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
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