NY State Senate Bill 2011-S4542

Senate Bill S4542

2011-2012 Legislative Session

Relates to making service upon a financial institution of orders of attachment in aid of enforcement of judgments effective upon any account

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Archive: Last Bill Status - In Senate Committee Judiciary Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

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	Assembly Actions - Lowercase Senate Actions - UPPERCASE
Jan 04, 2012	referred to judiciary
Apr 11, 2011	referred to judiciary

2011-S4542 (ACTIVE) - Details

Current Committee:: Senate Judiciary
Law Section:: Civil Practice Law and Rules
Laws Affected:: Amd §§5222, 5225, 5227, 5232 & 6214, CPLR

2011-S4542 (ACTIVE) - Summary

Relates to making service upon a financial institution of orders of attachment and notices and orders in aid of enforcement of judgments effective upon any account as to which the institution is a garnishee.

2011-S4542 (ACTIVE) - Sponsor Memo

                                BILL NUMBER:S4542

TITLE OF BILL:
An act
to amend the civil practice law and rules, in relation to making
service upon a financial institution of orders of attachment and notices
and orders in aid of enforcement of judgments effective upon any account
as to which the institution is a garnishee

This is one in a series of measures being introduced at the request of
the Chief Administrative Judge upon the recommendation of her
Advisory Committee on Civil Practice.

We recommend that the "separate entity rule," which limits the effect
of levies, restraining notices and orders of attachment served upon
financial institutions as garnishees to accounts maintained at the
branch served, be statutorily repealed so that service of such levies
and orders upon any office of the institution will be effective as to
any account held by the institution as garnishee, regardless of any
nominal identification of the account with a particular office. The
separate entity rule may have made sense in the past, when
considerable time might be required for one branch office to alert
others and the main office of service of a levy. Today, however, when
all offices of every financial institution are in instant
communication with each other by computer networks, this rule has
outlived any usefulness and should be eliminated.

The separate entity rule of long standing is that "(I)n order to reach
a particular bank account the judgment creditor must serve the office
of the bank where the account is maintained...." Therm-X-Chemical &
Oil Corp. v EXTEBANK, 84 A.D. 2d 787 (2d Dept.
1981) (Restraining notice served on main office of bank ineffective as
to branch which did not receive actual notice); McCloskey v Chase
Manhattan Bank, 11 N.Y. 2d 936 (1962) (Wan-ant of attachment and
sheriffs levy in New York ineffective to reach balance of accounts in
New York bank's branch in Germany). The original purpose of the rule
was to avoid undue interference with ordinary banking transactions
and the
possibility of a bank suffering multiple liabilities because of the
inability of one branch served with a restraining notice or other
order to instantaneously notify all other branches.

In recent decades, some judicial decisions have relaxed the separate
entity rule. In 1980, in an action to enforce a foreign judgment, the
Southern District found that service of a restraining notice on the
main office of Manufacturer's Hanover Bank was effective to restrain
funds in accounts of a branch office, at least in the case of a bank
like Manufacturer's Hanover, which was largely computerized and had
centralized many functions, including imposition of a hold on a
depositor's account. DIGITREX, INC, v Johnson, 491 F. Supp. 66,69
(U.S.D.C., S.D.N.Y. 1980). In Therm-X-Chemical & Oil Corp., supra,
the Second Department implicitly endorsed this relaxing of the
separate entity rule, but only in the circumstances found by the
DIGITREX court.


It remains the case that the DIGITREX exception is applicable only if
(1) the restraining notice is served on the bank's main office, (2)
the main office and branch with funds on deposit are in the same
jurisdiction and (3) the branches are connected to the main office by
high speed computers and are under the centralized control of the
main office, all of which elements must be established by the party
seeking to exploit the exception. Limonium Maritime, S.A. v Mizshima
Marinera, S.A., 961 F. Supp. 600,607 (D.S.D.C., S.D.N.Y. 1997)
(Denying order of attachment under Federal Supplemental Rule B;
citing Therm-X-Chemical & Oil Corp., supra); National Union Fire
Insurance Co. v Advanced Employment Concepts, Inc., 269 A.D.2d 101
(1st Dept. 2000). (Holdings of DIGIT REX and Limonium Maritime endorsed
in decision rejecting attachment of bank account in Florida because
beyond the New York court's jurisdiction.)

A recent example of the continuing vitality of the separate entity
rule occurred in John Wiley & Sons v Kirtsaeng, 2009 WL 3003242
(S.D.N.Y. 9/15/2009). In that case plaintiff was seeking an order
holding Bank of America ("BOA") in contempt for failing to obey a
temporary order of attachment on defendant's funds in an account at
a BOA branch in California. The order was served on a BOA branch in
Manhattan and the funds were subsequently paid to the defendant by
the California Branch. The Southern District denied the plaintiffs
motion because service on BOA did not comply with New York's separate
entity rule and the funds as to which attachment was sought were not
located in the district of the court issuing the process. The
separate entity rule has been applied with equal vigor to enforcement
of judgments (Therm-X-Chemical & Oil Corp., supra) and attachments
(John Wiley, supra).

We believe that the now ubiquitous use of computer networks that gives
all branch offices of a financial institution instantaneous access to
central data banks makes the limitation of the separate entity rule
obsolete, and that the rule's continued existence unnecessarily
complicates and limits enforcement of judgments and attachments
without any mitigating benefit to concepts of fairness or the
functioning of the civil justice
system. Accordingly, we recommend that the operative language in the
CPLR concerning restraining notices (CPLR 5222(a)), turnover orders
for property of the debtor (CPLR 5225(b)) or debts owed to the debtor
(CPLR 5227), levy upon personal property (CPLR 5232) and orders of
attachment (CPLR 6214) be amended by providing that service upon a
financial institution may be made by "serving the institution's main
office or any branch office of the financial institution."

The proposed amendments do not directly address another issue raised
by service on an office of a garnishee other than that in which the
account is nominally maintained, viz., whether such service would be
effective with respect to property held outside of the State. Two
recent opinions of the Court of Appeals have considered the levy and
attachment of out-of-State assets.

In Koehler v Bank of Bermuda, 12 N.Y. 3d 533 (June 4,2009), the court
of Appeals, in response to a question certified to it by the Second
Circuit, considered the issue whether a judgment creditor could
compel a bank to turn over stock certificates held in Bermuda by a
bank not a party to the action by means of a proceeding commenced


pursuant to CPLR 5225(b) in New York where the court had personal
jurisdiction over the Bermuda bank. Federal District Court had denied
the petition upon the ground that a New York court cannot order
turnover of property not within the state. The Second Circuit then
certified the issue to the New York Court of Appeals, which found
that the turn over order should have been granted, because the court
had personal jurisdiction over the garnishee, the Bermuda bank.

In Hotel 71 Metz Lender LLC v Falor, 14 N.Y.3d 30 (2010), the Court of
Appeals addressed the same question with respect to attachments. The
Court held that because the court below had personal jurisdiction
(through his physical presence in New York) over the non-resident
garnishee of the property being attached, interests in 23
out-of-State business entities controlled by the garnishee, the
attachment was valid notwithstanding the location of the property
being attached outside the State.

These decisions address levy and attachment of out-of-State assets
after service has been made and jurisdiction obtained. This measure
addresses only how service is made upon a financial institution. The
constitutional limits on the execution or garnishment of assets
should be determined by case development.

This measure would have no fiscal impact on the State. It would take
effect on the first day of January next succeeding the date on which
it shall become law.

2010 Legislative History:
OCA 2010-86

2011-S4542 (ACTIVE) - Bill Text download pdf

                            
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  4542

                       2011-2012 Regular Sessions

                            I N  S E N A T E

                             April 11, 2011
                               ___________

Introduced by Sen. GRIFFO -- (at request of the Office of Court Adminis-
  tration)  --  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, in relation to  making
  service  upon  a  financial  institution  of  orders of attachment and
  notices and orders in aid of enforcement of judgments  effective  upon
  any account as to which the institution is a garnishee

  THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. Subdivision (a) of section 5222 of the civil  practice  law
and  rules, as amended by chapter 409 of the laws of 2000, is amended to
read as follows:
  (a) Issuance; on whom served; form; service. A restraining notice  may
be  issued  by  the  clerk of the court or the attorney for the judgment
creditor as officer of the court, or  by  the  support  collection  unit
designated by the appropriate social services district. It may be served
upon  any  person,  except  the employer of a judgment debtor or obligor
where the property sought to be restrained consists of wages  or  salary
due  or  to  become  due  to the judgment debtor or obligor. It shall be
served personally in the same manner as a summons or  by  registered  or
certified  mail,  return  receipt  requested or if issued by the support
collection unit, by regular mail, or by electronic means as set forth in
subdivision (g) of this section. It shall specify all of the parties  to
the  action,  the date that the judgment or order was entered, the court
in which it was entered, the amount of the judgment  or  order  and  the
amount  then  due  thereon,  the names of all parties in whose favor and
against whom the judgment or order  was  entered,  it  shall  set  forth
subdivision  (b)  OF  THIS  SECTION and shall state that disobedience is
punishable as a contempt of court, and  it  shall  contain  an  original
signature or copy of the original signature of the clerk of the court or
attorney  or  the  name  of the support collection unit which issued it.

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD09305-01-1

S. 4542                             2

Service of a restraining notice upon a department or agency of the state
or upon an institution under its direction shall be made  by  serving  a
copy upon the head of the department, or the person designated by him or
her  and upon the state department of audit and control at its office in
Albany; a restraining notice served upon a state board, commission, body
or agency which is not within any department of the state shall be  made
by serving the restraining notice upon the state department of audit and
control  at  its office in Albany. Service at the office of a department
of the state in Albany may be made by  the  sheriff  of  any  county  by
registered  or certified mail, return receipt requested, or if issued by
the support collection unit, by regular mail.  SERVICE OF A  RESTRAINING
NOTICE  UPON A FINANCIAL INSTITUTION SHALL BE MADE BY SERVING THE INSTI-
TUTION'S MAIN OFFICE, THE  BRANCH  OFFICE  AT  WHICH  JUDGMENT  DEBTOR'S
ACCOUNT  WAS  MAINTAINED, OR ANY BRANCH OFFICE OF THE FINANCIAL INSTITU-
TION.
  S 2. Subdivision (b) of section 5225 of the  civil  practice  law  and
rules, as amended by chapter 388 of the laws of 1964, is amended to read
as follows:
  (b)  Property not in the possession of judgment debtor. Upon a special
proceeding commenced by the  judgment  creditor,  against  a  person  in
possession  or  custody of money or other personal property in which the
judgment debtor has an interest, or against a person who is a transferee
of money or other personal property from the judgment debtor,  where  it
is  shown that the judgment debtor is entitled to the possession of such
property or that the judgment creditor's  rights  to  the  property  are
superior to those of the transferee, the court shall require such person
to pay the money, or so much of it as is sufficient to satisfy the judg-
ment,  to  the  judgment  creditor  and,  if the amount to be so paid is
insufficient to satisfy the judgment,  to  deliver  any  other  personal
property,  or  so  much  of  it as is of sufficient value to satisfy the
judgment, to a designated sheriff. Costs of the proceeding shall not  be
awarded  against  a  person  who  did  not dispute the judgment debtor's
interest or right to possession. Notice of the proceeding shall also  be
served  upon  the  judgment debtor in the same manner as a summons or by
registered or certified mail, return receipt requested.  The  court  may
permit the judgment debtor to intervene in the proceeding. The court may
permit  any  adverse  claimant  to  intervene  in the proceeding and may
determine his OR HER rights in accordance  with  section  5239  OF  THIS
ARTICLE.    SERVICE  OF AN ORDER TO SHOW CAUSE AND PETITION OR NOTICE OF
PETITION AND PETITION COMMENCING A SPECIAL PROCEEDING PURSUANT  TO  THIS
SUBDIVISION  UPON  A  FINANCIAL INSTITUTION SHALL BE MADE BY SERVING THE
INSTITUTION'S MAIN OFFICE, THE BRANCH OFFICE AT WHICH JUDGMENT  DEBTOR'S
ACCOUNT  WAS  MAINTAINED, OR ANY BRANCH OFFICE OF THE FINANCIAL INSTITU-
TION.
  S 3. Section 5227 of the civil practice law and rules, as  amended  by
chapter 532 of the laws of 1963, is amended to read as follows:
  S  5227.  Payment  of  debts  owed  to judgment debtor. Upon a special
proceeding commenced by the judgment creditor, against any person who it
is shown is or will become indebted to the judgment  debtor,  the  court
may  require  such  person to pay to the judgment creditor the debt upon
maturity, or so much of it as is sufficient to satisfy the judgment, and
to execute and deliver any document necessary to effect payment;  or  it
may  direct  that  a judgment be entered against such person in favor of
the judgment creditor. Costs of the  proceeding  shall  not  be  awarded
against  a  person  who did not dispute the indebtedness.  Notice of the
proceeding shall also be served upon the judgment  debtor  in  the  same

S. 4542                             3

manner  as  a summons or by registered or certified mail, return receipt
requested. The court may permit the judgment debtor to intervene in  the
proceeding.  The  court  may permit any adverse claimant to intervene in
the  proceeding  and  may determine his OR HER rights in accordance with
section 5239 OF THIS ARTICLE.  SERVICE OF AN ORDER  TO  SHOW  CAUSE  AND
PETITION  OR  NOTICE  OF  PETITION  AND  PETITION  COMMENCING  A SPECIAL
PROCEEDING PURSUANT TO THIS SUBDIVISION  UPON  A  FINANCIAL  INSTITUTION
SHALL  BE  MADE  BY  SERVING  THE  INSTITUTION'S MAIN OFFICE, THE BRANCH
OFFICE AT WHICH JUDGMENT DEBTOR'S ACCOUNT WAS MAINTAINED, OR ANY  BRANCH
OFFICE OF THE FINANCIAL INSTITUTION.
  S  4.  Subdivision  (a)  of section 5232 of the civil practice law and
rules, as amended by chapter 59 of the laws of 1993, is amended to  read
as follows:
  (a)  Levy  by service of execution.  The sheriff or support collection
unit designated by the appropriate social services district  shall  levy
upon any interest of the judgment debtor or obligor in personal property
not capable of delivery, or upon any debt owed to the judgment debtor or
obligor,  by  serving a copy of the execution upon the garnishee, in the
same manner as a summons, except that such service shall not be made  by
delivery  to a person authorized to receive service of summons solely by
a designation filed pursuant to a provision of law other than  rule  318
OF  THIS  CHAPTER. SERVICE UPON A FINANCIAL INSTITUTION SHALL BE MADE BY
SERVING THE INSTITUTION'S MAIN OFFICE, THE BRANCH OFFICE AT WHICH  JUDG-
MENT DEBTOR'S ACCOUNT WAS MAINTAINED, OR ANY BRANCH OFFICE OF THE FINAN-
CIAL  INSTITUTION.  In the event the garnishee is the state of New York,
such levy shall be made in the same manner as an income execution pursu-
ant to section 5231 of this article.  A levy by service of the execution
is effective only if, at the time of service, the person served  owes  a
debt to the judgment debtor or obligor or he or she is in the possession
or  custody of property not capable of delivery in which he or she knows
or has reason to believe the judgment debtor or obligor has an interest,
or if the judgment creditor or support collection unit has stated  in  a
notice which shall be served with the execution that a specified debt is
owed  by the person served to the judgment debtor or obligor or that the
judgment debtor or obligor has an interest  in  specified  property  not
capable  of  delivery in the possession or custody of the person served.
All property not capable of delivery in which  the  judgment  debtor  or
obligor  is  known or believed to have an interest then in or thereafter
coming into the possession or custody of such a  person,  including  any
specified  in  the notice, and all debts of such a person, including any
specified in the notice, then due or thereafter coming due to the  judg-
ment  debtor or obligor, shall be subject to the levy. The person served
with the execution shall forthwith transfer all such property,  and  pay
all  such  debts  upon  maturity,  to  the  sheriff  or  to  the support
collection unit and execute any document necessary to effect the  trans-
fer or payment. After such transfer or payment, property coming into the
possession  or custody of the garnishee, or debt incurred by him, or her
shall not be subject to the levy. Until  such  transfer  or  payment  is
made,  or  until  the expiration of ninety days after the service of the
execution upon him or her, or of such further time as is provided by any
order of the court served upon him or her, whichever event first occurs,
the garnishee is forbidden to make or suffer  any  sale,  assignment  or
transfer of, or any interference with, any such property, or pay over or
otherwise dispose of any such debt, to any person other than the sheriff
or  the support collection unit, except upon direction of the sheriff or
the support collection unit or pursuant to an order of the court. At the

S. 4542                             4

expiration of ninety days after  a  levy  is  made  by  service  of  the
execution,  or  of  such  further  time as the court, upon motion of the
judgment creditor or support collection  unit  has  provided,  the  levy
shall be void except as to property or debts which have been transferred
or  paid to the sheriff or to the support collection unit or as to which
a proceeding under sections 5225  or  5227  OF  THIS  ARTICLE  has  been
brought.  A judgment creditor who, or support collection unit which, has
specified personal property or debt to be levied upon in a notice served
with an execution shall be liable to the owner of the  property  or  the
person  to  whom  the debt is owed, if other than the judgment debtor or
obligor, for any damages sustained by reason of the levy.
  S 5. Subdivision (a) of section 6214 of the  civil  practice  law  and
rules, as amended by chapter 860 of the laws of 1977, is amended to read
as follows:
  (a)  Method  of levy.  The sheriff shall levy upon any interest of the
defendant in personal property, or upon any debt owed to the  defendant,
by serving a copy of the order of attachment upon the garnishee, or upon
the  defendant  if  property  to  be  levied  upon is in the defendant's
possession or custody, in the same manner as a summons except that  such
service  shall  not be made by delivery of a copy to a person authorized
to receive service of summons solely by a designation filed pursuant  to
a  provision  of law other than rule 318 OF THIS CHAPTER. SERVICE UPON A
FINANCIAL INSTITUTION SHALL BE MADE BY SERVING  THE  INSTITUTION'S  MAIN
OFFICE,  THE  BRANCH OFFICE AT WHICH DEFENDANT'S ACCOUNT WAS MAINTAINED,
OR ANY BRANCH OFFICE OF THE FINANCIAL INSTITUTION.
  S 6. This act shall take effect on the first of January next  succeed-
ing the date on which it shall have become a law.

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