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
