New York Court Of Appeals Decision Significantly Affects Multinational Financial Institutions, Requiring That Customer Assets Held By A Bank Outside The United States Be Made Available In New York To Satisfy A Judgment Against The Bank's Customer

In Koehler v. Bank of Bermuda,1 a decision having significant consequences for national and multinational financial institutions doing business in New York, the New York Court of Appeals ruled in June that a court sitting in New York has the power to require a foreign bank over which the court has personal jurisdiction to satisfy a judgment against the bank's customer by delivering into New York assets that had been held by the bank outside the state, or even outside the country. This was the case even though neither the judgment creditor nor the judgment debtor had any relationship with New York, and the judgment itself had been obtained in another state, as noted by the dissent in the Court's split 4-3 decision.

The Koehler decision substantially increases the likelihood that banks, brokerage firms, insurance companies and other financial services firms having a presence in New York will find themselves involved in judgment enforcement proceedings in the New York courts. Creditors holding judgments against a financial institution's customers likely will employ the judgment enforcement mechanisms available under New York rules, and seek to compel the institution to deliver the assets to New York for the benefit of the judgment creditor assets held by the institution anywhere in the world.

In the six months since Koehler was decided, few courts yet have had an opportunity to address the implications of the Court of Appeals decision. In one recent decision, however, a federal district court declined to extend Koehler to a case involving a pre-judgment temporary restraining order enjoining transfer of the defendants' assets that had been served on a bank's New York branch, holding that under New York's "separate entity rule" each bank branch is treated as a separate entity and service of the TRO on the bank's New York branch did not reach an out-of-state branch that did not have actual notice of the order.2 Further litigation over the scope of the Koehler decision, and the application of Koehler to particular facts and circumstances, should be expected.

The Facts Of Koehler

In 1993, the plaintiff, Koehler, a resident of Pennsylvania, obtained a default judgment of approximately $2 million against his former business partner, Dodwell, a resident of Bermuda. The default judgment was obtained in an action filed in the United States District Court in Maryland.

Shortly thereafter, in October 1993, Koehler sought to enforce his judgment by filing a petition against Bank of Bermuda Ltd. (the "Bermuda bank") in the United States District Court for the Southern District of New York seeking an order compelling the Bermuda bank to turn over property belonging to Dodwell. In particular, Koehler sought to recover stock certificates in a Bermuda corporation owned by Dodwell that Dodwell had pledged to the Bermuda bank in return for a loan. Two days after the petition was filed, the court issued a turnover order compelling the Bermuda bank to deliver the stock certificates or pay sufficient money to satisfy the judgment.

Following entry of the turnover order, Koehler and the Bermuda bank engaged in litigation for 10 years on the issue of whether the Bermuda bank was subject to the personal jurisdiction of the New York courts. In commencing the proceeding in New York, Koehler had served process upon an officer of Bank of Bermuda (New York) Ltd., which Kohler claimed was a...

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