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The "Separate Entity Rule" Remains Alive and Well in New York State

10/23/14

On October 23, 2014, in Motorola Credit Corp. v. Standard Chartered Bank, No. 162, 2014 N.Y. LEXIS 2946 (2014), the New York State Court of Appeals, New York’s highest court, answered in the affirmative the following question certified to the court by the U.S. Court of Appeals for the Second Circuit:

“[w]hether the separate entity rule precludes a judgment creditor from ordering a garnishee bank operating branches in New York to restrain a debtor’s assets held in foreign branches of the bank.” 

(Tire Engineering and Distribution LLC v. Bank of China Ltd., 740 F.3d 108, 118 (2d Cir. 2014).

While some observers believed the separate entity rule had been abrogated by the court’s decision in Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009), the Motorola 5-2 decision establishes that the rule is indeed alive, and that, under New York law, a bank having a branch in New York that has been served with a judgment creditor’s restraining notice or orders is not permitted to restrain judgment debtor’s assets held in a branch of the bank located in a foreign country. Stated another way, a judgment debtor need not fear that its assets in a foreign bank account will be subject to restraint based on a restraining notice and order served on a New York branch of the bank. The New York and foreign branches of the same bank are treated as legally separate entities.  

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