entities' does not meet the [federal] pleading standards."). 15 In attempting to attack the District Court's observations on the "consequences" of this distinction, Appellant cites JW Oilfield Equip., LLC v. Commerzbank, A.G., 764 F. Supp. 2d 587 (S.D.N.Y. 2011), where a New York federal court refused to apply the "separate entity rule" to a post- judgment motion, and thus treated the New York and German branches of Commerzbank as the same entity for all purposes. (App. Br. at 28 n.8.) Even if JW Oilfield's disregard of the "separate entity" rule were correct (the rule is discussed separately below, see infra § I.G), this would have no (cont’d) 24 Arrayed against all of this authority, Appellant cites only one case, Payne v. Garnett McKeen Lab. Inc., 232 A.D.2d 419, 420 (2d Dep't 1996), which, it claims, "construe[d]" CPLR § 5225(b) as "reaching property under a garnishee's possession and control' even where the property was housed elsewhere or with some other party or entity." (App. Br. at 21.) In reality, Payne did not construe CPLR § 5225(b) in the manner that Appellant now urges. In Payne, a CPLR § 5225(b) proceeding seeking turnover of share certificates was dismissed because the judgment creditor had not brought proceedings against the actual holder of the certificates, as the CPLR required. See Payne, 232 A.D.2d at 420. Far from ordering a parent company to turn over money based on deposits at a foreign subsidiary, the Payne court merely made a passing reference to CPLR § 5225(b) as imposing on a judgment creditor "the burden of proof that the person is actually in custody or control of such money or other personal property." See Payne, 232 A.D.2d at 420. This statement, an offhand (if slightly inaccurate) paraphrasing of the statute that was plainly dicta, cannot possibly support the aggressive interpretation of ________________________ (cont’d from previous page) bearing on the question currently before this Court, which concerns the actually separate corporate identity of parent and subsidiary companies and not branches of the same bank corporation. 25 CPLR § 5225(b) now urged by Appellant.16 In sum, Appellant's interpretation is unprecedented. Gryphon, cited by Appellant (App. Br. at 17), is likewise unavailing. Turnover proceedings under CPLR § 5225(a) were brought in Gryphon against two foreign judgment debtors whose assets admittedly were overseas, including in Indonesia. Gryphon Domestic VI, LLC v. APP Int'l Fin. Co., 41 A.D.3d 25, 32-33 (1st Dep't 2007). After holding that this overseas property could validly be subject to a turnover action, id. at 8, the First Department proceeded to address whether the "[judgment debtors] were 'in possession or custody of . . . personal property in which [they had] an interest'" for purposes of CPLR § 5225(a). Id. at 33. It held that "stock certificates" representing shares in Indonesian "subsidiaries" were a form of "property" that could validly be subject to a turnover order. Id. at 33-34. Drawing in part on CPLR § 5225(c),17 the First Department thus held that the relevant judgment debtor should "execute documents transferring ownership interests in its 16 The same observation applies to Siegel's paraphrasing of CPLR § 5225(b). (App. Br. at 21.) 17 CPLR § 5225(c) provides that "[t]he court may order any person to execute and deliver any document necessary to effect payment or delivery." CPLR § 5225(c) (McKinney 1997) 26 subsidiaries and affiliates." Id. at 35. It further ordered that the judgment debtors turn over funds they had deposited in foreign banks. Id. at 36. Gryphon thus dealt with a routine turnover application directing a defendant (who was subject to New York jurisdiction) to turn over its own property. In no sense does this support a turnover order against a third party garnishee, requiring that it cause its foreign subsidiaries - who are non-parties and not subject to the jurisdiction of the court - to transfer foreign property in their possession (or foreign bank accounts administered by them). Though turnover cases are frequently litigated, there is not a single case that has adopted Appellant's present interpretation of CPLR § 5225(b). By contrast, it is a cornerstone principle of New York law, recognized on multiple occasions by this Court, that, absent a basis for veil- piercing (i.e. fraudulent use of the corporate form), a separately-incorporated company is to be treated as having its own separate and distinct legal personality.18 An inevitable corollary of this principle, again recognized on 18 See Morris v. State Dep't of Taxation & Fin., 82 N.Y.2d 135, 141(1993) ("Generally . . . piercing the corporate veil requires a showing that: (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury."); accord TNS Holdings, Inc. v. MKI Sec. Corp., 92 N.Y.2d 335, 339 (1998); see also Billy v. Consol. Mach. Tool Corp, 51 N.Y.2d 152, 163 (1980) ("As a general rule, the law treats corporations as having an existence separate (cont’d) 27 multiple occasions, is that the parent company does not have title to its subsidiary's assets.19 In the attachment context, it has been said that "'[c]ourts must be extremely reluctant to disregard corporate form, and should do so only when the corporation primarily transacts the business of the dominating interest rather than its own.'" Aurelius Capital Partners v. Rep. of Argentina, Nos. 07 Civ. 2715(TPG), 2012 WL 983564, at *6 (S.D.N.Y. Mar. 22, 2012) (quoting U.S. v. Funds Held in the Name or for the Benefit of Wetterer, 210 F.3d 96, 106 (2d Cir. 2000)); see also id. at *6-7 (vacating attachment notices purportedly ________________________ (cont’d from previous page) and distinct from that of their shareholders and, consequently, will not impose liability upon shareholders for the acts of the corporation . . . . It is true that, on occasion, the courts will disregard the separate legal personality of the corporation and assign liability to its owners where necessary 'to prevent fraud or to achieve equity' . . . . But, such liability can never be predicated solely upon the fact of a parent corporation's ownership of a controlling interest in the shares of its subsidiary. At the very least, there must be direct intervention by the parent in the management of the subsidiary to such an extent that 'the subsidiary's paraphernalia of incorporation, directors and officers' are completely ignored." (citation omitted)). 19 See JP Morgan Chase Bank v. Malarkey, 65 A.D.3d 718, 721 (3d Dep't 2009) (since a parent and subsidiary are distinct legal entities, a parent does not own or have legal title to subsidiary's assets); Dole Food Co. v. Patrickson, 538 U.S. 468, 475 (2003) ("A corporate parent which owns the shares of a subsidiary does not, for that reason alone, own or have legal title to the assets of the subsidiary; and, it follows with even greater force, the parent does not own or have legal title to the subsidiaries of the subsidiary."); EM Ltd. v. Rep. of Argentina, 473 F.3d 463, 476 (2d Cir. 2007) (referring to general principle of corporate law that a parent corporation does not own or have legal title to a subsidiary's assets). 28 issued under CPLR § 6214(b) - which allows attachment to be directed against a "person" in "possession or custody of property in which such person knows or has reason to believe the defendant has an interest" - because the purported garnishee itself did not hold such assets (citation omitted)).20 In sum, past cases involving the turnover statutes all demonstrate that CPLR § 5225(b) and § 5227 should not be utilized to reach assets in the hands of (or amounts on deposit with) overseas corporate affiliates who have not been served and are not subject to jurisdiction in New York. D. Koehler v. Bank of Bermuda Did Not Address Situations Such as the Present Case - And Does not Support Appellant's Position Appellant relies heavily upon Koehler (App. Br. at 15), a case in which a garnishee bank was ultimately ordered to turn over share certificates belonging to one of its customers that were in the possession of that bank itself, albeit in a foreign location, where the bank was subject to the jurisdiction of the court. The proposition urged by Appellant - that Koehler somehow authorized 20 See also River Seafoods, Inc. v. JPMorganChase Bank, 19 A.D.3d 120, 122 (1st Dep't 2005) ("[A] bank may not be held liable for violating a restraining notice: (1) where the bank has not opened an account for a judgment debtor (2) where the bank does not possess property in which the judgment debtor has an interest and (3) where any other third party does not then (i.e., at the time of service of the notice) owe a debt to the judgment debtor."); Gallant v. Kanterman, 198 A.D.2d 76, 78 (1st Dep't 1993) ("A bank or transfer agent not in possession of property in which the judgment debtor has an interest, or owing any debt to said judgment debtor, at the time of service of the notice, cannot be held liable for violation of the restraint."). 29 the turnover of property held not by the bank before the court, but instead by a subsidiary "controlled" by it (App. Br. at 16 (citation omitted)) - misstates this Court's holding. Koehler involved a turnover application against a garnishee bank, Bank of Bermuda Limited ("BBL") pursuant to CPLR § 5225(b), seeking that it deliver share certificates and other instruments of title belonging to the judgment debtor. Koehler v. Bank of Bermuda Ltd., 544 F.3d 78, 80-81 (2d Cir. 2008).21 Well prior to the case reaching this Court, BBL had unequivocally consented to the jurisdiction of the courts of New York - unlike FirstCayman and CaymanTrustCo here which were never served with any papers and which are not subject to the jurisdiction of the New York federal or state courts.22 In Koehler, the following question was certified to this Court: 21 Koehler did not address situations where a bank holds accounts of a customer, and thus did not interpret or apply CPLR § 5227. 22 As this Court noted: BBL argued before the District Court that service upon the New York bank did not subject BBL to the personal jurisdiction of the court. Although this jurisdictional issue was the subject of litigation in federal court for some 10 years, BBL eventually consented, by letter dated October 9, 2003, to the personal jurisdiction of the court as of the time that Koehler had commenced the proceeding. Koehler, 12 N.Y.3d at 536 (emphasis added). Indeed, as one court recently emphasized, Koehler indicates that, to obtain a turnover order, the judgment (cont’d) 30 "May a court sitting in New York order a bank over which it has personal jurisdiction to deliver stock certificates owned by a judgment debtor (or cash equal to their value) to a judgment creditor, pursuant to N.Y. C.P.L.R. Article 52, when those stock certificates are located outside New York?" Id. at 88. Critically, therefore, Koehler addressed a situation where the garnishee bank, BBL, itself possessed the relevant "property" - not one where the garnishee was an indirect parent of an entity beyond this Court's jurisdiction. Thus, while Appellant makes much of Koehler's statement that "'New York courts have the power to command a garnishee present in the state to bring out-of-state assets under the garnishee's control into the state,'" Koehler, 12 N.Y.3d at 540 (quoting Morgenthau v. Avion Res. Ltd., 49 A.D.3d 50, 54 (1st Dept 2007), modified on other grounds, 11 N.Y.3d 383 (2008)) (emphasis added), the Court's reference to property "under the garnishee's control," read in context, did not refer to - and cannot reasonably be construed as applying to - a situation involving property in the hands of the garnishee's subsidiary. ________________________ (cont’d from previous page) creditor must establish personal jurisdiction over the bank branch that actually possesses the asset in question. See Dewar v. Bangkok Bank, 37 Misc. 3d 1231(A), 2012 N.Y. Slip Op. 52254(U), at *6 (Sup. Ct. N.Y. County, Oct 26, 2012) (separate entity rule applied in case involving attempts to extract information/assets from Thailand "parent" branch of New York bank branch). 31 During oral argument before the District Court, Appellant admitted that Koehler's use of the word "control" was not a reference to assets under the control of separate subsidiaries. Appellant's counsel acknowledged to Judge Kaplan that: "I agree with your Honor, [Koehler's] use of the word control was not a use that arose in the context of a parent/subsidiary relationship or a separate corporate relationship where the Court of Appeals was looking at can one corporation control another." (A-116 (submissions of Appellant's counsel).) Appellant's present interpretation of Koehler is therefore unsustainable. As the District Court correctly observed, this Court in Koehler: did not go - indeed, could not have gone - farther than that question and the facts before it. Neither the Court of Appeals, nor the Second Circuit after the certified question was answered, ever addressed the consequence of the fact that the garnishee bank in Koehler had transferred the stock certificates at issue to another company during the litigation-that the assets in issue were in the actual possession of a separate, affiliated entity. Yet the question left open by the courts in Koehler is precisely what is at issue . . . in this case. (A-17-18.) In sum, the garnishee in Kohler, BBL, was not only "present" in the state (due to its voluntary acceptance of jurisdiction),23 but also had direct 23 In attempting to side-step this issue, Appellant asserts that CIBC has not contested personal jurisdiction. (App. Br. at 16 n.3.) This argument is a red herring, because in Koehler, the garnishee that was subject to New York jurisdiction (BBL) actually held the subject property - the share certificates (cont’d) 32 possession of the very assets that were the subject of the judgment creditor's turnover order. None of those facts are present here. The District Court was therefore correct in concluding that Koehler lends no support to Appellant's case. (A-17-18.) E. Appellant's Interpretation of CPLR § 5225(b) as Reaching Assets Held by Subsidiaries "Controlled" by a Parent Finds No Textual or Contextual Support In its Opening Brief, Appellant contends that a parent that owns a majority voting interest in a foreign subsidiary company will necessarily have "possession or custody" of all assets in that subsidiary's hands for purposes of CPLR § 5225(b). (App. Br. at 29.) This argument, which Judge Kaplan accurately described as an attempt to "color" the text of CPLR § 5225(b) (A-8), lacks any support in the language of the statute or the surrounding statutory context.24 As this Court has held on numerous occasions, a statute must be applied in accordance with its ordinary meaning according to its most natural ________________________ (cont’d from previous page) were not held by BBL's parent or subsidiary. The possibility that CIBC's New York branch is subject to New York jurisdiction does not bring FirstCaribbean or CaymanTrustCo any closer to New York. 24 As further discussed below, this argument (even if correct as regards to CPLR § 5225(b)) could have no application whatsoever in cases governed by CPLR § 5227, applicable in cases involving bank accounts being administered by a foreign subsidiary bank. (See infra § I.B.) 33 and obvious sense and to give effect to the Legislature's intention, as expressed in the text of the statute. Majewski v. Broadalbin-Perth Cent. School Dist., 91 N.Y.2d 577, 583 (1998). 25 Accordingly, "in all cases requiring statutory construction, we begin with an examination of the statute's plain meaning." Bluebird Partners L.P. v. First Fid. Bank, 97 N.Y.2d 456, 460 (2002). This approach leaves "no room to add to or take away from that meaning." Majewski, 91 N.Y.2d at 583. The District Court's approach to CPLR § 5225(b) was fully consistent with these canons of statutory construction. Reading the words of the statute on their own, together with the CPLR as a whole,26 the District 25 Accord DaimlerChrysler Corp. v. Spitzer, 7 N.Y.3d 653, 660 (2006); Palmer v. Spaulding, 299 N.Y. 368, 371-72 (1949); Janssen v. Vill. of Rockville Ctr., 59 A.D.3d 15, 28 (2d Dep't 2008); see also In re Gilmore, 87 A.D.3d 145, 151 (2d Dep't 2011) ("[A] court cannot amend a statute by inserting words that are not there, nor will a court read into a statute a provision which the Legislature did not see fit to enact." (citation omitted)); N.Y. Stat. § 94 (McKinney 1971) ("The legislative intent is to be ascertained from the words and language used, and the statutory language is generally construed according to its natural and most obvious sense, without resorting to an artificial or forced construction.") (emphasis added). 26 See N.Y. Stat. § 97 (McKinney 1971) ("A statute or legislative act is to be construed as a whole, and all parts of an act are to be read and construed together to determine the legislative intent."). This requirement holds true when interpreting the CPLR. See Ford Motor Credit Co. v. Hickey Ford Sales, Inc., 62 N.Y.2d 291, 302 (1984) (holding that two sections of the CPLR should be read in pari materia); Bank of N.Y. v. Nickel, 14 A.D.3d (cont’d) 34 Court noted, correctly, that the phrasing of CPLR § 5225(b) (insofar as it refers to "possession" or "custody" of property in a turnover/garnishee situation) is deliberately narrow (A-12-13), especially when compared with other contexts, e.g., the discovery test under CPLR Rule 3120, which looks to whether documents are within the "possession, custody or control" of a party engaged in discovery.27 Thus, the District Court correctly held: The word "control" is entirely absent from Section 5225. The legislative omission of one word from statutory text, on its face, might not seem to be of enormous consequence. But, as so often is true, "the devil lurks precisely in such details." Among the most fundamental canons of statutory interpretation is the rule that "[w]hen different terms are used in various parts of a statute or rule, it is reasonable to assume that a distinction between them is intended." And that the differing language appears in multiple separate sections of the CPLR is of no moment to the application of that rule, as the additional canon of in pari materia requires that "statute or legislative act . . . be construed as a whole, and all parts of an act are to be read and construed together to determine the legislative intent." (A-13) (alterations original) (footnotes omitted). ________________________ (cont’d from previous page) 140, 149 (1st Dep't 2004) (reading two sections of the CPLR in pari materia). 27 Although the discovery cases indeed do illustrate that the "possession, custody and control," in a discovery or subpoena context, has often resulted in a parent being required to turn over its subsidiary's documents (A-9-10), those cases ultimately turned on a factual finding that a parent company, through its managerial/shareholder powers, had effective "control" over information in the subsidiary's hands for purposes of the discovery rules. (A-12.) 35 Seeking to downplay the disparity between the discovery formula in CPLR Rule 3120 (based upon "possession, custody or control") and CPLR § 5225(b) (which omits the term "control"), Appellant claims that the CPLR's drafters merely "patterned" CPLR Rule 3120 upon Fed. R. Civ. P. 34 (which looks to "possession, custody, and control"), and, upon that premise, argues that the absence of the term "control" in CPLR § 5225(b) should be accorded no significance. (App. Br. at 22-23.)28 But this proves too much: if, in drafting CPLR Rule 3120, the drafters were conscious that a broad formula such as "possession, custody or control" was available in a discovery context, it follows that they were aware that the same formula might be utilized in CPLR § 5225(b), but consciously chose not to include it. In sum, Appellant's interpretation seeks to amend CPLR § 5225(b) by inserting the word "control" into the formula "possession or custody." But "[i]t is a strong thing so to read into a statute words which are not there and, in the absence of a clear necessity, it is a wrong thing to do." Palmer, 299 N.Y. at 28 As the District Court noted, Appellant initially sought to rely upon discovery case law directly, citing the various cases allowing discovery of the files of foreign subsidiaries subject to the "control" of a defendant parent. (A-9-11.) Appellant essentially reverts to this same argument when it addresses the second question presented by the Second Circuit concerning the "permissible" factors that might permit turnover against a foreign non- party subsidiary. (See infra § II.C.) 36 372.29 Judge Kaplan put it even more succinctly during oral argument: "If I take the view that you are urging upon me . . . I am in effect amending 5225(b) in a way that the legislature and the rule-makers deliberately decided it should not read." (A-109 n. 23.) The omission of the word "control" from the garnishee/turnover context30 represents the legislature's conscious decision to eliminate the concept of "control" from consideration. Thus, as the district court correctly held, the "omission of the word 'control' from Section 5225(b)" cannot properly be regarded as "immaterial," particularly where the subject matter of both statutes-the reach of the court's authority to order the turnover of property or documents-overlaps so fundamentally. Were the Court to read Section 5225(b) as [Appellant] contends it should, it effectively would amend the statute to include a meaning that is not within the actual text. As a result, the text does not support the argument [Appellant] asks it to bear here. 29 See also N.Y. Stat. § 73 (McKinney 1971) ("The court's in construing statutes should avoid judicial legislation; they do not sit in review of the discretion of the Legislature or determine the expediency, wisdom, or propriety of its action on matters within its powers."). 30 The CPLR defines a garnishee as "a person who owes a debt to a judgment debtor, or a person other than the judgment debtor who has property in his possession or custody in which a judgment debtor has an interest." CPLR § 105(i) (McKinney Supp. 2013) (emphasis added). On its face this reinforces the conclusion that the legislature deliberately chose the narrower formulation "possession or custody" when dealing with judgment debtor property in the hands of garnishees. 37 (A-14 (footnotes omitted).) 31 Appellant's arguments thus represent an impermissible attempt to "blur the linguistic distinction" between the word "control" and the term "possession and custody." (A-16.) It bears emphasis that the drafters had a particular need for precision in the drafting of the turnover statutes. An essential feature of any turnover order is that it acts to discharge the garnishee from any future claims by the judgment debtor.32 CPLR § 5209 states: A person who, pursuant to an execution or order, pays or delivers, to the judgment creditor or a sheriff or receiver, money or other personal property in which a judgment debtor has or will have an interest, or so pays a debt he owes the judgment debtor, is discharged from his obligation to the judgment debtor to the extent of the payment or delivery. CPLR § 5209 (McKinney 1997); see also Tri City Roofers Inc. v. Northeastern Indus. Park, 61 N.Y.2d 779, 782 (1984) ("Under CPLR 5209, [garnishee] was 31 See also Janssen, 59 A.D.3d at 28-29 (construing CPLR Rule 3211(e) as imposing no time limitation on motions to replead, despite that this resulted in policy inconsistencies with CPLR Rule 2221(d)(3)'s time limitation on motions for reargument: this was "a determination within the functional parameters of the Legislature, not of the Judiciary"). 32 For this reason, Article 52's rules and provisions regarding garnishees mirror the pre-judgment attachment regime of Article 62. See CPLR § 6202 (McKinney 2010) ("Any debt or property against which a money judgment may be enforced as provided in [CPLR §] 5201 is subject to attachment"); CPLR § 6214(b) (McKinney 2010) (third party levy to be directed against "person [who] owes a debt to the defendant" or person with "possession or custody" of defendant's property). 38 properly discharged from its obligation to [judgment debtor], to the extent that it had made payment to the Sheriff pursuant to [judgment creditor's] execution."). For this "discharge" to be effective, therefore, it is vital to ensure that the asset that was the subject of the turnover order be identified with certainty, that the court have unquestioned jurisdiction over the asset in question and that the garnishee validly "delivers" the asset.33 Appellant refers to CPLR § 2701, which authorizes a court to allow a trustee or other person with "possession, custody or control" of an asset to pay it into court or deliver it to an authorized person. (App. Br. at 23-25.) CPLR § 2701 self-evidently does not deal with either garnishment or pre- judgment attachment involving third parties, and does not even have a result akin to "de facto" attachment, as Appellant erroneously asserts; instead, CPLR § 2701 provides a mechanism for allowing an asset that is the subject of litigation to be placed into safekeeping, pending the outcome of the case. Plainly, this scenario justifies a broader and more flexible series of judicial 33 To order someone to extract foreign assets from a non-party, without having any actual legal right or ability to do so, would potentially expose that person to actions for conversion in the foreign jurisdiction concerned; indeed, the foreign jurisdiction could not always be expected to recognize such an order. 39 powers than the garnishee/turnover context. 34 Thus, the district court was correct to describe CPLR § 2701 as an "outlier" that afforded no guidance in the interpretation of CPLR § 5225(b). (A-15 n.55.) Straining further, Appellant also claims that the District Court somehow ignored the dictionary meaning of the words "possession" and "custody." (App. Br. at 20.) On the contrary, dictionary definitions of both 34 Significantly, CPLR § 2701 embraces categories of persons who are not actually garnishees because they do not meet the stricter and more technical definition of "garnishee" in CPLR § 105(i) (which only includes persons in "possession or custody" of personal property of the debtor). CPLR § 2701 is based upon the former Civil Practice Act § 978, which provided in relevant part: "Where it is admitted by the pleading or examination of a party, that he has, in his possession or under his control, money or other personal property capable of delivery, which, being the subject of the action or special proceeding, is held by him as trustee for another party, or which belongs or is due to another party, the court, in its discretion, may grant an order, upon notice, that it be paid into or deposited in court, or delivered to that party." J.R. Clevenger, Clevenger's Annual Practice of New York § 978 (J.R. Clevenger ed. 1962.) The early drafts of CPLR § 2701 mirrored CPLR § 5225, with both requiring money or property in the "possession or custody" of a party. Compare Legislative Studies & Report for CPLR § 2701, 3rd Report Leg. Doc. at 407-408 (1959) with Legislative Studies & Report for CPLR § 5225, 3rd Report Leg. Doc. at 267-68 (1959). Eventually, however, the legislature altered CPLR § 2701 so that it used the formula "possession, custody or control," but made no corresponding change to CPLR § 5225. See Legislative Studies and Report for CPLR § 2701, 5th Report Leg. Doc. at 411 (1961). Thus, this drafting history suggests that the legislature consciously crafted CPLR § 2701 in terms distinct from CPLR § 5225. 40 "possession" and "custody" carry with them connotations of actual dominion over property35- e.g. items such as jewelry or share certificates that the bank may keep in its physical custody, or where it stands as trustee. This meaning contrasts sharply with the potentially broader (and more open-ended) concept of "control," defined as "[t]o exercise power or influence over."36 The notion that CIBC may have indirect corporate voting "control" over its subsidiaries is entirely irrelevant to this statutory scheme, particularly given that CIBC has no legal right or ability to access any of the Millards' property. Thus, read according to its plain terms and the context in which it appears, CPLR § 5225(b) cannot be construed as reaching assets in the hands of a garnishee's subsidiary. F. The Legislative History and Pre-1964 Position Support CIBC In finding that "the Legislature intended to make the standard for asset turnover higher than that for the mere disclosure of information, given the varying degrees of possessory interests involved" (A-14), the District Court 35 See Black's Law Dictionary 1281-82 (9th ed. 2009) (defining possession as "[t]he fact of having or holding property in one's power; the exercise of dominion over property"); id. at 441 (defining "custody" as "[t]he care and control of a thing or person for inspection, preservation or security"). Although Appellant also argues that the term "possession" should be regarded as connoting "constructive possession" (App. Br. at 20), the Legislature did not include the term "constructive possession," and there is no decided case under CPLR § 5225(b) where property in the hands of a subsidiary was held to be in the "constructive possession" of a parent. 36 Black's Law Dictionary at 378. 41 correctly treated CPLR § 5225(b) as having a clear meaning according to its plain text, thus obviating any analysis of legislative history. See Lloyd v. Grella, 83 N.Y.2d 537, 545-46 (1994) ("When the language of a statute is clear, effect should be given to the plain meaning of the words used. In such instances, the court should look no further than unambiguous words and need not delve into legislative history") (citations omitted).37 Nevertheless, were there any lingering doubt that the omission of "control" from CPLR § 5225(b) was a deliberate choice by the Legislature, it would be dispelled by the legislative history. The terms of CPLR § 5225(b) were the product of the 1963 legislative overhaul of New York civil procedure, a process that wrought 37 Recourse to legislative history is not appropriate unless the statute at issue contains an ambiguity. Amorosi v. South Colonie Indep. Cent. School Dist., 9 N.Y.3d 367, 373 (2007) (holding that because statutory language was unequivocal, "we need not resort to rules of construction or consider the legislative history" of either statute at issue); Raritan Dev. Corp. v. Silva, 91 N.Y.2d 98, 107 (1997) ("We have provided further clear teaching and guidance that absent ambiguity the courts may not resort to rules of construction to broaden the scope and application of a statute, because no rule of construction gives the court discretion to declare the intent of the law when the words are unequivocal.") (citations and quotations omitted); Auerbach v. Bd. of Educ. of City School Dist. of City of N.Y., 86 N.Y.2d 198, 204 (1995) ("Resort to legislative history will be countenanced only where the language is ambiguous or where a literal construction would lead to absurd or unreasonable consequences that are contrary to the purposes of the enactment."). 42 "thousands of changes in language" in New York civil procedure law, including "hundreds of changes in substance." Jack B. Weinstein, Proposed Revision of New York Civil Practice, 60 Colum. L. Rev. 50, 66 (1960). 38 The judgment enforcement provisions received particular attention during this review.39 The reforms to CPLR § 5225(b) thus reflect a complete overhaul of the predecessor statute, Civil Practice Act § 796.40 Former CPA § 796 had provided in relevant part: Where it appears from the examination or testimony taken in a special proceeding authorized by this article that the judgment debtor has in his possession or under his control money or other personal property belonging to him, or that money or one or more articles of personal property capable of delivery, his right to the possession whereof is not substantially disputed, are in the 38 The CPLR's provisions, insofar as they depart from the old Civil Practice Act, have been regarded as working substantive reform. See, e.g., Ahern Painting Contractors v. Dist. Council of New York Vicinity of United Bhd. of Carpenters & Joiners of America, 141 A.D.2d 791, 791-92 (2nd Dep't 1988) (omission from CPLR of a provision, previously in the Civil Practice Act, providing for automatic stays of arbitration in certain circumstances, was to be regarded as a deliberate elimination of that procedure). 39 As then-Professor Weinstein related at the time, in reforming the enforcement provisions the drafters "placed the burden on the practice act. We have independently examined each provision, and we have asked: Is it useful? Does it work? Is it the best tool for the job? It has been some time since an examination of this kind has been made . . . ." Weinstein, supra, 60 Colum. L. Rev. at 87. What resulted was an "'entirely remodeled'" enforcement regime. Id. at 89. 40 The Civil Practice Act was in force in New York from 1921 to 1963. See David D. Siegel, New York Practice § 2 (5th ed. 2012). 43 possession or under the control of another person, the court in its discretion and upon such notice given to such persons as is deemed just . . . may make an order directing the judgment debtor or other person . . . . See J.R. Clevenger, Clevenger's Annual Practice of New York § 796 (J.R. Clevenger ed. 1962) (emphasis added). The record thus shows that the drafters of CPLR § 5225(b) intentionally abandoned a formula that was based upon "possession" or "control" in favor of language that required "possession" or "custody."41 41 Even under the former regime, "[m]ere constructive possession or the jus disponendi of property belonging to the defendant" was "not sufficient" to render a garnishee subject to turnover jurisdiction. See John Romain Rood, A Treatise on the Law of Garnishment § 52 (1896); see also id. §§ 6, 10 (noting that "the plaintiff must follow the [garnishment] statute strictly" and that "the statute cannot be extended by construction to include cases not clearly provided for"). The sources cited by Appellant (App. Br. at 20-21 n. 6) likewise indicate that the pre-1964 statute would not have permitted garnishment in these circumstances. See, e.g., 38 C.J.S. Garnishment § 217 (2012) ("A writ of garnishment served on a United States branch of an international bank does not create liability on the part of the bank for deposits by the judgment debtor possibly held in foreign branches"). While Appellant cites William Pratt Wade, A Treatise on the Law of Attachment and Garnishment (1886), the relevant passage cited by Appellant discusses "control" in the context of chattels, not choses in action such as bank accounts. Id. § 446. Even in that (very different) context, the author makes clear that attachment of chattels is proper only where the "garnishee not only is within reach of personal service, having actual control of defendant's property, but he must have such property in actual possession within the state where he was served." Id. § 413 (emphasis added). Thus, the pre- 1964 texts cited by Appellant lend no support to its position. 44 While acknowledging this reform, Appellant claims that "the use of the phrase 'possession or control' in the pre-1964 version of CPLR § 5225(b) was consistent with long-established principles regarding the operation and effect of a garnishment . . . . " (App. Br. at 20.) Even were this true - and it is utterly without support - this argument is wholly unavailing here, given the deliberate omission of the term "control" in the 1964 reforms. Where the Legislature reforms a statute by using materially different language from its predecessor, the reform should be viewed as intentional. See Bay Shore Family Partners, L.P. v. Found. of Jewish Philanthropies of Jewish Fed'n of Greater Fort Lauderdale, 239 A.D.2d 373, 374-75 (2d Dep't 1997) ("This omission is not to be viewed as a legislative oversight but rather as an indication that the exclusion of such a provision was intended."); see also Janssen, 59 A.D.3d at 28 ("[W]e will not insert into the amended version of CPLR 3211(e) any time restriction. To do so would result in a judicially 'crafted' statute.").42 Thus, 42 See also N.Y. Stat. § 74 (McKinney 1971) ("A court cannot by implication supply in a statute a provision which it is reasonable to suppose the Legislature intended intentionally to omit; and the failure of the Legislature to include a matter within the scope of an act may be construed as an indication that its exclusion was intended.") (emphasis added); N.Y. Stat. § 193 (McKinney 1971) ("The Legislature, by enacting an amendment of a statute changing the language therefore, is deemed to have intended a material change in the law."); Sachs v. Zito, 28 Misc. 3d 567, 571 (Sup. Ct. Orange County 2010) (holding that the removal of a statutory provision (cont’d) 45 comparison to the pre-1964 legislative text plainly supports Judge Kaplan's holding that even if CIBC had control over the Millard's accounts, it would not be a sufficient basis for a turnover order under CPLR § 5225(b). G. Whatever the Current Status of the "Separate Entity Rule," The Cases on this Issue Show that the Turnover Statutes, When Applied to Bank Garnishees, Should Be Interpreted Narrowly The position urged by Appellant also would have undesirable policy ramifications. If Appellant's overly broad reading of New York's turnover statutes were adopted, banks with branches in New York would be immediately exposed to a miscellany of enforcement proceedings aimed at reaching their foreign subsidiaries (regardless of those subsidiaries' separate incorporation or the absence of links between them and this State).43 ________________________ (cont’d from previous page) should not be viewed as legislative oversight but rather an indication that such an exclusions was intended). 43 In Winter Storm, the Second Circuit held that electronic fund transfers passing through New York for an instant were attachable property. Winter Storm v. TPI, 310 F.3d 263, 278 (2d Cir. 2002). This led to a flood of applications, with one third of all cases in the Southern District arising out of maritime attachment actions. See Shipping Corp. of India Ltd. v. Jaldhi Overseas Pte Ltd., 585 F.3d 58, 62 (2d Cir. 2009). Banks were required to hire more staff to process the 700 supplemental services of existing orders each day, and commentators warned that New York's standing as a center for banking and finance could be threatened. Id. Ultimately, the Second Circuit overturned Winter Storm, noting its impact on New York's courts and banks. Shipping Corp., 585 F.3d at 61-62. 46 One feature of the case law on the turnover statute warrants special mention. Under the "separate entity" rule, as reaffirmed recently by numerous courts of this State "each branch of a bank is treated as a separate entity, in no way concerned with accounts maintained by depositors in other branches or at a home office.'"' Ayyash, 2012 N.Y. Slip Op. 22396 at *4 (quoting Cronan v. Schlling, 100 N.Y.S.2d 474, 476 (Sup. Ct. N.Y. County 1950)); accord Global Tech., Inc. v. Royal Bank of Can., 34 Misc. 3d 1209(A), 2012 N.Y. Slip Op. 50023(U), at *4 (Sup. Ct. N.Y. County Jan. 11, 2012); see also id. ("Under the separate entity rule . . . service of a restraining notice upon the New York branch does not restrain any accounts held by the bank branch in Germany."); Samsun Logix Corp. v. Bank of China, 31 Misc. 3d 1226(A), 2011 N.Y. Slip Op. 50861(U), at *3-5 (Sup. Ct. N.Y. County May 12, 2011) ("[T]he separate entity rule provides that each branch of a bank be treated as a separate entity for attachment purposes. The 'mere fact that a bank may have a branch within New York is insufficient to render accounts outside of New York subject to attachment merely by serving a New York branch.'") (citations omitted). 44 44 See also Nat'l Union Fire Ins. v. Advanced Employment Concepts, 269 A.D.2d 101, 102 (1st Dep't 2000) (applying separate entity rule to deny order of attachment); BDP Int'l v. First Affiliated, No. 0600409/0409, 2006 N.Y. Slip Op. 30083(U) (Sup. Ct. N.Y. County Apr. 10, 2006) (same); Clinton Trust Co. v. Compania Azucarera Central Romona S.A., 172 Misc. 148, 151 (Sup. Ct. N.Y. County 1939) (applying separate entity rule under (cont’d) 47 Numerous courts of this State have recently reaffirmed the separate entity rule and viewed it as being unaffected by this Court's decision in Kohler. See Parbulk II A.S. v. Heritage Maritime, S.A., 35 Misc.3d 235, 238-39 (Sup. Ct. N.Y. County 2011) ("The [separate entity rule] has been reaffirmed in court decisions rendered after Koehler in both the pre-judgment and post-judgment contexts."); Ayyash, 2012 N.Y. Slip Op. 22396 at *6 (remarking that separate entity rule is "well-established" and observing that "courts have rejected arguments that Koehler impliedly abrogated the separate entity rule in post- judgment enforcement proceedings"). Based upon a highly selective reading of recent federal case law, Appellant asserts that "the separate entity rule has been recognized to be inapplicable to post-judgment enforcement proceedings." (App. Br. at 28 n.8.) This assertion takes no account whatsoever of the unanimous holdings of courts ________________________ (cont’d from previous page) the Civil Practice Act to deny plaintiffs request for order of attachment and request for information about accounts located in Cuba.); Bluebird Undergarment Corp. v. Gomez, 139 Misc. 742, 744 (City Court N.Y. County 1931) (refusing to attach property under the Civil Practice Act and reasoning that branches are treated as separate and distinct from one another); Det Bergenske Dampskibsselskab v. Sabre Shipping Corp, 341 F.2d 50, 53 (2d Cir. 1965) ("A review of the New York cases indicates a consistent line of authority holding that accounts in a foreign branch bank are not subject to attachment or execution by the process of a New York court served in New York on a main office, branch, or agency of the bank.") (emphasis added) 48 of this State in cases such as Ayyash, Global Tech, Parbulk, and Samsun, squarely applying the rule to a post-judgment enforcement proceedings. 45 Although a few federal district court decisions have questioned whether the "separate entity" rule survives Koehler,46 other federal authorities have held that the separate entity rule remains in force because it has never been abrogated by this Court.47 As the First Department has stressed, the abrogation of a rule so well-established as the separate entity rule would require either a 45 While it is certainly true (and Appellant admits) that the "separate entity rule" applies in a jurisdictional context so as to prevent foreign bank branches from being treated as "present" in New York, see Allied Mar., Inc. v. Descatrade SA, 620 F.3d 70, 74 (2d Cir. 2010); (App. Br. at 28 n. 8), this does not detract from the role the "separate entity rule" has always played in a post-judgment enforcement context. 46 See, e.g., JW Oilfield, 764 F. Supp. 2d at 595; Eitzen Bulk A/S v. Bank of India, 827 F. Supp 2d. 234, 241-42 (S.D.N.Y. 2011). The order in Eitzen Bulk was vacated by the Second Circuit in May 2011. See Eitzen Bulk A/S v. State Bank of India, No. 10-3352-cv (2d Cir. May 12, 2011). As for JW Oilfield, that decision appears to been premised, in part, on an apparent concession by Commerzbank that the separate entity rule had been preempted in certain instances. See 764 F. Supp. 2d at 595. 47 Shaheen Sports, Inc. v. Asia Ins., No. 11-cv-920 (LAP), 2012 WL 919664, at *3 (S.D.N.Y. Mar. 14, 2012) ("[I]t has . . . long been considered settled law in New York . . . that where that garnishee is a bank, the court must obtain jurisdiction over the specific bank branch holding the asset before it may order any turnover, notwithstanding its general jurisdiction over the banking entity by virtue of its New York branch") (emphasis added), appeal dismissed, No. 12-1481-cv (2d Cir. Apr. 13, 2012). 49 definitive pronouncement by this Court "or an act of the Legislature." Nat'l Union Fire Ins., 269 A.D. 2d at 102. In the present case, the separate entity rule need not be invoked to treat banks branches as separate entities because the Cayman subsidiaries actually are separate companies. Nevertheless, the mere existence of the separate entity rule demonstrates that the turnover statutes have historically been subject to narrow interpretation48 - a policy of restraint that is at odds with Appellant's expansive approach here. Were Appellant's position correct, there would not even be the need for a discussion of the separate entity rule because even actual separate entities would be collapsed under this distorted view. * * * In sum, the turnover statutes would be capable of application here only if CIBC were itself indebted to the Millards (in the case of CPLR § 5227) or CIBC itself held property belonging to the Millards (in the case of CPLR § 5225(b)). As neither is the case, Appellant's interpretation must fail. 48 This is, of course, consistent with the longstanding principle that New York's CPLR, in particular its "long-arm" jurisdiction, "does not go as far as is constitutionally permissible." Banco Ambrosiano, S.p.A. v. Artoc Bank & Trust, Ltd., 62 N.Y.2d 65, 71 (1984). 50 II. THE TURNOVER STATUTES COULD VALIDLY BE APPLIED TO CORPORATE AFFILIATES ONLY IF VEIL-PIERCING WERE ESTABLISHED A. Because Post-Judgment Proceedings Affect Title and Rights Over Property Held by the Garnishee, a Turnover Order Should Only Reach Subsidiaries that are True Alter Egos of the Garnishee The second question posed by the Second Circuit Court of Appeals is: "If the answer to the above question is in the affirmative, what factual considerations should a court take into account in determining whether the issuance of such an order is permissible?" Although this question need not be reached, it should be equally clear that the only circumstances in which a non-party affiliate's assets could be the subject of a turnover order is where the requirements of veil-piercing (as between the garnishee and affiliate) are satisfied. In urging a looser, indeterminate standard for the application of the turnover statutes, Appellant ignores the fundamental nature of a turnover order, which is to resolve questions of title over property in the hands of the garnishee. In any situation governed either by CPLR § 5225(b) or § 5227, the Court is being asked to make a final adjudication to the effect that the judgment debtor enjoys title over the disputed asset, such that title can be passed to the judgment 51 creditor.49 Proceedings of this nature should only be instituted where the actual, proper parties in interest are duly brought before the Court. It is no answer for Appellant to claim that such a result is "unwieldy" (App. Br. at 33); on the contrary, unless the party that actually holds the property is properly subject to the New York court's jurisdiction, any determination as to title in the subject property will lack finality and effectiveness - and only in those circumstances can competing claims over the property be finally adjudicated in accordance with CPLR § 5239. Appellant's analogy to the "jurisdictional" setting, where jurisdiction over foreign affiliates has sometimes been based on findings other than veil-piercing (App. Br. at 30), is thus inappropriate. A finding of personal jurisdiction merely means that the foreign parent might, in future, become subject to a final judgment; it does not command that the foreign parent 49 CPLR § 5225(b) contemplates that, once the judgment creditor proves that the judgment debtor "is entitled to the possession of [the subject property]," there shall be issued an order that the garnishee "pay the money" to the judgment debtor or "deliver any other personal property, to a designated sheriff." CPLR § 5227 likewise contemplates that, once the garnishee is shown to be indebted to the judgment debtor, the Court will make a final order "requir[ing]" the garnishee "to pay to the judgment creditor the debt upon maturity." That these turnover statutes implicate questions of title is further evidenced by: (1) the right of third parties to intervene; and (2) the express grant of power for the Court to "determine" the "right" of adverse claimants in accordance with CPLR § 5239. CPLR § 5239 (McKinney 2012). 52 immediately bring foreign assets within the jurisdiction. A turnover order, by contrast, is a final adjudication which presupposes that the assets in question are already held by a person within the court's jurisdiction. Even so, the courts of this State have held, time and again, that mere corporate affiliation between a New York-based company and a foreign company does not, standing alone, subject the foreign affiliate to New York jurisdiction. 50 Moreover, the mere fact that a New York court possesses jurisdiction over an indirect majority 50 See Moreau v. RPM, Inc., 20 A.D.3d 456, 457 (2d Dep't 2005) ("Mere ownership by a parent company of a subsidiary that is subject to personal jurisdiction is insufficient to established jurisdiction over the parent."); Ins. Co. of N. Am. v. EMCOR Group Inc., 9 A.D.3d 319 (1st Dep't 2004) ("The existence of an agency upon which a finding of jurisdiction may be predicated may not be inferred from the existence of a parent-subsidiary relationship."). Jurisdiction in the "agency" cases cited by Appellant was founded upon a very substantial level of functional interconnectedness between the New York affiliate and the foreign defendant. See Frummer v. Hilton Hotels Int'l., 19 N.Y.2d 533, 537-38 (1967) (finding of an agency relationship was based upon the fact that a New York affiliate had undertaking specific reservation/booking functions for the London-based corporation's benefit); Bellomo v. Pennsylvania Life Co., 488 F. Supp. 744, 746-77 (S.D.N.Y. 1980) (facts showed that "Pennsylvania Life [was] . . . a super-corporation engaged primarily in underwriting and selling a variety of insurance policies through several subsidiaries" in New York). In other cases cited by Appellant, the court's jurisdictional findings were based on facts resembling "alter ego" or veil-piercing situations. See Comprehensive Sports Planning Inc. v. Pleasant Valley Country Club, 73 Misc.2d 477, 479 (City Ct. N.Y. County 1973) (finding jurisdiction based on "domination and control" by of one affiliate over another, "particularly the siphoning off of monies"). As noted above, Appellant has conceded that veil-piercing is not available in this case. 53 shareholder of a non-party foreign corporation (not subject to jurisdiction) cannot justify an order from the New York court mandating that the majority shareholder vote its shares to install directors who would insist that the foreign subsidiary violate local law - and furthermore order that the majority shareholder call as many extraordinary shareholders meetings as is necessary to fire any directors who disobey that ultimatum. Not only would this implicate the New York court in unlawful activity in a foreign jurisdiction, it likely would also drive away law-abiding financial institutions from doing business in New York. B. If the Turnover Statutes Permitted Unlimited Recourse to the Property of Foreign Non-Party Affiliates, This Would Have Obvious - and Negative - Due Process Implications As this Court has recently acknowledged, it is a longstanding goal of New York's Legislature to promote New York's status as "'a commercial and financial center.'" 51 IRB-Brasil, 2012 N.Y. Slip Op. 08669 at *3. 51 In IRB-Brasil, this Court noted that General Obligations Law § 5-1401 had been enacted in order to preserve the "'the standing of New York as a commercial and financial center.'" IRB-Brasil Resseguros, 2012 N.Y. Slip Op. 08669, at *3 (citing Sponsor's Mem, Bill Jacket, L 1984, ch 421). This Court quoted the legislative history: "In order to encourage the parties of significant commercial, mercantile or financial contracts to choose New York law, it is important . . . that the parties be certain that their choice of law will not be rejected by a New York Court . . ." The Legislature desired for parties with multi- jurisdictional contacts to avail themselves of New York law if they so (cont’d) 54 Consistent with that policy, which favors certainty and predictability in commercial transactions, there are sound reasons why the New York Legislature would never have countenanced a general right to obtain turnover of deposits in bank accounts administered by foreign subsidiary banks. The problems this would beget for banks and other commercial parties in New York are most obvious when one considers the problem of "double liability" faced by the subsidiary in the overseas jurisdiction. An essential feature of the turnover procedure is that, under CPLR § 5209, once the third-party garnishee hands over the moneys that are the subject of the turnover application, that garnishee is, as a matter of law, "discharged from his obligation to the judgment debtor to the extent of the payment or delivery." CPLR § 5209 (McKinney 1997); see also Tri City Roofers, 61 N.Y.2d at 782, 461 N.E.2d at 299; CPLR § 6204 (McKinney 2010) (corresponding pre-judgment attachment provision). Such an order is only capable of delivering justice to all parties, however, if: (1) the garnishee has ________________________ (cont’d from previous page) designate in their choice-of-law provisions, in order to eliminate uncertainty and to permit the parties to choose New York's "well- developed system of commercial jurisprudence." Id. (citation omitted). Appellants' position here, if adopted, would run directly counter to these policy goals because it would create uncertainty for financial institutions doing business in New York. 55 lawful access to the moneys concerned; and (2) both the garnishee and the judgment debtor are properly subject to the jurisdiction of the courts of this State, such that the turnover order will be recognized for all purposes and in all future litigation between garnishee and judgment debtor (wherever that litigation may take place). But if, as Appellant seeks here, the turnover order requires a parent to pay a money sum equal to the moneys deposited with its foreign subsidiary bank - regardless of whether the parent is legally entitled to those deposits - then this places both parent and subsidiary in an impossible position. Not only is the parent being asked to perform an action that is potentially unauthorized by the law governing the bank account at issue, but also the subsidiary faces the risk that, regardless of the New York court's order, it will still be judged liable to the judgment debtor by the courts of the place in which the account is held. This is because the foreign court is not bound to recognize the validity of a New York turnover order that purports to apply to someone (here, the foreign subsidiary) who is not itself subject to New York jurisdiction.52 This chain of events will result in double losses to the parent, 52 The risk of non-recognition by the Cayman courts is heightened in this case because the judgment is legally unenforceable in the Cayman Islands. (See supra note 5.) 56 who, having paid the judgment creditor, will suffer a corresponding diminution of the value of its shares in the subsidiary when the subsidiary pays the same amount to the judgment debtor. This is not, as Appellant seeks to portray it, an issue of "choosing" whether to comply with the laws of one legal system or another. (App. Br. at 39.)53 It is a straightforward situation of double liability arising under both legal systems, which, in turn, violates the Due Process Clause of the United States Constitution. In Western Union Telegraph Co. v. Pennsylvania, 368 U.S. 71 (1961), the United States Supreme Court reasoned that a corporation holding funds "is deprived of due process of law if [it] is compelled to relinquish it without assurances that [it] will not be held liable again in another jurisdiction or in a suit brought by a claimant who is not bound by the first judgment." Id. at 75. Here, because "'[i]t ought to be and is the object of courts to prevent the payment of any debt twice over,'" the drafters of the CPLR inserted CPLR § 5209 to prevent double liability. JPMorgan Chase Bank v. Motorola, Inc., 47 53 Appellant, while failing to address the vital issue of double liability, seeks to cloud matters by raising a different issue, namely, whether CIBC may properly raise objections to discovery based upon Cayman law regarding the confidentiality of customer information. (App. Br. at 38-39.) This issue, while important, is entirely unconnected with the double liability risk. Once again, Appellant pays no heed to the fundamental differences between information (which can be disclosed to more than one person, or in more than one place), and property disputes, which are quintessentially zero-sum. 57 A.D.3d 293, 306 (1st Dep't 2007) (quoting Harris v. Balk, 198 U.S. 215, 226 (1905)); accord Oppenheimer v. Dresdner Bank, A.G., 50 A.D.2d 434, 441 (2d Dep't 1975) aff'd, 41 N.Y.2d 949 (1977).54 To order turnover from a parent bank such as CIBC when its subsidiary may not benefit from CPLR § 5209 would therefore violate not only the text of the statute, but would create a risk of double liability that is inconsistent with the Fifth and Fourteenth Amendments. From a policy perspective, the consequences are even starker. Faced with the significant legal risks that would flow from Appellant's position, many banks will have an incentive to avoid doing business in New York at all. As the Institute of International Bankers (as amicus curiae) has warned: "Indeed, turnover orders directed at subsidiaries will create pressure not only on non-U.S. banks, but even on some U.S. banks, not to operate in New York. Such pressure might be internal to the bank, due to increased costs and the risk of doing business, or it might flow from foreign customers who do not wish their assets to be exposed in New York." (A-201; see also id. at A-193 (warning that Appellant's approach "would make New York a magnet for execution on foreign assets and would threaten to turn 54 Besides being contrary to Due Process, any such result would be unconscionable and thus inconsistent with the court's equitable powers. See Motorola, 47 A.D. 3d at 306-07. 58 a manageable number of straightforward domestic turnover proceedings into a flood of multi-party, cross-border litigation."). During oral argument before the Second Circuit, when asked to respond to the Institute of International Bankers' amicus submissions, Appellants' counsel did not deny the pressure this would put on non-party banks, but simply stated that if banks operating in New York found the risks of this kind of turnover application to be unacceptable, they could "relinquish control" of "property" under their "control." Appellant thus effectively conceded that, on its theory, the only way for banks trading in New York to avoid turnover risk would be either to divest their subsidiaries or else cease to have any operations in New York. This, it is submitted, provides further confirmation that Appellant's position, if adopted, would undermine New York's position as a financial and commercial center. C. The Discovery Test of "Possession, Custody or Control" Has No Relevance in the Turnover Context In advancing "factors" that might be taken into account in the application of CPLR § 5225(b) to non-party subsidiaries, Appellant once again seeks to rely upon federal discovery cases where defendants have been ordered to turn over files in the hands of foreign non-party subsidiaries. (App. Br. at 29.) As the District Court recognized, some federal courts have held, based on the "possession, custody and control" test in Fed. R. Civ. P. 34, that a parent 59 should turn over its subsidiary's documents (A-9-10), based upon a factual finding that a parent company, through its managerial/shareholder powers, had effective "control" over information in the subsidiary's hands for purposes of the discovery rules. (A-12.) But, as the District Court held, the text of CPLR Rule 3120's "possession, custody or control" formula is critically different from the narrower "possession or custody" formula in the "garnishment" and "attachment" statutes. (A-12.) The difference is not only textual, it is also substantive. The cases cited by Appellant were based upon a finding that the information - which, by its nature is capable of being replicated and shared - was equally accessible to parent and subsidiary alike.55 Property, by contrast, is a finite quantity that 55 The cases cited by Appellant (App. Br. at 29, 33, 35, 37-38) are no different. See, e.g., In re ATM Fee Antitrust Litig., 233 F.R.D. 542, 544 (N.D. Cal. 2005) (finding that a bank had "possession, custody, or control" of documents for purposes of Fed. R. Civ. P. 26 and 34 based on its "control" of the subsidiary's files). In Davis v. Gamesa Tech. Corp., No. 08-4536, 2009 WL 3473391, at *4 (E.D. Pa. Oct. 20, 2009), the court emphasized the need to prove "'legal right, authority or ability to obtain' the requested documents on demand" to establish "control" of documents under the federal discovery rules. See id. at *5 (finding that the two entities "acted as one" and that there was a free flow of information between them). Dietrich v. Bauer, 198 F.R.D. 397 (S.D.N.Y. 2001) is distinguishable on its face, because in that case the existence of "control" had previously been conceded. See Dietrich v. Bauer, No. 95 Civ. 7051 (RWS), 2000 WL 1171132, at *2 n. 1 (S.D.N.Y. Aug. 16, 2000). In Florentia Contracting Corp. v. Resolution Trust Corp., No. 92 Civ. 1188 (PKL), 1993 WL 127187 at *4 (S.D.N.Y. April 22, 1993), the district court found that the level of "control" over (cont’d) 60 cannot be "shared" in the same sense. Thus, the cases involving "access" to information have no relevance or application in the turnover context. D. There Has been No Final Determination of "Control" in this Case Even were this Court were to accept Appellant's legal arguments, the record is devoid of proof that CIBC has the practical ability to require its remote subsidiary to turn over customer property, as Appellant erroneously claims.56 On the contrary, the record below showed that CIBC actually lacks the practical ability or legal right to obtain customer information from the Cayman banks,57 in part because of the specific constraints of Cayman Islands ________________________ (cont’d from previous page) documents had not been met because "plaintiff ha[d] failed . . . to demonstrate that the RTC has at any time had control over any documents in Colonial's possession." In In re Citric Acid Litigation, 191 F.3d 1090 (9th Cir. 1999), the Ninth Circuit affirmed a finding that a U.S. entity did not have control over documents held by a Swiss affiliate, observing that the record showed that the Swiss affiliate could properly refuse to furnish the information. Id. at 1108. Finally, First Nat'l City Bank of N.Y. v. Internal Revenue Service, 271 F.2d 616, 618 (2d Cir. 1959) is distinguishable because it involved production of documents from a foreign bank branch, not a separately incorporated bank affiliate. 56 Although Appellant notes that the District Court's ruling concerning CIBC's susceptibility to a turnover application was based on undisputed statements in affidavits (App. Br. at 11), the issue of whether CIBC possessed managerial "control" over its subsidiaries for discovery purposes was strongly disputed and ultimately was not adjudicated by Judge Kaplan. 57 Even in the discovery context, mere ownership of a majority of voting stock is insufficient to prove "control" over a subsidiary's files; "control" is shown only by a specific showing that the parent has actual legal authority or practical ability to obtain documents from its subsidiaries on demand. See (cont’d) 61 banking law. (See supra p. 11.) There is nothing on the record to suggest that CIBC has the "practical ability" to extract assets or funds on demand from First Cayman or Cayman TrustCo, whether in the regular course of business or otherwise. 58 ________________________ (cont’d from previous page) Motorola Credit Corp. v. Uzan, No. 02 Civ. 666 (JSR)(FM), 2003 WL 203011, at *7 (S.D.N.Y. Jan. 29, 2003). 58 Appellant seeks to capitalize on the content of CIBC's statements to the Department of Homeland Security and Federal Reserve System. (App. Br. at 36-37.) Although CIBC has given certain basic assurances about CIBC's compliance (and that of its subsidiaries) with anti-terrorism and anti-money- laundering legislation - including the presence of group-wide "controls" to prevent violations of those laws (A-135-36), this in no way supports a finding that CIBC possesses "control" over its subsidiaries such that it could extract assets (or even information) from them at will. Moreover, the mere fact that the Department of the Treasury or Attorney General have the statutory power under 31 U.S.C. § 5318(k)(3) to serve notices on foreign banks that maintain correspondent bank relationships in the United States (a law that enables the government to enforce compliance with its anti-money- laundering program), this does not subject such foreign banks to civil jurisdiction in the United States. See Day v. Corner Bank Overseas, Ltd., 789 F. Supp. 2d 150, 156-57 (D.D.C. 2011) (foreign bank's compliance with 31 U.S.C. § 5318(k)(3), in designating agent to receive service from either the Secretary of the Treasury or the Attorney General of the United States for purposes of that statute, did not create a basis for asserting civil jurisdiction over that bank). 62 Accordingly, because any further consideration of "control" would depend upon factual findings by the District Court,59 this Court should refrain from endorsing Appellant's skewed reading of the factual record. 59 In its Brief, Appellant advances for the first time the argument that, in granting an initial ex parte restraint (and in continuing the restraint during the pendency of this appeal), the District Court "implicitly determined that CIBC had the actual, practical ability to direct or control" accounts at subsidiaries of First Caribbean. (App. Br. at 35 n.10.) This simply is not the case. There has been no such finding, implicit or explicit. CONCLUSION For the forgoing reasons, the first question should be answered in the negative, and it is not necessary to reach the second question. Dated: New York, New York February 1, 2013 cott D. usoff Timothy G. Nelson Gregory A. Litt SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Four Times Square New York, New York 10036 (212) 735-3000 (212) 735-2000 (fax) Attorneys for Garnishee-Respondent CIBC 63