New York Taps The Brakes On Foreign Judgment Collection

Four years ago, the New York Court of Appeals, in Koehler v. Bank of Bermuda,1 greatly broadened the judgment enforcement power of New York courts, a decision of note especially for global financial institutions with customer assets in faraway places. This split decision by the state's highest court accorded judgment creditors worldwide the long arm of New York's new enforcement law, enabling them to reach far beyond New York's borders to grab debtors' assets. But what if the underlying litigation, the parties themselves, and the targeted assets bear no connection to New York? It does not matter.

Although the court recently shortened, somewhat, the long arms bestowed by Koehler, the far-reaching implications of these two decisions on international enterprises—especially financial institutions—subject to jurisdiction in New York (and their business counterparties) command attention. Ignorance of the evolving jurisprudence might prove expensive.

Foreign Judgment Enforcement in New York Under Koehler

In 2009, the Koehler court held that New York courts could enforce a domesticated foreign judgment against assets outside the state if a garnishee bank is subject to jurisdiction in New York. See Koehler ("a court sitting in New York that has personal jurisdiction over a garnishee bank can order the bank to produce [assets] located outside New York, pursuant to [New York's CPLR §] 5225(b).").2 It reasoned that under CPLR § 5225, the "key to the reach of the turnover order is personal jurisdiction" over the garnishee, not in rem jurisdiction over the assets.3 In other words, the focus is squarely on the bank's nexus with the forum and not on anything else.

Take, for example, a bank headquartered in London and subject to personal jurisdiction in New York (perhaps because it has a branch in the state). Assume that bank has a Texas customer with a Texas judgment against it in favor of a California entity. Koehler bestows on New York courts the power to order that bank to deliver to the California creditor the customer's assets located in London whether the judgment debtor, itself, has any assets in or is subject to jurisdiction in New York, and regardless of whether there exists any connection between the underlying lawsuit and the state. As the Koehler court explained, because "personal jurisdiction is the linchpin of authority under § 5225(b)," all that is required is personal jurisdiction over the garnishee (that person or entity holding the assets...