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DEARY v. GUARDIAN LOAN CO.

March 2, 1982

Dolores K. DEARY and Harvey London, individually and on behalf of all others similarly situated, Plaintiff,
v.
GUARDIAN LOAN COMPANY, INC., Chase Manhattan Bank, N.A., Mullooly Jeffrey, Rooney & Flynn, Citibank N.A., European-American Bank, Chemical Bank, Sennet & Krumoltz, Lawrence H. Cooke, Chief Judge and the New York Court of Appeals, the Administrative Board of the New York Courts and Herbert B. Evans, Chief Administrative Judge of the United Court System of New York, Muriel Siebert, Superintendent of Banks, Defendants



The opinion of the court was delivered by: LASKER

Dolores K. Deary and Harvey London sue for declaratory, injunctive and compensatory relief on behalf of themselves and all other judgment debtors in the State of New York who have property exempt from restraint and execution under various state and federal laws. They contend that New York procedures for restraint and execution on judgments, N.Y.C.P.L.R. §§ 5222, 5230 and 5232, violate the due process and supremacy clauses of the United States Constitution because they do not provide the judgment debtor with notice of, or an opportunity to challenge, the restraint or execution authorized by New York law.

Under § 5222, *fn1" a judgment creditor's attorney, acting as an officer of the court, may issue a restraining notice and serve it upon any person except the judgment debtor's employer, with the effect of freezing the debtor's assets which such person may hold, up to twice the amount of the judgment. Section 5230 *fn2" permits the creditor's attorney or the clerk of the appropriate court to issue an execution, which is delivered or mailed to an enforcement officer, such as a city marshal or sheriff, and directs the enforcement officer to satisfy the judgment out of the property of the judgment debtor. Under § 5232, *fn3" the sheriff or marshal is to levy upon property of the judgment debtor by serving a copy of the execution upon the garnishee, who in turn is required to transfer the debtor's property to the enforcement officer "forthwith" and is forbidden from otherwise transferring or interfering with the property. None of these procedures requires notice to the judgment debtor of the impending action. Section 5239, *fn4" however, permits "any interested person" to commence a special proceeding, prior to the application of property by the sheriff to the satisfaction of the judgment, to vacate the order or execution, void the levy, request a different disposition of the property, or request damages. Section 5240 *fn5" authorizes the court to deny, condition or modify the use of enforcement procedures.

 Various state and federal statutes exempt certain assets from legal process. For example, Supplementary Security Income ("SSI") which Deary receives, is exempt under 42 U.S.C. §§ 407 and 1383. Social Security benefits, which London receives, are exempt under 42 U.S.C. § 407, and pension payments, which London also receives, are 90% exempt under 29 U.S.C. § 1056(d). A list of the laws which plaintiffs claim exempt assets from legal process is set forth in the margin. *fn6"

 Plaintiffs move for partial summary judgment (1) declaring that §§ 5222, 5230 and 5232 are unconstitutional insofar as they permit restraint and levy upon exempt assets without adequate notice or an opportunity to be heard and (2) enjoining further use of those enforcement procedures. Alternatively, plaintiffs move for a preliminary injunction against the use of the challenged procedures unless judgment debtors are provided adequate notice and an opportunity for a prompt hearing. Citibank, N.A. ("Citibank"), Chemical Bank, Chase Manhattan Bank, N.A. ("Chase") and European-American Bank ("EAB") cross-move for summary judgment. In addition, plaintiffs move for certification of the class and Chase moves to dismiss the action as a class action.

 I.

 Plaintiffs contend that the New York procedures in question are unconstitutional because they do not require that the judgment debtor be given notice at any point in the procedure and do not accord the debtor an opportunity to assert his or her possible exemptions to legal process. While a debtor presumably realizes at some point that his or her assets are gone or unavailable, and while some garnishees, particularly banks, may voluntarily inform their depositors of the action taken with respect to their accounts, plaintiffs contend that such notice is at best haphazard and in any event does not sufficiently inform the debtor of what has happened or what rights the debtor may have.

 Plaintiffs rely on the recent decision of the Third Circuit Court of Appeals in Finberg v. Sullivan, 634 F.2d 50 (1980), which found similar Pennsylvania restraint and enforcement procedures unconstitutional. Plaintiffs contend that the procedures in New York are less sensitive to due process considerations than those invalidated in Finberg since the Pennsylvania enforcement procedures at least required that a copy of the writ of execution be served on the debtor. The Finberg court held that even that notice was insufficient because it did not inform the judgment debtor of the exemptions which might have been available or of the procedures by which to assert the exemptions. Plaintiffs further contend that § 5240, which authorizes the court to hear objections to enforcement procedures, is an inadequate safeguard under the New York procedures because, without notice of the restraint or execution and the procedures for asserting possible exemptions, the judgment debtor is, as a practical matter, unable to assert his rights before his property is taken.

 Plaintiffs concede that the Supreme Court's decision in Endicott-Johnson Corp. v. Encyclopedia Press, 266 U.S. 285, 45 S. Ct. 61, 69 L. Ed. 288 (1924) can be read as inconsistent with their argument. In Endicott-Johnson the Court held that the due process clause did not require notice before the garnishment of wages for the satisfaction of a judgment, observing that the notice for the proceeding leading up to the judgment gave the judgment debtor advance warning of later proceedings to enforce the judgment. Plaintiffs contend, however, that Endicott-Johnson should no longer be followed because it reflects a different era of due process jurisprudence which has been largely eclipsed by more recent due process decisions. Moreover, plaintiffs, like the Finberg court, emphasize that in Endicott-Johnson the Court did not consider the debtor's right to assert exemptions. They note that in 1924 possible exemptions were limited to clearly identifiable personal items, such as family bibles, stoves, sewing machine, etc., and that the risk of erroneous seizures was accordingly minimal. By contrast, they state that in the period since 1924 an enormous expansion of public welfare and pension statutes has occurred with the creation of attendant exemption rights.

 Plaintiffs argue that the same test of balancing interests utilized in a determination of the required notice in a pre-judgment seizure context in cases like Fuentes v. Shevin, 407 U.S. 67, 92 S. Ct. 1983, 32 L. Ed. 2d 556 (1972) and Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S. Ct. 1820, 23 L. Ed. 2d 349 (1969) should be applied to determine the due process requirements in the post-judgment context. They maintain that the need for notice and an opportunity to be heard is as great here as in Fuentes or Sniadach because some judgment debtors may not have received notice of the underlying proceeding and others may have permitted a default judgment to be entered because they were confused or intimidated by the court proceedings or may have agreed that they owed the debt. Plaintiffs contend that these debtors are likely to presume that once a judgment has been entered, there is nothing they can do to prevent collection of the debt from whatever funds they may possess. Like the plaintiffs in Memphis Light Gas & Water Division v. Craft, 436 U.S. 1, 98 S. Ct. 1554, 56 L. Ed. 2d 30 (1978), plaintiffs argue that the enforcement procedures at issue are likely to be used against the assets of persons of various higher and lower levels of education, experience and resources, and that notice reasonably calculated to inform them of possible exemptions and the procedures for asserting exemptions is accordingly required.

 In addition to their due process challenge, plaintiffs also argue that the New York procedures violate the supremacy clause because they permit a judgment creditor to deny the debtor access to and the benefits of income which Congress has mandated should be exempt from such procedures.

 Defendants maintain that, under Endicott-Johnson, the New York enforcement procedures are constitutional. They assert that the Endicott-Johnson rationale, that the notice for the proceeding leading up to the judgment puts the debtor on notice of the possibilities of enforcement, retains vitality and that plaintiffs' reliance on pre-judgment attachment cases is therefore misplaced. Defendants also contend that Finberg should not be followed here because (1) the Finberg court gave too little weight to the judgment creditor's interests in enforcing his judgment, (2) in Finberg, unlike the present case, the judgment creditor knew that the debtor's funds were exempt, (3) the funds at issue in Finberg were entirely exempt, while the funds of Deary and London were not entirely exempt, and (4) the Pennsylvania enforcement procedures had no provision for relief from the post-judgment enforcement, while New York provides such relief under §§ 5239 and 5240.

 Defendants argue further that on the date of the restraint of her checking account, none of Deary's funds were exempt since Deary also receives income from working at odd-jobs, such as baby sitting, and had borrowed money from a friend, and it was this income which had been deposited in her account immediately prior to the restraint. With respect to London, defendants similarly maintain that none of his funds against which they proceeded were exempt because $ 600. or so of the money in London's account did not come from Social Security or pension benefits. Accordingly, defendants claim that summary judgment should not be granted to plaintiffs because a genuine issue of material fact exists as to whether the funds in question were actually exempt.

 EAB and Citibank, the banks at which Deary and London maintained the checking accounts against which other defendants proceeded, also argue that plaintiffs' motion should be denied because the banks provided Deary and London with actual notice of the action taken with respect to their accounts. They contend that while the notice given here did not include information as to the possible exemptions which might be available, nor the procedures for challenging the enforcement (and in Deary's case merely stated that her account had been debited in accordance with a subpoena), the due process clause does not require that the judgment debtor be informed of particular grounds or procedures for challenging the action. Defendants therefore conclude that, whatever constitutional questions may be presented by the lack of notice provision in the New York enforcement procedures, at least in this case notice was given and the statutory procedures are therefore not unconstitutional as applied to Deary and London. Defendants also maintain, with respect to the matter of notice, that if any notice is required, such action is an obligation of the various government agencies administering the programs providing exempt income, and not that of private, and possibly adverse, parties.

 Finally, defendants contend that the procedures at issue do not violate the supremacy clause because, under §§ 5239 and 5240, judgment debtors have a prompt opportunity to challenge the enforcement and may thereby prevent ...


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