Source: https://www.skadden.com/insights/publications/2015/01/recent-cases-are-likely-to-reduce-the-use-of-new-y
Timestamp: 2019-04-24 14:38:38+00:00

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New York's position as a global financial center means litigants often have sought to use New York courts as a forum to enforce judgments or arbitration awards against foreign entities. In reality, the burden of enforcement proceedings often falls on third parties, such as financial institutions that hold (or are alleged to hold) the judgment debtor's assets. Typically, enforcement proceedings involve the issuance of subpoenas and/or freezing orders against banks with branches in New York, with the judgment creditor attempting to identify, freeze and ultimately obtain assets or accounts held by these banks. The proceedings (known as "turnover" actions) have raised the issue of whether a New York court can attach, or order banks to turn over, assets or bank accounts located outside the United States. However, decisions in 2014 by both the New York Court of Appeals and the U.S. Supreme Court are likely to affect a judgment creditor's ability to use the New York courts for turnover proceedings in the future.
These cases left open the viability of the "separate entity rule," a common law doctrine that treats individual branches of a bank as legal entities separate from the bank headquarters and other bank branches for enforcement purposes (such that, for example, a foreign bank that has branches in New York would not be obligated to turn over assets or accounts located in its Buenos Aires branch). In Motorola Credit Corp. v. Standard Chartered Bank, the Court of Appeals finally addressed the separate entity rule for the first time — and affirmed it.
The Motorola/SCB case began in the U.S. District Court for the Southern District of New York (SDNY), where Motorola Solutions Credit sought to enforce judgments against a group of Turkish individuals and companies (the Uzans) totaling approximately $3.1 billion.6 After the Uzans failed to satisfy the judgments, Motorola attempted to aid its collection efforts by obtaining third-party discovery and a restraining order against property of the Uzans, which Motorola served on the New York branch of Standard Chartered Bank (SCB). SCB was not a party to the underlying litigation, nor did it possess any property of the Uzans in its New York branch. However, its United Arab Emirates (U.A.E.) branch held about $30 million of assets in the name of an entity that was allegedly a "proxy" for the Uzans. Upon receiving the freezing order, SCB froze the accounts. Apparently in response, the U.A.E. Central Bank debited approximately $30 million from SCB's account, and the Central Bank of Jordan seized documents at SCB's Jordan branch based on SCB's obligations under local laws to remit the funds to the entity alleged to be the Uzans' proxy.
Not surprisingly, given that personal jurisdiction is the "linchpin of authority" under the New York turnover statute, the Supreme Court's 2014 decision in Daimler AG v. Bauman,10 in which the court redefined what it means for an entity to be "at home" for purposes of general jurisdiction, impacts the enforcement of judgments. Under Daimler, a defendant is "at home" in the state where it is incorporated and in the state where it maintains its principal place of business, and perhaps nowhere else.11 Two cases recently decided by the Court of Appeals for the Second Circuit, Sonera Holding B.V. v. Çukurova Holding A.Ş.12 and Gucci America, Inc. v. Li,13 illustrate the ramifications of Daimler for judgment enforcement.
Reversing in light of Daimler, the Second Circuit noted that "only a limited set of affiliations with a forum will render a defendant amenable to all-purpose jurisdiction there."15 Sonera had sought to assert "general" personal jurisdiction over Çukurova based on a series of alleged contacts with New York, including that (1) two different affiliates of Çukurova used an office in New York, and (2) statements on the website of one of those affiliates noted that it had been "[f]ounded in New York City in 1979" and was Çukurova's "gateway to the Americas."16 The Second Circuit, however, concluded that after Daimler, "even a company's 'engage[ment] in a substantial, continuous, and systematic course of business' is alone insufficient to render it at home in a forum."17 Under that test, Çukurova had insufficient contacts with New York and, therefore, exercising general jurisdiction over Çukurova violated the due process clause of the U.S. Constitution.
In Li, the Second Circuit held that a nonparty bank, Bank of China (BoC), was not subject to general jurisdiction in New York and vacated the district court's order of contempt and fines when BoC refused to produce documents that it was prohibited from disclosing under the law of its home country.18 The plaintiffs in the case — Gucci and other makers of luxury goods — sued defendants for trademark infringement. The plaintiffs moved for and obtained a temporary restraining order along with their complaint, which was later converted into a preliminary injunction. The injunction expressly applied to banks in possession of the defendants' assets — including BoC. The plaintiffs served BoC's New York branch with a subpoena requesting all documents concerning the defendants' accounts. BoC produced responsive documents from its New York branch but refused to produce documents from its Chinese branches, arguing that disclosure would violate Chinese bank secrecy laws and would subject it to sanctions in China. The district court held BoC in contempt, ordering it to pay an initial fine of $75,000 and $10,000 for each additional day of noncompliance, as well as attorneys' fees and costs.
The Daimler, Sonera and Li cases illustrate a trend against allowing U.S. courts to assert personal jurisdiction over foreign entities, particularly when the entity is a bank and the plaintiff is seeking to attach assets of that bank to satisfy a foreign judgment. This trend, combined with the reaffirmation of the separate entity rule by the Court of Appeals in Motorola, is likely to reduce the ability of creditors to use New York as a forum for judgment enforcement against foreign entities.
1 24 N.Y.3d 149 (2014) [Motorola/SCB].
2 12 N.Y.3d 533 (2009).
3 21 N.Y.3d 55 (2013).
6 See Motorola Credit Corp. v. Uzan, 274 F. Supp. 2d 481 (S.D.N.Y. 2003), aff’d in part, vacated in part, 388 F.3d 39 (2d Cir. 2004); Motorola Credit Corp. v. Uzan, 413 F. Supp. 2d 346 (S.D.N.Y. 2006), aff'd, 509 F.3d 74 (2d Cir. 2007).
7 Tire Eng'g & Distribution L.L.C. v. Bank of China Ltd., 740 F.3d 108, 117-8 (2d Cir. 2014) (certifying question for Motorola/SCB and a related question in a companion case); Motorola/SCB, 23 N.Y.3d at 158.
8 Motorola/SCB, 24 N.Y.3d at 162 (citation omitted) (internal quotation marks omitted).
9 See id. at *162-64.
10 134 S. Ct. 746 (2014).
11 The Court acknowledged "the possibility that in an exceptional case … a corporation's operations in a forum other than its formal place of incorporation or principal place of business may be so substantial and of such a nature as to render the corporation at home in that State." Id. at 761 n.19 (citations omitted).
12 750 F.3d 221 (2d Cir. 2014) (per curiam), cert. denied, 134 S. Ct. 2888 (2014).
13 768 F.3d 122 (2d Cir. 2014).
14 Sonera Holding B.V. v.Çukurova Holding A.Ş., 895 F. Supp. 2d 513 (S.D.N.Y. 2012).
15 Sonera, 750 F.3d at 225 (quoting Daimler, 134 S. Ct. at 760). Although the Second Circuit found it unnecessary to determine the scope of general jurisdiction under New York law, the court noted "some tension between Daimler's 'at home' requirement and New York's 'doing business' test for corporate 'presence.'" Id. at 224 n.2. In light of "Daimler's gloss on due process," "[n]ot every company that regularly 'does business' in New York is 'at home' there." Id.
16 Id. at 223-24, 226.
17 Id. at 226 (quoting Daimler, 134 S. Ct. at 761).
18 Gucci Am., Inc. v. Li, 768 F.3d 122, 125-26, 145 (2d Cir. 2014). See also Tiffany (NJ) LLC v. China Merchs. Bank, Nos. 12-2317-cv, 12-2349-cv, 2014 WL 4627662 (2d Cir. Sept. 17, 2014) (companion case to Li, incorporating the Li analysis in a summary order).
19 Li, 768 F.3d at 135.
20 Id. (quoting Daimler, 134 S. Ct. at 761 & n.19 (alteration in original)). The Second Circuit also vacated the injunction and denial of the bank's motion on the independent ground that the district court failed to conduct a proper comity analysis. Id. at 138-140; id. at 139 n. 20 (quoting RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW § 403(1) (1987)).
21 Li, 768 F.3d at 144.

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