senate Bill S5734

2013-2014 Legislative Session

Relates to clarifying the geographic scope of restraining notices, subpoenas, turnover orders or judgments, and levies on property by service of execution or similar legal process

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Archive: Last Bill Status - In Committee


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
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Assembly Actions - Lowercase
Senate Actions - UPPERCASE
Jan 08, 2014 referred to judiciary
Jun 10, 2013 referred to judiciary

S5734 - Bill Details

Current Committee:
Senate Judiciary
Law Section:
Civil Practice Law and Rules
Laws Affected:
Amd §§5222, 5223, 5225, 5227 & 5232, R5224, CPLR L

S5734 - Bill Texts

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Relates to clarifying the geographic scope of restraining notices, subpoenas, turnover orders or judgments, and levies on property by service of execution or similar legal process.

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BILL NUMBER:S5734

TITLE OF BILL: An act to amend the civil practice law and rules, in
relation to clarifying the geographic scope of restraining notices,
subpoenas, turnover orders or judgments, and levies on property by
service of execution or similar legal process

PURPOSE: To amend the Civil Practice Law and Rules in order to
clarify the geographic scope of restraining notices, turnover orders
or judgments, subpoenas, and levies on property by service of
execution or similar legal process in light of the Court of Appeals'
decisions in Koehler v. Bank of Bermuda, Northern Mariana Islands v
Canadian Imperial Bank of Commerce, and other cases.

SUMMARY OF PROVISIONS: The bill would amend sections 5222, 5223,
5224(a-1), 5225, 5227, and 5232(a) of the Civil Practice Law and Rules
(CPLR).

Section 1 would amend § 5222 of the CPLR to provide that a restraining
notice that seeks to restrain property held or debts payable outside
of the United States shall have no effect except when it is served on
the judgment debtor or obligor, and operates only on the judgment
debtor or obligor.

Section 2 would amend § 5223 of the CPLR to provide that no recipient
of a subpoena shall be compelled to disclose a matter that is
protected from disclosure by a foreign law.

Section 3 would amend § 5224(a-1) of the CPLR to provide that a
subpoena filed under this section would also be subject to the
protection against disclosures that would violate foreign law.

Section 4 would amend § .522.5 of the CPLR to provide that an order to
a person to transfer money or other property held outside of the
United States into the United States is effective only against a
judgment debtor

Section 5 would amend § 5227 to provide that an order to a person to
pay a debt that is owing and payable outside of the United States or
to pay the balance of an account held outside the United States is
effective only against a judgment debtor,

Section 6 would amend § 5232(a) of the CPLR to make it clear that a
levy by service of execution upon a garnishee would have no effect
with respect to property, debts, accounts, or monetary obligations
outside of the United States,

JUSTIFICATION: In Koehler v. Bank of Bermuda Ltd , 12 N.Y.3d 533
(2009), the New York Court of Appeals held that a court with personal
jurisdiction over a garnishee bank could order that bank to bring
stock certificates of the judgment debtor held at an affiliated bank
office in Bermuda to the United States in order to satisfy the
judgment. Since then, Koehler has been used by judgment creditors in
numerous cases to demand that banks conduct worldwide searches for
information and to restrain or transfer foreign assets, regardless of
whether disclosure of such information or restraint or transfer of
such assets would violate foreign law or would expose the bank to


double liability if the bank's obligation to its foreign customer is
not extinguished by the turnover, as it would be under New York law
for assets held in New York.

Koehler broke new ground. Prior to the decision, it was clear that a
court with personal jurisdiction over the judgment debtor could order
the judgment debtor to bring property to New York to pay the amount
owing to the judgment creditor and that it could also order the
seizure of any of the property of the judgment debtor subject to the
court's jurisdiction to pay the judgment creditor. The Koehler
decision took the unprecedented step of allowing a court to order any
person holding property of the judgment debtor in another,
jurisdiction to bring the property to New York so it could be turned
over to the judgment creditor.

This new practice is problematic for several reasons. New York is
recognized as one of the great banking centers in the world. Because
it is the center of the money markets for the world's reserve
currency, and because of the centrality of New York banks and
funds-transfer systems to the world's dollar payment, clearing, and
settlement mechanisms, many New York banks are global institutions
with offices all over the world, and many foreign banks have
established offices in or near New York in order to be close to dollar
markets and to facilitate the business of their home-country
customers. Because of the Koehler decision, however, a New York
presence also carries a great potential for liability in that New York
could become a magnet for plaintiffs seeking to use New York banks and
the New York offices of foreign banks as worldwide collection agents.

Separate offices of banks have been considered as separate banks for a
variety of legal purposes, and foreign governments are not required to
give full faith and credit to the judgments of U.S. courts, meaning
that a discharge provided by a court in New York to a bank under a
turnover order might not be recognized by foreign authorities and
could result in double liability to the bank. Moreover, many foreign
governments have laws that would prevent banks under their
jurisdiction from providing information about their customers unless
specifically authorized by local law, subjecting banks that responded
to information subpoenas to liability if they obeyed the court orders.

While the Court of Appeals' more recent decision in Northern Marianna
Islands v Canadian Imperial Bank of Commerce, 2013 WL 1798585 (N.Y ),
2013 N Y. Slip Op. 03018 (Apr. 30, 2013), clarifies that Koehler does
not extend to a situation where the foreign bank affiliate is a
separate corporate entity, the impact of Koehler on foreign branches
is still an open question.

International banks do not open offices in New York expecting that
their presence here will force them to violate laws of their home
country or other foreign countries, or make them responsible for
paying off obligations of their overseas customers, possibly with a
risk that their own obligations to their customers are not reduced by
the amount of any such payments.

Koehler is a problem unique to New York Several major foreign banks
already have substantial operations in New Jersey and Connecticut, and
it would be a simple matter for these banks to consolidate their


operations at those offices Other foreign banks operating in New York
have clear incentives to reassess their New York presence, and those
not operating in New York may decide to avoid establishing a New York
presence altogether in favor of doing business in another state After
one major bank moves, it could create momentum that would be nearly
impossible to reverse. Once banks are entrenched in another state,
which would undoubtedly have an incentive to encourage them to stay,
it could be difficult to convince them to move back to New York even
if the Koehler problem is fixed.

The proposed amendments would correct the problem caused by Koehler by
restoring the clear rules that were in effect before the decision. A
New York court will still have authority to order a judgment debtor to
bring property into New York to satisfy a judgment, and it will still
be able to attach the judgment debtor's property in New York. But it
will no longer be able to order a third party with no connection to
the case to move property from another jurisdiction to New York so
that it can then be used to pay a judgment debtor's obligation. The
amendments would also clarify that a person who owes a debt to a
judgment debtor (legally, a bank account is the bank's obligation to
pay the depositor) in another jurisdiction need not pay the debt in
New York, and would protect banks from violating foreign bank secrecy
laws by responding to information subpoenas issued by New York courts.

FISCAL IMPLICATIONS:

EFFECTIVE DATE: Immediate

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                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  5734

                       2013-2014 Regular Sessions

                            I N  S E N A T E

                              June 10, 2013
                               ___________

Introduced  by  Sen.  FARLEY -- read twice and ordered printed, and when
  printed to be committed to the Committee on Judiciary

AN ACT to amend the civil practice law and rules, in relation to  clari-
  fying the geographic scope of restraining notices, subpoenas, turnover
  orders or judgments, and levies on property by service of execution or
  similar legal process

  THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. Section 5222 of the civil practice law and rules is amended
by adding a new subdivision (c-1) to read as follows:
  (C-1) PROPERTY HELD OR DEBTS OR AMOUNTS  PAYABLE  OUTSIDE  THE  UNITED
STATES. A RESTRAINING NOTICE THAT SEEKS TO RESTRAIN ANY PROPERTY HELD OR
DEBT  OR  AMOUNT  PAYABLE OUTSIDE THE UNITED STATES SHALL HAVE NO EFFECT
EXCEPT TO THE EXTENT SUCH RESTRAINING NOTICE IS SERVED UPON THE JUDGMENT
DEBTOR OR OBLIGOR AND OPERATES ONLY ON THE JUDGMENT DEBTOR OR OBLIGOR.
  S 2. Section 5223 of the civil practice law and  rules,  as  added  by
chapter 315 of the laws of 1962, is amended to read as follows:
  S  5223.  Disclosure  REQUIRED.   (A) At any time before a judgment is
satisfied or vacated, the judgment creditor may compel disclosure of all
matter relevant to the satisfaction of the judgment, SUBJECT TO SUBDIVI-
SION (B) OF THIS SECTION, by serving upon any person a  subpoena,  which
shall  specify  all  of the parties to the action, the date of the judg-
ment, the court in which it was entered, the amount of the judgment  and
the  amount  then  due  thereon,  and shall state that false swearing or
failure to comply with the subpoena  is  punishable  as  a  contempt  of
court.
  (B) CONFLICTS WITH FOREIGN LAWS. NO RECIPIENT OF A SUBPOENA AUTHORIZED
BY THIS ARTICLE SHALL BE COMPELLED TO DISCLOSE ANY MATTER PROTECTED FROM
DISCLOSURE BY THE LAW OF A SOVEREIGN OUTSIDE THE UNITED STATES.

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD11383-01-3

S. 5734                             2

  S  3.  Subdivision  (a-1)  of  rule 5224 of the civil practice law and
rules, as added by chapter 257 of the laws of 2006, is amended  to  read
as follows:
  (a-1) Scope of subpoena duces tecum. A subpoena duces tecum authorized
by this rule and served on a judgment debtor, or on any individual while
in the state, or on a corporation, partnership, limited liability compa-
ny or sole proprietorship doing business, licensed, qualified, or other-
wise  entitled  to do business in the state, shall subject the person or
other entity or business served to the  full  disclosure  prescribed  by
section fifty-two hundred twenty-three of this article whether the mate-
rials sought are in the possession, custody or control of the subpoenaed
person, business or other entity within or without the state, SUBJECT TO
SUBDIVISION  (B) OF SECTION FIFTY-TWO HUNDRED TWENTY-THREE OF THIS ARTI-
CLE.  Section fifty-two hundred twenty-nine of this article  shall  also
apply to disclosure under this rule.
  S  4.  Subdivisions  (b) and (c) of section 5225 of the civil practice
law and rules, as relettered by chapter 315 of the laws of 1962,  subdi-
vision (b) as amended by chapter 388 of the laws of 1964, are amended to
read as follows:
  (b)  Property not in the possession of judgment debtor. Upon a special
proceeding commenced by the  judgment  creditor,  against  a  person  in
possession  or  custody of money or other personal property in which the
judgment debtor has an interest, or against a person who is a transferee
of money or other personal property from the judgment debtor,  where  it
is  shown that the judgment debtor is entitled to the possession of such
property or that the judgment creditor's  rights  to  the  property  are
superior to those of the transferee, the court shall require such person
to pay the money, or so much of it as is sufficient to satisfy the judg-
ment,  to  the  judgment  creditor  and,  if the amount to be so paid is
insufficient to satisfy the judgment,  to  deliver  any  other  personal
property,  or  so  much  of  it as is of sufficient value to satisfy the
judgment, to a designated sheriff. Costs of the proceeding shall not  be
awarded  against  a  person  who  did  not dispute the judgment debtor's
interest or right to possession. Notice of the proceeding shall also  be
served  upon  the  judgment debtor in the same manner as a summons or by
registered or certified mail, return receipt requested.  The  court  may
permit the judgment debtor to intervene in the proceeding. The court may
permit  any  adverse  claimant  to  intervene  in the proceeding and may
determine his rights in accordance with section 5239 OF THIS ARTICLE.
  (c) NO TRANSFER REQUIRED EXCEPT BY THE JUDGMENT DEBTOR. NO PERSON THAT
IS NOT THE JUDGMENT DEBTOR SHALL BE REQUIRED TO TRANSFER MONEY, DEBT  OR
OTHER  PERSONAL  PROPERTY HELD OUTSIDE THE UNITED STATES INTO THE UNITED
STATES, OR OTHERWISE TO SATISFY THE JUDGMENT OR ORDER USING  ANY  MONEY,
DEBT OR OTHER PERSONAL PROPERTY HELD OUTSIDE THE UNITED STATES.
  (D)  Documents  to effect payment or delivery. The court may order any
person to execute and deliver any document necessary to  effect  payment
or delivery AS PERMITTED BY SUBDIVISION (A) OR (B) OF THIS SECTION.
  S  5.  Section 5227 of the civil practice law and rules, as amended by
chapter 532 of the laws of 1963, is amended to read as follows:
  S 5227. Payment of debts owed to judgment debtor.  (A) Upon a  special
proceeding commenced by the judgment creditor, against any person who it
is  shown  is  or will become indebted to the judgment debtor, the court
may require such person to pay to the judgment creditor  the  debt  upon
maturity, or so much of it as is sufficient to satisfy the judgment, and
to  execute  and deliver any document necessary to effect payment; or it
may direct that a judgment be entered against such person  in  favor  of

S. 5734                             3

the  judgment  creditor.  Costs  of  the proceeding shall not be awarded
against a person who did not dispute the indebtedness, AND NO  ASSERTION
BY  ANY PERSON WHO IS NOT THE JUDGMENT DEBTOR THAT THE JUDGMENT CREDITOR
MUST  COMPLY WITH THE REQUIREMENTS OF THIS ARTICLE SHALL BE CONSTRUED AS
DISPUTING THE INDEBTEDNESS FOR THE PURPOSE OF AWARDING COSTS.  Notice of
the proceeding shall also be served upon the judgment debtor in the same
manner as a summons or by registered or certified mail,  return  receipt
requested.  The court may permit the judgment debtor to intervene in the
proceeding. The court may permit any adverse claimant  to  intervene  in
the  proceeding  and may determine his rights in accordance with section
5239 OF THIS ARTICLE.
  (B) NO PAYMENT OF DEBTS OWING OR PAYABLE OUTSIDE OF THE UNITED STATES.
NO PERSON SHALL BE REQUIRED TO PAY DEBTS OR OTHER OBLIGATIONS  OWING  OR
PAYABLE  OUTSIDE  THE  UNITED  STATES OR THE BALANCE OF ANY ACCOUNT HELD
OUTSIDE THE UNITED STATES TO SATISFY A  JUDGMENT  OR  ORDER  UNDER  THIS
SECTION.
  S  6.  Subdivision  (a)  of section 5232 of the civil practice law and
rules, as amended by chapter 59 of the laws of 1993, is amended to  read
as follows:
  (a)  Levy  by service of execution.  The sheriff or support collection
unit designated by the appropriate social services district  shall  levy
upon any interest of the judgment debtor or obligor in personal property
not capable of delivery, or upon any debt owed to the judgment debtor or
obligor,  by  serving a copy of the execution upon the garnishee, in the
same manner as a summons, except that such service shall not be made  by
delivery  to a person authorized to receive service of summons solely by
a designation filed pursuant to a provision of law other than rule  318.
In  the event the garnishee is the state of New York, such levy shall be
made in the same manner as an income execution pursuant to section  5231
of  this article.   A levy by service of the execution is effective only
if, at the time of service, the person served owes a debt to  the  judg-
ment  debtor  or obligor or he or she is in the possession or custody of
property not capable of delivery in which he or she knows or has  reason
to  believe  the  judgment  debtor or obligor has an interest, or if the
judgment creditor or support collection unit  has  stated  in  a  notice
which  shall  be served with the execution that a specified debt is owed
by the person served to the judgment debtor or obligor or that the judg-
ment debtor or obligor has an interest in specified property not capable
of delivery in the possession or custody of the person served. All prop-
erty not capable of delivery in which the judgment debtor or obligor  is
known  or believed to have an interest then in or thereafter coming into
the possession or custody of such a person, including any  specified  in
the  notice,  and all debts of such a person, including any specified in
the notice, then due or thereafter coming due to the judgment debtor  or
obligor,  shall  be  subject  to  the  levy.  The person served with the
execution shall forthwith transfer all such property, and pay  all  such
debts  upon  maturity,  to the sheriff or to the support collection unit
and execute any document necessary to effect the  transfer  or  payment.
After  such  transfer or payment, property coming into the possession or
custody of the garnishee, or debt incurred by him, or her shall  not  be
subject  to  the  levy. Until such transfer or payment is made, or until
the expiration of ninety days after the service of  the  execution  upon
him  or  her, or of such further time as is provided by any order of the
court served upon him or her, whichever event first occurs, the garnish-
ee is forbidden to make or suffer any sale, assignment or  transfer  of,
or  any  interference  with, any such property, or pay over or otherwise

S. 5734                             4

dispose of any such debt, to any person other than the  sheriff  or  the
support  collection  unit,  except  upon direction of the sheriff or the
support collection unit or pursuant to an order of the court.  A LEVY BY
SERVICE  OF EXECUTION UPON A GARNISHEE SHALL HAVE NO EFFECT WITH RESPECT
TO PROPERTY LOCATED OUTSIDE THE UNITED STATES OR DEBTS OR OTHER MONETARY
OBLIGATIONS LOCATED OUTSIDE THE UNITED STATES  OR  THE  BALANCE  OF  ANY
ACCOUNT HELD OUTSIDE THE UNITED STATES. At the expiration of ninety days
after  a  levy  is  made by service of the execution, or of such further
time as the court, upon motion  of  the  judgment  creditor  or  support
collection  unit has provided, the levy shall be void except as to prop-
erty or debts which have been transferred or paid to the sheriff  or  to
the  support  collection unit or as to which a proceeding under sections
5225 or 5227 OF THIS ARTICLE has been brought. A judgment creditor  who,
or  support  collection  unit  which, has specified personal property or
debt to be levied upon in a notice served with  an  execution  shall  be
liable  to  the  owner of the property or the person to whom the debt is
owed, if other than the judgment debtor  or  obligor,  for  any  damages
sustained by reason of the levy.
  S 7. This act shall take effect immediately.

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