Shearman & Sterling achieved an appellate victory for clients Itaú Unibanco and Banco Santander when New York’s Appellate Division (First Department) rejected a challenge to a lower court’s favorable ruling for the clients in a dispute concerning the extraterritorial impact of restraint and discovery requests in the post-judgment enforcement context. The decision will be of potential benefit to any bank with foreign operations that maintains a New York branch.
Itaú Unibanco and Banco Santander had both been subject to a subpoena and order to show cause demanding the production of information and the restraint of assets located outside of the United States. However, the subpoenas had been served solely on the banks’ New York branches. A key issue was the applicability and scope of New York’s “separate entity rule,” which bars a plaintiff from attaching assets located at a foreign branch via service on the bank’s New York branch. Some plaintiffs have argued that the New York Court of Appeal’s 2009 decision in Koehler eliminated the separate entity rule, and courts have historically limited the separate entity rule to attachment and not applied the rule to discovery.
In October 2012, the lower court issued a favorable decision for the firm’s clients, stating that the separate entity rule applies not only to prevent a plaintiff from attaching assets located at a foreign branch but also to bar requests for information held outside of the United States relating to those assets. This decision was appealed to the First Department, where Shearman & Sterling took the lead among the joint defense group in briefing the Court on the relevant issues on appeal. On March 11, 2014, the First Department affirmed the lower court’s decision, but did not address the separate entity rule dispute in doing so. Therefore, the lower court’s helpful analysis and conclusions remain good law.
The Washington DC-based Litigation team included associates Keith Palfin and Alison Welcher.