Separate Entity Rule and Extraterritorial Discovery

On Oct. 23, 2014, the New York Court of Appeals issued a decision in Motorola Credit Corporation v. Standard Chartered Bank, No. 162 (N.Y. Oct. 23, 2014), holding that the “separate entity rule,” which has been recognized by New York courts for almost a century, remained a valid rule of law, and thus a “judgment creditor’s service of a restraining notice…on a bank’s New York branch is ineffective…to freeze assets held in the bank’s foreign branches.” The separate entity rule, upheld by the Court of Appeals in Motorola, provides that while New York courts may have personal jurisdiction over a New York branch of an international bank, the bank’s other branches shall be deemed “separate entities” for the purpose of attaching or restraining assets.

The practical effect of the decision is that a freezing order served on an international bank’s New York branch does not reach accounts held at the bank’s international branches. Therefore, a creditor seeking to restrain assets held by an international bank outside of the United States will need to obtain formal recognition of the freezing order in the jurisdiction in which the account in question is located.