New York Court Of Appeals Narrows Reach Of Judgment Creditors Against Non-Party Banks

In a decision significant for international banks doing business in New York, the Court of Appeals, New York's highest court, unanimously held that a court cannot issue a "turnover order" against a bank unless the bank has actual, not merely constructive, possession or custody over the assets sought by the judgment creditor. The decision likely will limit judgment creditors' ability to enforce judgments against international bank deposits by commencing proceedings against third-party banks in New York.

By way of background, in 1994, the Commonwealth of the Northern Mariana Islands (the "Commonwealth") obtained two separate tax judgments against William and Patricia Millard in amount of approximately $18.3 million each. In 2011, the Commonwealth registered the judgments in the United States District Court for the Southern District of New York and commenced proceedings seeking to garnish the Millards' assets. The Commonwealth named Canadian Imperial Bank of Commerce ("CIBC") — a Toronto headquartered bank with branches in New York — a garnishee under the theory that the Millards maintained accounts in one or more of CIBC's Cayman Islands subsidiaries. The Commonwealth served CIBC through its New York branch and moved under New York's CPLR 5225(b) for an order compelling CIBC to turn over all property held by its Cayman Islands subsidiaries in the Millards' names. CIBC opposed on the ground that its subsidiaries were legally separate and independent entities and that, absent an information sharing agreement, CIBC could not access their accounts or account information. The District Court denied the motion for a turnover order and the Commonwealth appealed. The United States Court of Appeals for the Second Circuit determined that the motion turned on unresolved issues of New York law and certified the following question to New York's Court of Appeals: May a court issue a turnover order pursuant to CPLR 5225(b) to an entity that does not have actual possession or custody of the judgment debtor's assets, but whose subsidiary might have possession or custody of such assets?

The Court of Appeals answered the question in the negative. CPLR 5225(b) enables a judgment creditor to enforce a judgment against an asset of a judgment debtor held in the "possession or custody" of a third party. The Commonwealth argued that the phrase "possession or custody" inherently encompasses the concept of...