This bill has been amended

Bill S4042-2013

Authorizes the chief administrator of the courts to establish rules for special proceedings authorized under section 9-518 of the uniform commercial code

Authorizes the chief administrator of the courts to establish rules for special proceedings authorized under section 9-518 of the uniform commercial code relating to wrongful financial statements.

Details

Actions

  • Jun 14, 2013: returned to senate
  • Jun 14, 2013: RECALLED FROM ASSEMBLY
  • May 23, 2013: referred to judiciary
  • May 23, 2013: DELIVERED TO ASSEMBLY
  • May 23, 2013: PASSED SENATE
  • May 22, 2013: ADVANCED TO THIRD READING
  • May 21, 2013: 2ND REPORT CAL.
  • May 20, 2013: 1ST REPORT CAL.637
  • Apr 16, 2013: REPORTED AND COMMITTED TO CODES
  • Mar 5, 2013: REFERRED TO JUDICIARY

Meetings

Votes

VOTE: COMMITTEE VOTE: - Judiciary - Apr 16, 2013
Ayes (20): Bonacic, DeFrancisco, Flanagan, Fuschillo, Lanza, LaValle, Little, Nozzolio, O'Mara, Savino, Ranzenhofer, Zeldin, Sampson, Hassell-Thompson, Breslin, Dilan, Espaillat, Perkins, Stavisky, Hoylman
Ayes W/R (1): Adams
Excused (1): Hannon
VOTE: COMMITTEE VOTE: - Codes - May 20, 2013
Ayes (14): Nozzolio, Boyle, DeFrancisco, Flanagan, Fuschillo, Gallivan, Golden, Lanza, O'Mara, Squadron, Perkins, Hoylman, O'Brien, Krueger
Ayes W/R (1): Espaillat

Memo

BILL NUMBER:S4042

TITLE OF BILL: An act to amend the civil practice law and rules, the judiciary law, the penal law and the uniform commercial code, in relation to wrongful financing statements filed under the uniform commercial code

This measure is being introduced at the request of the Chief Administrative Judge to redress "paper terrorism" against judges and other public servants committed to harass them or to retaliate against them for discharge of their official duties. This is a growing problem, not just here in New York{1}, but across the Nation, See National Association of Secretaries of State, "State Strategies to Subvert Fraudulent Uniform Commercial Code (UCC) Filings: A Report for State Business Filing Agencies," available at http://nass.org/indes.php?option=com content&view=article&id= 329%3 Anews-release-new-ucc-report-aug12&catid=964%3Auncategorizednews-releases&Itemid=1 (August 27, 2012).

The Uniform Commercial Code ("UCC") Article 9 provides a simple way for a creditor to record an interest in a debtor's property with the Department of State ("DOS"), thereby giving notice of that interest to the debtor's future creditors, Typically such a recording, termed a "financing statement" by the UCC, covers property purchased under a security agreement subject to attachment (e.g., a vehicle), and is necessary for a creditor to assert a claim. With the rise of the Internet and especially smart-phones, filers instantly can record financing statements, which promptly become publicly available by searchable online database. Using this database, financial institutions, prospective employers and members of the public can determine whether someone has debts recorded against him or her, and assess whether he or she may be a sound credit risk.

This UCC recording system, however, has been subject to much abuse. Often, members of separatist groups asserting sovereign status, prison inmates and others believing themselves to be victims of unjust government action use the system to retaliate against or harass the government officials behind that action. They do this by filing fraudulent financing statements against those officials thereby potentially creating serious personal financial difficulties for them. Such "paper terrorism" can take a variety of forms. These often include the filing of outright false financing statements, asserting claims that do not in fact exist. In New York, in particular, they also may include statements asserting infringement of a copyright enjoyed in one's name.{2} Moreover, whatever form the fraudulent filing takes, it invariably runs afoul of the requirement, under UCC section 9509(a), that an alleged debtor authorize the filing of a financing statement memorializing a claim against him or her.

Under the UCC as now written, there is no easy means by which to deter or otherwise prevent such abuse. The DOS must accept each financing statement filed for recording and subsequently make it available for public viewing. The result: once a fraudulent financing statement is recorded - and if sufficient on its face when filed, it must be recorded - that statement can raise red flags that substantially prejudice the availability or price of credit, complicate employment prospects and sully a public servant's reputation.

To combat this abuse, this measure proposes amendments to the Penal Law and to the UCC. The former (see bill section three) would add a new section 175.37 to the Penal Law (entitled "Offering a false instrument for filing in retaliation for the performance of official duties") to make it a class D felony offense to commit the existing class A misdemeanor offense of Offering a False Instrument for Filing in the Second Degree (see Penal Law § 175.30) through the knowing filing of a fraudulent UCC financing statement that identifies the debtor as a State or local officer under section two of the Public Officers Law, or a judge or justice of the Unified Court System, where that fraudulent filing is "on account of (the alleged debtor's) performance of official duties in his or her capacity as a state or local officer or judge or justice of the unified court system." This amendment is similar to Federal law making it a serious Federal offense "to file, in any public record or in any private record which is generally available to the public, any false lien or encumbrance against the ... property of (a Federal judge or Federal law enforcement officer), on account of the performance of official duties by that individual, knowing or having reason to know that such lien or encumbrance is false ..." See 18 USC § 1521 (establishing the Federal offense of Retaliating Against A Federal judge or Federal Law Enforcement Officer By False Claim Or Slander Of Title).

The CPLR and UCC amendments proposed by this measure (see bill sections one and four, respectively) would create a court procedure to summarily invalidate fraudulent liens. Under this procedure, a public employee - State or local - listed as the debtor in a financing statement containing a false statement or false information may under certain circumstances commence a special proceeding for the expungement or redaction of the financing statement. In this special proceeding, which is exempt from court filing fees and which can be brought by merely serving the notice of petition and petition upon respondent by ordinary first class mail and filing proof of such service with the clerk of the court (coupled with filing the petition with the clerk and paying the requisite fee), the petitioner must plead that the offending financing statement contains a false statement or false information; that the financing statement is not one relating to an interest in a consumer transaction or any other commercial transaction; that it is on account of the petitioner's performance of official duties in his or her capacity as an employee of the state or a political subdivision thereof that such financing instrument was filed; and that prompt redaction or invalidation of the financing statement is necessary to avert or mitigate prejudice to the petitioner or the administration of government.

Where the court finds that the UCC financing statement at issue does contain a false statement or false information, and that the other elements of the petitioner's pleading are substantiated, the court may then direct expungement of the financing statement or redaction of appropriate portions thereof. In such event, the court must see that a copy of its order is filed with the Secretary of State; and, if the wrongful filer is incarcerated, with the head of the correctional facility. The court also may grant relief authorized by UCC section 9-625 and bar the respondent wrongful filer from filing other UCC statements without leave of court.

The special proceeding hereby authorized is narrowly-tailored so as not to otherwise call liens arising from commercial transactions or other valid liens into question, alter legitimate UCC incentives or impose burdens upon commercial enterprises. Moreover, it is carefully drawn to avoid placing burdens upon the DOS.

Finally, this measure also would direct the Chief Administrative Judge to adopt rules to govern the special proceeding authorized herein, including rules permitting the court to empower a referee to hear and determine the matter so as to minimize delay and assure its expeditious disposition (see bill section two).

As noted, this is by no means a problem that is unique to our State. Nor do the remedies proposed by this measure promise total protection for government officials here. Absent co-ordinated efforts by all states to identify and rebuff abuse of the UCC recording system, there is nothing New York can do to assure its public servants that they will not be victims of fraudulent filings in other states. This said, the instant measure is a significant first step in that it will give law enforcement authorities the tools needed to discourage fraudulent filings in New York; and public officials generally the means by which to protect their credit and their good name in the public record.{3}

This measure would have no fiscal impact upon the State or any of its political subdivisions, Bill sections one, two and four, addressed to establishment of special proceedings to expunge a wrongfully filed UCC financing statement, would take effect immediately. Section three, criminalizing as a felony the wrongful filing of such a statement under certain circumstances where the alleged debtor is a State or local officer under the Public Officers Law or a judge or justice of the Unified Court System, would take effect November first next following the date on which this measure becomes a law.

Legislative History: None. New proposal.

FOOTNOTES

{1} Here in New York we are receiving a growing number of reports of judges who have been victimized, and we are aware that there are many other State and local officials who likewise have been targeted.

{2} A dubious claim at best: viz., it is legally impossible to assert a copyright in one's name against its use in a public proceeding.

{3} The steps proposed in this measure were clearly contemplated by the authors of the UCC but never provided for when the statute was enacted in New York. See UCC § 9-518, Comm. 3 ["A summary judicial procedure for correcting the public record and criminal penalties for those who misuse the filing and recording systems are likely to be more effective and put less strain on the filing system than provisions authorizing or requiring action by filing and recording offices"].


Text

STATE OF NEW YORK ________________________________________________________________________ 4042 2013-2014 Regular Sessions IN SENATE March 5, 2013 ___________
Introduced by Sen. BONACIC -- (at request of the Office of Court Admin- istration) -- read twice and ordered printed, and when printed to be committed to the Committee on Judiciary AN ACT to amend the civil practice law and rules, the judiciary law, the penal law and the uniform commercial code, in relation to wrongful financing statements filed under the uniform commercial code THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Subdivision (c) of section 403 of the civil practice law and rules is amended to read as follows: (c) Manner of service. A notice of petition shall be served in the same manner as a summons in an action EXCEPT THAT A NOTICE OF PETITION IN A SPECIAL PROCEEDING BROUGHT PURSUANT TO PARAGRAPH ONE OF SUBDIVISION (D) OF SECTION 9-518 OF THE UNIFORM COMMERCIAL CODE SHALL BE SERVED BY MAILING IT BY FIRST CLASS MAIL TO THE PERSON TO BE SERVED AT HIS OR HER LAST KNOWN RESIDENCE, PROOF OF SUCH SERVICE SHALL BE FILED WITH THE CLERK OF THE COURT DESIGNATED IN THE NOTICE OF PETITION WITHIN TWENTY DAYS OF SUCH MAILING AND SERVICE SHALL BE COMPLETE FIVE DAYS AFTER SUCH FILING. S 2. Subdivision 2 of section 212 of the judiciary law is amended by adding a new paragraph (s) to read as follows: (S) ESTABLISH RULES FOR SPECIAL PROCEEDINGS AUTHORIZED BY SUBDIVISION (D) OF SECTION 9-518 OF THE UNIFORM COMMERCIAL CODE. SUCH RULES MAY AUTHORIZE THE COURT IN WHICH SUCH A SPECIAL PROCEEDING IS PENDING TO ORDER A REFEREE TO HEAR AND DETERMINE SUCH SPECIAL PROCEEDING. S 3. The penal law is amended by adding a new section 175.37 to read as follows: S 175.37 OFFERING A FALSE INSTRUMENT FOR FILING IN RETALIATION FOR THE PERFORMANCE OF OFFICIAL DUTIES. A PERSON IS GUILTY OF OFFERING A FALSE INSTRUMENT FOR FILING IN RETAL- IATION FOR THE PERFORMANCE OF OFFICIAL DUTIES WHEN HE OR SHE COMMITS THE
OFFENSE OF OFFERING A FALSE INSTRUMENT FOR FILING IN THE SECOND DEGREE AND: 1. SUCH INSTRUMENT IS A FINANCING STATEMENT THE CONTENTS OF WHICH ARE PRESCRIBED BY SECTION 9-502 OF THE UNIFORM COMMERCIAL CODE; AND 2. THE COLLATERAL COVERED IN SUCH FINANCING STATEMENT IS THE PROPERTY OF A PUBLIC SERVANT WHO IS A STATE OR LOCAL OFFICER AS DEFINED BY SECTION TWO OF THE PUBLIC OFFICERS LAW OR WHO OTHERWISE IS A JUDGE OR JUSTICE OF THE UNIFIED COURT SYSTEM; AND 3. IT IS ON ACCOUNT OF THAT PUBLIC SERVANT'S PERFORMANCE OF OFFICIAL DUTIES IN HIS OR HER CAPACITY AS A STATE OR LOCAL OFFICER OR JUDGE OR JUSTICE OF THE UNIFIED COURT SYSTEM THAT SUCH FINANCING INSTRUMENT IS FILED. OFFERING A FALSE INSTRUMENT FOR FILING IN RETALIATION FOR THE PERFORM- ANCE OF OFFICIAL DUTIES IS A CLASS D FELONY. S 4. Section 9-518 of the uniform commercial code is amended by adding a new subdivision (d) to read as follows: (D) SPECIAL PROCEEDING TO REDACT OR EXPUNGE A WRONGFULLY FILED OR AMENDED FINANCING STATEMENT. (1) PROVIDED HE OR SHE IS AN EMPLOYEE OF THE STATE OR A POLITICAL SUBDIVISION THEREOF, A PERSON IDENTIFIED AS A DEBTOR IN A FINANCING STATEMENT FILED PURSUANT TO THIS SUBPART MAY BRING A SPECIAL PROCEEDING AGAINST THE FILER OF SUCH STATEMENT OR ANY AMEND- MENT THEREOF, OR AGAINST THE PERSON ON WHOSE BEHALF THE STATEMENT WAS FILED OR AMENDED, TO INVALIDATE THE FILING OR AMENDMENT THEREOF WHERE SUCH STATEMENT WAS WRONGFULLY FILED OR AMENDED. SUCH SPECIAL PROCEEDING SHALL BE GOVERNED BY ARTICLE FOUR OF THE CIVIL PRACTICE LAW AND RULES, AND SHALL BE COMMENCED IN THE SUPREME COURT OF ALBANY COUNTY, THE COUNTY OF THE PETITIONER'S RESIDENCE OR A COUNTY WITHIN THE JUDICIAL DISTRICT IN WHICH ANY PROPERTY COVERED BY THE FINANCING STATEMENT IS LOCATED. NO FEE PURSUANT TO ARTICLE EIGHTY OF THE CIVIL PRACTICE LAW AND RULES SHALL BE COLLECTED IN SUCH SPECIAL PROCEEDING. (2) THE PETITION IN A SPECIAL PROCEEDING HEREUNDER SHALL PLEAD THAT: (A) THE FINANCING STATEMENT FILED OR AMENDED BY THE RESPONDENT PURSU- ANT TO SECTION 9-509 WAS WRONGFULLY FILED OR AMENDED; (B) SUCH FINANCING STATEMENT DOES NOT RELATE TO AN INTEREST IN A CONSUMER-GOODS TRANSACTION OR ANY OTHER COMMERCIAL TRANSACTION BETWEEN THE PETITIONER AND THE RESPONDENT; (C) IT IS ON ACCOUNT OF THE PETITIONER'S PERFORMANCE OF OFFICIAL DUTIES IN HIS OR HER CAPACITY AS AN EMPLOYEE OF THE STATE OR A POLITICAL SUBDIVISION THEREOF THAT SUCH FINANCING INSTRUMENT WAS FILED; AND (D) PROMPT REDACTION OR INVALIDATION OF THE FINANCING STATEMENT IS NECESSARY TO AVERT OR MITIGATE PREJUDICE TO THE PETITIONER OR TO THE ADMINISTRATION OF GOVERNMENT. (3) IF THE COURT DETERMINES THAT THE RESPONDENT WRONGFULLY FILED OR AMENDED, OR CAUSED TO BE WRONGFULLY FILED OR AMENDED, A FINANCING STATE- MENT PURSUANT TO SECTION 9-509, THE COURT SHALL ORDER THE EXPUNGEMENT OF SUCH STATEMENT OR ITS REDACTION IN THE PUBLIC RECORDS IN THE OFFICE IN WHICH SUCH STATEMENT IS FILED, AS APPROPRIATE, AND MAY GRANT ANY ADDI- TIONAL RELIEF AUTHORIZED BY SECTION 9-625. IN SUCH CASE, THE COURT SHALL CAUSE A COPY OF ITS ORDER TO BE FILED WITH THE SECRETARY OF STATE OR OTHER APPROPRIATE FILING OFFICE PURSUANT TO THIS CHAPTER. THE COURT ALSO MAY ENJOIN THE RESPONDENT FROM FILING OR AMENDING ANY FURTHER FINANCING STATEMENT PURSUANT TO THIS ARTICLE WITHOUT LEAVE OF THE COURT. IF THE RESPONDENT IS INCARCERATED AT THE TIME THE COURT ISSUES AN ORDER CONTAINING SUCH AN INJUNCTION, THE COURT SHALL CAUSE THE HEAD OF THE CORRECTIONAL FACILITY IN WHICH THE RESPONDENT IS INCARCERATED TO RECEIVE A COPY OF SUCH DETERMINATION.
(4) FOR PURPOSES OF THIS SUBDIVISION, A FINANCING STATEMENT IS WRONG- FULLY FILED OR AMENDED WHERE, AT THE TIME OF ITS FILING OR AMENDMENT, IT CONTAINS A FALSE STATEMENT OR FALSE INFORMATION. S 5. This act shall take effect immediately; provided that the provisions of section three of this act shall not take effect until the first of November next succeeding the date on which this act shall have become a law; provided, further, subdivision 2 of section 175.35 of the penal law, as added by section three of this act, shall apply solely to the filing or amendment of financing statements under subpart 1 of part 5 of article 9 of the uniform commercial code on or after such effective date.

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