United States: New York Court Affirms Separate Entity Ruling On Appeal

On March 11, 2014, a New York state appellate court affirmed an important decision on the "separate entity" rule that is favorable to all multinational banks that maintain a New York branch. New York's separate entity rule protects banks from judgment creditors who seek to restrain or attach assets located outside of New York by serving process on a bank's New York branch. The continued viability of that rule has been called into question since the 2009 Court of Appeals decision in Koehler v. Bank of Bermuda. On October 22, 2012, in Ayyash v. Koleilat,1 a New York court ruled in favor of Shearman & Sterling clients in reaffirming the continued viability of the separate entity rule and applying it to bar extraterritorial enforcement and discovery requests. The Appellate Division, First Department, affirmed that decision this week on alternative grounds.2The favorable decision in Ayyash adds to the tally of cases that have found that the separate entity rule survived Koehler. The increasing weight of authority that has reached this conclusion may influence the Court of Appeals when it has occasion to resolve the issue once and for all—which is likely to happen sooner rather than later (likely early 2015) in light of the Second Circuit's recent certification of the issue in Tire Engineering v. Bank of China. This note provides an overview of the Ayyash decisions and applicable law.


New York courts have long provided banks the protection of the "separate entity" rule, pursuant to which the individual branches of a bank are treated as separate legal entities for purposes of attachment and execution, distinct from their corporate headquarters and other branches.3 This is an exception to the general rule that New York courts have jurisdiction over a bank as a whole if it maintains a branch in New York. As a result, judgment creditors seeking to enforce money judgments in New York have traditionally been unable to reach assets held in accounts outside of the United States simply by serving process on a bank's New York branch. Instead, New York courts must have jurisdiction over the specific bank branch holding the sought-after assets before ordering the attachment or turnover of those assets.

As Shearman & Sterling noted in briefing the Ayyash matter, the separate entity rule has played an important role in facilitating the ability of banks to do business in New York for more than a century, "evolv[ing] into a key backbone of the modern system of global banking and international finance."4 Courts have long recognized that a contrary rule would "enormously increase the expense of conducting the banking business," "be fraught with great risks to the bank," and cause "endless difficulties, inconvenience, and confusion."5

Recent Controversy Regarding the Continuing Viability of the Separate Entity Rule

In 2009, the New York Court of Appeals issued a decision in Koehler v. Bank of Bermuda, Ltd.6 that led some attorneys and courts to question whether the separate entity rule is still good law. In Koehler, the Court of Appeals, in responding to a certified question from the Second Circuit, held that Art. 52 of New York's Civil Practice Laws and Rules7 has extraterritorial reach and thus does not prohibit the turnover of assets held outside of the United States where the court sitting in New York has personal jurisdiction over a garnishee bank. Importantly, Bank of Bermuda Ltd. had consented to the court's personal jurisdiction in Koehler, and the separate entity rule was never mentioned, much less considered, in the majority opinion.8

Nevertheless, judgment creditors have subsequently argued that the Court of Appeals in Koehler had impliedly eliminated (or greatly abrogated) the separate entity rule, such that service on a New York branch is sufficient to compel the provision of material related to, and the eventual turnover of, assets held in branches located anywhere in the world.

While that position has been adopted to some degree by a few federal decisions, 9 New York state courts considering the issue have consistently continued to apply the separate entity rule to post-judgment execution orders, rejecting the argument that Koehler had overruled the separate entity rule.10

This split in the case law was explicitly addressed by the March 2012 decision in Shaheen Sports, Inc. v. Asia Ins. Co.,11 in which the Southern District of New York, at the urging of Shearman & Sterling attorneys, held that the separate entity rule was still good law and prohibited a judgment creditor from executing on overseas assets through service on a bank's New York branch.

A final resolution of this dispute over Koehler's impact on the separate entity rule will require a ruling by New York's Court of Appeals. That ruling is likely to be issued in the near future in light of the Second Circuit's recent certification of just this issue to the Court of Appeals.12

The Lower Court's Ayyash Decision

On October 22, 2012, Justice Ellen Coin of the Supreme Court, New York County, issued a decision addressing the separate entity rule in Ayyash v. Koleilat. The Ayyash case arose from a Lebanese money judgment obtained by a Lebanese judgment creditor against a Lebanese debtor. Adnan Abu Ayyash, the judgment creditor, sought to enforce this judgment in New York by serving the New York branches or subsidiaries of a number of banks with subpoenas demanding that they conduct a search for assets at their operations globally, freeze such assets and produce information and documents concerning such assets. After most of the banks responded to his demands solely on behalf of their New York entities, Ayyash brought an order to show cause seeking an order compelling the banks to respond to his requests with respect to assets, information and documents held at any branch, anywhere in the world.

The Ayyash decision, relying in significant part on the S.D.N.Y.'s decision in Shaheen, reaffirmed that the separate entity rule is still good law post-Koehler. The court quoted Shaheen's conclusion that "[i]n light of the significant policy principles underlying the separate entity rule and its lengthy history in New York courts, [i]t is not unreasonable to expect that if the New York Court of Appeals had chosen to eliminate it, it would have said so."13

More notably, however, the decision held that the separate entity rule not only prevents a judgment creditor from executing on assets located at a foreign branch, but also bars requests for information and documents outside of New York relating to those assets. This was a small but important expansion of the protection afforded by the separate entity rule. This ruling adopted the common sense view that such a distinction is untenable where the discovery sought relates to attachment efforts. As Justice Coin put it, where discovery is "but a first step in the proceeding, with the ultimate goal of subsequent attachment and turn-over[,]" it "would be an unproductive waste of judicial resources" for "the Court to start down this path, knowing that the ultimate goal is unavailable in this jurisdiction."14

Additionally, Justice Coin identified two alternative grounds for denying Ayyash's requests. First, Justice Coin cited to principles of international comity in holding that the court would exercise its discretion to bar disclosure even absent the separate entity rule. Justice Coin noted that an order compelling discovery under such circumstances would frequently require bank branches located outside the United States to choose between complying with that order and violating the bank secrecy and data protection laws of the countries in which they operate.15 Thus, in rejecting Ayyash's attempt to use the New York courts "to launch a massive, multi-jurisdictional, international exercise in supplementary proceedings," Justice Coin stated that the sought-after discovery is obtainable solely through the Hague Convention on Taking of Evidence Abroad in Civil or Commercial Cases or under the applicable laws of the countries in which the assets are actually located. Second, Justice Coin invoked CPLR 5240, which gives courts broad discretion to reject post-judgment enforcement requests, as an alternative basis for denying Ayyash's requests.

The First Department's Ayyash Decision

On March 11, 2014, following briefing by the parties and several amici,16 New York's Appellate Division, First Department, affirmed Justice Coin's decision. As is not uncommon in this Court, the decision is very short (spanning little more than a page) and contains little analysis. The First Department found that the lower court had "providently exercised its discretion, pursuant to CPLR 5240, in denying the enforcement procedures sought by plaintiff since they would likely cause great annoyance and expense to respondents or their employees or agents." It also found that, "[i]n addition, the denial of plaintiff's motion is warranted based on principles of international comity since the underlying dispute did not originate in the United States, the Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters provides an alternative recourse, and ordering compliance raises the risk of undermining important interests of other nations by potentially conflicting with their privacy laws or regulations."

The First Department did not address the separate entity rule dispute. As a result, the analysis of those issues in Justice Coin's decision below remains good law.


Justice Coin's Ayyash decision reaffirmed the protection that the separate entity rule confers on global banks that maintain a New York branch. It is an important decision for global financial institutions in that it further added to the weight of authority rejecting the argument that Koehler eliminated the separate entity rule. This weight may influence the Court of Appeals when it has occasion to finally resolve the separate entity rule's continued viability. The time for that resolution may be relatively soon: in January of this year, the Second Circuit referred this very question—i.e., whether the separate entity rule still applies to bar extraterritorial asset turnover and restraint requests post-Koehler—to the Court of Appeals in Tire Engineering and Distribution LLC v. Bank of China, Ltd. If the Court of Appeals affirms the separate entity rule's viability, Justice Coin's decision in Ayyash will remain important for its application of the separate entity rule to bar extraterritorial discovery in aid of attachment, which is an issue beyond the scope of the questions recently referred by the Second Circuit and which thus may not be resolved by New York's highest court in the near term.

Moreover, Justice Coin's holding that compelling discovery would violate international comity will serve as useful precedent on requests seeking foreign material in other contexts. The First Department's affirmance of the ruling will further help banks combat attempts by judgment creditors to engage in global fishing expeditions for assets through service of process on New York branches.


1 Adnan Abu Ayyash v. Rana Abdul Rahim Koleilat, No. 151471/2012 (Sup. Ct. New York County Oct. 22, 2012); you may also wish to refer to our Nov. 6, 2012 Shearman & Sterling Client Publication: New York Court Reaffirms Protections Afforded to Financial Institutions under the "Separate Entity" Rule.

2 Adnan Abu Ayyash v. Rana Abdul Rahim Koleilat, No. 151471/2012 (1st Dep't Mar. 11, 2014).

3 Cronan v. Schilling, 100 N.Y.S.2d 474, 476 (Sup. Ct. New York County 1950) ("Each branch of a bank is a separate entity, in no way concerned with accounts maintained by depositors in other branches or at the home office."), aff'd, 126 N.Y.S.2d 192 (1st Dep't 1953).

4 Geoffrey Sant, The Rejection of the Separate Entity Rule Validates the Separate Entity Rule, 65 S.M.U.L. Rev. 813, 824 (2012).

5 Chrzanowska v. Corn Exch. Bank, 159 N.Y.S. 385, 388 (1st Dep't 1916).

6 Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009).

7 Article 52 of New York's Civil Practice Laws and Rules (the "CPLR") governs the enforcement of money judgments in NY state and federal courts. Specifically, CPLR § 5225(b) authorizes New York courts to attach and turn over assets held on behalf of judgment debtors, while CPLR § 5224 governs discovery demands related to those assets.

8 Cf. Koehler, 12 N.Y.3d at 542 (Smith, J., dissenting) (noting that "[t]he majority's holding opens a forum-shopping opportunity for any judgment creditor trying to reach an asset of any judgment debtor held by a bank (or other garnishee) anywhere in the world," and describing the majority opinion as a "recipe for trouble").

9 See, e.g., JW Oilfield Equip., LLC v. Commerzbank AG, No. 18 MS 0302, 2011 WL 507266 (S.D.N.Y. Jan. 14, 2011); Eitzen Bulk v. Bank of India, 827 F.Supp.2d 234 (S.D.N.Y. 2011).

10 See Global Technology, Inc. v. Royal Bank of Canada, 34 Misc. 3d 1209A (Sup. Ct. New York County 2012); Samsun Logix Corp. v. Bank of China, 31 Misc. 3d 1226A (Sup. Ct. New York County 2011); Parbulk II AS v. Heritage Maritime, S.A., 35 Misc.3d 235 (Sup. Ct. New York County 2011). See also International Legal Consulting Ltd. v. Malabu Oil and Gas Ltd., 35 Misc.3d 1203(A) (Sup. Ct. New York County 2012) (applying the separate entity rule in prejudgment attachment proceedings).

11 Shaheen Sports, Inc. v. Asia Ins. Co., Ltd., 2012 WL 919664 (S.D.N.Y. Mar. 14, 2012), app. dismissed, 2012 WL 4017287 (2d Cir. Aug. 14, 2012).

12 Tire Engineering and Distribution LLC v. Bank of China, Ltd., Nos. 13-1519-cv, 13-2535-cv(L), 13-2639-cv(con), 2014 WL 114285, at *1 (2d Cir. Jan. 14, 2014). The New York Court of Appeals accepted certification. Docket No. CTQ-2014-00001.

13 Ayyash, No. 151471/2012 at 10 (citing Shaheen Sports, 2012 WL 919664 at *12).

14 Id. at 12.

15 Id. at 13 (citing cases).

16 The Institute of International Bankers, The Clearing House Association L.L.C., the European Banking Federation, and the New York Bankers Association filed a brief as amici curiae with the First Department urging it to uphold Justice Coin's decision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions