Cruz v. TD Bank, N.A.
| Decision Date | 21 November 2013 |
| Citation | 2013 N.Y. Slip Op. 07762,22 N.Y.3d 61,979 N.Y.S.2d 257,2 N.E.3d 221 |
| Parties | Gary CRUZ et al., Appellants, v. TD BANK, N.A., Respondent. Geraldo F. Martinez et al., Appellants, v. Capital One Bank, N.A., Respondent. |
| Court | New York Court of Appeals Court of Appeals |
OPINION TEXT STARTS HERE
Law Offices of G. Oliver Koppell & Associates, New York City (G. Oliver Koppell and Daniel F. Schreck of counsel), for appellants in the first and second above-entitled proceedings.
Duane Morris LLP, Philadelphia, Pennsylvania (Alexander D. Bono and Ryan E. Borneman of counsel), for TD Bank, N.A., respondent in the first above-entitled proceeding.
McGuireWoods LLP, New York City (Robert Plotkin of counsel), McGuireWoods LLP (Nicholas B. Lewis, of the District of Columbia bar, admitted pro hac vice, of counsel) and McGuireWoods LLP (Matthew A. Fitzgerald, of the Virginia bar, admitted pro hac vice, of counsel) for respondent in the second above-entitled proceeding.
AARP Foundation Litigation, Washington, D.C. (Julie Nepveu of counsel), New Economy Project Inc., New York City (Claudia E. Wilner of counsel), and St. John's University School of Law, Jamaica (Gina M. Calabrese of counsel), for AARP and others, amici curiae.
Sullivan & Cromwell LLP, New York City (Bruce E. Clark, Nicolas Bourtin, Adam R. Brebner and Zeh S. Ekono of counsel), for New York Bankers Association, amicus curiae.
Plaintiffs are judgment debtors whose bank accounts were “frozen” by judgment creditors in anticipation of enforcement of a money judgment pursuant to CPLR article 52. Plaintiffs allege that the restraints were invalid because their banks failed to comply with requirements imposed on financial institutions under the Exempt Income Protection Act of 2008 (EIPA). That legislation compels banks served with restraining notices by judgment creditors to forward certain forms to judgment debtors intended to assist them in asserting potential claims that their accounts contain funds that are exempt from restraint or execution. In this case, we have been asked by the United States Court of Appeals for the Second Circuit to resolve whether plaintiffs may bring plenary actions in federal court against their banks seeking money damages allegedly arising from the banks' failures to send the forms, among other deficiencies. Before addressing the questions certified to us by that Court, it is necessary to describe CPLR article 52 and the EIPA in some detail.
CPLR Article 52 and the EIPA:
CPLR article 52 sets forth procedures for the enforcement of money judgments in New York, which may include the imposition of a restraining notice against a judgment debtor's bank account to secure funds for later transfer to the judgment creditor through a sheriff's execution or turnover proceeding. Under both federal and state law, certain types of funds are exempt from restraint or execution, including Social Security benefits, public assistance, unemployment insurance, pension payments and the like ( see generallyCPLR 5205). Although the clear legislative intent is that funds of this nature are not to be subject to debt collection (and therefore excluded from any pre-execution restraint), prior to 2008 banks served with restraining notices often inadvertently froze accounts containing income from these sources, leaving judgment debtors without access to much-needed exempt monies.
The EIPA was intended to ameliorate this problem, amending certain existing statutes in CPLR article 52 and adding a new CPLR 5222–a (L. 2008, ch. 575). The amendments restricted the scope of the restraint that can be implemented against the bank account of a natural person and created a new procedure aimed at ensuring that this class of judgment debtors is able to retain access to exempt funds. In substance, subject to limited exceptions consistent with federal law, the EIPA precludes a bank from restraining baseline minimum balances in a “natural person's” account absent a court order. Specifically, $2,500 is free from restraint “if direct deposit or electronic payments reasonably identifiable as statutorily exempt payments ... were made to the judgment debtor's account during the forty-five day period preceding” the restraint (CPLR 5222[h] ). Otherwise, the statute excludes from restraint an amount that corresponds to 90% of 60–days wages under the federal or state minimum wage laws, whichever is greater, to be periodically adjusted—$1,740 as of July 2009 (CPLR 5222 [i] ).
In addition to limiting the scope of a restraint, the EIPA added new notification and claim procedures in CPLR 5222–a intended to educate judgment debtors concerning the types of funds that are exempt from restraint or execution in order to facilitate the filing of exemption claims. A judgment creditor restraining a bank account (in anticipation of a sheriff's execution by levy or court-ordered transfer of assets) must serve the bank with specific forms: two copies of the restraining notice, an exemption notice and two exemption claim forms (CPLR 5222–a [b][11] ). The restraint is void if the judgment creditor fails to provide these documents to the bank; in that event, the bank “shall not restrain the account” (CPLR 5222–a [b][1] ), nor can the bank charge fees associated with a restraint (CPLR 5222[j] ).
CPLR 5222–a also imposes a new obligation on financial institutions because it compels banks to mail to judgment debtors (the account holders) copies of the exemption notices and exemption claim forms received from judgment creditors (CPLR 5222–a [b][3] ). The statute states, however, that “[t]he inadvertent failure by a depository institution to provide the notice required ... shall not give rise to liability on the part of the depository institution” (CPLR 5222–a [b][3] ). The notice advises the judgment debtor that the bank account is being restrained, describes the categories of funds that are exempt from restraint, and provides information concerning how to seek vacatur of the money judgment to avoid a subsequent transfer of the funds to the judgment creditor (CPLR 5222–a [b][4][a] ). The exemption claim form lists specific income sources that are not subject to restraint or execution (such as Social Security benefits, unemployment insurance, child support, veteran's benefits, etc.) and directs the debtor to check the box next to any applicable exempt funds that have been deposited in the account (CPLR 5222–a [b][4][b] ). The debtor is then advised to return one copy of the claim form to the bank and the other to the creditor (or its representative) within 20 days (CPLR 5222–a [b][4][b] ). If 25 days have elapsed and the bank has not received an exemption claim form from the judgment debtor, all funds in the account in excess of the applicable statutory minimum remain subject to the restraining notice (CPLR 5222–a [c] [5] ). However, a failure to return the claim form may not be interpreted as a waiver of any exemption the judgment debtor may possess ( seeCPLR 5222–a [h] ).
Upon receipt of an exemption claim form from the account holder, the bank must notify the judgment creditor “forthwith” of the exemption claim and the creditor then has eight days to object (CPLR 5222–a [c][2], [3] ). If no objection is lodged, the restraint is lifted with respect to the disputed funds and the monies are released to the judgment debtor (CPLR 5222–a [c][3] ). To object to an exemption claim, the creditor must timely commence a special proceeding under CPLR 5240, serving papers on both the debtor and the bank before the expiration of the eight-day objection period (CPLR 5222–a [d] ). Within seven days of commencement of the proceeding, a hearing is to be held before a court, resulting in issuance of a judicial decision no later than five days after the hearing (CPLR 5222–a [d] ). In the meantime, the bank is required to hold the disputed funds for 21 days unless a court order directs otherwise; if 21 days pass and no judicial resolution of the exemption issue is forthcoming, the bank must release the disputed funds to the judgment debtor (CPLR 5222–a [e] ). Another subdivision imposes special liability upon judgment creditors that object to exemption claims in bad faith (CPLR 5222–a [g] ).
The EIPA did not alter the preexisting provisions in CPLR article 52 permitting the commencement of special proceedings whereby creditors, debtors and “any interested person” can adjudicate disputes over the ownership of income or property (CPLR 5239, 5221), nor did it restrict the power of the court to “make an order denying, limiting, conditioning, regulating, extending or modifying the use of any enforcement procedure” (CPLR 5240).
The Federal Litigation:
The certified questions before us arose from two separate federal lawsuits— Cruz v. TD Bank, N.A. and Martinez v. Capital One, N.A. Both actions were initiated by judgment debtors who brought putative class actions seeking injunctive relief and money damages against their banks based on allegations that accounts they held at New York branches were restrained in violation of the EIPA. In Cruz, plaintiffs alleged that, when restraining notices were sent to the bank, the judgment creditors failed to include the exemption notices and claim forms that were required under CPLR 5222–a and, as a consequence, TD Bank never forwarded these forms to plaintiffs. They claimed that the bank nonetheless restrained the funds in their accounts, and charged them related bank fees, in violation of statutory requirements. The Martinez plaintiffs similarly contended that Capital One did not forward the required exemption notices and claim forms, also asserting other violations of the EIPA. As redress for these alleged wrongs, plaintiffs sought monetary damages, including reimbursement of funds restrained and disbursed in error as well as any consequential damages caused by the lack of access to funds. In each case, plaintiffs alleged that the respective financial institutions employed a general practice of...
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