Bank Account Frozen From a New York Judgment (but you live outside NY)? Big Win for Consumers where "Separate Entity Rule" Voided Such a Bank Restraint.

A good percentage of our clients—who currently reside out-of-state—call in a panic upon discovering that their bank accounts are restrained (frozen) due to a default judgment from a New York Court.

Is this legal? Are creditors allowed to freeze consumers' bank branches located in other states?

In New York, lawyers for judgment creditors have been operating with wide latitude apparently afforded to them under a case[1] that permits the seizure of a debtor's assets located out of state in the possession of "garnishees" (i.e. banks) so long as New York has jurisdiction over that garnishee.

Those lawyers assumed that Koehler somehow overruled New York's long-standing separate entity rule (bank branches considered separate institutions). That assumption appears to have been wrong, at least according to this case.

In Lease Finance Group, LLC v. Friske,[2] salvation comes to consumers and the collection-defense bar.

In Friske, the collectors served a restraining notice on a Wells Fargo branch in Pennsylvania while the debtor lived in Georgia. The judgment was entered in New York.

Relying on a New York Appeals case,[3] Judge d'Auguste of New York Civil Court held that the separate entity rule required service of the restraining notice on the bank branch where the consumer actually banks; In this case, Georgia.

There is an exception to the separate entity rule "due to the advent of high-speed computers and sophisticated communications equipment" such that "service of a restraining order upon a bank's main branch is adequate." The exception is limited to the following circumstances:

  • The restraining notice is served on the bank's main office;
  • The main office and the branches where the accounts in question are maintained are within the same jurisdiction; and
  • The bank branches are connected to the main office by high-speed computers and are under centralized control.

Applied here, Georgia is not in the same jurisdiction as Pennsylvania so the exception to the separate entity rule does not apply. The failure to serve the Georgia branch with the restraining notice voided the restraining notice.

The court noted that New York's highest court recently affirmed the separate entity rule as applied to bank accounts in foreign countries (see that blog here: Creditors May Not Seize Foreign Bank Account Through U.S. Branches). But that case did not address the issue with regard to domestic bank branches.

Judge d'Auguste found controlling precedential value in Nat'l Union Fire Ins. (footnote 2) and applied the separate entity rule to domestic bank branches.

Friends, if your bank account(s) have been frozen, call us immediately for a consultation.



[1] Koehler v. Bank of Bermuda Ltd.,883 N.Y.S.2d 763 (2009).

[2] Lease Finance Group, LLC v. Fiske, 021127/12, NYLJ 1202681290021, at *1 (Civ., NY, Decided December 9, 2014).

[3] Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Advanced Emp't Concepts, Inc., 269 A.D.2d 101, 101 (1st Dep't 2000).

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