LMR Construction LLC v. JPMorgan Chase Bank, National Association

Filing 13

OPINION & ORDER: GRANTING Chase's 7 MOTION to Dismiss for failure to state a claim; DENYING LMR's 1 6 Motion for Permanent Injunction. Signed by Judge Karen K. Caldwell on 8/1/17.(KJR)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
AT LEXINGTON
LMR CONSTRUCTION LLC,

CIVIL ACTION
NO. 5:16-337-KKC

Plaintiff,
V.

OPINION & ORDER

JPMORGAN CHASE BANK,
NATIONAL ASSOCIATION,
Defendant.

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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.

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(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 thirdparty 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).

For ease of reference, and because LMR’s complaint avers only one, the Court will refer to the third-party creditor
in the singular.
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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

As will be discussed below, Kentucky case law views LMR’s accounts as debts owed by Chase to LMR.
The Court notes that, even if registration were required, the third-party creditor that LMR argues has not
complied with Kentucky and New York law is not even a party to the present lawsuit. See Fed. R. Civ. P. 19
(outlining rule for the required joinder of parties).
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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 postjudgment 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 postjudgment 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 a court, and where the risk that the debtor will conceal assets is stronger
than in the prejudgment context.” Id. (quoting McCahey, 774 F.2d at 550).
A second important distinction in the application of this rule in the banking context is
whether the bank, acting as a garnishee, is an international or domestic branch. LMR argues
that The Empire State recognizes a “separate entity rule,” which proposes that, in the
instance of banking for post-judgment enforcement as well as pre-judgment attachment
purposes, all bank branches are separate entities over which a court must obtain individual
personal jurisdiction. However, courts have limited the application of the separate entity rule
to the international context. See Motorola Credit Corp. v. Standard Chartered Bank, 21

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N.E.3d 223, 229 (N.Y. 2014) (“As a longstanding common-law doctrine, the separate entity
rule functions as a limiting principle in the context of international banking, particularly in
situations involving attempts to restrain assets held in a garnishee bank’s foreign
branches.”); see also Regions Equip. Fin. Corp. v. Blue Tee Corp., 313 F.R.D. 468, 571 (E.D.
Mo. 2016).
Here, LMR is suing JPMorgan Chase Bank, National Association, not the individual
Kentucky branch. It is clear that Chase has availed itself to the courts in New York and is
subject to personal jurisdiction within that state. Additionally, Chase’s principal office is in
Columbus, Ohio, and the order to “freeze, levy, and/or otherwise garnish” the Chase accounts
was delivered to Chase’s office designated for levies and garnishments in Indiana. Chase has
presence in multiple states. As such, once frozen, an account is presumably frozen
everywhere.
Moreover, the New York levies do not appear to have offended Kentucky law. Instead,
under the case law of the Commonwealth, a bank account is considered a debt owed by the
bank to the account holder. See Ferguson Enters., Inc. v. Main Supply, Inc., 868 S.W.2d 98,
99 (Ky. Ct. App. 1993). Therefore, the account is reachable by post-judgment enforcement
proceedings wherever the bank is subject to personal jurisdiction. See Pittsburgh, C., C. & St.
Louis Ry. Co. v. Bartels, 56 S.W. 152, 153 (Ky. 1900) (“A mere debt is transitory, and may be
enforced wherever the debtor or his property may be found; and, if the creditor can enforce
the collection of his debt in the courts of this state, a creditor of such creditor should have
equal facilities.”); see also Restatement (Second) of Conflicts of Laws § 68 (Am. Law Inst.
1971).
Thus, in the context of the principles of New York and Kentucky law outlined above, LMR
has failed to state a claim for which relief can be granted.

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Accordingly, Chase’s motion to dismiss (DE 7) is GRANTED and LMR’s motion for
permanent injunction (DE 1-1; DE 6) is DENIED.
Dated August 1, 2017.

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