To Be Argued By: MICHAEL S. KIM Time Requested: 30 Minutes Court of Appeals Case No. 229 Second Circuit Docket No. 12-1857-cv Court of Appeals STATE OF NEW YORK COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS, Plaintiff-Appellant, -against- CANADIAN IMPERIAL BANK OF COMMERCE, Garnishee-Appellee, WILLIAM H. MILLARD, Defendant, THE MILLARD FOUNDATION, Intervenor. PLAINTIFF-APPELLANT’S OPENING BRIEF d MICHAEL S. KIM MELANIE L. OXHORN KOBRE & KIM LLP 800 Third Avenue New York, New York 10022 Telephone: (212) 488-1200 Facsimile: (212) 488-1220 Attorneys for Plaintiff-Appellant Commonwealth of the Northern Mariana Islands December 17, 2012 i TABLE OF CONTENTS INTRODUCTION ..................................................................................................... 1 QUESTIONS CERTIFIED FOR REVIEW .............................................................. 5 JURISDICTIONAL STATEMENT .......................................................................... 6 STATEMENT OF FACTS ........................................................................................ 6 A. Factual Background ..................................................................................... 6 B. Procedural History………………………………… ................................... 7 SUMMARY OF ARGUMENT ............................................................................... 11 ARGUMENT ........................................................................................................... 15 I. CPLR § 5225(b)’s Post-Judgment Enforcement Remedy May Be Applied Where Assets Are Held By A Garnishee’s Subsidiary But The Garnishee Is Determined To Have The Actual, Practical Ability To Direct Or Control Their Disposition….. .............................................. 15 A. This Court Has Already Recognized That A Turnover Order May Issue Against A Garnishee Who Is Present In New York But Has Control, As Opposed To Actual Possession Or Custody, Of Assets ......................................................................................... 15 B. That A Judgment Debtor’s Property Is Held By A Garnishee’s Subsidiary Should Not Make Any Difference To The Application Of The General Rule That A Turnover Order May Issue Where A Garnishee Has Constructive ii But Not Actual Possession Or Custody Of Property Held At Another Location ......................................... …..26 II. A Court Considering Whether To Issue A Turnover Order To A Garnishee Whose Subsidiary Has Actual Possession Or Custody Of Assets Should Determine Whether The Garnishee Has The Actual, Practical Ability To Control The Subsidiary’s Disposition Of Them ..................................................................................................... 30 A. Courts Should Evaluate Whether A Garnishee Has The Actual, Practical Ability To Control Its Subsidiary’s Accounts Or Direct Their Disposition As Required To Meet Its Business Needs, And, In Particular, To Satisfy Its Own Legal Obligations ............................................................................ 30 B. There Is No Valid Reason To Apply A Different Or More Demanding Standard In Issuing A Turnover Order Under Section 5225(b) Merely Because Both The Parent That Is Subject To The Order And Its Subsidiary Where Assets Are Located Are Banks .......................................................................... 37 CONCLUSION ........................................................................................................ 41 iii TABLE OF AUTHORITIES Cases Page(s) Allied Maritime, Inc. v. Descatrade SA, 620 F.3d 70, (2d Cir. 2010) ................................................................................................ 28 n.8 In re ATM Fee Antitrust Litig., 233 F.R.D. 542 (N.D. Cal. 2005) ........................................................................................................... 38 n.11 Ball v. State, 421 N.Y.S.2d 328 (N.Y. Ct. Cl. 1979) ............................................... 23 Bellomo v. Pennsylvania Life Co., 488 F. Supp. 744 (S.D.N.Y. 1980) ...................................................................................... 30 n.9-31 In re Citric Acid Litig., 191 F.3d 1090 (9th Cir. 1999) ................................... 35 n.10 Comprehensive Sports Planning, Inc. v. Pleasant Valley Country Club, 341 N.Y.S.2d 914 (N.Y. City Civ. Ct. 1973) ....................................................................................................... 30 n.9-31 Davis v. Gamesa Technology Corp., No. 08-4536, 2009 WL 3473391 (E.D. Pa. Oct.20, 2009) ........................................................................ 33 Dietrich v. Bauer, 198 F.R.D. 397 (S.D.N.Y. 2001) .............................................. 29 First Nat’l City Bank v. Internal Revenue Service, 271 F.2d 616 (2d Cir.1959) ............................................................................................... 37 Florentia Contracting Corp. v. Resolution Trust Corp., No. 92 Civ. 1188(PKL), 1993 WL 127187 (S.D.N.Y. Apr. 22, 1993) ............................................................................................................. 29 Frummer v. Hilton Hotels Intern., Inc., 19 N.Y.2d 533 (1967) ...................................................................................................... 30 n.9-31 In re Grand Jury Proceedings: Bank of Nova Scotia, 740 F.3d 817 (11th Cir. 1984) ................................................................................... 39 Gryphon Domestic VI, LLC v. APP Int’l Fin. Co., B.V., 836 N.Y.S.2d 4 (1st Dep’t 2007) .................................................................passim J.W. Oilfield Equip., LLC v. Commerzbank, AG, 764 F.Supp.2d 587 (S.D.N.Y. 2011) ................................................................... 28 n.8 iv Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009) ................................passim Merkling v. Ford Motor Co., 251 A.D. 89, 296 N.Y.S. 393 (4th Dep't 1937) ............................................................................................ 24 n.7 Miller v. Doniger, 814 N.Y.S.2d 141 (1st Dep’t 2006) ....................................passim Morgenthau v. Avion Res. Ltd., 849 N.Y.S.2d 223 (1st Dep’t 2007) ..................................................................................................... 16, 38 n.11 Payne v. Garnett McKeen Lab., Inc., 648 N.Y.S.2d 137 (2d Dep’t 1996) ......................................................................................................... 21 Rios v. Donovan, 250 N.Y.S.2d 818 (1st Dep’t 1964) ............................................ 23 U.S. v. First Nat’l City Bank, 379 U.S. 378 (1965) ................................................. 27 Statutes and Rules Page(s) 28 U.S.C. § 1963 ........................................................................................................ 6 Fed. R. Civ. P. 34 ..............................................................................................passim Fed. R. Civ. P. 69 ................................................................................................... 2, 6 2d Cir. Local R. 27 ..................................................................................................... 5 N.Y. Comp. Codes R. & Regs. Title 22, § 500.27 .......................................... 5, 6, 11 N.Y. CPLR § 3120 ................................................................................................... 23 N.Y. CPLR § 5225 ............................................................................................passim N.Y. CPLR § 2701 ............................................................................................passim NY STAT § 97 (1971 & Supp. 2002) ................................................................ 24 n.7 N.Y. STAT. § 232 (2012) ........................................................................................ 20 N.Y. Civil Practice Act § 796 ............................................................................ 19, 22 v Other Authorities Page(s) 1st Preliminary Report of the Advisory Committee on Practice and Procedure, N.Y. Leg. Doc. No. 6(b) at 152 (1957) .................................................................................................................. 23 2 William Pratt Wade, A Treatise on the Law of Attachment and Garnishment (1886) ......................................................................... 20 n.6-21 2A Sutherland, Statutes and Statutory Construction § 45:12 (7th ed. 2011) ...................................................................................................... 21 38 C.J.S. Garnishment § 209 ....................................................................... 20 n.6-21 Black’s Law Dictionary (9th ed. 2009) ................................................................... 20 David D. Siegel, Practice Commentaries, C5225:5 (1997) .................................... 21 Webster’s Third New International Dictionary 559 (Merriam-Webster 3d ed. 1993) ......................................................................... 20 1 INTRODUCTION This case is before the Court to decide two questions certified by the United States Court of Appeals for the Second Circuit (the “Second Circuit”), which ask the following: (1) whether a turnover order may be issued pursuant to N.Y. C.P.L.R. § 5225(b) to an entity whose subsidiary has actual possession or custody of the judgment debtor’s property; and (2) if so, what factual considerations should be taken into account in determining whether issuing such an order is permissible? Section 5225(b) authorizes a judgment creditor to initiate a special proceeding “against a person in possession or custody of money or other personal property in which the judgment debtor has an interest.” CPLR § 5225(b) (emphasis added). Where “the judgment debtor is entitled to the possession of such property or the judgment creditor’s rights to the property are superior to those of the transferee” (i.e., the garnishee), Section 5225(b) provides that the court “shall” order that person “in possession or custody” to deliver the property or pay over the money in satisfaction of that creditor’s judgment. Id. The underlying action arises from the continuing effort by plaintiff-appellant the Commonwealth of the Northern Mariana Islands (“Commonwealth”), a United States Territory, to enforce judgments for unpaid taxes (the “Judgments”) against the assets of judgment-debtors William and Patricia Millard (together, the “Millards” or “Judgment-Debtors”). The Commonwealth brought a proceeding in 2 the United States District Court for the Southern District of New York (the “District Court”) pursuant to Federal Rule of Civil Procedure 69 seeking, among other things, an order under CPLR § 5225(b) directing the appellee, third-party garnishee the Canadian Imperial Bank of Commerce (“CIBC”), to turn over funds belonging to the Millards allegedly held in accounts housed at CIBC FirstCaribbean International Bank (Cayman) Ltd. (“CFIB”), a 92%-owned-and- controlled subsidiary of CIBC. The Commonwealth acknowledged that CIBC lacked actual physical "possession or custody" of the assets. Instead, the Commonwealth argued that CIBC had constructive “possession or custody” as a consequence of its actual, practical ability -- as evidenced by CIBC’s own public statements -- to control or direct CFIB’s disposition of assets in those accounts when the need arose in the ordinary course of CIBC’s business or under federal law requirements and consequently also when the need arose as a result of a turnover order directed at CIBC. The District Court (Hon. Lewis A. Kaplan) rejected this argument on the ground that CPLR § 5225(b) required actual, as opposed to constructive, possession of assets, a ruling primarily based on a contrast between that provision 3 and other sections of the CPLR relating to discovery that required production of information in a party’s "possession, custody, or control." A-12-181. Nevertheless, the District Court found the Commonwealth’s argument to have “significant merit” and also expressed the view that “the[ ] [evidence], at the very least, suggest[ed] that it [wa]s within CIBC’s practical power to . . . access and turn over the account funds.” A-2, A-18-20. (also “not[ing] that [the Commonwealth] has made a substantial showing that under the more relaxed, ‘practical’ standard,” the Commonwealth’s “evidence might be sufficient to warrant a turnover order” and make “an evidentiary hearing . . . appropriate”). Furthermore, the District Court issued an order directing CIBC to maintain the status quo so as to prevent a dissipation of the assets in question pending resolution of this appeal -- including any “certification of this interesting question to the New York Court of Appeals for an authoritative determination of state law” in the event the Second Circuit were to determine that such a course of action would be “appropriate.” A-20-22. The Second Circuit subsequently agreed with the District Court’s suggestion that certification to this Court was appropriate because the 1 All references to “A-” are to the Appendix filed with this brief. For the Court’s convenience, this contains only the District Court’s Memorandum Opinion, those materials previously submitted to the Second Circuit that the Commonwealth believes to be relevant in resolving the questions under review, as well as the Second Circuit’s Order certifying those questions for review, this Court’s Order accepting certification, and all briefs filed in the Second Circuit. 4 Commonwealth’s appeal from this ruling appeared to involve unresolved issues of New York law with respect to Section 5225(b)’s scope and application. A-23-25. We submit that this Court has already determined that Section 5225(b) applies in circumstances where a garnishee lacks actual possession or custody of the judgment debtor’s assets but has the actual, practical ability to direct their disposition in response to a turnover order. This is reflected by the Court’s decision in Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009), and the authorities upon which Koehler relied, and is also consistent with Section 5225(b)’s remedial purpose and legislative history considered in light of the overall statutory scheme. Reading Section 5225(b) to require assets to be in the garnishee’s actual as opposed to constructive possession or custody would not only negate this Court’s prior ruling but conflict with cases upon which it relied involving Section 5225(a)’s identical “possession or custody” language, which applies where property is sought from the debtor. Furthermore, there is no valid justification for treating turnover applications any differently where the property in question is actually held by a garnishee’s subsidiary, nor is there any basis for treating banks any differently from other entities faced with similar circumstances. Finally, courts determining whether to issue a turnover order against a bank or other garnishee alleged to have such constructive possession or custody of assets held in accounts housed at a subsidiary should assess whether the evidence 5 adequately demonstrates that the garnishee in a given case has sufficient control -- in the sense of the actual, practical ability to control or direct the disposition -- of such assets to warrant subjecting it to such an order. Thus, as explained below, it is appropriate to consider factors like those the District Court applied in discussing the Commonwealth’s evidence, with the goal of ascertaining whether the garnishee has been shown to be able to obtain or direct the disposition of assets as needed in the ordinary course of its business (including to satisfy its own legal obligations). QUESTIONS CERTIFIED FOR REVIEW The following questions were certified by the Second Circuit to this Court pursuant to Second Circuit Local Rule § 0.27 and 22 N.Y.C.R.R. § 500.27: 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? JURISDICTIONAL STATEMENT On October 18, 2012, this Court accepted the questions certified by the Second Circuit on September 5, 2012. A-26, A-23-25. This Court thus has 6 jurisdiction pursuant to Section 500.27 of the Rules of Practice of the Court of Appeals of the State of New York. STATEMENT OF FACTS A. Factual Background In 1994, the Commonwealth obtained two Judgments for unpaid taxes against William and Patricia Millard in the respective amounts of US $18,317,980.80 and US $18,318,113.41. Combined, the Judgments have grown, with interest, to more than US $118 million. A-2. The Millards resided in CNMI beginning in 1986, but relocated before the Commonwealth obtained the Judgments. In 2010, through various investigative means, the Commonwealth learned that the Millards had renounced their U.S. citizenship and were residing in the Cayman Islands. A-2-3. In March and April 2011, the Commonwealth registered the two Judgments pursuant to 28 U.S.C. § 1963 in the U.S. District Court for the Southern District of New York and in the U.S. District Court for the Southern District of Florida. A-3. The Commonwealth proceeded to file various turnover motions, pursuant to Federal Rule of Civil Procedure 69(a)(1) and CPLR § 5225(b), naming as garnishees various financial institutions allegedly holding accounts belonging to the Millards. As of this date, eight different judges in the Southern District of New 7 York, including Judge Kaplan, have presided at one point or another over these related matters.2 A-3. B. Procedural History In the proceeding below, the Commonwealth moved for a turnover order as well as a preliminary injunction against garnishee CIBC, and a temporary restraining order pending final disposition of the motion for a preliminary injunction or turnover directing CIBC to freeze the Millards’ bank accounts that were under CIBC’s control at that time. The Commonwealth also sought an order compelling discovery from CIBC regarding the Millards’ accounts in CIBC’s subsidiary banks. A-2-3, A-21. In support of its motion, the Commonwealth alleged that the Millards have funds in accounts housed at CFIB, a 92%-owned-and-controlled subsidiary of garnishee CIBC, in their own names and in the names of corporate entities under their ownership. Based on evidence later summarized by the District Court in its Memorandum Opinion (“Opinion”) suggesting that CIBC had the actual, practical control over CFIB and the latter’s subsidiaries necessary to access and deliver the assets in question, the Commonwealth asserted that it was entitled under New York law to an order compelling CIBC to turn over the money. A-3-5, A-18-20. 2 By order dated March 23, 2012, Judge Kaplan retained assignment over the case at issue here, removing it from the District Court’s Part 1 docket. A-3 n.1. 8 On March 5, 2012, the Honorable Denise Cote, sitting in Part 1, directed CIBC to show cause why it should not be (1) enjoined from permitting any transactions involving any property in which either or both of the Millards has an interest, and (2) ordered to turn over the funds, property, and other assets in which either or both of the Millards has an interest. A-3. Judge Cote also temporarily restrained CIBC from certain activities related to accounts in which the Millards either jointly or severally, or various corporate entities under their individual or collective ownership, hold an interest, and directed CIBC to preserve any documents pertaining to such accounts. The restraint remained in place. A-3. Judge Kaplan heard argument on the Commonwealth’s motions for a turnover order and related relief on March 22, 2012. A-3. In its Memorandum Opinion dated April 3, 2012, from which the Commonwealth’s appeal was subsequently taken, the District Court acknowledged that the Commonwealth had made a sufficient showing of CIBC’s “control” over the Millard accounts at issue - including the actual, practical authority to access and deliver the assets deposited in those accounts -- to warrant an evidentiary hearing on this matter to determine if proof of such control was sufficient to obtain a turnover order under CPLR § 5225(b). A-18-20. In particular, the District Court referred to a number of CIBC’s public statements identified by the Commonwealth in support of the application, including the fact that as of that point in time: (a) 9 CIBC “ha[d] imposed its ‘governance structure’ on CFIB”; (b) according to CFIB’s own promotional materials, CIBC’s governance structure “‘afford[ed] the parent company full oversight of the risk and control framework of all [of CFIB’s] operations’”; (c) CIBC was able to require “CFIB to comply with" detailed operational requirements dictated by the U.S. laws, "such as Sarbanes-Oxley and the PATRIOT Act”; (d) CIBC had represented in a Federal Reserve document that CIBC was “‘committed to make available to the [Federal Reserve] Board such information on the operations of [CIBC] and any of its affiliates that the Board deems necessary to determine and enforce compliance with . . . applicable federal law’”; and (e) “CIBC and CFIB ha[d] significant personnel overlaps, even at senior levels of management.” A-5, A-18-19 (citations omitted). Nevertheless, the District Court declined to hold such a hearing because, in its view, the New York Legislature intended for Section 5225(b) -- which authorizes an order directing a third-party garnishee to turn over to the judgment creditor a judgment creditor’s property over which a garnishee has “possession or custody” -- to apply only in those situations where the garnishee has actual as opposed to constructive possession or custody. A-8-18. The District Court’s primary reason for finding the relief sought by the Commonwealth to be outside the scope of Section 5225(b)’s post-judgment enforcement mechanism was the fact that all but one of the CPLR provisions (Section 2701) making express reference to 10 the term “control” related to discovery as opposed to property. A-12-16. Based on its analysis, the District Court inferred that the Legislature must have intended to apply a stricter standard requiring actual, as opposed to constructive, “possession or custody” in a context involving a disposition of property rather than access to information. A-15-16. However, because the District Court found “significant merit to [the Commonwealth’s] argument, which involves an unsettled question of state law,” and determined that “[a]bsent interim relief, there would be a substantial risk that the funds in question would be dissipated during any appeal,” it found it appropriate to grant “an injunction requiring maintenance of the status quo pending appeal” to prevent the Millards from removing the relevant assets. A-2, A-20-21. Consistent with its view that the Commonwealth had made a “substantial showing” regarding CIBC’s actual, practical ability to direct the disposition of the Millards’ assets held in CFIB’s accounts, the District Court further stated that this injunction was to remain in place throughout the pendency of the Commonwealth’s appeal, which would include any “certification of this interesting question to the New York Court of Appeals for an authoritative determination of state law” in the event such a course of action were deemed to be “appropriate.” A-18-22. The Commonwealth noticed its appeal from the District Court’s ruling on April 16, 2012, and arguments were heard before the Second Circuit on August 22, 11 2012. On September 5, 2012, the Second Circuit declined to rule on the merits because it believed that the appeal raised unresolved issues of New York law. Instead, the Second Circuit certified to this Court the following questions for review: (1) whether a turnover order may be issued pursuant to N.Y. C.P.L.R. § 5225(b) to an entity whose subsidiary has actual possession or custody of a judgment debtor's assets; and (2) if so, what factual considerations should be taken into account to determine whether issuing such an order is permissible. A-23-25. On October 18, 2012, this Court accepted these certified questions for review pursuant to Section 500.27 of the Court’s Rules of Practice and stated that the issues presented would be considered after briefing and argument. A-26. SUMMARY OF ARGUMENT As a preliminary matter, in responding to the questions certified for review, this Court is not required to decide de novo whether Section 5225(b) applies in circumstances where a garnishee lacks actual possession or custody of the judgment debtor’s assets but has the actual, practical ability to control their disposition in response to a turnover order. We submit that this question has already been answered in the affirmative by this Court in Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009), and the authorities upon which Koehler relied, consistent with Section 5225(b)’s legislative history and overall statutory 12 scheme as well as the background principles applicable in the garnishment context and the remedial purpose behind Section 5225(b) post-judgment enforcement mechanism. Furthermore, CIBC’s position that Section 5225(b) requires assets to be in the garnishee’s actual as opposed to constructive possession or custody is refuted by those cases the Court relied upon in Koehler involving an application of Section 5225(a), which applies the identical “possession or custody” language where property is being sought from a judgment debtor as opposed to a third party. Instead, the Court need only determine as a starting point whether Section 5225(b) should also be deemed to cover, as opposed to specially exclude, situations where a debtor’s assets are at the garnishee’s wholly-owned (or here, nearly wholly-owned) subsidiary, even if the garnishee is actually able (as a practical matter) to exercise control with respect to the disposition of such assets. As discussed below, there is no valid justification for treating such situations any differently than those in which a turnover order has been allowed to issue against a garnishee that is not in actual possession or custody of the debtor’s assets but that nevertheless has control of them. Indeed, creating such an exception in parent- subsidiary situations would undermine the policies behind this post-judgment remedy. Furthermore, banks should not be treated differently when a turnover order is sought to require delivery to the judgment creditor assets actually being held by a subsidiary. 13 Finally, if, as we submit, Section 5225(b) authorizes a turnover order against an entity like CIBC where that garnishee’s subsidiary has actual possession or custody of a debtor’s assets, then a court should assess whether the evidence shows that a garnishee has sufficient control -- in the sense of the actual, practical ability to direct the disposition -- of such assets to warrant such an order. Accordingly, in answering the second question certified for review, the Commonwealth maintains that -- as in the discovery context, where a similar issue arises with respect to documents or information -- courts should determine whether a garnishee is actually able to obtain or direct the disposition of assets to meet the garnishee’s needs. The standard used in the Section 5225(b) context should be substantially similar to, and not significantly more demanding, than the one that courts have long applied when discovery is sought from a parent whose subsidiary has actual possession or custody of the relevant information or documents. This is because, among other things: (a) various protections are already built into Section 5225(b) to prevent an improvident disposition of a debtor’s property that exposes a garnishee to potential liability for refusing to provide property to the debtor upon demand (including that the debtor must have an interest in that property and a claim to it superior to that of the garnishee); and (b) neither the garnishee nor its subsidiary are at risk of monetary liability or loss of their own property as is true 14 where a party seeks to hold a corporate entity financially liable for actions of another entity by piercing the corporate veil separating those entities. Consequently, for determining whether a garnishee has the actual, practical ability to direct a subsidiary to deliver assets housed in the subsidiary’s accounts to comply with a turnover order directed at the garnishee, it would be appropriate to take into account such factors as those emphasized by the District Court in stating that it “consider[ed]” the evidence presented by the Commonwealth to, “at the very least, suggest that it is within CIBC’s practical power to, somehow, access and turn over the account funds in question here.” A-18-19. Thus, apart from CIBC’s ownership of CFIB, the District Court referred to CIBC’s own public statements acknowledging its role in overseeing CFIB’s operations and “tout[ing]” its ability to secure CFIB’s compliance with federal legal requirements, and further noted that the two entities also had “significant personnel overlaps, even at senior levels of management.” Id. 15 ARGUMENT I. CPLR § 5225(b)’s Post-Judgment Enforcement Remedy May Be Applied Under Circumstances Where Assets Are Held By A Garnishee’s Subsidiary But The Garnishee Is Determined To Have The Actual, Practical Ability To Direct Or Control Their Disposition A. This Court Has Already Recognized That A Turnover Order May Issue Against A Garnishee Who Is Present In New York But Has Control, As Opposed To Actual Possession Or Custody, Of Assets As discussed below and clarified by the prior briefing and certified questions in connection with this appeal, this Court has already determined CPLR § 5225(b) to authorize a turnover order where the garnishee is not in actual possession of assets but nevertheless has control or constructive “possession or custody” of assets in the sense of the actual, practical ability to direct their disposition. In essence, the first question posed by the Second Circuit is whether a garnishee can be subject to a turnover order pursuant to Section 5225(b) under these circumstances where those assets happen to be located at that garnishee’s subsidiary instead of elsewhere. Specifically, this Court’s decision in Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009), along with the Section 5225(a) and (b) cases cited therein, recognize this principle in construing the scope of Section 5225(b). While the 16 District Court dismissed this Court’s reference to a garnishee’s “control” of property as “unnecessary to that decision” (A-17), the context makes clear that this language was designed to answer the question certified for review in that case: whether a defendant present in New York could be ordered “to deliver assets [‘located outside New York’] into” the State pursuant to Section 5225(b). Koehler, 12 N.Y.3d at 536-37, 540.3 See id. at 540 (noting 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’”) (quoting Morgenthau v. Avion Resources Ltd., 49 N.Y.S.2d 223, 226 (1st Dep’t 2007), a case in which the plaintiff “levied upon a New York garnishee that controlled th[e] [‘out-of-state’] bank accounts” at issue) (emphasis added). The notion that “a New York garnishee” -- which encompasses a garnishee residing solely within the state -- can be ordered to bring assets located in foreign bank accounts into New York means necessarily contemplates cases where the assets will not be in a garnishee’s actual possession or custody. Indeed, requiring actual as opposed to constructive possession or custody of a judgment debtor’s assets as a prerequisite to the issuance of a turnover order under Section 5225(a) or (b) would render this Court’s discussion in Koehler 3 Like the garnishee bank in Koehler, CIBC has not contested jurisdiction for purposes of the turnover proceeding. A-6. See Koehler, 12 N.Y.3d at 536 (noting that “[a]lthough this jurisdictional issue was the subject of litigation in federal courts for some 10 years, [the bank] eventually consented . . . to the personal jurisdiction of the court as of the time that Koehler had commenced the proceeding”). 17 meaningless, as further evidenced by a number of cases relied upon therein that authorized issuance of such an order where the defendant had the actual, practical ability to deliver assets being held by a separate entity including a bank. See Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533, 540 (2009) (agreeing with Gryphon Domestic VI, LLC v. APP Int’l Fin. Co., B.V., 836 N.Y.S.2d 4, 8, 10-11, 14 (1st Dep’t 2007), a case upholding the trial court’s authority pursuant to Section 5225(a) to order judgment debtor to transfer accounts held at a foreign bank and rejecting argument that because such accounts were in the actual possession of that bank, “‘[t]o reach the bank deposits, the Judgment Creditors would have to bring a special proceeding under CPLR § 5225(b) naming the banks as respondents’”); id. (citing with approval Miller v. Doniger, 814 N.Y.S.2d 141, 141-42 (1st Dep’t 2006), which upheld a turnover order issued pursuant to Section 5225(a) directing that specified out-of-state bank accounts that were controlled by a judgment debtor be delivered to the sheriff).4 4 As illustrated by Koehler’s reliance upon cases like Gryphon Domestic VI and Miller applying CPLR 5225(a) -- which, as noted, uses the same “possession or custody” phrase contained in CPLR 5225(b) with respect to property held by the judgment debtor -- the Court considered such cases to be highly relevant to its analysis of CPLR 5225(b) in ruling that “the principle that a New York court may issue a judgment ordering the turnover of out-of-state assets is not limited to judgment debtors [who are present in New York], but applies equally to garnishees.” Koehler, 12 N.Y.3d at 539-41. See also id. at 540 (noting that the only real distinction between CPLR 5225(a) and (b) is that “CPLR 5225(a) is invoked by a motion, whereas CPLR 5225(b) requires a special proceeding brought by the judgment creditor against the garnishee” in order for the garnishee “to be independently subjected to the court’s jurisdiction”) (emphasis in original). 18 As the District Court acknowledged, a question that this Court was not called upon to address in Koehler was whether a garnishee who might otherwise be subject to a turnover order pursuant to Section 5225(b) based on the garnishee’s “control” or constructive possession of out-of-state assets could still be subject to such an order where, as in this case, those assets happened to be located at the garnishee’s subsidiary. See A-17-18 (noting that the actual “question left open by” this Court and the Second Circuit was whether it would make any difference with respect to the issuance of a turnover order “that the assets in issue [being sought from the garnishee] were in the actual possession of a separate, affiliated entity”).5 CIBC’s position that the garnishee must have actual possession or custody of the property at issue would not only negate the Court’s ruling in Koehler and the holdings of the cases cited therein, but, as discussed below, also inexplicably render Section 5225(b) an outlier given the statutory scheme as a whole as well as Section 5225(b) remedial purpose underlying Section 5225 of allowing a judgment creditor to expeditiously recover a judgment debtor’s assets in order to enforce a 5 In fact, this Court’s discussion in Koehler regarding the penalty for disobeying a turnover order as the garnishee had done in that case by transferring the stock certificates at issue to another company “notwithstanding the turnover order” (12 N.Y.3d at 536-37), together with the Second Circuit’s holding that the garnishee in those circumstances should have been required to produce either the property itself or its cash equivalent (577 F.3d 497, 499 (2d Cir. 2009)), indicates that, contrary to what the District Court stated, both this Court and the Second Circuit did “address[ ] the consequence of the fact that the garnishee bank in Koehler had transferred the stock certificates at issue to . . . [a ‘separate, affiliated’] company during the litigation.” A-17- 18. What was not addressed in that case simply because the facts there did not present the issue was whether CPLR 5225(b)’s post-judgment remedy should be available in the first instance where the plaintiff is seeking to compel a garnishee to deliver assets held by a separate entity. 19 monetary judgment. As CIBC has acknowledged (A-124), the Legislature previously used the expression “possession or control” in Civil Practice Act § 796, upon which Section 5225 was based, and nothing in the legislative history indicates that the Legislature intended, by substituting without comment the word “custody” for “control” in the amended version, to work what would clearly represent a radical change in pre-existing law. Moreover, CIBC’s assertion in its Second Circuit briefing that the Legislature must be presumed to have acted deliberately in using the “custody” in lieu of “control” in the amended version of this statutory provision (A-108-111) begs the question of how the word “custody” was intended to be understood in this context and whether the Legislature’s substitution of the word “custody” for “control” was in any way meant to convey that actual physical possession would now be required to obtain the post-judgment remedy of a turnover order (as opposed to merely reflecting, for example, a legislative intent to adopt more uniform terminology in those CPLR provisions affected by the 1964 amendment). As CIBC itself has conceded, even in the context of the CPLR or other New York statutes, the phrase “possession or custody” can have variable meanings depending upon the manner and context in which that phrase is used in a given statute. A-108 n.22. Furthermore, the term “custody” has itself been understood in common parlance to mean “control of a thing or person with such actual or 20 constructive possession as fulfills the purpose of the law or duty requiring it.” Webster's Third New International Dictionary 559 (Merriam-Webster 3d ed. 1993). Likewise, the term “possession” has been generally defined to include not only “actual possession,” but also “constructive possession,” which means “[c]ontrol or dominion over property without actual possession or custody of it.” Black's Law Dictionary (9th ed. 2009) (emphasis added). All of the parties are in agreement that, according to the Legislature’s own rules of statutory construction, terms appearing in the CPLR should be accorded their ordinary meaning absent some clear manifestation that those terms were intended to be construed in some other manner. See N.Y. STAT. § 232 (2012) (noting that “[w]ords of ordinary import used in a statute are to be given their usual and commonly understood meaning, unless it is plain from the statute that a different meaning is intended”); id., Comment (similarly emphasizing that “the lawmakers are presumed to have used words as they are commonly or ordinarily employed, unless there is something in the context or purpose of the act which shows a contrary intention”). Significantly, 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, which are applied to this day.6 6 See, e.g., 2 William Pratt Wade, A Treatise on the Law of Attachment and Garnishment § 412 (1886) (noting that “‘[c]ontrol’ guides one to a more definite comprehension of the intention of . . . [a garnishment] statute’” because “the party having control has some power to direct the 21 It should therefore come as no surprise that, even prior to this Court’s decision in Koehler, other authorities have continued to construe CPLR § 5225(b), like the pre-1964 statute upon which it was based, as reaching property under a garnishee’s “possession or control” even where the property was housed elsewhere or with some other party or entity. See, e.g., Payne v. Garnett McKeen Lab., Inc., 648 N.Y.S.2d 137 (2d Dep’t 1996) (“[T]he judgment creditor bears the burden of proof that the person is actually in custody or control of such money or other personal property.”); David D. Siegel, Practice Commentaries, C5225:5 (1997) (noting that “[w]hen the person who has possession or control of the money or property is not the judgment debtor, [Section 5225(b) and not (a)] governs”) (emphasis added). As a matter of common sense, “[c]ourts should not presume that the legislature, in the enactment of a statute, intended to overthrow long-established principles of law unless that intention is made clearly to appear either by express declaration or by necessary implication.” 2A Sutherland, Statutes and Statutory Construction, § 45:12 (7th ed. 2011) (citations omitted). Here, as previously noted and further reinforced by these additional authorities discussing established principles of the law of garnishment, there is no express declaration or clear disposition of the property in question”); 38 C.J.S. Garnishment § 209 (summarizing authorities over the years reflecting the view that “[s]tated broadly, garnishment attaches the defendant's property and money in the garnishee's possession or control, and all debts owed by the garnishee to the defendant, to respond to the final judgment in the action,” and and also demonstrating that “[a]ctual possession is not required for the garnishee to be made obligated to preserve the assets, providing that the garnishee has a right of possession and control of them”) (citations omitted) (emphasis added). 22 implication in either CPLR § 5225(b), its legislative history or any contemporaneous legislation involving the same or a related subject matter to indicate that the Legislature, in repealing CPA § 796 and enacting CPLR § 5225(b), intended to radically revise or limit the scope of the pre-existing law in the manner suggested by CIBC by making a slight change in the wording of the relevant statute (i.e., the substitution, without comment, of the term “custody” for “control” in the amendment establishing what is now CPLR § 5225(a) and (b)). The District Court also emphasized both the fact that the term “control” appeared with one exception only in those CPLR provisions involving discovery and “the rule that ‘[w]hen different terms are used in various parts of a statute . . . , it is reasonable to assume that a distinction between them is intended.” A-13 (citation omitted). However, it is apparent from the overall context and the ability to read the phrase “possession or custody” to include control of property physically held by another party or entity that the explicit use of the term “control” in the discovery context and the omission of that term from CPLR § 5225 cannot in itself be viewed as a deliberate effort on the Legislature’s part to restrict CPLR § 5225 to situations involving actual physical (as opposed to constructive) “possession or custody” of a judgment debtor’s property. This is because, among other things, the CPLR’s discovery provisions were patterned upon substantially similar provisions in the Federal Rules of Civil Procedure (including Rules 34 and 35) and thus 23 unsurprisingly also refer to “possession, custody or control.” See, e.g., Rios v. Donovan, 250 N.Y.S.2d 818, 822 (1st Dep’t 1964) (“CPLR Rule 3120 is based on New Jersey rule 4:24-1, which is patterned after Federal Rule [of Civil Procedure] 34, except that it permits discovery on notice rather than upon an order (1st Preliminary Report, Advisory Comm. on Practice, N.Y. Leg. Doc.1957, No. 6[b], p. 152).”); Ball v. State, 421 N.Y.S.2d 328, 331 n.3, 332 (N.Y. Ct. Cl. 1979) (recognizing that in fact, “CPLR 3120 is indirectly based upon Rule 34 of the FRCP” and that “[i]t is clear that the language of the CPLR has been interpreted by the Courts of this State so as to be virtually parallel to the Federal provision”). Moreover, reading Section 5225(b) to authorize the issuance of a turnover order where a garnishee has control but not actual, physical possession or custody is fully consistent with a CPLR provision that the District Court characterized as an “outlier” because it authorizes a pre-judgment remedy involving the disposition of property as opposed to the disclosure of documents or information. A-15 n.55. Specifically, CPLR § 2701 (“When court may order disposition of property” under Article 27’s “Disposition of Property in Litigation”) expressly permits a court to order any party to an action having “control” of property belonging to another party to turn over such property to the court or to such person as it directs pending resolution of that action for the purpose of ensuring availability of such 24 property to satisfy any future judgment in the plaintiff’s favor.7 While the District Court emphasized the fact that courts applying Section 2701 required the relevant property to be held in escrow to protect the party subject to such an order from liability for failing to return the property to the defendant or some other party upon demand, and stated that Section 2701, unlike Section 5225, did not involve a final disposition of such property (A-15 n.55), the purpose of Section 2701 is to enable a court to preserve property to satisfy any future claim by a judgment creditor who is a party to the litigation -- as the Commonwealth seeks to do now in the underlying turnover proceeding by requesting an order requiring CIBC to deliver assets alleged to be under the bank’s control. As Section 2701 reflects, in the prejudgment setting, proof of a party’s “control” of property belonging to another is sufficient even in the absence of physical possession or custody despite the fact that that setting arguably demands greater concern for protecting the party subject to any order requiring delivery of such property (as reflected in the escrow requirement that may be imposed under Section 2701). However, such concerns 7 As the District Court acknowledged, Section 5225(b) must be construed in a manner that is consistent with other CPLR provisions, inasmuch as the “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- 13-14 n.47 (quoting McKinney’s Statutes § 97 (1971 & Supp. 2000)). See also Merkling v. Ford Motor Co., 251 A.D. 89, 94, 296 N.Y.S. 393 (4th Dep't 1937) (“It is a cardinal rule of construction that all parts of a statute must be read and construed together, and should, so far as possible, be harmonized with each other, and with the general intent of the lawmaking body.”). Accordingly, in seeking to ascertain the legislative intent behind Section 5225(b), it is appropriate for this Court to consider Section 2701 and the relationship between the two provisions. 25 and restrictions are not implicated in the context of Section 5225(b)’s post- judgment remedy, particularly in light of the various protections already built into that provision to prevent any improvident disposition of a debtor’s property that might expose the garnishee to liability for failing to return the property to a debtor upon demand (including the prerequisites that the debtor must have an interest in that property and a claim to it superior to that of the garnishee). Furthermore, it comports with common sense that if actual possession or custody is not required for a court to order assets belonging to a defendant (and potential judgment debtor) to be turned over in the prejudgment context pursuant to Section 2701, then actual possession or custody should likewise also not be required to issue a turnover order to such a party pursuant to Section 5225(a) or (b) in such a post-judgment context. In short, the ordinary usage of the terms “possession” and “custody” and the various factors discussed above strongly indicate that the Legislature intended to apply Section 5225(b) where a garnishee has constructive “possession or custody” of a judgment debtor’s property in the sense of an actual, practical ability to direct how that property is disposed of by a separate entity -- and, at a minimum, they reflect a lack of any clear indication of a legislative intent to confine the provision only to situations where the garnishee has actual, physical possession or custody. 26 B. That A Judgment Debtor’s Property Is Held By A Garnishee’s Subsidiary Should Not Make Any Difference To The Application Of The General Rule That A Turnover Order May Issue Where A Garnishee Has Constructive But Not Actual Possession Or Custody Of Property Held At Another Location As the above discussion reflects, in responding to the first question certified by the Second Circuit in this case, this Court need only decide whether a garnishee alleged to have control or constructive “possession or custody” of assets belonging to a judgment debtor can be subject to a turnover order where, as here, that property is actually housed at a separately incorporated subsidiary owned by the garnishee. We submit that the answer should be in the affirmative. Indeed, as illustrated by cases like Gryphon Domestic VI and Miller expressly relied upon by this Court in Koehler, there would be a question as to the District Court’s authority to issue a turnover order in this case if the Commonwealth had instead been able to file a motion pursuant to CPLR § 5225(a) seeking to require the Millards themselves (assuming they could be subject to New York’s jurisdiction or were otherwise willing to submit to it) to deliver assets being held for their benefit by a bank such as CFIB or any other entity where those assets were shown to be actually capable of being obtained by the Millards for purposes of complying with such an order (even without proof of any fraudulent conveyance made for the purpose of thwarting the Judgments against them). We submit that 27 the same rule should exist where a garnishee is proven to have a similar practical ability to comply with a turnover order by directing the delivery of a judgment debtor’s assets being housed at a subsidiary owned and controlled by the garnishee. Thus, as the U.S. Supreme Court has recognized, the fact that a bank branch (whether or not independently incorporated) may be deemed a “separate” corporate entity for particular legal purposes, or that its ownership and control of a subsidiary does not standing alone give it legal title to the subsidiary’s own property, does not mean that the parent is immune from an order for other purposes such as freezing assets or producing documents held by the subsidiary where the parent has the actual, practical ability to direct their disposition. See U.S. v. First Nat’l City Bank, 379 U.S. 378, 384 (1965) (in a case where the United States, trying to collect taxes owed by a Uruguayan corporation, sought a preliminary injunction against a New York bank to freeze the assets of the Uruguayan company that were on deposit in the bank's branches in Montevideo, the capital of Uruguay, the Court held that “[w]hether the Montevideo branch is a ‘separate entity,’ as the Court of Appeals thought, is not germane to the present narrow issue” inasmuch as “[i]t is not a separate entity in the sense that it is insulated from respondent’s managerial prerogatives” because “[r]espondent had actual, practical control over its 28 branches”) (emphasis added).8 Moreover, as further noted below, the very fact that the District Court was willing to restrain CIBC pending the outcome of this appeal from allowing “the further dissolution or movement of [the Millards’] assets” (A-21) in itself necessarily reflect a preliminary determination that CIBC did have sufficient control over the disposition of the assets to be subject to that order. As CIBC has never disputed, in the discovery context, the mere fact that information or documents are being sought from an entity found to have the actual, practical ability to obtain them from a wholly-owned but separately incorporated subsidiary with actual possession or custody has never been an obstacle of itself to 8 The District Court asserted that a bank’s ability to obtain property held by a branch rather than a separately incorporated subsidiary, as in the instant case, involved “a distinction of enormous consequence here.” A-16-17. However, while under New York law, the “separate entity rule” dictates that each branch of a bank be treated as a separate entity (or independent bank) for unilateral service of restraining orders, and thus that “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” (Allied Maritime, Inc. v. Descatrade SA, 620 F.3d 70, 74 (2d Cir. 2010) (internal citations and quotation marks omitted), the separate entity rule has been recognized to be inapplicable to post-judgment enforcement proceedings. See, e.g., J.W. Oilfield Equip., LLC v. Commerzbank AG, 764 F. Supp.2d 587, 592 (S.D.N.Y. 2011) (discussing this Court’s decision in Koehler and noting that that case held that “when a judgment debtor [or garnishee] is subject to a New York court’s personal jurisdiction,” “‘that court has jurisdiction to order the judgment debtor [or garnishee] to bring [out-of-state] property into the state, because the court’s authority is based on its personal jurisdiction over the judgment debtor,’” whereas “a prejudgment attachment . . . is based on a court’s jurisdiction over the property being attached”) (quoting Koehler, 12 N.Y.3d at 538, 540). As this further reflects, depending upon the context involved in a given case, the distinction between a separately incorporated subsidiary and a local branch of a garnishee bank need not in itself have any actual “consequence[s].” Accordingly, the point is that absent some clear justification, there is no inherent reason to make a garnishee bank’s responsibility for complying with an order pursuant to CPLR § 5225(b) to deliver a judgment debtor’s assets turn on whether the assets are located at a local branch as opposed to a wholly- owned subsidiary of the garnishee, provided that the garnishee is established to have the actual, practical ability to control the subsidiary’s disposition of the assets and have them delivered. 29 ordering the parent to produce the requested material. See, e.g., Dietrich v. Bauer, 198 F.R.D. 397, 401-02 (S.D.N.Y. 2001) (corporation must produce documents of a wholly-owned subsidiary where it has the legal right to secure such documents or the actual, practical ability to obtain them); Florentia Contracting Corp. v. Resolution Trust Corp., No. 92 Civ. 1188(PKL), 1993 WL 127187, at *3 (S.D.N.Y. Apr. 22, 1993) “it is clear that the nonparty status of [ ] wholly owned subsidiaries does not shield their documents from production”). If, as the Commonwealth contends, CPLR § 5225(b) has been properly construed in the past to authorize the issuance of a turnover order directed at a garnishee having constructive as opposed to actual “possession or custody” of a judgment debtor’s property, there is no valid reason for restricting the scope of this post-judgment remedy to situations where the entity that is actually holding the property happens to be a separately incorporated wholly-owned subsidiary of the garnishee. 30 II. A Court Considering Whether To Issue A Turnover Order To A Garnishee Whose Subsidiary Has Actual Possession Or Custody Of Assets Should Determine Whether The Garnishee Has The Actual, Practical Ability To Control The Subsidiary’s Disposition Of Them A. Courts Should Evaluate Whether A Garnishee Has The Actual, Practical Ability To Control Its Subsidiary’s Accounts Or Direct Their Disposition As Required To Meet Its Business Needs, And, In Particular, To Satisfy Its Own Legal Obligations The remaining question to be resolved is what factors should be used in determining whether to issue a turnover order requiring a garnishee to deliver assets housed at its subsidiary. As the District Court correctly perceived, factors to be considered should reflect the extent to which the garnishee has the actual, practical ability to direct or control the subsidiary’s disposition of those assets. As is apparent from the caselaw, the standard used to determine whether a parent corporation can be held accountable with respect to property or information held by a wholly-owned (or in this case, virtually wholly-owned) subsidiary, or held responsible for the subsidiary’s activities, depends entirely upon the context involved, inasmuch as even the term “control” does not have a fixed legal meaning.9 That is, the definition of “control” and the factors to be applied in 9 See, e.g., Bellomo v. Pennsylvania Life Co., 488 F.Supp. 744, 745-47 (S.D.N.Y. 1980) (noting that a finding of jurisdiction does not require piercing the corporate veil or a determination that a foreign parent’s control over a New York subsidiary is so pervasive as to render the corporate separation more formal than real or cause the subsidiary to be considered a 31 ascertaining whether control exists in a given situation will vary according to the objective or goal being considered. Thus, the degree of “control” deemed necessary to impose general liability on a parent corporation for the actions of a subsidiary (which uniformly requires a piercing of the corporate veil) is far more demanding than the standard that we submit should apply to require a parent to obtain and turn over a judgment debtor’s property being held by that subsidiary. Although, the District Court emphasized that the Legislature might have had a reason to apply a higher standard in situations involving a final disposition of property as opposed to a production of information, the Commonwealth submits that the garnishee’s concerns about liability arising from any delivery of a judgment debtor’s property to a judgment creditor are adequately addressed because a turnover order shall only issue in favor of a judgment creditor under CPLR § 5225(b) where a valid judgment is in place, the judgment debtor has an interest in the property, and neither the garnishee nor any third party can assert a mere alter ego or department of the parent); Frummer v. Hilton Hotels Intern., Inc., 19 N.Y.2d 533, 538 (1967) (observing that “this appeal deals with the jurisdiction of our courts over a foreign corporation rather than the liability of a parent company for the acts of a wholly owned subsidiary,” and that plaintiffs need only “show that the subsidiary does all the business which the parent corporation could do were it here by its own officials”); Comprehensive Sports Planning, Inc. v. Pleasant Valley Country Club, 341 N.Y.S.2d 914, 916 (N.Y. City Civ. Ct. 1973) (explaining that while “a very strict set of standards” would apply “for purposes of holding [a parent] . . . liable in damages for the acts of [its subsidiary] . . . and thus exposing the assets of [the parent] . . . to a lawsuit against [the subsidiary],” this is not required “to determine whether [the parent] . . . may be served process solely for the purpose of acquiring jurisdiction over [the subsidiary],” distinguishing “[t]he cases relied upon by the defendant [as] all deal[ing] with efforts to pierce the corporate veil for the purpose of subjecting another corporation to liability for damages”) (emphasis added). 32 superior claim to the judgment debtor’s property (as in a bankruptcy setting). In this regard, Section 5225(b) is arguably even more protective of a garnishee’s rights than the escrow that a court may require under Section 2701 to protect the party who is subject to a similar order from liability for failing to return the property to the defendant or any other party upon demand. Because a turnover order may only issue in the first place where no property interests of a garnishee bank or its subsidiary nor the judgment creditor or any third party are found to be at stake -- which is indeed the situation in the present case -- we submit that the standard for finding control under these circumstances should not be substantially different than that used in the discovery context where the need to determine whether a parent has the actual, practical ability to produce documents in a subsidiary’s or affiliate’s physical possession/custody often arises. As noted, although a turnover order requires the delivery of property to a plaintiff as opposed to the production of information or documents, there is no reason to apply a different and more stringent standard in the context of CPLR § 5225(b) because of these other prerequisites that must be satisfied to obtain the issuance of such an order. At a minimum, the test for determining whether control exists in a context where a bank’s wholly-owned subsidiary merely holds assets belonging or owed to a judgment debtor should not approach the far more demanding test used in cases where a plaintiff seeks to pierce the corporate veil in 33 order to hold a parent corporation generally liable for actions undertaken by its subsidiary or where the parent’s own property interests are otherwise at stake. Nor would hearings and discovery for ascertaining whether a parent has the actual, practical ability to control the disposition of assets held by a subsidiary and thus to direct the subsidiary to deliver property in compliance with a turnover order entail an unreasonable undertaking. The Commonwealth does not dispute that “[t]he determination of whether an entity has ‘control’ over documents under Fed. R. Civ. P. 34(a)” or over property held by a subsidiary or affiliate has been held to involve “a ‘very fact specific’ inquiry” (Davis v. Gamesa Technology Corp., No. 08-4536, 2009 WL 3473391, at * 2 (E.D. Pa. Oct. 20, 2009) (citation omitted)). But an evaluation pursuant to CPLR § 5225(b) to determine whether a bank or other entity has control in the sense of the actual, practical ability to direct its wholly owned subsidiary’s disposition of property physically housed at that subsidiary need not be any more unwieldy or time-intensive than what is typically involved in other contexts where courts are regularly called upon to decide based on an evidentiary hearing whether a requisite level of control has been established. Thus, there is no reason why a fact-specific standard for determining whether control (or the actual, practical ability to direct how a subsidiary disposes of the assets in question) in this setting and the possible need for some type of discovery and evidentiary hearings in those turnover proceedings where this issue 34 arises would be in any way uniquely burdensome. Further, such an inquiry would be particularly appropriate in the context of a remedial statute designed to enable prevailing plaintiffs to satisfy their monetary judgments in an expeditious manner fair to all affected parties to the underlying proceeding. Indeed, as previously discussed, such a factual inquiry should necessarily be less demanding than in situations where the issue is whether a subsidiary’s activities is imputed to the parent for purposes of asserting jurisdiction over the parent based on an allegation that the subsidiary has acted as the parent’s subsidiary in the forum state, let alone for purposes of piercing the corporate veil to subject the parent to potential monetary liability for a subsidiary’s actions. The type of factors to be considered in assessing whether a parent has the actual, practical ability to direct or control the disposition of assets held by its subsidiary are illustrated by the District Court’s discussion of the evidence in this case. While the District Court acknowledged that it did not need to “decide[ ] the point in the present context” absent a reversal on appeal, it expressed the view that the Commonwealth “ha[d] made a substantial showing” that under the standard proposed by the Commonwealth (requiring only constructive, as opposed to actual, possession or custody in the sense of the actual, practical ability to get a subsidiary to turn over the property at issue), the Commonwealth’s “evidence might be sufficient to warrant a turnover order.” A-18. More concretely, the District Court 35 referred to indicia of CIBC’s ability to oversee and control CFIB’s operations and obtain its compliance with U.S. legal requirements as necessary to meet CIBC’s obligations. As the District Court observed, a parent of a wholly-owned subsidiary necessarily holds the power to control in a latent form insofar as the parent as a controlling shareholder and owner may be able to remove directors, and in all events may replace the incumbents if they resign or when their terms expire. A-19 n.75. However, even if CIBC’s inherent ability as a parent of a wholly-owned subsidiary to exercise a certain degree of control were insufficient, standing alone, to support a turnover order, the District Court emphasized other evidence reflecting CIBC’s relationship with CFIB that might justify such an order under the standard advocated by the Commonwealth.10 A-18-19. Specifically, apart from CIBC’s 92% ownership of CFIB and the latter’s subsidiaries, the District Court referred to evidence indicating that “by its own public statements, CIBC enjoys ‘full oversight 10 Indeed, we submit that in subjecting CIBC to an order freezing the assets to maintain the status quo during the pendency of this appeal in light of the Commonwealth’s evidence and the risk that the assets might otherwise be dissipated or transferred in the interim, the District Court must have implicitly determined that CIBC had the actual, practical ability to direct or control CFIB’s disposition of the assets in the accounts housed at that subsidiary at least for this purpose. As courts have recognized in the discovery context, a parent's inability as a practical (as opposed to merely theoretical) matter to obtain documents from a subsidiary needed to comply with a discovery order (e.g., in the face of the subsidiary’s refusal to produce them) would render such an order ineffectual and thus be contrary to the notion of the parent having the requisite level of “control” in that situation. See, e.g., In re Citric Acid Litig., 191 F.3d 1090, 1107 (9th Cir. 1999) (“Ordering a party to produce documents it does not have the legal right to obtain will oftentimes be futile, precisely because the party has no certain way of getting those documents.”) (citing as support decisions from several other circuits). 36 of the risk and control framework of all [of CFIB’s] operations,’” “‘touts also its ‘commit[ment] to make available to the [Federal Reserve] Board . . . information on the operations of . . . any of its affiliates’ [in order] to comply with federal law’” and “requires CFIB to comply with U.S. legal requirements such as Sabranes- Oxley and the PATRIOT Act.” A-3, A-18-19. Additionally, the District Court noted that “CIBC and CFIB have significant personnel overlaps, even at the level of management.” Id. (citations omitted). The District Court “consider[ed]” such evidence, “at the very least, [to] suggest that it [wa]s within CIBC’s practical power to, somehow, access and turn over the account funds in question here.” A- 18-19. In this regard, the District Court’s assessment of the evidence for determining the extent to which CIBC had the actual, practical ability to direct or control how CFIB disposed of assets held in CFIB’s accounts was similar to that applied in the discovery context. Thus, when a party in litigation seeks to obtain records or other information from a parent corporation whose subsidiary has actual possession of the requested material, courts have found control to exist for the purposes of compelling production under Federal Rule of Civil Procedure 34 (which, as previously noted, has been applied in essentially the same manner as the CPLR’s parallel discovery provisions) where the relationship is such that the parent can secure documents of the subsidiary to meet its own business needs and 37 legal obligations in the ordinary course of business. Under those circumstances, courts have not permitted either a parent or subsidiary to deny control for purposes of discovery by an opposing party. See, e.g., First Nat’l City Bank v. Internal Revenue Service, 271 F.2d 616, 618 (2d Cir. 1959) (recognizing that “[a]ny officer or agent of the corporation who has power to cause the branch records to be sent from a branch to the home office for any corporate purpose, surely has sufficient control to cause them to be sent on when desired for a governmental purpose properly implemented by a subpoena”). Put another way, where a parent has access to documents held by its subsidiary when the need arises to meet the parent’s requirements in the ordinary course of its business, the parent should likewise be deemed to have such access or sufficient control when the need arises due to applicable legal requirements, including compliance with valid legal orders. B. There Is No Valid Reason To Apply A Different Or More Demanding Standard In Issuing A Turnover Order Under Section 5225(b) Merely Because Both The Parent That Is Subject To The Order And Its Subsidiary Where Assets Are Located Are Banks In its amicus brief submitted to the Second Circuit in this case, the Institute of International Bankers (“IIB”) argued that special considerations should apply where a bank is involved because banks operating in foreign countries could be exposed to “double liability” and might be discouraged from operating in New 38 York. A-192-201. However, neither this Court decision in Koehler nor the Section 5225(a) cases upon which it heavily relied placed any apparent weight on the fact that a bank as opposed to some other type of entity was being ordered to turn over property in its constructive but not actual “possession or custody” based on the bank’s actual, practical ability to “control” the disposition of that property.11 Moreover, the District Court was correct in noting that the fact that CIBC’s subsidiaries in the Cayman Islands were subject to that country’s banking- confidentiality laws should not be considered an obstacle in determining whether a turnover order should issue. A-18-19 n.75. In particular, the District Court noted that “it is hardly uncommon that a large corporation, by [choosing to] do[ ] business in many jurisdictions, subjects itself to potentially conflicting laws.” A- 19 n.75. As the District Court “ha[d] previously explained, ‘the modern trend 11 See Koehler, 12 N.Y.3d at 540 (“‘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’”) (quoting Morgenthau v. Avion Resources Ltd., 49 N.Y.S.2d 223, 226 (1st Dep’t 2007), a case in which the plaintiff “levied upon a New York garnishee that controlled th[e] [‘out-of- state’] bank accounts” at issue) (emphasis added); Gryphon Domestic VI, LLC v. APP Int’l Fin. Co., B.V., 836 N.Y.S.2d 4, 8, 10-11, 14 (1st Dep’t 2007) (upholding the trial court’s authority pursuant to Section 5225(a) to order judgment debtor to transfer bank accounts and rejecting argument that “‘[t]o reach the bank deposits, the Judgment Creditors would have to bring a special proceeding under CPLR § 5225(b) naming the banks as respondents’” because such accounts were in the possession of a foreign bank); Miller v. Doniger, 814 N.Y.S.2d 141, 141-42 (1st Dep’t 2006) (upholding a turnover order issued pursuant to Section 5225(a) directing that specified out-of-state bank accounts subject to the judgment debtor’s “control” be turned over to the sheriff). Cf. In re ATM Fee Antitrust Litig., 233 F.R.D. 542, 544-45 (N.D. Cal. 2005) (applying this standard to a bank “for purposes of compliance with Rule 34” of the Federal Rules of Civil Procedure, and holding that “if BANA or any other wholly-owned subsidiary bank of [the parent] has possession and custody of documents responsive to Plaintiffs’ requests, then [that parent] has legal control of the documents through its control of the subsidiary bank and [thus] must produce any which are responsive to Plaintiffs’ Rule 34 requests”) (citation omitted). 39 holds that the mere existence of foreign blocking statutes does not prevent a U.S. court from ordering discovery,” although it might be relevant “to the question of sanctions in the event that a[n] . . . order is disobeyed by reason of a blocking statute.’” Id. (citation omitted). See also id. (quoting, inter alia, In re Grand Jury Proceedings: Bank of Nova Scotia, 740 F.3d 817, 827-29 (11th Cir. 1984), which rejected the contention that “it [wa]s unfair to require the [b]ank to be put in the position of having to choose between the conflicting commands of foreign sovereigns,” observing that “such occasions will arise and a bank indeed will have to choose”). Finally, the application by various courts of Section 5225 to assets or other personal property located in foreign bank accounts that are not in the judgment debtor’s or garnishee’s actual possession or custody is also consistent with sound public policy. This is because requiring that degree of possession or custody whenever a turnover order is sought against a bank as opposed to any other corporate entity would have the clearly undesirable effect of enabling judgment debtors to thwart this post-judgment remedy by depositing assets in a foreign bank that is not otherwise subject to jurisdiction in New York (or elsewhere in the U.S.). In short, there is no valid justification for carving out a special exception based on CIBC’s and CFIB’s status as banks. Nor, as discussed in Point I.B, supra, does a justification exist for treating cases in which a garnishee is a parent 40 of a subsidiary or affiliate that is holding a judgment debtor’s assets any differently from other cases where a turnover order has been permitted to issue. Nothing in the relevant statutory text, its legislative history or any public policy suggests that Section 5225(a) and (b) should not be construed to apply in the same manner in such parent-subsidiary situations as in other circumstance where a turnover order has been allowed to issue against a party that lacks actual possession or custody of the assets in question but has the requisite control over such assets understood as the actual, practical ability to direct (or control) their disposition by that subsidiary. CONCLUSION F or the foregoing reasons as well as those set forth in the Commonwealth's briefs in the Second Circuit, this Court should determine that: (1) CPLR § 5225(b) can apply when a parent bank or other entity against which a turnover order is sought has actual, practical control or constructive "possession or custody" of assets of a judgment debtor held by that parent's subsidiary; and (2) in determining whether a turnover order should issue under those circumstances, courts should consider evidence relevant to the question of whether the parent has the actual, practical ability to direct or control the subsidiary's disposition of the assets for purposes of complying with such an order, including whether the parent can oversee how funds are handled by the subsidiary to meet the parent's own business needs and legal obligations (including federal legal requirements and court orders). Dated: December 17, 2012 New York, New York ~/~
