Sharp Thinking

No. 144   Perspectives on Developments in the Law from Sharp-Hundley, P.C.       April 201

Court Knocks Down Attempt To Reach Foreign Assets By Serving American Bank Branches

            By John T. Hundley,, 618-242-0200

            Some 27 years ago we raised the question whether U.S. judgment creditors could reach (a) information concerning and (b) assets of their non-U.S. judgment debtors by serving garnishment summonses and interrogatories upon local branches of international banks.  See John T. Hundley, Long Arms and Foreign Pockets: Can Multinational Financial Organizations Be Used to Subject Alien Defendants to the Enforcement of Illinois Judgments?, Chicago Bar Ass’n Record 24 (Sept. 1990).


            The question was not just academic; plaintiffs in early asbestos cases had used the technique in attempts to enforce U.S. judgments obtained against foreign asbestos producers who at the time were opting to sustain default judgments which would not be enforced in their home jurisdictions.  Though the banks which we represented ultimately avoided liability on other grounds, an answer to the overarching question was elusive.

            Then, in 2009, New York – long the leader in treating each bank branch as a separate entity for such purposes – took a major step back by upholding a turnover order directing a garnishee to transfer a foreign depositor’s assets from Bermuda to New York.  See Koehler v. Bank of Bermuda Ltd., 911 N.E.2d 825 (N.Y. 2009).  It was suggested that major U.S. financial centers with branches of multinational banks would become “Meccas” for judgment creditors attempting to reach assets held overseas.  See Comment, New York: The Next Mecca for Judgment Creditors, 78 Fordham L. Rev. 3161 (2010).                          


            Into that controversy late last month stepped Richard A. Posner and a panel of the Seventh U.S. Circuit Court of Appeals.  In Leibovitch v. Islamic Republic of Iran and Bank of Tokyo-Mitsubishi UFJ, __ F.3d __ , 2017 WL 1160943 (7th Cir. 2017), a terror group supported by Iran shot up a van in Jerusalem, killing one and injuring several family members.  The family members and the decedent’s estate sued Iran in federal court in Chicago under the Antiterrorism Act, 18 U.S.C. § 2333, and the Foreign Sovereign Immunities Act, 28 U.S.C. § 1605A.  A default judgment of $67 million was entered. 

Plaintiffs, now judgment creditors, sought to enforce their judgment by serving subpoenas and citations to discover assets upon the Chicago branches of two multi-national banks, seeking information from all their branches.  Posner, writing for the panel, treated the citations as if they were subpoenas and focused only on the information demands (although, as we know, citations are much more than that and, if valid, would have required the banks to freeze up to $134 million in Iranian assets instantaneously).   

            Quoting Daimler AG v. Bauman, 571 U.S. __, 134 S.Ct. 746 (2014), and treating the banks as if they were corporations, Posner said that a court may assert jurisdiction over a foreign corporation ‘to hear any and all claims against (it)’ only when the corporation’s affiliations with the State in which suit is brought are so constant and pervasive ‘as to render (it) essentially at home in the forum State.”  One brick-and-mortar facility, albeit there on a constant basis, implicitly was not “pervasive” enough for Posner. 

            Moreover, implicitly the court seemed to adopt the “each bank branch as a separate entity” theory which New York had historically followed (but which Illinois had not, see Bank of Montreal v. Clark, 108 Ill. App. 163 (1903)).  Posner stated (emphasis added):

If the subpoenas sought only to discover whether, and if so what, Iranian government assets were in either or both of the two Chicago branch banks, the district court would have jurisdiction to enforce the subpoenas (and citations) because the branches are in the court’s district.  But we know that the Chicago branches neither are holding Iranian government assets nor know which if any of their sister branches elsewhere (either in or outside the United States), or the parent banks’ home offices, are holding any such assets.  As there’s no indication that any U.S. branch of either bank is holding Iranian assets, if the plaintiffs are determined to execute their default judgment against Iranian government assets they’ll have to look abroad.

In short, the court concluded, “plaintiffs have no legal right to the information that they have demanded from the respondent Tokyo and Paris banks.”

                        Leibovitch leaves several questions in its wake.  Perhaps chief among these focuses on  the meaning of “state.”   The Supreme Court precedent upon which it relies shows that the term has two meanings, one referring to a nation-state and the other to a state within the United States.  Those cases make clear that their doctrine applies in both contexts, but Leibovitch is less clear.  Because the banks in that case voluntarily answered for all U.S. branches, the court did not have to face whether the Chicago branch could be forced to answer for, say, the New York branch.  But if Leibovitch was correctly decided as it applies to citations, and if, as we think, the same doctrine applies to garnishments, the issue is likely to arise soon in Illinois state courts.

                        Illinois law was ignored completely in the court’s analysis.  Instead, the opinion was based on due-process-of-law analysis which, through the 14th Amendment, is as applicable to state courts as the Fifth Amendment clause is to federal courts.

            So let’s raise the issue in a less esoteric context.  A resident of East St. Louis, Illinois, defaults on a consumer debt to an Illinois company.   Pursuant to the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., it must sue in St. Clair County, as it successfully does.  Its debtor works and banks across the river (and state line) in St. Louis.  May the Illinois court issue a wage deduction garnishment, or a bank garnishment, to the Missouri entities?  Unless the respondents are organized in Illinois, or have their principal place of business in Illinois, Leibovitch and the cases upon which it relies seem to say “no.” 

            Leibovitch arose in circumstances far different from that mundane example.   Because it did, we think it is a good candidate for U.S. Supreme Court review.  Stay tuned.

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