Commercial Division Blog

Posted: August 14, 2015 / Categories Commercial, Discovery/Disclosure, Jurisdiction

Interpreting Daimler, First Department Enforces Information Subpoena Covering Foreign Subsidiaries

On August 11, 2015, the First Department issued a decision in Matter of B&M Kingstone, LLC v. Mega Intl. Commercial Bank Co., Ltd., 2015 NY Slip Op. 06482, holding that a bank registered to do business in New York had to respond to an information subpoena by providing information not just from its New York branch, but from out-of-state branches as well.

In B&M Kingstone, the petitioner "served an information subpoena on the New York branch of respondent." The respondent "refused to produce . . . information regarding accounts and records at its branches outside New York State." The First Department affirmed the trial court's order compelling the disclosure, explaining:

In Daimler AG v Bauman, the Supreme Court held that general, or all-purpose, jurisdiction allowed a court to hear any and all claims against a foreign corporation only when the corporation's affiliations with the State in which suit is brought are so constant and pervasive as to render it essentially at home in the forum state.

. . .

[U]nder Daimler, New York does not have general jurisdiction over the respondent's worldwide operations. However, that does not end the inquiry. Like Banco Bilboa Vizcaya Argentina (BBVA) in Vera v Cuba, [the respondent] consented to the necessary regulatory oversight in return for permission to operate in New York, and therefore is subject to jurisdiction requiring it to comply with the appropriate Information Subpoenas. As the Vera court explained in finding that BBVA was subject to jurisdiction:

The state of New York in general, and New York City in particular, is a leading world financial center. In order to benefit from the advantages of transacting business in this forum, a foreign bank must register with and obtain a license from the Superintendent of the Department of Financial Services ("DFS"), and file a written instrument appointing the superintendent and his or her successors its true and lawful attorney, upon whom all process in any action or proceeding against it on a cause of action arising out of a transaction with its New York agency or agencies or branch or branches. BBVA is registered with the DFS as a foreign branch. The Second Circuit recognized that the privileges and benefits associated with a foreign bank operating a branch in New York give rise to commensurate, reciprocal obligations. Foreign corporations which do business in New York are bound by the laws of both the state of New York and the United States, and are bound by the same judicial constraints as domestic corporations. Under New York Banking Law, foreign banks operating local branches in New York can both sue and be sued. This legal status also confers obligations to participate as third-parties in lawsuits which involve assets under their management.

(Internal quotations and citations omitted) (emphasis added). The First Department went on to address the question of "whether the separate entity rule bars New York courts from compelling the respondent's New York branch to produce information pertaining to its foreign branches." It concluded that it did not, explaining:

The separate entity rule is that each branch of a bank is a separate entity, in no way concerned with accounts maintained by depositors in other branches or at the home office. The continuing validity of this arcane rule was recently upheld by the Court of Appeals in Motorola Credit Corp. v Standard Chartered Bank, solely with respect to restraining notices and turnover orders affecting assets located in foreign branch accounts. In other words, a restraining notice or turnover order on a New York Branch will be effective for assets held in accounts at that branch but will have no impact on assets in other branches. Thus, Motorola's expressly limited affirmation of the separate entity rule does not apply to the instant case, and the rule does not bar the court's exercise of jurisdiction over [the respondent] to compel a full response to the information subpoena.

(Internal quotations and citations omitted). Given the continuing uncertainty of the scope of Daimler and the importance of this question, we suspect that this decision will not be the last word on this issue.