JPMorgan Chase Bank, N.A., Respondent, v Motorola, Inc., Appellant.
Supreme Court, Appellate Division, First Department, New York
November 29, 2007
846 N.Y.S.2d 171
Kirkland & Ellis, LLP, Chicago, Illinois (Nader R. Boulos of the Illinois bar admitted pro hac vice of counsel), and Kirkland & Ellis, LLP, New York City (Matthew O. Solum of counsel), for appellant.
Foley & Lardner, LLP, New York City (Robert A. Scher, Jeremy L. Wallison and Yonaton Aronoff of counsel), for respondent.
OPINION OF THE COURT
Friedman, J.
Petitioner-respondent JPMorgan Chase Bank, N.A. (Chase) holds a default judgment against Iridium India Telecom Ltd. (IITL), an Indian company without assets in the United States. In an effort to collect on its judgment against IITL, Chase commenced this special proceeding under
The dispositive question on this appeal is whether the judgment of garnishment under review (assuming that it was otherwise proper under
FACTS
Chase‘s Default Judgment Against IITL
Chase is the collateral agent for a consortium of lenders that extended an $800 million syndicated loan to a subsidiary of Iridium LLC, a Delaware limited liability company that owned and operated a satellite system for the support of telephone
When the loan went into default in 1999, Chase, exercising its rights under Iridium LLC‘s pledge, demanded that the members of Iridium LLC, including IITL, pay Chase their respective reserve capital call obligations. In 2000, Chase commenced an action to enforce its unsatisfied demand against the members of Iridium LLC in the United States District Court for the District of Delaware pursuant to contractual provisions in which the parties consented to the jurisdiction of that court. IITL never appeared in the Delaware action. Based on IITL‘s failure to appear, the Delaware federal court entered a default judgment in Chase‘s favor against IITL in the amount of $10,872,999.05, with 6.241% interest from November 14, 2000, the date of entry.
Chase represents that, to date, it has been unable to collect “even a cent” of its default judgment against IITL. IITL apparently maintains no assets in the United States, and Chase‘s efforts to enforce the judgment in India have met with no success.
IITL‘s Action Against Motorola in India
In September 2002, IITL filed an action for fraud against Motorola in the High Court of Judicature at Bombay, India. In the Indian action, IITL seeks damages in excess of $200 million based on allegations that Motorola (which, like IITL, is a member of Iridium LLC) fraudulently induced IITL to invest in Iridium LLC and to build infrastructure for a telephone network to be supported by Iridium LLC‘s satellite system. Motorola denies these allegations and is defending the Indian action, which remains pending.
The Instant Proceeding
In 2005, Chase domesticated its Delaware default judgment against IITL in New York, thereby rendering the judgment enforceable in this state.1 Thereafter, invoking the authority of
Motorola in Supreme Court, New York County. Chase‘s petition seeks to garnish so much of any debt Motorola may incur to IITL as a result of the Indian action, “by judgment or otherwise,” as equals the amount of Chase‘s default judgment against IITL. As required by
Motorola, while taking no position on the validity of Chase‘s default judgment against IITL, argued, inter alia, that, in view of the risk of double liability, the petition should be denied, or, if not denied outright, granted in a form conditioning Motorola‘s obligation to pay Chase on a determination in the Indian action that such payment would reduce Motorola‘s liability to IITL. Motorola contended that a New York judgment garnishing Motorola‘s possible liability to IITL will not be recognized in India and therefore will subject Motorola to double liability in the event IITL prevails in the Indian action. In support of this argument, Motorola submitted an expert opinion on Indian law by Hon. S. P. Bharucha, a former Chief Justice of India. According to Justice Bharucha, under Indian law, “[a] foreign judgment that has not been given on the merits of a case is not res judicata and will not be enforced by suit in the courts in India.” Further, the Indian courts do not consider a foreign default judgment to have been rendered “on the merits.” From these premises, Justice Bharucha concluded that the Indian courts will not enforce either Chase‘s default judgment against IITL or any order of garnishment based on that default judgment that might issue in this proceeding. Justice Bharucha opined:
“In-as-much [sic] as efforts to enforce the default judgment in India have failed, and the default judgment is, in fact, incapable of such enforcement, the High Court at Bombay would not recognize as a garnishee order the direction [of the New York court] that Chase proposes to obtain in the said petition. The High Court at Bombay would, therefore, not give credit to [Motorola] in the suit filed against [Motorola] by IITL for any payment that [Motorola] may have to make to Chase pursuant to such direction [of the New York court]. Consequently, [Motorola] would become liable to pay the amount
covered by the direction twice over, once pursuant to the direction [of the New York court] and again pursuant to the decree in the suit in the High Court at Bombay.”
Without seeking leave to intervene in the proceeding as provided by
In reply, Chase argued that
After the submission of Chase‘s reply papers, Motorola submitted a “supplemental” affidavit by an attorney representing it in this proceeding. The “supplemental” affidavit stated
After hearing oral argument, Supreme Court rendered a written decision, dated August 4, 2005, directing the parties to settle a judgment that, while granting the petition, would direct IITL
“to execute and deliver to Motorola a writing stating that in the event that Motorola shall become obligated, by judgment or otherwise, to pay [IITL] as a result of the Indian litigation, the amount of such payment shall be reduced by the amount of the default judgment, which amount Motorola will pay directly to Chase, unless said agreement is determined to be void by the India court” (2005 NY Slip Op 30140[U], *4 [emphasis added]).
This was an adoption, in substance, of Chase‘s proposal that IITL be directed to deliver a writing to Motorola, with the italicized phrase apparently added by the court to avoid requir-
In the proceedings to settle judgment, Chase submitted a form of judgment that essentially tracked the language of the court‘s decision. Motorola opposed settlement of judgment in this form, again noting that it will not be protected from the risk of double liability unless its obligation to pay Chase is conditioned on a determination by the Indian court that such a payment will be deemed, under Indian law, to reduce Motorola‘s liability, if any, to IITL. Accordingly, Motorola submitted a counter judgment containing a proviso that Motorola would have no obligation to make a payment to Chase “[u]nless and until the Bombay High Court in the Winding-Up Proceeding enters a final judgment holding that the writing to be executed and delivered by [IITL] to Motorola . . . is valid and enforceable under Indian law.”
Notwithstanding Supreme Court‘s decision to grant the petition, IITL submitted a form of judgment under which the petition would be denied. In support of its proposed judgment, IITL showed that, within a month of Supreme Court‘s decision in this proceeding, an Indian court known as the Debt Recovery Tribunal at Mumbai had specifically restrained IITL, on an interim basis, “from executing any undertaking/agreement in writing as ordered” by Supreme Court‘s decision, pending determination of a secured creditor‘s application for a permanent injunction against the same conduct. IITL also submitted an opinion by its Indian counsel to the effect that, under Indian law, IITL‘s execution and delivery of the writing contemplated by Supreme Court‘s decision would constitute a contempt of the Bombay High Court‘s aforementioned January 2003 order prohibiting IITL from creating new encumbrances of its assets. The Indian attorney further opined that IITL‘s execution and delivery of such a writing would violate the terms of a 1998 loan agreement, under which IITL granted a security interest in all of its assets to the State Bank of India.
Supreme Court signed the form of judgment proposed by Chase. The following are the operative provisions of the court‘s judgment, entered October 11, 2005:
“I. In the event Motorola shall become indebted, by judgment or otherwise, to [IITL] as a result of [the Indian action], Motorola shall pay to Chase an amount up to $10,872,999.05, plus interest at 6.241% per annum, calculated from November 14,
2000 to present, plus fees and expenses Chase incurred in enforcing the [default] Judgment; and “II. In conjunction with the granting of the Petition, [IITL] is directed to execute and deliver to Motorola a writing stating that, in the event that Motorola shall become obligated, by judgment or otherwise, to pay [IITL] as a result of [the Indian action], the amount of such payment shall be reduced by an amount up to $10,872,999.05, plus interest at 6.241% per annum, calculated from November 14, 2000 to present, plus fees and expenses Chase incurred in enforcing the [default] Judgment, which amount Motorola will pay directly to Chase, unless said agreement is determined to be void by the India Court” (2005 NY Slip Op 30145[U], *2).
ANALYSIS
On appeal, Motorola‘s primary argument is that the judgment garnishing the potential liability it may incur to IITL as a result of the Indian action improperly subjects it to a high risk of double liability. Given the unrebutted evidence that the Indian court is unlikely to deem Motorola‘s liability to IITL to be reduced by any payment it makes to Chase pursuant to the judgment entered in this proceeding, Motorola contends that the petition should have been denied altogether, or, alternatively, granted in a form conditioning its obligation to pay Chase on a determination by the Indian court that such a payment will reduce its liability, if any, to IITL. Motorola also argues that, under Indian law, its potential liability to IITL cannot be “assigned or transferred” (
We begin with a review of the provisions of
“(a) Debt against which a money judgment may be enforced. A money judgment may be enforced against any debt, which is past due or which is yet to become due, certainly or upon demand of the judgment debtor, whether it was incurred within or without the state, to or from a resident or nonresident, unless it is exempt from application to the satisfaction of the judgment. A debt may consist of a cause of action which could be assigned or transferred accruing within or without the state.” (Emphasis added.)
“(b) Property against which a money judgment may be enforced. A money judgment may be enforced against any property which could be assigned or transferred, whether it consists of a present or future right or interest and whether or not it is vested, unless it is exempt from application to the satisfaction of the judgment.” (Emphasis added.)
A special proceeding for turnover is the procedural device provided by article 52 for enforcement of a judgment against an asset of the judgment debtor in the possession or custody of a third person; such a third person is known as a garnishee (see
judgment debtor, the statute authorizing the proceeding is
In this case, Motorola‘s potential liability to IITL as a result of the Indian action cannot be subject to enforcement of Chase‘s judgment as a “debt” under
Because the potential proceeds of the Indian action could be levied upon only as property, not debt, this proceeding should have been brought under
As noted above, one of Motorola‘s arguments on appeal is that, under Indian law, its potential liability to IITL as a result of the Indian action is not assignable or transferable, given the pendency of IITL‘s winding-up proceeding and the January 2003 order entered therein prohibiting the creation of new “encumbrances” of IITL‘s assets. In response, Chase denies that it sought, or that Supreme Court granted, garnishment of IITL‘s “cause of action” against Motorola (see n 4, supra at 302), implying that the requirement of assignability or transferability does not apply to a debt not consisting of a cause of action. Although it is true that the requirement of assignability is
Chase also argues that we should not consider the assignability issue because Motorola did not raise it in its initial opposition to the petition. IITL, however, seems to have obliquely raised the assignability issue in its papers opposing the petition. Thereafter, Motorola submitted its attorney‘s “supplemental” affidavit, which brought to Supreme Court‘s attention the pendency of IITL‘s winding-up proceeding in India, the January 2003 order entered in that proceeding restraining IITL from creating new encumbrances of its assets, and the Indian statutes (Companies Act § 536 [2]; § 537 [1] [a]) that apparently render void any disposition of, or execution against, the assets of a company being wound up (such as IITL), unless the court presiding over the winding up orders otherwise.
On their face, the above-referenced Indian legal materials appear to mean that the possible future proceeds of IITL‘s action against Motorola are not, under Indian law, assignable or transferable by IITL, an Indian company undergoing bankruptcy proceedings in that country. If this is the case, the possible future proceeds of the Indian action do not constitute “property” available for enforcement of Chase‘s default judgment under
Accordingly, we proceed to consider whether Chase‘s petition for garnishment should have been denied (or granted in a different form) on the ground that the requested garnishment subjects Motorola to an unacceptable risk of double liability. That a risk of double liability arises from the garnishment at issue is established by the opinion of Motorola‘s Indian law expert, Justice Bharucha, which was not rebutted by Chase. Again, the thrust of Justice Bharucha‘s opinion is that the Indian courts will not recognize Chase‘s Delaware default judgment against IITL and, therefore, will not recognize any garnishment of the proceeds of IITL‘s Indian action that may be imposed by the courts of New York to enforce the default judgment. Thus, according to the uncontroverted evidence of Indian law in the record, the Indian courts will not deem Motorola‘s liability to IITL, if any, to be reduced by Motorola‘s payment to Chase pursuant to a garnishment rendered in this proceeding. Further, the risk of double liability is real, not merely theoretical, in that IITL is actively suing Motorola in India to recover the same alleged liability that Chase seeks to garnish in this proceeding; indeed, without the Indian action, Chase would have no basis for commencing this proceeding.8
Chase does not dispute that it would be an injustice for Motorola to be required to pay the same liability twice. As the United States Supreme Court stated more than a century ago, “[i]t ought to be and it is the object of courts to prevent the payment of any debt twice over” (Harris v Balk, 198 US 215, 226 [1905], quoted in Oppenheimer v Dresdner Bank A. G., 50 AD2d 434, 441 [1975], affd 41 NY2d 949 [1977]; see also Embree v Hanna, 5 Johns 101, 102 [1809, Kent, Ch. J.] [“Nothing can be more clearly just, than that a person who has been compelled, by a competent jurisdiction, to pay a debt once, should not be compelled to pay it over again“]). The policy to protect garnishees from double liability is given statutory expression in
“A person who, pursuant to an execution or order, pays or delivers, to the judgment creditor or a sheriff or receiver, money or other personal property in which a judgment debtor has or will have an interest, or so pays a debt he owes the judgment debtor, is discharged from his obligation to the judgment debtor to the extent of the payment or delivery.”
The policy against imposing double liability on a garnishee is strong enough to be employed beyond situations where
It is true that, under
Chase argues that, so long as a judgment creditor has established grounds for a garnishment under article 52, the courts have no power to deny the use of that enforcement device in order to avoid subjecting the garnishee to the risk of double liability. This contention overlooks
There appears to be relatively little reported case law of recent vintage addressing the effect of a threat of double liability in a foreign country on the propriety of entering an order or judgment of garnishment.10 In the absence of controlling New York authority, Motorola urges us to follow the highest courts of Arizona and Connecticut, which held (in 1924 and 1930, respectively) that a petition for garnishment should be denied where the garnishee demonstrates that the forum‘s grant of such relief to the judgment creditor will likely result in the garnishee‘s incurring double liability in a foreign country, whose courts will not recognize the forum‘s garnishment and will not credit the garnishee for any payment made pursuant thereto (see Parker, Peebles & Knox v National Fire Ins. Co. of Hartford, 111 Conn 383, 396, 150 A 313, 317-318 [1930] [denying garnishment where the “record shows conclusively that the obligation of this garnishee to pay the debt in full in Haiti was an absolute one and that the courts of that jurisdiction would not recognize or give credit for any payment made here by the garnishee by compulsion of our courts“]; Weitzel v Weitzel, 27 Ariz 117, 125, 230 P 1106, 1108 [1924] [in affirming the dismissal of a writ of garnishment against a garnishee that owed wages to the judgment debtor for work performed in Mexico, the court noted that the garnishee “ought not to be compelled to pay such debt to an Arizona creditor (of the judgment debtor) when it is not only possible but probable (that the garnishee) would have to pay (the debt) again” in Mexico]; accord LNC Invs., Inc. v Republic of Nicaragua, 2002 WL 32818644 [D Del, Dec. 18, 2002], appeal dismissed 396 F3d 342 [3d Cir 2005] [quashing a writ of attachment seeking to garnish a debt the garnishee owed the judg-
Chase argues that New York law is contrary to the Parker, Peebles & Knox and Weitzel holdings. Chase first relies on Bank of Buffalo v Vesterfelt (36 Misc 2d 381 [Erie County Ct 1962]), in which the court denied a motion to vacate an order garnishing wages a Canadian corporation owed the Canadian judgment debtor for work he performed in Canada. The Bank of Buffalo judgment debtor, who had commenced voluntary bankruptcy proceedings in Canada, argued in support of the motion that garnishing his wages would expose his employer to possible double liability, since Canadian law provided that “all assets of the bankrupt vest in the bankruptcy trustee including all wages and accruing wages of the bankrupt, if the said bankruptcy trustee makes claim for them” (id. at 383-384). In denying the motion—which, notably, was made by the judgment debtor, not by the garnishee supposedly threatened by double liability—the court stated (id. at 385):
“In the instant case the Canadian Bankruptcy Act entitles the trustee to the wages of [the judgment debtor] only if he makes claim for them.
“The double liability of the garnishee in this case is at most remote and it should not be permitted to stand in the way of plaintiff‘s rights under the existing law.”
Of course, Bank of Buffalo is not binding on us. In any event, we disagree with Chase‘s assertion that Bank of Buffalo “holds that double liability is no defense” to a petition for garnishment. The decision indicates that the risk of double liability was only a theoretical possibility, since the trustee apparently had not asserted a claim for the garnished wages in the Canadian bankruptcy proceeding. That the motion to vacate the garnishment was made by the judgment debtor, not by the garnishee potentially exposed to the risk of double liability, underscored the “remote” nature of that risk. Here, by contrast, the risk of double liability to which the garnishment exposes Motorola is real, as IITL is suing Motorola in India to recover the same alleged liability that Chase seeks to garnish in this proceeding. As previously discussed, Motorola has established that the Indian courts will not recognize any garnishment of that liability, and will not credit Motorola for a payment to Chase made pursuant to such a garnishment.
Chase also relies on four decisions holding that, where a bank is sued on a claim of title to the funds in a bank account, the
While the Petrogradsky line of cases demonstrates that, in certain contexts, double liability may be considered “a common risk of life” (253 NY at 40), we are unable to take such a benign view of double liability in the context presented by this appeal. In Petrogradsky, Coler, Commercial Bank and Steingut, the party exposed to the risk of double liability was a bank, engaged
Chase contends that, even if we have the power to deny an otherwise proper garnishment to protect the garnishee from double liability, there is no equitable reason to do so here:
“[I]t is not at all intuitive that it is somehow more unconscionable to make Motorola pay twice than to deny Chase any recovery at all [on its judgment against IITL]. In either case, the harm to the aggrieved party is the same—the loss of $14 million [the approximate amount of Chase‘s judgment against IITL, with interest, at the time this proceeding was commenced].”
Given that this loss evidently must be suffered by one or the other of the two parties to this proceeding, Chase asks why “[it], rather than Motorola, should be forced to bear the cost of any parochial and wrongheaded refusal by the Indian court to respect Motorola‘s rights under New York law.” In this regard, Chase points out that “Motorola does extensive business in
We are not persuaded by Chase‘s attempt to turn the equitable tables against Motorola. It was Chase, not Motorola, that accepted as loan collateral the payment obligation of IITL, an Indian company without assets in the United States. Before closing the loan, Chase had an opportunity to assess the collection risks of such collateral and to charge fees and interest that would compensate it for assuming those risks. Now that the loan has gone into default and Chase‘s efforts to collect the collateral from IITL have failed, this garnishment proceeding represents an effort by Chase to shift its collection risks to Motorola, a third party that never agreed to assume such risks and has not been compensated for doing so. To be clear, while Motorola assumed the risks of its own dealings with IITL (which risks have in part come to fruition in the pending Indian action), Motorola did not assume the risks of other parties’ dealings with IITL. Thus, contrary to Chase‘s denials, it will realize a “windfall” if we sustain a garnishment that, given the demonstrated state of Indian law, will force Motorola to bear the cost of Chase‘s inability to collect its collateral from IITL. The avoidance of this injustice constitutes sufficient reason to exercise our power under
It remains to consider whether, to prevent Motorola from being subjected to double liability, we should deny the petition outright and dismiss the proceeding or, alternatively, modify the judgment to condition Motorola‘s obligation to pay Chase on events indicating that the risk of double liability has dissipated.13 We conclude that the petition should be denied and the proceeding dismissed. The uncontroverted opinion of Motorola‘s expert on Indian law indicates, in no uncertain terms, that the Indian courts will not give effect to any garnishment issued in this proceeding because Indian law precludes recognition of the
Since we are denying the petition based on the risk of double liability, we need not decide whether, as argued by Motorola, the garnishment of the potential proceeds of the Indian action was a “premature [ ] exercis[e of] jurisdiction over a judgment that has not yet issued from a foreign court.” We note, however, that there is authority apparently supporting the view that the proceeds of the judgment of a court of another state, even if that judgment has not been domesticated in New York, may be attached or levied in New York by a creditor of the judgment creditor if the debtor on the sister-state judgment is subject to process here (see Shipman Coal Co. v Delaware & Hudson Co., 219 App Div 312 [1927], affd 245 NY 567 [1927]; Breezevale Ltd. v Dickinson, 262 AD2d 248 [1999]; see also Huron Holding Corp. v Lincoln Mine Operating Co., 312 US 183 [1941] [according full faith and credit to a New York levy upon the debt arising from the judgment of an Idaho federal court]).15 The judgment appealed from, by garnishing the potential proceeds of a judgment that a court of a foreign country may or may not render in the future, went beyond the holdings of the above-cited cases, and essentially predetermined that any future judgment against Motorola that may issue in the Indian action will be entitled to recognition in New York. Whether it was appropriate, apart from the ensuing risk of double liability, to enter such a judgment of garnishment is a question that may be left for another day.
Mazzarelli, J.P., Williams and McGuire, JJ., concur.
Judgment, Supreme Court, New York County, entered October 11, 2005, reversed, on the law and the facts, the petition denied, and the proceeding dismissed.
Notes
“(b) Property not in the possession of the judgment debtor. Upon a special proceeding commenced by the judgment creditor, against a person in possession or custody of money or other personal property in which the judgment debtor has an interest, or against a person who is a transferee of money or other personal property from the judgment debtor, where it is shown that the judgment debtor is entitled to the possession of such property or that the
“Upon a special proceeding commenced by the judgment creditor, against any person who it is shown is or will become indebted to the judgment debtor, the court may require such person to pay to the judgment creditor the debt upon maturity, or so much of it as is sufficient to satisfy the judgment, and to execute and deliver any document necessary to effect payment; or it may direct that a judgment be entered against such person in favor of the judgment creditor. . . . Notice of the proceeding shall also be served upon the judgment debtor in the same manner as a summons or by registered or certified mail, return receipt requested. The court may permit the judgment debtor to intervene in the proceeding.”