Global Tech. Inc. v. Royal Bank of Canada, 150151/2011

CourtUnited States State Supreme Court (New York)
Writing for the CourtMichael D. Stallman
Citation2012 NY Slip Op 50023
PartiesGlobal Technology, Inc., Petitioner, v. Royal Bank of Canada, Respondent.
Decision Date11 January 2012
Docket Number150151/2011

2012 NY Slip Op 50023

Global Technology, Inc., Petitioner,
v.
Royal Bank of Canada, Respondent.

150151/2011

Supreme Court, New York County

Dated:
January 11, 2012


Peter M. Agulnick, P.C., New York City (Peter Agulnick, Esq.), for Global Technology, Inc., petitioner.

Wilk Auslander LLP , New York City (Natalie Shkolnik and Julie Cilia, Esqs.), for Royal Bank of Canada, respondent.

Michael D. Stallman, J.

In this special proceeding, a judgment creditor claims that a bank violated a restraining notice that prohibited transfers out a bank account of a judgment debtor. The bank was served with the restraining notice at a branch in New York, but the bank account of the judgment debtor was apparently maintained and accessible by the judgment debtor only in Canada. The bank relies on the "separate entity rule," precedent that recognized bank branches as separate legal entities for purposes of attachment and garnishment; the judgment creditor asserts that the rule is no longer good law. Federal courts are deeply divided from New York trial-level courts on this issue.

BACKGROUND

According to the petition, petitioner Global Technology obtained a judgment dated August 17, 2009 from the United States District Court for the Eastern District of Michigan rendered against non-party Moto Diesel Mexicana (Moto) for $1,797,742.34. (Verified Petition, Ex A.) Petitioner registered the judgment with the United States District Court for the Southern District of New York, which then issued a transcript of judgment No. 10-0866, which was filed with the County Clerk of New York County on June 22, 2010. (Id., Ex B.)

On July 15, 2010, petitioner's counsel allegedly served an information subpoena with a restraining notice, by certified mail, return receipt requested, upon respondent Royal Bank of Canada

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at a branch in Manhattan. (Id., Ex C.) Respondent allegedly received the information subpoena with a restraining notice on July 19, 2010. (Id.) According to respondent, Moto had opened two accounts with respondent in Toronto, Ontario in February 23, 2009 (see Skolnik Affirm., Ex 3), only one of which had funds as of July 19, 2010. (See id., Exs 4-6.)

Petitioner's counsel allegedly emailed counsel for RBC Law Group on August 17, 2010, which attached "a copy of the New York Law Journal article that I discussed with you concerning foreign banks that have an office in New York State." (Id., Ex A.) Counsel allegedly replied to the email, "[P]lease be advised that: $84,292.46 is being held pursuant to the Restraining Notice." (Id.) An individual from RBC Law Group purportedly stated in a voicemail message to petitioner's counsel that Moto's funds had been frozen. (Id., Ex B.)

On October 17, 2010, petitioner commenced a turnover proceeding in Supreme Court, New York County against respondent, Global Technology, Inc. v Royal Bank of Canada, Index No. 651536/2010. (Shkolnik Affirm., Ex 8.) Respondent answered the petition stating that it had no objection to the prayer for relief, to the extent that petitioner sought a judgment directing respondent to turn over to petitioner all money or property belonging to Moto that was in respondent's possession. (Id., Ex 9.) By judgment dated April 5, 2011, the court (James, J.) directed respondent, among other things, to send a check to petitioner's counsel "within 7 business consisting of all money/property being held by Royal Bank of Canada that belongs to Judgment Debtor Moto Diesel Mexicana." (Id., Ex 10.) According to respondent, a check in the amount of $214,860.06 was sent on April 12, 2011. (Id., Ex 11.)

On May 17, 2011, petitioner commenced this special proceeding against respondent, alleging that respondent failed to abide by the restraining notice served in July 2010. According to petitioner, respondent willfully or negligently allowed Moto to withdraw $921,091.47 from Moto's bank account with RBC during the period of July 19, 2010 to August 4, 2010, in violation of the restraining notice. (Verified Petition ¶ 13.) As of the date of the commencement of this proceeding, petitioner alleges that the unsatisfied balance of petitioner's judgment against Moto was $323,242.72. (Id. ¶ 15.)

Accordingly, pursuant to CPLR 5251, 5222, and 5227, petitioner seeks a judgment against respondent in the unsatisfied balance of the judgment, plus attorneys' fees, and a finding of contempt against respondent with an award of damages and attorneys' fees.

Respondent moves and cross-moves to dismiss the petition. It is undisputed that, at some point after commencement of this proceeding, the underlying judgment was satisfied. Respondent therefore argues that the proceeding should be dismissed as moot and seeks an order compelling petitioner to file a satisfaction piece pursuant to CPLR 5020.

Respondent also argues, among other things, that the restraining notice served upon respondent's branch in Manhattan was not effective to restrain Moto's Toronto bank account, because Moto's bank account at issue was allegedly opened in Canada, maintained in Canada only, and could not be accessed in the United States.1

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I.

"[V]iolation of the restraining notice by the party served is punishable by contempt (CPLR 5222, subd [a]; 5251) and subjects the garnishee to personal liability in a separate plenary action or a special proceeding under CPLR article 52 brought by the aggrieved judgment creditor." (Aspen Indus. v Marine Midland Bank, 52 NY2d 575, 580 [1981].) In contrast, when a money judgment is sought for the violation, rather than contempt, " there is no willfulness requirement for imposition of money damages, [but] there must at least be a showing of negligence in failing to comply with the restraining notice." (Security Trust Co. of Rochester v Magar Homes, , 92 AD2d 714, 714 [4th Dept 1983]; see also Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C5222:10 ["The availability of a simple money action as an alternative to the contempt penalty, and with mere negligence as its permissible predicate, seems to avoid the issue [of determining willfulness]".)

Here, whether respondent violated the restraining notice served upon its branch in Manhattan depends on whether the "separate entity rule" remains good law in light of the Court of Appeals's decision in Koehler v Bank of Bermuda Ltd. (12 NY3d 533 [2009].) To determine Koehler's impact, if any, upon the separate entity rule, the Court must first examine the separate entity rule and the circumstances under which the rule applied pre-Koehler.

A.

It was previously well-settled that "[t]he general rule in New York is that in order to reach a particular bank account the judgment creditor must serve the office of the bank where the account is maintained." (Therm-X-Chemical & Oil Corp. v Extebank, 84 AD2d 787 [1st Dept 1981].) "The theory of these decisions is that for purposes of attachment, among others, each branch of a bank is a separate entity, in no way concerned with accounts maintained by depositors in other branches or at the home office." (Cronan v Schilling, 100 NYS2d 474, 476 [Sup Ct, NY County 1950], affd 282 AD 940 [1st Dept 1953].) "The separate entity rule was historically justified on the basis of both the impracticability of requiring constant transmission of reports on the status of accounts in one branch to all other branches, and on the recognition that any banking operation in a foreign country is necessarily subject to the foreign sovereign's own laws and regulations . . . '" (Healey & Marris, New York Court Determines That Banks Still Have the Protection of the "Separate Entity" Doctrine after Koehler, 128 Banking LJ 668, 669 [2011].) Thus, it was generally understood that, under the separate entity rule, a judgment creditor had to direct service of the order of attachment or restraining notice to the bank branch where the account is maintained for that account to be restrained.

In Digitrex, Inc. v Johnson (491 F Supp 66 [SD NY 1980]), a federal court held that the separate entity rule was no longer valid, given technological advances and improvements in communication and record keeping by banks. The court "h[e]ld that service of the restraining notice in the case at bar on Manufacturers Hanover's main office was sufficient and legally effective" to restrain assets at the particular bank branch where the account was maintained. (Id. at 69.) However, another federal court stated, "New York decisions since Digitrex have determined the validity of the service of restraining notices and subpoenas on a case by case basis in relation to a bank's existing computer operations and the burden imposed by compliance.'" (Limonium Maritime,

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S.A. v Mizushima Marinera, 961 F Supp 600, 607 [SD NY 1997][collecting cases].) Therm-X-Chemical & Oil Corp. v Extebank (84 AD2d 787, supra) limited Digitrex "by requiring that the old rule be followed where the main office of the bank does not have high speed computers with central indexing capabilities to keep track of its depositors' accounts.'" (S & S Machinery Corp. v Manufacturers Hanover Trust Co., 219 AD2d 249, 252 [1st Dept 1996][citation omitted].)Thus, in a practice commentary to CPLR 5222 (b), Professor David D. Siegel stated,

"If the property pursued by the judgment creditor is a bank account maintained by the judgment debtor, the creditor is best off
...

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