A judgment creditor serves a restraining notice on a global bank’s Manhattan office, knowing the debtor keeps millions on deposit at the same bank’s branch in Dubai or Singapore. The bank restrains nothing outside New York, and it is right to do so. The separate entity rule remains good law in New York, and the enforcement attorneys at Warner & Scheuerman plan cross-border collection around it rather than against it, because the difference between a branch and a debtor determines whether a levy accomplishes anything at all.
What is the separate entity rule?
The separate entity rule treats each branch of a bank as a distinct entity for purposes of post-judgment restraint and attachment, so that service of process on one branch reaches only the assets held at that branch. A New York branch, in other words, does not answer for deposits sitting in a foreign branch of the same institution.
The doctrine is a common law rule of long standing in New York, developed to protect banks from conflicting legal obligations across jurisdictions and to keep them from being compelled to violate foreign law when a New York court orders a global freeze.
What did Motorola Credit v. Standard Chartered decide?
In Motorola Credit Corp. v. Standard Chartered Bank, decided by the New York Court of Appeals in 2014 on a certified question from the Second Circuit, the court held that the separate entity rule remains in force in New York and prevents a judgment creditor from ordering a garnishee bank to restrain a judgment debtor’s assets held in foreign branches.
The facts framed the question cleanly. The creditor held a substantial judgment and served restraining notices on the bank’s New York branch, seeking to reach deposits at branches in the United Arab Emirates. The bank complied initially, then faced regulatory exposure abroad for having done so.
The Court of Appeals reasoned that abolishing the rule would expose international banks to competing claims and conflicting judgments, would burden banks with the cost of monitoring accounts across every branch worldwide, and could deter foreign banks from maintaining a New York presence. The court noted that the Legislature had left the rule undisturbed for decades and declined to eliminate it judicially.
How does the rule coexist with Koehler v. Bank of Bermuda?
They govern different targets. Koehler v. Bank of Bermuda Ltd., decided by the Court of Appeals in 2009, held that a New York court with personal jurisdiction over a garnishee may order that garnishee to turn over out-of-state property under CPLR 5225(b). The separate entity rule constrains restraint and attachment against bank branches. Koehler addresses turnover proceedings.
The Motorola court expressly declined to read Koehler as having abrogated the separate entity rule, noting that Koehler involved stock certificates rather than bank deposits and did not address the branch question.
Practically, this means the procedural device matters enormously. A restraining notice or levy served on a New York branch will not reach foreign deposits. A turnover proceeding brought against a bank over which New York courts have personal jurisdiction stands on different footing, though personal jurisdiction over foreign banks became substantially harder to establish after the Supreme Court’s decision in Daimler AG v. Bauman in 2014 narrowed general jurisdiction to the place of incorporation and principal place of business.
What actually works against assets held abroad?
Several routes remain, and the right one depends on where the money is and who holds it.
- Turnover against the judgment debtor. CPLR 5225(a) directs the debtor personally to deliver property in their possession or control, wherever located, and refusal is punishable as contempt under CPLR 5251.
- Turnover against a garnishee subject to personal jurisdiction. Where the institution is incorporated or headquartered in New York, or has consented to jurisdiction, Koehler supplies the mechanism.
- Enforcement in the foreign jurisdiction. Domesticating the New York judgment abroad and levying locally avoids the branch problem entirely, though it requires local counsel and a receptive recognition regime.
- Discovery first, everywhere. Information subpoenas under CPLR 5224 served on the New York branch can produce account information about foreign holdings even where the assets themselves cannot be restrained, and that information supports enforcement elsewhere.
What should a Warner & Scheuerman cross-border enforcement plan address early?
Which entity holds the asset, and where that entity can be sued. Those two questions determine everything downstream.
A subsidiary is not a branch, and the separate entity rule does not apply to a separately incorporated foreign affiliate, which instead raises alter ego and veil piercing questions with a different analytical framework. Whether the account is a correspondent account cleared through New York also matters, since funds in transit through the New York banking system present a distinct set of issues from deposits sitting abroad.
Bank secrecy statutes, data protection regimes, and blocking laws in the account’s home jurisdiction affect what a garnishee can lawfully disclose, which is often the practical obstacle to discovery rather than the CPLR.
Timing is the last variable. Sophisticated debtors move deposits once litigation begins, so the useful work is identifying accounts before judgment and preserving the ability to act quickly afterward.
The separate entity rule is not a loophole to be argued around. It is settled New York law with a clear rationale, and creditors who treat it as an obstacle waste months serving process that cannot work. Warner & Scheuerman represents judgment creditors in cross-border enforcement, including turnover proceedings, foreign asset discovery, and coordination with counsel abroad. Contact the firm through wslaw.nyc to map where your debtor’s assets actually sit and what will reach them.
