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13.3.8.3 Bank Accounts

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13.3.8.3 Bank Accounts

While it is clear that to execute upon tangible property, such as land or a vehicle, the creditor must use the courts of the state where the property is located, the issue becomes more complicated with a bank account. Creditors may argue that the location of the branch bank where the debtor maintains the bank account is not dispositive. Instead, they may argue that execution can issue in any state where any branch or office of the debtor’s bank is located, and that the bank then must restrain all the debtor’s accounts even if they are located in other states (or countries). Some courts have accepted this view.148

A number of decisions reject this view, however, and treat bank accounts as located in the specific branch where the debtor maintains the account. These courts require a creditor that seeks to garnish a debtor’s bank account to serve the garnishment on the branch where the debtor maintains the account, not on a different office or branch of the bank, particularly one located in a different jurisdiction.149 Thus, if a consumer maintains an account in a branch outside of the state where the court issued the judgment, the collector will have to go to that other state to enforce the judgment on that bank account. It cannot issue a garnishment order against a branch of the bank that is located in the state where the judgment was issued.

This position is consistent with Article 4 of the Uniform Commercial Code, which provides that “[a] branch or separate office of a bank is a separate bank for the purpose of . . . determining the place at or to which action may be taken or notices or orders shall be given under this Article and under Article 3.”150 A few jurisdictions also have statutes specifying the effect of service of an execution upon a branch bank.151

Debtors as well as banks would be harmed by any other rule. If service of an execution order at one branch restrained any accounts at any other branches, the bank would be liable to the creditor if it cashed any checks or allowed any withdrawals from any accounts at any branches the moment after the execution was served. Even with computer networks, a bank branch cannot be expected to implement a real-time system-wide freeze on the debtor’s accounts in all branches.152

In 2009, New York’s highest court held that a garnishment order that was properly served upon a New York bank could order it to turn over stock certificates that were held by its parent bank in Bermuda.153 Once the court acquired personal jurisdiction over the New York bank by serving the order upon it, it could order it to bring the specified property into the state. The case did not involve bank accounts, so the provisions of Article 4 of the UCC did not come into play, making the case distinguishable from the typical consumer collection case. Nor did the decision mention the “separate entity rule”—the rule, stated in many earlier New York decisions, that, when a New York branch of a bank is served with a garnishment order, its other branches are to be treated as separate entities.

In 2014, New York’s highest court confirmed that its 2009 decision did not abrogate the separate entity rule.154 It held that service of a garnishment order on the New York branch of a bank could not operate to freeze funds held in a branch located in the United Arab Emirates. It described the separate entity rule as a “long-standing common law doctrine” and rejected the judgment creditor’s invitation to cast it aside.155 It also noted that an intervening decision from the U.S. Supreme Court156 might cast some doubt about whether the 2009 decision was correctly decided.157 While the 2014 decision deals only with branch banks in foreign countries, not domestic branch banks in New York or other states,158 it would be a considerable leap for a lower court to interpret the now-questioned 2009 decision as abrogating the separate entity doctrine for any type of account.159 Courts may, however, distinguish between orders requiring turnover or freezing of assets held in an account outside the state and orders that merely require the in-state branch to produce information about those assets.160

Footnotes

  • 148 See Woodward Hous. v. Greenhouse Leasing, L.L.C., 2017 WL 2904706 (E.D. Mich. July 7, 2017) (bank account may be garnished anywhere the funds can be withdrawn; judgment creditor can enforce consent judgment granted by federal court in Michigan by serving writ of garnishment on Michigan branch of bank even though debtor’s account was at Pennsylvania branch); Regions Equip. Fin. Corp. v. Blue Tee Corp., 313 F.R.D. 568 (E.D. Mo. 2016) (predicting that Missouri courts will allow attachment of funds held in an account at national bank that are available to debtor at one of bank’s branches in Missouri even though account was opened in a different state; stressing that this defendant accessed funds from its New York headquarters); Marisco, Ltd. v. Am. Samoa Gov’t, 889 F. Supp. 2d 1244 (D. Hawaii 2012) (predicting that Hawaii courts will reject separate entity rule; serving garnishment on Hawaii bank is sufficient to reach account at its American Samoa branch); Acme Contracting, Ltd. v. Toltest, 2008 WL 4534175 (E.D. Mich. Oct. 3, 2008) (bank account is an intangible and can be garnished by service upon branch located in Michigan, even if account is maintained in Ohio); Digitrex, Inc. v. Johnson, 491 F. Supp. 66 (S.D.N.Y. 1980) (terming separate entity rule “obsolete” in light of banks’ use of high-speed computers; service of postjudgment restraining notice on main bank office is effective to restrain an account maintained at a branch; note that Nat’l Union Fire Ins. Co. v. Advanced Emp’t Concepts, Inc., 703 N.Y.S.2d 3 (N.Y. App. Div. 2000) essentially limits this decision to its facts); In re Marriage of Kosmond, 830 N.E.2d 596 (Ill. App. Ct. 2005) (when court has in personam jurisdiction over all the parties, it can issue order to a bank to freeze a party’s assets in another country; Illinois does not follow “separate entity” rule that treats each bank branch as separate entity for purposes of seizing assets or deposits); Wilton Enter., Inc. v. Cook’s Pantry, Inc., 552 A.2d 1031 (N.J. Super. Ct. App. Div. 1988) (levy served on bank branch is effective as to deposit maintained in another branch, when bank had practice of notifying appropriate branch by telephone, even though it did not follow that practice in this case). See also Tribie v. United Dev. Grp. Int’l, L.L.C., 2008 WL 5120769 (S.D. Fla. Dec. 2, 2008) (bank has duty to file answer to bank account garnishment served on its Florida agent for service of process, even if it has no retail branches in Florida); Ellsworth Land & Livestock Inc. v. Bush, 233 P.3d 655 (Ariz. Ct. App. 2010) (debt can be garnished wherever personal jurisdiction can be obtained over garnishee—here, an annuity company that owed annuity payments to judgment debtor); Nagel v. Westen, 865 N.W.2d 325 (Minn. Ct. App. 2015) (annuity contract creates a debt; judgment creditor can garnish annuity in a state in which judgment debtor has right to obtain payment of debt—here, the headquarters of the annuity provider). Cf. R.C. Moore, Inc. v. Les-Care Kitchens, Inc., 931 A.2d 1081 (Me. 2007) (rejecting garnishee bank’s objection to subject matter jurisdiction; service of garnishment order on in-state agent of bank meets due process standards even if judgment debtor’s account is maintained in a different state).

  • 149 Det Bergenske Dampskibsselskab v. Sabre Shipping Corp., 341 F.2d 50 (2d Cir. 1965) (N.Y. law) (each bank branch is a separate business entity, and service on a main office or branch does not restrain an account maintained at a separate branch); Baltazar v. Houslanger & Assocs., P.L.L.C., 2018 WL 3941943 (E.D.N.Y. Aug. 16, 2018) (Mag.) (service on bank’s New York branch not proper where debtor resided and banked in New Jersey); Skulas v. Loiselle, 2010 WL 1790439 (S.D. Fla. Apr. 9, 2010) (Florida court does not have jurisdiction over bank account maintained in Pennsylvania; service of garnishment writ on Florida branch of bank is insufficient), adopted, 2010 WL 1790433 (S.D. Fla. May 5, 2010); Shinto Shipping Co. v. Fibrex & Shipping Co., 425 F. Supp. 1088 (N.D. Cal. 1976) (enforcing California statute that garnishment is effective only as to accounts maintained in branch bank where garnishment order is served), aff’d on other grounds, 572 F.2d 1328 (9th Cir. 1978); Nat’l Shipping & Trading Corp. v. Weeks Stevedoring Co., 252 F. Supp. 275 (S.D.N.Y. 1966) (attachment must be served on branch where account is maintained); Baker v. Bennett, 644 So. 2d 901 (Ala. 1994) (Alabama court cannot reach judgment debtor’s assets in New York brokerage account by serving brokerage’s Alabama office; court cannot obtain jurisdiction of out-of-state property by issuing writ to bailee over whom court has personal jurisdiction); Doe v. CFS Bank, 2000 WL 1705642 (Conn. Super. Ct. Oct. 26, 2000) (bank levy served on bank’s main office in New York is insufficient to reach funds held at Connecticut branch); McCloskey v. Chase Manhattan Bank, 183 N.E.2d 227 (N.Y. 1962) (levy upon bank in New York is ineffective to reach deposits maintained in Oregon branch); Nat’l Union Fire Ins. Co. v. Advanced Emp’t Concepts, Inc., 703 N.Y.S.2d 3 (N.Y. App. Div. 2000) (service of execution upon bank office in one jurisdiction is insufficient to reach account in branch bank in different jurisdiction). See also Macatawa Bank v. Wipperfurth, 822 N.W.2d 237 (Mich. Ct. App. 2011) (situs of intangible asset is domicile of owner, so Florida debtor’s IRA cannot be reached by serving garnishment upon financial institution’s Michigan branch). Cf. Ellis v. Barclays Bank PLC-Miami Agency, 594 So. 2d 826 (Fla. Dist. Ct. App. 1992) (garnishment served on Miami branch of international bank cannot reach deposits held in other countries; bank had responded as to all its domestic branches, but court does not comment on whether this was proper or required). But cf. Yayasan Sabah Dua Shipping SDN BHD v. Scandinavian Liquid Carriers Ltd., 335 F. Supp. 2d 441 (S.D.N.Y. 2004) (finding that situs of bank account was New York where Cayman Island branch account appeared to be a paper bank entirely controlled and managed by New York branch).

  • 150 U.C.C. § 4-107. But see Wilton Enter., Inc. v. Cook’s Pantry, Inc., 552 A.2d 1031 (N.J. Super. Ct. Law Div. 1988) (inexplicably interpreting this language to mean that service on one branch of a bank is effective as service on other branches and requires bank to act with due diligence to inform other branches).

  • 151 Idaho Code § 11-703(3) (bank may designate a particular office to receive executions, in which case an execution served on that office restrains all accounts at any branches, but service of execution on branch only restrains account maintained in that office; branch may forward the execution to designated office, in which case execution restrains accounts at all branches, as of the time when execution is received at the designated office); Wash. Rev. Code § 6.27.080 (writ naming financial institution attaches deposits in that institution; creditor must specify either a specific branch or the financial institution). See also Ariz. Rev. Stat. Ann. § 12-1577(A) (allows alternative of service on garnishee’s designated agent); Desert Wide Cabling & Installation, Inc. v. Wells Fargo & Co., N.A., 958 P.2d 457 (Ariz. Ct. App. 1998) (interpreting Arizona statute limiting effectiveness of levy to branch bank where service is made, or, upon payment of $25, to other branches in same county; Arizona court cannot serve garnishment order on out-of-state bank).

  • 152 See Gary Clifford Korn, Attachment of Bank Deposits in the Electronic Age: The Doctrine of Digitrex, 100 Banking L.J. 607 (Aug.–Sept. 1983) (discussing problems that banks would face). See also Desert Wide Cabling & Installation, Inc. v. Wells Fargo & Co., N.A., 958 P.2d 457, 458 (Ariz. Ct. App. 1998) (noting problem of double payment).

  • 153 Koehler v. Bank of Bermuda, Ltd., 911 N.E.2d 825 (N.Y. 2009). See also JW Oilfield Equip., L.L.C. v. Commerzbank AG, 764 F. Supp. 2d 587 (S.D.N.Y. 2011) (applying Koehler; if court has personal jurisdiction over garnishee bank, it can issue garnishment order to it and can reach assets that are outside jurisdiction, even if it does not have in rem jurisdiction over those assets).

  • 154 Motorola Credit Corp. v. Standard Chartered Bank, 21 N.E.3d 223 (N.Y. 2014).

  • 155 Id. at 228–229.

  • 156 Daimler AG v. Bauman, 571 U.S. 117, 134 S. Ct. 746, 187 L. Ed. 2d 624 (2014).

  • 157 Motorola Credit Corp. v. Standard Chartered Bank, 21 N.E.3d 223, 228 n.4 (N.Y. 2014).

  • 158 Id. at 226 n.2.

  • 159 See Baltazar v. Houslanger & Assocs., P.L.L.C., 2018 WL 3941943 (E.D.N.Y. Aug. 16, 2018) (Mag.) (concluding that separate entity rule has not been overturned; service of garnishment on a New York branch of debtor’s bank is insufficient to reach funds in account maintained in New Jersey), adopted by 2018 WL 4781143 (E.D.N.Y. Sept. 30, 2018); Global Tech., Inc. v. Royal Bank, 943 N.Y.S.2d 791 (N.Y. Sup. Ct. 2012) (concluding that 2009 decision did not abrogate separate entity rule); Lease Fin. Grp., L.L.C. v. Fiske, 2 N.Y.S.3d 851 (N.Y. Civ. Ct. 2014) (stating that it will continue to recognize separate entity rule unless legislature or a higher court abrogates it). See also Tire Eng’g & Distrib., L.L.C. v. Bank of China, Ltd., 740 F.3d 108, 115 n.10 (2d Cir. 2014) (citing a number of lower court decisions continuing to apply separate entity rule even before New York Court of Appeals’ 2014 ruling). But see Wells Fargo Bank v. Wyo Tech Inv. Grp. L.L.C., 2018 WL 3648417 (D. Ariz. Aug. 1, 2018) (N.Y. law) (concluding that separate entity rule is abrogated except for accounts in foreign banks).

  • 160 In re B & M Kingstone, L.L.C. v. Mega Int’l Commercial Bank Co., Ltd., 15 N.Y.S.3d 318 (N.Y. App. Div. 2015) (affirming order enforcing information subpoena).