Assembly Bill A11109

                                BILL NUMBER:A11109              REPLACEMENT 5/19/10

TITLE  OF  BILL:    An act to amend the civil practice law and rules, in
relation to payment of money and delivery  of  property  of  a  judgment
debtor when held by a third party

PURPOSE  OF  BILL:   To set forth the required jurisdictional predicates
for a CPLR 5225 turnover proceeding when the plaintiff judgment creditor
seeks property located outside the state.

SUMMARY OF PROVISIONS OF BILL:  This bill would amend subdivision (b) of
section 5225 of the Civil Practice  Law  and  Rules  to  set  forth  the
required  jurisdictional predicates when the plaintiff judgment creditor
seeks property located outside the state.

The bill will make clear that where a plaintiff judgment creditor  seeks
property  outside  the  state, the judgment creditor will have to estab-
lish:

1. That the person or entity against whom the  proceeding  is  commenced
has custody of the judgment debtor's property (as per current law), and

2.  That  the plaintiff judgment creditor has personal jurisdiction over
the judgment debtor, or

* there exists a nexus between New York State  and  the  property  being
              

sought necessary to satisfy the requirements of due process under the US
Constitution, or

* there exists a nexus between New York State and the underlying contro-
versy  necessary to satisfy the requirements of due process under the US
Constitution.

JUSTIFICATION:  Like most states, New York permits a victorious judgment
creditor to come to New York, register his judgment and commence a turn-
over proceeding under section 5225 of the CPLR to satisfy it. In a turn-
over proceeding, the defendant is not necessarily the  judgment  debtor.
Instead it may be a person or entity that has possession of the judgment
debtor's  property,  a so-called garnishee. The judgment debtor need not
even be a party to these types of proceedings.

Recently, in Koehler v. Bank of Bermuda, 12 NY3d  533  {2009},  the  New
York  Court  of Appeals had occasion to answer a certified question from
the Second Circuit, Court of Appeals which asked:

"whether a court sitting in New York may order a bank over which it  has
personal  jurisdiction to deliver stock certificates owned by a judgment
debtor (or cash equal to their value) to a judgment  creditor,  pursuant
to  CPLR  article  52, when those stock certificates are located outside
New York."

The Court of Appeals answered the question in the affirmative. This  led
the  federal court to order the garnishee, an out-of-state entity with a
NY presence, to deliver the judgment debtor's property (or its  monetary
equivalent) to the New York court for distribution to the judgment cred-
itor.

The dissent raised the issue that the decision could have the effect, in
some  cases, of creating a conflict with federal case law concerning the
reach of state jurisdiction under the US Constitution.  This was due  to
the  fact that in Koehler, the record showed no relationship between New
York and the judgment debtor, the underlying dispute  at  issue  or  the
property  in  question. New York's sole contact appeared to be the judg-
ment creditor's decision to commence a turnover proceeding in the  state
after  registering  the  judgment.  The dissent noted that the constitu-
tional issue had not been raised by the parties, and no record had  been
made  of  any  NY contacts with the judgment debtor, the property or the
underlying dispute.

There are limits on the jurisdiction of all state courts. Before a party
can be called into a New York court and be bound  by  its  rulings,  the
plaintiff  in the case must establish some sort of jurisdictional predi-
cate which satisfies the requirements of procedural  due  process  under
the US Constitution. This is easy to understand since it would be deeply
unfair  for  a New York resident to be bound by an Alaskan court's deci-
sions unless the New York resident had  minimum  contacts  with  Alaska.
This  has been expressed by the US Supreme Court beginning with Interna-
tional Shoe Co. v. Washington, 326 US 310 {1945} and the line  of  cases
which  followed.  These  cases require the existence of minimum contacts
with the jurisdiction before the parties to the case can be bound by its
rulings. These minimum contacts must comport with traditional notions of
fair play and substantial justice.

This bill would require a plaintiff who seeks out-of-state property in a
turnover proceeding in New York to establish:

1. That the person or entity against whom the  proceeding  is  commenced
has custody of the judgment debtor's property (as per current law), and

2.  That  the plaintiff judgment creditor has personal jurisdiction over
the judgment debtor, or

* there exists a nexus between New York State  and  the  property  being
sought necessary to satisfy the requirements of due process under the US
Constitution, or

* there exists a nexus between New York State and the underlying contro-
versy  necessary to satisfy the requirements of due process under the US
Constitution.

The bill uses the term "nexus" because it expresses both  a  territorial
connection  to  NY  as  well  as  a  NY interest in the matter. The bill
restates the required showing that the plaintiff  judgment  creditor  in

the  turnover  proceeding establish that the defendant has possession of
the judgment debtor's property. The bill then makes clear  that  the  NY
presence  of  the  garnishee-the  turnover proceeding's defendant in New
York--is  not itself a sufficient nexus. The judgment creditor must show
that either subdivision (i) or (ii) is satisfied.

Subdivision (1) makes plain that where there  is  personal  jurisdiction
over  the  judgment  debtor,  that the court is empowered to recover the
judgment debtor's property outside the state. It will also  clarify  the
point  in time at which the judgment debtor's presence in NY is relevant
for purposes of enforcement against his out-of-state property.

Subdivision (ii) encompasses  situations  where,  despite  the  lack  of
personal  jurisdiction  over  the judgment debtor, New York nevertheless
possesses minimum contacts necessary  to  satisfy  the  requirements  of
procedural  due process under the US Constitution. For example, NY could
have a sufficient constitutional  nexus  to  out-of-state  property  for
judgment enforcement purposes if the property's usual situs is NY but it
is  temporarily  outside the state, or the property played a role in the
underlying transaction and was located in NY at the time of  the  trans-
action.  Subdivision  (ii)  will also encompass situations where despite
the lack of a NY nexus to the out-of-state property  itself,  the  court
could  still  allow  the  proceeding  to reach the out-of-state property
where NY has a  sufficient  connection  to  the  underlying  controversy
necessary to satisfy constitutional due process.

Application  of  this  broad and flexible constitutional standard elimi-
nates any need for the court to  consult  the  categories  for  personal
jurisdiction  under  New York's long-arm statute. Further, the bill does
not introduce new terms to the CPLR. For example,  a  reference  to  the
federal  constitutional standard was recently adopted for the litigation
of claims based on "libel terrorism" (CPLR 302(d)).

It is important to bear in mind it is  not  suggested  herein  that  the
Koehler  case  was incorrectly decided by the New York Court of Appeals.
As previously noted, the constitutional issue was not raised in Koehler.
The bill therefore ensures that when the property at  issue  is  located
outside  NY,  the  judgment creditor must show, and the court must find,
that the contacts required by due process are satisfied.

Accordingly, this  bill  is  necessary  to  ensure  that  CPLR  turnover
proceedings  comport  with  the  requirements  of procedural due process
under the US Constitution when the  plaintiff  judgment  creditor  seeks
property  located  outside  the state. This will inform bench and bar of
what is required when using the New York Courts  to  reach  out-of-state
property through a CPLR 5225 turnover proceeding.

LEGISLATIVE HISTORY: New bill, 2010

FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:  None.

EFFECTIVE DATE:  30 days after becoming law.