Opinion
2342/01.
Decided October 9, 2007.
David J. Gold, P.C., Attorneys for Plaintiff.
John C. Gray, Esq, South Brooklyn Legal Services, Inc. Andrew M. Engel, J., Attorneys for Defendant.
The Defendant moves, by Order to Show Cause, for an order directing the Plaintiff to return monies it received from a checking account the Defendant maintains at North Fork Bank and vacating the restraint placed upon that account by the Plaintiff. The Plaintiff opposes the motion.
On May 29, 2001 a judgment was entered against the Defendant, in the Plaintiff's favor, in the sum of $9,125.54. On March 14, 2007 the Plaintiff served a Restraining Notice, Information Subpoena and Questions and Answers upon North Fork Bank. The Plaintiff alleges that these papers were served upon the Defendant at that time as well. The Defendant denies having received a copy of the Restraining Notice or a Notice To Judgment Debtor within four days of service of the Restraining Notice upon North Fork Bank, in accordance with CPLR § 5222(d). The Defendant alleges that she learned of the Restraining Notice from a bank teller, who provided her with the telephone number for the Plaintiff's counsel.]
In response to the Information Subpoena, on March 20, 2007 North Fork Bank advised the Plaintiff that the Defendant maintained accounts with the bank, including the subject checking account. At or about that same time the Defendant telephoned Plaintiff's counsel and explained to him that the only monies in the restrained account was income she received, as direct deposits, for Social Security benefits and child support. Thereafter, the Defendant provided the Plaintiff with copies of her bank statements covering the period of time from January 19, 2007 through March 16, 2007, evidencing these automatic deposits. The Defendant alleges that counsel for the Plaintiff responded to her communications and inquiries on April 23, 2007, indicating that he believed the Defendant's account statements showed commingled funds making it" impossible to determine exactly what is happening with the bank account'" ( Tyler Affirmation 7/30/07, ¶ 28) and suggesting that he would consent to releasing the restrained account if the Defendant would enter into an agreement providing for settlement of the matter with regular monthly payments to be made by the Defendant. The Defendant rejected this proposal.
On May 1, 2007 the Plaintiff sent an Execution With Notice to Garnishee to New York City Marshal Martin Bienstock. Unaware of the Execution served upon the Marshal, the Defendant claims that on May 6, 2007, being unable to pay her rent, due to the fact that her account was restrained, she sent Plaintiff's counsel an e-mail suggesting monthly payments of $50.00 upon the release of her account. According to the Defendant, during the week of May 14, 2007 the Plaintiff's attorney telephoned her and indicated monthly payments of $50.00 would be acceptable.
This apparent agreement notwithstanding, on or about May 29, 2007, the Marshal levied upon the entire balance of the Defendant's checking account, less any bank fees charged. The Defendant alleges that she first learned of these actions when she received a Notice to Judgment Debtor dated May 21, 2007 from the Marshal. Upon receipt, the Defendant spoke with someone in the Marshal's office who "advised her that she needed to go to court in Hempstead to protect her money." ( Tyler Affirmation 7/30/07, ¶ 40)
The Defendant contacted her present attorneys, South Brooklyn Legal Services ("SBLS"), on June 7, 2007. SBLS contacted counsel for the Plaintiff and provided him with copies of the Defendant's bank statements dated April 17, 2007 and May 15, 2007 demonstrating that the levied monies where exempt from execution and requested their return. After their review, the Plaintiff continued to insist that the account contained commingled non-exempt deposits and refused to return the seized funds. It is alleged that Plaintiff's counsel again indicated that he would release the monies immediately upon the Defendant entering into an agreement providing for a payment plan of $50.00 per month. SBLS, on behalf of the Defendant, rejected this proposal and insisted that the monies be released unconditionally. According to the Defendant, this is where discussions ended and this proceeding commenced.
As a threshold issue the court must address the timeliness of this application, as raised by the Plaintiff. The Plaintiff argues that the Defendant, by her own admission, first learned of the restraint on her account on March 20, 2007 and learned of the levy upon the funds in the account sometime after May 21, 2007, but took no action to stay enforcement upon the allegedly exempt funds until after the monies on deposit were remitted to the Plaintiff. It is the Plaintiff's position that the Defendant has forfeited her right to challenge the seizure of these monies. In opposition, the Defendant alleges that upon notification of the restraint upon her account she immediately telephoned counsel for the Plaintiff and provided him with documentation demonstrating that the money in the restrained account consisted of either Social Security benefits or child support payments, exempt from execution. The Defendant further alleges that she also corresponded and communicated with counsel for the Plaintiff throughout the months of April and May, 2007 in an effort to resolve all issues between the parties, without success. Thereafter, according to the Defendant, she obtained counsel, who spent the months of June and July providing counsel for the Plaintiff with documentation demonstrating that the money in the restrained account was exempt property and commenced this proceeding when it became apparent the Plaintiff would not amicably resolve this matter and after the monies had been removed from the Defendant's account.
A special proceeding to determine a party's rights in property or debt subject to levy may be commenced "[p]rior to the application of property or debt by a sheriff or receiver to the satisfaction of a judgment. . . ." CPLR § 5239 The phrase "application of property or debt" refers to the actual distribution of the proceeds. Herman v. Siegmund, 69 AD2d 871, 415 NYS2d 681 (2nd Dept. 1979) A proceeding brought pursuant to CPLR § 5239 after the property in question is no longer in the control of the Sheriff and has been paid to the judgment creditor is untimely. Herman v. Siegmund, id.; Olsen v. U.S. Trust Co. of New York; 36 AD3d 524, 828 NYS2d 54 (1st Dept. 2007); Registrato v. Corso, 70 Misc 2d 494, 333 NYS2d 636 (Sup.Ct. Suffolk Co. 1972)
Nevertheless, CPLR § 5240 "is an omnibus section empowering the court to exercise broad powers over the use of enforcement procedures . . . to prevent unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person or the courts (citations omitted)." Paz v. Long Island Railroad, 241 AD2d 486, 661 NYS2d 20 (2nd Dept. 1997); see also: Costello v. Casale , 39 AD3d 797, 835 NYS2d 354 (2nd Dept. 2007); Ocino, Inc. v. Fromm, 276 AD2d 558, 716 NYS2d 860 (2nd Dept. 2000); Sanders v. Manufacturers Hanover Trust Co., 229 AD2d 544, 644 NYS2d 1017 (2nd Dept. 1996) As is made plain by the language of the statute itself, the court may exercise this broad power "at any time, on its own initiative or the motion of any interested person" CPLR § 5240; and, in accordance with this section a "post-judgment restraint or levy is subject to divestiture by the debtor[.]" Cole v. Goldberger, Pedersen Hochron, 95 Misc 2d 720, 410 NYS2d 950 (Sup.Ct. Broome Co. 1978)
The court does not find that the Defendant or her counsel were dilatory in their efforts to secure the return of the allegedly exempt property. It is not disputed that immediately upon learning of the restraint upon her checking account the Defendant contacted counsel for the Plaintiff in an effort to resolve the matter, which is precisely among the things a properly served Notice to Judgment Debtor would have advised her to do. CPLR § 5222(e) Similarly, the court cannot fault SBLS in their efforts to amicably resolve the issues presented before resorting to litigation. Given the history of the commination between the parties prior to the commencement of this proceeding, the court finds that the Defendant's motion, brought pursuant to CPLR § 5240, was timely. The court must still, however, consider the alleged exempt nature of the Defendant's account and the procedures followed by the Plaintiff in obtaining the proceeds of same.
As was the case in Contact Resources, 10 Misc 3d 968, 806 NYS2d 407 (City Ct. Rochester 2005) "[t]his motion calls upon the Court to balance the competing rights of a judgment creditor, who is legally entitled to use authorized procedures to collect a debt, and a judgment debtor, whose sole financial resources are legally exempt from seizure by the creditor." As indicated, in the matter sub judice, the Plaintiff has employed some of the procedures authorized by Article 52 of the CPLR and has obtained the monies on deposit in the Defendant's checking account. The Defendant, on the other hand, claims that the Plaintiff failed to properly employ those procedures and has taken monies which are exempt from restraint, garnishment, attachment, execution and levy. This balancing not only requires a determination as to whether or not the account levied upon contained exempt property, but involves the protection of the parties' due process rights as well.
The Defendant alleges that at the time of the levy of the funds in her checking account the account contained nothing other than exempt property consisting of Social Security benefits and child support payments. The Defendant bears the burden of proving these exemptions. Frasca v. General Motors Corp., 228 AD2d 474, 643 NYS2d 1019 (2nd Dept. 1996); Balanoff v. Niosi , 16 AD3d 53, 791 NYS2d 553 (2nd Dept. 2005); Jonas v. Citibank, N.A., 414 F. Supp.2d 411 (S.D.NY 2006)
There is no dispute that Social Security benefits which are directly deposited into the Defendant's account are exempt property, free from the reach of the Plaintiff's restraint and levy. 42 U.S.C. § 407; CPLR § 5222(e); Philpott v. Essex County Welfare Board, 409 U.S. 413, 93 S.Ct. 590 (1973); Household Finance Corp. v. Chase Manhattan Bank, N.A., 91 Misc 2d 141, 397 NYS2d 564 (Sup.Ct. Nassau Co.1977); Granger v. Harris, 2007 WL 1213416 (E.D.NY 2007) Similarly, there is no dispute that child support payments are held "in trust for the support and maintenance of the minor children[ ]" Shipman v. City of New York Support Collection Unit, 183 Misc 2d 478, 703 NYS2d 389 (Sup.Ct. Bronx Co. 2000) and are exempt property. CPLR § 5222(e)
In support of her claim that the monies upon which the Plaintiff levied were exempt, the Defendant submits copies of the subject bank account statements for the period commencing March 1, 2007 and ending on June 6, 2007. The statements demonstrate that on March 20, 2007, when North Fork Bank received the Plaintiff's Restraining Notice, the Defendant had $176.78 on deposit. Between that date and May 29, 2007, when the account balance was paid over to the Marshal, the Defendant had received direct deposits specifically identified as child support totaling $745.00 and a direct deposit specifically identified as Social Security benefits in the sum of $915.00. The bank statements do not show any other deposits into the subject account during this time. On May 29, 2007 the sum of $1,566.78 was paid to the Marshall. The Defendant alleges, and the bank statements verify, that the balance of the account, $270.00 was debited as bank fees.
The Plaintiff alleges that the Defendant's Social Security benefits and child support payments were commingled with other, non-exempt property, subjecting the account to levy. A review of the alleged "non-exempt deposits," totaling $790.98, to which the Plaintiff refers, however, reveals that these were not deposits at all, but were credits to the Defendant's account for the return of checks or fees previously debited from the Defendant's exempt funds. Moreover, the Defendant's Social Security and child support deposits do not lose their exempt status, even if commingled with non-exempt funds, to the extent they are reasonably traceable. NCNB Financial Services, Inc. v. Shumate, 829 F.Supp. 178 (W.D.Va.1993); aff'd mem. 45 F.3d 427 (4th Cir.1994) cert. den.115 S.Ct. 2616 (1995); Granger v. Harris, supra .; Heymann v. Brechner, 1996 WL 580915 (S.D.NY 1996); International Airline Employees Federal Credit Union v. Jonas, 2002 WL 1059730 (App. Term, 1st Dept. 2002)To the extent there non-exempt monies in the account on March 20, 2007, at the time of the initial restraint, following New York's rule of "first in, first out," ITE Imperial Corporation-Empire Division v. Bankers Trust Company, 73 AD2d 861, 423 NYS2d 491 (1st Dept. 1980) aff'd 51 NY2d 811, 433 NYS2d 96 (1980), the monies upon which the Plaintiff executed are readily identifiable as exempt property.The exempt status of the monies upon which the Plaintiff levied notwithstanding, it is also the opinion of this court that the Plaintiff failed to comply with all of the notice provisions of Article 52 of the CPLR at that the time the Defendant's account was restrained and at the time the funds were seized. Prior to Deary v. Guardian Loan, 534 F. Supp. 1178 (1982) CPLR § 5222 permitted a judgment creditor's attorney to serve a Restraining Notice and CPLR § 5232 permitted the Sheriff or Marshal to levy upon property of the judgment debtor, without notice to the judgment debtor. Finding notice of these post-judgment proceedings to be fundamental to a judgment debtor's due process rights, the court declared these sections, as then constituted, unconstitutional. In so doing, under circumstances similar to those presented herein, the court noted that while the judgment creditor has a strong interest in prompt and inexpensive satisfaction of the debt evidenced by the judgment . . . The exemptions asserted by [the judgment debtor] are designed to protect their means of purchasing the basic necessities of life. Even without assuming that all of the assets in [judgment debtors'] accounts were exempt, the fact that [judgment debtors] receive a substantial portion of exempt income and the likelihood that given enforcement on their bank accounts would include exempt assets leads to the conclusion that any restraint or execution on [judgment debtors'] accounts may seriously threaten [judgment debtors'] ability to provide for themselves. [Judgment debtors] accordingly have a compelling interest in being notified of any such action and in being afforded a prompt opportunity to challenge such enforcement and assert their exemptions. . . . Notice of the seizure, or the attempt to seize, property of a debtor is a fundamental element of due process. . . . The salutory [ sic] value of notice in this context is self-evident-it would enable the judgment debtor to assert his or her exemptions and thus prevent or correct an erroneous restraint or execution which would otherwise have the effect of depriving the debtor of property which may be necessary to meet the basic necessities of life.
In correcting this constitutional infirmity, CPLR §§ 5222, and 5232 were amended and in their present form contain specific notice requirements, providing, in pertinent part:(d)Notice to judgment debtor or obligor. If a notice in the form prescribed in subdivision (e) has not been given to the judgment debtor or obligor within a year before service of a Restraining Notice, a copy of the Restraining Notice together with the notice to judgment debtor or obligor shall be mailed by first class mail or personally delivered to each judgment debtor or obligor who is a natural person within four days of the service of the Restraining Notice. CPLR § 5222(d)
(c)Notice to judgment debtor or obligor. Where an execution does not state that a notice in the form presented by subdivision (e) of section fifty-two hundred twenty-two of this chapter has been duly served upon the judgment debtor or obligor within a year, the Sheriff or support collection unit shall, not later than four days after service of the execution upon any garnishee, mail by first class mail, or personally deliver, to each judgment debtor or obligor who is a natural person, a copy of the execution together with such notice. The Sheriff or support collection unit shall specify on the notice to judgment debtor or obligor the name and address of the judgment creditor or the judgment creditor's attorney or the support collection unit. CPLR § 5232(c)
As can be seen, these amended statutes unequivocally mandate that a judgment creditor be provided with two distinct types of notice where a Restraining Notice is utilized and a levy upon personal property is attempted by a judgment creditor. The first requires the service of both a copy of the Restraining Notice and the Notice to Judgment Debtor in accordance with CPLR § 5222(e), within four days of the service of the Restraining Notice, if not served within one year prior to the service of the Restraining Notice. See: Weinstein v. Gitters, 119 Misc 2d 122,
462 NYS2d (Sup.Ct. Suffolk Co. 1983) The second requires the Sheriff to serve both a copy of the Execution and the Notice to Judgment Debtor in accordance with CPLR § 5222(e), within four days of the service of the execution upon the garnishee, if the execution does not state that the notice prescribed by CPLR § 5222(e) was served upon the judgment debtor within one year prior. The failure to fully comply with either of these provisions renders the execution ineffective, necessitating vacating the Restraining Notice and/or execution. Kitson Kitson; 40 A.D.23d 758, 835 NYS2d 670 (2nd Dept. 2007); Friedman v. Mayerhoff. 156 Misc 2d 295, 592 NYS2d 909 (Civ.Ct. Kings Co. 1992)
The duties of a Marshal, with respect to execution and levy, are the same as those of a Sheriff. Eckstein v. Massachusetts, 281 NY 435, rearg. den. 282 NY 590; Adinolfi v. Solimine, 178 Misc 2d 691, 682 NYS2d 341 (App. Term 2nd Dept. 1998); Marino v. Perna, 165 Misc 2d 504, 629 NYS2d 669 (Civ.Ct. Bronx Co. 1995)
As indicated hereinabove, the Defendant denies that she ever received a copy of the Restraining Notice served upon North Fork Bank by the Plaintiff, or a Notice to Judgment Debtor in accordance with CPLR § 5222(e), either one year before or within four days of the service of the Restraining Notice. While the Plaintiff claims to have made such service, the Restraining Notice submitted to the court by the Plaintiff does not contain a Notice to Judgment Debtor in accordance with CPLR § 5222(e). Moreover, the affidavit of service of the Restraining Notice the Plaintiff submits to the court indicates that service was only made upon North Fork Bank. Further belying the Plaintiff's unsubstantiated allegation of compliance with CPLR § 5222(d) is the fact that the Plaintiff's Execution with Notice to Garnishee does not state that a Notice to Judgment Debtor in accordance with CPLR § 5222(e) was issued to the Defendant within one year of the service of the Execution. There is simply no proof that the Plaintiff complied with the notice provision of CPLR § 5222(d)
Similarly, the Plaintiff has failed to demonstrate full compliance with the notice provision of CPLR § 5232(c). While the Defendant acknowledges receiving a Notice to Judgment Debtor in the form required by CPLR § 5222(e) "sometime after May 21, 2007" ( Tyler Affirmation 7/30/07, ¶ 39), neither party advises the court when the Execution, which is dated May 1, 2007, was served upon the garnishee, North Fork Bank. The court cannot determine whether this notice was served before the service of the Execution upon the garnishee, within four days of such service or sometime thereafter. Nevertheless, what is apparent from all of the papers submitted is that the Defendant was never served with a copy of the Execution, as mandated by CPLR § 5232(c).
That the Defendant learned of the Restraining Notice from a bank teller, as she alleges, and received some of the notice mandated by CPLR §§ 5222(d) and 5232(c) does not cure the Plaintiff's failure to comply with these statutory notice requirements. As noted in Friedman v. Mayerhoff, supra ., wherein the judgment debtors "suffered no prejudice from the failure [to provide notice] since they timely learned from [the bank] of the attempt to collect the accounts . . . the failure to meet these notice requirements, . . ., involves a fundamental due process right to which the presence or absence of prejudice would seem to be irrelevant."
Given the unequivocal proof of the exempt status of the monies seized by the Plaintiff, as well as the Plaintiff's failure to provide the Defendant with proper notice at two critical junctures during the Plaintiff's enforcement efforts, that branch of the Defendant's motion which seeks an order directing the Plaintiff to return to the Defendant those monies obtained from the Defendant's North Fork Bank checking account is granted. Similarly, there being no "legitimate reason why a creditor would need or want to impose a Restraining Notice on a debtor's bank account that contains only exempt Social Security benefits[,]" Contact Resources Services, LLC v. Gregory, supra . that branch of the Defendant's motion which seeks an order vacating the restraint placed upon the Defendant's checking account at North Fork Bank is granted; and, it is hereby
ORDERED, that within ten days of the service of a copy of this order with Notice of Entry, the Plaintiff shall pay to the Defendant the sum of $1,566.78 by forwarding a check for said sum to counsel for the Defendant; and, it is further
ORDERED, that the Restraining Notice to Garnishee dated March 14, 2007, which was served upon North Fork Bank by the Plaintiff, is vacated; and, it is further
ORDERED, that all further Restraining Notices issued by the Plaintiff in its efforts to collect its judgment in this matter from the Defendant shall contain the following language, in no less than twelve point typeface and must be bold:
SPECIAL INSTRUCTIONS: When Social Security Disability [SSD] and/or Supplemental Security Income [SSI] is the sole basis for the property in your possession or custody, this Notice shall not be effective. If that condition applies, please check the box and complete the applicable statement at the bottom of this page, and return this Notice to [the plaintiff or the plaintiff's attorney at the address indicated]. _________________________ YOUR REPLY TO THE SPECIAL INSTRUCTIONS (CHECK THE BOX IF APPLICABLE): The sole basis for the property in our possession is Social Security Disability [SSD] and/or Supplemental Security Income [SSI]. Therefore, we have not restrained the property pursuant to your instructions. (Signed): _________________________ Date:______________ Compliance Officer or Designee
See: Contact Resources Services, LLC v. Gregory, supra .
All other relief requested by the Defendant has been considered and is denied
This constitutes the decision and order of this court.