New York Court Affirms Separate Entity Ruling on Appeal

On March 11, 2014, a New York state appellate court affirmed an important decision on the “separate entity” rule that is favorable to all multinational banks that maintain a New York branch. New York’s separate entity rule protects banks from judgment creditors who seek to restrain or attach assets located outside of New York by serving process on a bank’s New York branch. The continued viability of that rule has been called into question since the 2009 Court of Appeals decision in Koehler v. Bank of Bermuda. On October 22, 2012, in Ayyash v. Koleilat, a New York court ruled in favor of Shearman & Sterling clients in reaffirming the continued viability of the separate entity rule and applying it to bar extraterritorial enforcement and discovery requests. The Appellate Division, First Department, affirmed that decision this week on alternative grounds. The favorable decision in Ayyash adds to the tally of cases that have found that the separate entity rule survived Koehler. The increasing weight of authority that has reached this conclusion may influence the Court of Appeals when it has occasion to resolve the issue once and for all—which is likely to happen sooner rather than later (likely early 2015) in light of the Second Circuit’s recent certification of the issue in Tire Engineering v. Bank of China. This note provides an overview of the Ayyash decisions and applicable law.

Background -

New York courts have long provided banks the protection of the “separate entity” rule, pursuant to which the individual branches of a bank are treated as separate legal entities for purposes of attachment and execution, distinct from their corporate headquarters and other branches.3 This is an exception to the general rule that New York courts have jurisdiction over a bank as a whole if it maintains a branch in New York. As a result, judgment creditors seeking to enforce money judgments in New York have traditionally been unable to reach assets held in accounts outside of the United States simply by serving process on a bank’s New York branch. Instead, New York courts must have jurisdiction over the specific bank branch holding the sought-after assets before ordering the attachment or turnover of those assets.

Please see full memo below for more information.

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Topics:  Banks, Discovery, Extraterritoriality Rules, Multinationals

Published In: Business Organization Updates, Civil Procedure Updates, Finance & Banking Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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