Commercial Division Blog

Posted: August 19, 2014 / Categories Commercial, Discovery/Disclosure, Judgment and Collection

Judgment Creditor’s Attempt to Compel Turnover of Israeli Bank Account Denied due to Lack of Jurisdiction, 'Separate Entity' Rule

On August 4, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Gliklad v. Bank Hapoalim B.M., 2014 NY Slip Op. 32117(U), dismissing a petition to compel an Israeli bank to answer a subpoena and turn over funds.

In April 2014, the plaintiff, Gliklad, got a $505 million judgment on a promissory note and served a subpoena and restraining notice on the New York branch of Bank Hapoalim, where the judgment creditor apparently had an account. The Bank refused to produce any documents or restrain any funds not located at the New York branch, but documents produced from the New York branch revealed that, in 2012, the judgment debtor wired funds from Cyprus, through the New York branch, to the Bank's branch in Tel Aviv. The plaintiff applied to the court for an order requiring the Bank to produce all responsive documents, wherever located, and to turn over all of the judgment creditor's funds at the Tel Aviv branch.

The plaintiff, relying on the general rule that "a New York court with personal jurisdiction over a defendant may order him to turn over out-of-state property regardless of whether the defendant is a judgment debtor or a garnishee," argued that the court had both general and specific jurisdiction over the Bank as garnishee. Justice Schweitzer rejected both arguments.

First, the court held that there was no general jurisdiction over the Bank, which was both incorporated and headquartered in Israel, under U.S. Supreme Court precedent holding that "general jurisdiction is available only where the corporation is 'fairly regarded as at home.'" The court rejected the plaintiff's claim that general jurisdiction existed because the New York branch was the Bank's "center of operations" in the United States, holding that the "center of operations" label was not meaningful, and that there was insufficient evidence of continuous and systematic activity in New York. The court also rejected the plaintiff's claim that NY Banking Law § 200, appointing the Superintendent of Banks as the Bank's agent for service of process and consenting to the jurisdiction of the New York courts, created general jurisdiction by consent, instead holding that NYBL § 200 only creates specific jurisdiction.

Next, the court held that specific jurisdiction could not be based upon the 2012 transfers through the New York branch:

Both of these transfers took place in late 2012, over a year and a half before judgment was handed down in the underlying controversy . . . . To find a bank subject to specific jurisdiction based solely on its permitting one of its customers to take advantage of a regularly available banking service would permit the extension of jurisdiction to a degree that would most certainly violate notions of 'fair play and substantial justice.' Without any suggestion that [the judgment debtor] initiated these transfers for the specific intent of depriving [the plaintiff of payment] on the promissory note, there is no basis for establishing specific jurisdiction over Bank Hapoalim. (Quoting International Shoe.)

Finally, Justice Schweitzer ruled that the plaintiff's service of process was inadequate under the "separate entity" rule. "It has long been the rule of New York that each branch of a bank is to be regarded as a separate entity in no way concerned with accounts maintained by depositors in other branches or at the home office." Rejecting the plaintiff's argument that the "separate entity" rule had been abrogated, the court found that service on the New York branch was insufficient to reach the Tel Aviv branch.

This case reveals the still-significant obstacles faced by judgment creditors seeking to recover assets held in banks overseas.