The 'Separate Entity Rule' Remains Alive And Well In New York State

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).1

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 the 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.

The separate entity rule, a product of common law tracing back to a 1916 decision of an intermediate New York appellate court (Chrzanowska v. Corn Exch. Bank, 173 A.D. 285 (1st Dep't 1916), aff'd without opn, 225 N.Y. 728 (1919)), as utilized by New York State courts and federal courts in applying New York law, provides that branches of a garnishee bank are to be treated as separate entities for purposes of CPLR Article 62 (Attachment) pre-judgment attachments and CPLR Article 52 (Enforcement of Money Judgments) post-judgment restraining notices and orders, so that writs of attachment and restraining notices and orders are effective only as to assets held in the specific branch or branches served with the writ of attachment or restraining notice or order in New York. Accordingly, under the separate entity rule, foreign branches of a garnishee New York bank are to be treated as separate entities from the New York branch with respect to pre-judgment attachments and post-judgment restraining notices and orders, although the New York bank branch is subject to personal jurisdiction in New York...