Letter from America: NY High Court to address continuing vitality of ‘separate entity’ rule for international banks with New York branches

This September, New York’s highest court will consider an issue of significant interest to international banks with a New York presence — whether a judgment creditor can use New York’s judgment enforcement procedures to restrain a garnishee bank with a branch in New York from releasing a client’s deposit balance in jurisdictions outside the US, or to obtain an order requiring such an extraterritorial debt to be turned over to the judgment creditor in New York. A ruling to that effect could subject international banks to double liability for deposit balances in some circumstances. The appeal, styled Motorola Credit Corp v Standard Chartered Bank, is pending in the New York Court of Appeals.

New York law provides judgment creditors with several means for enforcing money judgments. One of these provisions permits a creditor to serve a restraining notice on a bank that holds its judgment debtor’s deposits, upon receipt of which the garnishee bank ‘is forbidden to…pay over or otherwise dispose of such debt, to any person other than the sheriff’. Another provision permits a judgment creditor to sue for a court order requiring such a garnishee bank to turn over a judgment debtor’s deposit balance at that bank. Disobedience of such a turnover order is punishable as a contempt of court…

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