Can you use a judgment to restrain a bank account or other assets maintained by a judgment debtor outside of New York state? When it comes to out-of-state debtors, restraining a bank account is possible, but depends on certain factors.
Consider the following situation. A New York creditor files suit in New York against a California debtor. The debtor is properly served with the complaint in California and fails to answer the complaint. The creditor then obtains a judgment against that debtor. The creditor wants to execute the New York judgment but the debtor’s bank account originates in California. Can the creditor restrain the debtor’s assets outside of New York?
The answer depends on certain factors. New York courts rely on the “separate entity rule,” under which different branches of a bank are considered separate and distinct from one another. According to New York’s courts, a restraining notice served on a bank in New York does not extend to the same bank’s branch in California. The bank’s California branch must be served with the information subpoena and restraining notice in order to be valid. That is to say that the judgment creditor acting to enforce the New York judgment can go ahead and serve the information subpoena with restraining notice.
Obtaining Funds From Out-of-State Bank Accounts
In order for a judgment creditor to actually obtain the funds from the debtor’s bank account in California, the court must have personal jurisdiction over the garnishee bank. This is possible with large banks that have branches in both New York and California since the bank has already availed itself to New York’s jurisdiction. Additionally, New York has the authority to order the holder of a judgment debtor’s asset to turn over property of the judgment debtor held outside the state if the court has personal jurisdiction over a judgment debtor.
The process is as follows: The judgment creditor serves an information subpoena on the bank’s branch in California where the account is held and the bank, in turn, places a hold on the account for up to twice the judgment amount.
Normally, if the account held was a New York bank account, the creditor’s attorney would send either a sheriff or marshal to execute on the restrained funds. However, since the account in this fact pattern is located outside New York, the New York civil rules require a turnover proceeding.
A turnover proceeding is a post-judgment special proceeding in which the judgment creditor petitions the court for an order that forces a third-party garnishee in possession of property belonging to the judgment debtor to turn the property over to the judgment creditor. Even though the branch is out of New York, the branch would be subject to the order of the New York court because the bank was already subject to the jurisdiction of the New York court.
However, if the bank is located in California and does not have a branch in New York state, the judgment would need to be domesticated in California in order to assert jurisdiction over the bank account.
It is also important to note where actual assets are being both possessed and controlled. New York’s highest court has held that if a New York judgment debtor has brokerage assets with a subsidiary foreign corporation that has a New York branch, but the actual assets are being possessed and controlled by its parent company located in another jurisdiction, then the then fact that the holder of the assets controls the subsidiary was not sufficient to “compel another entity, which is not subject to this state’s personal jurisdiction, to deliver assets held in a foreign jurisdiction.”
If you are looking to collect a debt from an out-of-state debtor, contact us to learn more about your options.
