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Koehler Update and Proposed Legislation to Overturn the “Separate Entity Rule”

Over the past few years, banks in New York have been under siege by judgment creditors seeking to use the New York Court of Appeals’ decisions in Koehler v. Bank of Bermuda Ltd. and Hotel 71 Mezz Lender LLC v. Falor to enforce judgments against assets maintained in overseas branches of banks doing business in New York.

A split has seemingly emerged between Federal Courts and State Courts in New York over the reach of the enforcement procedures permitted under Article 52 of New York’s CPLR, with the majority of Federal Courts permitting post-judgment enforcement against overseas bank branch assets, while all State Courts to consider the question have denied such relief, citing the “separate entity rule,” a judge-made legal doctrine, which provides that each branch of a bank must be considered a separate legal entity for enforcement and attachment purposes.

Although several cases have been appealed in the past, promising to provide appellate guidance on the issue, they have invariably settled or been dismissed before being decided on the merits; perhaps a sign of skittishness among the banks and their supporters to have the issue re-examined by appellate courts. The latest appeal pending in the Second Circuit Court of Appeals is ICICI Bank Limited’s appeal from the District Court’s February 16, 2012, decision in Amaprop Ltd. v. Indiabulls Fin. Servs. Ltd., in which District Judge Gardephe held that a restraining notice served on ICICI Bank was valid and enforceable with respect to all funds and property of the judgment debtor held anywhere in the world and directed the transfer of such assets to ICICI Bank’s New York branch for turnover to the judgment creditor. Briefing before the Second Circuit should be concluded in the July/August 2013 timeframe. Given the sheer size of the $48 million judgment involved, the Amaprop appeal would seem to have the best chance since the Koehler decision for a ruling by an appellate court on the “separate entity rule.”

The New York Court of Appeals was recently given an opportunity to address Koehler and the “separate entity rule,” but instead chose to skirt around the issue. In Commonwealth of the Northern Mariana Islands v. Canadian Imperial Bank of Commerce, decided on April 30, 2013, the Court was faced with the issue of whether the language of the turnover procedure under the CPLR extended to constructive possession of the judgment debtor’s assets. The Commonwealth sought to enforce tax judgments via a turnover order against a Canadian bank headquartered in Toronto, with a branch office in New York, under the theory that the judgment debtor maintained accounts in subsidiaries of the Canadian bank located in the Cayman Islands. The Canadian bank argued that the foreign subsidiaries were separate and independant entities with no information sharing agreement between the banks. The Court of Appeals held that since the CPLR turnover procedure used the language “possession or custody” the turnover procedure could only be effective in situations where a garnishee has actual possession or custody of property, rather than merely constructive possession of property. Thus, the Commonwealth could not reach the property held by the Cayman Islands subsidiary of the Canadian bank. The Court observed that Koehler merely stood for the proposition that when personal jurisdiction can be obtained over a garnishee, the garnishee can be directed to turn over property in its possession or custody. Since the Court in Commonwealth lacked personal jurisdiction over the Cayman Islands subsidiary of the Canadian bank, the Court had no power to compel the turnover of the judgment debtor’s property. Interestingly, no mention of the “separate entity rule” was made by the Court of Appeals.

While application of the anachronistic “separate entity rule” has hampered state court and a few federal court judges, a legislative change may be in the offing. In January of 2011, the Report of the Advisory Committee on Civil Practice to the Chief Administrative Judge of the Courts of the State of New York recommended that the “separate entity rule” be legislatively repealed so that service of levies, restraining notices, or orders of attachment upon any office of a financial institution be effective as to any account held by the institution as garnishee, regardless of any nominal identification of the account with a particular office. As explained in the Report, the Committee, which includes such influential scholars and commentators on the CPLR as Vincent Alexander, Burton N. Lipshie, and David D. Siegel, “believes that the now ubiquitous use of computer networks that give all branch offices of a financial institution instantaneous access to central data banks makes the limitation of the separate entity rule obsolete, and its continued existence unnecessarily complicates and limits enforcement of judgments and attachments without any mitigating benefit to concepts of fairness or the functioning of the civil justice system.

In connection with this proposal, New York State Senate Bill S4542 was introduced in the 2011 session, sponsored by Senator Joseph A. Griffo to repeal the “separate entity rule.” It was referred to the Judiciary Committee on April 11, 2011, and again on January 4, 2012. Whether it will die in committee or eventually be passed into law is anyone’s guess, but one can be sure that the banks are watching its progress carefully.

If you have any comments or questions regarding this article, please feel free to contact Kirk Lyons at or Jon Werner at

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