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 REPLY 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
February 15, 2013
TABLE OF CONTENTS
PRELIMINARY STATEMENT ............................................................................... 1
SUMMARY OF ARGUMENT ................................................................................ 3
ARGUMENT ............................................................................................................ 6
I. CPLR § 5225 Does Not "On Its Face" Preclude A
Court From Issuing A Turnover Order Where A Parent
Company Or Other Garnishee Has The Practical Ability
To Control The Disposition Of Property That Is Held
By A Subsidiary Or Another Separate Entity .............................................. 6
II. CIBC's Belated Contention That This Proceeding Is
Governed By CPLR § 5227 Is Irrelevant For This
Court's Review Of The Certified Questions ............................................... 7
III. Case Law Under CPLR § 5225 Holds That A Turnover
Order Is Authorized Where A Garnishee Has "Control"
Over A Judgment Debtor's Property Located Outside
The State, And The Same Principle Should Be Applied
Where A Garnishee Happens To Be A Parent Company
And Funds Sought Are At The Parent's Subsidiary .................................... 8
IV. The Legislature Presumably Did Not Intend To Allow
Potential Judgment Debtors To Thwart The Statute By
Depositing Assets In A Bank's Foreign Subsidiary .................................. 14
V. Factors Used In Discovery To Determine Whether A
Parent Has The Practical Ability To Obtain Materials
Or Direct The Subsidiary To Deliver Them Are Also
Relevant In Deciding Whether A Turnover Order Is
Warranted ........................................................... ; ....................................... 16
VI. There Is No Basis For An Exception Where A Foreign
Subsidiary Bank Holds Property Of A Judgment Debtor
1
That The Garnishee Parent Has The Practical Ability
To Control .................................................................................................. 18
VII. The Commonwealth Has Never Maintained That Any
Conclusive Determination Was Made As To CIBC's
Practical Control Over The Disposition Of The Assets
At Issue In This Case ................................................................................. 20
CONCLUSION ....................................................................................................... 21
11
TABLE OF AUTHORITIES
Cases Page(s)
Ayyash v. Koleilat, No. 151471112,2012 WL 6783613
(N.Y. Sup. Ct. Oct. 22, 2012) ............................................................................ 12
AG Worldwide v. Red Cube Management AG, No. 01 Civ.
1228 (GEL), 2002 WL 417251 (S.D.N.Y. Mar. 15,2002) ............................... 12
Dorchester Financial Securities, Inc. v. Banco BRJ S.A.,
No. 02 Civ. 7504 (KMW) (KNF), 2009 WL 5033954
(S.D.N.Y. Dec. 23, 2009) ................................................................................... 13
Eitzen Bulk A/S v. Bank of India, 827 F. Supp. 2d 234
(S.D.N.Y. 2011) ................................................................................................. 12
Goldberg & Connolly v. Xavier Constr. Co.,
94 A.D.3d 1117 (2d Dep't 2012) ............................................................ 11-12 n.3
J. W. Oilfield Equip., LLC v. Commerzbank, AG,
764 F. Supp. 2d 587 (S.D.N.Y. 2011) ................................................................. 8
Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009) ............................... passim
Morgenthau v. Avion Res. Ltd., 849 N.Y.S.2d 223 (1st Dep't
2007) .................................................................................................................. 14
O'Brien-Kreitzberg & Assocs. v. K.P., Inc., 218 A.D.2d 519,
(1st Dep't 1995) ....................................................................................... 11-12 n.3
Payne v. Garnett McKeen Lab., Inc., 648 N.Y.S.2d 137 (2d
Dep't 1996) .................................................................................................. 13, 14
TD Bank NA. v. South Shore Motor Group, Inc.,
35 Misc. 3d 1233(A), 2012 WL 1969270 (N.Y. Sup. Ct.
Apr. 27, 2012) .................................................................................................... 13
u.s. v. First Nat 'I City Bank, 379 u.S. 378 (1965) .................................................. 9
111
Statutes and Rules Page(s)
Fed. R. Civ. P. 34 .............................................................................................. 15, 16
N.Y. CPLR § 2701 .............................................................................................. 5, 15
N.Y. CPLR § 5225 ........................................................................................... passim
N.Y. CPLR § 5527 ........................................................................................... passim
N.Y. CPLR § 5290 .................................................................................................. 19
Other Authorities Page(s)
David D. Siegel, New York Practice (5th ed. 2012) ................................................ 8
IV
PRELIMINARY STATEMENT
This matter is before this Court because the U.S. Court of Appeals for the
Second Circuit determined that a novel issue of New York law was raised by the
application of the Commonwealth for the Northern Mariana Islands
("Commonwealth") for an order under CPLR § 5225 requiring garnishee bank
Canadian Imperial Bank of Commerce ("CIBC") to tum over funds belonging to
judgment debtors William and Patricia Millard (together, "the Millards" or
"Judgment Debtors") in accounts housed at CIBC's 92%-owned foreign subsidiary
CIBC FirstCaribbean International Bank (Cayman) Ltd. ("CFIB").
Accordingly, CIBC's repetition that there is a dearth of case law holding that
a turnover order may issue in those circumstances merely begs the key question
under review: namely, whether Section 5225(b) authorizes a turnover order if it
were proven in an evidentiary hearing (as the District Court stated would be
warranted in this case on any remand) that CIBC has constructive or effective
"possession or custody" of the Millards' funds because it can control their
disposition to comply with such an order. This question cannot be decided without
first examining cases construing Sections 5225(a) (which this Court has regarded
as substantively the same as Section 5225(b)), as well as the statute's legislative
history and remedial purpose.
CIBC's position IS essentially that absent a showing of veil-piercing
requiring the parent corporation and its subsidiary to be "true alter egos," Section
5225(b) cannot be used to order a parent to turn over a judgment debtor's property
held by a subsidiary, even where the parent is established to have practical control
of that property giving the parent effective or constructive "possession or custody."
However, this Court and various Appellate Divisions already recognize that
such an order can be issued without satisfying the corporate veil-piercing standard
because the judgment creditor is not seeking to obtain property owned by the
subsidiary to satisfy the debts of the parent, or to impose liability on the parent
based on the activities of its subsidiary. Rather, the judgment creditor is seeking to
recover property to which it is clearly entitled, which happens to be in the
possession of a garnishee's subsidiary and can be controlled by the garnishee itself.
In response to the second certified question, we suggest some factors a court
might consider in assessing whether the parent has a practical ability to control the
subsidiary's disposition of assets sought by a judgment creditor, including whether
that parent can oversee or direct how funds are handled by the subsidiary to meet
the parent's own business needs and legal obligations (such as federal legal
requirements and court orders).
2
SUMMARY OF ARGUMENT
This Court recognizes that property need not be in the actual possession or
custody of a judgment debtor or garnishee to be subject to a turnover order under
CPLR § 5225. Thus, a judgment debtor can be ordered to direct a bank holding the
judgment debtor's funds to tum over such funds to a judgment creditor pursuant to
Section 5225(a). Likewise, a garnishee subject to jurisdiction in New York can be
ordered to bring property held by that garnishee into the State pursuant to Section
5225(b). In these circumstances, the party subject to a turnover order is deemed to
have control over the property in question even though that property may actually
be abroad or in the hands of a third party.
CIBC has failed to identify a compelling reason why this rule should be any
different where the garnishee happens to be a parent company that has the practical
ability to direct the disposition of a judgment debtor's property being held by the
parent's subsidiary. Issuing a Section 5225(b) turnover order under these
circumstances does not deny the corporate separateness of the parent and
subsidiary for liability purposes. Rather, the extent to which a parent can control
the activities of a subsidiary should depend upon the context involved. Here, not
only are no assets belonging to the parent or subsidiary at stake, but one major
concern is to prevent potential judgment debtors from circumventing Section
3
5225(b) altogether by depositing their assets with a bank's foreign subsidiary. To
address this, the parent should be treated like any other garnishee where it is shown
to have the practical ability to control the disposition of a judgment debtor's assets
(i.e., constructive or effective "possession or custody" of those assets). Control
over funds or other assets can exist even when they are physically held by another
entity.
Moreover, while CIBC asserts that Koehler v. Bank of Bermuda Ltd., 12
N.Y.3d 533 (2009) is irrelevant because that case involved a garnishee bank's
foreign branch rather than a subsidiary or affiliate, that decision was rendered in
light of New York's "separate entity" rule, which treats branches of the same bank
as if they were separate corporate entities for purposes of an attachment or
garnishment. This is also consistent with the u.s. Supreme Court's holding that
regardless of whether a bank and one of its foreign branches are regarded as
separate entities for certain purposes, the bank can be subject to an order freezing
or otherwise affecting assets held by the branch where the branch is shown to be
subject to the bank's managerial prerogatives.
Furthermore, the Commonwealth's position that Section 5225(b) authorizes
a turnover order in this case does not conflict with either the text or legislative
history of that statute. Nothing in the text indicates that actual, physical
"possession or custody" is required. In addition, there is no incontrovertible
4
inference regarding legislative intent that can be drawn from the omission of the
term "control" in those CPLR provisions dealing with discovery or the inclusion of
that term in CPLR § 2701 with respect to disposition of a party's property pre-
judgment. However, the Legislature should not be presumed to have radically
changed pre-existing law by substituting the term "custody" for "control" in the
1964 amendment of Section 5225 without any explanatory statement. It should
also be assumed that the Legislature did not intend for Section 5225 to be thwarted
by having a potential or actual judgment debtor deposit assets in a bank's foreign
subsidiary .
Moreover, there is no merit to CIBC's claim that Section 5225(b) should not
apply whenever the foreign subsidiary bank is not subject to New York's
jurisdiction. As an initial matter, few foreign banks would willingly consent to
such jurisdiction. And while CIBC contends that such an order might require the
parent to do something prohibited by the law of the country where the account is
located, courts have consistently recognized that banks assume the risks of
conflicting legal regimes by operating in multiple countries.
Finally, while CIBC emphasizes its own lack of practical control over assets
located in CFIB accounts, this issue is not relevant to a resolution of the questions
certified for review. The Commonwealth does not claim that the issue of CIBC's
ability to tum over the assets in question has already been resolved, although the
5
u.s. District Court not only noted that the Commonwealth had made a substantial
showing on this point that would warrant an evidentiary hearing on remand if
Section 5225(b) was held to apply, but also enjoined CIBC from allowing the
funds to be turned over to the Millards pending resolution of this appeal. The only
questions in this proceeding are whether Section 5225(b) authorizes a turnover
order where a parent company is proven to have the practical ability to direct the
disposition of assets in an account at its subsidiary, and if so, what factors should
be considered. With respect to the second certified question, we submit that a trial
court should determine the extent to which the parent can oversee how funds in
accounts are handled by the subsidiary to meet the parent's own business needs and
legal obligations (including federal legal requirements and court orders).
ARGUMENT
I. CPLR § 5225 Does Not "On Its Face" Preclude A Court From
Issuing A Turnover Order Where A Parent Company Or Other
Garnishee Has The Practical Ability To Control The Disposition
Of Property That Is Held By A Subsidiary Or Another Separate
Entity
CIBC contends that since CPLR § 5225(b) authorizes a turnover order to be
directed at the "person" in "possession or custody" of a judgment debtor's
property, this indicates that the property must be held by that person and not its
"subsidiaries or affiliates." CIBC Br. 15. However, no such inference can be
6
drawn from this language. CIBC is a "person" for purposes of this proceeding, and
CIBC can be subject to a turnover order if the U.S. District Court finds that it has
"possession or custody" of funds belonging to the Millards housed at CIBC's 92%-
owned subsidiary CFIB. Thus, CIBC's contention begs the question before this
Court of whether the phrase "possession or custody" covers situations where a
garnishee has constructive possession or custody of assets held by its subsidiary.
II. CIBC's Belated· Contention That This Proceeding Is Governed By
CPLR § 5227 Is Irrelevant For This Court's Review Of The
Certified Questions
CIBC makes a belated effort to circumvent the questions certified for review
by asserting that this situation is in fact governed by CPLR § 5227 instead of
CPLR § 5225(b). CIBC Br. 16-19. This Court should ignore this argument. CIBC
failed to preserve it and this issue was only first raised in an amicus curiae brief in
the U.S. Court of Appeals for the Second Circuit by the Institute of International
Bankers ("lIB"). Moreover, the argument is irrelevant to the certified questions
involving the scope and application of CPLR § 5225(b).
Furthermore, CIBC's claim is meritless. While CPLR § 5227 does not
contain the phrase "possession or custody," there is no practical distinction
between this provision and CPLR § 5225(b) where a judgment creditor seeks to
prevent the garnishee from disposing of certain assets and to have them applied in
7
satisfaction of the creditor's judgment. See N.Y. Prac., Enforcement of Judgments,
Delivery Order or Judgment § 510 (5th ed. 2012) ("[t]he only significant difference
between [CPLR §§] 5225 and 5227, in fact, is that the latter contemplates only a
special proceeding because it always aims at ... the garnishee," whereas CPLR §
5225 "contemplates either a special proceeding or a motion, depending on"
whether the garnishee or judgment debtor "has the property"); J. W. Oilfield Equip.,
LLC v. Commerzbank, AG, 764 F. Supp. 2d 587, 590-96 (S.D.N.Y. 2011) (issuing
a turnover order in a CPLR § 5225(b) proceeding entitling a judgment creditor to
obtain funds being held in overseas bank accounts).
III. Case Law Under CPLR § 5225 Holds That A Turnover Order Is
Authorized Where A Garnishee Has "Control" Over A Judgment
Debtor's Property Located Outside The State, And The Same
Principle Should Be Applied Where A Garnishee Happens To Be
A Parent Company And Funds Sought Are At The Parent's
Subsidiary
CIBC argues that New York courts and ~~federal courts applying New York
law have consistently refused to allow turnover applications to be used to reach
property in the hands of corporate affiliates of a garnishee bank." CIBC Br. 19
(emphasis omitted). However, this once again begs the question of the meaning of
Section 5225(b)'s phrase "possession or custody" where a parent corporation lacks
actual, physical possession of property held by the parent's subsidiary but is
8
alleged to have the practical ability to direct the disposition of a judgment debtor's
property held by a subsidiary. Furthermore, the non-binding decisions of New
York trial courts or federal district courts applying New York law should not
dictate how this Court answers these questions.
CIBC disputes that Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009),
along with the various authorities cited therein, are relevant because the facts in
Koehler did involve actually separate corporations as opposed to a branch of a
bank (CIBC Br. 28-32). However, Koehler was decided against the backdrop of
New York's "separate entity" rule, which treats each branch of a bank as a separate
corporate entity for certain purposes. Accordingly, Koehler is relevant here.1 This
is further confirmed by u.s. v. First Nat'l City Bank, 379 u.s. 378 (1965) -
discussed in the Commonwealth's opening brief (Br. 27-28) but not even
mentioned in CIBC's response. See First Nat'l City Bank, 379 u.s. at 384
(observing that "{wJhether the Montevido branch is a 'separate entity,' as the
Court of Appeals thought, is not germane to the present narrow issue" involving a
request to freeze assets held at that branch inasmuch as "[iJt is not a separate entity
Bank of Bermuda Limited ("BBL") was in the same position as CIBC,
having consented to the New York court's jurisdiction before the matter even
reached the Second Circuit. CIBC Br. 29. CIBC also incorrectly characterizes
BBL as being in the same position as CFIB (CIBC Br. 29), when, it is apparent that
BBL would have been in the exact same situation as CIBC for all relevant
purposes had the case involved a BBL subsidiary instead of a BBL branch.
9
in the sense that it is insulated from respondent's managerial prerogatives"
because H[ r ]espondent had actual, practical control over its branches") (emphasis
added). These authorities are incompatible with CIBC's contention that the
corporate separateness of entities should determine the application of Section 5225
absent proof that the subsidiary holding property is a "true alter ego" of the parent.
Moreover, as the cases in the Commonwealth's opening brief reflect (Br. 30-
31), the degree of control over a subsidiary's activities that must be shown for
disclosing documents or turning over assets of a judgment debtor should be
different and far less stringent than the degree of control or interrelatedness
required where a party seeks to obtain the subsidiary's own property from the
parent or to hold the parent company liable for the conduct of its subsidiary.
In response, CIBC nevertheless contends that the same veil-piercing
standard should apply in both kinds of situations because the Commonwealth seeks
to impose some sort of legal obligation upon the parent because of its connection
to a subsidiary. CIBC Br. 50-51. CIBC further reasons that because a turnover
order adjudicates interests in the judgment debtor's property, "[p]roceedings of this
nature should only be instituted where the" party having actual, physical
possession of the assets is "duly brought before the Court." CIBC Br. 51.
However, because CIBC is alleged to be the garnishee in this proceeding by virtue
of its practical ability to control the disposition of that property (in which neither
10
the parent nor its subsidiary has an interest), there IS no need to bring the
subsidiary into the proceeding.
Further, CIBC fails to address that an order merely requiring a parent
company to tum over property belonging to the judgment debtor will not involve
or affect the parent's or subsidiary's own property or liability in the underlying
proceeding. Accordingly, such an order does not warrant the veil-piercing or alter
ego treatment used where property belonging to the parent or subsidiary or the
parent's liability is involved?
CIBC also discusses other inapposite New York decisions. None of the four
cases discussed by CIBC (CIBC Br. 20-23) involve a New York Appellate
Division or a Second Circuit decision applying New York law in the context of a
turnover proceeding.3 Moreover, none of the cases is otherwise helpful to CIBC.
2 CIBC's position depends upon its repeated and misleading equation of the
foreign subsidiary of a bank over which New York has jurisdiction with "the
garnishee" for purposes of Section 5225(b), despite the fact that it is the parent
(CIBC) that is the garnishee as in Koehler. See, e.g., CIBC Br. 29, 53-56.
3 In a footnote with a string of other cases, CIBC cites two New York
Appellate Division cases purportedly supporting its position. CIBC Br. 23 n.14.
However, those decisions are also inapposite. Goldberg & Connolly v. Xavier
Constr. Co., 94 A.D.3d 1117 (2d Dep't 2012) (CIBC Br. 23 n.14)-which is little
more than a one-page decision-was based on the fact that the plaintiff (who was
alleging that the garnishee engaged in a "'de facto' merger" with a judgment
debtor or was a "'mere continuation'" of it) had not even alleged that any assets
sought were transferred by the judgment debtor to the garnishee or that the
garnishee had possession or custody of such assets. Goldberg, 94 A.D.3d at 1117-
11
Ayyash v. Koleilat, No. 151471112, 2012 WL 6783613 (N.Y. Sup. Ct. Oct.
22,2012) relied exclusively upon Eitzen Bulk AIS v. Bank of India, 827 F. Supp. 2d
234,239 (S.D.N.Y. 2011) (another district court decision) and was also apparently
influenced in part by the "scattershot nature" of the plaintiff s request for
information regarding assets held by any foreign branch or office of a bank.
Ayyash, 2012 WL 6783613, at *6-*7.
The remaining three cases (CIBC Br. 21-23) are either inapposite on their
face or fail to address the issue of a garnishee's control over judgment debtor
property located somewhere abroad (which the Commonwealth once again submits
has already been resolved in this Court's Koehler decision).
Specifically, AG Worldwide v. Red Cube Management AG, No. 01 Civ. 1228
(GEL), 2002 WL 417251 (S.D.N.Y. Mar. 15, 2002), merely determined that a
judgment creditor cannot use CPLR § 5225(b) to force a turnover of property held
18 (affirming a denial of a petition for a turnover order pursuant to Section 5225(b)
where "[n]otably, ... the petition did not actually allege that money or assets were
transferred from [judgment debtor] Xavier Contracting to [garnishee] Xavier
Construction and [its owner] Acocoella, or that the respondents were actually in
possession of money or assets in which the petitioner had an interest"). Likewise,
in O'Brien-Kreitzberg & Assocs. v. K.P., Inc., 218 A.D.2d 519, 520 (1st Dep't
1995)-another one-page decision that CIBC states reached a "similar holding"-
the plaintiff s theory was that the judgment debtor, Kanon Personnel, had ceased
business activities but was now operating the same business under the name K.P.,
Inc., and thus mandated proof, as the court noted, demonstrating as an initial matter
that any corporate relationship (much less an affiliation) between the judgment
debtor and the garnishee existed.
12
with corporate affiliates of the judgment debtor where the creditor could not
establish that the debtor had an interest in the property (i.e., the debtor's
relationship with those affiliates was insufficient). See id., at * 1-*3. Likewise, in
TD Bank NA. v. South Shore Motor Group, Inc., 35 Misc.3d 1233(A), 2012 WL
1969270 (N.Y. Sup. Ct. Apr. 27, 2012), the court simply held that because "none
of the ... entities in which [the] defendant ... ha[d] a purported interest ... have
been brought within the jurisdiction of the Court," "[t]here [w]as, therefore, no
basis to order a turnover with respect to said entities at this juncture" (id. at *3),
and, contrary to what CIBC asserts (CIBC Br. 22-23), there was no discussion of
veil-piercing principles. Finally, CIBC relies upon dicta in Dorchester Financial
Securities, Inc. v. Banco BRJ S.A., No. 02 Civ. 7504 (KMW) (KNF), 2009 WL
5033954 (S.D.N.Y. Dec. 23, 2009), where "it appear[ed] that" the judgment
creditor "ha[ d] served the wrong party" by serving the motion for a turnover order
on a branch of the parent company even though "the bank that purportedly issued
the checks" was a "separate legal entity" operating under a different name. CIBC
Br. 21-22 (citing Dorchester, 2009 WL 5033954, at *3). Because that case was
decided upon unrelated grounds, there is no indication in the opinion that the court
considered the issues raised in this proceeding.
CIBC also challenges the relevance of various New York cases upon which
the Commonwealth has relied. Br. 15-21. For example, Payne v. Garnett McKeen
13
Lab. Inc., 232 A.D.2d 419 (2d Dep't 1996) is consistent with Koehler and
Appellate Division cases cited therein. Payne stated that a judgment debtor bears
"the burden of proof that the [garnishee] ... actually [has] ... custody or control
of such money or other personal property." Payne, 232 A.D.2d at 240 (emphasis
added). Compare with Koehler, 12 N.Y.3d at 540 (recognizing 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., 849 N.Y.S.2d 223,226 (lst Dep't 2007), in which a plaintiff
"levied upon a New York garnishee that controlled th[e] ['out-of-state'] bank
accounts" at issue) (emphasis added). Accordingly, Payne - like the other
authorities discussed in the Commonwealth's opening brief (Br. 38) - is not the
outlier that CIBC maintains. CIBC Br. 24-25.
IV. The Legislature Presumably Did Not Intend To Allow Potential
Judgment Debtors To Thwart The Statute By Depositing Assets
In A Bank's Foreign Subsidiary
CIBC's discussion of Section 5225's legislative history (CIBC Br. 40-45) at
most establishes that the history provides no conclusive indication about the
Legislature's intent. CIBC relies upon the principle that the Legislature's insertion
of the term "custody" in the 1964 version of Section 5225 in lieu of the previous
term "control" and the absence of the latter from all but one other CPLR provision
14
(CPLR § 2701) involving the disposition of property reflects the Legislature's
intent to require actual, physical "possession or custody." CIBC Br. 32-34.
However, as the Commonwealth discussed in its opening brief: (a) the
CPLR provisions relating to discovery were simply modeled on substantially
similar language contained in Fed. R. Civ. P. 34 and thus are not indicative of any
legislative intent (Br. 22-23); and (b) notwithstanding CIBC's attempt to minimize
the relevance of CPLR § 2701 (CIBC Br. 38-39) - which, unlike the discovery
provisions, authorizes an order regarding property in a party's "control" to be
delivered - Section 2701 is designed to safeguard property that might otherwise
be subject to a Section 5225 proceeding.
Moreover, as the Commonwealth has further noted, the 1964 amendment of
Section 5225 was made against the backdrop of cases and other authorities
recognizing that a garnishee may be subject to a turnover order without actual,
physical control over the judgment debtor's property where the garnishee has
practical control over that property. Consequently, the Legislature should not be
deemed to have intended to radically change such long-standing judicial principles
by making a single, minor wording change in the 1964 amendment without some
more clear statement.
Furthermore, while the Legislature did not amend Section 5225 with the
circumstances of this case in mind, it obviously would not have wanted judgment
15
debtors to thwart Section 5225 by depositing their assets in an account at a bank's
foreign branch prior to the entry of any judgment to place the assets outside the
reach of a turnover order.
v. Factors Used In Discovery To Determine Whether A Parent Has
The Practical Ability To Obtain Materials Or Direct The
Subsidiary To Deliver Them Are Also Relevant In Deciding
Whether A Turnover Order Is Warranted
CIBC maintains that the factors used by courts to order a parent who is a
party to the proceeding to disclose documents held by the parent's wholly-owned
subsidiary are irrelevant here. CIBC Br. 58-60. In particular, CIBC contends that:
(a) the discovery statutes are distinguishable because they expressly permit an
order to issue with respect to information on a party's "possession, custody or
control"; and (b) because a judgment debtor's property, unlike documents or
information, is a "finite quantity that cannot be 'shared' in the same sense," the
garnishee's "access" to funds held by a subsidiary should not be dispositive. ld.
However, as noted, New York's discovery statutes were modeled on
substantially similar language contained in Fed. R. Civ. P. 34 and thus no inference
should be drawn from their reference to the term "control" in contrast to the phrase
"possession or custody" in Section 5225(b). And while it is difficult to understand
CIBC's remaining argument, it is apparent that a turnover proceeding will not
16
involve assets belonging to the garnishee or a subsidiary. See CIBC Br. 50-51
(noting that "[i]n any situation governed ... by CPLR § 5225(b) ... the Court is
being asked to make a final adjudication to the effect that the judgment debtor{'sJ
title over the disputed asset . can be passed to the judgment creditor")
(emphasis added).
Moreover, contrary to what CIBC implies, the Commonwealth does not
simply adopt the test used in the discovery context, but, rather, asserts that, for
Section 5225(b), a garnishee's practical control over disposition of a judgment
debtor's property is relevant to whether a turnover order should be issued, and that
the trial court should assess whether a parent company has such control.
As the Commonwealth explained (Br. 35-36) and CIBC left undisputed, the
U.S. District Court found evidence of control in this case because, apart from
CIBC's 92% ownership of CFIB and the latter's affiliates, the Commonwealth had
made an initial showing that: (a) "by its own public statements, CIBC enjoys 'full
oversight of the risk and control framework of all [of CFIB's] operations"'; (b)
CIBC "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"; (c) CIBC further "requires CFIB to comply with U.S.
legal requirements such as Sarbanes-Oxley and the PATRIOT Act"; and (d)
"CIBC and CFIB have significant personnel overlaps, even at senior levels of
17
management." A-3, AI8-19. According to the U.S. District Court, the cumulative
evidence "at the very least ... suggest[ed] that it [wa]s within CIBC's practical
power to ... access and tum over the account funds in question here." A-18-19.
Such considerations were relevant for purposes of assessing whether the
relationship between CIBC and CFIB was enough to allow CIBC to direct CFIB to
deliver the Millards' assets.
VI. There Is No Basis For An Exception Where A Foreign Subsidiary
Bank Holds Property Of A Judgment Debtor That The Garnishee
Parent Has The Practical Ability To Control
CIBC argues that, absent veil-piercing sufficient to prove the subsidiary to
be a "true alter ego" of the parent, "foreign non-party" subsidiaries of a parent
bank should not be covered by any rule governing a judgment debtor's property
held by other kinds of subsidiaries. CIBC Br. 50-57. However, the standard
proposed by the Commonwealth would not create unreasonable uncertainty as to a
foreign subsidiary bank's obligations under that statute, and such a bank would not
have a property interest needed to raise "due process concerns." While this
standard necessarily involves an assessment of the facts to determine if such
control has been established, this is also true where, e.g., a court seeks to determine
whether to order a parent of a wholly-owned subsidiary to deliver documents held
18
by the subsidiary or to subject a foreign parent to jurisdiction based upon the
activities of a wholly-owned subsidiary in New York.
CIBC nevertheless contends that the foreign subsidiary bank's own property
would be at risk if a judgment debtor demanded the return of such property
because a foreign court would not be required to recognize a turnover order issued
without jurisdiction over CFIB. CIBC maintains that CFIB could in effect be
required to pay over the relevant assets "twice." CIBC Br. 55-56 (citations
omitted). CIBC relies exclusively upon authorities in which one U.S. state
potentially seeks to hold a party liable for the same debt even after that debt is
discharged in another state. CIBC also unhelpfully invokes CPLR § 5290, which
discharges a garnishee who delivers property pursuant to court order from any
obligation to the judgment debtor to avoid the possibility of dual liability in this
country. fd.
With respect to the claim about a foreign non-party subsidiary bank's
potential liability (CIBC Br. 54-56), CIBC fails to explain how bringing a
subsidiary bank operating exclusively in the Cayman Islands into the turnover
proceeding would eliminate this concern - especially since any turnover order
would be "legally unenforceable in the Cayman Islands." CIBC Br. 55 n.52.
Accordingly, such a foreign subsidiary bank's consent to New York jurisdiction
(which would happen only rarely, if at all) would not preclude the possibility of
19
that entity being exposed to liability in a foreign court to the extent that that court
refuses to recognize the New York turnover order.
CIBC also claims that the parent, while subject to a New York court's
jurisdiction, would be required to "perform an action that is potentially
unauthorized by the law governing the bank account at issue." CIBC Br. 55.
However, as the Commonwealth has noted (Br. 38-40), courts have uniformly
recognized that: (a) there will be situations involving conflicting legal obligations
whenever a bank subject to jurisdiction in this country operates (through a
subsidiary or branch) within a foreign country, and that such a bank assumes the
risk of these conflicts; and (b) compliance with a court order might require a party
to take actions in conflict with foreign law merely would affect the type of
contempt punishment for non-compliance with such an order.
VII. The Commonwealth Has Never Maintained That Any
Conclusive Determination Was Made As To CIBC's Practical
Control Over The Disposition Of The Assets At Issue In This Case
CIBC spends over two pages of its brief opposing something that the
Commonwealth has never asserted: that there has been a final determination that
CIBC has practical "control" over the disposition of the Millards' assets that are
being held in accounts housed with CFIB and its affiliates. CIBC Br. 60-61.
20
The District Court did note that the Commonwealth had made a substantial
showing that CIBC has the ability to direct the disposition of the assets in question
to warrant an evidentiary hearing on remand if Section 5225(b) is held to apply on
appeal, and it also enjoined CIBC from turning them over to the Millards pending
the resolution of that appeal. A-2, A-20-21. However, this Court is only asked to
decide whether Section 5225(b) authorizes the issuance of a turnover order if
CIBC is proven to have the practical ability to direct its 92%-owned subsidiary
CFIB to deliver assets in compliance with such an order, and if so, what factors
should be considered in deciding whether to issue that order.
CONCLUSION
For the reasons set forth herein as well as in the Commonwealth's opening
brief, this Court should conclude that: (1) CPLR § 5225(b) authorizes a turnover
order where a parent bank or other entity against which that order is sought lacks
actual, physical possession of the judgment debtor's property but has effective or
constructive "possession or custody" by its control over the disposition of such
property at the garnishee's subsidiary; and (2) a trial court determining whether to
issue a turnover order where a garnishee parent bank or other company's
subsidiary has actual possession of the judgment debtor's assets at issue, should
consider the extent to which the parent has the practical ability to direct or control
21
the subsidiary's disposition of them 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 (such as federal legal
requirements and court orders).
Dated: February 15,2013
New York, New York
Micha~ s. Kim~
Melanie L. Oxhom
KOBRE & KIM LLP
800 Third Avenue
New York, New York 10022
Tel: + 1 212488 1200
Attorneys for Appellant Commonwealth of
the Northern Mariana Islands
22
1!!I£f!!!P ~ee!i.~ --229 West 36th Street, New York, N.Y.1001B· Tel: [212] 619-4949· Fax: (212] 60B·3141 • www.recordpress.com
34322
STATE OF NEW YORK, )
SS: AFFIDA VIT OF SERVICE
COUNTY OF NEW YORK )
Daniel Vinci being duly sworn, deposes and says that deponent is not party to the action, and is over
18 years of age.
That on the 15th day of February 2013 deponent served 3 copies of the within
PLAINTIFF-APPELLANT'S REPLY BRIEF
upon the attorneys at the addresses below, and by the following method:
BY HAND DELIVERY:
Scott D. Musoff
Timothy G. Nelson
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
(212) 735-3000
Attorneys for Garnishee-Appellee
Canadian Imperial Bank of Commerce
Sworn to me this
February 15, 2013
NADIA R. OSWALD HAMID
Notary Public, State of New York
No. OlOS6101366
Qualified in Kings County
Commission Expires November 10, 2015
BY FEDERAL EXPRESS NEXT
BUSINESS DAY DELIVERY:
William H. Millard
c/o Jon Oden, Esq.
Fisher, Rushmer, Werrenrath, Dickson,
Talley & Dunlap, P A
390 N. Orange Avenue, Suite 2200
Orlando, Florida 32801
(407) 843-2111
The Millard Foundation
c/o Alton Burkhalter, Esq.
Burkhalter, Kessler, Clement & George LLP
2020 Main Street, Suite 600
Irvine, California 92614
(949) 975-7500
Case Name: Commonwealth v. Canadian
Case No. 229