Koehler v. Bank of Bermuda Ltd.

• Decision Date: 23 September 2008
• Docket Number: Docket No. 05-2378-cv.
• Citation: 544 F.3d 78
• Parties: Lee N. KOEHLER, Petitioner-Appellant, v. The BANK OF BERMUDA LIMITED, Respondent-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

544 F.3d 78

Lee N. KOEHLER, Petitioner-Appellant, v. The BANK OF BERMUDA LIMITED, Respondent-Appellee.

Docket No. 05-2378-cv.

United States Court of Appeals, Second Circuit.

Argued: February 29, 2008.

Decided: September 23, 2008.

Brian G. West, Towson, MD (Paul F. Newhouse, on the brief) for Petitioner-Appellant.

Daniel B. Rapport, Friedman Kaplan Seiler & Adelman LLP, New York, N.Y.

(Robert J. Lack, Vanessa Richards, on the brief) for Respondent-Appellee.

Before: CABRANES, POOLER, and KATZMANN, Circuit Judges.

POOLER, Circuit Judge:

Lee N. Koehler appeals from two orders of the United States District Court for the Southern District of New York (Charles S. Haight, Jr., Judge), a March 9, 2005 memorandum opinion and order and an August 10, 2005 memorandum opinion and order, insofar as those orders vacated an October 29, 1993 order for payment or delivery of property of the judgment debtor, held that Koehler could not reach an accommodation with the judgment debtor and continue to pursue his action against The Bank of Bermuda Limited ("BBL"), and denied reconsideration of those issues. The district court concluded that Koehler's July 2004 settlement agreement had extinguished his claims against BBL, and that in any event, the district court lacked in rem jurisdiction over stock certificates held in Bermuda.

We hold that the district court erred in concluding that the settlement agreement extinguished Koehler's action against the bank. Whether the district court nevertheless correctly denied Koehler's petition for a writ of execution, on the ground that it lacked in rem jurisdiction, depends on whether a court in New York may, pursuant to N.Y. C.P.L.R. 5225(b) or N.Y. C.P.L.R. 5227, 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 N.Y. C.P.L.R. Article 52, when those stock certificates are located outside New York. Because this question has not been directly addressed by the New York State Court of Appeals and is controlling in the disposition of Koehler's petition, we certify the question to the New York State Court of Appeals. We retain jurisdiction over the case and will decide the appeal after we have learned the views of the New York State Court of Appeals or that court declines certification.

BACKGROUND

On June 4, 1993, the United States District Court for the District of Maryland awarded Koehler a $2,096,343 default judgment against A. David Dodwell.¹ Koehler registered the judgment in the United States District Court for the Southern District of New York on July 23, 1993, pursuant to 28 U.S.C. § 1963. Dodwell, a resident of Bermuda, owned stock in a Bermuda corporation, The Reefs Beach Club Limited ("The Reefs"). It is undisputed that the stock certificates representing Dodwell's shares in The Reefs were always located in Bermuda. On the understanding that BBL possessed the certificates, which Dodwell had initially pledged to BBL as collateral for a loan, Koehler began garnishment proceedings against BBL.

On July 26, 1993 and August 10, 1993, Koehler served, on a New York subsidiary of BBL, a writ of execution, under N.Y. C.P.L.R. 5232(a), and a restraining notice, which cited Fed.R.Civ.P. 69(a) and N.Y. C.P.L.R. 5222(b). On October 27, 1993, Koehler filed a "motion for payment or delivery of property of judgment debtor." In that petition, Koehler claimed that if the stock certificates no longer represented security for BBL's loan to Dodwell, then either they were capable of delivery by BBL under N.Y. C.P.L.R. 5225 or they represented a debt to Dodwell and their value should be paid by BBL to Koehler under N.Y. C.P.L.R. 5227. On October 29, 1993, the United States District Court for the Southern District of New York (Robert J. Ward, Judge) signed, ex parte, an order to show cause why BBL should not be ordered to deliver property or pay over a debt owed to Dodwell and an "order for payment or delivery of property of the judgment debtor," which required BBL to deliver to Koehler any stock certificates owned by Dodwell or to pay to Koehler any debt owed to Dodwell, up to the sum of $2,096,343.²

BBL then challenged the district court's personal jurisdiction over it, an issue that the parties proceeded to litigate for the next ten years. See, e.g., Koehler v. Bank of Bermuda, Ltd., No. M18-302, 1994 U.S. Dist. LEXIS 1540, 1994 WL 48825 (S.D.N.Y. Feb.16, 1994); Koehler v. Bank of Bermuda, Ltd., No. M18-302 (CSH), 1995 U.S. Dist. LEXIS 18223, 1995 WL 728467 (S.D.N.Y. Dec.8, 1995); Koehler v. Bank of Bermuda, Ltd., 101 F.3d 863 (2d Cir.1996); Koehler v. Bank of Bermuda, Ltd., No. M18-302, 1997 WL 370791 (S.D.N.Y. July 2, 1997); Koehler v. Bank of Bermuda, Ltd., No. M18-302, 2003 U.S. Dist. LEXIS 1946, 2003 WL 289640 (S.D.N.Y. Feb.11, 2003). Magistrate Judge Michael H. Dolinger found that BBL, "whether through deliberate decision or extreme indifference to its obligations, failed to comply over an extended period of time both with its discovery obligations and with specific rulings of [the district] court." Koehler, 2003 U.S. Dist. LEXIS 1946, at *20-21, 2003 WL 289640 at *7. Eventually, in October 2003, BBL consented to the personal jurisdiction of the Southern District of New York over it, as of the commencement of the proceeding ten years earlier.

In March 2004, the district court ordered BBL to file an affidavit concerning the present location, ownership, and disposition of the shares in The Reefs owned by Dodwell at the time Koehler commenced his action. Koehler v. Bank of Bermuda, Ltd., No. M18-302 (CSH), 2004 U.S. Dist. LEXIS 3772, at *64, 2004 WL 444101, at *21 (S.D.N.Y. Mar.10, 2004). In April 2004, BBL informed Koehler and the court that it was no longer in possession of Dodwell's stock certificates. The obligations for which BBL had held the certificates as collateral had been satisfied in 1993 and BBL (ignoring Judge Ward's turnover order) had transferred the stock to a Bermudan company that existed for Dodwell's benefit in July 1994.

In the meantime, however, Koehler initiated garnishment proceedings against The Reefs and a British West Indies corporation, Windward Properties Limited ("Windward"), in which Dodwell owned stock, in the United States District Court for the District of Maryland. Koehler had also asserted separate claims against Dodwell and The Reefs in state court — the Circuit Court for Baltimore County, Maryland. In July 2004, in the course of the District of Maryland proceedings, Koehler entered into a settlement with Windward, Dodwell, and The Reefs. Koehler agreed to be paid $475,000, of which he asserts that $75,000 was to be credited to the default judgment, and $400,000 to his claims against The Reefs and Dodwell in the action pending in Maryland state court. In return, he agreed not to sue Dodwell for enforcement of the default judgment. The parties signed the settlement agreement on July 12, 2004, followed by an addendum and a general release on July 13, 2004.

In March 2005, the United States District Court for the Southern District of New York (Charles S. Haight, Jr., Judge), denied Koehler's petition for writ of execution and his request to amend the petition to include claims of negligence, fraudulent conveyance, fraudulent concealment, and negligent misrepresentation, and dismissed his proceedings with prejudice. Koehler v. Bank of Bermuda, Ltd., No. M18-302 (CSH), 2005 U.S. Dist. LEXIS 3760, 2005 WL 551115 (S.D.N.Y. March 9, 2005). The district court concluded "that the settlement between Koehler and Dodwell discharges any rights Koehler may have had to pursue claims against BBL," 2005 U.S. Dist. LEXIS 3760, at *20, 2005 WL 551115, at *7, and that in any event it had "no in rem jurisdiction over Dodwell's share certificates, which underlies Koehler's remaining claims against BBL," 2005 U.S. Dist. LEXIS 3760, at *21, 2005 WL 551115, at *7. The district court subsequently denied Koehler's motion for reconsideration. Koehler v. Bank of Bermuda, Ltd., No. M18-302 (CSH), 2005 U.S. Dist. LEXIS 16521, 2005 WL 1924746 (S.D.N.Y. Aug.10, 2005). Koehler appeals both orders.

The orders under appeal effectively vacated the October 29, 1993 turnover order. Because an order requiring securities to be brought into New York from another state or country is treated as an injunction, In re Feit & Drexler, Inc., 760 F.2d 406, 412 (2d Cir.1985), Inter-Regional Financial Group, Inc. v. Hashemi, 562 F.2d 152, 154 (2d Cir.1977), the orders under appeal are reviewable as "interlocutory orders ... dissolving [an] injunction[]," 28 U.S.C. § 1292(a)(1).

We hold that the district court erred in ruling that the Maryland settlement extinguished Koehler's action against BBL, and we certify the question of its in rem jurisdiction to the New York State Court of Appeals.

DISCUSSION

I. THE SETTLEMENT

On July 12, 2004, attorneys for Koehler, Dodwell, The Reefs, and Windward signed a settlement agreement. Koehler agreed to be paid $475,000. In return, he released the other parties to the agreement from claims and proceedings.

Paragraph 1.A of the Settlement Agreement specified that the "Releasors" are "Koehler and his heirs, personal representatives, and assigns," and that the "Releasees" are "Dodwell, Reefs, Windward, IRR³, and their respective employees, directors, officers, representatives, agents, successors, subsidiaries, affiliates, and attorneys." The same paragraph provides that "`Releasees' shall not include the BOB Group...." An addendum to the Settlement Agreement, signed the following day, makes it clear that "BOB" refers to the Bank of Bermuda Group, which "is defined to mean The Bank of Bermuda Limited, its officers, directors, attorneys, accountants, successors, assigns, affiliates, and/or amalgamation partners."

Paragraph 2 of the Settlement Agreement required Koehler as the Releasor to give "[r]elease of and from any and all claims, actions,...