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Creditors may not seize foreign bank accounts through U.S. branches

The New York Court of Appeals affirmed the state's "separate entity rule," a century-old law that prevents the seizure of foreign accounts through service of a restraining notice on a U.S. bank branch.

Motorola Credit Corp. v. Uzan,[1] a case that headlines today's New York Law Journal, involves Motorola's struggle to recover a $3 billion judgment against a Turkish family over failed telecommunication financing.

The Court of Appeals, responding to a second circuit's certified question, upheld New York's separate entity rule to maintain "international comity"[2] and to "avoid conflicts among competing legal systems."

Thus, Motorola is not permitted to serve a U.S. Standard Chartered branch with a restraining notice seeking to freeze $30 million in Uzan assets held by Standard Chartered in the United Arab Emirates.

Although Standard Chartered initially froze the money, bank regulators in both Jordan and the United Arab Emirates intervened subjecting Standard Chartered with contradictory directives—the type of "upheaval" that NY's separate entity rule has been successful at preventing.

The decision faced a strong dissent by judge Sheila Abdus-Salaam who criticized the rule for permitting the "most egregious and flagrant judgment debtors to make a mockery of our courts' duly-entered judgments."

[1] 274 F. Supp 2d 481.

[2] Comity: legal reciprocity—the principle that one jurisdiction will extend certain courtesies to other nations (or other jurisdictions within the same nation), particularly by recognizing the validity and effect of their executive, legislative, and judicial acts.