U.S. Court Questions New York Rule on Foreign Banks

A federal appeals court asked New York state’s highest court to rule on whether creditors can obtain assets to satisfy judgments from foreign banks that have operations in New York.

The U.S. Court of Appeals in Manhattan said today that it is weighing whether Beijing-based Bank of China Ltd. and London-based Standard Chartered Plc can be ordered by U.S. courts to freeze or turn over to creditors assets that are kept in branches outside the U.S.

The court asked the New York Court of Appeals to determine whether banks are protected in those circumstances by a rule under which courts treat each branch of an international bank as a separate entity. The appeals court wants to know whether the rule, which protects assets in foreign branches, applies to the enforcement of judgments.

“As plaintiffs argue, the original basis for the separate entity rule may have weakened or even disappeared over time,” the appeals court said in its filing today. The rule also “may facilitate efforts of judgment debtors to frustrate and evade the collection of judgments.”

The question arose from efforts by Motorola Credit Corp. to enforce $3.1 billion in judgments against the Uzan family of Turkey and a tire company’s attempt to collect on a $26 million copyright infringement award against companies based in China and Dubai.

Judges found that the separate-entity rule precluded the plaintiffs from seeking or freezing assets held by defendants at the Bank of China and Standard Chartered in foreign branches, according to the appeals court. The banks have some operations in New York.

Federal appeals courts sometimes ask state courts to clarify the interpretation of a law when weighing cases.

The case is Motorola Corp. v. Uzan, 13-2535, U.S. Court of Appeals, Second Circuit (Manhattan).

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