Bill S4042A-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 20, 2013: SUBSTITUTED BY A8013
  • Jun 17, 2013: AMENDED ON THIRD READING (T) 4042A
  • Jun 17, 2013: VOTE RECONSIDERED - RESTORED TO THIRD READING
  • 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

Memo

BILL NUMBER:S4042A

TITLE OF BILL: An act to amend the judiciary law, the penal law and the uniform commercial code, in relation to financing statements falsely 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, 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%3Anews-release-new-ucc-report-aug12&catid=964%3Auncategorizednews-release&itemid-1 (Aug 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.' 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 amend section 175.35 of the Penal Law (entitled "Offering a false instrument for filing in the first degree") to make it a class E 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 "in retaliation for the performance of official duties" by the affected public servant. 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 UCC amendments proposed by this measure (see bill section four) would create a court procedure to summarily invalidate fraudulent liens. Under this procedure, a State or local public employee or criminal defense lawyer who has represented the filer in criminal court 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, the petitioner must plead that the offending financing statement was falsely filed or amended to retaliate for the petitioner's performance of official duties (or, where the petitioner is a lawyer who is not a public employee, for the petitioner's performance of his or her duties representing the filer in criminal court); that the financing statement is not one relating to an interest in a consumer transaction, a commercial transaction or any other transaction between petitioner and respondent; that the collateral covered in the financing statement is petitioner's property; and that prompt redaction or invalidation of the financing statement is necessary to avert or mitigate prejudice to the petitioner. The UCC amendments proposed by this measure (see bill section four)

Where the court finds that the UCC financing statement at issue was falsely filed, 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, along with certain others who play an active role in the administration of justice, the means by which to protect their credit and their good name in the public record.

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.

{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, in addition to criminal defense attorneys, 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.


Text

STATE OF NEW YORK ________________________________________________________________________ 4042--A Cal. No. 637 2013-2014 Regular Sessions IN SENATE March 5, 2013 ___________
Introduced by Sens. BONACIC, HASSELL-THOMPSON, MAZIARZ -- (at request of the Office of Court Administration) -- read twice and ordered printed, and when printed to be committed to the Committee on Judiciary -- reported favorably from said committee and committed to the Committee on Codes -- reported favorably from said committee, ordered to first and second report, ordered to a third reading, passed by Senate and delivered to the Assembly, recalled, vote reconsidered, restored to third reading, amended and ordered reprinted, retaining its place in the order of third reading AN ACT to amend the judiciary law, the penal law and the uniform commer- cial code, in relation to financing statements falsely 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. Legislative findings. The legislature finds that the retal- iatory filing of false financing statements under the uniform commercial code by members of separatist groups against New Yorkers in public service and private service is a growing and pernicious practice. As a result of the proliferation of such filings, the credit of New Yorkers in public service and private service has been impaired solely because they were doing their jobs on behalf of the citizens of the state. It is vital that all appropriate steps be taken to counter this practice. Accordingly, it is the objective of this act to discourage the filing of false financing statements and to provide a meaningful and expeditious remedy for those who have been harmed by such filings. It is also the objective of this measure to declare the state's interest in future effectuation of a second step: careful review of procedures authorizing the filing of financing statements under the uniform commercial code and subsequent modification of laws and procedures as may be necessary to ensure that the public is adequately protected against the kind of
retaliatory filing of false financing statements to which this act is addressed. 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 SUBSECTION (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. Section 175.35 of the penal law, as amended by chapter 99 of the laws of 1998, is amended to read as follows: S 175.35 Offering a false instrument for filing in the first degree. A person is guilty of offering a false instrument for filing in the first degree when[,]: 1. knowing that a written instrument contains a false statement or false information, and with intent to defraud the state or any political subdivision, public authority or public benefit corporation of the state, he OR SHE offers or presents it to a public office, public serv- ant, public authority or public benefit corporation with the knowledge or belief that it will be filed with, registered or recorded in or otherwise become a part of the records of such public office, public servant, public authority or public benefit corporation[.]; OR 2. (A) HE OR SHE COMMITS THE CRIME OF OFFERING A FALSE INSTRUMENT FOR FILING IN THE SECOND DEGREE; AND (B) SUCH INSTRUMENT IS A FINANCING STATEMENT THE CONTENTS OF WHICH ARE PRESCRIBED BY SECTION 9--502 OF THE UNIFORM COMMERCIAL CODE, THE COLLAT- ERAL ASSERTED TO BE COVERED IN SUCH STATEMENT IS THE PROPERTY OF A PERSON 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, SUCH FINANCING STATEMENT DOES NOT RELATE TO AN ACTUAL TRANSACTION, AND HE OR SHE FILED SUCH FINANCING STATEMENT IN RETALIATION FOR THE PERFORMANCE OF OFFICIAL DUTIES BY SUCH PERSON. Offering a false instrument for filing in the first degree is a class E felony. S 4. Section 9--518 of the uniform commercial code is amended by adding a new subsection (d) to read as follows: (D) SPECIAL PROCEEDING TO REDACT OR EXPUNGE A FALSELY 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 NAMED FILER OF SUCH STATEMENT OR ANY AMENDMENT THEREOF TO INVALIDATE THE FILING OR AMENDMENT THEREOF WHERE SUCH STATE- MENT WAS FALSELY FILED OR AMENDED; EXCEPT THAT AN ATTORNEY WHO IS NOT AN EMPLOYEE OF THE STATE OR A POLITICAL SUBDIVISION THEREOF MAY ALSO BRING A SPECIAL PROCEEDING HEREUNDER WHERE HE OR SHE REPRESENTS OR HAS REPRES- ENTED THE RESPONDENT THEREIN IN A CRIMINAL COURT. SUCH SPECIAL PROCEED- ING 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 FALSELY FILED OR AMENDED TO RETALIATE FOR: (I) THE PERFORMANCE OF THE PETITIONER'S OFFICIAL DUTIES IN HIS OR HER CAPAC- ITY AS AN EMPLOYEE OF THE STATE OR A POLITICAL SUBDIVISION THEREOF, OR
(II) IN THE CASE OF A SPECIAL PROCEEDING BROUGHT BY AN ATTORNEY WHO IS NOT AN EMPLOYEE OF THE STATE OR A POLITICAL SUBDIVISION THEREOF, TO RETALIATE FOR THE PERFORMANCE OF THE PETITIONER'S DUTIES IN HIS OR HER CAPACITY AS AN ATTORNEY FOR THE RESPONDENT IN A CRIMINAL COURT; AND (B) SUCH FINANCING STATEMENT DOES NOT RELATE TO AN INTEREST IN A CONSUMER-GOODS TRANSACTION, A COMMERCIAL TRANSACTION, OR ANY OTHER ACTU- AL TRANSACTION BETWEEN THE PETITIONER AND THE RESPONDENT; AND (C) THE COLLATERAL COVERED IN SUCH FINANCING STATEMENT IS THE PROPERTY OF THE PETITIONER; AND (D) PROMPT REDACTION OR INVALIDATION OF THE FINANCING STATEMENT IS NECESSARY TO AVERT OR MITIGATE PREJUDICE TO THE PETITIONER. (3) IF THE COURT MAKES A WRITTEN FINDING THAT THE ALLEGATIONS IN PARA- GRAPH TWO OF THIS SUBSECTION ARE ESTABLISHED, THE COURT SHALL ORDER THE EXPUNGEMENT OF SUCH STATEMENT OR ITS REDACTION IN THE PUBLIC RECORDS IN THE OFFICE IN WHICH THE FINANCING STATEMENT IS FILED, AS APPROPRIATE, AND MAY GRANT ANY ADDITIONAL 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. UPON A FINDING THAT THE RESPONDENT HAS ENGAGED IN A REPEATED PATTERN OF FALSE FILINGS AS FOUND UNDER THIS SUBSECTION, 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. THE HEAD OF SUCH A FACILITY SHALL CAUSE A COPY OF SUCH ORDER TO BE PROVIDED TO THE RESPONDENT. IN ANY INSTANCES OF THE ISSUANCE OF SUCH AN INJUNCTION WHERE THE RESPONDENT HAS DEFAULTED, THE COURT SHALL DIRECT SERVICE OF SUCH INJUNCTION UPON THE RESPONDENT. S 5. This act shall take effect immediately; provided that section three of this act shall take effect on the first of November next succeeding the date on which it 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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