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PLI 2006: Using Prejudgment Remedies to Preserve Nonresident’s United States Assets During Foreign Litigation

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I. introduction: Prejudgment remedies

  • A. Prejudgment remedies may be used to secure a nonresident defendant's assets in the United States to allow for enforcement of a judgment which may be later obtained in pending litigation not only in forum litigation but also in foreign country litigation.
  • B. The availability of U.S. prejudgment remedies when litigation is pending in a foreign country is important for several reasons. There is of course risk that the defendant will conceal or transfer its U.S. assets while the foreign litigation is pending, and that risk is likely greater with a foreign defendant who keeps assets in more than one country than it is with domestic business entities and individuals who regularly do business or reside in the U.S. In addition, successfully using prejudgment remedies against a foreign defendant's U.S. assets may give the plaintiff leverage that it would not otherwise have in the foreign jurisdiction, particularly those that are notoriously slow, corrupt, or otherwise ineffective.

II. The relationship between Jurisdiction and prejudgment remedies after Shaffer v. Heitner

  • A. Shaffer v. Heitner, 433 U.S. 186 (1977)
    • 1. In Shaffer v. Heitner, the Supreme Court held that the mere presence of property in the forum is generally not enough to establish in rem jurisdiction. Instead, assertions of jurisdiction over a nonresident—including quasi in rem and in rem—must be evaluated according to the minimum-contacts standard of Int'l Shoe Co. v. Washington, 326 U.S. 310 (1945), which is already applied to evaluations of in personam jurisdiction.
      • a. Consistent with Int'l Shoe, in rem jurisdiction may be exercised "over the interests of persons in a thing" when sufficient ties exist between the defendant, the state, and the litigation. The presence of property alone is not enough. Shaffer, 433 U.S. at 207-08.
      • b. The primary rationale for treating the presence of property alone as a basis for jurisdiction is to prevent a wrongdoer from avoiding payment of his obligations by removal of his assets to a place where he is not subject to an in personam suit. Nevertheless, that is an insufficient justification for recognizing jurisdiction without regard to whether the property is in the state for that purpose. "Moreover, the availability of attachment procedures and the protection of the Full Faith and Credit Clause[] also militate against that rationale." Id. at 187.
    • 2. Thus, Shaffer has come to stand for the general proposition that all assertions of state court jurisdiction, including in rem and quasi in rem, must be evaluated according to the standards set forth in Int'l Shoe and its progeny.
  • B. SHAFFER DOES NOT REQUIRE THE SAME INT'L SHOE STANDARD FOR PREJUDGMENT REMEDIES SUCH AS ATTACHMENT
    • 1. The majority opinion in Shaffer recognized that a state may assert jurisdiction over property despite the absence of minimum contacts with its owner if the attachment is done for purposes of providing security for an in personam action being litigated against the owner in another forum. See Shaffer, 433 U.S. at 210. See also CME Media Enters. B.V. v. Zelezny, No. 01 CIV. 1733(DC), 2001 WL 1035138, at *3 (S.D.N.Y. Sept. 10, 2001) (under Shaffer "jurisdiction based on property is usually subject to the same minimum contacts test that is applied to in personam cases," but "[a]n exception to this general rule exists . . . where quasi in rem jurisdiction is used to attach property to collect a debt based on a claim already adjudicated in a forum where there was personal jurisdiction over the defendant").
    • 2. The distinction impliedly recognized by the Court in Shaffer is that there is a qualitative difference between "attachment" jurisdiction and in personam jurisdiction. Attachment jurisdiction "is based on the theory that a state has comprehensive authority over all property within its territorial limits and may seize such property for payment of claims asserted in actions in its courts." Restatement (Second) of Judgments § 8 cmt. a (1982). "'Attachment jurisdiction' is to be contrasted with jurisdiction exercised to determine claims relating to property that has some relationship to the state." Id.
    • 3. Both Shaffer and CME Media authorized attachment of a debtor's assets without in personam jurisdiction over that debtor; however, Shaffer's reference to authority to attach in these circumstances was to assert quasi in rem jurisdiction to collect an already adjudicated debt, and CME Media involved a final arbitration award for which confirmation was being sought. Nonetheless, as discussed below, three post-Shaffer cases which have dealt with attachments (or a garnishment) in pending cases treat these attachments no differently than attachments where the debt has been adjudicated.

III. prejudgment remedies to preserve A nonresident's assets during Foreign litigation

  • A. ATTACHMENT AUXILIARY TO FOREIGN LITIGATION GENERALLY
    • 1. Attachment is a procedure by which the court, at the request of a plaintiff, directs an officer of the court to seize or assert dominion and control over a defendant's assets. Attachment may be used as a vehicle to preserve assets of a defendant with respect to claims pending in that forum or in foreign litigation. See Barclays Bank, S.A. v. Tsakos, 543 A.2d 802 (D.C. 1988) (Greek defendants' assets were attached by foreign bank in the District of Columbia pending outcome of litigation in Europe because allegation was made of nonresidents' intended effective removal of property by way of sale and nonavailability of assets elsewhere); Carolina Power & Light Co. v. Uranex, 451 F. Supp. 1044, 1046-49 (N.D. Cal. 1977) (assets of French company over which in personam jurisdiction could not be obtained in any state in the United States were permitted by a California federal court to be attached, provided that the plaintiff filed suit within 30 days in a jurisdiction—presumably France—where in personam jurisdiction could be obtained over the defendant to resolve the underlying controversy); Louring v. Kuwait Boulder Shipping Co., 455 F. Supp. 630 (D. Conn. 1977) (debt owed to Kuwait was garnished, providing quasi in rem jurisdiction for that same Connecticut federal court to adjudicate plaintiff's underlying claim; "[T]he Supreme Court's opinion in Shaffer explicitly left open the question whether the presence of a defendant's property in a state is a sufficient basis for jurisdiction 'when no other forum is available to the plaintiff.' 433 U.S. at 211 n.37, 97 S. Ct. at 2584. Presumably, the Court had in mind a case such as this, where the defendant is outside the territorial jurisdiction of any of the fifty states, in the sheikdom of Kuwait.")
    • 2. State attachment mechanisms apply whether the suit is filed in state or federal court. The federal courts have no "federal" attachment procedures. They use the procedures of the state in which they sit. See Fed. R. Civ. P. 64 ("all remedies providing for seizure of person or property for the purpose of securing satisfaction of the judgment ultimately to be entered in the action are available under the circumstances and in the manner provided by the law of the state in which the district court is held").
    • 3. As described above, the minimum contacts analysis of Int'l Shoe does not apply to attachment claims for the purpose of securing assets to satisfy a judgment which may later be obtained in another jurisdiction. But attachment procedures must meet standards of due process, including notice and opportunity to be heard.
  • B. FLORIDA AND NEW YORK STATE ATTACHMENT PROCEDURES
    • 1. Florida Attachment Procedures
      • a. Any resident or nonresident creditor may secure an attachment against the property of a debtor. The debtor may also be a resident or nonresident. See Payton v. Swanson, 175 So. 2d 48, 49 (Fla. Dist. Ct. App. 1965) (garnishment action available against nonresident).
      • b. An attachment claim cannot be brought alone. It may only be brought when there is an action pending seeking judgment on a debt. Jansik v. Studstill & Hollenbeck, 16 So. 2d 165, 166 (Fla. 1944). There is no specification of where the action must be pending. No court interpreting the Florida attachment statutes has held that the "main" action on the underlying controversy must be pending in Florida, or even in the United States.
      • c. Most of the Florida grounds for attachment involve a debtor's potential fraudulent disposition of property or concealment of property. This is to be expected, as the purpose of an attachment is to preserve assets for satisfaction of an expected judgment in a pending action. But one of the grounds is simply that the debtor "resides out of the state." Fla. Stat. § 76.04(4). Thus, the statute lends itself well to use against a debtor who is a defendant in a pending foreign court action.
      • d. Suit may be brought and an attachment obtained even though a debt is not currently due if the debtor is removing property from the state, fraudulently disposing of property to avoid paying the debt, or fraudulently hiding property to avoid payment of the debt. Fla. Stat. §§ 76.05, 76.06, 76.10. There is no provision permitting attachment with respect to a debt not yet due simply because the debtor resides outside Florida.
      • e. A possible reason for including out-of-state residence as a ground for attachment is that it was thought that that fact in itself suggested a need for an additional remedy to better ensure that assets were available for satisfaction of a potential judgment (although it may be included simply to preserve a plaintiff's right to assert quasi in rem jurisdiction, as appears to be the case in New York). When the "pending action" in connection with which the attachment is sought is in a foreign jurisdiction, particularly foreign jurisdictions with a reputation for not evenly dispensing the law, one can argue that the possibility of a debtor's concealing or transferring assets is increased. Perhaps the debtor's maintenance of assets outside its "home" jurisdiction was to better keep those assets from creditors. Nonetheless, one must always be cognizant of the "need for prompt action" motivation of the other Florida bases for attachment and be wary that a court may find out-of-state residence, without more, as insufficient to warrant a prejudgment attachment.
      • f. In Florida, as is common in other states, a motion seeking an attachment must be supported by a separate affidavit or a verified complaint that clearly alleges specific facts that demonstrate that attachment is available under one or more of the statutory grounds and establishes a reasonable probability that a judgment will be rendered on the underlying claim. Fla. Stat. §§ 76.08, 76.24. See also Cerna v. Swiss Bank Corp., 503 So. 2d 1297 (Fla. Dist. Ct. App. 1987). Plaintiff must also post a bond with surety to be approved by the clerk before the attachment writ will be issued. The bond must generally be made payable to the defendant and must be in an amount that is at least twice the amount of the debt claimed by the plaintiff, conditioned to pay all costs and damages that the defendant may sustain if the attachment is improperly granted. Fla. Stat. § 76.12.
    • 2. New York Attachment Procedures
      • a. Under New York law, attachment is permitted primarily to afford quasi in rem jurisdiction over a nonresident defendant, but it also serves the independent purpose of providing security for a potential judgment against a nonresident. Cargill, Inc. v. Sabine Trading & Shipping Co., 756 F.2d 224, 227 (2d Cir. 1985).
      • b. As in Florida, New York statutory law provides that an attachment claim cannot be brought as a "stand alone" claim, that is, there must be an underlying cause of action for damages to which the attachment relates. N.Y. C.P.L.R. § 6212. As with Florida, no court interpreting the New York attachment statutes has held that the "main" action on the underlying controversy must be brought in New York, or even in the United States.
      • c. The various grounds on which an attachment may be sought in New York are specified by statute. N.Y. C.P.L.R. § 6201. As in Florida, New York includes the nonresidence of a defendant (or a foreign corporation's lack of qualification to do business in New York), without more, as a basis for attachment of assets in a pending case. There is no requirement that the defendant be acting, or about to act, so as to secret assets from a creditor, although that is also a basis for attachment, as is the inability to serve an in-state domiciliary or nonresident despite diligent efforts to do so.
      • d. As described above, a ground for an order of attachment is that the defendant is a foreign corporation not qualified to do business in New York. Case law and the legislative history of New York's statutory attachment law support the proposition that a foreign corporation's assets will be subject to attachment under this first basis of N.Y. C.P.L.R. § 6201 if the evidence suggests that the foreign corporation really does not have the type of New York presence which would make it likely that there would continue to be assets of the corporation available in New York for the satisfaction of any later obtained judgment. See Coastal States Trading, Inc. v. Zenith Navigation S.A., 446 F. Supp. 330, 342 (S.D.N.Y. 1977). Thus, although the statute itself suggests that a foreign corporation's qualifying to do business in New York, without more, would be sufficient to protect its assets from attachment under the "nonresident" theory, cases appear to view "nonresidence" as a separate attachment basis applicable to foreign corporations, whether or not they are qualified to do business in New York.
      • e. In addition to showing the existence of an underlying claim and that one of the § 6201 grounds for attachment is present, the party seeking attachment must also demonstrate probability of success on the merits and that the amount claimed exceeds all known counterclaims. Trafalgar Power, Inc. v. Aetna Life Ins. Co., 131 F. Supp. 2d 341, 346 (N.D.N.Y. 2001). See also N.Y. C.P.L.R. § 6212. Plaintiff must also post a bond with surety to be approved by the clerk before the attachment writ will be issued. The amount of the bond will be determined by the court, but will not be less than five hundred dollars. N.Y. C.P.L.R. § 6212. If the attachment is later decided to be improper, the plaintiff will be required to pay the defendant's costs and damages, including reasonable attorney fees, resulting from the attachment. Id.
      • f. Note, however, that the New York Business Corporation Law (N.Y. C.P.L.R. § 1314) prohibits a nonresident of New York or a foreign corporation from maintaining a suit in New York against a foreign corporation except in specific circumstances. See Aerotrade v. Banque Nationale de la Repub. d'Haiti, 376 F. Supp. 1286, 1288 (S.D.N.Y. 1974); Swift & Co. v. Karline, 157 N.E. 861 (N.Y. 1927). While these two cases dismissed motions for attachment on the basis that the court had no jurisdiction because the plaintiff was not entitled as a foreign corporation to bring an action in New York, it should be noted that the court dismissed the underlying claims for relief as well as the motion for attachment. Thus, it can be said that the attachment failed because there was no "pending case." As one of the bases for a foreign corporation's bringing an action in New York is that the action concerns property in New York, if the attachment action is brought simply as an auxiliary security measure to an action pending in a jurisdiction other than New York, perhaps it can be argued that that attachment action "concerns property in New York."
  • C. PREJUDGMENT INJUNCTIVE RELIEF
    • 1. Federal Preliminary Injunctions and Temporary Restraining Orders After Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999)
      • a. In Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., a suit for money damages by plaintiff investment funds for breach of obligations due under notes issued and guaranteed by Mexican defendants, the Supreme Court held that a federal court does not have the power, in the exercise of its general equitable jurisdiction, to issue preliminary injunctions preventing a defendant from transferring assets in which no lien or equitable interest was claimed. The court noted that Fed. R. Civ. P. 64 authorized the federal courts to use state prejudgment remedies and that an all-purpose federal court injunction power pursuant to Rule 65 would render Rule 64 virtually irrelevant. Grupo Mexicano, 527 U.S. at 330-31. Thus, while the Court eliminated the possibility of a federal equitable power to freeze a defendant's assets at the request of a plaintiff seeking to secure satisfaction of a future judgment, it underscored the availability of the use of state court attachment proceedings in federal court pursuant to Fed. R. Civ. P. 64.
      • b. The Grupo Mexicano Court distinguished general, unsecured creditors from those possessing a lien or equitable interest in the property at issue. 527 U.S. at 324-26. Thus, "courts since Grupo Mexicano have found that where plaintiffs seek both equitable and legal relief in relation to specific funds, a court retains its equitable power to freeze assets." Quantum Corporate Funding, Ltd. v. Assist You Home Health Care Servs. of Va., L.L.C., 144 F. Supp. 2d 241, 250 n.9 (S.D.N.Y. 2001) (granting preliminary injunction to prevent defendant from disposing of assets pledged to plaintiff under two loan security agreements). Thus, when a creditor asserts a cognizable claim to specific assets of the defendant, the court may grant a preliminary injunction preventing the defendant from disposing of those assets.
    • 2. State Preliminary Injunctions and Temporary Restraining Orders to Prevent a Defendant From Disposing of Assets During Foreign Litigation
      • a. General Law Governing Preliminary Injunctions and Temporary Restraining Orders in Florida
        • i. "Under Florida Rule of Civil Procedure 1.610 and the case law interpreting that rule, a temporary injunction is an extraordinary remedy that can only be granted if the movant establishes (1) a likelihood of irreparable harm, (2) unavailability of an adequate legal remedy, (3) substantial likelihood of succeeding on the merits, and (4) support for the injunction within considerations of public interest." Phantom of Clearwater, Inc. v. Pinellas County, No. 2D03-5408, at *3 (Fla. Dist. Ct. App. Jan. 14, 2005) (Loislaw.com).
        • ii. The court must have personal jurisdiction over the party sought to be enjoined in order to order that person not to take certain actions, such as transferring assets. Riddick v. Suncoast Beauty Coll., 570 So. 2d 1064, 1065-66 (Fla. Dist. Ct. App. 1990); Snibbe v. Napoleonic Soc'y. of Am., 682 So. 2d 568, 569-70 (Fla. Dist. Ct. App. 1996). It makes sense to distinguish injunctive relief, which is dependent on personal jurisdiction, from an attachment, which can rely on quasi in rem jurisdiction.
      • b. Florida Courts Use the Approach Adopted by Grupo Mexicano
        • i. In Action Elec. & Repair, Inc. v. Batelli, 416 So. 2d 888 (Fla. Dist. Ct. App. 1982), a corporation sought review of the lower court's order granting a preliminary injunction requiring it to deposit funds in escrow pending resolution of the suit against it to collect damages on a promissory note. On appeal, the court vacated the preliminary injunction, holding:

          No temporary injunction may be issued where the complaint upon which it is based sets out no ground for equitable relief. No action for equitable relief can be maintained unless it falls within some acknowledged head of equity jurisprudence. Thus where a complaint seeks an injunction to prevent a defendant from disposing of assets until an action at law on a debt can be concluded, no equitable cause of action is stated and no injunction should issue. An action for damages does not become an equitable action merely because a request for injunction is also made.

          Action Elec. & Repair, 416 So. 2d at 889 (emphasis added; citations omitted).
        • ii. The court in Action Elec. & Repair noted that the plaintiff had failed to ask for the available legal remedy of prejudgment attachment. Thus, as in Grupo Mexicano, the unavailability of an "asset freezing order" does not suggest unavailability of an attachment.
        • iii. See also CMR Distribs., Inc. v. Resolution Trust Corp., 593 So. 2d 593, 593 (Fla. Dist. Ct. App. 1992) ("It is entirely settled by a long and unbroken line of Florida cases that in an action at law for money damages, there is simply no judicial authority for an order requiring the deposit of the amount in controversy into the registry of the court . . . or indeed for any restraint upon the use of a defendant's unrestricted assets prior to the entry of judgment.") (internal quotation marks and citation omitted).
        • iv. Thus, when the underlying action is a suit for money damages and the plaintiff has an adequate remedy at law by attachment, injunctive relief is not available to freeze the defendant's assets during the pendency of the litigation. Acquafredda v. Messina, 408 So. 2d 828, 829 (Fla. Dist. Ct. App. 1982).
      • c. General Law Governing Preliminary Injunctions and Temporary Restraining Orders in New York
        Preliminary injunctive relief is a drastic remedy that will not be granted unless a clear right to such relief is established under the law and undisputed facts, and the burden of showing the undisputed right rests on the movant. Orange County v. Lockey, 490 N.Y.S.2d 605 (App. Div. 1985).
      • d. New York Courts Have Expressly Adopted Grupo Mexicano
        • i. See Osrecovery, Inc. v. One Groupe Int'l, Inc., 305 F. Supp. 2d 340, 347 (S.D.N.Y. 2004) (the New York Court of Appeals adopted the principle articulated in Grupo Mexicano that "a federal court does not have the power, in the exercise of its general equitable jurisdiction, to issue a preliminary injunction in an action for money damages to prevent a defendant from transferring assets in which the plaintiff claims no lien or equitable interest" as a matter of New York law in Credit Agricole Indosuez v. Rossiyskiy Kredit Bank, 729 N.E.2d 683 (N.Y. 2000)).
        • ii. In Credit Agricole, the court relied on New York case law and the Supreme Court's decision in Grupo Mexicano to hold that foreign banking institutions that brought suit against a Russian bank and its guarantor, after the bank had defaulted on unsecured debentures, were not entitled to a preliminary injunction prohibiting the bank and its guarantor from dissipating their assets. The court rejected the banking institutions' argument that the insolvent bank had breached its fiduciary duty and that the request for injunctive relief was part of the judgment, holding instead that the cause of action for breach of fiduciary duty was incidental to and purely for the purposes of enforcing a money judgment. 729 N.E.2d at 685-89.
        • iii. Thus, injunctive relief is not available in New York to assist in ensuring that assets will be available to satisfy an expected judgment. One must rely on the attachment statutes.
  • D. U.S. ENFORCEMENT OF FOREIGN COURT ORDERS DESIGNED TO FREEZE ASSETS IN THE UNITED STATES
    • 1. What methods other than attachment might be available to assist a creditor in securing U.S. assets for satisfaction of a potential foreign court judgment? The Florida state courts and the Restatement (Second) of Conflict of Laws §§ 92, 98, 109 (1971) state that an interlocutory (not final) order of a foreign court will be enforced in U.S. courts by reason of comity when the foreign country had jurisdiction to act judicially in the case, due process was observed, the court issuing the order was competent to do so and validly exercised its power, and the order is not repugnant to basic public policy of the state. See, e.g., Cardenas v. Solis, 570 So. 2d 996 (Fla. Dist. Ct. App. 1990) (affirming the trial court's grant of a temporary injunction under the Florida law of comity to essentially recognize and enforce a Guatemalan court order issued to preserve the status quo pending disposition of a domestic relations suit brought in the Guatemalan court, holding that domestic relations and creditors' rights cases were two exceptions to the general rule that interlocutory orders of foreign courts were not entitled to recognition and enforcement in the U.S.); Intrinsic Values Corp. v. Superintendencia de Admin. Tributaria, 806 So. 2d 616 (Fla. Dist. Ct. App. 2002) (affirming the trial court's order denying motion to dissolve a temporary injunction enjoining payment on letters of credit by two U.S. confirming banks where a Guatemalan court had issued an injunction enjoining payment on those same letters of credit by the Guatemalan issuing bank, the Florida court noting that not to enjoin the confirming banks in Florida on the basis of comity would render the Guatemalan injunction ineffective); Nahar v. Nahar, 656 So. 2d 225, 227 (Fla. Dist. Ct. App. 1995) (recognizing and enforcing order of Aruban court ordering transfer of decedent's Florida bank accounts to Aruba to be disposed of according to Dutch law). It should be noted that only the Intrinsic Values case was decided after Grupo Mexicano.
    • 2. No courts other than those of Florida appear to have directly enforced an interim order of a foreign court which essentially sought to affect or restrain U.S. assets of a defendant in foreign country litigation. But this precedent, supported by the Restatement, provides a basis in addition to state court attachment proceedings to obtain an ultimately successful result in foreign litigation.

IV. conclusion: Prejudgment remedies offer a plaintiff options to secure a defendant's assets during the pendency of foreign litigation

  • A. Attachment is the most widely available prejudgment remedy to secure a defendant's U.S. assets during pendency of foreign litigation. A plaintiff has a good chance of securing an attachment if it is able to make the specific showings required by a state's attachment statutes, usually including that (1) there is a pending action in the underlying claim in some forum, (2) the debtor is not a resident of the state in which the assets are sought to be attached or there are reasons supporting a need for immediate action, and (3) there is a reasonable probability that a judgment will be rendered for the creditor on the underlying claim.
  • B. Following the Court's decision in Grupo Mexicano, injunctive relief is unlikely to be granted in an action for money damages to prevent a defendant from transferring assets in which the plaintiff claims no lien or equitable interest.
  • C. There is precedent for asking a U.S. court to enforce an interlocutory foreign court order freezing assets located in the United States during the pendency of the foreign litigation.

This article was originally published in conjunction with the Practising Law Institute's International Business Litigation & Arbitration 2006 annual conference, held on March 27-28, 2006.