12-1342-CV IN THE

United States Court of Appeals FOR THE SECOND CIRCUIT

GERALDO F. MARTINEZ, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,

JOSEPH CUMMINGS, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,

Plaintiffs-Appellants,

v.

CAPITAL ONE BANK, N.A.,

Defendant-Appellee.

On Appeal from the United States District Court for the Southern District of New York (New York City)

BRIEF OF AMICI CURIAE AARP, DISTRICT COUNCIL 37 MUNICIPAL EMPLOYEES LEGAL SERVICES, THE LEGAL AID SOCIETY, LINCOLN SQUARE LEGAL SERVICES, INC., MFY LEGAL SERVICES, NEIGHBORHOOD ECONOMIC

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

IN SUPPORT OF PLAINTIFF-APPELLANT AND ARGUING FOR REVERSAL Gina. M. Calabrese Claudia E. Wilner St. Vincent de Paul Legal Program, Inc. Neighborhood Economic Elder Law Clinic Development Advocacy Project Inc. St. John’s University School of Law 176 Grand Street, Suite 300 8000 Utopia Parkway New York, NY 10013 Jamaica, NY 11435 (212) 680-5100 (718) 990-6689 Attorney for Amicus Curiae Movants Attorney for Amicus Curiae Movants June 28, 2012

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Table of Contents

Table of Authorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii-iii

Corporate Disclosure Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .v-xii

Interest of Amici Curiae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Argument. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 I. BACKGROUND: THE HISTORY AND IMPORTANCE OF THE

EXEMPT INCOME PROTECTION ACT (EIPA). . . . . . . . . . . . . . .2

II. INDIVIDUAL ACCOUNTHOLDERS HAVE A PRIVATE RIGHT OF ACTION AGAINST BANKS THAT FAIL TO COMPLY WITH EIPA. . . 7

A. CPLR 5239 Permits Accountholders to Sue Banks for Wrongful Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

B. An Accountholder Is Not Limited to a Special Proceeding under CPLR 5239, But May File A Plenary Action for Wrongful Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

III. THE COURT SHOULD RECOGNIZE AN IMPLIED PRIVATE RIGHT OF ACTION FOR VIOLATIONS OF EIPA. . . . . . . . . . . . . . . . . 14

A. A Private Right of Action Against Banks Under EIPA is Consistent with Existing Enforcement Mechanisms. . . . . . . . . . .16

B. The Legislative History of EIPA Supports Recognition of A Private Right of Action Against Banks. . . . . . . . . . . . . . . . . . . . . 22

IV. THE DISTRICT COURT ERRED IN DISMISSING PLAINTIFFS’

NEGLIGENCE CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

Certificate of Compliance with FRAP 32(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

ii

Table of Authorities

Federal Cases Cruz v. TD Bank, __ F.Supp.2d __, 2012 WL 694267 (S.D.N.Y. March 2, 2012)..8, 17, 24 Johnson v. Chemical Bank, 1996 U.S. Dist. LEXIS 18027 (S.D.N.Y. Dec. 6, 1996) (Sotomayor, J.) ................................................................................................. 8-9, 27 Jonas v. Citibank, 414 F. Supp. 2d 411, 418 (S.D.N.Y. 2006) ................................. 9 Martinez v. Capital One, __ F.Supp.2d __, 2012 WL 1027571, at *6 (S.D.N.Y.

March 27, 2012) ............................................................................. 8, 10, 17, 18, 22 New York State Cases Aspen Industries, Inc. v. Marine Midland Bank, 52 N.Y.2d 575, 580 (1981) . 12, 27 Brian Hoxie’s Painting Co. v. Cato Meridian Cent. School Dist., 76 N.Y.2d 207,

212 (1990) .............................................................................................................15 Burns Jackson Miller Summit & Spitzer v. Linder, 59 N.Y.2d 314, 325 (1983).....15 Mark G. v. Sabol, 93 N.Y.2d 710, 720-21 (1991) ...................................... 15, 17, 19 Sheehy v. Big Flats Community Day, 73 N.Y.2d 629, 633 (1989) ....... 15, 19, 20, 26 Uhr v. East Greenbuxh Cent. School Dist., 94 N.Y.2d 32 (1999) ........ 17, 18, 19, 20 Accounts Receivable Solutions, Inc. v. Tompkins Trustco, Inc., 45 A.D.3d 612; 846

N.Y.S.2d 272 (2d Dep't 2007)........................................................................ 13, 26 Doe v. Roe, 190 A.D.2d 463, (4th Dep’t 1993) .......................................... 17, 20, 25 Henry v. Isaac, 214 A.D.2d 188, 193 (2d Dep’t 1995) ...........................................21 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) ............................................................................... 8 Nejeidi v. Republic Bank of N.Y., 227 A.D.2d 392; 642 N.Y.S.2d 61, 62 (2d Dep’t

1996) ........................................................................................................... 8, 11, 27 Teller v. Hernandez, 24 Misc.3d 143(A), (Table), 2009 WL

2477931 (N.Y.App.Term 1st Dep’t.. 2009) ............................................................ 3 Contact Resource Services, LLC v. Gregory, 10 Misc.3d 968, 972, 806 N.Y.S.2d

407, 409- 10 (N.Y.City Ct., Rochester 2005) .....................................................3, 4 Security Trust Co. of Rochester v. Magar Homes, 92 A.D.2d 714; 461 N.Y.S.2d

103 (4th Dep't 1983).................................................................................. 12, 26-27 Schaeffer v. Chem. Bank, 107 Misc. 2d 548, 435 N.Y.S.2d 474 (Dist. Ct. Suffolk

County Dec. 2, 1980) ..................................................................................... 11, 27 Lincoln Financial Services, Inc. v. Miceli, 17 Misc.3d 1109(A), 851 N.Y.S.2d 58

(Table), 2007 WL 2917242 (N.Y. Dist.Ct. Nassau 2007) .................................3, 4 Commodore Factors Corp. v. Habib Am. Bank, 2011 NY Slip Op 31297U, 2011

N.Y. Misc. LEXIS 2338 (Sup. Ct. N.Y. County May 17, 2011) ..........................13

iii

Cordova v. Bank of America, 2009 N.Y. Misc. LEXIS 5511; 2009 NY Slip Op 31682U (Sup. Ct. Suffolk County, July 13, 2009) ........................................ 12, 27

USA Auto Funding v. Washington Mutual, Inc., 12 Misc. 3d 1162A, 819 N.Y.S.2d 213 (Sup. Ct. Nassau County 2006) ......................................................................13

Jackson v. TD Bank, 28 Misc. 3d 1222A (Civ. Ct. Kings County 2010) ................13 Mazzuka v. Bank of North America, 53 Misc. 2d 1053, 280 N.Y.S.2d 495 (Civ. Ct.

Queens County 1967) ............................................................................... 12, 13, 27 Walter v. Citibank, 93 Misc. 2d 286; 402 N.Y.S.2d 723 (Civ. Ct. NY County 1978)

................................................................................................................................. 2 Walter v. Doe, 93 Misc. 2d 286 (Civ. Ct. N.Y. Cty. 1978) .....................................10 Remo Drug Corp. v. State of N.Y., 145 Misc. 2d 300, 546 N.Y.S.2d 529 (Ct. of

Claims 1989) .................................................................................................. 13, 27 Syndicate Building Corp. v. City Univ. of N.Y., 151 Misc. 2d 492; 573 N.Y.S.2d

386 (Ct. of Claims 1991) .......................................................................................13 Broome v. Citibank, 166 Misc. 2d 283, 632 N.Y.S.2d 410 (Civ. Ct. Queens County

1995) ......................................................................................................................13 Chase Bank USA, N.A. v. Greene, 24 Misc.3d 1233(A), 901 N.Y.S.2d 898 (Table),

2009 WL 2432347 (Civ. Ct. Queens County 2009) ..................................... 1,2, 15 Statutes 29 U.S.C. § 1051(6), ................................................................................................. 3 29 U.S.C. § 1056(d)(1)............................................................................................... 3 38 U.S.C. § 5301(a)(1) ............................................................................................... 2 42 U.S.C. § 407(a). .................................................................................................... 2 Cal.C.C.P. § 700.140 (d) ..........................................................................................24 Conn. Gen. Stat. § 52-367b(n)(2009) ......................................................................23 N.Y. C.P.L.R. § 103 .................................................................................................10 N.Y. C.P.L.R. § 5205(l) ............................................................................................. 5 N.Y. C.P.L.R. § 5205 (l)(3) ....................................................................................... 6 N.Y. C.P.L.R. § 5222(h) ..........................................................................................28 N.Y. C.P.L.R. § 5222(i) .......................................................................................5, 28 N.Y. C.P.L.R. § 5222(j) ............................................................................................. 5 N.Y. C.P.L.R. § 5222-a .............................................................................................. 7 N.Y. C.P.L.R. § 5222-a(b) ......................................................................................... 5 N.Y. C.P.L.R. § 5222-a(b)(3) ....................................................................... 6, 20, 25 N.Y. C.P.L.R. § 5222-a(g) .......................................................................................24 N.Y. C.P.L.R. § 5222-a(h) .......................................................................................20 N.Y. C.P.L.R. § 5222-a(3) .......................................................................................29 N.Y. C.P.L.R. § 5225 ........................................................................................ 12, 14

iv

N.Y. C.P.L.R. § 5227 ........................................................................................ 12, 14 N.Y. C.P.L.R. § 5239 .............................................. 7, 8, 9, 10, 11, 14, 18, 20, 22, 23 N.Y. Lab. Law § 595(b) ......................................................................................... 2-3 N.Y. Soc. Serv. Law § 137 ........................................................................................ 3 Other Authorities Assembly Sponsor’s Letter in Support (Assembly Bill 8527) .................................. 4 Jane J. Kim, Banks Boost Fees to Record Highs (Nov. 12, 2008),

http://online.wsj.com/article/SB122645109077719219.html ................................. 4 John Infranca, Safer Than the Mattress? Protecting Social Security Benefits from

Bank Freezes and Garnishments, 83 St. John's L. Rev. 1127, 1158 (Fall 2009) ..1, 2, 5-6

N.Y. State Senate Mem. in Supp. of Legis. ............................................................... 3 New York State Assembly Bill A08527, 2007 – 2008 Regular Session ................... 6

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CORPORATE DISCLOSURE STATEMENT OF AARP

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, and Experience in Action, d/b/a/, Experience Corps. AARP has no parent corporation, nor has it issued shares or securities. Dated: June 28, 2012 Washington, D.C.

Stuart R. Cohen Attorney AARP Foundation 601 E Street, N.W. Washington, D.C. 20049 202-434-2079

vi

CORPORATE DISCLOSURE STATEMENT OF DC 37 MUNICIPAL EMPLOYEES LEGAL SERVICES

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. Dated: June 28, 2012 New York, New York

Robert A. Martin Associate Director DC 37 Municipal Employees Legal Services 125 Barclay Street New York, NY 10007 (212) 815-1810

vii

CORPORATE DISCLOSURE STATEMENT OF LINCOLN SQUARE LEGAL SERVICES, INC.

The organizational amicus curiae—Lincoln Square Legal Services, Inc. —is the non-profit non-stock corporation through which Fordham University School of Law runs its clinical legal education program. It has no parent corporations, no publicly held corporations have ownership interests in it, and it has not issued shares. Dated: July 28, 2008 New York, New York /s/ Marcella Silverman

Marcella Silverman

Supervising Attorney

Lincoln Square Legal Services, Inc. 33 West 60th Street

New York, New York 10023

(212) 636-7353

viii

CORPORATE DISCLOSURE STATEMENT OF MFY LEGAL SERVICES, INC.

MFY Legal Services, Inc., an organizational amicus curiae, is a non-profit, non-stock corporation. It has no parent corporations, no publicly held corporations have ownership interests in it, and it has not issued shares. Dated: June 28, 2012 New York, New York

__/s/______________________

Jeanette Zelhof, Esq. Executive Director MFY LEGAL SERVICES, INC. 299 Broadway, 4th Floor New York, NY 10007 Tel: 212-417-3701

ix

CORPORATE DISCLOSURE STATEMENT OF NEIGHBORHOOD ECONOMIC DEVELOPMENT ADVOCACY PROJECT, INC.

Neighborhood Economic Development Advocacy Project, Inc. (NEDAP), an organizational amicus curiae, is a non-profit, non-stock corporation. It has no parent corporations, no publicly held corporations have ownership interests in it, and it has not issued shares. Dated: June 28, 2012 New York, New York

Co-Director NEDAP 176 Grand Street, Suite 300 New York, NY 10013 (212) 680-5100

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CORPORATE DISCLOSURE STATEMENT OF THE LEGAL AID SOCIETY

The Legal Aid Society, an organizational amicus curiae, is a non-profit, non-stock corporation. It has no parent corporations, no publicly held corporations have ownership interests in it, and it has not issued shares. Dated: June 28, 2012 New York, New York

_/s/_Tashi T. Lhewa___

Tashi T. Lhewa, Esq. Staff Attorney The Legal Aid Society 120-46 Queens Blvd. 3rd Fl. Kew Gardens, NY 11415 (718) 286-2474

xi

CORPORATE DISCLOSURE STATEMENT OF THE ST. VINCENT DE PAUL LEGAL PROGRAM, INC.

The St. Vincent de Paul Legal Program, Inc., an organizational amicus curiae, is a non-profit, non-stock corporation. It has no parent corporations, no publicly held corporations have ownership interests in it, and it has not issued shares. Dated: June 28, 2012 Jamaica, New York

/s/ Gina M. Calabrese

Gina M. Calabrese Professor of Clinical Education and Associate Director, Elder Law Clinic St. John's University School of Law 8000 Utopia Parkway Queens, NY 11439 718-990-6689

xii

CORPORATE DISCLOSURE STATEMENT OF URBAN JUSTICE CENTER

Urban Justice Center, an organizational amicus curiae, is a non-profit, non-stock corporation. It has no parent corporations, no publicly held corporations have ownership interests in it, and it has not issued shares. Dated: June 28, 2012 New York, New York

_/s/ Harvey Epstein _

HARVEY EPSTEIN Project Director, Community Development Project of the Urban Justice Center 123 William Street, 16th

New York, NY 10038 Floor

(646) 459-3002

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INTEREST OF AMICI CURIAE

Amici curiae DC 37 Municipal Employees Legal Services, The Legal Aid

Society, Lincoln Square Legal Services, Inc., MFY Legal Services, Inc., NEDAP,

St. Vincent DePaul Legal Program, Inc. (Elder Law 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.1

Amicus AARP is the largest national non-partisan, non-profit organization

representing the interests of older Americans. Amici regularly advocate for people

with exempt income whose bank accounts were unlawfully restrained by debt

collectors. 2

Amici urge the Court to reverse the District Court’s decision and to

conclude that an accountholder has a private right of action, which is well-

Nearly all amici were active in facilitiating passage of the Exempt

Income Protection Act (EIPA), are intimately familiar with its content and

legislative history and with the issues before the Court. This brief addresses the

issue of whether an accountholder has a private right of action against a bank for

violating EIPA and the broad impact this Court’s decision will have on millions of

New Yorkers.

1 As Local Rule 29.1(b) requires, Amici disclose that no party or party's counsel authored any part of this brief or contributed money intended to fund preparing or submitting this brief; Amici counsel alone authored this brief; and only Amici, their members or counsel contributed money intended to fund preparing or submitting this brief. 2 Each organization’s Statement of Interest appears as Appendix 1 hereto.

2

supported by precedent and important to effectuate the consumer protection

purposes of EIPA.

ARGUMENT

I. THE HISTORY AND IMPORTANCE OF EIPA

EIPA is among the most important consumer protection measures enacted

by the New York State Legislature in the last decade. Exempt Income Protection

Act, Ch. 575, 2008 N.Y. Laws 4085 (sections included throughout Article 52 of

the CPLR). Prior to enactment of this landmark law, thousands of elderly, disabled,

and low-income New Yorkers suffered needlessly when their subsistence income,

while exempt from debt collection, was wrongly restrained by debt collectors,

leaving them without funds for rent, food, and medicine.3

New York and Federal laws exempt many forms of income from debt

collection.

4

3 See Chase Bank USA, N.A. v. Greene, 24 Misc.3d 1233(A)(Table) (Civ. Ct. Queens Cty 2009)

Their purpose is “to ensure that safety-net income is not diverted from

(“EIPA was enacted to eliminate the problems created for low income New Yorkers by the restraint of their bank accounts, some of which have been documented by the courts.”) See also John Infranca, Safer Than the Mattress? Protecting Social Security Benefits from Bank Freezes and Garnishments, 83 St. John's L. Rev. 1127, 1130 (“Since these benefits often play an essential role in enabling a recipient to meet his or her basic needs, even a brief interruption in access can cause substantial hardships. 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.”). 4 Creditors cannot seize Social Security and Supplemental Security Income (42 U.S.C. § 407(a)), veteran’s benefits (38 U.S.C. § 5301(a)(1)), unemployment insurance benefits (N.Y. Lab. Law § 595(b)), pensions (29 U.S.C. §§ 1051(6), 1056(d)(1)), public assistance (N.Y. Soc. Serv. Law § 137), or child support (N.Y. C.P.L.R. § 5205(d)(3)), among other benefits (Id. § 5205(d)). State law also exempts 90% of earned income. Id. § 5205(d)(1).

3

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

resources needed for food, rent, medicine and other basic necessities.” N.Y. State

Senate Mem. in Supp. of Legis. at 4 ( “Senate Mem.”), attached as Appendix 2.

Despite these long-standing exemption laws, before EIPA was enacted, debt

collectors regularly and unlawfully froze bank accounts containing legally exempt

income without notice to accountholders. The pre-EIPA version of Civil Practice

Law and Rules (CPLR) Section 5222 required that banks comply with restraining

notices, without qualifying that banks must also protect exempt funds from

restraint. This loophole allowed for an interpretation whereby debt collection

attorneys could restrain – and even levy – accounts containing exempt funds. See

Teller v. Hernandez, 24 Misc. 3d 143(A)(Table), (App. Term 1st Dep’t 2009);

Contact Resource Services, LLC v. Gregory, 10 Misc.3d 968, 972,(City Ct.

Rochester 2005); Lincoln Financial Services, Inc. v. Miceli, 17 Misc. 3d 1109(A),

(Table), (Dist. Ct. Nassau Cty Oct. 9, 2007).

The burden was placed on the accountholder to come forward and

demonstrate that the account contained exempt funds. Unfortunately, the

procedures for claiming an exemption were too complex for most people to

navigate alone, and these judgment debtors could not afford counsel. Many

elderly, disabled and low-income accountholders lost permanent access to their

bank accounts and the exempt funds they contained, including future automatic

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deposits of exempt funds. Others who managed to follow the procedures were still

deprived for at least several weeks while their claims were resolved, of funds

needed for rent, food, medicine, utilities, transportation, and other necessary

expenses. Even after their accounts were released, these needy New Yorkers lost

hundreds of dollars to bank fees, overdraft fees, and bounced-check fees.5

The impact on low-income New Yorkers was devastating and put families

in peril of eviction, hunger, illness, and loss of utilities. New York courts

recognized the problem. See Contact Resource Services, LLC v. Gregory, 10

Misc.3d 968, 972, 806 N.Y.S.2d 407, 410 (finding that when a bank account

contains exempt funds, a “Restraining Notice serves only to harm particularly

vulnerable individuals who. . . depend upon immediate and regular access to their

exempt Social Security funds to maintain their lives . . . .”). See also Lincoln

Financial Services, Inc. v. Miceli, 17 Misc.3d 1109(A), 851 N.Y.S.2d 58 (Table),

2007 WL 2917242. The Legislature recognized the problem, too, and determined

to alleviate this hardship legislatively. Appendix 2, Senate Mem. at 4; Sponsor’s

Letter in Support of A08527 dated July 29, 2008 (“Sponsor’s Letter”), attached as

Appendix 3. EIPA was passed in 2008 and took effect in January 2009. Under

5 The collection of these 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, Nov. 12, 2008 http://online.wsj.com/article/SB122645109077719219.html, accessed on June 21, 2012.

5

EIPA, banks cannot restrain accounts that receive directly deposited exempt

benefits and contain $2,500 or less. CPLR 5205(l) and (h). Nor may they freeze

any personal account that contains $1,740 – the current amount of minimum wage

income that is protected under all circumstances – or less. CPLR 5222(i). If an

account contains more than these protected amounts, the bank may restrain only

the excess, leaving the protected amount in the account. CPLR 5222 (h) and (i).

EIPA also established a streamlined procedure for claiming an exemption when

accounts contain exempt funds in excess of the threshold amounts. CPLR 5222-a.

Judgment creditors must provide the bank with two copies each of an exemption

notice that informs the accountholder what kinds of income are exempt, and an

exemption claim form whereby the accountholder may assert that the funds in an

account are all exempt, triggering the account’s release. CPLR 5222-a(b). Failure

to serve the exemption forms with the restraining voids the restraining notice, and

the bank may not restrain the account and may not charge any fees. CPLR 5222-

a(b) andCPLR 5222(j).

EIPA imposed on banks clear statutory duties not to restrain exempt funds

below certain threshold amounts and not to restrain an account at all unless the

judgment creditor complies with certain notice requirements. CPLR 5205(l) and

(h)-(i) and CPLR 5222-a(b).

6

Banks, through the New York Bankers Association, initially opposed

EIPA, but supported it once certain amendments were made. See John Infranca,

Safer Than the Mattress? Protecting Social Security Benefits from Bank Freezes

and Garnishments, 83 St. John’s L. Rev. 1127, 1158 (Fall 2009). Banks were

particularly concerned about the short deadlines the bill imposed, and lobbied for a

“safe harbor” provision, which provides: “The 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.” CPLR 5222-a(b)(3). Compare

New York State Assembly Bill A08527, 2007-2008 Regular Session, Feb. 5, 2008

(no “safe harbor” language), attached as Appendix 4 to CPLR 5222-a (b)(3).

Since EIPA took effect, most New Yorkers need not fear losing access to all

funds in their bank accounts. However, there are circumstances, including those

presented in the underlying case, in which some banks, including the Defendant-

Appellee, are not complying with EIPA. Some banks regularly and flagrantly flout

EIPA by honoring restraining notices unaccompanied by the requisite exemption

claim forms, and by charging accountholders unlawful restraint-related fees.

Defendant-Appellee actions violate the letter as well as the spirit of the law, which

was intended to prevent judgment creditors from taking “safety-net income from

New Yorkers living on the margins.” Appendix 2, Senate Mem. at 5. These

violations cause actual monetary losses – damages – to accountholders who lose

7

access to their funds. Banks fees levied because of garnishment are a significant

part of the losses. Accountholders must have a remedy when banks violate EIPA if

the law is to function as the Legislature intended.

II. INDIVIDUAL ACCOUNTHOLDERS HAVE A PRIVATE RIGHT OF ACTION UNDER CPLR 5239 AND COMMON LAW AGAINST BANKS THAT FAIL TO COMPLY WITH EIPA

The District Court erred when it concluded, based on a misreading of the

CPLR and EIPA’s legislative history, that an accountholder has no private right of

action against a bank that fails to comply with EIPA. The court correctly noted

that EIPA did not contain an express private right of action against a bank for

failure to comply with the statute. However, EIPA did not expressly provide a

new private right of action because a private right of action already existed

pursuant to CPLR 5239 and New York common law. Furthermore, if a bank

breaches the legal duty to accountholders to protect exempt funds from

garnishment, the accountholder suffering the harm may file a plenary action

against the bank for money damages and other appropriate relief.

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

CPLR 5239’s plain language permits a judgment debtor to institute a special

proceeding against a bank that fails to comply with EIPA.6

6 N.Y. CPLR 5239 (“Proceeding to determine adverse claims. Prior to the application of property or debt by a sheriff or receiver to the satisfaction of a judgment, any interested person

First, the statute allows

8

“any interested person” to commence a special proceeding. Id. Second, it allows

the judgment debtor to commence the special proceeding against the judgment

creditor “or other person with whom a dispute exists,” which includes a bank that

has restrained exempt funds in violation of EIPA. Id. 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. Finally, the statute authorizes the court to award a wide range of

remedies, including damages and injunctive relief, as the plaintiffs seek in this

case.

As the District Court acknowledged, “several cases suggest that the ‘special

proceeding’ remedy is available to compel garnishee banks to adhere to their

obligations under EIPA.” Martinez v. Capital One, __ F.Supp.2d __, 2012 WL

1027571, at *6 (S.D.N.Y. March 27, 2012) (citing cases). In In the Matter of

Sharon Towers v. Bank Leumi Trust Co., 250 A.D.2d 509 (1st Dep’t 1998), a

judgment debtor’s alleged alter ego brought a 5239 claim against a bank to

challenge the restraint on its bank accounts; the court held that the case should go

forward. In Nejeidi v. Republic Bank of N.Y., 227 A.D.2d 392 (2d Dep’t 1996), an

accountholder brought a 5239 action against a bank for wrongful restraint of a

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.”).

9

bank account; the court vacated the restraint after a nonjury trial. In Johnson v.

Chemical Bank, 1996 U.S. Dist. LEXIS 18027 (S.D.N.Y. Dec. 6, 1996)

(Sotomayor, J.), the plaintiff filed a 1983 action against a bank, alleging improper

restraint of exempt funds. In dismissing the constitutional claims, the court noted,

“Plaintiff’s remedy, if at all, may be in a state court action under CPLR 5239 to

challenge The Bank of New York’s entitlement to restrain his accounts.” Id. at

*11 n.2. In Jonas v. Citibank, 414 F. Supp. 2d 411, 418 (S.D.N.Y. 2006), another

judgment debtor sued a bank for wrongful restraint of exempt funds, and the court

explained, “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.” To amici’s knowledge, there are no reported cases holding that

such a claim cannot be brought.

As demonstrated above, both the statute’s plain language and all available

case law support an accountholder use of CPLR 5239 to sue a bank for wrongful

restraint.

B. An Accountholder Is Not Limited to a Special Proceeding under CPLR 5239, But May File A Plenary Action for Wrongful Restraint

An accountholder who sues a bank for wrongful restraint is not limited to a

special proceeding pursuant to CPLR 5239. To the contrary, all available case law

indicates that an accountholder may file a plenary action against a bank instead.

Indeed, the CPLR provides that actions and special proceedings should be treated

10

identically and empowers courts to convert actions to special proceedings and vice

versa. See N.Y. CPLR 103. The District 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. Martinez, 2012 WL 1027571

at *7.

The few reported decisions in cases against banks for wrongful restraint all

indicate that an accountholder may file a plenary action against a bank. For

example, in Walter v. Doe, 93 Misc. 2d 286 (Civ. Ct. N.Y. Cty. 1978), two joint

accountholders sued a a bank in negligence for wrongfully restraining their

account. The court denied the bank’s motion for summary judgment, holding that

factual questions remained as to whether the bank had acted negligently in

processing the restraining notice, and expressly stating that a bank can be held

liable for erroneously restraining an account when it had reason to know of the

error. Id. In Schaeffer v. Chem. Bank, 107 Misc. 2d 548 (Dist. Ct. Suffolk County

Dec. 2, 1980), an accountholder likewise brought a negligence action against a

bank for wrongful restraint. The court granted the bank’s motion for summary

judgment on the ground that the bank was not negligent in restraining the account.

Nowhere did the court suggest that the plaintiff had no cause of action or that the

plaintiff should have brought a CPLR 5239 special proceeding instead. In Nejeidi,

after prevailing in the special proceeding, the accountholder filed a plenary action

11

for damages against the bank that had restrained his accounts. 227 A.D.2d at 393.

The court dismissed the action on res judicata grounds, holding that the claim for

money damages should have been asserted in the prior proceeding. 227 A.D.2d at

393. The court did not state that the accountholder could bring only a 5239

proceeding, but rather that the plaintiff could not relitigate a claim that involved

the same parties, arose from the same transaction, and had already been reduced to

final judgment. Id. There are no reported cases holding that a plaintiff cannot sue

a bank for wrongful restraint of an account or that such claims may only be

brought in 5239 special proceedings.

Furthermore, a substantial body of case law governs a related scenario: suits

brought by judgment creditors against banks that fail to honor a restraining notice

or execution. Under these circumstances, New York courts – including New

York’s highest court – have held consistently that plaintiff may choose between an

Article 52 special proceeding, typically under CPLR 5225 or 5227, and a plenary

action. Aspen Industries, Inc. v. Marine Midland Bank, 52 N.Y.2d 575, 580 (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.”) (emphasis added). In the leading case, Mazzuka v. Bank of

North America, 53 Misc. 2d 1053, 280 N.Y.S.2d 495 (Civ. Ct. Queens Cty. 1967),

12

a judgment creditor sued a bank for failing to honor a restraining notice, seeking as

damages the money that the bank had released to the judgment debtor. The court

considered whether the plaintiff could sue the bank in this manner or was instead

limited to a contempt action. After reviewing the statute, legislative history, and

relevant case law, the court concluded that the plaintiff had a right to bring a

plenary action against the bank for damages. Mazzuka has been followed many

times. See, e.g., Aspen Industries, 52 N.Y.2d at 580; Security Trust Co. of

Rochester v. Magar Homes, 92 A.D.2d 714 (4th Dep’t 1983) (“In addition to the

penalty of contempt, violation of CPLR 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.’”); Cordova v. Bank of

America, Index No. 35432-2008, 2009 N.Y. Slip Op. 31682(U), 2009 WL

2364010, at*4 (Sup. Ct. Suffolk Cty., 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 1162A, 819 N.Y.S.2d 213 (Sup. Ct. Nassau

Cty. 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.”); see also Broome v. Citibank, 166 Misc. 2d 283 (Civ. Ct.

13

Queens Cty. 1995); Syndicate Building Corp. v. City Univ. of N.Y., 151 Misc. 2d

492 (Ct. of Claims 1991); Remo Drug Corp. v. State of N.Y., 145 Misc. 2d 300 (Ct.

of Claims 1989). Other courts have not specifically cited Mazzuka, but have come

to similar conclusions. See, e.g., Accounts Receivable Solutions, Inc. v. Tompkins

Trustco, Inc., 45 A.D.3d 612 (2d Dept. 2007); Commodore Factors Corp. v. Habib

Am. Bank, 2011 NY Slip Op 31297U, 2011 N.Y. Misc. LEXIS 2338 (Sup. Ct.

N.Y. Cty. May 17, 2011); Jackson v. TD Bank, 28 Misc. 3d 1222A, 2010 WL

3221569 (Civ. Ct. Kings Cty., Aug. 9, 2010). No court has held that a judgment

creditor may not file such claims against a bank or that they must be brought in

Article 52 special proceedings.

The claims in the cases above, finding that a judgment creditor may sue a

bank for negligently failing to honor an enforcement mechanism, arose under

CPLR 5225, 5227, or 5239. These sections all authorize special proceedings to

determine rights in property after entry of a money judgment, and are extremely

similar. By contrast, CPLR Article 78 governing appeals of final administrative

agency decisions, clearly mandates use of special proceedings to the exclusion of

plenary actions: “Relief previously obtained by writs of certiorari to review,

mandamus or prohibition shall be obtained in a proceeding under this article.”

N.Y. CPLR 7801 (emphasis added). No such mandate appears in any of the

provisions authorizing Article 52 special proceedings. To the extent that the

14

District Court based its decision on an assumption that Article 52 special

proceedings present an exclusive remedy for banks’ violations of the law

governing restraining notices and executions, and that a judgment debtor could not

challenge a restraining in such a proceeding, the court was incorrect and its

decision should be reversed.

III. THE COURT SHOULD RECOGNIZE AN IMPLIED PRIVATE RIGHT OF ACTION FOR VIOLATIONS OF EIPA

As discussed above, an individual accountholder already has a private right

of action to sue a bank for violating EIPA, in either a special proceeding or a

plenary action for negligence. This Court should also recognize an implied private

right of action under EIPA, which would allow an accountholder to sue a bank

directly for violating EIPA and would provide a wider range of remedies, including

the class-wide declaratory and injunctive relief. Recognition of a private right of

action is not only appropriate given EIPA’s remedial purpose, but entirely

consistent with the legislative scheme.

Where there is no express legislative authorization to sue, the courts must

decide whether the statutory violation gives rise to an independent private cause of

action. Burns Jackson Miller Summit & Spitzer v. Linder, 59 N.Y.2d 314, 325

(1983). The three primary factors to be considered in making such a determination

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

15

promote the legislative purpose; and (3) whether creation of such a right would be

consistent with the legislative scheme.” Sheehy v. Big Flats Community Day, 73

N.Y.2d 629, 633 (1989). The New York Court of Appeals has held that the third

factor is the most critical. Mark G. v. Sabol, 93 N.Y.2d 710, 720-21 (1991); Brian

Hoxie’s Painting Co. v. Cato Meridian Cent. School Dist., 76 N.Y.2d 207, 212

(1990).

In the present case, the first two factors are easily satisfied. First, EIPA was

unquestionably intended to protect judgment debtors who have been subject to

banks’ unlawful restraints of their accounts. See Chase Bank USA, N.A. v. Greene,

24 Misc. 3d 1233(A), 901 N.Y.S.2d at 898. Plaintiffs are of the class for whose

particular benefit the statute was enacted. Second, EIPA’s legislative purpose is to

prevent the seizure of exempt funds in bank accounts and to protect a subsistence

amount of every person’s income “[t]o ensure that money judgments do not render

working New Yorkers unable to care for their or their families’ most basic needs.”

N.Y. State Assembly Mem. in Support of Legislation at 3 (“Assembly Mem.”),

attached as Appendix 5. This lawsuit raises concerns that banks are implementing

EIPA in ways that do not fully protect accountholders’ exempt income. Amici are

familiar with these issues through their work with low-income clients. The banks’

improper implementation of EIPA is evidence that they require some incentive to

give proper effect to the law. The recognition of a private right of action against

16

banks that restrain exempt funds in violation of EIPA would clearly advance this

legislative goal. The test’s third factor formed the basis for the District Court’s

refusal to recognize an implied private right of action against banks for EIPA

violations. The District Court’s decision, however, rested on an incorrect analysis

of the CPLR’s structure and EIPA’s legislative history. In fact, recognizing a

private right of action for judgment debtors against banks who unlawfully restraint

bank accounts is entirely consistent with the legislative scheme.

A. A Private Right of Action Against Banks Under EIPA is Consistent with Existing Enforcement Mechanisms

The question here is whether a private right of action is consistent with

already existing statutory enforcement mechanisms. “A private right of action may

at times further a legislative goal and coalesce smoothly with the existing statutory

scheme.” Uhr v. East Greenbush Cent. School Dist., 94 N.Y.2d 32, 40 (1999)

(citing Doe v. Roe, 190 A.D.2d 463, (4th Dep’t 1993)). Conversely:

A private enforcement mechanism may be consistent with one statutory scheme, but in another the prospect may disserve the goal of consistency – like having two drivers at the wheel. Both may ultimately, at least in theory, promote statutory compliance, but they are born of different motivations and may produce a different allocation of benefits owed to differences in approach.

Id. (citing Mark G. v. Sabol, 93 N.Y.2d 710 (1999)).

17

In both this case and Cruz et al. v. TD Bank, 12-1200-CV, being heard in

tandem with this appeal, the District Courts found that a private right of action

under EIPA would be inconsistent with existing enforcement mechanisms. Both

decisions, however, are fatally flawed because they rely on a misunderstanding of

the remedies actually available to accountholders under Article 52 and New York

common law. The Cruz court held that the available enforcement mechanisms

were limited to special proceedings under Article 52, and that no such special

proceeding was available to a judgment debtor who wished to sue a bank for

damages and injunctive relief. Cruz v. TD Bank, __ F.Supp.2d __, 2012 WL

694267 *9 (S.D.N.Y. March 2, 2012). The Martinez court held that a judgment

debtor could enforce EIPA by bringing an Article 52 special proceeding against a

bank for damages and injunctive relief, but that the judgment debtor’s options were

limited to such proceedings. Both courts then declined to recognize a private right

of action that would go beyond what they deemed the limited enforcement

opportunities provided by the Legislature.

Both courts are mistaken. As discussed above, and as recognized by the

Martinez court, an accountholder may bring a special proceeding against a bank to

enforce EIPA under CPLR 5239, and the court may award damages and injunctive

relief, among other remedies. However, an accountholder may also choose to file

a plenary action for negligence against a bank for wrongful restraint of a bank

18

account. The core assumptions underlying both District Court decisions are simply

incorrect.

This case is unlike those in which courts found that a private right of action

would conflict with the legislative scheme. In Uhr, plaintiff sued a school district

to enforce an education law provision that required districts to conduct scoliosis

testing. The defendant school district had failed to test according to law;

consequently, plaintiff’s scoliosis went undetected until it was difficult and painful

to correct. Uhr, 94 N.Y.2d at 37. In holding that a private right of action would be

inconsistent with the legislative scheme, the court noted that the education law

included a detailed scheme for administrative enforcement, and that in enacting the

statute the Legislature had taken measures to insulate schools from liability and

minimize their costs. Id. at 40-41. The court thus concluded that the Legislature

did not intend to expose school districts to tort liability for a program that greatly

benefited the wider population and would not be feasible if it became too costly.

Id. at 41-42.

Similarly, in Mark G. v. Sabol, plaintiffs were children who had been abused

or neglected in the foster care system. Plaintiffs sued under provisions of the

Social Services Law that did not contain an express private right of action. 93

N.Y.2d at 718. In declining to recognize an implied private right of action, the

19

court noted that the Legislature had created an intricate scheme for administrative

enforcement of the Social Services Law. Id. at 720.

Finally, Sheehy, involved a lawsuit brought by a minor who suffered an

accident after she had been sold alcohol despite a law barring such sales to minors.

73 N.Y.2d at 632. In declining to recognize an implied private right of action, the

court noted that the Legislature had provided a detailed enforcement mechanism

for this statute, including criminal penalties, and civil causes of action for those

injured by the sale of alcohol to minors. The civil causes of action, however,

specifically precluded recovery by the intoxicated minor. The court thus declined

to authorize a cause of action that the Legislature had specifically considered and

rejected. Id. at 635-636.

Here, unlike in Uhr, Mark G., and Sheehy, the Legislature has not provided a

comprehensive enforcement mechanism for EIPA. There is no provision for

administrative enforcement of EIPA or criminal penalties for violations. The

Legislature has not considered and rejected a cause of action against banks. The

only existing enforcement mechanism consists of a private right of action that may

be brought as a CPLR 5239 special proceeding or a negligence action in state

court. EIPA also exempts banks from liability in one very narrow circumstance:

inadvertent failure to send statutorily required notices and forms to the judgment

debtor within two days. See CPLR 5222-a(h).

20

This case is very similar to Doe v. Roe, which the Court of Appeals has cited

as an example of proper judicial recognition of an implied private right of action.

See Uhr, 94 N.Y.2d at 40. In Doe v. Roe, an individual sued a physician who had

disclosed his confidential HIV status to a third party in violation of the Public

Health Law. 190 A.D.2d 468. The statutory provision at issue included criminal

and civil penalties for its violation, but no express private right of action. The

court, however, applying the Sheehy test, allowed a private right of action. First,

the court noted that one part of the statute exempted physicians from liability for

disclosing confidential HIV-related information when disclosure was in good faith,

without malice, and in accordance with the law. Id. at 471. The court reasoned,

“That grant of immunity has meaning only if a cause of action for damages exists

for a violation of [the law].” Id. Likewise, EIPA’s narrow grant of immunity to

banks for failing to send notices within two days, see N.Y. CPLR 5222-a(b)(3),

makes sense only if a cause of action exists for EIPA violations generally. Second,

the court held that a private right of action was consistent with the legislative

scheme because a common-law cause of action already existed for breach of a

physician’s duty of confidentiality. Id. Similarly, with EIPA, recognition of a

private right of action is consistent with common law and merely provides an

additional enforcement mechanism to persons whom the Legislature has already

deemed in need of protection. See also AHA Sales, Inc. v. Creative Bath Products,

21

Inc., 58 A.D.3d 6, 16-17 (2d Dept. 2008) (finding an implied private right of

action); Negrin v. Norwest Mortgage, 263 A.D.2d 39 (2d Dept 1999) (same).

Moreover, to determine whether a private right of action is consistent with

the legislative scheme, the Second Department has held that there must be a

distinction between statutes that are “simply remedial in nature” and those that

afford rights and impose affirmative duties that “inure directly and personally” to a

class of individuals sought to be protected by the statute. Henry v. Isaac, 214

A.D.2d 188, 193 (2d Dep’t 1995). For statutes that create rights for individuals, a

private right of action to seek redress for injury is “not inconsistent with the

legislative scheme,” but would “augment the existing enforcement devices and

enhance a legislative scheme which . . . imposes affirmative duties for the

protection of those very individuals.”7

Although 5239 and New York common law provide a private right of action

to accountholders to sue their banks for EIPA violations, these enforcement

mechanisms are inadequate when applied to banks that, like Defendant in this

case, systematically fail to comply with the law. In amici’s experience, most

Id.

7 Over the years, New York courts have repeatedly found that statutes contain an implied private right of action, even when the statutes provided other express enforcement mechanisms. See, e.g. Negrin v. Norwest Mortgage Inc., 263 A.D.2d 39 (2d Dep’t 1999) (mortgagor had implied private right of action to sue mortgagee for alleged violation of Real Property statute prohibiting mortgagee from charging for mortgage payoff documents in imposing fax and recording fees); Maimonides Medical Center v. First United America Life Ins. Co., 35 Misc. 3d 570 (Sup. Ct. Kings Cty. 2012) (implied private right of action consistent with legislative scheme of the Prompt Pay Law, even though administrative enforcement existed under the Superintendent of the Insurance Department).

22

people affected by banks’ EIPA violations are low-income, unsophisticated, and

unable to afford counsel; many are also elderly and disabled. Therefore, it is

crucially important that an individual can file a class action against the bank

seeking prospective injunctive relief – for the bank to change its policies and

follow the law in the future. It would be almost impossible to bring this type of

case, aimed at ensuring banks’ compliance with a statute meant to protect a

vulnerable class of people, absent a private right of action.

B. EIPA’s Legislative History Supports Recognition of A Private Right of Action Against Banks

In both Cruz and Martinez, the district court concluded that EIPA’s legislative

history did not reveal an intent to expose banks to liability for EIPA violations. In

both instances, the court was incorrect.

The courts relied heavily on the fact that EIPA was modeled in part on a

Connecticut statute that explicitly contains a private right of action against banks,

concluding that the absence of such a provision in the New York statute is

evidence that the New York Legislature did not want to expose banks to liability

for EIPA violations. A closer look at the Connecticut and New York statutes

substantially undermines the courts’ conclusions.

The Connecticut statute does not provide a broad right of action, but rather, a

limited remedy under specific circumstances:

23

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.

Conn. Gen. Stat. 52-367b(n)(2009). The Connecticut statute provides only that a

bank which pays exempt funds from a judgment debtor’s account shall be liable to

the judgment debtor for the amount wrongly paid. The Connecticut statute does

not allow an accountholder to sue for other violations, or to recover for

consequential damages suffered from the bank’s unlawful transfer of exempt

funds. Nor does it allow a court to enter injunctive relief. Thus, the private right of

action the Connecticut Legislature provided is less comprehensive than what was

already available to New York accountholders under CPLR 5239 and common

law. New York’s Legislature had no reason to include a provision within EIPA

similar to the Connecticut “private right of action” because broader relief against

banks was already available to New Yorkers under existing law.

Additionally, the District Courts overlooked the fact that EIPA was also

modeled upon a California law. See Appendix 5, Assembly Mem. at 4.

(“Connecticut and California have recently enacted similar laws to protect their

most vulnerable citizens.”). The California law, however, expressly prohibits a

private right of action against banks for violations. See Cal.C.C.P. § 700.140 (d)

(“During the time the execution lien is in effect, the financial institution is not

24

liable to any person for any of the following: (1) Performance of the duties of a

garnishee under the levy.”). No comparable provision exists in EIPA. That the

New York Legislature declined to adopt the limitation of liability from the

California statute is further evidence that the New York Legislature did not intend

to insulate banks from liability for EIPA violations.

The Cruz court also emphasized that EIPA includes an explicit private right

of action against judgment creditors who make bad faith objections to exemption

claims, but no corresponding provision for liability against banks, citing this

provision, CPLR 5222-a(g). :

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. Cruz v. TD Bank, __ F.Supp.2d __, 2012 WL 694267 *10 (S.D.N.Y. March 2, 2012)

The purpose of 5222-a(g) was to deter judgment creditors from making bad-faith

claims by giving judgment debtors enhanced remedies with extra teeth – statutory

damages and mandatory attorney fees. This extra deterrent was necessary because

of the risk that, without it, judgment creditors would routinely object to exemption

claims even without a good-faith basis for doing so, thus forcing judgment debtors

into court hearings for release of exempt funds and undermining the statute’s

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

the Legislature did not create a parallel provision for accountholders’ claims

25

against banks does not indicate that it wished to insulate banks from all liability,

but only that it did not want to grant accountholders a cause of action against banks

that included statutory damages and mandatory fee awards.

EIPA’s legislative history also demonstrates an awareness that banks could

be held liable for failing to comply with EIPA. As discussed in Part I, the New

York State Bankers Association initially opposed EIPA’s passage because of a

concern about inadvertently missing deadlines. Amended to address this concern,

EIPA includes this narrow safe harbor provision in CPLR 5222-a(b)(3): “The

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.”

As in Doe v. Roe, this provision makes no sense unless the Legislature

contemplated that banks would be liable for EIPA violations in its absence; if there

were no private right of action against banks, there would be no need for a

provision to shield banks from liability. Notably, this provision does not protect

banks from liability for all violations, but merely for inadvertent failures to send

exemption claim forms within two days.

In sum, applying the Sheehy test, plaintiffs qualify as members of the class

for whose benefit EIPA was enacted, the recognition of their right to pursue this

action would promote the legislative purpose, and this right is consistent with

26

EIPA’s statutory scheme. The court should thus conclude that a private right of

action exists.

IV. THE DISTRICT COURT ERRED IN DISMISSING PLAINTIFFS’ NEGLIGENCE CLAIMS

The District Court also erred in failing to recognize that an accountholder

can recover damages from a bank for negligence in restraining exempt funds. As

discussed in Part II, supra, in New York, judgment creditors may recover damages

for negligence when a bank breaches its statutory duty to honor a restraining

notice. Similarly, EIPA imposes a statutory duty on banks not to restrain exempt

funds, which supports a negligence claim by an accountholder whose funds the

bank unlawfully restrained.

New York courts have long held that a judgment creditor may sue a bank for

negligence when the bank erroneously fails to restrain a bank account after

receiving a proper restraining notice. See Accounts Receivable Solutions, Inc. v.

Tompkins Trustco, Inc., 45 A.D.3d 612, 613 (2d Dept. 2007); Security Trust Co. of

Rochester v. Magar Homes, a Div. of R. John Magar and Son Development Corp.

92 A.D.2d 714, 714 (4th Dept., 1983); Remo Drug Corp. v. State of N.Y., 145

Misc. 2d 300 (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 . . . .”); Johnson v. Chemical Bank, 1996 WL 706893, 4 (S.D.N.Y.

27

1996) (Sotomayor, J.); see also Siegel, New York Practice, Fifth Ed. §508 at 890

(2011). The Mazzuka court explains as follows:

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.

53 Misc.2d at 1056. Mazzuka was decided in 1967, and is still followed by New

York courts, including the Court of Appeals. See, e.g., Aspen Industries, 52

N.Y.2d at 580; Cordova v. Bank of America, 2009 WL 2364010.

In pre-EIPA decisions, courts found that banks could be liable to

accountholders for negligently restraining a bank account. See Walter v. Citibank,

93 Misc. 2d 286 (Civ. Ct. NY County 1978) (bank could be found negligent for

restraining accountof a customer who was not the judgment debtor identified in

the restraining notice); Schaeffer v. Chem. Bank, 107 Misc. 2d 548 (Dist. Ct.

Suffolk County Dec. 2, 1980); Nejeidi v. Republic National Bank of New York,

227 A.D.2d 392 (2d Dep’t 1996).

Since EIPA’s enactment, banks have had a clear statutory duty not to

restrain exempt funds that the statute directs them not to restrain. Section 5222(i),

at issue in this appeal, 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.) Similarly, section 5222(h),

28

which protects exempt benefits, commands that “the banking institution shall not

restrain two thousand five hundred dollars in the judgment debtor's account.”

(emphasis added.) These legislative mandates – designed to ensure that even

persons in debt retain enough funds to meet basic needs – are equally as important

as the mandate that requires banks to restrain funds that are lawfully subject to

restraint. Logic and fairness compel a conclusion that a negligence action is

available to a judgment debtor whose bank breaches its statutory duties.

CONCLUSION

Amici urge this court to find a private right of action to enforce EIPA and to

remand this case for further proceedings, or, alternatively, to certify the question of

whether an accountholder has a private right of action against a bank for wrongful

restraint under EIPA to the New York Court of Appeals.

Dated: June 28, 2012

(s) /s/ Gina M. Calabrese (s) /s/ Claudia E. Wilner Gina. M. Calabrese Claudia E. Wilner St. Vincent de Paul Legal Program, Inc. Neighborhood Economic Elder Law Clinic Development Advocacy Project, Inc. St. John’s University School of Law 176 Grand Street, Suite 300 8000 Utopia Parkway New York, NY 10013 Jamaica, NY 11435 (212) 680-5100 (718) 990-6689 Attorney for Amicus Curiae Attorney for Amicus Curiae