New York Court Upholds Separate Entity Rule, Quashes Non-Party Subpoenas Seeking Information on Overseas Bank Accounts

In Ayyash v. Koleilat, the Supreme Court of the State of New York, New York County, upheld and arguably extended the New York “separate entity” rule, which provides that each branch of a bank is treated as a separate entity, in no way concerned with accounts maintained by depositors in other branches or at a home office. Under this rule, a New York branch cannot be compelled to turn over assets maintained at another branch of the same bank. The Court’s decision appears to extend this rule to hold that — at least in circumstances where international comity considerations support broad application of the separate entity rule — a New York branch cannot be compelled to provide information or discovery concerning assets maintained at a foreign branch.

Ayyash involves a motion to compel compliance with information subpoenas, document subpoenas, and restraining notices (the “Subpoenas”) issued by the plaintiff against the New York branches and subsidiaries of various non-party international banks. These Subpoenas, which were propounded by Mr. Ayyash to assist him in collecting upon a Lebanese judgment, asked the respondent banks to identify, produce materials relating to, and freeze assets in accounts held by any branch or office that the banks maintained in a foreign country.

The banks objected, contending that New York’s separate entity rule protected them from producing information concerning accounts located outside the United States because such disclosure could subject them to civil or criminal penalties under bank secrecy laws in foreign jurisdictions. The banks also urged the Court to exercise its discretion to preclude use of the New York courts to circumvent foreign discovery protocols, including under the Hague Convention on Taking of Evidence Abroad in Civil or Commercial Cases. Mr. Ayyash, on the other hand, claimed that CPLR 5224(a-1) expressly obligates a bank doing business in New York to produce documents whether “within or without the state.” He also argued that the separate entity rule was inapplicable because it only applies to attachment or turn-over proceedings, not the discovery of information about the existence of any assets.

The Court denied the motion to compel, upholding the separate entity rule despite the language of CPLR 5224(a-1). The Subpoenas, the Court found, were really “but a first step in the proceeding, with the ultimate goal of subsequent attachment and turn-over. For the Court to start down this path, knowing that the ultimate goal [of attachment or turn-over] is unavailable in this jurisdiction, would be an unproductive waste of judicial resources.” Thus, the Court held that principles of international comity mandated that requests for information about accounts maintained at a bank’s foreign branch comply with the discovery processes of the foreign branch’s home country or be effected through the Hague Convention. The mere fact that the non-party banks conducted general business in the United States and New York was insufficient to outweigh these significant comity considerations.

Ayyash makes clear that a party seeking information from a foreign entity may not serve a New York branch and rely upon the CPLR provision requiring production of documents outside of New York, but rather must properly serve the foreign entity.

Daniel S. Weinberger is an Associate in the Gibbons Business & Commercial Litigation Department.
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