New York’s Highest Court Endorses Application of “Separate Entity Rule” to International Banks: Landmark Ruling by Court of Appeals Confirms that Service of Asset Freeze Order on New York Branch of International Bank Does Not Reach Overseas Branches

Sullivan & Cromwell LLP - October 23, 2014
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In Motorola Credit Corporation v. Standard Chartered Bank, the New York Court of Appeals confirmed that the separate entity rule, which has existed for nearly 100 years, remains a valid rule of law.  Specifically, the Court of Appeals held that “a judgment creditor’s service of a restraining notice on a garnishee bank’s New York branch is ineffective under the separate entity rule to freeze assets held in the bank’s foreign branches.”  As a result of this ruling, restraining notices served on the New York branches of international banks cannot reach assets held in bank accounts located at banks’ foreign branches, meaning that judgment creditors seeking to restrain assets located in foreign bank branches must obtain formal recognition of restraining notices in the country in which the bank accounts that they seek to restrain are located.  Sullivan & Cromwell LLP represented Standard Chartered Bank (“SCB”) before the New York Court of Appeals, and has represented the Bank in all phases of this litigation.