Tire Eng'g & Distribution L.L.C. v. Bank of China Ltd.

• Decision Date: 14 January 2014
• Docket Number: Nos. 13–1519–cv, 13–2535–cv(L), 13–2639–cv(con).,s. 13–1519–cv, 13–2535–cv(L), 13–2639–cv(con).
• Citation: 740 F.3d 108
• Parties: TIRE ENGINEERING AND DISTRIBUTION L.L.C., Jordan Fishman, Bearcat Tire A.R.L., Plaintiffs–Appellants, Bcatco A.R.L., Plaintiff, v. BANK OF CHINA LIMITED, Defendant–Appellee. Motorola Credit Corporation, Plaintiff–Counter–Defendant–Appellant–Cross Appellee, Nokia Corporation, Plaintiff–Counter–Defendant, Motorola, Inc., Kroll Associates Inc., Christopher B. Galvin, Keith J. Bane, Walter Keating, Ed Hughes, Ernst Kramer, Counter Defendants, v. Standard Chartered Bank, Appellee–Cross Appellant, Murat Hakan Uzan, Cem Cengiz Uzan, Defendants–Counter–Claimants, Kemal Uzan, Libananco Holdings Co. Limited, Melahat Uzan, Aysegul Akay, Antonio Luna Betancourt, Unikom Iletism Hizmetleri Pazarlama A.S., Standart Pazarlama A.S., Standart Telekomunikayson Bilgisayar Hizmetleri A.S., Defendants.
• Court: U.S. Court of Appeals — Second Circuit

740 F.3d 108

TIRE ENGINEERING AND DISTRIBUTION L.L.C., Jordan Fishman, Bearcat Tire A.R.L., Plaintiffs–Appellants,

Bcatco A.R.L., Plaintiff,

v.BANK OF CHINA LIMITED, Defendant–Appellee.

Motorola Credit Corporation, Plaintiff–Counter–Defendant–Appellant–Cross Appellee,

Nokia Corporation, Plaintiff–Counter–Defendant,

Motorola, Inc., Kroll Associates Inc., Christopher B. Galvin, Keith J. Bane, Walter Keating, Ed Hughes, Ernst Kramer, Counter Defendants,

v.Standard Chartered Bank, Appellee–Cross Appellant,Murat Hakan Uzan, Cem Cengiz Uzan, Defendants–Counter–Claimants,Kemal Uzan, Libananco Holdings Co. Limited, Melahat Uzan, Aysegul Akay, Antonio Luna Betancourt, Unikom Iletism Hizmetleri Pazarlama A.S., Standart Pazarlama A.S., Standart Telekomunikayson Bilgisayar Hizmetleri A.S., Defendants.

Nos. 13–1519–cv, 13–2535–cv(L), 13–2639–cv(con).

United States Court of Appeals,

Second Circuit.

Argued: Oct. 11, 2013.

Decided: Jan. 14, 2014.

William Edgar Copley, III (Stephen Adam Weisbrod, on the brief), Weisbrod Matteis & Copley PLLC, Washington, D.C., and Stephen Zoltan Starr, Starr & Starr, PLLC, New York, NY, for Tire Engineering and Distribution, L.L.C., Bcatco A.R.L., Jordan Fishman, and Bearcat Tire A.R.L.

Pamela Chepiga (Andrew Rhys Davies, Molly Spieczny, on the brief), Allen & Overy LLP, New York, NY, for Bank of China Limited.

Howard H. Stahl (George R. Calhoun, on the brief), Fried, Frank, Harris, Shriver & Jacobson LLP, Washington D.C., for Motorola Credit Corporation, and Nokia Corporation.

Bruce Edward Clark (Patrick B. Berarducci, Sharon L. Nelles, Bradley P. Smith, on the brief), Sullivan & Cromwell LLP, New York, NY, for Standard Chartered Bank.

Dwight A. Healy, White & Case LLP, for Amici Curiae Institute of International Bankers, The Clearing House, European Banking Federation, and New York Bankers Association.

Before: CALABRESI, CHIN, and DRONEY, Circuit Judges.

CHIN, Circuit Judge.

These appeals, heard in tandem, challenge two orders entered in the United States District Court for the Southern District of New York (Carter, J., and Rakoff, J.), holding that the separate entity rule precludes a court from ordering a garnishee bank with branches in New York to turn over or restrain assets of judgment debtors held in foreign branches of the bank. In both cases, the plaintiff judgment creditors (“plaintiffs”) contend that the decision of the New York Court of Appeals in Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533, 883 N.Y.S.2d 763, 911 N.E.2d 825 (2009), makes clear that post-judgment relief under Article 52 of the New York Civil Practice Law and Rules (“CPLR”) is dependent only on personal jurisdiction over the garnishee banks, and therefore its remedies are available to reach property of judgment debtors held in foreign branches of those banks. The defendant garnishee banks (“defendants”) argue that Koehler did not silently overrule New York's longstanding separate entityrule as applied to banks with branches in New York and other countries.

These appeals present the following unresolved questions of New York law:

First, whether the separate entity rule precludes a judgment creditor from ordering a garnishee bank operating branches in New York to turn over a debtor's assets held in foreign branches of the bank; and

Second, whether the separate entity rule precludes a judgment creditor from ordering a garnishee bank operating branches in New York to restrain a debtor's assets held in foreign branches of the bank.

Because these unresolved questions implicate significant New York state interests and are determinative of these appeals, we reserve decision and certify these questions to the New York Court of Appeals.

BACKGROUND

A. CPLR Article 52 and the Separate Entity Rule

CPLR article 52 governs the enforcement and collection of money judgments in New York. See N.Y. C.P.L.R. 5201 et seq. (McKinney 2013). Sections 5222 and 5225(b) apply to third parties that possess assets in which a judgment debtor has an interest. Section 5222 authorizes the issuance of a restraining notice to prohibit a third party from disposing of a debt owed to the judgment debtor for one year after service of the restraining notice or until the judgment is satisfied or vacated, whichever comes first.¹ Section 5225(b) allows a judgment creditor to commence a proceeding to order a third party to turn over the judgment debtors' assets.² As the New York Court of Appeals explained in Koehler, “article 52 postjudgment enforcement involves a proceeding against a person—its purpose is to demand that a person convert property to money for payment to a creditor.” 12 N.Y.3d at 538, 883 N.Y.S.2d 763, 911 N.E.2d 825. Accordingly, “personal jurisdiction is the linchpin of authority under section 5225(b).” Commw. of the N. Mariana Islands v. Canadian Imperial Bank of Commerce, 21 N.Y.3d 55, 64, 967 N.Y.S.2d 876, 990 N.E.2d 114 (2013) (“NMI”).

Nevertheless, New York courts have long applied the separate entity rule to garnishee banks operating branches both in New York and elsewhere. The rule provides that even if a bank is subject to personal jurisdiction due to the presence of a New York branch, the other branches of the bank will be treated as separate entities for certain purposes, such as attachments, restraints, and turnover orders.³ Indeed, as the rule has been historically applied, even branches of a bank located in the same city are separate entities for purposes of attachment.⁴ Although the rule has no apparent mooring in the text of the CPLR, the principle that branches of banks are regarded as separate entities for some purposes is reflected in New York's Uniform Commercial Code.⁵

The original rationale for the rule was that “[e]ach time a warrant of attachment is served upon one branch, every other branch and the main office would have to be notified[,] ... plac[ing] an intolerable burden upon banking and commerce, particularly where the branches are numerous, as is often the case.” Cronan v. Schilling, 100 N.Y.S.2d 474, 476 (Sup.Ct.N.Y.Cnty.1950), aff'd,282 A.D. 940, 126 N.Y.S.2d 192 (1st Dep't 1953). In Digitrex, Inc. v. Johnson, the Southern District of New York (Knapp, J.) concluded that the separate entity rule was outdated in light of technological advances in the banking industry. 491 F.Supp. 66, 69 (S.D.N.Y.1980) (holding restraining notice served on bank's main office sufficient and legally effective, as applied to assets in branch of bank). State and federal courts applying New York law have limited Digitrex 's reach, however, and apply its exception to the separate entity rule only where “the restraining notice is served on the bank's main office; the main office and the branches where the accounts in question are maintained are within the same jurisdiction; and the bank branches are connected to the main office by high-speed computers and are under its centralized control.” In re Nat'l Union Fire Ins. Co. of Pittsburgh Pa. v. Adv. Emp't. Concepts, 269 A.D.2d 101, 703 N.Y.S.2d 3, 4 (1st Dep't 2000) (emphasis in original).⁶ Accordingly, courts have routinely applied the separate entity rule to post-judgment proceedings involving branches of banks in different sovereign nations.⁷

B. Tire Engineering and Distribution, L.L.C. v. Bank of China Ltd.

On October 28, 2010, the District Court for the Eastern District of Virginia entered a judgment in favor of Tire Engineering and Distribution, L.L.C. (“Tire Engineering”) against six foreign companies based in China and Dubai (the “judgment debtors”) for copyright infringement and conversion. The Fourth Circuit affirmed in part, upholding the jury's $26 million damages award. See Tire Eng'g & Distrib., LLC v. Shandong Linglong Rubber Co., 682 F.3d 292 (4th Cir.2012). The judgment debtors have refused to pay the judgment.

Tire Engineering eventually learned that one of the judgment debtors had assets at the Bank of China (“BOC”). BOC is controlled and owned, at least in part, by the People's Republic of China. BOC operates two branches in New York City.

On December 18, 2012, Tire Engineering filed this action in the Southern District of New York seeking a turnover order against BOC pursuant to CPLR § 5225(b), alleging that BOC possesses assets of at least one of the judgment debtors. Tire Engineering asked that BOC be ordered to turn over “all money or other personal property in its possession in which one or more of the [j]udgment [d]ebtors have an interest, regardless of whether [BOC] possesses that money or other personal property in New York, China, the United Arab Emirates, or elsewhere.” First Amend. Compl. ¶ 40. Tire Engineering also served a restraining notice on BOC pursuant to Federal Rule of Civil Procedure 69(a) and CPLR § 5222, prohibiting it from selling, assigning, or transferring any property of the judgment debtors in its possession. The district court (Carter, J.) entered an order directing BOC to show cause as to why a preliminary injunction should not be granted.

In response, BOC confirmed it had no accounts or property belonging to any of the judgment debtors in its New York branches. BOC filed a motion to dismiss, arguing, among other things, that the separate entity rule precluded the relief Tire Engineering requested. Further, it argued that a preliminary injunction was inappropriate due to the substantial harm that freezing assets belonging to the judgment debtors would cause BOC. In support, BOC submitted declarations of two professors, explaining that Chinese banking laws prohibit Chinese commercial banks from complying with U.S. court orders by freezing customer bank accounts in China and that accordingly BOC could face regulatory sanctions and civil litigation in China if it complied with the turnover order.

On April 12, 2013, the district court granted BOC's motion to dismiss, holding that the separate entity rule precluded Tire Engineering's request for relief. The district court granted Tire Engineering's request for a stay pending appeal,...