In a decision dated January 11, 2012, a New York court applied the “separate entity rule” to dismiss a judgment creditor’s special proceeding against a garnishee bank, confirming that the rule remains alive and well in New York. Under the separate entity rule, bank branches are treated as separate legal entities for the purposes of attachment and garnishment. Where the rule applies, a judgment creditor seeking to restrain a judgment debtor’s bank account must serve the post-judgment restraining notice upon the bank branch where the account is maintained.
The judgment creditor in Global Technology, Inc. v. Royal Bank of Canada, No. 150151/2011, 2012 WL 89823, 2012 N.Y. Slip. Op. 50023(U) (Sup. Ct., N.Y. Co. Jan. 11, 2012) (Stallman, J.) brought a special proceeding against Royal Bank of Canada (“RBC”) pursuant to CPLR 5251, 5222, and 5227, alleging that it was entitled to a money judgment and a contempt order against RBC due to purported violation of a restraining notice seeking to restrain a judgment debtor’s bank accounts. The judgment creditor claimed that RBC had violated a restraining notice served on a New York City RBC branch by permitting the judgment debtor to withdraw funds from the judgment debtor’s RBC account in Canada.
RBC, represented by Wilk Auslander LLP, moved to dismiss the judgment creditor’s petition. RBC argued that, under the separate entity rule, serving a restraining notice on a bank branch in New York City was not effective to restrain the judgment debtor’s Canadian bank account. In response, the judgment creditor argued that the separate entity rule was no longer good law.
In a comprehensive decision that surveys the evolution of the separate entity rule, the Court -- noting that “[f]ederal courts are deeply divided from New York trial-level courts on this issue” -- applied the rule to hold that the restraining notice at issue did not restrain the judgment debtor’s Canadian accounts, and, therefore, no restraining notice violation had occurred. Justice Michael D. Stallman rejected the judgment creditor’s contention that Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009), a Court of Appeals case holding that a New York court with personal jurisdiction over a garnishee bank could order that bank to turn over a judgment debtor’s stock certificates located outside New York, had “impliedly abrogate[d] the separate entity rule.” The Court also pointed to policy and due process concerns supporting continued application of the separate entity rule.
Additionally, the Court rejected the judgment creditor’s argument that RBC, by informing judgment creditor’s counsel that the judgment debtor’s accounts were being frozen, had waived its right to contest the restraining notice’s validity.