Cross-Border Issues in Judgment Enforcement
Courts around the world issue judgments against defendants who hold assets in the United States. For example, some judgments may be against American corporations that do business abroad or local citizens who maintain bank accounts with American banks. Once a plaintiff prevails in the foreign lawsuit, she may have to initiate a proceeding in the United States to use that judgment to actually collect the defendant’s American assets. But this process, which is called domestication, has some specific rules that may be helpful to know before moving forward.
Why should you read this post about issues that may arise in domesticating foreign judgments in the United States?
You already read my post about enforcing judgments issued by one court in the United States in a different court elsewhere in the country, but you want more judgment enforcement content.
Cross-border disputes feel more exotic and fancy than local people who are mad at each other.
The word domesticating makes you think that lawyers can take a wild judgment and teach it to live in a house with people.
Image credit: https://en.wikipedia.org/wiki/Globe#/media/File:World_Globe_Map.jpg
Is the Judgment Debtor Subject to Personal Jurisdiction?
Pursuant to the Uniform Foreign Money Judgments Recognition Act, American courts may seek proof that a foreign judgment is legitimate before enforcing it. One issue courts often examine is whether the judgment debtor was subject to personal jurisdiction in the foreign country. If the court holds that the defendant was not subject to jurisdiction abroad, the court may not enforce the judgment in the United States. To determine whether personal jurisdiction existed abroad, courts may examine both the foreign jurisdiction’s law and American law, as the court did in this case.
Additionally, American courts may also require that the judgment debtor also be subject to personal jurisdiction in the United States. Following a New York appellate court decision, some lawyers argued that the process of domesticating a judgment in the United States was a merely “ministerial function” and not a full lawsuit that required personal jurisdiction over the judgment debtor. But the New York appellate court clarified in another decision that personal jurisdiction is required over judgment debtors when domesticating foreign judgments.
The Separate Entity Rule
Litigants frequently seek to domesticate foreign judgments in the United States because defendants often have accounts at American banks. The United States may also seem like an attractive place to domesticate a judgment because nearly every major bank in the world has an office or does business in the United States. But just because a bank is subject to jurisdiction in the United States does not mean that courts will definitely enforce foreign judgments against the assets they hold.
Instead, jurisdictions like New York apply the “Separate Entity Rule.” This rule treats each branch of a financial institution as if it were a separate entity. This means that, for example, a New York judgment can only be used to collect assets from a Swiss bank that are held at a New York branch of that bank. The judgment cannot, however, be used to collect assets held at Swiss branches.
According to New York’s highest court, the purpose of the Separate Entity Rule is to encourage banks to do business in a jurisdiction without fear that they are subjecting all of their international assets to local judgments. And it is to prevent other jurisdictions from exposing American banks to foreign judgments in return. It also makes it easier for bank branches to comply with only one country’s laws, avoiding conflicts between different countries’ laws or judgments, and to perform searches of only local assets and not assets worldwide.
Because of this rule, judgment creditors from outside of the United States should only domesticate judgments in the same place where the judgment debtors’ assets are, not just where their banks are located.
Bringing Assets into the Jurisdiction
Although litigants often need to domesticate a judgment to collect assets in another jurisdiction, there are some instances where a court can order a party to move assets into the jurisdiction.
This issue arose in a prominent case in New York. In that case, the court held that a defendant that is subject to personal jurisdiction in New York can be ordered to bring physical property it possesses into New York to satisfy a judgment. It held in a later case that this does not conflict with the Separate Entity Rule because that rule only applies to bank accounts at bank branches.
This principle may be helpful for litigants who want to domesticate a judgment against a defendant who is subject to personal jurisdiction in the United States, but who has physical property outside of the country. This may provide the American legal system’s procedures for judgment collection while also enabling the judgment creditor to collect foreign property.