Senate Bill S7972

2009-2010 Legislative Session

Relates to clarifying the geographic scope of restraining notices, turnover orders or judgments, and levies on property

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Archive: Last Bill Status - In Senate Committee Codes Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

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Date of Action	Assembly Actions - Lowercase Senate Actions - UPPERCASE
May 27, 2010	referred to codes

2009-S7972 (ACTIVE) - Details

Current Committee:: Senate Codes
Law Section:: Civil Practice Law and Rules
Laws Affected:: Amd §§5222, 5225, 5227 & 5232, CPLR

2009-S7972 (ACTIVE) - Summary

Relates to clarifying the geographic scope of restraining notices, turnover orders or judgments, and levies on property by service of execution or similar legal process.

2009-S7972 (ACTIVE) - Sponsor Memo

                                BILL NUMBER:S7972

TITLE OF BILL:
An act
to amend the civil practice law and rules, in relation to clarifying
the geographic scope of restraining notices, turnover orders or
judgments, and levies on property by service of execution or similar
legal process

PURPOSE OF BILL:
The bill seeks to correct a recent decision by the New York Court of
Appeals -- Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009) ~-
by amending Sections 5222, 5225, 5227 and 5232 of the New York Civil
Practice Laws and Rules (CPLR) to prevent the multitude of harms that
will befall international and u.s. banks, other financial
institutions, and, ultimately, New York as a result of Koehler.

SUMMARY OF PROVISIONS:
Section 1 - Amends subdivision (b) of CPLR Section 5222 to clarify the
limitation of the extraterritorial effect of a restraining notice
served on a person other than a judgment debtor by expressly stating
that such a restraining notice has effect only on property in New York.

Section 2 - Amends subdivision (b) of CPLR Section 5225 to make clear
that a New York court's authority to order a financial institution or
other garnishee to turn over a judgment debtor's property is limited

to property in New York or accounts at a branch of that bank in New
York.

Section 3 - Amends CLPR Section 5227 to clarify that when the
garnishee is a financial institution, a New York court has authority
pursuant to that section to issue a turnover order only with respect
to debts or accounts maintained at a branch or office of that
financial institution in New York.

Section 4 - Amends subdivision (a) of CPLR Section 5232 to clarify
that a levy by service of execution on a garnishee is effective only
as to property located within New York and, if the garnishee is
financial institution, only as to property, debts or accounts at a
branch or office of that financial institution in New York.

Section 5 - Is the effective date.

JUSTIFICATION:
The Court of Appeals' recent Koehler decision threatens New York's
position as the world's leading financial center. That decision
departs from prior law and permits a New York court to order any
financial institution with a New York office to deliver property of a
judgment debtor held by another branch of the same financial
institution located anywhere in the world to satisfy a judgment in a
litigation to which the bank was not a party -- even if the
plaintiff, the defendant, the underlying dispute and the property
sought have absolutely nothing to do with New York.

Under this new, expansive regime, New York will become the destination
for forum-shopping plaintiffs seeking extraterritorial turnover


orders to collect judgments that have absolutely nothing to do with
this state. The consequences to international and U.s. financial
institutions with offices in New York will be severe:

* Because Koehler places New York law in conflict with the laws of
virtually all other jurisdictions, financial institutions around the
world could face criminal, civil or regulatory liability under
foreign laws to which they are subject for complying with orders
issued under Koehler.

* Financial institutions will be forced to devote significant
resources to the task of complying with such orders merely because
they have an office in New York.

* Financial institutions will be forced to become frequent
participants in cross-border legal disputes as their customers or
foreign regulators seek to prevent transfers.
Customers may be reluctant to make deposits in, or otherwise have
property in the possession of, financial institutions that have
offices in New York.

The consequences to New York will be severe as well:

* International financial institutions confronted with this new burden
created by Koehler will face clear incentives to cease doing business
in New York.
* Opportunistic plaintiffs flocking to New York to exploit Koehler will
place an unnecessary and unwelcome burden on the courts and the
taxpayers who fund them.
* New York-based financial institutions with operations overseas could
be compelled to transfer property from New York to foreign countries
where courts have been emboldened and follow Koehler's lead.

This bill will encourage plaintiffs to collect their debts in logical
jurisdictions rather than pursuing them indiscriminately in New York.
It will accomplish that goal and prevent the harm sure to befall the
financial industry and New York should the Court of Appeals' Koehler
decision otherwise go uncorrected.

LEGISLATIVE HISTORY:
New bill.

FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
None.

EFFECTIVE DATE:
Immediately.

2009-S7972 (ACTIVE) - Bill Text download pdf

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

                                  7972

                            I N  S E N A T E

                              May 27, 2010
                               ___________

Introduced  by  Sen.  FOLEY  -- read twice and ordered printed, and when
  printed to be committed to the Committee on Codes

AN ACT to amend the civil practice law and rules, in relation to  clari-
  fying  the geographic scope of restraining notices, turnover orders or
  judgments, and levies on property by service of execution  or  similar
  legal process

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

  Section 1. Subdivision (b) of section 5222 of the civil  practice  law
and  rules, as amended by chapter 575 of the laws of 2008, is amended to
read as follows:
  (b) Effect of restraint; prohibition of transfer; duration. A judgment
debtor or obligor served with a restraining notice is forbidden to  make
or  suffer any sale, assignment, transfer or interference with any prop-
erty in which he or she has an interest, except as set forth in subdivi-
sions (h) and (i) of this section, and  except  upon  direction  of  the
sheriff  or  pursuant  to  an  order of the court, until the judgment or
order is satisfied or vacated.   A  restraining  notice  served  upon  a
person  other  than the judgment debtor or obligor is effective only if,
at the time of service, he or she owes a debt to the judgment debtor  or
obligor  or  he  or  she  is in the possession or custody of property in
which he or she knows or has reason to believe the  judgment  debtor  or
obligor  has  an  interest,  or  if  the  judgment  creditor  or support
collection unit has stated in the notice that a specified debt  is  owed
by the person served to the judgment debtor or obligor or that the judg-
ment  debtor  or  obligor  has  an interest in specified property in the
possession or custody of the person served. All property  in  which  the
judgment debtor or obligor is known or believed to have an interest then
in  and  thereafter  coming  into  the  possession  or custody of such a
person, including any specified in the notice, and all debts of  such  a
person,  including  any specified in the notice, then due and thereafter
coming due to the judgment debtor or obligor, shall be  subject  to  the
notice  except as set forth in subdivisions (h) and (i) of this section.
Such a person is forbidden to make or suffer  any  sale,  assignment  or

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

                                                           LBD17541-01-0

S. 7972                             2

transfer of, or any interference with, any such property, or pay over or
otherwise dispose of any such debt, to any person other than the sheriff
or  the support collection unit, except as set forth in subdivisions (h)
and  (i)  of  this  section, and except upon direction of the sheriff or
pursuant to an order of the court, until  the  expiration  of  one  year
after  the  notice  is  served upon him or her, or until the judgment or
order is satisfied or vacated, whichever event first occurs. A RESTRAIN-
ING NOTICE SERVED UPON A FINANCIAL INSTITUTION  OR  OTHER  PERSON  OTHER
THAN THE JUDGMENT DEBTOR OR OBLIGOR SHALL HAVE NO EFFECT WITH RESPECT TO
PROPERTY  LOCATED  OUTSIDE  THE  STATE. A RESTRAINING NOTICE SERVED ON A
FINANCIAL INSTITUTION SHALL HAVE NO EFFECT  WITH  RESPECT  TO  DEBTS  OR
ACCOUNTS  HELD  BY OR AT A BRANCH OR OFFICE OF THE FINANCIAL INSTITUTION
OUTSIDE THE STATE. A judgment creditor or support collection unit  which
has specified personal property or debt in a restraining notice shall be
liable  to  the  owner of the property or the person to whom the debt is
owed, if other than the judgment debtor  or  obligor,  for  any  damages
sustained  by  reason  of  the  restraint.  If a garnishee served with a
restraining notice withholds the payment of money belonging or  owed  to
the  judgment  debtor  or obligor in an amount equal to twice the amount
due on the judgment or order, the restraining notice is not effective as
to other property or money.
  S 2. Subdivisions (b) and (c) of section 5225 of  the  civil  practice
law  and rules, subdivision (b) as amended by chapter 388 of the laws of
1964 and subdivision (c) as renumbered by chapter 315  of  the  laws  of
1962, are amended to read as follows:
  (b)  Property not in the possession of judgment debtor. Upon a special
proceeding commenced by the  judgment  creditor,  against  a  person  in
possession  or  custody of money or other personal property in which the
judgment debtor has an interest, or against a person who is a transferee
of money or other personal property from the judgment debtor,  where  it
is  shown that the judgment debtor is entitled to the possession of such
property or that the judgment creditor's  rights  to  the  property  are
superior to those of the transferee, the court shall require such person
to pay the money, or so much of it as is sufficient to satisfy the judg-
ment,  to  the  judgment  creditor  and,  if the amount to be so paid is
insufficient to satisfy the judgment,  to  deliver  any  other  personal
property,  or  so  much  of  it as is of sufficient value to satisfy the
judgment, to a designated sheriff.  THE COURT MAY NOT, PURSUANT TO  THIS
SUBDIVISION,  REQUIRE  A PERSON TO PAY MONEY THAT IS LOCATED OUTSIDE THE
STATE OR TO DELIVER, SELL, OR DISPOSE OF OTHER PROPERTY THAT IS  LOCATED
OUTSIDE  THE STATE TO SATISFY A JUDGMENT, AND IF SUCH PERSON IS A FINAN-
CIAL INSTITUTION, ANY ORDER PURSUANT TO THIS  SUBDIVISION  MAY  BE  MADE
ONLY  WITH RESPECT TO A DEBT OR ACCOUNT HELD BY OR AT A BRANCH OR OFFICE
OF THE FINANCIAL INSTITUTION THAT IS LOCATED WITHIN THE STATE. Costs  of
the proceeding shall not be awarded against a person who did not dispute
the  judgment  debtor's  interest  or right to possession. Notice of the
proceeding shall also be served upon the judgment  debtor  in  the  same
manner  as  a summons or by registered or certified mail, return receipt
requested. The court may permit the judgment debtor to intervene in  the
proceeding.  The  court  may permit any adverse claimant to intervene in
the proceeding and may determine his rights in accordance  with  section
5239 OF THIS ARTICLE.
  (c)  Documents  to effect payment or delivery. The court may order any
person to execute and deliver any document necessary to  effect  payment
or delivery AS PERMITTED BY SUBDIVISION (A) OR (B) OF THIS SECTION.

S. 7972                             3

  S  3.  Section 5227 of the civil practice law and rules, as amended by
chapter 532 of the laws of 1963, is amended to read as follows:
  S  5227.  Payment  of  debts  owed  to judgment debtor. Upon a special
proceeding commenced by the judgment creditor, against any person who it
is shown is or will become indebted to the judgment  debtor,  the  court
may  require  such  person to pay to the judgment creditor the debt upon
maturity, or so much of it as is sufficient to satisfy the judgment, and
to execute and deliver any document necessary to effect payment;  or  it
may  direct  that  a judgment be entered against such person in favor of
the judgment creditor. THE COURT MAY NOT ENTER  ANY  ORDER  OR  JUDGMENT
PURSUANT TO THIS SECTION REQUIRING A FINANCIAL INSTITUTION TO PAY TO THE
JUDGMENT  CREDITOR  DEBTS OR ACCOUNTS THAT ARE HELD BY OR AT A BRANCH OR
OFFICE OF THE FINANCIAL INSTITUTION OUTSIDE  THE  STATE.  Costs  of  the
proceeding shall not be awarded against a person who did not dispute the
indebtedness.    Notice  of the proceeding shall also be served upon the
judgment debtor in the same manner as a  summons  or  by  registered  or
certified mail, return receipt requested. The court may permit the judg-
ment  debtor  to  intervene  in the proceeding. The court may permit any
adverse claimant to intervene in the proceeding and  may  determine  his
rights in accordance with section 5239 OF THIS ARTICLE.
  S  4.  Subdivision  (a)  of section 5232 of the civil practice law and
rules, as amended by chapter 59 of the laws of 1993, is amended to  read
as follows:
  (a)  Levy  by service of execution.  The sheriff or support collection
unit designated by the appropriate social services district  shall  levy
upon any interest of the judgment debtor or obligor in personal property
not capable of delivery, or upon any debt owed to the judgment debtor or
obligor,  by  serving a copy of the execution upon the garnishee, in the
same manner as a summons, except that such service shall not be made  by
delivery  to a person authorized to receive service of summons solely by
a designation filed pursuant to a provision of law other than rule  318.
In  the event the garnishee is the state of New York, such levy shall be
made in the same manner as an income execution pursuant to section  5231
of  this article.   A levy by service of the execution is effective only
if, at the time of service, the person served owes a debt to  the  judg-
ment  debtor  or obligor or he or she is in the possession or custody of
property not capable of delivery in which he or she knows or has  reason
to  believe  the  judgment  debtor or obligor has an interest, or if the
judgment creditor or support collection unit  has  stated  in  a  notice
which  shall  be served with the execution that a specified debt is owed
by the person served to the judgment debtor or obligor or that the judg-
ment debtor or obligor has an interest in specified property not capable
of delivery in the possession or custody of the person served. All prop-
erty not capable of delivery in which the judgment debtor or obligor  is
known  or believed to have an interest then in or thereafter coming into
the possession or custody of such a person, including any  specified  in
the  notice,  and all debts of such a person, including any specified in
the notice, then due or thereafter coming due to the judgment debtor  or
obligor,  shall  be  subject  to  the  levy.  The person served with the
execution shall forthwith transfer all such property, and pay  all  such
debts  upon  maturity,  to the sheriff or to the support collection unit
and execute any document necessary to effect the  transfer  or  payment.
After  such  transfer or payment, property coming into the possession or
custody of the garnishee, or debt incurred by him, or her shall  not  be
subject  to  the  levy. Until such transfer or payment is made, or until
the expiration of ninety days after the service of  the  execution  upon

S. 7972                             4

him  or  her, or of such further time as is provided by any order of the
court served upon him or her, whichever event first occurs, the garnish-
ee is forbidden to make or suffer any sale, assignment or  transfer  of,
or  any  interference  with, any such property, or pay over or otherwise
dispose of any such debt, to any person other than the  sheriff  or  the
support  collection  unit,  except  upon direction of the sheriff or the
support collection unit or pursuant to an order of the court.  A LEVY BY
SERVICE OF EXECUTION UPON A GARNISHEE SHALL HAVE NO EFFECT WITH  RESPECT
TO PROPERTY LOCATED OUTSIDE THE STATE AND, IF SUCH GARNISHEE IS A FINAN-
CIAL  INSTITUTION, SHALL HAVE NO EFFECT WITH RESPECT TO PROPERTY HELD BY
OR AT ANY BRANCH OR OFFICE LOCATED OUTSIDE THE STATE. A LEVY BY  SERVICE
OF  EXECUTION  UPON  A  FINANCIAL  INSTITUTION SHALL HAVE NO EFFECT WITH
RESPECT TO DEBTS OR ACCOUNTS HELD OUTSIDE THE STATE. At  the  expiration
of  ninety  days after a levy is made by service of the execution, or of
such further time as the court, upon motion of the judgment creditor  or
support  collection  unit has provided, the levy shall be void except as
to property or debts which have been transferred or paid to the  sheriff
or  to  the  support  collection  unit or as to which a proceeding under
[sections] SECTION 5225 or 5227 OF THIS  ARTICLE  has  been  brought.  A
judgment  creditor  who, or support collection unit which, has specified
personal property or debt to be levied upon in a notice served  with  an
execution  shall be liable to the owner of the property or the person to
whom the debt is owed, if other than the judgment debtor or obligor, for
any damages sustained by reason of the levy.
  S 5. This act shall take effect immediately.

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Senate Bill S7972

Sponsored By

Archive: Last Bill Status - In Senate Committee Codes Committee

Actions

2009-S7972 (ACTIVE) - Details

2009-S7972 (ACTIVE) - Summary

2009-S7972 (ACTIVE) - Sponsor Memo

2009-S7972 (ACTIVE) - Bill Text download pdf

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Sponsored By

Brian X. Foley

Archive: Last Bill Status - In Senate Committee Codes Committee

Actions

2009-S7972 (ACTIVE) - Details

2009-S7972 (ACTIVE) - Summary

2009-S7972 (ACTIVE) - Sponsor Memo

2009-S7972 (ACTIVE) - Bill Text download pdf

Comments