Recent Appellate Decisions Limit Access To Customer Assets Held At Foreign Bank Branches

On October 23, 2014, the New York Court of Appeals held for the first time that, under New York law, the "separate entity" rule prevents a court from ordering a foreign bank operating branches in New York from restraining a judgment debtor's assets held in foreign branches of the bank. Motorola Credit Corp. v. Standard Chartered Bank, No. 162 (N.Y. Oct. 23, 2014). Just over one month ago, and without reference to the separate entity rule, the Second Circuit articulated its own jurisdictional standard for determining whether foreign financial institutions may be subject to a court order freezing a customer's non-U.S. assets or requiring the production of discovery located outside the U.S. Gucci Am., Inc. v. Bank of China, No. 11-cv-3934, F.3d, 2014 WL 4629049 (2d Cir. Sept. 17, 2014).

The Standard Chartered Decision

In Standard Chartered, plaintiffs sought to freeze defendants' assets, including assets the defendants held at foreign branches of Standard Chartered Bank ("SCB"). The district court found New York's separate entity rule precluded plaintiff from freezing assets held by a foreign SCB branch, see Motorola Credit Corp. v. Uzan, 978 F. Supp. 2d 205 (S.D.N.Y. 2013), and, on appeal, the Second Circuit certified that issue for resolution by the New York Court of Appeals Motorola Credit Corp. v. Standard Chartered Bank, 740 F.3d 108 (2d Cir. 2014). In a seminal ruling of tremendous importance to international financial institutions, the New York Court of Appeals agreed that under New York law, the plaintiff could not require a multinational bank to freeze assets of the defendant held at the bank's foreign branches.

In 2003, the district court entered a judgment against Kemal Uzan and his family, awarding compensatory damages of over $2 billion to the plaintiff and finding that the defendants had perpetrated a fraud in connection with a $2.1 billion loan to a Turkish telecommunications company. When defendants did not satisfy the judgment, the district court issued an injunction and restraining order: (i) enjoining defendants and their agents, and anyone that received notice of the order, from transferring any of defendants' assets until the judgment had been paid in full; and (ii) requiring any noticed party in possession of defendants' property to immediately freeze the assets. See Uzan, F. Supp. 2d at 207.

Plaintiff served the restraining order on the New York branch of SCB, which froze approximately $30,000,000 of defendants' assets...