United States District Court, S.D. New York

Lee N. KOEHLER, Petitioner,
v.
THE BANK OF BERMUDA LIMITED, Respondent

Not Reported in F.Supp.2d, 2004 WL 444101 (S.D.N.Y.)

No. M18-302(CSH)


DATE:
March 10, 2004.

SUBSEQUENT HISTORY: See Koehler v. Bank of Bermuda Ltd., 2004 WL 1555116 (S.D.N.Y. Jul. 9, 2004) (No. M18-302)
Related references: Koehler v. Bank of Bermuda (New York) Ltd., 1998 WL 67652 (S.D.N.Y. Feb. 19, 1998) (No. 96 CIV. 7885 (JFK))
Order Affirmed by: Koehler v. Bank of Bermuda (New York) Ltd., 209 F.3d 130, Fed. Sec. L. Rep. P 90,936 (2nd Cir.(N.Y.) Apr. 10, 2000) (No. 98-9624), but opinion amended at: 229 F.3d 424 (2nd Cir.(N.Y.) Sep 25, 2000) and rehearing en banc denied at: 229 F.3d 187 (2nd Cir. Sep. 28, 2000)
Distinguished by: Byblos Bank Europe, S.A. v. Syrketi, 12 Misc.3d 792, 819 N.Y.S.2d 412, 2006 N.Y. Slip Op. 26179 (N.Y.Sup. Apr. 21, 2006) (No. 102999/06)
Related cases: Koehler v. Bank of Bermuda (New York) Ltd., 1998 WL 557595 (S.D.N.Y. Sep 02, 1998) (No. 96 CIV. 7885 (JFK))
Reconsideration Denied by: Koehler v. Bank of Bermuda (New York) Ltd., 1998 WL 790931 (S.D.N.Y. Nov 12, 1998) (No. 96 CIV. 7885 (JFK))
Koehler v. Bank of Bermuda (New York) Ltd., 1998 WL 557595 (S.D.N.Y. Sep 02, 1998) (No. 96 CIV. 7885 (JFK))
Koehler v. Reefs Beach Club Ltd., 1999 WL 377856 (S.D.N.Y. Jun. 8, 1999) (No. 98 CIV. 4370 (JFK))
Koehler v. Bank of Bermuda, Ltd. , 2002 WL 519740 (S.D.N.Y. Apr. 5, 2002) (No. M18-302, 931745)
Koehler v. Bank of Bermuda Ltd., 2002 WL 1766444 (S.D.N.Y. Jul. 31, 2002) (No. M18-302)
Koehler v. Bank of Bermuda, Ltd., 2003 WL 289640 (S.D.N.Y. Feb. 11, 2003) (No. M18-302, 931745)
Reconsideration Denied by: Koehler v. Bank of Bermuda Ltd., 2003 WL 466206 (S.D.N.Y. Feb. 21, 2003) (No. M18-302)
Koehler v. Bank of Bermuda, Ltd., 2003 WL 22358810 (S.D.N.Y. Oct. 16, 2003) (No. M18-302 CSHMHD, 931745)
Koehler v. Bank of Bermuda Ltd., 2004 WL 906274 (S.D.N.Y. Apr. 27, 2004) (No. M18-302 (CSH))
Koehler v. Bank of Bermuda Ltd., 2005 WL 551115, 56 UCC Rep.Serv.2d 782 (S.D.N.Y. Mar. 9, 2005) (No. M18-302 (CSH))
Reargument Denied: Koehler v. The Bank of Bermuda Ltd., 2005 WL 1924746 (S.D.N.Y. Aug. 10, 2005) (No. M18-302 (CSH))
Koehler v. Bank of Bermuda Ltd., 2005 WL 1119371 (S.D.N.Y. May 10, 2005) (No. M18-302(CSH))

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 Koehler’s 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 BBL’s contention that this Court lacked personal jurisdiction over it, an issue that was recently resolved by BBL’s unconditional consent to this Court’s 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 other’s 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.

I. BACKGROUND

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 Circuit’s 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 Koehler’s 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 Haussner’s 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 Haussner’s the remaining 20 percent. Haussner’s 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, BBL’s 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 Windward’s 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 Koehler’s 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, BBL’s 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 Circuit’s 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-Lux’s 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 Koehler’s stock in The Reefs had previously been pledged to secure BBL-Lux’s Nisbet loan to Koehler.FN2

FN2. And, in point of fact, on July 21, 1992, pursuant to the collateral provisions of BBL-Lux’s personal Nisbet loan to Koehler, BBL demanded and received, over Koehler’s objection, all Koehler’s shares in The Reefs Beach Club Ltd. At the same time BBL took possession of Dodwell’s 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 BBL’s chief executive officer appeared to express an preference for an refinancing arrangement consistent with Koehler and Dodwell’s Combined Equity Plan. However, that changed on February 14, 1992, when BBL presented a debt restructuring plan that, in the Second Circuit’s words, “would pay off almost all of Dodwell’s 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 Koehler’s objections, BBL persisted in its February 1992 debt reconstruction proposal, which had acquired the name “Macdonald Plan.” A revised version of BBL’s Macdonald Plan was submitted to Koehler’s 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 Dodwell’s and Koehler’s outstanding loans in respect of the Nisbet and Mansion Club transactions. That application resulted in the satisfaction of many of Koehler’s and Dodwell’s 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 BBL’s 1994 action against Koehler in the Supreme Court of Bermuda, described in Part II.A.1., infra.

F. Koehler’s 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 Koehler’s 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 shareholder’s 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 Dodwell’s 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 Circuit’s 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 Bermuda’s 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. Koehler’s 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 Respondent’s 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. Koehler’s 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 BBL’s motion for partial summary judgment, because that motion is limited to Dodwell’s shares in The Reefs.

Koehler sought to obtain personal jurisdiction in this Court over BBL by serving his Petition upon BBL’s 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.

II. DISCUSSION

A. BBL’s Motion for Partial Summary Judgment

BBL contends that insofar as Koehler’s garnishment Petition seeks to reach Dodwell’s shares in The Reefs in BBL’s 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, Koehler’s 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 BBL’s 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 Koehler’s 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 BBL’s application. BBL and Koehler dispute whether Koehler’s appearance was general (BBL’s contention) or limited (Koehler’s contention), the difference being asserted as determinative of whether or not Koehler’s 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 Koehler’s 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. Koehler’s 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] Koehler’s 1996 action in this Court against BBL and Dodwell is relevant to BBL’s 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.

Koehler’s 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 Koehler’s 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 Koehler’s 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 BBL’s 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. Shailer’s affidavit is dated July 15, 1998. At that time BBL’s 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 BBL’s 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

(a) No recognition. A foreign country judgment is not conclusive if:

1. the judgment was rendered under a system which does not provide impartial tribunals or procedures compatible with the requirements of due process law;

2. The foreign court did not have personal jurisdiction over the defendant.

(b) Other grounds for non-recognition. A foreign country judgment need not be recognized if:

1. the foreign court did not have jurisdiction over the subject matter;

2. the defendant in the proceedings in the foreign court did not receive notice of the proceedings in sufficient time to enable him to defend;

3. the judgment was obtained by fraud;

4. the cause of action on which the judgment is based is repugnant to the public policy of this state;

5. the judgment conflicts with another final and conclusive judgment;

6. the proceeding in the foreign court was contrary to an agreement between the parties under which the dispute in question was to be settled otherwise than by proceedings in that court; or

7. in the case of jurisdiction based only on personal service, the foreign court was a seriously inconvenient forum for the trial of the action.

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:

Personal jurisdiction

(a) Bases of jurisdiction. The foreign country judgment shall not be refused recognition for lack of personal jurisdiction if:

[*9] 1. the defendant was served personally in the foreign state;

2. the defendant voluntarily appeared in the proceedings, other than for the purpose of protecting property seized or threatened with seizure in the proceedings or of contesting the jurisdiction of the court over him;

3. 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;

4. the defendant was domiciled in the foreign state when the proceedings were instituted, or, being a body corporate had its principal place of business, was incorporated, or had otherwise acquired corporate status, in the foreign state;

5. the defendant had a business office in the foreign state and the proceedings in the foreign court involved a cause of action arising out of business done by the defendant through that office in the foreign state; or

6. the defendant operated a motor vehicle or airplane in the foreign state and the proceedings involved a cause of action arising out of such operation.

(b) Other bases of jurisdiction. The courts of this state may recognize other bases of jurisdiction.

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 Dep’t 2002), aff’d. on other grounds, 100 N.Y.2d 215 (2003). Professor Siegel’s 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).

BBL’s 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 York’s policies favoring recognition and enforcement. Contrary to Koehler’s 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 Dep’t 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 defendant’s 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 plaintiff’s 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 court’s 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.

Aff’d., 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 court’s 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.” Koehler’s 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 Koehler’s shares in The Reefs, which contained Koehler’s consent to the jurisdiction of the Bermuda courts.

Koehler contends that the May 14, 1991 demand note and cover letter that he executed at BBL’s 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 Koehler’s 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 court’s 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 BBL’s 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 court’s 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 defendant’s 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 defendant’s 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 plaintiff’s 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 court’s 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 Division’s 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 Koehler’s 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 BBL’s 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 Koehler’s 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 BBL’s 1994 action against Koehler in the Bermuda Supreme Court arose directly out of Koehler’s significant contacts with Bermuda, so that there was a clear nexus between those contacts BBL’s 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 court’s 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). Koehler’s 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 York’s internal law of personal jurisdiction.

[*14] The requisite nexus between Koehler’s contacts with Nevis and BBL’s claim against him exists because BBL brought the Nevis action against Koehler to enforce the Bermuda Deficiency Judgment, which in turn was based upon Koehler’s 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 Court’s 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 BBL’s 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.

i. Notice

Koehler contends that he was not given adequate notice of BBL’s 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 Koehler’s home and discovered by his wife).” Pl’s 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 BBL’s 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 Koehler’s 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 Koehler’s 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 Koehler’s daughter-in-law at the York residence a copy of BBL’s 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 agent’s protest) and advised the agent that evening (presumably on Koehler’s instructions) that service was to be made at Koehler’s office at a designated address in Baltimore, Maryland. The INA employee made several more attempts at service at Koehler’s 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 Koehler’s 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 BBL’s papers upon him. But even if he was not, there is no basis for Koehler’s 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.

ii. Fraud

Koehler contends that the Bermuda Declaratory Judgment cannot be a basis for partial summary judgment in BBL’s favor because there is a factual dispute, requiring resolution by this Court, “as to whether or not BBL’s participation in the recapitalization of The Reefs was with the actual intent to hinder, delay or defraud Koehler’s 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 Koehler’s 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

Id. (quoting Koehler’s brief opposing BBL’s motion to dismiss his complaint).FN11

FN11. Judge Keenan dismissed Koehler’s federal securities fraud claim against BBL under Rule 12(b)(6), Fed.R.Civ.P., for failure to state a claim upon which relief could be granted. He reasoned, inter alia, that “BBL’s relationship with Koehler was that of a creditor properly enforcing its rights pursuant to a security agreement, not a forced sale of securities through market manipulation or fraud.” 1998 WL 557595, at *10. The Second Circuit affirmed Judge Keenan’s order of dismissal, concluding that BBL’s alleged conduct did not satisfy the elements of a fraud claim under the relevant federal statute, the Securities Exchange Act of 1934. In its Declaratory Judgment the Bermuda Supreme Court reached essentially the same conclusion under Bermuda law, absolving BBL of any wrongdoing in respect of the Reefs Recapitalization. Thus even assuming, contrary to the conclusion I reach in text infra, that BBL’s underlying conduct is relevant to the recognition of the Bermuda Declaratory Judgment in New York, Koehler would be defending a sticky wicket if he undertook to show in this Court that BBL acted fraudulently.

Under New York law, a foreign judgment need not be recognized if “the judgment was obtained by fraud.” CPLR § 5304(b)(3). However, the underlying fraudulent conduct on the part of BBL and Dodwell that Koehler alleged in the case before Judge Keenan, reiterates in the case at bar, and could certainly have asserted in the Bermuda court in opposition to the declaratory judgment action had he not defaulted, does not implicate this statutory exception to the recognition of a foreign judgment. The distinction is articulated in Fairchild, Arabatzis & Smith, Inc. v. Prometco (Produce & Metals) Co., Ltd., 470 F.Supp. 610, 615 (S.D.N.Y.1979):

Plaintiffs’ “fraud” challenge is easily disposed of because it rests upon a basic misapprehension of the scope of the statutory exception. Whether or not the defendants engaged in a fraud with respect to the commodity transactions about which plaintiff complains is entirely irrelevant to the recognition of the British judgment. The fraud must relate to matters other than issues that could have been litigated and must be a fraud on the court. No such contention is raised here.

[*16] (construing CPLR § 5304(b)(3) (citations and internal quotation marks omitted). See also The Society of Lloyd’s v. Mullin, 255 F .Supp.2d 468 (E.D.Pa.2003) (“Whether Lloyd’s properly obtained [Mullin's] assent to the General Undertaking is beyond the scope of this Court’s inquiry…. Mullin presents no evidence that the English Judgment (as opposed to Mullin’s assent to the General Undertaking) was fraudulently obtained, and thus the Court rejects his contention to the contrary.”) (citing Fairchild, and construing a Pennsylvania statutory provision identical to CPLR § 5304(b)(3)). In Ackermann, 788 F.2d at 841, the Second Circuit cited with approval and quoted Fairchild for the proposition that to deny recognition to a foreign judgment, the alleged fraud “must relate to matters other than issues that could have been litigated and must be a fraud on the court.”).

There is no basis for applying the statutory fraud exception to the Bermuda Declaratory Judgment.FN12

FN12. In his main brief opposing BBL’s present motion, Koehler suggests en passant at page 25 that the 1994 Bermuda Deficiency Judgment was “tainted by fraud by the use of a false assertion in an affidavit used to obtain leave to serve Koehler without the Bermuda jurisdiction,” a form of fraud which Koehler characterizes as “extrinsic” and “not within the issues submitted for determination.” This may represent an effort to bring the Bermuda Deficiency Judgment within the statutory fraud exception in CPLR § 5304(b)(3). However, Koehler’s brief at the cited page does not elaborate further upon this contention, and the references to earlier sections of the brief do no more than lead the reader back into a consideration of the existence vel non of the Bermuda court’s personal jurisdiction over Koehler, a question that I have resolved against him for the reasons stated in Part II.A.4.b. of this opinion.

iii. The Arizona Judgment

To place Koehler’s contention in context, some factual recapitulation is necessary.

Parts I.C. and I.D. of this opinion describe the Mansion Club transaction, the defaults under the BBL-NY loans to the Mansion Partnership (secured by Koehler’s and Dodwell’s personal guarantees), and BBL-NY’s assignment of the loans and guarantees to BBL. As noted, the real estate comprising the Mansion Club was located in the state of Arizona. The foreclosure sale of the property left a shortfall in excess of $2 million on the loans. In late 1991 or early 1992 BBL filed in an Arizona state court a deficiency action against the Mansion Club limited partnership and, by logical extension, against Koehler and Dodwell as guarantors. BBL took no further steps to advance that action. On October 20, 1993, the Reefs Recapitalization was executed in Bermuda. The proceeds generated by the Recapitalization were used to satisfy the entire indebtedness borne by Koehler and Dodwell to BBL in respect of their Mansion Club loan guarantees. In 1994 the clerk of the Arizona court dismissed BBL’s deficiency action with prejudice for want of prosecution. In 1998 BBL filed its declaratory judgment action against Koehler in the Supreme Court of Bermuda. In 2001 the Supreme Court of Bermuda issued its Declaratory Judgment holding that the Reefs Recapitulation and attendant application of sale proceeds were legal and proper.

Koehler argues that these circumstances give rise to a public policy reason for denying the Bermuda Declaratory Judgment recognition in New York. He bases that contention on a proposition of Arizona law, namely, that the legal effect of the Arizona court’s dismissal of BBL’s deficiency action was to extinguish all outstanding deficiencies, including the obligations of loan guarantors, so that “as soon as the Arizona action was dismissed, it was established that no deficiency did or thereafter could be asserted [sic] against the guarantors,” Main Brief at 23, thereby invalidating the allocation of Reefs shares proceeds achieved as part of the Recapitalization. It follows, Koehler’s argument concludes, that the Bermuda Declaratory Judgment, which concluded that BBL “was within its rights to apply the recapitalization proceeds to the alleged outstanding liability” under the Mansion Club loans and guarantees, conflicts with the Arizona judgment of dismissal, to which this Court must extend full faith and credit, a constitutional obligation trumping the principle of comity upon which the recognition of foreign judgments depends. Id. at 24.

[*17] There is less to this argument than meets the eye. The “conflict” between the Bermuda Declaratory Judgment and the Arizona judgment is more apparent than real. As the result of the Reefs Recapitalization in October 1993, nothing further was owing by Koehler or Dodwell in respect of the Mansion Club loan guarantees; it is not surprising that BBL gave no further instructions to their Arizona counsel, so that eventually the Arizona court on its own initiative dismissed the Arizona deficiency action for lack of prosecution. A conflict would exist between these two judgments only if the Arizona judgment operated as a bar to the relief BBL sought in its declaratory judgment action, and the Bermuda Supreme Court disregarded that bar when it gave its judicial blessing to the Reefs Recapitalization. Koehler could have urged that effect of the Arizona judgment upon the Bermuda court.FN13 Had that argument succeeded, the Bermuda court might have refused a declaration approving the Reefs Recapitalization and an allocation of its proceeds that included satisfying the Mansion Club loan and guarantees. But Koehler chose to default in the Bermuda declaratory judgment action BBL brought against him, and there is no substance to his apparent suggestion that the courts of Bermuda would not treat him fairly. The reality is that Koehler’s present reliance upon the Arizona judgment constitutes a collateral attack upon the Bermuda Declaratory Judgment; however, having defaulted in the Bermuda declaratory judgment action, such contentions are not available to him. See cases cited in Part II.A.4.a., supra.

FN13. I accept that it would have been necessary for Koehler to bring the Arizona judgment to the attention of the Bermuda Supreme Court. The Sailer affidavit in support of BBL’s declaratory judgment action at ¶¶ 16-21 described the Mansion Club loan, guarantees, and defaults, and the assignment of the loan by BBL-NY to BBL, but said nothing about BBL’s Arizona deficiency action and the Arizona court’s dismissal of that action. That circumstance, however, does not alter the conclusions I reach in text.

If, contrary to the conclusion I have just expressed, there is a conflict between the Arizona judgment and the Bermuda Declaratory Judgment that is material to recognition analysis, the 2001 Bermuda Declaratory Judgment must be preferred over the 1994 Arizona judgment of dismissal because it is latest in time. See Ambatielos, 203 Misc. at 648 (“It is generally held that where inconsistent judgments have been rendered in successive actions between the same parties, the judgment that is latest in point of time prevails.”) (citing cases); Perkins, 279 A.D. at 903 (“as the Philippine judgment is a subsequent judgment, we think that defendant is entitled to assert it as a defense to the present action.”). This rule applies to the case at bar because the Arizona deficiency action and the Bermuda declaratory judgment action are “successive actions between the same parties”; in both, BBL sued Koehler. A treatise quoted by the Ambatielos court explains the rationale for the last in time rule:

Rights acquired by virtue of a judgment or decree are liable to be terminated in the same manner. Consequently, though a matter has once been litigated to a final judgment if it is subsequently relitigated and adjudicated the last judgment controls and determines the rights of the parties. The second judgment cannot be collaterally impeached by showing the first.

[*18] Freeman’s Treatise on Judgments, Vol. 2, § 629.FN14 The latest in time rule applies to foreign judgments; in Perkins, the “subsequent judgment” in question was rendered by a Philippine court, and the Appellate Division indicated its intention to accord that judgment preference over an earlier decision of the New York Court of Appeals.

FN14. This treatise’s characterization of reliance upon an earlier judgment as an effort to “collaterally impeach[ ]” a later judgment is consistent with this Court’s characterization in text of Koehler’s reliance upon the Arizona judgment as a “collateral attack” upon the Bermuda Declaratory Judgment, an attack that Koehler, having defaulted in the Bermuda action, is not entitled to make.

I have considered all of Koehler’s objections to the recognition and enforcement of these three foreign judgments, even those not specifically discussed. I find no substance in any of them. It follows that the three foreign judgments upon which BBL relies would be entitled to recognition by New York courts, and consequently are recognizable by this Court.

However, that does not end the matter. One must now consider the effect of these judgments upon the proceeding Koehler has initiated against BBL in this Court. See Fairchild, 470 F.Supp. at 616 (“At least as against FAS, therefore, the British judgment would clearly be recognized by a New York court. The important question, however, is the extent to which New York would accord preclusive effect to that judgment under the principles of res judicata and collateral estoppel.”). (footnote omitted).

5. The Effect of the Foreign Judgments Although the parties’ prior submissions consisting of affidavits, exhibits, and briefs of counsel are extensive, they do not furnish an adequate basis for a determination by the Court of the preclusive effect of the foreign judgments, in particular the Bermuda Declaratory Judgment.

I single out the Bermuda Declaratory Judgment because it is not immediately apparent what effect BBL’s Bermuda Deficiency Judgment and Nevis Enforcement Judgment against Koehler have upon Koehler’s petition in this Court. Those judgments dealt with Koehler’s indebtedness to BBL on a loan which Koehler had failed to repay, a situation seemingly unrelated to Koehler’s effort to collect on his Maryland judgment against Dodwell. Koehler’s petition in this Court says nothing about his indebtedness to BBL; nor does he, in the proceedings before this Court, make any effort to avoid or set aside the Bermuda Deficiency Judgment and Nevis Enforcement Judgment against him which arose out of that indebtedness. The briefs submitted by BBL’s predecessor counsel on the present motion for partial summary judgment did little to clarify the connection: counsel’s position seemed to be that BBL had these three judgments against Koehler (the Bermuda Declaratory Judgment being the third), and that should be that.

But BBL’s position emerges with greater clarity when successor counsel in their sur-reply brief at 3 summarize BBL’s motion for partial summary judgment as asking that “this Court give full res judicata effect to the Bermuda and Nevis judgments so that BBL does not have to relitigate its secured interest in the Reefs shares and the recapitalization of the Reefs.” Of the two Bermuda judgments BBL obtained against Koehler, the Bermuda Declaratory Judgment is clearly more important to that purpose, having adjudicated that the Reefs Recapitalization and the use of its proceeds to pay off BBL’s secured interest in Dodwell’s shares were proper and legal. I think it clear that while BBL’s Bermuda Deficiency Judgment and Nevis Enforcement Judgment against Koehler furnish pertinent background for the Bermuda declaratory judgment action BBL subsequently filed against Koehler, BBL’s motion for partial summary judgment stands or falls upon the effect of the Bermuda Declaratory Judgment.

[*19] Having said that, the preclusive effect of the Bermuda Declaratory Judgment remains unclear, and the underlying facts are not sufficiently revealed by the present record. The problem may be illustrated by quoting from the transcript of the hearing on the motions. At the start of the hearing Mr. West, counsel for Koehler, observed that BBL’s motion is for “only a partial summary judgment,” and went on to say that

they're asking only for the Court to approve certain judgments that they obtained against Mr. Koehler as controlling to their use of Mr. Dodwell’s stock to satisfy certain obligations of the bank.

In fact, in the most recent response filed by Mr. Rapport [counsel for BBL], they clearly indicate that their motions do not reach certain excess stock assets of Mr. Dodwell’s and therefore there can be no summary judgment as to those …

THE COURT: Let me put this to you then, in view of what you have just said. If the bank prevails on its motion for what you now suggest is partial summary judgment, would that be fatal to Mr. Koehler’s effort to assert a fraudulent conveyance claim with respect to the transaction of October 20, 1993?

MR. WEST: Certainly not as to the excess assets, your Honor.

Mr. Dodwell owned more stocks in The Reefs than the bank took to satisfy his obligations. Subsequently, during the course of discovery that we have been working on these last 10 years we have discovered that the bank apparently allowed Mr. Dodwell to transfer those excess shares and therefore, at least our fraudulent conveyance claim, would certainly reach those assets which were not the subject of the judgments, were not used by the bank to satisfy their claims but were allowed to escape the hold, the secured creditor hold the bank had at the time Mr. Koehler laid the garnishment on in 1993.

THE COURT: So, you say that there are economic sources or assets available to you which would be available even if, for example, the declaratory judgment granted by the Bermuda court were to be given res judicata or preclusive effect here in this court, is that right?

MR. WEST: That is correct, your Honor.

THE COURT: And the reason for that is that the two Bermuda judgments and the judgment by the court in Nevis, dealt with particular securities or shares of stock which are not all inclusive, insofar as your reference [ sic ] here in New York are concerned. Is that what it comes to?

MR. WEST: That is our position.

Transcript of December 17, 2003 hearing (“Tr.”) at 4-6.

Asked to address the same question, Mr. Rapport, counsel for BBL, said:

I think that analysis is largely correct.

I think with respect to the remaining shares that Mr. West is referring to that were transferred to, it appears transferred to a Dodwell family trust, two things.

First, the fraudulent conveyance claim with respect to those shares is still time barred, and I can discuss that when we come to the appropriate point.

[*20] Those shares are also, I would add, have never been in New York and thus would not be the appropriate subject of a proceeding here in New York in any event. I understand that particular issue is not before the Court today and has not been briefed by the parties so we're not seeking resolution of that particular issue today but it just seems that your Honor is trying to scope out where this case is going in terms of the various motions that are pending and what the impact of the currently pending motions would be.

Tr. 6-7 (emphasis added). Later in the hearing, this exchange took place between the Court and counsel for BBL:

THE COURT: Then sum up for me, particularize the effect that a decision from me, in your favor on the arguments you just made to me [on the preclusive effect of the foreign judgments], would have upon what Mr. Koehler is trying to do in this Court, to the bank.

Do you see what I'm asking you?

MR. RAPPORT: I do, your Honor

I think our discussion before hit the nail on the head. If the Court grants the bank’s motion here, everything with respect to what happened in 1993 is off the table. All that is left is the transfer of the underlying common shares—let me step back here.

The recapitalization involved the issuance of preferred shares, not anything to do with the underlying common shares. If the Court grants the bank’s motion, all that remains is what happens or the status of those underlying common shares of Dodwell's.

So, it dramatically narrows and focuses what remains to be litigated in this case.

THE COURT: And, on that narrow and limited issue, do you acknowledge that there is at least a potential liability on the part of the Bank of Bermuda to Mr. Koehler in the circumstances in FN15 which the parties find themselves?

FN15. The transcript reads “and” at Tr. 29. I have corrected that word.
MR. RAPPORT: No, your Honor, for two reasons.

First, with respect to the shares themselves, they were never in New York so they were never property subject to any enforcement proceeding here in New York. And to the extent Mr. Koehler is asserting any fraudulent conveyance claim with respect to that transfer of shares, that’s time-barred.

THE COURT: So, if you win on your motion it may leave Mr. Koehler with a much diminished trumpet out of which no music would emerge in any event.

Is that what it comes down to?

MR. RAPPORT: Yes, your Honor. That’s correct.

Tr. 28-29.

While counsel undoubtedly intended their remarks to clarify the issues, in certain respects they fall short of doing so.

First, BBL’s counsel introduced for the first time in connection with these motions a distinction between preferred shares and common shares that Dodwell held in The Reefs. It is true that the Shailer affidavit, in the course of describing the Reefs Recapitalization, referred at ¶¶ 33-42, referred to resolutions of The Reefs’ shareholders declaring dividends of “Class X redeemable preference shares” and “Class Y redeemable preference shares” (presumably Bermudian parlance for “preferred shares”), and their allotment as part of the Recapitalization and the Koehler/Dodwell debt restructuring. But “the status of those underlying common shares of Dodwell's,” to borrow Mr. Rapport’s phrase, is not at all clear, particularly within the context of the litigation presently pending before this Court.

[*21] Second, BBL is now pressing an argument that Dodwell’s share certificates in The Reefs (presumably common shares, either transferred to a Dodwell family trust or still in Dodwell’s possession) have never been physically situated in New York, and consequently are beyond the reach of any order Koehler seeks from this Court, by way of garnishment, an action for fraudulent conveyance, or any other procedural vehicle. But BBL’s counsel acknowledge that this contention has not yet been briefed by the parties. Clearly it must be, before the Court can rule definitively upon these motions.

In the present posture of the case, the only ruling the Court can definitively make is that expressed in Part II.A.4. of this Opinion, namely, that the three foreign judgments BBL obtained against Koehler are entitled to recognition by this Court. It follows, inter alia, that the Bermuda Declaratory Judgment has full preclusive effect in this Court. Under familiar principles of preclusion, Koehler is bound by all findings of fact and conclusions of law expressed in the Bermuda Supreme Court’s judgment; and Koehler cannot now assert in this Court any defense or argument that he could have raised before the Bermuda court had he appeared in the declaratory judgment action.

What remains for clarification are these preclusive effects’ precise boundaries. BBL’s counsel said during the quoted colloquies that if this Court recognized the Bermuda Declaratory Judgment (as I have), “everything with respect to what happened in 1993 is off the table.” This may be appropriate shorthand, but the parties must state with greater particularity which plates, cutlery, and glasses have been swept off the table and which remain for disputation here. I appreciate that the parties’ views on that question may differ.

B. Koehler’s Motion to Assert a Fraudulent Conveyance Claim Against BBL

The considerations just discussed also implicate Koehler’s motion for leave to amend his Petition or his prior Rule 25(c) motion, so as to assert a fraudulent conveyance claim against BBL. As noted, the claimed absence of the Dodwell share certificates from New York, asserted by BBL as a bar to such a claim, has not yet been briefed.

Furthermore, while BBL has not yet made the argument explicitly, the Court sua sponte raises the question of the possible effect of the Bermuda Declaratory Judgment upon Koehler’s asserted claim against BBL for a fraudulent conveyance. That is to say: if Koehler’s fraudulent conveyance claim depends to any degree upon BBL’s conduct in respect of the Reefs Recapitalization, is this something else swept “off the table” by the Bermuda Declaratory Judgment?

III. CONCLUSION

In order that the Court may be fully advised in the premises, I make the following Order:

1. On or about March 26, 2004, counsel for BBL are directed to file and serve an affidavit or affidavits executed by an individual or individuals with personal knowledge, attesting to (a) the present location and ownership of all common share certificates in The Reefs which were owned, possessed or controlled by Dodwell at the time Koehler commenced the captioned action in this Court, and (b) all transfers or other disposition of said share certificates between the time Koehler commenced the captioned action and the present.

[*22] 2. On or about March 26, 2004, counsel for BBL are further directed to file and serve a brief (a) in support of their contention that the Court cannot make any order in respect of Dodwell’s common shares in The Reefs because the share certificates were never physically situated in New York, and (b) setting forth with particularity BBL’s contentions in respect of the effect of the recognition by this Court of the three foreign judgments upon any issues or claims ending before this Court.

3. On or about April 16, 2004, counsel for Koehler are directed to file and serve a brief (a) in opposition to BBL’s contention summarized in ¶ 2(a) of this Order, and (b) responding to BBL’s submission in response to ¶ 2(b) of this Order.

4. On or about April 30, 2004, counsel for BBL may, if so advised, file and serve a submission in reply to the submissions on behalf of Koehler summarized in ¶ 3 of this Order.

Following these submissions, if the Court desires further oral argument, counsel will be advised.

It is SO ORDERED.