Lee N. KOEHLER, Petitioner,
Not Reported in F.Supp.2d, 2004 WL 444101 (S.D.N.Y.)
SUBSEQUENT HISTORY: See Koehler v. Bank of Bermuda Ltd., 2004 WL 1555116 (S.D.N.Y. Jul. 9, 2004) (No. M18-302)
JUDGE: HAIGHT, Senior J.
MEMORANDUM OPINION AND ORDER
[*1] In this proceeding that began as one for garnishment, two motions are presently pending before the Court.
Respondent the Bank of Bermuda Ltd. (BBL), a Bermudian company, moves for partial summary judgment under Rule 56, F.R.Civ.P ., in respect of a Petition filed in this Court by Lee N. Koehler, a Pennsylvania resident, against BBL as garnishee in an effort to collect on an unsatisfied judgment Koehler obtained in the District of Maryland against A. David Dodwell, a Bermudian resident.
Koehler had earlier moved under Rule 25(c) for an order substituting BBL as defendant judgment debtor in place of Dodwell, or joining BBL as defendant judgment debtor along with Dodwell in respect of Koehlers Maryland judgment against Dodwell. Brief in support of Rule 25(c) Motion at 14. A decision on that motion was deferred during protracted discovery proceedings and litigation before Magistrate Judge Dolinger and this Court in respect of BBLs contention that this Court lacked personal jurisdiction over it, an issue that was recently resolved by BBLs unconditional consent to this Courts jurisdiction. Koehler now moves for an order treating his prior motion under Rule 25(c) to substitute BBL for or join with Dodwell as a respondent in the garnishment proceeding as an amendment to the Petition to add a claim against BBL for fraudulent conveyance, or in the alternative, granting Koehler leave to file and serve such an amended pleading.
Each party opposes the others motion.
BBL bases its motion for partial summary judgment principally upon three foreign judgments it has obtained against Koehler. The parties dispute whether those judgments are entitled to recognition by this Court, and if so, the nature and extent of their preclusive effect upon the other issues in the case.
For the reasons stated below, the Court holds that the three foreign judgments are entitled to recognition by this Court. That is the only question this opinion addresses. Further submissions by the parties are necessary before the Court is in a position to resolve the remaining disputed issues.
The disputes between Koehler and Dodwell, two former partners previously engaged in failed efforts and defaulted loans in respect of efforts to develop resort properties, have engaged the energies of this District, the District of Maryland, the Second and Fourth Circuits, and courts in Arizona, Bermuda, and Nevis. These courts have issued a plethora of opinions, orders, and judgments. The most helpful decisions in furnishing the background relevant to the present motions are cited in the margin.FN1 Familiarity with those opinions is assumed. The factual background will be recited here only to the extent necessary to explain this Opinion and its accompanying Order.
FN1. See Koehler v. The Bank of Bermuda, Ltd. No. M18-302, 1994 WL 48825 (S.D.N.Y. Feb. 16, 1994) (Koehler I); Koehler v. The Bank of Bermuda, Ltd., 101 F.3d 863 (2d Cir.1996) ( Koehler II ); Koehler v. Bank of Bermuda (New York) Ltd., 96 Civ. 7885, 1998 WL 557595 (S.D.N.Y. Sept. 2, 1998) (Koehler III); Koehler v. Dodwell, 152 F.3d 304 (4th Cir.1998) (Koehler IV); Koehler v. The Bank of Bermuda (New York) Ltd., 209 F.3d 130 (2d Cir.2000) (Koehler V); Koehler v. The Bank of Bermuda, Ltd., No. M18-302, 2002 WL 519740 (S.D.N.Y. Apr. 5, 2002) (Koehler VI); and Koehler v. The Bank of Bermuda, Ltd., No. M18-302, 2002 WL 1766444 (S.D.N.Y. July 31, 2002) (Koehler VII ). This Court and Magistrate Judge Dolinger issued a number of additional opinions dealing with discovery on the issue of personal jurisdiction over BBL, following the Second Circuits remand in Koehler III. For reasons that are stated in text, the resolution of the present motions does not require consideration of those opinions. All the decisions cited in this footnote were entered in the case at bar except for Koehler III, a decision by Judge Keenan which, inter alia, dismissed Koehlers securities fraud action against BBL for failure to state a claim, and Koehler V, in which the Second Circuit affirmed that dismissal.
A. Acquisition of The Reefs
Koehler is a resident of Maryland. Dodwell is a resident of Bermuda, an Overseas Territory of the United Kingdom. Koehler met Dodwell in 1977 when Dodwell was the general manager of The Reefs, a Bermuda resort hotel. They entered into a business relationship which had not progressed very far when Dodwell learned that The Reefs was for sale by its then owner.
[*2] In 1981 Dodwell, Koehler and Haussners Restaurant, Inc. (Haussner's), a Maryland corporation, acquired The Reefs Beach Club Ltd. (or The Reefs), the parent company of The Reefs hotel. Dodwell acquired 51 percent of the stock, Koehler acquired 29 percent, and Haussners the remaining 20 percent. Haussners is not involved in the events giving rise to this litigation. It appears that BBL was a creditor of The Reefs Beach Club Ltd. before its acquisition and remained one thereafter, although the details of that banking relationship are not clear and in any event are not central to the present issues.
B. The Windward Properties Transaction
In 1989 Koehler and Dodwell formed a Nevis, West Indies corporation called Windward Properties Ltd. (Windward) to acquire the Nisbet Plantation Inn (Nisbet), a resort on the island of Nevis. On May 2, 1989, BBLs Luxembourg subsidiary, Bank of Bermuda (Luxembourg) S.A. (BBL-Lux) made three loans in the aggregate amount of $5.5 million to finance the acquisition of Nisbet. First, BBL loaned $2 million against a mortgage in that amount on Windwards real and personal property, further secured by individual personal guarantees of $1 million each from Dodwell and Koehler, and by a joint guarantee from both for $1 million. Second, a $1.75 million personal loan to Koehler by BBL-Lux was secured by a letter of credit from BBL, which was in turn secured by a pledge of all of Koehlers stock in The Reefs Beach Club Ltd. Third, a $1.75 million personal loan to Dodwell by BBL-Lux was secured in the same fashion. The amounts obtained by Koehler and Dodwell from the personal loans were promptly reloaned to Windward. As did the Second Circuit in Koehler V, I will refer to these loans as the Nisbet loans.
It is important to note at this juncture that the pledges of their Reefs stock given by Koehler and Dodwell to obtain their personal Nisbet loans from BBL took the form of identical documents, each dated May 2, 1989 (the day the Nisbet loans closed), and captioned The Bank of Bermuda Limited-Memorandum of Deposit (hereinafter Memorandum of Deposit). The Memorandum of Deposit executed by Koehler recited that Koehler hereby charges by way of a fixed charge in favour of, and pledges and assigns to BBL the shares Koehler held in The Reefs (as identified in the Schedule accompanying the Memorandum of Deposit). The Memorandum of Deposit provided that the security shall forthwith become enforceable if, inter alia, the Customer [Koehler] fails to pay when due to the Bank any sums in respect of the Letter of Credit in accordance with the [loan] Application. ¶ 1(i).
The Memorandum of Deposit also provided at ¶ 13:
This Agreement shall be governed by and construed in accordance with the laws of Bermuda. The Customer and the Bank submit to the jurisdiction of the courts of Bermuda but without prejudice to the right of the Bank to pursue its remedies in any other jurisdiction it thinks fit.
C. The Mansion Club Acquisition
[*3] On November 2, 1989, Dodwell, Koehler, and another individual named Southworth formed the Mansion Club Limited Partnership (the Mansion Partnership), a Maryland limited partnership, to acquire the Mansion Club, a private dining club in Phoenix, Arizona. Initially, Koehler owned 30 percent of the Mansion Partnership and Malvern Properties, Inc. (a corporation wholly owned by Dodwell) also owned 30 percent. To finance this acquisition, BBLs New York subsidiary, Bank of Bermuda (New York) Ltd. (BBL-NY), loaned $4.5 million to the Mansion Partnership, secured by Mansion Partnership assets (including the Mansion Club), personal guarantees of Southworth, Koehler, Dodwell, and Malvern Properties in the respective amounts of $1.8 million, $1.35 million, $1.35 million, and $1.35 million, and a pledge of equity in two other corporations (collectively the New York loan'). The loan closed on December 22, 1989.
While these facts are described in detail in the papers submitted on the present motions, the recitation appearing in Parts I.A, B, and C of this Opinion is taken principally from the Second Circuits opinion in Koehler V, 209 F.3d at 133-134. The Court of Appeals added the observation that Bank Bermuda, Ltd. employees were deeply involved in the structuring of both the Nisbet loans and the New York loan. Id. at 134. Quite clearly, Koehler and Dodwell were equally involved in structuring these loans with BBL.
D. Financial Difficulties
The Nisbet loans went into default almost immediately, on August 2, 1989. By early 1991 the loans were several payments in arrears. On March 20, 1991, BBL-Lux called upon BBL to pay the letter of credit BBL issued in respect of BBL-Luxs loan to Koehler. BBL paid BBL-Lux under the letter of credit and transferred the loan to itself. On May 2, 1991 BBL sent Koehler a demand note for the unpaid Nisbet loan to him and a cover letter requesting that Koehler assent to the new loan arrangement. On May 14, 1991 Koehler executed the demand note and cover letter.
By early 1991 it was also clear that the New York loan, like the Nisbet loans, was in trouble. On October 8, 1991, BBL-NY bought the Mansion Club for $3 million at a foreclosure sale, resulting in an alleged deficiency on the New York loan of over $2.5 million. Thereupon BBL-NY assigned the New York loan to BBL.
Not surprisingly, BBL approached Koehler and Dodwell with a request for a debt restructuring plan. On June 27, 1990 Koehler and Dodwell had agreed among themselves that any debt restructuring would require a pledge of their combined 80 percent equity interest in The Reefs Beach Club Ltd.; and, on January 25, 1991, Koehler and Dodwell responded to BBL by proposing a debt restructuring plan, called the Combined Equity Plan, which would include a pledge of their combined equity in The Reefs. At least with respect to Koehler, the proposed Combined Equity Plan conferred a limited benefit upon BBL, since Koehlers stock in The Reefs had previously been pledged to secure BBL-Luxs Nisbet loan to Koehler.FN2
FN2. And, in point of fact, on July 21, 1992, pursuant to the collateral provisions of BBL-Luxs personal Nisbet loan to Koehler, BBL demanded and received, over Koehlers objection, all Koehlers shares in The Reefs Beach Club Ltd. At the same time BBL took possession of Dodwells shares in The Reefs, for the same reason.E. The Recapitalization
[*4] In October and December, 1991, discussions about a debt restructuring took place between Dodwell, Koehler, and BBL officers, at which BBLs chief executive officer appeared to express an preference for an refinancing arrangement consistent with Koehler and Dodwells Combined Equity Plan. However, that changed on February 14, 1992, when BBL presented a debt restructuring plan that, in the Second Circuits words, would pay off almost all of Dodwells obligations but leave Koehler substantially in debt, and would transfer $5 million in new preferred shares in The Reefs Ltd. to a subsidiary of the bank. 209 F.3d at 134. The proposal did not address the defaulted Nisbet loans.
Koehler received this revised plan on February 17, 1992 and was not happy. The Second Circuit notes:
Koehler expressed his opposition to it and his strong preference for the Combined Equity Plan in conversations with high-level bank officers (a senior vice-president and corporate counsel) on April 3, 1992 and May 3, 1992. In both conversations, these officers stated that Bank Bermuda, Ltd. intended to proceed with the recapitalization plan substantively as presented to Dodwell FN3 on February 17, 1992. On May 7, 1992 Dodwell wrote Koehler and stated that he would no longer participate in the Combined Equity Plan.
209 F.3d at 134.
FN3. So in original; probably should read Koehler.
Notwithstanding Koehlers objections, BBL persisted in its February 1992 debt reconstruction proposal, which had acquired the name Macdonald Plan. A revised version of BBLs Macdonald Plan was submitted to Koehlers attorney by letter dated September 28, 1992, and on October 20, 1993 the Macdonald Plan Recapitalization was executed.
Under the Recapitalization, BBL sold the shares in The Reefs and applied the sales proceeds against Dodwells and Koehlers outstanding loans in respect of the Nisbet and Mansion Club transactions. That application resulted in the satisfaction of many of Koehlers and Dodwells obligations to BBL, including full satisfaction of the loans that had financed the purchase of the Mansion Club property in Arizona. However, even after the Recapitalization Koehler still owed BBL approximately $1.5 million on his personal Nevis loan. That indebtedness gave rise to BBLs 1994 action against Koehler in the Supreme Court of Bermuda, described in Part II.A.1., infra.
F. Koehlers Judgment against Dodwell in the District of Maryland
A further indication of the worsening relationship between Koehler and Dodwell is furnished by an action Koehler commenced in 1992 against Dodwell in the United Sates District Court for the District of Maryland.FN4 Koehlers complaint arose out of budget overruns Windward encountered in renovating the Nisbet resort in Nevis. Koehler alleged two causes of action against Dodwell: a Windward shareholders derivative claim that Dodwell not only caused the cost overruns by failing to use his best efforts to complete the project within budget, but also concealed the overruns, thereby preventing Windward from restructuring its debt to deal with the problem; and a claim for negligent misrepresentation, alleging that Dodwells false representations of his own financial intentions induced Koehler to pledge his own stock in another company (presumably The Reefs) as collateral for one of the Nisbet loans.
FN4. The recitation in this Part I.F. is derived principally from the Fourth Circuits opinion in Koehler IV, 152 F.3d at 305-306.
[*5] In the District of Maryland action, Koehler effected service upon Dodwell under the Hague Service Convention, as ratified by the United Kingdom on Bermudas behalf. Dodwell defaulted in appearance. The District Court entered a judgment dated June 4, 1993 in favor of Koehler and against Dodwell in the amount of $2,096,343. Dodwell moved to vacate the judgment for lack of personal jurisdiction. The District Court agreed, holding the service upon Dodwell had been ineffective, and vacated the judgment. The Fourth Circuit reversed the District Court in Koehler III. Koehlers judgment against Dodwell was reinstated. It remains unpaid.
G. The Present Proceeding Before This Court
Koehler registered his District of Maryland judgment against Dodwell in this District, and on October 27, 1993 filed in this Court a Petition and Motion for Payment or Delivery of Property to Judgment Debtor. The Respondent identified in the caption was BBL. The Petition recited the existence of the Maryland judgment, and alleged inter alia that Respondent is in possession of stock certificates on The Reefs Beach Club Limited, which are owned by A. David Dodwell, Judgment Debtor, ¶ 8; that Respondent holds said stock certificates as security for a loan Respondent made to A. David Dodwell, Judgment Debtor, ¶ 9; and that to the extent some of the aforementioned stock certificates no longer represent security for Respondents loan to A. David Dodwell, the stock certificates should be delivered by BBL to Koehler pursuant to N.Y. CPLR § 5225 or their value paid by BBL to Koehler pursuant to N.Y. CPLR § 5227, ¶¶ 13, 14, those New York procedures being made applicable to proceedings in this Court by Rule 69(a), Fed.R.Civ.P.FN5
FN5. Koehlers Petition alleges that BBL was or might be in possession of other assets belonging to Dodwell. I need not consider those allegations, at least in the context of BBLs motion for partial summary judgment, because that motion is limited to Dodwells shares in The Reefs.
Koehler sought to obtain personal jurisdiction in this Court over BBL by serving his Petition upon BBLs New York subsidiary, BBL-NY. BBL contended that this service did not subject it to personal jurisdiction in this Court. Motion practice ensued. The Second Circuit considered the question in Koehler II, which remanded the case to this Court for discovery limited to the existence vel non of personal jurisdiction over BBL. That discovery, which led to contentious litigation, was supervised by Magistrate Judge Dolinger. I need not consider the issue further because, following substitution of counsel, BBL withdrew its objection and acknowledged that it was subject to personal jurisdiction in this Court.
This sets the stage for the present motions.
A. BBLs Motion for Partial Summary Judgment
BBL contends that insofar as Koehlers garnishment Petition seeks to reach Dodwells shares in The Reefs in BBLs possession, the Petition fails as a matter of law because of the preclusive effect of three foreign judgments BBL has obtained against Koehler.
At the conclusion of the debt restructuring and recapitalization described in Part I.E., supra, and after the application of the proceeds of the sale of their shares in The Reefs to the amounts Koehler and Dodwell owed BBL, Koehlers loan obligation had been reduced to US$1,417,613.79 in principal and US$29,211.21 in interest . Affidavit of Barry L. Shailer, a BBL officer, sworn to July 15, 1998 (the Shailer affidavit) at ¶ 43. In these circumstances, BBL commenced the first of three actions against Koehler which resulted in the three foreign judgments involved in the present motion. I shall refer to these judgments as the Bermuda Deficiency Judgment, the Nevis Enforcement Judgment, and the Bermuda Declaratory Judgment.
1. The Bermuda Deficiency Judgment
[*6] As previously noted, the recapitalization was executed on October 20, 1993. In 1994 BBL commenced an action against Koehler in the Supreme Court of Bermuda to recover the outstanding amounts Koehler owed to BBL. Koehler, a resident of Maryland, received notice of that suit, but chose not to appear and defend against it. On May 16, 1994, upon BBLs application, the Registrar of the Supreme Court of Bermuda signed a Judgment in Default of Appearance which provided in its entirety:
The Defendant, LEE N. KOEHLER, not having entered a Memorandum of Appearance to the Generally Endorsed Writ of Summons, it is this day adjudged that the Plaintiff, the Bank of Bermuda Limited, do recover against the Defendant the sum of US$1,499,063.63 together with interest continuing at 7% per annum from 18th February, 1994 until payment together with costs.
2. The Nevis Enforcement Judgment
In July 2000, BBL commenced an action in the Nevis Circuit of the High Court of Justice of the Federation of St. Christopher (or St. Kitts) and Nevis against Koehler and Windward. In that action, BBL applied for a Court order directing the transfer of Koehlers shares or other interest in Windward to BBL in full or partial satisfaction of the judgment debt in favour of the Plaintiff against the First Defendant [Koehler] in the sum of $1,499,063.63 United States Currency together with interest BBL was seeking to enforce the Bermuda Deficiency Judgment. Koehler appeared and opposed BBLs application. BBL and Koehler dispute whether Koehlers appearance was general (BBLs contention) or limited (Koehlers contention), the difference being asserted as determinative of whether or not Koehlers appearance subjected him to the personal jurisdiction of the Nevis Court. I need not resolve that dispute because, in the view I take of the case at bar, it makes no difference.
On October 16, 2000, the Registrar of the High Court of Justice of St. Christopher and Nevis entered an order granting BBL the relief it prayed for, while requiring that the Plaintiff give a full accounting to the First Defendant [Koehler] of the precise amount of the outstanding debt before the transfer as ordered is effected. Koehler argues that this was not a Judgment for purposes of preclusion analysis because the Nevis court called its decree an Order. That is an unpersuasive effort to exalt form over substance. The Nevis court dealt definitively with the merits by directing the transfer of Koehlers Windward shares to BBL to enforce the Bermuda Deficiency Judgment.
3. The Bermuda Declaratory Judgment
In 1996 Koehler filed an action in this Court against BBL-NY, BBL, The Reefs Beach Club Limited, and Dodwell. The case was assigned to District Judge Keenan. Koehlers amended complaint in that action described the Windward/Nisbet, Mansion Club, and Reefs transactions, the accompanying loans, the debt restructuring and recapitalization, and the other events I have described in Part I of this opinion, and alleged that the transfer of his stock shares, the recapitalization, the application of the proceeds and certain other transactions were tantamount to a conversion of his property, a fraudulent transfer, a violation of securities laws, and wrongful acts by a lender. Koehler III, 1998 WL 557595, at *6.
[*7] Koehlers 1996 action in this Court against BBL and Dodwell is relevant to BBLs motion in the present proceeding because it explains why BBL sought from the Supreme Court of Bermuda the judicial declaration that comprises the third foreign judgment upon which BBL bases that motion.
Koehlers action against BBL in this Court made it plain that Koehler regarded BBL as having acted wrongfully and fraudulently in respect of the transactions involving Koehler and Dodwell. The Recapitalization of The Reefs shares and allocations to loan indebtedness described in Part I.E. of this opinion lay at the heart of Koehlers complaint against BBL and others in this Court which came to the attention of Judge Keenan. When the Recapitalization was executed on October 20, 1993, the parties arranged it privately, without the supervision or imprimatur of a Bermudan court.FN6 Judge Keenan dismissed Koehlers complaint against BBL on motion, without holding a plenary trial. While the Court of Appeals affirmed, the preclusive effect of that judgment in other jurisdictions might be limited.
FN6. In saying that, I do not mean to suggest that there were procedures available under Bermuda law to obtain such a supervision or imprimatur. I am not competent to express a view on that point.
And so it came to pass that in July 1998, BBL brought an action against Koehler in the Supreme Court of Bermuda. BBL sought a judgment and declaration that the October 20, 1993 Recapitalization of The Reefs was carried out lawfully. When that action was filed, BBL prayed for and obtained leave to issue and serve Koehler out of the jurisdiction. Koehler again defaulted in appearance.
The Shailer affidavit, 14 pages long, containing 70 paragraphs, and accompanied by voluminous exhibits relating to all the prior transactions I have described supra, furnished the principal evidentiary basis for BBLs declaratory judgment action against Koehler. The affidavit recounted all the transactions referred to in Part I of this opinion, as well as the Default Judgment and Enforcement Judgment BBL had previously obtained against Koehler. The Shailer affidavit also dwelt at length upon the action that Koehler had commenced in this Court against BBL.FN7 ¶ 59 of the affidavit describes the serious issue to be tried:
FN7. Shailers affidavit is dated July 15, 1998. At that time BBLs motion to dismiss the action for, inter alia, lack of jurisdiction was pending before Judge Keenan.
This matter concerns the ability of the Plaintiff [BBL] to enforce and realise its security and to act in accordance with the Memorandum of Deposit. The Defendant [Koehler] has contended that the Plaintiff acted wrongfully and it is for that reason that the Plaintiff seeks the declaratory relief sought. The declarations if obtained will serve to determine the parties rights under the Memorandum of Deposit.
As noted, Koehler did not appear in BBLs declaratory judgment action or offer any opposition to it. BBL submitted four additional affidavits in support of its action, the contents of which I need not recite. On February 22, 2001, the Chief Justice of the Supreme Court of Bermuda signed a judgment reciting: IT IS HEREBY ADJUDGED AND DECREED THAT:
1. (a) The Recapitalization of the Reefs Beach Club Limited carried out on or about 20 October 1993, was carried out lawfully and, in particular, that the Memorandum of Deposit of Shares under which the Defendant [Koehler] agreed to deposit and charge his shares in the Reefs as security for the loan advanced pursuant to written agreements dated May 2, 1989, between the Defendant and the Plaintiff [BBL] empowered the Plaintiff:–
[*8] The judgment then sets forth subparagraphs 1(a)(i)-(vi), each specifically approving one or another of the steps BBL took to implement the Recapitalization. ¶ 1(b) of the judgment provides:
The Plaintiff was empowered under the terms of the Guarantee to apply the proceeds of the recapitalization carried out pursuant to the terms of the Memorandum of Deposit against sums owed by the Defendant under the Guarantee.
4. Whether the Foreign Judgments are Entitled to Recognition
On its motion for partial summary judgment, BBL contends that the Bermuda Deficiency Judgment, the Nevis Enforcement Judgment, and the Bermuda Declaratory Judgment, viewed in their attendant factual circumstances, should be (1) recognized and enforced by this Court, and (2) given preclusive effect in the ongoing litigation involving Koehler and BBL. It is necessary first to consider whether these foreign judgments are entitled to recognition under the governing law, which is that of the State of New York.
a. Standards of Review
Article 53 of the N.Y. CPLR contains the New York statutory enactment of the Uniform Foreign Country Money-Judgments Recognition Act. Under Article 53, a money judgment issued by the court of a foreign country will be recognized and enforceable in New York State, unless it fits within one of the specific statutory exceptions set forth in N.Y. CPLR § 5304.
§ 5304 provides in its entirety:
Grounds for non-recognition
The mandatory provision in § 5304(a)(2), that a foreign country judgment is not conclusive if [t]he foreign court did not have personal jurisdiction over the defendant, is subject to the limitations contained in § 5305, which provides in its entirety:
Even if none of the six bases for personal jurisdiction specified in § 5305(a) apply in a given case, a plaintiff seeking enforcement of a foreign judgment may rely upon the catch-all provision of § 5305(b), which broadly provides that [t]he courts of this state may recognize other bases of jurisdiction. CIBC Mellon Trust Co. v. Mora Hotel Corp. N.V., 296 A.D.2d 81, 96, 743 N.Y.S.2d 408 (1st Dept 2002), affd. on other grounds, 100 N.Y.2d 215 (2003). Professor Siegels commentary to § 5305(b) says:
The bases listed in subdivision (a) of CPLR 5305 are not exclusive. New York is free, under subdivision (b), to recognize in respect of the foreign judgment any other jurisdictional basis that New York law finds congenial to its notions of comity . It would seem appropriate for New York to recognize for a foreign judgment, under subdivision (b) of CPLR 5305, any jurisdictional basis it recognizes in its internal law.
Given this statutory scheme, it is not surprising to find that these provisions are liberally construed by New York courts in favor of recognition and enforcement. New York has traditionally been a generous forum in which to enforce judgments for money damages rendered by foreign courts. CIBC Mellon Trust Co. v. Mora Hotel Corp. N.V., 100 N.Y.2d 215, 221 (2003). Article 53 of the N.Y. CPLR was designed to codify and clarify existing case law on the subject and, more importantly, to promote the efficient enforcement of New York judgments abroad by assuring foreign jurisdictions that their judgments would receive streamlined enforcement here. Id. (citations omitted). This fundamental principle of private international law reflects a strong policy favoring the recognition of foreign judgments . In the international sphere, recognition of such foreign judgments is said to be based upon the doctrine of comity. Ambatielos v. Foundation Co., 203 Misc. 470, 474-75, 116 N.Y.S.2d 641 (Sup.Ct.N.Y.1952). In Ackermann v. Levine, 788 F.2d 830, 837 (2d Cir.1986), the Second Circuit said that
[*10] a final judgment obtained through sound procedures in a foreign country is generally conclusive as to its merits unless (1) the foreign court lacked jurisdiction over the subject matter or the person of the defendant; (2) the judgment was fraudulently obtained; or (3) enforcement of the judgment would offend the public policy of the state in which enforcement is sought.
(citing New York cases).
BBLs Bermuda Deficiency Judgment against Koehler is a judgment for money damages, and the Nevis Enforcement Judgment was issued in aid of that judgment. The Bermuda Declaratory Judgment is not one for money damages, but that does not prevent the application of New Yorks policies favoring recognition and enforcement. Contrary to Koehlers suggestion, New York courts extend the same recognition and effect to declaratory judgments rendered elsewhere. See, e.g., Sandcham Realty Corp. v. Taub, 299 A.D.2d 220, 221, 752 N.Y.S.2d 15 (2d Dept 2002) (the dismissal of their claims against Taub and Tenzer which arose out of the same transactions upon which the North Carolina declaratory judgment action was based was proper since plaintiffs had the opportunity to raise those claims in the North Carolina action, and, under the transactional approach adopted by New York in res judicata jurisprudence, those claims are now barred); Perkins v. DeWitt, 279 A.D. 903, 111 N.Y.S.2d 752 (1st Dep't 1952) (a judgment of a Philippine court as to the rights in the property may be determinative of defendants rights in the property, and, as the Philippine judgment is a subsequent judgment, we think that defendant is entitled to assert it as a defense to the present action.); Trensky v. Johnson, 1 Misc.3d 50, 2003 WL 22717974 N.Y.Sup.App.Term 2003) (The doctrine of res judicata requires dismissal of the breach of contract requires dismissal of the breach of contract and fraud claims interposed by defendant in this small claims action, since defendant had the opportunity to raise those claims in the prior Supreme Court declaratory judgment action between these parties and involving the same real estate transaction.) (citing Sandcham Realty Corp. v. Taub, 229 A.D.2d 221). While in Trensky a New York court gave res judicata effect to a declaratory judgment rendered by another New York court, there is no principled difference between that policy of preclusion and the policy of international comity which gives recognition and preclusive effect to a foreign declaratory judgment.
If a defendant defaults in appearing and defending against plaintiffs claim in a foreign forum, the resulting default judgment cannot be collaterally attacked when enforcement is sought in a New York court. See Porisini v. Petricca, 90 A.D.2d 949, 456 N.Y.S.2d 888, 889 (4th Dep't 1982) (Having defaulted, however, defendant may not now challenge the merits of plaintiffs claims collaterally (citing CPLR § 5303)). See also Ackermann, 788 F.2d at 842 (affirming enforcement of a West German courts default judgment; [b]y defaulting, a defendant ensures that a judgment will be entered against him, and assumes the risk that an irrevocable mistake of law or fact may underlie that judgment.); Canadian Imperial Bank of Commerce v. Saxony Carpet Co., Inc., 899 F.Supp. 1248, 1254 (S.D.N.Y.1995):
[*11] While these allegations might have constituted a valid defense on the merits had Defendant chosen to appear in the Canadian action, before this Court on these motions is neither the time nor the place to have them addressed. Absent a clear showing of fraud, a foreign default judgment is as conclusive as a contested judgment . Therefore, Defendant may not now raise an affirmative defense involving the merits of the original action, nor may Defendant collaterally attack the judgment in this Court through a counterclaim.
Affd., 104 F.3d 352 (2d Cir.1996).
Thus a defendant who allows a foreign judgment to be entered against him by default is reduced, in resisting an enforcement action on the judgment in New York, to showing that (1) the foreign courts procedures denied the defendant due process, (2) the foreign court lacked jurisdiction over the subject matter of the action or personal jurisdiction over the defendant, (3) the judgment was fraudulently obtained, or (4) its enforcement would offend the public policy of New York. Ackermann, 788 F.2d at 842 and n. 12.
These criteria for recognition will now be applied to the three foreign judgments BBL has obtained against Koehler.
b. The Bermuda Deficiency Judgment
Personal jurisdiction over Koehler for purposes of the Bermuda Deficiency Judgment is established by N.Y. CPLR § 5305(a)(3), which upholds the personal jurisdiction of a foreign court over a defendant if the defendant prior to the commencement of the proceedings had agreed to submit to the jurisdiction of the foreign court with respect to the subject matter involved. Koehlers indebtedness to BBL underlying that judgment arises out of his failure to repay his personal Nisbet loan, collateralized by the May 2, 1989 Memorandum of Deposit of Koehlers shares in The Reefs, which contained Koehlers consent to the jurisdiction of the Bermuda courts.
Koehler contends that the May 14, 1991 demand note and cover letter that he executed at BBLs request with respect to this loan constituted a novation of the Memorandum of Deposit and abrogated its consent to Bermuda jurisdiction. I do not agree. The cover letter with which BBL forwarded the demand note to Koehler, dated May 2, 1991,FN8 read in part:
FN8. May 14, 1991 is the date on which Koehler signed the demand note.
Without waiving or otherwise affecting or prejudicing any of the rights which the Bank may have, whether at law or under any agreements with yourself or any other person, the Bank is prepared to treat the amount presently due and owing as a demand loan
If you agree to the foregoing treatment, kindly date and sign the duplicate of this letter, the attached Demand Promissory Note and return both to the Bank at your earliest convenience.
(emphasis added). This language in the covering letter is sufficient to preserve Koehlers consent to Bermuda jurisdiction contained in the Memorandum of Deposit. There is no suggestion in the record that Koehler did not sign and return the duplicate copy of the covering letter.
[*12] Even if § 5305(a)(3) does not apply, the Bermuda courts personal jurisdiction over Koehler is established by § 5305(b), that broad catch-all provision that allows New York courts to recognize other bases of jurisdiction. Under International Shoe v. Washington, 326 U.S. 310 (1945) and its progeny, [t]o be subject to in personam jurisdiction, a defendant must have had certain minimum contacts with the forum state, and reasonable notice of the pendency of the action. Ackermann, 788 F.2d at 838 (citations and internal quotation marks omitted).
The second issue does not arise, since Koehler does not contend that he lacked reasonable notice of BBLs Bermuda action against him. As for the minimum contacts element, this Court must decide whether Koehler had sufficient contacts with Bermuda in connection with the underlying transaction to satisfy a jurisdictional basis for the Bermudian forum which New York recognizes in its internal law. See Ackermann, 788 F.2d at 838 (West German judgment enforceable in federal district court in New York because Levine had sufficient contacts with West Germany such that he was availing himself of the privileges arising therein) (citations and internal quotation marks omitted); Canadian Imperial Bank of Commerce, 899 F.Supp. at 1253 (Canadian court judgment enforced by this Court where a clear nexus existed between the cause of action and the contacts [defendant] Saxony had to the Canadian forum, thereby satisfying that basis of jurisdiction recognized by the New York long-arm statute, CPLR § 302(a)(1)); CIBC Mellon Trust Co., 296 A.D.2d at 97-100 (English court judgment enforced by New York court where defendants were active participants in the conspiracy alleged in the present case, which conspiracy included acts which took place in England, so that the English courts exercise of personal jurisdiction over [defendants] Mopra and Chascona was presumptively proper under CPLR § 302 and International Shoe, made applicable to the case by CPLR § 5305(b)); FN9 Soloman Limited v. Biederman and Co., Inc., 177 A.D.2d 350, 576 N.Y.S.2d 118 (A.D. 1 1991) (English court default judgment enforced by New York court under CPLR § 5305(b) where there was a clear nexus between business transacted by defendants representative in the United Kingdom and the cause of action based on the order of the specially manufactured goods, and [t]he contacts of the parties both before and after the business meeting with defendants representative in London constitute purposeful activity sufficient to confer jurisdiction.) (citation omitted); Porisini, 90 A.D.2d at 951 (English court default judgment for unpaid rent of a London apartment enforced by New York court under CPLR § 5305(b) (Since [the defendant] admits in his answering papers that he was in London at the time complained of and lived in plaintiffs apartment, the predicate for personal jurisdiction [of the English court] is established beyond dispute, given the New York long-arm provision found in CPLR § 302(a)(4)).
FN9. The New York Court of Appeals affirmed the judgment in CIBC Mellon Trust Co. on the ground that defendants had made a voluntary appearance in the English court, so that the English courts judgment was enforceable in New York by virtue of CPLR § 5305(a)(2). 100 N.Y.2d at 224-225. The Court of Appeals disagreed with the Appellate Divisions holding that the defendants appearance in the English court satisfied CPLR § 5305(a)(2) and consequently did not reach § 5305(b), upon which the Appellate Division grounded its opinion. That the Appellate Division correctly applied § 5305(b) is demonstrated by the other cases cited and summarized in text.
[*13] As the Appellate Division observed in CIBC Mellon Trust Co., 296 A.D.2d at 96, the question posed by CPLR § 5305(b) is not whether the foreign court properly exercised jurisdiction under its own laws. The use of the term ‘personal jurisdiction’ in CPLR 5305 necessarily contemplates the definition of that term as understood in our jurisprudence. Cases such as those cited and summarized supra make it plain that Koehlers contacts with Bermuda were sufficient to subject him to the personal jurisdiction of the Bermuda Supreme Court under principles of New York jurisprudence articulated in CPLR § 302(a). Koehler negotiated with a Bermudian resident to acquire an equity position in The Reefs, a Bermudian property. At the request of BBL, a Bermudian entity, Koehler executed and returned to BBL in Bermuda the May 2, 1989 Memorandum of Deposit covering his shares in The Reefs and subsequently, at BBLs request, executed and returned to BBL the May 2 demand note and cover letter covering his shares in The Reefs.
Koehler says that the corporation he formed with Dodwell was incorporated under Maryland law, and that he has not spent much time in Bermuda in recent years. But those factors are hardly sufficient to blur the quintessential Bermuda contacts that center about Koehlers acquired interest in a resort located in Bermuda and his submission of loan agreements and collateral to a Bermuda bank.
Moreover, the cause of action underlying BBLs 1994 action against Koehler in the Bermuda Supreme Court arose directly out of Koehlers significant contacts with Bermuda, so that there was a clear nexus between those contacts BBLs cause of action against him. These circumstances satisfy the criteria of CPLR § 302(a)(1). The Bermuda Supreme Court had personal jurisdiction over Koehler in respect of the Bermuda Deficiency Judgment.
No other basis for avoiding enforcement of that judgment is available to Koehler. It cannot be said that the courts of Bermuda were incapable of extending due process to Koehler. The Bermuda courts subject matter jurisdiction is apparent. Koehler makes no factual showing to sustain his conclusory contention that the Bermuda Deficiency Judgment was fraudulently obtained by BBL. Nor does he demonstrate that its enforcement would offend New York public policy.
c. The Nevis Enforcement Judgment
The considerations that render the Bermuda Deficiency Judgment enforceable in New York apply with equal force to the Nevis Enforcement Judgment.
Unlike the two Bermuda judgments, Koehler did not default in respect of the action BBL brought against him in the Nevis court. Koehler appeared and made certain contentions which the Nevis court rejected, ultimately granting BBL the order for which it prayed.
Koehler now contends that the Nevis action was in rem and accordingly his appearance therein did not create personal jurisdiction over him. I need not decide that question because the personal jurisdiction of the Nevis court over Koehler may in any event be grounded in CPLR § 5305(b). Koehlers contacts with Nevis consisted of his agreement with Dodwell to form Windward, a Nevis corporation, for the purpose of acquiring and renovating the Nisbet resort in Nevis. These contacts are more than sufficient to satisfy New Yorks internal law of personal jurisdiction.
[*14] The requisite nexus between Koehlers contacts with Nevis and BBLs claim against him exists because BBL brought the Nevis action against Koehler to enforce the Bermuda Deficiency Judgment, which in turn was based upon Koehlers failure to repay the BBL-Lux personal loan whose proceeds he used to purchase the Nisbet resort, property situated in Nevis.
d. The Bermuda Declaratory Judgment
The Bermuda Supreme Courts personal jurisdiction over Koehler for purposes of the Bermuda Declaratory Judgment is established for the same reasons stated supra in respect of the Bermuda Deficiency Judgment.
Resisting BBLs present motion for partial summary judgment, Koehler asserts three additional reasons why the Bermuda Declaratory Judgment would not be recognized by a New York court. These relate to notice, fraud, and a judgment rendered by an Arizona state court in respect of the Mansion Club transaction. I will consider these subjects in turn.
Koehler contends that he was not given adequate notice of BBLs application for the Declaratory Judgment, which the Bermuda Supreme Court signed on February 22, 2001. His brief argues at page 24 that BBL failed to give adequate notice to Koehler of its submission to the Bermuda court for a ruling, and that [i]t was not until February 20, 2001 that this Summons was ‘served’ on Koehler (actually left at Koehlers home and discovered by his wife). Pls Mem. Opp'n Mot. Partial Summ. J. dated Jan. 13, 2003 (Main Brief). However, on page 20 of the same brief Koehler defended his decision to default in BBLs declaratory judgment action as the only rational choice, contending that in the circumstances Koehler not only had no incentive to litigate, he had no real choice but to default as Bermuda provided no forum for a full and fair hearing of the issues in dispute. Id.
There is, of course, a certain tension between Koehlers prior decision not to participate at all in the Bermuda declaratory judgment and this complaint that he did not receive adequate notice of a hearing during the course of that litigation. One wonders how the asserted lack of notice prejudiced Koehler. However, I will accept in principle that if Bermuda law and practice allowed BBL to apply for and the Bermuda Supreme Court to grant a declaratory judgment such as this one, without adequate notice to Koehler, the resulting Bermuda judgment would not pass due process and public policy muster when enforcement was sought in New York.
But that question does not arise because there is no substance to Koehlers claim of inadequate notice. The record shows that BBL commenced its declaratory judgment action against Koehler in July 1988. On July 20, 1998, a Bermuda Puisne Judge signed an order granting BBL leave to serve the summons out of the jurisdiction upon Koehler at his home in York, Pennsylvania. BBL retained Information Network Associates (INA), a Pennsylvania private investigation company, whose employee on September 28, 2001 made personal service of the Bermuda action Notice of Writ and Summons upon Koehler at his home. On August 15, 2000, an INA employee served upon Koehlers daughter-in-law at the York residence a copy of BBLs Notice of Intention to Proceed in the declaratory judgment action. BBL proceeded in the Bermuda court by submitting an affidavit of counsel and a considerable quantity of documents in support of its application for a declaratory judgment. BBL again retained INA, this time to serve copies of these documents upon Koehler at his home. Repeated but unsuccessful effort to serve Koehler at his home began on February 8, 2001. Because INA employees had advised that in connection with service of documents in other matters Koehler had been belligerent and hostile, the INA employee on this occasion enlisted the assistance of the local police. On February 9 a police sergeant undertook to contact Koehler by telephone (over the INA agents protest) and advised the agent that evening (presumably on Koehlers instructions) that service was to be made at Koehlers office at a designated address in Baltimore, Maryland. The INA employee made several more attempts at service at Koehlers home, and also went to the Baltimore office, which he located at the given address, but the door was locked and there was no response Finally, on February 19 the INA employee left the sealed box of documents in a protected area outside Koehlers home.FN10
FN10. The factual account in this paragraph is based upon affidavits executed by a partner in the Bermuda law firm representing BBL and by the INA employees who made or attempted service upon Koehler, together with exhibits attached to those affidavits.
[*15] These facts support the inference that during February 2001 Koehler was deliberately evading service of BBLs papers upon him. But even if he was not, there is no basis for Koehlers claim of inadequate service in respect of the Bermuda Declaratory Judgment action. He stands in the same position as the defendants in CIBC Mellon Trust Co., 100 N.Y.2d 215, who let a default judgment be entered against them in the English court: [D]efendants were given ample notice and numerous opportunities to present their defense in England; they simply elected to forego these opportunities (apparently against the advice of their English attorneys) for strategic reasons. Id. at 222.
Koehler contends that the Bermuda Declaratory Judgment cannot be a basis for partial summary judgment in BBLs favor because there is a factual dispute, requiring resolution by this Court, as to whether or not BBLs participation in the recapitalization of The Reefs was with the actual intent to hinder, delay or defraud Koehlers collection efforts in respect of his Maryland judgment against Dodwell. Main Brief at 6.
This is a reprise of the federal securities fraud claim Koehler asserted against BBL and Dodwell in the case in this Court before Judge Keenan. In that action Koehler, focusing upon the 1993 Recapitalization of The Reefs shares, alleged that BBL and Dodwell, inter alia, engaged in a scheme to enable them to fraudulently acquire Koehlers cash dividends, preferred stock dividends, and common stock in The Reefs Limited by means of adopting an alternative debt restructuring plan so unfavorable to [Koehler] as to squeeze him out of his interest in The Reefs Limited. 1998 WL 557595, at *9. Koehler alleged further that if BBL and Dodwell had given him advance notice of their true intentions, Koehler