senate Bill S4042

Amended

Authorizes the chief administrator of the courts to establish rules for special proceedings authorized under section 9-518 of the uniform commercial code

download pdf

Sponsor

Co-Sponsors

Bill Status


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor
view actions

actions

  • 05 / Mar / 2013
    • REFERRED TO JUDICIARY
  • 16 / Apr / 2013
    • REPORTED AND COMMITTED TO CODES
  • 20 / May / 2013
    • 1ST REPORT CAL.637
  • 21 / May / 2013
    • 2ND REPORT CAL.
  • 22 / May / 2013
    • ADVANCED TO THIRD READING
  • 23 / May / 2013
    • PASSED SENATE
  • 23 / May / 2013
    • DELIVERED TO ASSEMBLY
  • 23 / May / 2013
    • REFERRED TO JUDICIARY
  • 14 / Jun / 2013
    • RECALLED FROM ASSEMBLY
  • 14 / Jun / 2013
    • RETURNED TO SENATE
  • 17 / Jun / 2013
    • VOTE RECONSIDERED - RESTORED TO THIRD READING
  • 17 / Jun / 2013
    • AMENDED ON THIRD READING (T) 4042A
  • 20 / Jun / 2013
    • SUBSTITUTED BY A8013

Summary

Authorizes the chief administrator of the courts to establish rules for special proceedings authorized under section 9-518 of the uniform commercial code relating to wrongful financial statements.

do you support this bill?

Bill Details

See Assembly Version of this Bill:
A7552
Versions:
S4042
S4042A
Legislative Cycle:
2013-2014
Law Section:
Civil Practice Law and Rules
Laws Affected:
Amd §403, CPLR; amd §212, Judy L; add §175.37, Pen L; amd §9-518, UCC

Sponsor Memo

BILL NUMBER:S4042

TITLE OF BILL: An act to amend the civil practice law and rules, the
judiciary law, the penal law and the uniform commercial code, in
relation to wrongful financing statements filed under the uniform
commercial code

This measure is being introduced at the request of the Chief
Administrative Judge to redress "paper terrorism" against judges and
other public servants committed to harass them or to retaliate against
them for discharge of their official duties. This is a growing
problem, not just here in New York{1}, but across the Nation, See
National Association of Secretaries of State, "State Strategies to
Subvert Fraudulent Uniform Commercial Code (UCC) Filings: A Report for
State Business Filing Agencies," available at
http://nass.org/indes.php?option=com content&view=article&id= 329%3
Anews-release-new-ucc-report-aug12&catid=964%3Auncategorized-
news-releases&Itemid=1 (August 27, 2012).

The Uniform Commercial Code ("UCC") Article 9 provides a simple way
for a creditor to record an interest in a debtor's property with the
Department of State ("DOS"), thereby giving notice of that interest to
the debtor's future creditors, Typically such a recording, termed a
"financing statement" by the UCC, covers property purchased under a
security agreement subject to attachment (e.g., a vehicle), and is
necessary for a creditor to assert a claim. With the rise of the
Internet and especially smart-phones, filers instantly can record
financing statements, which promptly become publicly available by
searchable online database. Using this database, financial
institutions, prospective employers and members of the public can
determine whether someone has debts recorded against him or her, and
assess whether he or she may be a sound credit risk.

This UCC recording system, however, has been subject to much abuse.
Often, members of separatist groups asserting sovereign status, prison
inmates and others believing themselves to be victims of unjust
government action use the system to retaliate against or harass the
government officials behind that action. They do this by filing
fraudulent financing statements against those officials thereby
potentially creating serious personal financial difficulties for them.
Such "paper terrorism" can take a variety of forms. These often
include the filing of outright false financing statements, asserting
claims that do not in fact exist. In New York, in particular, they
also may include statements asserting infringement of a copyright
enjoyed in one's name.{2} Moreover, whatever form the fraudulent
filing takes, it invariably runs afoul of the requirement, under UCC
section 9509(a), that an alleged debtor authorize the filing of a
financing statement memorializing a claim against him or her.

Under the UCC as now written, there is no easy means by which to deter
or otherwise prevent such abuse. The DOS must accept each financing
statement filed for recording and subsequently make it available for
public viewing. The result: once a fraudulent financing statement is
recorded - and if sufficient on its face when filed, it must be
recorded - that statement can raise red flags that substantially
prejudice the availability or price of credit, complicate employment
prospects and sully a public servant's reputation.


To combat this abuse, this measure proposes amendments to the Penal
Law and to the UCC. The former (see bill section three) would add a
new section 175.37 to the Penal Law (entitled "Offering a false
instrument for filing in retaliation for the performance of official
duties") to make it a class D felony offense to commit the existing
class A misdemeanor offense of Offering a False Instrument for Filing
in the Second Degree (see Penal Law § 175.30) through the knowing
filing of a fraudulent UCC financing statement that identifies the
debtor as a State or local officer under section two of the Public
Officers Law, or a judge or justice of the Unified Court System, where
that fraudulent filing is "on account of (the alleged debtor's)
performance of official duties in his or her capacity as a state or
local officer or judge or justice of the unified court system." This
amendment is similar to Federal law making it a serious Federal
offense "to file, in any public record or in any private record which
is generally available to the public, any false lien or encumbrance
against the ... property of (a Federal judge or Federal law
enforcement officer), on account of the performance of official duties
by that individual, knowing or having reason to know that such lien or
encumbrance is false ..." See 18 USC § 1521 (establishing the Federal
offense of Retaliating Against A Federal judge or Federal Law
Enforcement Officer By False Claim Or Slander Of Title).

The CPLR and UCC amendments proposed by this measure (see bill
sections one and four, respectively) would create a court procedure to
summarily invalidate fraudulent liens. Under this procedure, a public
employee - State or local - listed as the debtor in a financing
statement containing a false statement or false information may under
certain circumstances commence a special proceeding for the
expungement or redaction of the financing statement. In this special
proceeding, which is exempt from court filing fees and which can be
brought by merely serving the notice of petition and petition upon
respondent by ordinary first class mail and filing proof of such
service with the clerk of the court (coupled with filing the petition
with the clerk and paying the requisite fee), the petitioner must
plead that the offending financing statement contains a false
statement or false information; that the financing statement is not
one relating to an interest in a consumer transaction or any other
commercial transaction; that it is on account of the petitioner's
performance of official duties in his or her capacity as an employee
of the state or a political subdivision thereof that such financing
instrument was filed; and that prompt redaction or invalidation of the
financing statement is necessary to avert or mitigate prejudice to the
petitioner or the administration of government.

Where the court finds that the UCC financing statement at issue does
contain a false statement or false information, and that the other
elements of the petitioner's pleading are substantiated, the court may
then direct expungement of the financing statement or redaction of
appropriate portions thereof. In such event, the court must see that a
copy of its order is filed with the Secretary of State; and, if the
wrongful filer is incarcerated, with the head of the correctional
facility. The court also may grant relief authorized by UCC section
9-625 and bar the respondent wrongful filer from filing other UCC
statements without leave of court.


The special proceeding hereby authorized is narrowly-tailored so as
not to otherwise call liens arising from commercial transactions or
other valid liens into question, alter legitimate UCC incentives or
impose burdens upon commercial enterprises. Moreover, it is carefully
drawn to avoid placing burdens upon the DOS.

Finally, this measure also would direct the Chief Administrative Judge
to adopt rules to govern the special proceeding authorized herein,
including rules permitting the court to empower a referee to hear and
determine the matter so as to minimize delay and assure its
expeditious disposition (see bill section two).

As noted, this is by no means a problem that is unique to our State.
Nor do the remedies proposed by this measure promise total protection
for government officials here. Absent co-ordinated efforts by all
states to identify and rebuff abuse of the UCC recording system, there
is nothing New York can do to assure its public servants that they
will not be victims of fraudulent filings in other states. This said,
the instant measure is a significant first step in that it will give
law enforcement authorities the tools needed to discourage fraudulent
filings in New York; and public officials generally the means by which
to protect their credit and their good name in the public record.{3}

This measure would have no fiscal impact upon the State or any of its
political subdivisions, Bill sections one, two and four, addressed to
establishment of special proceedings to expunge a wrongfully filed UCC
financing statement, would take effect immediately. Section three,
criminalizing as a felony the wrongful filing of such a statement
under certain circumstances where the alleged debtor is a State or
local officer under the Public Officers Law or a judge or justice of
the Unified Court System, would take effect November first next
following the date on which this measure becomes a law.

Legislative History: None. New proposal.

FOOTNOTES

{1} Here in New York we are receiving a growing number of reports of
judges who have been victimized, and we are aware that there are many
other State and local officials who likewise have been targeted.

{2} A dubious claim at best: viz., it is legally impossible to assert
a copyright in one's name against its use in a public proceeding.

{3} The steps proposed in this measure were clearly contemplated by
the authors of the UCC but never provided for when the statute was
enacted in New York. See UCC § 9-518, Comm. 3 ["A summary judicial
procedure for correcting the public record and criminal penalties for
those who misuse the filing and recording systems are likely to be
more effective and put less strain on the filing system than
provisions authorizing or requiring action by filing and recording
offices"].

view bill text
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  4042

                       2013-2014 Regular Sessions

                            I N  S E N A T E

                              March 5, 2013
                               ___________

Introduced  by Sen. BONACIC -- (at request of the Office of Court Admin-
  istration) -- read twice and ordered printed, and when printed  to  be
  committed to the Committee on Judiciary

AN ACT to amend the civil practice law and rules, the judiciary law, the
  penal  law  and  the  uniform commercial code, in relation to wrongful
  financing statements filed under the uniform commercial code

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1.  Subdivision  (c) of section 403 of the civil practice law
and rules is amended to read as follows:
  (c) Manner of service. A notice of petition shall  be  served  in  the
same  manner  as a summons in an action EXCEPT THAT A NOTICE OF PETITION
IN A SPECIAL PROCEEDING BROUGHT PURSUANT TO PARAGRAPH ONE OF SUBDIVISION
(D) OF SECTION 9-518 OF THE UNIFORM COMMERCIAL CODE SHALL BE  SERVED  BY
MAILING  IT BY FIRST CLASS MAIL TO THE PERSON TO BE SERVED AT HIS OR HER
LAST KNOWN RESIDENCE, PROOF OF SUCH SERVICE  SHALL  BE  FILED  WITH  THE
CLERK  OF  THE  COURT DESIGNATED IN THE NOTICE OF PETITION WITHIN TWENTY
DAYS OF SUCH MAILING AND SERVICE SHALL BE COMPLETE FIVE DAYS AFTER  SUCH
FILING.
  S  2.  Subdivision 2 of section 212 of the judiciary law is amended by
adding a new paragraph (s) to read as follows:
  (S) ESTABLISH RULES FOR SPECIAL PROCEEDINGS AUTHORIZED BY  SUBDIVISION
(D)  OF  SECTION  9-518  OF  THE UNIFORM COMMERCIAL CODE. SUCH RULES MAY
AUTHORIZE THE COURT IN WHICH SUCH A SPECIAL  PROCEEDING  IS  PENDING  TO
ORDER A REFEREE TO HEAR AND DETERMINE SUCH SPECIAL PROCEEDING.
  S  3.  The penal law is amended by adding a new section 175.37 to read
as follows:
S 175.37 OFFERING A FALSE INSTRUMENT FOR FILING IN RETALIATION  FOR  THE
           PERFORMANCE OF OFFICIAL DUTIES.
  A PERSON IS GUILTY OF OFFERING A FALSE INSTRUMENT FOR FILING IN RETAL-
IATION FOR THE PERFORMANCE OF OFFICIAL DUTIES WHEN HE OR SHE COMMITS THE

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD08971-01-3

S. 4042                             2

OFFENSE  OF  OFFERING A FALSE INSTRUMENT FOR FILING IN THE SECOND DEGREE
AND:
  1.  SUCH INSTRUMENT IS A FINANCING STATEMENT THE CONTENTS OF WHICH ARE
PRESCRIBED BY SECTION 9-502 OF THE UNIFORM COMMERCIAL CODE; AND
  2. THE COLLATERAL COVERED IN SUCH FINANCING STATEMENT IS THE  PROPERTY
OF  A  PUBLIC  SERVANT  WHO  IS  A  STATE OR LOCAL OFFICER AS DEFINED BY
SECTION TWO OF THE PUBLIC OFFICERS LAW OR WHO OTHERWISE IS  A  JUDGE  OR
JUSTICE OF THE UNIFIED COURT SYSTEM; AND
  3.  IT  IS ON ACCOUNT OF THAT PUBLIC SERVANT'S PERFORMANCE OF OFFICIAL
DUTIES IN HIS OR HER CAPACITY AS A STATE OR LOCAL OFFICER  OR  JUDGE  OR
JUSTICE  OF  THE  UNIFIED COURT SYSTEM THAT SUCH FINANCING INSTRUMENT IS
FILED.
  OFFERING A FALSE INSTRUMENT FOR FILING IN RETALIATION FOR THE PERFORM-
ANCE OF OFFICIAL DUTIES IS A CLASS D FELONY.
  S 4. Section 9-518 of the uniform commercial code is amended by adding
a new subdivision (d) to read as follows:
  (D) SPECIAL PROCEEDING TO REDACT OR  EXPUNGE  A  WRONGFULLY  FILED  OR
AMENDED  FINANCING STATEMENT.   (1) PROVIDED HE OR SHE IS AN EMPLOYEE OF
THE STATE OR A POLITICAL SUBDIVISION THEREOF, A PERSON IDENTIFIED  AS  A
DEBTOR IN A FINANCING STATEMENT FILED PURSUANT TO THIS SUBPART MAY BRING
A  SPECIAL  PROCEEDING AGAINST THE FILER OF SUCH STATEMENT OR ANY AMEND-
MENT THEREOF, OR AGAINST THE PERSON ON WHOSE BEHALF  THE  STATEMENT  WAS
FILED  OR  AMENDED,  TO INVALIDATE THE FILING OR AMENDMENT THEREOF WHERE
SUCH STATEMENT WAS WRONGFULLY FILED OR AMENDED. SUCH SPECIAL  PROCEEDING
SHALL  BE  GOVERNED BY ARTICLE FOUR OF THE CIVIL PRACTICE LAW AND RULES,
AND SHALL BE COMMENCED IN THE SUPREME COURT OF ALBANY COUNTY, THE COUNTY
OF THE PETITIONER'S RESIDENCE OR A COUNTY WITHIN THE  JUDICIAL  DISTRICT
IN  WHICH ANY PROPERTY COVERED BY THE FINANCING STATEMENT IS LOCATED. NO
FEE PURSUANT TO ARTICLE EIGHTY OF THE CIVIL PRACTICE LAW AND RULES SHALL
BE COLLECTED IN SUCH SPECIAL PROCEEDING.
  (2) THE PETITION IN A SPECIAL PROCEEDING HEREUNDER SHALL PLEAD THAT:
  (A) THE FINANCING STATEMENT FILED OR AMENDED BY THE RESPONDENT  PURSU-
ANT TO SECTION 9-509 WAS WRONGFULLY FILED OR AMENDED;
  (B)  SUCH  FINANCING  STATEMENT  DOES  NOT  RELATE TO AN INTEREST IN A
CONSUMER-GOODS TRANSACTION OR ANY OTHER COMMERCIAL  TRANSACTION  BETWEEN
THE PETITIONER AND THE RESPONDENT;
  (C)  IT  IS  ON  ACCOUNT  OF  THE PETITIONER'S PERFORMANCE OF OFFICIAL
DUTIES IN HIS OR HER CAPACITY AS AN EMPLOYEE OF THE STATE OR A POLITICAL
SUBDIVISION THEREOF THAT SUCH FINANCING INSTRUMENT WAS FILED; AND
  (D) PROMPT REDACTION OR INVALIDATION OF  THE  FINANCING  STATEMENT  IS
NECESSARY  TO  AVERT  OR  MITIGATE PREJUDICE TO THE PETITIONER OR TO THE
ADMINISTRATION OF GOVERNMENT.
  (3) IF THE COURT DETERMINES THAT THE RESPONDENT  WRONGFULLY  FILED  OR
AMENDED, OR CAUSED TO BE WRONGFULLY FILED OR AMENDED, A FINANCING STATE-
MENT PURSUANT TO SECTION 9-509, THE COURT SHALL ORDER THE EXPUNGEMENT OF
SUCH  STATEMENT  OR ITS REDACTION IN THE PUBLIC RECORDS IN THE OFFICE IN
WHICH SUCH STATEMENT IS FILED, AS APPROPRIATE, AND MAY GRANT  ANY  ADDI-
TIONAL RELIEF AUTHORIZED BY SECTION 9-625. IN SUCH CASE, THE COURT SHALL
CAUSE  A  COPY  OF  ITS ORDER TO BE FILED WITH THE SECRETARY OF STATE OR
OTHER APPROPRIATE FILING OFFICE PURSUANT TO THIS  CHAPTER.    THE  COURT
ALSO  MAY  ENJOIN  THE  RESPONDENT  FROM  FILING OR AMENDING ANY FURTHER
FINANCING STATEMENT PURSUANT TO THIS ARTICLE WITHOUT LEAVE OF THE COURT.
IF THE RESPONDENT IS INCARCERATED AT THE TIME THE COURT ISSUES AN  ORDER
CONTAINING  SUCH  AN  INJUNCTION,  THE COURT SHALL CAUSE THE HEAD OF THE
CORRECTIONAL FACILITY IN WHICH THE RESPONDENT IS INCARCERATED TO RECEIVE
A COPY OF SUCH DETERMINATION.

S. 4042                             3

  (4) FOR PURPOSES OF THIS SUBDIVISION, A FINANCING STATEMENT IS  WRONG-
FULLY FILED OR AMENDED WHERE, AT THE TIME OF ITS FILING OR AMENDMENT, IT
CONTAINS A FALSE STATEMENT OR FALSE INFORMATION.
  S  5.  This  act  shall  take  effect  immediately;  provided that the
provisions of section three of this act shall not take effect until  the
first  of November next succeeding the date on which this act shall have
become a law; provided, further, subdivision 2 of section 175.35 of  the
penal  law, as added by section three of this act, shall apply solely to
the filing or amendment of financing statements under subpart 1 of  part
5 of article 9 of the uniform commercial code on or after such effective
date.

Comments

Open Legislation comments facilitate discussion of New York State legislation. All comments are subject to moderation. Comments deemed off-topic, commercial, campaign-related, self-promotional; or that contain profanity or hate speech; or that link to sites outside of the nysenate.gov domain are not permitted, and will not be published. Comment moderation is generally performed Monday through Friday.

By contributing or voting you agree to the Terms of Participation and verify you are over 13.