S.D.N.Y. Allows Discovery from Correspondent Banks under Section 1782

On December 30, 2024, Judge Ho of the U.S. District Court for the Southern District of New York granted in part a renewed application under Section 1782 seeking evidence for use in proceedings before the High Court of the Hong Kong Special Administrative Region Court of First Instance (the "Hong Kong Proceeding"). In the same opinion, Judge Ho denied the intervenors'--defendants in the Hong Kong Proceeding--motion to vacate the Court's earlier order partially granting an original application.

The opinion attracted our attention because petitioners sought discovery from correspondent banks in order to trace misappropriated funds which were part of certain transactions made by the intervenors. In relation to the original application, the Court allowed discovery as to seven banks, but denied it as to other seven banks (the "Challenged Banks"). The latter are the subject of the renewed petition.

The Court had originally found that it lacks jurisdiction over the Challenged Banks. In the renewed application, petitioner argued that the Court had general jurisdiction over four of the Challenged Banks and, in any event, had specific jurisdiction over all of them.

The Court agreed that it has general jurisdiction over three of the four Challenged Banks, which admitted to maintaining their headquarters in the Southern District of New York. As to the fourth bank, the Court found that petitioner had failed to show that the Court had general jurisdiction because it was a foreign bank with a branch in New York and the petitioner did not present any evidence that this is an exceptional case where the bank's "operations in [this] forum ... [are] so substantial and of such a nature as to render the corporation at home.”

The Court moved on to analyzing petitioner's argument that the Court had personal jurisdiction over the remaining Challenged Banks because the "discovery material sought proximately resulted from the respondent[s'] forum contacts." Under SDNY precedent, from In re del Valle Ruiz, 939 F.3d 520, 530 (2d Cir. 2019), the respondent "purposefully avail[ing] itself of the forum must be the primary or proximate reason that the evidence sought is available at all." The Court found that to be the case as to the banks which cleared U.S. dollar transactions through their New York office and where the intervenors held an account. To the contrary, the Court found that it lacked jurisdiction over the remaining correspondent banks where the only allegations were that "their New York branches serve as correspondent banks for [a bank in China] and because 'major banks in HK use [their branches] in New York as their correspondents for U.S. dollar transfers." Petitioner's general allegations, without identifying any actual transactions where the remaining correspondent banks' branches served as intermediaries, were not sufficient for a finding of specific jurisdiction.

The Court summarized:

Put differently: (1) Applicant identifies no transaction where Wells Fargo and/or Bank of America served as an intermediary in a transaction to or from Industrial and Commercial Bank of China, and (2) while it is true that some banks in Hong Kong use New York branches of Wells Fargo and Bank of America as correspondents for U.S. dollar transfers, Applicant points to no specific alleged transactions where these banks’ New York branches may have served as intermediaries.

The Court also reminded the litigants of other SDNY precedent that should have warned them of their weak basis for specific personal jurisdiction when lacking any evidence that the respondents are the correspondent banks for any banks at which the foreign defendants had accounts. See  In re Litasco SA, 2023 WL 8700957, at *2 (S.D.N.Y. Dec. 15, 2023).

The opinion will serve as a guide for future petitioners in crafting their application and bringing it in a venue with jurisdiction over the correspondent banks.

The case is In re Application of, Golden Meditech Holdings Ltd., No. 24 MISC. 24 (DEH), 2024 WL 5247285 (S.D.N.Y. Dec. 30, 2024). The petitioner was represented by Kellner Herlihy Getty & Friedman, LLP. The intervenors were represented by Quinn Emanuel Urquhart & Sullivan LLP.

SDNY Orders Citibank to Instruct Gabon Subsidiary to Freeze Assets

On September 15, 2023, the Southern District of New York issued an order requiring Citibank, N.A. and Citigroup, Inc. to "unequivocally instruct the managers of Citibank Gabon, S.A. to comply with [a] present order of the Libreville Commercial Court in Gabon, and to preserve the status quo by maintaining the present freeze of the [the Cameroon Oil Transportation Company S.A. ("COTCO") funds until resolution of the COTCO shareholders' disputes, except for amounts necessary for the ordinary course of payment of COTCO's employees, taxes, and its existing subcontractors and suppliers essential to COTCO's operation of the pipeline."

This order was the result of a petition for injunctive relief in aid of arbitration filed by Savannah Midstream Investment Limited ("SMIL") pursuant to Rules 64 and 65 of the Federal Rules of Civil Procedure and Rule 7502(c) of the New York Civil Practice Law and Rules.

SMIL is a significant shareholder of COTCO, who holds over $150,000,000 in assets in Citibank's Gabon "branch." COTCO was established in the late 1990s as a result of a collaboration between the Republic of Cameroon and the Republic of Chad to develop the production capacity of certain oil fields in Southern Chad. After SMIL's ownership changed, Chad purportedly tried to nationalize SMIL's assets in COTCO and tried to oust SMIL from COTCO. According to SMIL, Chad continues to take illegal steps amid a military coup in Gabon to cause a Gabonese court to vacate a protective injunction freezing COTCO’s funds held in accounts at the Gabon branch of Citibank. SMIL initiated arbitration with the ICC International Court of Arbitration, who ordered interim relief against Chad.

Citibank opposed SMIL's request, arguing that the Court cannot direct them to freeze accounts held at Citi Gabon, which it is not a branch, but an entity independent of Citibank, that SMIL failed to name necessary parties such as COTCO and Chad and that, as a matter of comity, the Court should not intervene in the Gabon proceeding. Citibank filed a notice of appeal with the Second Circuit.

The case is Savannah Midstream Investment Limited v. Citibank, N.A. et al., No. 1:23-07771 (S.D.N.Y.). SMIL is represented by Debra Dubritz O'Gorman, Kevin S. Reed, Dennis Hranitzky, and Yehuda Goor of Quinn Emanuel Urquhart & Sullivan, LLP. Citibank and Citigroup are represented by Sharon L. Schneier, Gaurav K. Talwar, and Theodore R. Snyder of Davis Wright Tremaine LLP.

The order can be downloaded below.

Savannah Midstream.pdf

Download PDF • 106KB

Turnover Orders -- an Underutilized (but Effective) Enforcement Tool

Recently, several U.S. jurisdictions have addressed the application and use of turnover statutes in enforcement proceedings. These cases, generally confirming that turnover statutes may be used to force debtors to satisfy judgments using property from outside of the court’s jurisdiction, are cementing the role of turnover statutes in enforcement proceedings. I expect to see more of this underutilized enforcement tool and even a preference for pursuing enforcement in jurisdictions with turnover statutes as U.S. courts push the boundaries (literally and figuratively) of international judgment enforcement.

Before delving deeper into the most important cases from 2022 involving turnover statutes, we should clarify what they are: Turnover statutes generally allow trial courts to request that debtors over whom they have personal jurisdiction use certain assets to satisfy a judgment entered by the court. These statutes do not attach or freeze the assets and do not place a lien on the asset; however, they give the courts the power to sanction the debtor for failing to comply with an order to turn over such assets, potentially increasing the debtor’s liability or even subjecting the debtor to criminal contempt sanctions.

In May 2022, the Florida Supreme Court ruled in Shim et al. v. Buechel et al., No. SC21-249, that Florida’s turnover statute (Fla. Stat. 56.29(6)) gives trial courts the authority to compel the production of foreign assets to satisfy judgments as long as the trial court has personal jurisdiction over the judgment debtor. The case concerned an order compelling the debtor to deliver to the creditor or place in escrow in the Florida court a negotiable instrument located in the Republic of Korea toward satisfying their judgments. The trial court refused to issue such an order because it lacked in rem jurisdiction over the instrument, but was reversed by the intermediate appellate court, which held that, under Section 56.29(6), it needed only in personam jurisdiction over the debtor to issue a turnover order. The debtor challenged the decision, arguing that it conflicted with another intermediate appellate court opinion applying the turnover statute, Sargeant v. AlSaleh, 137 So. 3d 432 (Fla. 4th DCA 2014), which refused–citing public policy grounds–to issue a turnover order related to foreign assets outside of its jurisdiction.

The Florida Supreme Court affirmed the intermediate court’s decision, explaining that the turnover statute "unambiguously provides a trial court broad authority to 'order any property of the judgment debtor ... to be levied upon and applied toward the satisfaction of the judgment debt,'" although limited by the requirement that the trial court have personal jurisdiction over the debtor or a third party in possession of the debtor’s property. The Court explained that these “penalties are imposed against the defendants — not the property” and thus “serve to hold the defendant accountable and prevent the defendant from relocating assets to avoid execution of a judgment." The Court found that the Sargeant court should have not considered public policy in making its decision because the language of the turnover statute was clear and unambiguous.

The Court recognized, however, during oral argument that Florida trial courts cannot do anything directly to the property, but that Section 56.29(6) authorizes them to impose penalties on the debtors should they fail to comply with the turnover order. The Florida Supreme Court further supported their view of the role of contempt sanctions as an enforcement mechanism by pointing to U.S. Supreme Court precedents dating as early as the 1870s. The Buechel opinion explained that the U.S. Supreme Court established in these cases that “a court may ‘decree a conveyance of land situated in another jurisdiction, and even in a foreign country, and enforce the execution of the decree by process against the defendant.’ While a trial court has ‘no inherent power . . . to annul a deed or to establish a title’ for property outside its jurisdiction, the trial court may indirectly do so by compelling the defendant to act on such property pursuant to its in personam jurisdiction.”

The creditors in this case were represented by Vello Veski and Edmond E. Koester from Coleman, Yovanovich & Koester, P.A.; the judgment debtor was represented by John Bogdanoff and Christopher Carlyle from the Carlyle Appellate Law Firm.

A turnover statute has been at the center of a heated enforcement dispute before the District of Colorado and the Tenth Circuit. The case (Nos. 21-1196 and 21-1324 before the Tenth Circuit) involved the confirmation and enforcement of a now-annulled Bolivian arbitration award. Despite the annulment, the District of Colorado confirmed the award and allowed the creditor to proceed with enforcement of the judgment. The creditor filed a turnover motion, asking that the debtors use Mexican assets (including corporate shares and cash in the debtor’s Mexican bank accounts) to satisfy the judgment that was entered. The District of Colorado granted the motion.

In January 2023, the Tenth Circuit affirmed the District of Colorado’s decision. The Tenth Circuit rejected the debtors’ argument that “possession” of the assets (required by the turnover statute) requires actual possession. The Court further cemented its holding in United Int’l Holdings, Inc. v. Wharf (Holdings) Ltd., 210 F.3d 1207, 1237 (10th Cir. 2000), aff’d, 532 U.S. 588 (2001), that when the district court had personal jurisdiction over the judgment debtor, the location of the debtor’s assets was irrelevant. The Tenth Circuit further rejected the debtors’ argument that the turnover order violates the presumption against extraterritoriality, holding that the turnover of assets does not involve regulating conduct that takes place abroad. Finally, the Tenth Circuit rejected the debtors’ argument that the turnover order violates international comity, finding no true conflict between the turnover order and Mexican law, including an ex parte injunction by a Mexican court barring the debtors from turning over the assets targeted by the turnover order. The parties have recently settled.

Although not addressed by the parties or the court, a very interesting fact about this case is that the Colorado court obtained personal jurisdiction over the debtors solely by serving the summons under Federal Rule of Civil Procedure 4(k)(2). This means that the creditor–and the Court–have recognized that Colorado courts lacked personal jurisdiction over the debtors. Nevertheless the Court found sufficient contacts throughout the United States to support the federal claim for confirmation of the Bolivian award. Through Federal Rule of Civil Proceeding 69, which allows the application of state law for the execution of judgments, the foreign debtors–and their foreign assets–became subject to Colorado’s turnover statute.

Although courts often make clear that the turnover statutes do not attach assets, but order the debtor within the court’s personal jurisdiction to provide them, this case highlights the need for additional discussion regarding the way these statutes interact with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. If the Mexican courts would refuse to confirm the annulled Bolivian arbitration award (and even if they would have confirmed the award–they would presumably refuse to allow execution on the specific assets sought by the creditor here), is the use of turnover orders to reach the debtors’ Mexican assets in the spirit of the Convention?

The creditor in this case is represented by Christopher T. Groen with Fox Rotschild, Gabriel Hertzberg and Eliot Lauer with Katten Muchin Rosenman, and Juan Otoniel Perla and Sylvi Sareva with Curtis Mallet; the debtors in this case are represented by David Cooper, Alexander Loomis, and Juan Morillo of Quinn Emanuel Urquhart & Sullivan LLP and Daniel Pulecio Boek of Greenberg Traurig LLP.

Several other states have turnover statutes, including Texas (Texas Civil Practice and Remedies Code section 31.002; see DiAthegen, LLC v. Phyton Biotech, Inc., No. A-12-CV-1146-LY, 2013 WL 12116146, at *2 (W.D. Tex. Sept. 11, 2013) (“Assets of a judgment debtor that are located in whole or in part outside of the state of Texas, including property in foreign countries, are properly subject to turnover.”)) and New York (CPLR 5225; see Gryphon Domestic VI, LLC v. APP Int'l Fin. Co., B.V., 41 A.D.3d 25, 31, 836 N.Y.S.2d 4, 9 (2007) (“Clearly, it would violate the sovereignty of another state if a New York sheriff tried to attach property in another state. However, a turnover order merely directs a defendant, over whom the New York court has jurisdiction, to bring its own property into New York.”)).