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LMR Construction LLC v. JP Morgan Chase Bank, National Association

United States District Court, E.D. Kentucky, Central Division, Lexington

August 1, 2017




         This matter is before the Court on plaintiff LMR Construction LLC's motion for a permanent injunction. (DE 1-1; DE 6). In response to LMR's motion, defendant JPMorgan Chase Bank, National Association filed a motion to dismiss LMR's petition on the grounds that it failed to state a claim. (DE 7). For the following reasons, Chase's motion to dismiss is GRANTED and LMR's motion for a permanent injunction is DENIED.

         LMR is a Kentucky limited liability company that has performed construction projects in various states, including Kentucky, Tennessee, Texas, and Idaho. (DE 6, Mem. at 2). In 2015, LMR opened three accounts with Chase, using the branch located at 201 East Main Street, Lexington, Kentucky 40507 (DE 6-1, Bishop Aff. ¶ 2). Also in 2015, LMR found itself in a precarious financial position, which led it to obtain cash advance loans from out-of-state lenders. (DE 6, Mem. at 2). Some of the out-of-state lenders required LMR to sign a “Confession of Judgment” at the time of obtaining the loans. (DE 6-1, Bishop Aff. ¶ 7).

         On or about August 22, 2016, Chase notified LMR that the bank had been served with a judgment entered by the Supreme Court of the State of New York, County of Westchester. (DE 6-1, Bishop Aff. ¶ 8). Chase received two levies and demands sent to its office in Indianapolis, Indiana, from the office of the New York City Marshal relating to two cases against LMR. (DE 8-3, Ex. 3 at 5, 19, 23). Acting upon the legal process it received, Chase froze LMR's accounts.

         Chase's actions in freezing LMR's accounts led LMR to file suit in Fayette County Circuit court in Fayette County, Kentucky. Chase then removed the action to this Court.

         In its motion for a permanent injunction, LMR essentially argues that Chase improperly froze its accounts. LMR's argument is based on the theory that Chase should have required the third-party creditor to follow applicable New York and Kentucky law. (DE 6, Mem. at 9). As a remedy for this asserted wrong, LMR asks that the Court order Chase to unfreeze LMR's accounts and reimburse LMR in full for any funds that may have been delivered to the third-party creditor.[1]

         In response to LMR's petition for relief and motion for permanent injunction, Chase has filed a motion to dismiss for failure to state a claim. (DE 7). In its motion, Chase argues that its actions in freezing LMR's accounts were proper. The Court must first address Chase's motion to dismiss.

         Chase's motion is brought pursuant to Federal Rule of Civil Procedure 12(b)(6). That rule is a mechanism to enforce Rule 8, which governs the sufficiency of a complaint. In determining whether a plaintiff has properly pled a claim, the Supreme Court has stated that: “[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

         As a preliminary matter, the Court notes that the parties in this case had an agreement that permitted Chase to freeze LMR's accounts without having to determine the validity or enforceability of the legal process it received. (DE 8-2, Ex. 2 at 23). Such a contractual agreement has served as a basis upon which another United States District Court has dismissed a case with a similar posture. See McCarthy v. Wachovia Bank, N.A., 759 F.Supp.2d 265, 274 (E.D.N.Y. 2011).

         The parties have argued various legal theories in support of their positions. However, as the Court views the record, the dispositive question is whether LMR's accounts with Chase are located in Kentucky.[2] Answering this question will require the Court to address the specific component of LMR's argument that the third-party creditor's judgment did not comply with Kentucky's registration requirements, and therefore, Chase acted improperly in freezing the accounts.

         Although LMR states that its accounts with Chase “were opened and operate out of a Kentucky Chase Bank” branch (DE 1-1, Mtn. ¶ 1), LMR has not plead any facts to demonstrate that this is true. Further, by failing to plead any facts that show its accounts with Chase are located in Kentucky, LMR has also failed to demonstrate why compliance with the Kentucky Uniform Enforcement of Foreign Judgments Act would be required.[3]

         Even further, LMR has not shown that the third-party creditor and Chase, by extension, have acted improperly under New York law. Instead, although the Court need not decide the issue of validity of the New York levies, a review of the case law reveals that, under New York law, a court in New York, upon obtaining personal jurisdiction over a garnishee bank, may order that party to garnish property owned by a judgment debtor and deliver it to a judgment creditor, even when that property is located outside of New York. See McCarthy, 759 F.Supp.2d at 275 (applying Koehler v. Bank of Bermuda Ltd., 911 N.E.2d 825, 833 (N.Y. 2009)).

         Important in this rule is the distinction between pre-judgment attachment and post-judgment enforcement. Pre-judgment attachment is based on jurisdiction over property, and post-judgment enforcement is based on jurisdiction over persons only. Koehler, 911 N.E.2d at 829. For pre-judgment attachment, in rem jurisdiction is a requirement to protect the interests of third parties as to any assets that are in dispute. Id. at 830-31. However, in post-judgment enforcement proceedings, in rem jurisdiction is not required. Id. at 831.

         Indeed, “the law of pre-judgment remedies, while suggestive, does not automatically govern post-judgment remedies, which are available only after all doubt as to liability has been erased.” McCarthy, 759 F.Supp.2d at 276 (quoting McCahey v. L.P. Inv'rs, 774 F.2d 543, 548 (2d Cir. 1985)). Instead, if a level of procedural protection including notice and a hearing is not constitutionally required for pre-judgment attachment when liability has not been determined, “[a] fortiori, it can hardly be required where the creditor's claim has been finally confirmed by ...

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