Can a creditor collect on a judgment against a bank by reaching assets held by a subsidiary of the bank? Answer: No.
In Commonwealth of the Northern Mariana Islands v. Canadian Imperial Bank of Commerce, 21 NY3d 55 (2013), the Court of Appeals addressed questions certified from the Second Circuit “as to whether a judgment creditor can obtain a CPLR article 52 turnover order against a bank to garnish assets held by the bank’s foreign subsidiary.” Id. at 57. The Court of Appeals held that “for a Court to issue a post-judgment turnover order pursuant to CPLR 5225(b) against a banking entity, that entity itself must have actual, not merely constructive, possession or custody of the assets sought [and] it is not enough that the banking entity’s subsidiary might have possession or custody of a judgment debtor’s assets”. Id. at 57-58.
In 1994 the Commonwealth obtained tax judgments in the amount of more than $18 million against William and Patricia Millard. In 2011, the Commonwealth registered the tax judgments in the Southern District of New York and commenced proceedings seeking a turnover order against garnishees holding assets of the Millards. The Commonwealth sought a turnover against Canadian Imperial Bank of Commerce, “a Canadian bank headquartered in Toronto, with a branch in New York, as a garnishee under the theory that the Millards maintained accounts in [subsidiaries of the bank]”, including a ninety-two percent owned Cayman Island direct subsidiary of the bank. Id. at 58.
CPLR § 5225(b) authorizes a special proceeding for a turnover order to enforce a judgment against an asset of a judgment debtor in the “possession or custody” of a third party. “The Commonwealth contend[ed] that the phrase ‘possession or custody’ inherently encompasse[d] the concept of control, and, therefore, section 5225(b) [was] applicable to garnishees with constructive possession of a judgment debtor’s assets. Id. at 60. The Court of Appeals noted that: “the plain language of section 5225(b) refers only to ‘possession or custody,’ excluding any reference to ‘control’ [and] [t]he absence of this word is meaningful and intentional [in that] the failure of the Legislature to include a term in a statute is a significant indication that its exclusion was intended[.]”. Id.
In this regard, the Court of Appeals noted that, unlike CPLR Section 5225(b), CPLR § 3119 provides that a subpoena may be issued to a person “in the possession, custody or control” of discoverable documents. Id. at 62. In conclusion, the Court of Appeals held that “because ‘possession, custody or control’ has been construed to encompass constructive possession, then, by contrast, legislative use of the phrase ‘possession or custody’ contemplates actual possession.” Id. at 63.