New York Court Upholds Separate Entity Rule For Restraining Notice Service

Global Tech won a near $1.8 million judgment against its debtor, Moto Diesel Mexicana (MDM), in New York federal court. The judgment was then moved to state court, and Global Tech served a subpoena on Royal Bank of Canada (RBC), requesting information. Global Tech also served a Retraining Notice, as allowed by New York aw, on a RBC branch in Manhattan. Global Tech discovered that MDM had two RBC accounts in Toronto and that one of the accounts contained a little over $84,000. Turnover proceedings began in New York state court, and RBC handed over $215,000 to Global Tech.

When Global Tech had received all but $323,000 from MDM, it sought a judgment against RBC for the remaining amount. The judgment was satisfied, but Global Tech continued its action against RBC for not freezing the $921,000 pursuant to the Restraining Notice. RBC moved to dismiss because (1) the matter was moot and (2) because the turnover order was not served on the Toronto branch that actually held MDM’s account (a theory known as the “separate entity rule”).

In Global Tech., Inc. v. Royal Bank of Canada, 2012 WL 89823 (N.Y.Sup., Unreported, Jan. 11, 2012)., the court held upheld the separate entity theory, holding that the service of the Restraining Notice on the Manhattan Branch was not sufficient to bind RBC’s Toronto branch to freeze MDM’s accounts or turnover its assets.

See Jay Adkinsson, Royal Bank of Canada: Separate Entity Rule Survives As To Restraining Order Served On Manhattan Branch For Debtor’s Toronto Accounts, Forbes, Jan. 14, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.