(UPDATED)
Courts’ power to do justice in civil cases depends on their ability to enforce their judgments, i.e., to compel parties to pay up when they are found liable. But courts are also wary of extending their power outside of their own territory, and thus encroaching on the power of courts in other states and countries.
In a pair of March 2014 decisions, the latter consideration prevailed, as a Florida appellate court narrowly interpreted the power of Florida courts to exercise jurisdiction over assets located outside of Florida.
In the first case, Sargeant v. Al-Saleh, decided March 5, 2014, the Fourth District Court of Appeal (based in West Palm Beach) reversed an order of the 15th Judicial Circuit, which had required that stock certificates evidencing ownership of corporations located abroad be turned over to satisfy a judgment.
The judgment in Sargeant resulted from litigation over a failed oil shipping deal, in which a jury awarded $28.8 million in favor of Mohammed Al-Saleh (reportedly the brother-in-law of the king of Jordan, according to the Palm Beach Post). To satisfy the judgment, Al-Saleh sought to compel the defendants, businessmen Harry Sargeant III and Mustafa Abu-Naba’a, to turn over stock certificates for corporations they owned. The defendants countered that Florida courts do not have jurisdiction to order the turnover of the stock certificates to the corporations they own, because they are located in the Bahamas, Jordan, the Isle of Man, and the Dominican Republic.
On appeal, the 4th DCA agreed. Finding no controlling Florida cases on point, the court was swayed by policy considerations, which it said favor letting courts in foreign jurisdictions determine rights to property located in those jurisdictions.
UPDATE: The Sargeant case has garnered considerable attention in the legal community and the media. Paul Sullivan of the New York Times has a great write-up about the potential impacts of the decision in his May 9, 2014 column, with insights and reactions from several Florida lawyers, including me. The article also notes that, unsurprisingly, the appellees (who were denied access to the defendants’ foreign assets as a result of the decision on appeal) plan to ask the Supreme Court of Florida to hear the case. Whether the Court will agree to take up the case is anyone’s guess.
In the second case, Edelsten v. Mawardi, decided March 19, 2014, the court dealt with a slightly different attempt to take control of assets located outside of Florida. The plaintiff in that case sued a Florida parent company and its Ohio subsidiary in connection with a failed business deal involving an apartment complex in Dayton, Ohio, which was owned by the Ohio subsidiary. A circuit court appointed a receiver to manage the apartment complex until the dispute was resolved. The 4th DCA reversed.
Just as the court had held that Florida courts cannot order the transfer of foreign stock certificates, the 4th DCA held that Florida courts are not empowered to exercise jurisdiction to appoint a receiver over a corporation located in another state. It is true that the circuit court was empowered to appoint a receiver over the Florida parent corporation, but that does not mean that it can exercise control over an Ohio subsidiary and its property in Ohio. Showing wariness of trampling on another jurisdiction, the 4th DCA was particularly troubled by the fact that appointing a Florida resident as a receiver over an Ohio corporation was in direct contravention of Ohio law, under which only an Ohio resident may be appointed as a receiver over an Ohio corporation. The court, thus, remanded to the circuit court to terminate the appointment of the receiver over the Ohio corporation and the apartment complex.
These decisions are sure to have a significant impact on litigation in Florida. With so much interstate and international business taking place in Florida, litigation involving out of state and foreign corporations and assets located outside of Florida is far from uncommon.
But while the court’s deference to other jurisdictions has resulted in limiting the power of Florida courts, the decisions do not mean that out of state and foreign assets can never be reached. They do mean, however, that after obtaining a judgment, litigants may need to resort to courts in other jurisdictions to enforce them.