CTQ-2013-00003

Court of Appeals STATE OF NEW YORK

GARY CRUZ, Individually and on behalf of all others similarly situated,

CLAUDE PAIN, Individually and on behalf of all others similarly situated,

Appellants,

v.

TD BANK, N.A.,

Respondent.

On Questions Certified by the United States Court of Appeals

for the Second Circuit (USCOA Docket No. 12-1200-cv)

GERALDO F. MARTINEZ, Individually and on behalf of all others similarly situated,

JOSEPH CUMMINGS, Individually and on behalf of all others similarly situated,

Appellants,

v.

CAPITAL ONE BANK, N.A.,

Respondent.

On Questions Certified by the United States Court of Appeals

for the Second Circuit (USCOA Docket No. 12-1342-cv)

BRIEF OF AMICI CURIAE AARP, DISTRICT COUNCIL 37 MUNICIPAL EMPLOYEES

LEGAL SERVICES, JASA-LEGAL SERVICES FOR THE ELDERLY IN QUEENS, THE

LEGAL AID SOCIETY, LINCOLN SQUARE LEGAL SERVICES, INC., MFY LEGAL

SERVICES, NEW ECONOMY PROJECT, INC., NEW YORK LEGAL ASSISTANCE GROUP,

ST. VINCENT DE PAUL LEGAL PROGRAM, INC., AND THE URBAN JUSTICE CENTER

IN SUPPORT OF PLAINTIFF-APPELLANT ON THE CERTIFIED QUESTIONS

Gina. M. Calabrese Claudia E. Wilner

St. Vincent de Paul Legal New Economy Project Project Inc.

Program, Inc. 176 Grand Street, Suite 300

Consumer Justice for the New York, NY 10013

Elderly: Litigation Clinic (212) 680-5100

St. John’s University Attorney for Amici Curiae

School of Law

8000 Utopia Parkway Jamaica, NY 11435 (718) 990-6689

Attorney for Amici Curiae

August 29, 2013

Julie Nepveu

AARP Foundation Litigation

601 E Street, NW

Washington, DC, 20049

(202) 434-2060

Attorney for Amici Curiae AARP

CORPORATE DISCLOSURE STATEMENT

In compliance with Rule 500.l(f) of the Rules of Practice of The Court of

Appeals for the State of New York, Amici Curiae disclose the following:

JASAILegal Services for the Elderly in Queens, The Legal Aid Society,

Lincoln Square Legal Services, Inc., MFY Legal Services, Inc., New Economy

Project (formerly NEDAP), New York Legal Assistance Group ("NYLAG"), St.

Vincent DePaul Legal Program, Inc., (Consumer Justice for the Elderly: Litigation

Clinic, St. John's University School of Law), and Urban Justice Center are non­

profit, non-stock corporations and have no parents, affiliates, or subsidiaries.

The Internal Revenue Service has determined that AARP is organized and

operated exclusively for the promotion of social welfare pursuant to Section 501 (c)( 4)

(1993) of the Internal Revenue Code and is exempt from income tax. AARP is also

organized and operated as a non-profit corporation pursuant to Title 29 of Chapter 6 of

the District of Columbia Code 1951.

Other legal entities related to AARP include AARP Foundation, AARP

Services, Inc., Legal Counsel for the Elderly, AARP Experience Corps, and AARP

Financial, .

AARP has no parent corporation, nor has it issued shares or securities. '

1

DC 37 Municipal Employees Legal Services (DC 37 MELS), an

organizational amicus curiae, is a non-profit, non-stock unincorporated

organization. It is affiliated with the District Council 37 Health & Security Plan

and District Council 37 of AFSCME (the American Federation of State, County

and Municipal Employees). DC 37 MELS has no parent corporations, no publicly

held corporations have ownership interests in it, and it has not issued shares.

11

TABLE OF CONTENTS

TABLE OF CONTENTS ......................................................................................... iii

TABLE OF AUTHORITIES ..................................................................................... v

QUESTIONS PRESENTED FOR REVIEW ............................................................ 1

INTEREST OF AMICI CURIAE .............................................................................. 2

INTRODUCTION AND SUMMARY OF THE ARGUMENT .............................. .3

ARGUMENT ............................................................................................................. 8

I. ACCOUNTHOLDERS HA VB A PRIVATE RIGHT OF ACTION AGAINST BANKS THAT WRONGFULLY RESTRAIN EXEMPT FUNDS ............................................................................................................ 8

A. Accountholders Have A Common Law Right Of Action Against Banks For Wrongful Restraint Of Accounts ......................................... 9

B. CPLR 5239 Permits Accountholders to Sue Banks for Wrongful Restraint.............................................................................................. 10

C. Actions To Enforce Article 52, As Amended By EIPA, May Be Brought In A Special Proceeding Or A Plenary Action .................... 15

D. A Bank's Violation Of Article 52' s Statutory Duties Are Equally Enforceable By Creditors And Debtors .............................................. 19

II. THIS COURT SHOULD ALSO RECOGNIZE AN IMPLIED PRIVATE RIGHT OF ACTION AGAINST BANKS FOR VIOLATIONS OF EIPA .............................................................................. 21

A. Plaintiffs Are Of The Class Of People EIP A Protects ....................... 22

B. A Private Right Of Action Will Promote EIPA's Purpose ................ 23

111

C. A Private Right Of Action Against A Bank Is Consistent With EIPA's Statutory Enforcement Mechanisms ...................................... 27

III. CONCLUSION ............................................................................................. 34

IV

TABLE OF AUTHORITIES

Cases

Accounts Receivable Solutions, Inc. v. Tompkins Trustco, Inc., 45 A.D.3d 612; 846 N.Y.S.2d 272 (2d Dep't. 2007) .................................... 16

AHA Sales, Inc. v. Creative Bath Products, Inc., 58 A.D.3d 6,867 N.Y.S.2d 169 (2d Dep't. 2008) .................................. 28, 32

Alleyne v. Townsley, 110 A.D. 2d 674,487 N.Y.S.2d 600 (2d Dep't. 1985) ................................. 18

Aspen Industries, Inc. v. Marine Midland Bank, 52 N.Y.2d 575, 439 N.Y.S.2d 316 (1981) .............................................. 15,16

Bergdorf Goodman, Inc. v. Marine Midland Bank, 97 Misc. 2d 311, N.Y.S.2d 490, 97 Misc. LEXIS 2793 (N.Y. Civ. Ct. 1978) ................................................. 20

Bowen v. City of New York, 476 U.S. 467, 480 (1986) .............................................................................. 23

Broome v. Citibank, 166 Misc. 2d 283,632 N.Y.S.2d 410 (Civ. Ct. Queens County 1995) .................................................................... 16

Burns Jackson Miller Summit & Spitzer v. Linder, 59 N.Y.2d 314,325,464 N.Y.S.2d 712 (1983) ............................................ 21

Chase Bank USA, N.A. v. Greene, 24 Mise.3d 1233(A), 901 N.Y.S.2d 898 (Table), 2009 WL 2432347 (Civ. Ct. Queens County 2009) ........................... 4,20,22

Chemical Bank N. Y Trust Co. v. Brown, 63 Misc. 2d 341,312 N.Y.S.2d 343 (N.Y. Civ. Ct. 1970) ........................... 20

Commodore Factors Corp. v. Habib Am. Bank, 113342/10,2011 NY Slip Op 31297U, 2011 N.Y. Misc. LEXIS 2338 (Sup. Ct. N.Y. County May 17,2011) ................................................. 17

v

Contact Resource Svc's, LLC v. Gregory, 10 Misc.3d 968, 806 N.Y.S.2d 407 (City Ct. Rochester 2005) ................................................. 20,24,25

Cordova v. Bank of America, No. 35432-2008, 2009 N.Y. Misc. LEXIS 5511; 2009 NY Slip Op 31682U (Sup. Ct. Suffolk County, July 13, 2009) ................................................................................................ 16

Cruz v. TD Bank, N.A., 855 F. Supp. 2d 157 (S.D.N.Y. 2012) ................................................... passim

Deary v. Guardian Loan Co., Inc., 534 F. Supp. 1178 (S.D.N.Y. 1982) ............................................................. 14

Dionne v. Bouley, 757 F.2d 1344 (lst Cir. 1985) ....................................................................... 24

Doe v. Roe, 190 A.D.2d 463,599 N.Y.S.2d 350 (4th Dep't. 1993) ..................... 27,28,29

Fuentes v Shevin, 407 U.S. 67 ...................................................................................................... 9

Henry v. Isaac, 214 A.D.2d 188, 632 N.Y.S.2d 169 (2d Dep't. 1995) ............................ 18,27

Herman v. Siegmund, 69 A.D.2d 871, 415 N.Y.S.2d 681 (2d Dep't. 1979) .............................. 12, 13

Huggins v. Pataki, No. 01 CV 3016(JG), 2002 U.S. Dist. LEXIS 13664, (E.D.N.Y. 2002) ............................................................................................... 8

In the Matter of Sharon Towers v. Bank Leumi Trust Co., 250 A.D.2d 509, 673 N.Y.S.2d 138 (1st Dep't. 1998) ................................. 12

Jackson v. Bank of Am., NA., 15145/2011,2013 N.Y. Slip Op 23192, 2013 WL 2933213 (N.Y. Sup. Ct. May 21, 2013) ................................................................ passim

VI

Jackson v. TD Bank, 28 Misc. 3d 1222A, 957 N.Y.S.2d 636 (Civ. Ct. Kings County 2010) ....................................................................... 17

Johnson v. Chemical Bank, 96 Civ. 4262 (SS), 1996 U.S. Dist. LEXIS 18027 (S.D.N.Y. Dec. 6, 1996) (Sotomayor, 1.) ...................................................... 12

Jonas v. Citibank, 414 F. Supp. 2d 411 (S.D.N.Y. 2006) .......................................................... 12

Leader v. Maroney, Ponzini & Spencer, 97 N.Y.2d 95, 736 N.Y.S.2d 291, 761 N.E.2d 1018 (2001) ........................ 30

Lincoln Fin. Svc's. v. Miceli, 17 Mise.3d 1109(A), 851 N.Y.S.2d 58, 2007 WL 2917242 (Dist. Ct. Nassau Cty Oct. 9, 2007) ........................................................ 12,25

Mark G. v. Sabol, 93 N.Y.2d 710, 695 N.Y.S.2d 730 (1991) .............................................. 27, 28

Martinez v. Capital One, NA., 863 F. Supp. 2d 256 (S.D.N.Y. 2012) ................................................... passim

Mayers v. NY. Cmty. Bancorp, Inc!., CV-03-5837 (CPS), 2005 U.S. Dist. LEXIS 20279, 2005 WL 2105810 (E.D.N.Y. Aug. 31, 2005) ................................................ 8

Mazzuka v. Banko/NorthAm., 53 Misc. 2d 1053,280 N.Y.S.2d 495 (N.Y. Civ. Ct. 1967) ......................................................................... 15, 16, 17

McCahey v. L.P. Investors, 774 F2d 543 (2d Cir. 1985) .......................................................................... 14

Negrin v. Norwest Mortgage, 263 A.D.2d 39, N.Y.S.2d 184 (2d Dep't. 1999) ........................................... 28

Nejeidi v. Republic Bank 0/ N. Y., 227 A.D.2d 392,642 N.Y.S.2d 61 (2d Dep't. 1996) ................................ 9, 12

Vll

Philpott v. Essex County Welfare Board, 409 U.S. 413 (1973) ...................................................................................... 23

Portfolio Recovery Assoc., LLC v. Calderia, 24 Misc. 3d 1165,881 N.Y.S.2d 870, 2009 NY Slip Op 29248 (N.Y. Dist. Ct. 2009) ..................................................................................... 22

Remo Drug Corp. v. State of NY., 145 Misc. 2d 300,546 N.Y.S.2d 529 (Ct. of Claims. 1989) ........................ 16

Riedel Glass Works v. Kurtz & Co., 260 A.D. 163,20 N.Y.S.2d 938 (1940), affd in part and app. dismissed in part, 287 N.Y. 636,287 N.Y. (N.Y.S.) 636, 39 N.E.2d 270 (1941) ..................................................................................................... 18

Schaeffer v. Chem. Bank, 107 Misc. 2d 548, 435 N.Y.S.2d 474 (Dist. Ct. Suffolk County Dec. 2, 1980) .......................................................... 9

Security Trust Co. of Rochester v. Magar Homes, 92 A.D.2d 714, 461 N.Y.S.2d 103 (4th Dep't. 1983) ................................... 16

Sheehy v. Big Flats Community Day, 73 N.Y.2d 629,543 N.Y.S.2d 18 (1989) ........................ 21,23,27,28,29,33

State v. Courchesne, 262 Conn. 537, 816 A.2d 562 (2003) ........................................................... 31

Syndicate Building Corp. v. City Univ. ofN Y., 151 Misc. 2d 492; 573 N.Y.S.2d 386 (Ct. of Claims 1991) ..................................................................................... 16

Uhr v. East Greenbush Cent. School Dist., 94 N.Y.2d 32, 698 N.Y.S.2d (1999) ..................................... 21, 27, 28

United States v. Silk, 331 U.S. 704 (1947) ...................................................................................... 23

Vlll

USA Auto Funding v. Washington Mutual, Inc., 12 Misc. 3d 1162A, 819 N.Y.S.2d 213 (Sup. Ct. Nassau County 2006) .................................................................... 16

Walter v. Doe, 93 Misc. 2d 286, 402 N.Y.S.2d 723 (Ciy. Ct. N.Y. Cty. 1978) ................................................................................. 9

Warren v. Delaney, 98 A.D.2d 799; 469 N.Y.S.2d 975, 1983 N.Y. App. Diy. LEXIS 21126 (2d Diy. 1983) ....................................................................................... 9

Washington State Dept. o/Social & Health Svc's v. Guardianship Estate o/Keffeler, 537 U.S. 371 (2003) ................................................................... 23

Statutes

29 U.S.C. § 1051(6) .................................................................................................. 4

29 U.S.C. § 1 056( d)(1 ) ............................................................................................... 4

38 U.S.C. § 5301(a)(I) ............................................................................................... 4

42 U.S.C. § 407(a) ............................................................................................... 4, 23

Article 52 .......................................................................................................... passim

CPLR 5205(d) .................................................................................................. 4 CPLR 5205(d)(I) ............................................................................................. 4 CPLR 5205(d)(3) ............................................................................................. 4 CPLR 5205(1) .................................................................................................. 5 CPLR 5205(1)(3) .............................................................................................. 5 CPLR 5222 ............................................................................................. passim CPLR 5222(h) ....................................................................................... 4, 5, 19 CPLR 5222(i) ........................................................................................ 4, 5, 19 CPLR 52220) ................................................................................................... 6 CPLR 5222-a ................................................................................................... 5 CPLR 5222-a(a) ............................................................................................... 6 CPLR 5 222-a(b ) .......................................................................................... 5, 6 CPLR 5222-a(b)(l) ....................................................................... 5,14,15,19

IX

CPLR 5222-a(b )(2) .......................................................................................... 5 CPLR 5222-a(b)(3) ....................................................................................... 29 CPLR 5222-a(g) ............................................................................................ 32 CPLR 5225 .................................................................................................... 19 CPLR 5227 .................................................................................................... 19 CPLR 5231 ....................................................................................................... 4 CPLR 5231(b) .................................................................................................. 4 CPLR 5239 ............................................................................................. passim

CPLR 5240 .............................................................................................................. 13

Ca1.C.C.P. § 700.140 (d) ......................................................................................... 30

Conn. Gen. Stat. 52-367b(n) (2009) ....................................................................... 30

CPLR 103 ................................................................................................................ 18

CPLR 401, et seq ........................................................................................... .......... 18

CPLR 5522 .............................................................................................................. 14

CPLR 7801 ........................................................................................................ 18, 19

N.Y. Lab. Law § 595(b) ............................................................................................. 4

N.Y. Soc. Servo Law § 137 ......................................................................................... 4

Public Acts 2003, No. 03-154 ................................................................................. 34

Legislative History N.Y. State Assembly Mem. in Support of Legislation ..................................... 23,30

N.Y. State Senate Memo in Support of Legislation .................................. 7, 8,22,26

N.Y. State Assembly Bill A08527, 2007-2008 Regular Session, Feb. 5,2008 ...................................................................... 29

NYS Bill and Veto Jackets: 2008, Ch. 575 ........................................................... 6,8

x

NYS Bill and Veto Jackets: 2008, Ch. 575, Letter from Assembly Sponsor Helene Weinstein to Governor David Patterson available at http://iarchives.nysed.govlPublmage Web/viewlmageData.j sp? id=172536 (August 27,2013, 12:48 PM) .............................................. passim

Sponsor's Letter in Support of A08527 dated July 29, 2008 .............................. 8,22

Treatises Siegel, N.Y. Practice, Fifth Ed. §547 (2011) .......................................................... 18

Siegel, N.Y. Practice, Fifth Ed. §508 (2011) .......................................................... 16

Other Authorities Banks Boost Customer Fees to Record Highs, WSJ, Nov. 12,

008, available at http://online.wsj.com/article/ SBI22645109077719219.html ..................................................................... 25

John Infranca, Safer Than the Mattress? Protecting Social Security Benefits from Bank Freezes and Garnishments, 83 St. John's L. Rev. 1127 (Fall 2009) ................................................... 24,29

Xl

QUESTIONS PRESENTED FOR REVIEW

The United States Court of Appeals for the Second Circuit has certified to this

Court two questions concerning New York State's Exempt Income Protection Act

("EIPA"). 2008 N.Y. Law Ch. 575 and codified throughout Article 52 of the New

York Civil Practice Law and Rules ("CPLR"). The questions are:

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 EIP A 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.

As discussed throughout this amicus brief in support of Appellants, judgment

debtors do have a private right of action for money damages and injunctive relief

against banks that restrain exempt funds in violation ofEIPA. Judgment debtors can

also seek money damages and injunctive relief against banks that violate EIP A in

special proceedings prescribed by CPLR Article 52 ("Article 52"). These special

proceedings, however, are not the exclusive mechanism for such relief. Judgment

debtors may also seek relief in plenary actions under common law.

1

INTEREST OF AMICI CURIAE

Amici AARP is a non-profit, non-partisan organization with a membership

representing the interests of people aged fifty and older, many of whom rely primarily

or exclusively on exempt income to sustain them through their retirement years.

Amici DC 37 Municipal Employees Legal Services, JASAILegal Services for the

Elderly in Queens, The Legal Aid Society, Lincoln Square Legal Services, Inc., MFY

Legal Services, Inc., New Economy Project (formerly NEDAP), New York Legal

Assistance Group ("NYLAG"), St. Vincent DePaul Legal Program, Inc., (Consumer

Justice for the Elderly: Litigation Clinic, St. John's University School of Law), and

Urban Justice Center are not-for-profit organizations providing legal services to poor,

elderly, disabled and working New Yorkers.

Amici regularly advocate for people whose bank accounts, usually containing

exempt income, are unlawfully restrained by debt collectors and banks. Most Amici

actively supported passage of the Exempt Income Protection Act (EIP A) and are

intimately familiar with its content, legislative history, and the issues before the Court.

This Court's determination of whether an accountholder has a private right of action

against a bank for violating EIP A will have a broad impact on millions oflow-income

New Yorkers whose exempt income is indisputably legally protected from restraint.

Participation by Amici will assist this Court by bringing to light arguments that might

otherwise escape the Court's attention.

2

INTRODUCTION AND SUMMARY OF THE ARGUMENT

Amici urge this Court to hold first, that judgment debtors have a private right of

action for money damages and injunctive relief against banks that wrongfully restrain

debtors' exempt funds in violation ofEIPA; and second, that EIPA may be enforced

both in special proceedings under Article 52 and in plenary actions. Longstanding

common law precedent has already established a bank's liability, in special

proceedings and plenary actions, for wrongful restraints. This Court should also find

an implied private right of action, because one is necessary to effectuate the important

protections ofEIP A to ensure accountholders have full access to subsistence levels of

exempt income. Finding an implied private right of action also is consistent with the

statutory scheme, contrary to the holdings of Cruz v. TD Bank, N.A., 855 F. Supp. 2d

157 (S.D.N.Y. 2012) ("Cruz") andMartinezv. Capital One, NA., 863 F. Supp. 2d256

(S.D.N.Y. 2012) ("Martinez").

EIP A is one of the most important income protection measures enacted by the

New York State Legislature in the last decade. Prior to enactment of this landmark

law, thousands of older, disabled, and low-income New Yorkers needlessly suffered

grievous harm when their legally exempt subsistence income} was frozen by banks,

I As discussed in Arg. II A, infra, creditors cannot seize Social Security (retirement and disability) and Supplemental Security Income (42 U.S.c. § 407(a», veteran's benefits (38 U.S.c. § 5301(a)(I», unemployment insurance benefits (N.Y. Lab. Law § 595(b», pensions (29 U.S.C. §§ 1051(6), 1056(d)(I», public assistance (N.Y. Soc. Servo Law § 137), or child support (CPLR 5205(d)(3»,

3

leaving them without funds for rent, food, medicine, and other necessities. "EIP A was

enacted to eliminate the problems created for low income New Yorkers by the

restraint of their bank accounts." Chase Bank USA, NA. v. Greene, 24 Misc.3d

1233(A), 901 N.Y.S.2d 898 (Table), 2009 WL 2432347 (Civ. Ct. Queens County

2009).

EIPA did not create new categories of exempt income. Rather, it amended

Article 52 by imposing safeguards to enhance the protection of income already legally

exempt from collection efforts. Specifically, CPLR 5222(i), at issue in this matter,

protects the exempt amount of a judgment debtor's wages in a bank account. It directs

that "[a] restraining notice issued pursuant to this section shall not apply to [$1740] ..

. " (emphasis added). See also CPLR 5231(b).2 Similarly, CPLR 5222(h), which

protects exempt funds, commands that "the banking institution shall not restrain

[$2625]. .. in the judgment debtor's account." (emphasis added).3 If an account

contains more than these protected amounts, the bank is obligated to restrain only the

excess amount and must leave the protected amount in the account, making it

among other benefits (CPLR 5205(d)). State law also exempts 90% of earned income. CPLR 5205( d) (1 ).

2 CPLR 5231 pre-dates EIP A. It provides that a debtor's wages may be garnished only to the extent they exceed a certain amount of the debtor's weekly earnings above the minimum wage. Thus, for wage earners, there has long been a threshold amount that is exempt from execution because it is necessary for the support of the debtor and family. 3 When EIPA was enacted, CPLR 5205(1) and (h) provided a $2500 exemption. The amount has increased because EIP A provides that the exemption amount be adjusted for inflation every three years. CPLR 5205(1)(3). This adjustment further effectuates EIPA's purpose of safeguarding a level of exempt income that is sufficient to meet a recipient's basic needs.

4

available to meet the basic needs of the accountholder while they submit exemption

claims, seek legal assistance, or challenge the underlying judgment. CPLR 5222(h)

and (i).

EIP A also established a streamlined, out-of-court procedure for accountholders

to follow to obtain a prompt release of exempt funds that exceed the minimum

protected threshold. CPLR 5222-a. As part of the streamlined procedure, judgment

creditors seeking to restrain a bank account must provide the bank with the restraining

notice, a copy of the restraining notice, an exemption notice, and two claim forms,

pre-addressed to the creditor and the bank, that the accountholder may use to assert

such exemptions. CPLR 5222-a(b). The exemption notice informs the accountholder

what sources of income are exempt and what procedures to follow to claim an

exemption. EIP A mandates that "[ fJailure to serve the [ exemption] notice and forms

together with the restraining notice renders the restraining notice void, and the

banking institution shall not restrain the account." CPLR 5222-a(b)(1) (emphasis

added). See also CPLR 5222-a(b )(2) (applying this prohibition to executions and

levies served without required notices). EIP A also prohibits a bank from charging any

fees if an account balance is below the threshold or the restraining notice is void.

CPLR 52220). If any part ofthe account is actually restrained, the bank must send the

notices and forms to the accountholder within two business days of receiving the

restraining notice. CPLR 5222-a(a) and (b)(3). The legislature imposed this mailing

5

requirement on banks "to ensure that there is actual notice since often the debtor's first

inkling that things are amiss is a bounced check." NYS Bill and Veto Jackets: 2008,

Ch. 575 at 7, Letter from Assembly Sponsor Helene Weinstein to Governor David

Patterson ("Weinstein Letter,,).4

The Cruz and Martinez courts erred in finding that no private right of action is

available to enforce the vitally important protections provided through EIP A. In fact,

as was true before the enactment ofEIP A, accountholders have a common law right to

seek damages when a bank wrongfully restrains funds in an account. A substantial

body of case law also supports the availability of a private right of action against

banks to enforce the provisions of Article 52. Article 52 contains provisions that both

aid judgment creditors in valid collection efforts and protect judgment debtors from

invalid collection efforts and is equally enforceable by both. See Jackson v. Bank of

Am., NA., 15145/2011,2013 N.Y. Slip Op 23192, *11,2013 WL 2933213 (N.Y. Sup.

Ct. May 21, 2013) (" 'This bill will resolve the problem of seizing exempt funds and

allow both judgment debtors and judgment creditors to protect their rights under the

law.' ... (Emphasis supplied)") (quoting N.Y. State Senate Memo in Support of

Legislation ("Senate Mem.")).

A person aggrieved by a bank's violation of Article 52, including provisions of

EIPA, may seek relief in one of the special proceedings created by Article 52. Article

4 Available athttp://iarchives.nysed.govlPubImageWeb/viewlmageData.jsp?id=172536 (August 27, 2013, 12:48 PM).

6

52 special proceedings authorize, however, only limited, specifically enumerated

forms of relief. A litigant may seek broader relief in a plenary action. Indeed, a private

right of action against a bank is necessary to ensure that EIP A's protection of legally

exempt, subsistence funds is not illusory, and to avoid a constitutional infirmity.

This Court should also find that an implied private right of action exists,

because it will augment the important protection the legislature intended by enacting

EIP A. The Cruz and Martinez courts erred in finding an implied private right of action

to be inconsistent with EIP A's statutory scheme.

7

ARGUMENT

I. ACCOUNTHOLDERS HAVE A PRIVATE RIGHT OF ACTION AGAINST BANKS THAT WRONGFULLY RESTRAIN EXEMPT FUNDS.

The legislature enacted EIP A in recognition ofthe critical role that banks

play in restraining bank accounts for collection of judgments. See Jackson, 2013 N.Y.

Slip Op 23192, * 10 ("[0 ]ver three million ... SS, SSD, and SSI beneficiaries in New

York receive their benefits through direct deposit.... Banks can easily identify

accounts holding directly-deposited exempt income because each electronic deposit

clearly states its source." (quoting Senate Mem). Banks are gatekeepers between a

judgment creditor and a judgment debtor. Because of their unique position, banks can

easily determine whether funds in an account are exempt: either the account balance

does not exceed $1740, or funds deposited electronically, which are specifically coded

by the source, indicate they are exempt. Id.; Weinstein Letter ("The bar coding used in

checking transactions today ensures that the bank will be able to identify such

accounts.,,).5

5 Thus, the legislature has rejected the banks' assertion that they are merely middlemen. Brief of Respondent TD Bank, N.A. in Cruz, et al. v. TD Bank ("TD Bank Br.") at 35 - 36. See Weinstein Letter. See also Mayers v. NY. Cmty. Bancorp, Inc., CV-03-5837 (CPS), 2005 U.S. Dist. LEXIS 20279,35,2005 WL 2105810 (E.D.N.Y. Aug. 31, 2005) (describing technological advances that permit banks to identify electronically deposited exempt funds); Huggins v. Pataki, No. 01 CV 3016(JG), 2002 U.S. Dist. LEXIS 13664, * 12 (E.D.N.Y. 2002) (same). They are not simply conveying information but rather processing it and making statutorily required decisions, earning fees in the process.

8

ElP A does not contain an express private right of action against a bank for its

failure to comply with the statute. The legislature had no need to provide an express

private right of action because at the time of ElP A's enactment, a private right of

action to enforce duties imposed by Article 52 already existed pursuant to New York

common law and CPLR 5239.

A. Accountholders Have A Common Law Right Of Action Against Banks For Wrongful Restraint Of Accounts.

Reported decisions are few, but all available case law indicates that an

accountholder may sue a bank for wrongful restraint of a bank account. See Jackson,

2013 N.Y. Slip Op 23192 (finding private right of action to enforce EIPA against

banks); Walter v. Doe, 93 Misc. 2d 286,402 N.Y.S.2d 723 (Civ. Ct. N.Y. Cty. 1978)

(denying bank's motion for summary judgment, holding bank can be held liable for

erroneously restraining an account when it had reason to know of the error); Warren v.

Delaney, 98 A.D.2d 799; 469 N.Y.S.2d 975, 1983 N.Y. App. Div. LEXlS 21126 (2d

Div. 1983) (compensatory and punitive damages may be awarded to the

accountholders arising from the wrongful restraint of their property) (citing Fuentes v

Shevin, 407 U.S. 67, 81-82, reh. den. 409 U.S. 902); Schaeffer v. Chern. Bank, 107

Misc. 2d 548, 435 N.Y.S.2d 474 (Dist. Ct. Suffolk County Dec. 2, 1980) (finding on

the merits that bank's actions were not negligent, but at no time suggesting that the

plaintiff had no cause of action); Nejeidi v. Republic Bank ojN.Y, 227 A.D.2d 392,

393, 642 N.Y.S.2d 61, 62 (2d Dep't. 1996) (barring by res judicata plenary action

9

brought subsequent to successful CPLR 5239 proceeding because damages claim

against the bank should have been raised in the special proceeding). Thus, courts have

long recognized that an accountholder may bring an action for damages against a bank

for wrongful restraint.

The attempts by Respondent banks to distinguish these cases on the grounds

that they were not brought by judgment debtors, or not brought to enforce ElP A

specifically, should be rejected. Whether a restraint is wrongful because the bank

attached the wrong account pursuant to a valid restraining order or the right account

pursuant to a void restraining order is irrelevant. No reported cases hold that an

accountholder cannot seek damages from a bank for wrongful restraint, that a special

proceeding is the exclusive procedure available, or that a plenary action is not

available in addition to a special proceeding.

B. CPLR 5239 Permits Accountholders to Sue Banks for Wrongful Restraint.

The District Court in Cruz erroneously held that CPLR 5239 "does not allow a

debtor to seek damages or injunctive relief against a bank following restraint." Cruz,

855 F.Supp.2d at 172; A. 136-37.6 The plain language ofCPLR 5239 clearly permits

6 Respondent TD Bank and Appellants contend that CPLR 5239 is not available to judgment debtors. Brief of Respondent TD Bank, N.A. in Cruz, et al. v. TD Bank ("TD Bank Br.") at 42 and 54-55; Brief for Appellants in TD Bank, N.A. in Cruz, et al. v. TD Bank ("Cruz Appellants' Br.") at 28-30). Capital One, however, readily acknowledges that 5239 is available to judgment debtors seeking damages and injunctive relief for a bank's EIPA violations. Brief of Respondent Capital One Bank, N.A. in Martinez, et al. v. Capital One Bank, NA. ("Capital One Br.") at 12 - 13.

10

a judgment debtor to institute a special proceeding against a bank that fails to comply

with EIPA.7 First, CPLR 5239 allows "any interested person," including ajudgment

debtor whose account has been restrained or levied, to commence a special

proceeding. Second, it allows the judgment debtor to commence the special

proceeding against the judgment creditor "or other person with whom a dispute

exists," including a bank that has restrained exempt funds in violation of EIPA.

(emphasis added). Third, the statute specifies that the proceeding's purpose is to

"determine rights in the property or debt," which allows the judgment debtor to assert

that the bank has unlawfully restrained her account, and collected restraining and

accompanying fees. Finally, CPLR 5239 authorizes a court to award a range of

remedies, including damages and limited injunctive relief.

The Cruz court erroneously stated that CPLR 5239 "does not allow a debtor to

seek damages or injunctive relief against a bank following restraint." Cruz, 855

F.Supp.2d at 172; A136-37. Possibly the court was misled by the statute's temporal

limitation that a 5239 claim be brought "[p ]rior to the application of property or debt

by a sheriff or receiver to the satisfaction of a judgment." However, this language

7 CPLR 5239 states, in relevant part: "Prior to the application of property or debt by a sheriff or receiver to the satisfaction of a judgment, any interested person may commence a special proceeding against the judgment creditor or other person with whom a dispute exists to determine rights in the property or debt. . .. The court may vacate the execution or order, void the levy, direct the disposition of the property or debt, or direct that damages be awarded." CPLR 5239 (emphasis added).

11

actually indicates that the 5239 claim can be raised until the sheriff or receiver

delivers funds to the judgment creditor. Herman v. Siegmund, 69 A.D.2d 871, 415

N.Y.S.2d 681 (2d Dep't. 1979); Lincoln Fin. Svc's. v. Miceli, 17 Misc.3d 1l09(A),

851 N.Y.S.2d 58, 2007 WL 2917242 (Dist. Ct. Nassau Cty Oct. 9, 2007). The statute

clearly contemplates that claims may be brought post-restraint or levy, as it

specifically authorizes the court to "void the levy."

The Martinez court did not find CPLR 5239 to be so limited, and acknowledged

"several cases suggest that the 'special proceeding' remedy is available to compel

garnishee banks to adhere to their obligations under EIPA." Id., 863 F. Supp. 2d at

264 (citing cases); see also In the Matter a/Sharon Towers v. Bank Leumi Trust Co.,

250 A.D.2d 509, 673 N.Y.S.2d 138 (1st Dep't. 1998) (allowing judgment debtor's

alleged alter ego to sue bank for wrongful restraint under CPLR 5239); Nejeidi, 227

A.D.2d 392 (vacating bank restraint in CPLR 5239 special proceeding brought by

accountholder against bank); cf Jonas v. Citibank, 414 F. Supp. 2d 411, 418

(S.D.N.Y. 2006) ("CPLR 5239 provides a mechanism for a debtor to commence a

special proceeding to determine the rights in disputed property such as Jonas' alleged

exempt funds."); Johnson v. Chemical Bank, 96 Civ. 4262 (SS), 1996 U.S. Dist.

LEXIS 18027, at * 11 n.2 (S.D.N.Y. Dec. 6, 1996) (Sotomayor, J.) (rejecting federal

cause of action, finding "[p]laintiffs remedy, if at all, may be in a state court action

12

under CPLR 5239 to challenge The Bank of New York's entitlement to restrain his

accounts.,,).8 No reported case has held that such a claim cannot be brought.

Nevertheless, as stated, a plenary action to provide broad, class-wide,

prospective injunctive relief of the type Appellants seek in these cases is available and

indeed necessary to enforce fully the requirements established by EIP A. Such broad

relief does not appear to be available through CPLR 5239. CPLR 5239 also does not

allow a judgment debtor to seek prospective injunctive relief to prevent the future

wrongful restraint of exempt funds. See Contact Resource Services, LLC v. Gregory,

10 Misc.3d 968 (City Ct. Rochester 2005) (pursuant to CPLR 5240, court ordered

judgment creditor to include specific language in future restraining notices against

debtor to avoid restraint of Social Security Disability). 9 Nor does CPLR 5239 allow a

judgment debtor to make a claim after the sheriff or receiver has delivered funds to the

judgment creditor. Herman v. Siegmund, 69 A.D.2d 871.

8 This case, which did not address whether CPLR 5239 is an exclusive remedy, does not support Respondent's argument that a special proceeding is an exclusive procedure, but only that it is an available procedure to provide a remedy for the injury alleged.

9 CPLR 5240 does not create a special proceeding. Rather, it provides that a court may, upon "motion of any interested person, and upon such notice as it may require, make an order denying, limiting, conditioning, regulating, extending or modifying the use of any enforcement procedure." Because it authorizes a motion for relief, CPLR 5240 requires that a motion be brought in the case that gave rise to the underlying judgment. While it allows for modification of the restraining notice, it does not permit broad injunctive relief or provide for damages. CPLR 5240 permits a judgment debtor to compel a judgment creditor to limit future us of an enforcement device against the debtor. CPLR 5240; See Contact Resource Services, 10 Misc.3d 968 The judgment debtor's bank would not be a party to the underlying lawsuit, and the relief would be confined to enforcement of a particular judgment that the creditor obtained, and not others.

13

Indeed, a holding that no private right of action exists, or that accountholders

are limited to Article 52 special proceedings, would make the protections provided by

EIP A illusory and raise serious due process concerns because it would open the door

to a taking of constitutionally protected property without notice and an opportunity to

be heard. CPLR 5222-a(b)(I) is New York's current procedure for meeting the due

process demands for restraining notices originally identified in Deary v. Guardian

Loan Co., Inc., 534 F. Supp. 1178,1188 (S.D.N.Y. 1982) (findingpre-1982 version of

CPLR 5522 unconstitutional because it failed to provide accountholders with notice of

a restraint and an opportunity to assert exemption claims). See also McCahey v. L.P.

Investors, 774 F2d 543,553 (2d Cir. 1985) (finding that pre-EIPA version ofCPLR

5222 met minimum standards of due process because it provided for notice and a

prompt post-seizure hearing).

The pre-EIPA version of Article 52 required the judgment creditor to send

notice of restraint directly to the accountholder. See McCahey, 774 F.2d at 546-47

(describing statute). EIP A changed this procedure, requiring the judgment creditor to

send the notices to the bank and the bank to send them to the accountholder. If the

bank does not receive the notices, it is prohibited from restraining or levying the

account. CPLR 5222-a(b)(I). The legislature made this change in recognition of the

fact that the bank is more likely than the judgment creditor to have the judgment

debtor's current address, thus rendering actual receipt of the notice more likely. See

14

Weinstein Letter, (explaining that "the bank would forward these documents to the

customer to ensure that there is actual notice since often the debtor's first inkling that

things are amiss is a bounced check."). If the bank wrongly allows the restraint or levy

to proceed without providing the constitutionally-required notice, as happened in Cruz

and Martinez, there must be a remedy. See Mazzuka v. Bank a/North Am., 53 Misc.

2d 1053, 1058, 280 N.Y.S.2d 495 (N.Y. Civ. Ct. 1967) ("let every wrong have a

remedy"); Jackson, 2013 N.Y. Slip Op 23192 at *55-56. And ifthatremedy cannot be

provided through CPLR 5239 because of the limitations of the special proceeding, a

plenary action must be available. In sum, CPLR 5222-a(b)(1) would be

constitutionally infirm-its due process procedures rendered illusory-unless a

plenary action is available.

c. Actions To Enforce Article 52, As Amended By EIP A, May Be Brought In A Special Proceeding Or A Plenary Action.

It is undisputed that judgment creditors can seek damages in either a plenary

action or special proceeding against a bank that failed to honor restraining notices or

executions. Aspen Industries, Inc. v. Marine Midland Bank, 52 N.Y.2d 575,580,439

N.Y.S.2d 316 (1981) ("[V]iolation of the restraining notice by the party served is

punishable by contempt ... and subjects the garnishee to personal liability in a

separate plenary action or a special proceeding under CPLR article 52 brought by the

aggrieved judgment creditor."). The leading case, Mazzuka, rejected the bank's

15

contention that a judgment creditor was limited to bringing a contempt action where

the bank had negligently violated a statutory duty. The Mazzuka court explained:

Undeniably, the Bank was under a statutory duty owing to plaintiff as a judgment creditor to obey the Restraining Notice. That duty was mandated by the Legislature as an effective aid in the enforcement or collection of a money judgment. For a breach of the duty caused by the negligence of its employees, the Bank must be held accountable.

Id., 53 Misc.2d at 1056. Mazzuka 's holding has been followed many times, including

by this Court in Aspen Industries, 52 N.Y.2d 575, and unmistakably establishes that

banks are liable for damages under New York common law for negligently violating

their Article 52 statutory obligations. lO

10 Similar language in numerous cases confirms that plenary actions and special proceedings are available to enforce Article 52. Security Trust Co. of Rochester v. Magar Homes, 92 A.D.2d 714, 461 N.Y.S.2d 103 (4th Dep't. 1983) ("In addition to the penalty of contempt, violation ofCPLR 5222 also 'subjects the garnishee to personal liability in a separate plenary action or a special proceeding under CPLR article 52 brought by the aggrieved judgment creditor. "') (quoting Aspen, 52 N.Y.2d at 580); Cordova v. Bank of America, No. 35432-2008,2009 N.Y. Misc. LEXIS 5511; 2009 NY Slip Op 31682U, *10 (Sup. Ct. Suffolk County, July 13,2009) ("Contempt is not the exclusive remedy for the judgment creditor when a restraining notice is disobeyed and an action may be commenced for whatever money damages were sustained through the disobedience of the restraining notice."); USA Auto Funding v. Washington Mutual, Inc., 12 Misc. 3d 1 162A, 819 N.Y.S.2d 213 (Sup. Ct. Nassau County 2006) ("An alternative remedy to contempt available to a party aggrieved by the failure to honor a restraining notice is a plenary action or special proceeding seeking damages."); Broome v. Citibank, 166 Misc. 2d 283,286-87,632 N.Y.S.2d 410 (Civ. Ct. Queens County 1995) ("[V]iolation of the restraining notice by the party served is punishable by contempt (CPLR 5222, subd [a]; 5251) and subjects the garnishee to personal liability in a separate plenary action or a special proceeding under CPLR article 52 brought by the aggrieved judgment creditor."); Syndicate Building Corp. v. City Univ. of NY., 151 Misc. 2d492; 573 N.Y.S.2d386 (Ct. of Claims 1991) ("The case law is clear that the violation of a restraining notice sounds in tort .... More specifically, absent a criminal intent, the cause of action is one for negligence."); Remo Drug Corp. v. State of NY., 145 Misc. 2d 300,301 n.l, 546 N.Y.S.2d 529 (Ct. of Claims 1989) ("[A] cause of action for money damages against a garnishee who negligently fails to honor a restraining order has been recognized .... ); Accounts Receivable Solutions, Inc. v. Tompkins Trustco, Inc., 45 A.D.3d 612, 613; 846 N.Y.S.2d 272 (2d Dept. 2007) (affirming right recover damages in action against garnishee bank). See also Siegel, New York Practice, Fifth Ed. §508 at 890 (2011). No court

16

The paucity of cases establishing a debtors' right to seek damages against a

bank for wrongful restraint is not an indication that no right of action exists. The Cruz

and Martinez cases are among the first to seek to enforce EIP A, so it is no wonder that

there are few reported decisions on this matter. Moreover, the pre-EIPA version of

CPLR 5222 required banks to comply with restraining notices but did not explicitly

state that banks must also protect exempt funds from restraint. See Mayers, 2005 U.S.

Dist. LEXIS 20279 at *30 ("[pre-EIPA] statute does not leave the decision of whether

or not to freeze an account to the bank's discretion, but instead compels certain action

by threatening contempt"). "[EIPA's] amendments to CPLRarticle 52 were enacted to

provide additional protection to judgment debtors whose bank accounts contain

exempt funds," Jackson, 2013 N.Y. Slip Op 23192 at *50, and is fully enforceable.

Id. at *55.

There is no basis to find that the availability of the special proceeding under

Article 52 limits, rather than expands, options available to accountholders. See

Mazzuka, 53 Misc. 2d at 1057 ("Instead [of a contempt proceeding] plaintiff chose to

have recourse to an action for damages. That he has a right so to do is the holding of

has held that a judgment creditor may not file such claims against a bank or must bring them exclusively in an Article 52 special proceeding. Additionally, other courts that have not specifically cited Mazzuka have come to similar conclusions. See e.g., Commodore Factors Corp. v. Habib Am. Bank, 113342110,2011 NY Slip Op 31297U, *5,2011 N.Y. Misc. LEXIS 2338 (Sup. Ct. N.Y. County May 17, 2011);Jacksonv. TDBank, 28 Misc. 3d 1222A, 957N.Y.S.2d636 (Civ. Ct. Kings County 2010) (denying motion to dismiss action against bank for damages for violation of restraining notice).

17

the Riedel case") (citing Riedel Glass Works v. Kurtz & Co., 260 A.D. 163, 20

N.Y.S.2d 938 (1940), afr d in part and app. dismissed in part, 287 N.Y. 636, 287 N.Y.

(N.Y.S.) 636, 39 N.E.2d 270 (1941). To hold that an Article 52 special proceeding is

the only means available to seek a remedy is contrary to the very purpose that special

proceedings serve in New York procedural law. Special proceedings may be used

only when authorized by statute. Siegel, New York Practice, Fifth Ed. §547 at 973

(2011). The procedures are simplified, and akin to motion practice. See CPLR 401, et

seq. They exist to deliver more expeditious relief than might be obtained in a plenary

action.ll Siegel, New York Practice, Fifth Ed. §547 at 973. Thus, they expand rather

than restrict a litigant's options.12

In certain contexts, such as landlord-tenant matters, a special proceeding is, in

practice, the primary vehicle for obtaining relief. Even then, however, common law

actions remain an option unless they are specifically foreclosed by the legislature. See

Henry v. Isaac, 214 A.D.2d 188, 191, 632 N.Y.S.2d 169 (2d Dep't. 1995) (when

common law gives a remedy, and another remedy is provided by statute, the latter is

cumulative, unless made exclusive by the statute); Alleyne v. Townsley, 110 A.D. 2d

11 With specific reference to CPLR 5239, Prof. Siegel notes,"[w]hile anyone of the creditors can use a plenary action against the others for an adjudication of priorities, CPLR 5239 makes it unnecessary." Siegel, N.Y. Practice, Fifth Ed. §547 at 973 (2011).

12 Indeed, CPLR 103 provides that plenary actions and special proceedings should be treated identically and empowers courts to convert actions to special proceedings and vice versa. See CPLR 103.

18

674,675,487 N.Y.S.2d 600 (2d Dep't. 1985) (landlord may choose to bring summary

eviction proceeding or common law ejectment action). By contrast, when the

legislature intends to make a special proceeding the exclusive option, it has clearly

said so. See e.g., CPLR 7801 ("Relief previously obtained by writs of certiorari to

review, mandamus or prohibition shall be obtained in a proceeding under this

article.") (emphasis added). No similar mandate appears in any of the provisions

authorizing Article 52 special proceedings. Compare CPLR 5225, 5227 and 5239

with CPLR 7801. Furthermore, EIP A explicitly preserves debtors' available rights and

remedies. CPLR 5222(h) and (i) ("Nothing in this subdivision shall alter the exempt

status of funds that are protected from execution, levy, attachment, garnishment or

other legal process, under section [5205] ofthis article or under any other provision of

state or federal law, or affect the right of a judgment debtor to claim such

exemption."). Thus, the Martinez court's conclusion that "the New York State

Legislature seems to have understood a judgment debtor's remedies to be limited to

those provided by Article 52" is incorrect. Id., 863 F. Supp. 2d at 254.

D. A Bank's Violation Of Article 52's Statutory Duties Are Equally Enforceable By Creditors And Debtors.

Banks' statutory duties not to restrain judgment debtor accounts pursuant to

CPLR 5222(h) and (i) and 5222-a{b)(1) are equally as important and enforceable as

Article 52's statutory duty to process and respond to judgment enforcement

mechanisms, including information subpoenas, restraining notices, and executions.

19

See Chase Bank USA, NA. v. Greene, 901 N.Y.S.2d 898 (Table), 2009 WL 2432347

(Civ. Ct. Queens County 2009); Contact Resource Services, LLC, 10 Misc.3d at 975

(court noted its dual obligations to protect both the creditor's interest in its money

judgment and the debtor's interest in having unimpeded access to her exempt funds.)

equally with There is no statutory language to suggest, and no canon of statutory

construction that allows, an inference that the legislature intended to permit creditors,

but not accountholders, to enforce the duties imposed on banks by Article 52.

Contrary to Capital One's argument, the fact that the restraining notice is

essentially an injunction, Capital One Br. at 24, does not justify elevating the rights of

judgment creditors over debtors. See Chemical Bank NY Trust Co. v. Brown, 63

Misc. 2d 341, 343, 312 N.Y.S.2d 343 (N.Y. Civ. Ct. 1970) (warning "red-carpet

treatment of the judgment creditor sets a dangerous precedent which could lead to

great abuses"). Banks are required to comply strictly with EIP A, which safeguards

constitutionally protected property. See BergdorfGoodman, Inc. v. Marine Midland

Bank, 97 Misc. 2d 311, 411 N.Y.S.2d490, 97 Misc. LEXIS 2793 (N.Y. Civ. Ct. 1978)

(requiring strict compliance with the provisions for service of notice upon the

judgment debtor because "[aJ legal proceeding to divest rights cannot be instituted

without safeguarding the right of due process of law. "). Thus, EIP A's prohibition on

restraint pursuant to a void notice is as much an injunction, and is as enforceable, as

the obligation to comply with a valid notice.

20

II. THIS COURT SHOULD ALSO RECOGNIZE AN IMPLIED PRIVATE RIGHT OF ACTION AGAINST BANKS FOR VIOLATIONS OF EIPA

An individual accountholder clearly has a common law private right of action

to sue a bank for violating EIP A, as discussed above. This Court should also recognize

an implied private right of action against banks for violations ofEIP A pursuant to the

factors enumerated in Sheehy v. Big Flats Community Day, 73 N.Y.2d 629,633, 543

N.Y.S.2d 18 (1989). See also Burns Jackson Miller Summit & Spitzer v. Linder, 59

N.Y.2d 314, 325, 464 N.Y.S.2d 712 (1983) ("[w]here ... there is no express

legislative authorization, whether the violation of a statute gives rise to an independent

private cause of action is a matter for the courts"). These Sheehy factors are: "(1)

whether the plaintiff is one of the class for whose particular benefit the statute was

enacted; (2) whether recognition of a private right of action would promote the

legislative purpose; and (3) whether creation of such a right would be consistent with

the legislative scheme." Sheehy, 73 N.Y.2d at 633.

Each of these factors is easily satisfied as to EIP A. As the Jackson court found

after analyzing Sheehy, Uhr v. East Greenbush Cent. School Dist., 94 N. Y.2d 32, 40-

41, 698 N.Y.S.2d 609 (1999), and related precedent, and applying such analysis to

violations ofEIPA by banks:

[P]laintiffs have an implied right of action to seek a remedy where all the protections provided to plaintiffs and all others in similar situations have been violated, no detailed scheme for administrative enforcement exists, and plaintiffs have suffered harm as a direct result of said violations. As

21

demonstrated above, such an implied/private of action must exist in order to carry out the strong and clear legislative intent of the ElP A, and "augments" the statutory scheme of the EIP A.

Jackson, 2013 N.Y. Slip Op 23192 at *22.

A. Plaintiffs Are Of The Class Of People EIP A Protects.

Plaintiffs are unquestionably of the class for whose particular benefit ElP A was

enacted. See Chase Bank USA, N.A. v. Greene, 24 Misc. 3d 1233(A), 901 N.Y.S.2dat

898 (finding EIP A was enacted to protect judgment debtors who have been subj ect to

banks' wrongful restraint of exempt funds). EIP A imposes clear affirmative duties on

banks to take actions to protect accountholders' funds against improper and

ineffective restraints. Portfolio Recovery Assoc., LLC v. Calderia, 24 Misc. 3d 1165,

1169, 881 N.Y.S.2d 870, 2009 NY Slip Op 29248 (N.Y. Dist. Ct. 2009) ("These

statutes provide a judgment debtor with a minimal safety net."). The banks' duties

were designed to prevent significant suffering when "hundreds of vulnerable New

Yorkers lose access to the funds required for basic needs" because exempt funds are

restrained. Jackson, 2013 N.Y. Slip Op 23192, *10 (quoting Senate Mem.); See

Weinstein Letter at 6-7. New York and federal laws have long exempted certain types

of income from debt collection "to ensure that safety-net income is not diverted from

its intended purpose: helping the elderly, disabled, and poor to maintain the resources

22

needed for food, rent, medicine and other basic necessities." Jackson, 2013 N.Y. Slip

Op 23192, *9 (quoting Senate Mem.)13

B. A Private Right Of Action Will Promote EIPA's Purpose.

Meeting the second Sheehy factor, recognition of a private right of action

against banks for violations ofEIPA would promote EIP A's legislative purpose "[t]o

ensure that money judgments do not render working New Yorkers unable to care for

their or their families' most basic needs." Id. Finding a private right of action to seek

damages against banks for violation ofEIP A is particularly important because there is

no administrative or other enforcement mechanism available to aggrieved

accountholders.

13 For example, Section 407(a) of the Social Security Act provides:

the right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.

42 U.S.C. § 407(a). Section 407(a) "impose[s] a broad bar against the use of any legal process to reach all social security benefits." Philpott v. Essex County Welfare Board, 409 U.S. 413,417 (1973). Moreover, the ban is not limited to actions of creditors but also applies to judicial or quasi­judicial actions involving anyone, including banks. Washington State Dept. of Social & Health Services v. Guardianship Estate ofKeffeler, 537 U.S. 371 (2003) ("[Section] 407 does not refer to any 'claim of creditors'; it imposes a broad bar against the use of any legal process to reach all social security benefits.") (citations omitted). The broad language of § 407(a) reflects the overarching purpose of the Social Security Act, which is "the protection of its beneficiaries from some of the hardships of existence." United States v. Silk, 331 U.S. 704, 711 (1947). Congress designed the Social Security Act to be "unusually protective" of claimants. Bowen v. City of New York, 476 U.S. 467,480 (1986).

23

EIP A was deemed necessary to protect accountholders because, despite the

long-standing laws protecting exempt funds from creditors, prior to EIPA's enactment

banks regularly froze accounts containing exempt funds, causing great hardship. See

Dionne v. Bouley, 757 F.2d 1344, 1353 (1st Cir. 1985) ("even the short term

deprivation of [a Social Security recipient's] main or only source of support can have

disastrous consequences."). Desperate accountholders, unable to pay rent or buy food

and medicine, struggled to demonstrate to creditors' attorneys that their exempt funds

should be released or returned. "Social Security recipients whose bank accounts are

frozen often experience major difficulties during the weeks or even months it may

take to prove their funds are exempt and regain access to the federal benefits they rely

upon for subsistence." John Infranca, Safer Than the Mattress? Protecting Social

Security Benefits from Bank Freezes and Garnishments, 83 St. John's L. Rev. 1127,

1130 (Fall 2009).The procedures for claiming an exemption prior to enactment of

EIP A were complex and too difficult for most people to navigate alone, resulting in

dire consequences for "particularly vulnerable individuals who. . . depend upon

immediate and regular access to their exempt Social Security [ and other] funds to

maintain their lives." Contact Resource Svc 's, LLC v. Gregory, 10 Misc.3d 968,970,

806 N.Y.S.2d 407 (City Ct. Rochester 2005). (explaining that after debtor was forced

to pay $550 in exempt funds to a creditor and to a bank for fees, she closed her bank

account rather than risk losing more of her money in the event of another restraint).

24

The delay in obtaining a release of exempt funds deprives accountholders of access to

funds to pay their bills and imposes significant hardship, subjecting them to often

severe penalties, such as eviction, utility shut off and substantial late payment fees.

See Weinstein Letter (describing hardships). "Compounding this harm is many banks'

policy and practice of deducting a 'legal processing fee' from a judgment debtor's

bank account upon the receipt of a Restraining Notice ... even if the creditor, who

served the Restraining Notice, is not entitled to seize any money from the account."

Contact Resource Svc's, 10 Misc. 3d at 972. Thus, even though exempt funds may

eventually have been released, each restraint under the pre-EIP A procedures resulted

in accountholders' loss of hundreds of dollars of exempt funds to bank garnishment,

overdraft, and bounced-check fees. 14

The facts in Lincoln Fin. Svc's, Inc. illustrate the litany of problems judgment

debtors with exempt income faced, and which EIP A was enacted to address. Judgment

debtor Miceli's income consisted of Social Security and child support. She never

received the statutorily and constitutionally required notice that her account was being

restrained. Instead, she learned of the restraint from a bank teller, who instructed her

14 The collection of multiple fees raises doubts as to whether banks are truly "innocent stakeholders" in the garnishment process. As The Wall Street Journal reported in 2008, "Such fees are key contributors to banks' bottom lines. About 90% of banks' consumer-fee income comes from overdraft and insufficient-funds charges, which are expected to increase to $42 billion this year from $20.7 billion in 1999 .... " Banks Boost Customer Fees to Record Highs, WSJ, Nov. 12, 2008, available at http://online.wsj.com/article/SB 1226451 09077719219 .html; See also Contact Resource Svc's, LLC v. Gregory, 10 Misc.3d 968,970, 806 N.Y.S.2d 407 (City Ct. Rochester 2005) (noting that harm caused by unlawful restraints is compounded because banks assess fees of $20 to $125 against the accountholder for processing a restraint, even where restraint is wrongful).

25

to contact the creditor's attorney. The creditor's attorney refused to accept her bank

statements showing that the funds were exempt from collection. While she was

attempting to resolve the matter with creditor's counsel, her funds were levied by the

sheriff and released to the creditor. She eventually obtained the assistance of legal

counsel who sought to negotiate on her behalf for return of the funds. The creditor's

attorney persisted, asserting that the funds in the account were commingled with non­

exempt funds, and demanded she enter into a payment plan. Despite four months of

negotiation by Miceli and her attorney, Miceli was ultimately forced to obtain a court

order for the release of her funds, which the court found to be entirely exempt. Id., 851

N.Y.S.2d 58.

ElP A prohibits banks from honoring void restraints that take "safety-net income

from New Yorkers living on the margins." See Jackson, 2013 N.Y. Slip Op 23192,

*10 (quoting Senate Mem.). Since ElPA took effect, most New Yorkers need no

longer fear being deprived of access to all funds in their bank accounts. Shamefully,

however, four years after ElPA' s enactment some banks continue to honor restraining

notices served without the requisite exemption notices and claim forms, as alleged in

the underlying cases, and to charge accountholders unlawful restraint-related fees.

This bank action deprives the accountholders of their right to notice and an

opportunity to assert exemptions prior to deprivation of their constitutionally protected

property. As the Jackson court noted, the legislature sought to address the problem

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that "[a]l1 too often, [ ] creditors ignore calls from debtors, demand a debt payment as

a condition of releasing the account, or insist on proof of the exemption that an

elderly, disabled or poorly-educated person may be unable to produce, even when the

bank possesses the necessary proof." Id., 2013 N.Y. Slip Op 23192 at *26 (quoting

Weinstein Letter).

C. A Private Right of Action Against A Bank is Consistent with EIPA's Statutory Enforcement Mechanisms.

The third Sheehy factor, consistency with legislative enforcement scheme, is the

most critical. MarkG. v. Sabol, 93 N.Y.2d 710,720-21,695 N.Y.S.2d 730 (1991). A

private right of action to enforce ElP A against banks is not inconsistent with ElP A's

legislative enforcement scheme, contrary to the findings of the Cruz and Martinez

courts. Because, as discussed below, ElP A does not provide for a legislative

enforcement scheme, a private right of action is in fact necessary to enforce it.

"Recognition of a private right of action pursuant to which individual [ s] [ ]

can seek redress for wrongs personally suffered would augment the existing

enforcement devices and enhance a legislative scheme which, in part, imposes

affirmative duties for the protection of those very individuals." Henry v. Isaac, 214

A.D.2d 188, 193,632 N.Y.S.2d 169, 1995 N.Y. App. Div. LEXlS 9977 (N.Y.

App. Div. 2d Dep't 1995) (citing Doe v. Roe, 190 A.D.2d 463,471,599 N.Y.S.2d

350 (4th Dep't. 1993)). A private right of action to enforce ElPA against banks

will "further a legislative goal and coalesce smoothly with the existing statutory

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scheme," particularly because a common law right of action already exists for

wrongful restraint claims against banks. Uhr, 94 N.Y.2d at 40 (citing Doe v. Roe,

190 A.D.2d at 471 (implying private right of action where it would be "consistent

with the common law ... [and] would merely provide an additional enforcement

mechanism at the hands of those persons affected by a violation of that law and

those whom the Legislature has deemed in need of protection"). See also AHA

Sales, Inc. v. Creative Bath Products, Inc., 58 A.D.3d 6, 16-17,867 N.Y.S.2d 169

(2d Dep't. 2008) (finding an implied private right of action); Negrin v. Norwest

Mortgage, 263 A.D.2d 39, 700 N.Y.S.2d 184 (2d Dep't. 1999) (same).

A private right of action is not inconsistent with EIPA's statutory scheme,

unlike the statutes at issue in Uhr, Mark G., and Sheehy, respectively. First, the

legislature has not provided a comprehensive enforcement mechanism for EIP A

indicating an intent to limit liability. Jackson, 2013 N.Y. Slip Op 23192 at *51. Cf

Uhr 94 N. Y .2d at 40-41 (citing Doe v. Roe, 190 A.D.2d at 463) (private right of action

inconsistent with legislature'S efforts to insulate schools from liability and minimize

their costs for a program that greatly benefited the wider population and would not be

feasible if it became too costly). Second, there is no statutory provision for

administrative enforcement or criminal penalties for violations ofEIP A as there was

in Mark G. v. Sabol, 93 N.Y.2d at 720 (private right of action inconsistent with

intricate scheme for administrative enforcement of the Social Services Law). See

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Negrin 263 A.D.2d 39 (finding an implied private right of action because legislature

has not "otherwise provided for public enforcement of the law").

Finally, unlike in Sheehy, the legislature here did not consider and reject a cause

of action against banks. See Sheehy, 73 N.Y.2d at 635-636 (no private cause of action

where legislature had specifically considered and rejected one). In fact, EIPA's

legislative history confirms that the legislature and the banks were aware that banks

could be held liable for failing to comply with EIP A. Banks initially opposed EIP A,

particularly over concerns about their potential liability due to the short deadlines the

bill imposed upon them. See Infranca, at 1158. Banks withdrew their opposition after

they successfully lobbied for a narrow "safe harbor" provision, which provides: "[t]he

inadvertent failure by a depository institution to provide the notice required by this

subdivision shall not give rise to liability on the part of the depository institution." Id.;

See also Weinstein Letter (describing bill negotiations). Notably, the "safe harbor"

provision does not exempt banks from liability for all violations ofEIP A, but merely

for inadvertent failures to send exemption claim forms within two days. It makes no

sense unless the legislature contemplated that banks could be held liable for even

inadvertent violations ofEIPA, evidencing that the legislature considered a bank's

liability and did not reject it. See Doe v. Roe, 190 A.D.2d at 471 (finding statutory

exemption from liability for a good faith disclosure supports finding a private right of

action because, "[t]hat grant of immunity has meaning only if a cause of action for

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damages exists for a violation of [the law].");see also Leader v. Maroney, Ponzini &

Spencer, 97 N.Y.2d 95, 104, 736 N.Y.S.2d 291,297, 761 N.E.2d 1018, 1024 (2001)

("We have recognized that meaning and effect should be given to every word of a

statute. Words are not to be rejected as superfluous where it is practicable to give each

a distinct and separate meaning." (internal quotation omitted)). Thus, it is clear that

both Cruz and Martinez incorrectly concluded that EIP A's legislative history did not

reveal the intent to expose banks to liability for EIP A violations.

Cruz and Martinez also erred in their reliance on differences between EIP A and

the Connecticut statute as a signifier of legislative intent not to permit a private right

of action. The flaw in that reasoning is that, in fact, EIP A was modeled on the statutes

of both Connecticut and California. See Jackson, 2013 N.Y. Slip Op 23192, *11

(quoting Senate Mem.). ("Connecticut and California have recently enacted similar

laws to protect their most vulnerable citizens."). These statutes have express but

contradictory provisions regarding a bank's liability. Compare Conn. Gen. Stat. 52-

367b(n) (2009) (providing private right of action against banks to recover amount

wrongly paid) and Cal.C.C.P. § 700.140 (d) (prohibiting action against bank to

enforce provisions). As the legislature did not adopt either scheme, no inference can

be drawn from differences between EIP A and these statutes. Moreover, unlike in

New York, Connecticut prohibits finding an implied right of action if a statute does

not provide one expressly. Public Acts 2003, No. 03-154 (providing that "the meaning

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of a statute shall, in the first instance, be ascertained from the text of the statute itself

and its relationship to other statutes" and overturning implied right of action rule

established by State v. Courchesne, 262 Conn. 537, 816 A.2d 562 (2003)). Finally, at

the time ofEIP A's enactment, the remedies available against banks under CPLR 5239

and common law were already more extensive than those provided by the Connecticut

statute, which expressly limits the remedy to monies paid and refund of fees

charged. 15 Against this more generous landscape, New York's Legislature had no

reason to include a provision similar to that in Connecticut's statute to permit private

enforcement.

The Cruz court also reasoned, erroneously, that a private right of action against

a bank is inconsistent with the statutory scheme because EIP A provides enhanced

remedies and includes an explicit private right of action against judgment creditors

that dispute claims of exemption in bad faith, but has no parallel provision

establishing a private right of action against banks. Id., 855 F. Supp. 2d at 173-74

(citing CPLR 5222-a(g)).16 The Cruz court's inference is not justified. The rule in

New York is that language in a statute that permits an individual to assert claims to

15 Conn. Gen. Stat. § 52-367b(n) (2009) provides: "If such banking institution pays exempt moneys from the account of the judgment debtor over to the serving officer contrary to the provisions of this section, such banking institution shall be liable in an action therefor to the judgment debtor for any exempt moneys so paid and such banking institution shall refund or waive any charges or fees by the banking institution." 16 CPLR 5222-a(g) provides, "Where the judgment creditor objects to a claim of exemption pursuant to subdivision (d) of this section and the court finds that the judgment creditor disputed the claim of exemption in bad faith ... the judgment debtor shall be awarded costs, reasonable attorney fees, actual damages and an amount not to exceed one thousand dollars."

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enforce the statute supports finding an implied private right of action. See AHA Sales,

Inc. 58 A.D.3d 6, 16-17. Additionally, EIPA does not permit banks to object to a

claimed exemption at all, let alone to do so in bad faith, because they generally do not

have a legal interest in the restrained funds; a parallel provision against a bank would

be illogical and unnecessary. The enhanced remedies the legislature provided for

judgment debtors serves to deter judgment creditors from undermining the statute's

purpose to create a streamlined, out-of-court process for exemption claims. See

Weinstein Letter (describing process). In particular, if judgment creditors were to

routinely object to exemption claims even without a good-faith basis, judgment

debtors with exempt funds would be forced to resort to the very pre-EIPA court

procedures that the legislature found to be too complex and time consuming to

effectively protect them. Thus, the absence of a parallel provision applicable to banks

indicates only that the legislature chose not to provide enhanced remedies-including

statutory damages and mandatory attorneys' fees-for a bank's inadvertent violation

of EIPA.

In sum, it is clear that an implied private right of action meets each of the

Sheehy factors: plaintiffs qualify as members of the class for whose benefit EIPA was

enacted, their right to pursue actions against banks would promote EIP A's legislative

purpose, and this right is consistent with EIP A's statutory scheme. As the Jackson

court recently noted:

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Given the strong language found in the legislative intent of ... CPLR 5222-a, and the detailed procedure which third party creditors and banks are mandated to follow in order to protect the exempt funds of account holders, it defies logic and reason that this legislation would provide no remedy where EIP A is so willfully and carelessly violated.

Id. 2013 N.Y. Slip Op 23192 at *53. This Court should thus conclude that an implied

private right of action is available for an accountholder to seek damages against a

bank for violation of EIP A.

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CONCLUSION

Amici urge this Court to find a private right of action against banks to enforce

EIP A, in both special proceedings and plenary actions.

Gina. M. Calabrese S1. Vincent de Paul Legal Program, Inc. Consumer Justice for the Elderly: Litigation Clinic S1. John's University School of Law 8000 Utopia Parkway Jamaica, NY 11435 (718) 990-6689 Attorney for Amici Curiae

On the Brief Julie Nepveu AARP Foundation Litigation 601 E Street, NW Washington, DC, 20049 (202) 434-2060 Attorney for Amici Curiae AARP

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Claudia E. Wilner New Economy Project 176 Grand Street, Suite 300 New York, NY 10013 (212) 680-5100 Attorney for Amici Curiae