(FN2) The motion to challenge the exemption must be made within 8 [sic] of postmarked date on the envelope containing the executed Exemption Claim Form. The motion must be made returnable 7 days after the service of the motion papers. The court must decided [sic] the motion within 5 days of the hearing date. CPLR 5222–a(d).If a judgment creditor commences a turnover proceeding before the judgment debtor has the time to claim an exemption pursuant to CPLR 5222–a has run, the possibility exists for the turnover proceeding to be heard by one court and the CPLR 5222–a application to be heard by another court. This could result in one court issuing a turnover order while the other court finding the funds are exempt from execution. The court must do everything possible to avoid to such irreconcilably inconsistent results.In order to insure a judgment debtor is given the opportunity to assert a claim that the funds on deposit in the restrained bank account are exempt from restraint and execution, a judgment creditor who serves a restraining notice on a bank must plead and prove proceeding compliance with CPLR 5222–a as part of its prima facie case in a turnover proceeding. Since a judgment creditor must plead and prove compliance with CPLR 5222–a in the petition filed in a turnover proceeding, a judgment creditor cannot commence a turnover proceeding before the time for a judgment debtor to claim an exemption pursuant to CPLR 5222–a has expired.Holding: There is no private cause of action in favor of a judgment debtor against a bank for failure to comply with the requirements of the Exempt Income Protection Act.CRUZ v. TD BANK, N.A., 22 N.Y.3d 61, 2 N.E.3d 221, 979 N.Y.S.2d 257, 2013 N.Y. Slip Op. 07762 [Court of Appeals of New York, Nov. 21, 2013]Relevant language from the decision:CPLR article 52 sets forth procedures for the enforcement of money judgments in New York, which may include the imposition of a restraining notice against a judgment debtor’s bank account to secure funds for later transfer to the judgment creditor through a sheriff’s execution or turnover proceeding. Under both federal and state law, certain types of funds are exempt from restraint or execution, including Social Security benefits, public assistance, unemployment insurance, pension payments and the like (see generally CPLR 5205). Although the clear legislative intent is that funds of this nature are not to be subject to debt collection (and therefore excluded from any pre-execution restraint), prior to 2008 banks served with restraining notices often inadvertently froze accounts containing income from these sources, leaving judgment debtors without access to much-needed exempt monies.The EIPA was intended to ameliorate this problem, amending certain existing statutes in CPLR article 52 and adding a new CPLR 5222–a (L. 2008, ch. 575). The amendments restricted the scope of the restraint that can be implemented against the bank account of a natural person and created a new procedure aimed at ensuring that this class of judgment debtors is able to retain access to exempt funds. In substance, subject to limited exceptions consistent with federal law, the EIPA precludes a bank from restraining baseline minimum balances in a “natural person’s” account absent a court order. Specifically, $2,500 is free from restraint “if direct deposit or electronic payments reasonably identifiable as statutorily exempt payments … were made to the judgment debtor’s account during the forty-five day period preceding” the restraint (CPLR 5222[h] ). Otherwise, the statute excludes from restraint an amount that corresponds to 90% of 60–days wages under the federal or state minimum wage laws, whichever is greater, to be periodically adjusted—$1,740 as of July 2009 (CPLR 5222[i] ).In addition to limiting the scope of a restraint, the EIPA added new notification and claim procedures in CPLR 5222–a intended to educate judgment debtors concerning the types of funds that are exempt from restraint or execution in order to facilitate the filing of exemption claims. A judgment creditor restraining a bank account (in anticipation of a sheriff’s execution by levy or court-ordered transfer of assets) must serve the bank with specific forms: two copies of the restraining notice, an exemption notice and two exemption claim forms (CPLR 5222–a [b] ). The restraint is void if the judgment creditor fails to provide these documents to the bank; in that event, the bank “shall not restrain the account” (CPLR 5222–a [b] ), nor can the bank charge fees associated with a restraint (CPLR 5222[j] ).CPLR 5222–a also imposes a new obligation on financial institutions because it compels banks to mail to judgment debtors (the account holders) copies of the exemption notices and exemption claim forms received from judgment creditors (CPLR 5222–a [b] ). The statute states, however, that “[t]he inadvertent failure by a depository institution to provide the notice required … shall not give rise to liability on the part of the depository institution” (CPLR 5222–a [b] ). The notice advises the judgment debtor that the bank account is being restrained, describes the categories of funds that are exempt from restraint, and provides information concerning how to seek vacatur of the money judgment to avoid a subsequent transfer of the funds to the judgment creditor (CPLR 5222–a [b][a] ). The exemption claim form lists specific income sources that are not subject to restraint or execution (such as Social Security benefits, unemployment insurance, child support, veteran’s benefits, etc.) and directs the debtor to check the box next to any applicable exempt funds that have been deposited in the account (CPLR 5222–a [b][b] ). The debtor is then advised to return one copy of the claim form to the bank and the other to the creditor (or its representative) within 20 days (CPLR 5222–a [b][b] ). If 25 days have elapsed and the bank has not received an exemption claim form from the judgment debtor, all funds in the account in excess of the applicable statutory minimum remain subject to the restraining notice (CPLR 5222–a [c] ). However, a failure to return the claim form may not be interpreted as a waiver of any exemption the judgment debtor may possess (see CPLR 5222–a [h] ).Upon receipt of an exemption claim form from the account holder, the bank must notify the judgment creditor “forthwith” of the exemption claim and the creditor then has eight days to object (CPLR 5222–a [c],  ). If no objection is lodged, the restraint is lifted with respect to the disputed funds and the monies are released to the judgment debtor (CPLR 5222–a [c] ). To object to an exemption claim, the creditor must timely commence a special proceeding under CPLR 5240, serving papers on both the debtor and the bank before the expiration of the eight-day objection period (CPLR 5222–a [d] ). Within seven days of commencement of the proceeding, a hearing is to be held before a court, resulting in issuance of a judicial decision no later than five days after the hearing (CPLR 5222–a [d] ). In the meantime, the bank is required to hold the disputed funds for 21 days unless a court order directs otherwise; if 21 days pass and no judicial resolution of the exemption issue is forthcoming, the bank must release the disputed funds to the judgment debtor (CPLR 5222–a [e] ). Another subdivision imposes special liability upon judgment creditors that object to exemption claims in bad faith (CPLR 5222–a [g] ).The EIPA did not alter the preexisting provisions in CPLR article 52 permitting the commencement of special proceedings whereby creditors, debtors and “any interested person” can adjudicate disputes over the ownership of income or property (CPLR 5239, 5221), nor did it restrict the power of the court to “make an order denying, limiting, conditioning, regulating, extending or modifying the use of any enforcement procedure” (CPLR 5240).Plaintiffs appealed to the United States Court of Appeals for the Second Circuit, which consolidated their cases for the purpose of appeal only. After reviewing CPLR article 52, including the EIPA, the court concluded that the cases presented novel issues of New York law that should be resolved by this Court, certifying the following questions:
“first, whether judgment debtors have a private right of action for money damages and injunctive relief against banks that violate EIPA’s procedural requirements; and
“second, whether judgment debtors can seek money damages and injunctive relief against banks that violate EIPA in special proceedings prescribed by CPLR Article 52 and, if so, whether those special proceedings are the exclusive mechanism for such relief or whether judgment debtors may also seek relief in a plenary action” ( 711 F.3d 261, 271 [2d Cir.2013]).We agree with the District Courts that a private right to bring a plenary action for injunctive relief and money damages cannot be implied from the EIPA—and we therefore answer the first certified question in the negative. As for the second certified question, a judgment debtor can secure relief from a bank arising from a violation of the EIPA in a CPLR article 52 special proceeding as we have explained. And our determination that the legislation created no private right of action compels the conclusion that the statutory mechanisms for relief are exclusive. Banks had no obligation under the common law to forward notices of exemption and exemption claim forms to judgment debtors. It therefore follows that any right debtors have to enforce that obligation, among others imposed under CPLR 5222–a, arises from the statute and, since the EIPA does not give rise to a private right of action, the only relief available is that provided in CPLR article 52 (see generally Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. Partnership, 12 N.Y.3d 236, 879 N.Y.S.2d 17, 906 N.E.2d 1049  ).
by Richard A. Klass, Esq.———– copyr. 2014 Richard A. Klass, Esq. The firm’s website: www.CourtStreetLaw.com Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions. Prior results do not guarantee a similar outcome.Next post Previous post