UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK
August 31, 1984
CYNTHIA McCAHEY, Plaintiff, against L.P. INVESTORS; ALLEN M. ROSENTHAL; AFFILIATED CREDIT ADJUSTERS; SHERIFF OF SUFFOLK COUNTY; and SUFFOLK COUNTY CLERK, Defendants.
The opinion of the court was delivered by: PLATT
MEMORANDUM AND ORDER
The plaintiff, Cynthia McCahey, has brought this action seeking declaratory, injunctive and compensatory relief. She maintains that the New York State procedures for post-judgment restraint, execution and levy, as set forth in amended New York Civil Practice Law and Rules sections 5222, 5230 and 5232, N.Y.C.P.L.R. §§ 5222, 5230, 5232 (McKinney Supp. 1983), violate the Due Process Clause of the Fourteenth Amendment of the United States Constitution. Ms. McCahey asserts that these provisions are unconstitutinal insofar as they permit restraint and levy upon assets that, under various state and federal statutes, are exempt from legal process without adequate notice or an opportunity to be heard.
In 1982, District Court Judge Lasker declared unconstitutional predecessor provisions of the CPLR chaallenged by Ms. McCahey, Deary v. Guardian Loan Corp., 534 F. Supp. 1178 (S.D.N.Y. 1982). As a result of Judge Lasker's opinion, these sections were amended by the New York State Legislature. N.Y.C.P.L.R. §§ 5222, 5232 (McKinney Supp. 1983). Ms. McCahey attacks the amended sections and argues that, despite the amendments, these sections remain unconstitutional.
Defendants Allan Rosenthal and L.P. Investors have filed motions to dismiss for failure to state a claim upon which relief may be granted. The plaintiff has cross-moved for partial summary judgment declaring CPLR §§ 5222, 5230 and 5232 unconstitutional. Oral argument was heard on these motions on June 1, 1984 and June 15, 1984. For the reasons stated below, we hold that due process is satisfied by the New York procedures.
The New York Procedure for Restraint and Execution on Judgments.
The procedures governing the enforcement and satisfaction of money judgments in New York State are set forth in Article 52 of the CPLR. The plaintiff argues that amended sections 5222, 5230 and 5232, providing for restraint, execution and levy, are unconstitutional.
Under section 5222,
a judgment creditor's attorney, acting as an officer of the court, may restrain the transfer of property of the judgment debtor that is held by another party, such as a bank, by issuing and serving a restraining notice. The restraining notice, which is effective against the garnishee for one year after service, has the effect of freezing the debtor's property in an amount up to twice the amount of the judgment until the judgment is satisfied or vacated or a sheriff seizes the debtor's property. Section 5222 provides that, within four days of the service of the restraining notice, notice must be provided to the judgment debtor, along with a copy of the restraining notice. Section 5222(e) specificies the content of the notice; it provides that:
The notice required by subdivision (d) shall be in substantially the following form and may be included in the restraining notice:
NOTICE TO JUDGMENT DEBTOR
Money or property belonging to you may have been taken or held in order to satisfy a judgment which has been entered against you. Read this csrefully.
YOU MAY BE ABLE TO GET YOUR MONEY BACK
State and federal laws prevent certain money or property from being taken to satisfy judgments. Such money or property is said to be "exempt". The following is a partial list of money which may be exempt:
1. Supplemental security income (SSI)
2. Social Security;
3. Public assistance (welfare);
4. Alimony or child support;
5. Unemployment benefits;
6. Disability benefits;
7. Workers' compensation benefits;
8. Public or private pensions; and
9. Veterans benefits.
If you think that any of your money that has been taken or held is exempt, you must act promptly because the money may be applied to the judgment. If you claim that any of your money that has been taken or held is exempt, you may contact the person sending this notice.
Also, YOU MAY CONSULT AN ATTORNEY, INCLUDING LEGAL AID IF YOU QUALIFY. The law (New York civil practice law and rules, article four and sections fifty-two hundred thirty-nine and fifty-two hundred forty) provides a procedure for determination of a claim to an exemption.
CPRL § 5222(e) (McKinney Supp. 1983).
sets forth the requirements for obtaining an execution. It provides that a judgment creditor's attorney or the clerk of the appropriate clerk may issue an execution. The execution is mailed or delivered to an enforcement officer, such as a sheriff or a city marshall, and directs the officer to satisfy the judgment out of the real and personal property of the judgment debtor.
Once the enforcement officer has been issued an execution, section 5232
permits the officer to levy upon the property of the judgment debtor. To effect the levy, section 5232 requires the enforcement officer to serve the garnishee with an execution in the same manner as a summons. The garnishee is then required to transfer "forthwith" the debtor's funds to the enforcement officer and "execute any document necessary to affect the transfer of payment," CPLR § 5232(a) (McKinney 1978); the enforcement officer, however, must wait fifteen days after service of the execution before distributing the proceeds of the execution to the judgment creditor. CPLR § 5234(a)(McKinney Supp. 1983). Section 5232 further provides that where the execution does not state that the notice to the judgment debtor required by CPLR section 5222 has been sent within a year, the enforcement officer, not later than four days after service of the execution upon the garnishee, must mail by first class mail or personally deliver to the judgment debtor a copy of the execution together with such notice.
CPLR sections 5239
offer an opportunity for a judgment debtor to contest the proceedings discussed above. Section 5239 permits "any interested person" to commence a special proceeding, prior to the application of property by the enforcement officer to the satisfaction of the judgment, in which "[t]he court may vacate the execution or order, void the levy, direct the disposition of the property or debt, or direct that damages be awarded." CPLR § 5239 (McKinney 1978). Section 5240 authorizes the court to issue an order "denying, limiting, conditioning, regulating, extending or modifying any enforcement procedure." Id. § 5240.
Ms. Cynthia McCahey and her three children are recipients of public assistnce under the Aid to Families with Dependent Children program. Ms. McCahey, by affidavit, avers that her family depends upon these public assistance funds for their food, shelter and survival. Ms. McCahey maintains a checking account at the Northstar/Island State Bank; she desposits her monthly public assistance benefit check into this account and then draws on it to meet her family's expenses.
On or about October 13, 1982, a default judgment in the amount of $1979.61 was entered in the District Court, Suffolk County, against Ms. McCahey by her former landlord, defendant L.P. Investors. The judgment was based on a claim that she had vacated her apartment prior to the end of her lease term and was liable for rent for the rest of the term of the lease. On or before June 14, 1983, Ms. McCahey received a telephone call from an individual who identified himself as Mr. Rosenthal, attorney for the creditor. Ms. McCahey allegedly told him she could not afford to make any payments on the judgment because of her public assistance status and the absence of other sources of funds. She did not furnish to Mr. Rosenthal proof of her status in writing.
On or about July 6, 1983, the plaintiff's funds on deposit at the bank were restrained pursuant to a restraining notice issued by Allen Rosenthal, Esq. on behalf of L.P. Investors, Ltd. and/or Affiliated Credit Adjustors. Shortly after July 12, 1983, Ms. McCahey received a letter from the bank advising her that her account had been restrained pursuant to a restraining notice and informing her that is she had any questions she could contact the attorney for the creditor's collection agency, Allen Rosenthal.
Ms. McCahey maintains that she called the bank and told a bank employee that all funds in the account were public assistance monies. The bank employee, according to the plaintiff, explained to her that her public assistance funds were exempt from restraint, execution, and levy and told her that someone from the bank would call the creditor and explain the situation. She maintains that the bank employee later called her and told her that Mr. Rosenthal did not believe the funds were public assistance. Defendant Rosenthal, however, contends that when he questioned the bank, it could not even state whether the plaintiff was receiving public assistance. The bank, however, stopped honoring the restraining notice.
On or about July 18, 1983, Ms. McCahey received a "Notice to Judgment Debtor Form," which was issued in compliance with CPLR § 5222. The notice advised plaintiff that certain funds, including public assistance funds, were exempt from execution. The notice stated that plaintiff could communicate with the person sending the notice, that she could consult an attorney, including Legal Aid, and that the CPLR provides a procedure for determining a claim to an exemption. Ms. McCahey called the "person sending this notice," and an employee of attorney Rosenthal told her that she needed to send a copy of her public assistance check to Mr. Rosenthal in support of her claim of exemption. The employee did not explain any other procedures for protecting her public assistance monies. Since Ms. McCahey did not have a copy of her public assistance check she had to wait until she received her next check -- on August 15, 1983 -- before she could make a photostatic copy of it. Defendant Rosenthal claims that he never received a copy of this check.
On August 26, 1983, the Sheriff of Suffolk County served an execution upon the bank. On or about August 30, 1983, the bank paid the Sheriff $406.82 from plaintiff's account. Plaintiff allegedly made repeated demands to have her funds returned on the ground that they were public assistance funds and, therefore, exempt from restraint, execution, and levy.After plaintiff unsuccessfully sought to intervene in Deary v. Guardian Loan Co., supra, the funds were returned to her.Mr. Rosenthal mainains that this was the first time and only time he received information substantiating plaintiff's claim that her funds were exempt due to their public assistance status.
Ms. McCahey then instituted this action. On April 25, 1984, this Court issued a certificate to the New York State Attorney General informing the State that the constitutionality of a New York State statute had been drawn into question in a case in which neither the State of New York nor any agency thereof was a party. The State has failed to intervene in this action.
II. DUE PROCESS AND POSTJUDGMENT EXECUTION PROCEEDINGS
In recent years, postjudgment execution proceedings have come under increased judicial scrutiny. E.g., Finberg v. Sullivan, 634 F.2d 50 (3rd Cir. 1980); Brown v. Liberty Loan Corp., 539 F.2d 1355 (5th Cir. 1976); Harris v. Bailey, 574 F. Supp. 966 (W.D. Va. 1983); Deary v. Guardian Loan Corp., 534 F.Supp 1178 (S.D.N.Y. 1982); Betts v. Tom, 431 F. Supp. 1369 (D.Hawaii 1977); Cole v. Goldberger, Pedersen & Hochron, 95 Misc. 2d 720, 410 N.Y.S. 2d 950 (Sup. Ct. Broome Co. 1978). In the past, courts traditionally have held that due process does not require postjudgment execution proceedures to provide a debtor with notice or a hearing before garnishment. This ruling was based on the rationale that the underlying judgment proceeding served as constructive notice to the debtor that his property would be subject to execution. See, e.g., Endicott Johnson Corp. v. Encyclopedia Press, Inc., 266 U.S. 285, 69 L. Ed. 288, 45 S. Ct. 61 (1924); Halpern v. Austin, 385 F. Supp. 1009 (N.D. Ga. 1974); Katz v. Ke Nam Kim, 379 F. Supp. 65 (D.Hawaii 1974). However, many courts have recently reevaluated the traditional view and have found that it is inapplicable in situations involving property exempt from seizure. These courts have found that state postjudgment execution proceedings that fail to provide notice of the existence of possible exemptions and a procedure for the prompt post-seizure hearing of claims of exemption violate the Due Process Clause of the Fourteenth Amendment of the United States Constitution. E.g., Finberg, 634 F.2d at 56-57; Harris, 574 F. Supp. at 969; Dreary, 534 F. Supp. at 1185.
In ruling that due process concerns are relevant in the postjudgment garnishment context, these courts have found recent Supreme Court prejudgment seizure cases and the principles enumerated therein controlling. Finberg, 634 F.2d at 58; Harris, 574 F. Supp. at 968; Deary, 534 F.Supp at 1186. They have determined that the presence of a judgment does not alter the conclusion that, in both prejudgment cases and postjudgment cases involving exempt property, attachment must be considered a provisional measure during which the debtor retains a protectible interest in the use of his property. "Adebtor might still defeat [the creditor's] right with any of a number of defenses not adjudicated in the action on the merits, such as in the present case with a claim of exemption." Finberg, 634 F.2d at 58.
The Supreme Court prejudgment seizure cases reflect an approach that balances the competing interests of the debtor and the creditor to determine the amount of process due before one is deprived of property. See, e.g., Mathews v. Eldridge, 424 U.S. 319, 47 L. Ed. 2d 18, 96 S. Ct. 893 (1976); North Georgia Finishing, Inc. v. DiChem, Inc., 419 U.S. 601, 95 S. Ct. 719, 42 L. Ed. 2d 751 (1975); Mitchell v. W.T. Grant Co., 416 U.S. 600, 94 S. Ct. 1895, 40 L. Ed. 2d 406 (1974); Fuentes v. Shevin, 407 U.S. 67, 32 L. Ed. 2d 556, 92 S. Ct. 1983 (1972); Sniadach v. Family Finance Corp., 395 U.S. 337, 23 L. Ed. 2d 349, 89 S. Ct. 1820 (1969). As indicated by the United States Court of Appeals for the Third Circuit in Finberg v. Sullivan,
[t]he principles established in the controlling Supreme Court decisions, to summarize, are that notice and an opportunity to be heard before an attachment are not absolutely necessary. However, the available procedures must afford the debtor adequate protection against erroneous or arbitrary seizures. The procedural protection is adequate if it represents a fair accommodation of the respective interests of creditor and debtor.
634 F.2d at 58. We agree with the analysis presented in these cases and, as have many other courts evaluating due process challenges to postjudgment enforcement proceedings, adopt it here.
The broad issue presented in this case, therefore, is how much process is due debtors by a State's postjudgment garnishment proceeding. To make this determination, we must first review the competing interests present in this action. Since this case involves the restraint, execution and levy of a bank account allegedly containing exempt funds, we must evaluate the various interests in this context.The weight to be given these interests shifts in response to the facts of a particular case. Finberg, 634 F.2d at 58.
As in any case involving the creditor/debtor relationship, the basic interests in conflict are the creditor's interest in the enforcement of the judgment debt and the debtor's interest in the continued use and enjoyment of her property. A judgment creditor has an interest in a prompt and inexpensive satisfaction of judgment. In addition, the creditor has a right to seek recovery from the debtor's property and has a strong interest in protection from a debtor seeking to deprive him of his due. The creditor also has an interest in being able to seize bank accounts since this procedure is less costly and time consuming than a levy and judicial sale of nonmonetary assets. Finberg, 634 F.2d at 58; Harris, 574 F. Supp. at 970; Deary, 534 F. Supp. at 1186.
The debtor's interest in the continued use of her property becomes more compelling when the property seized is a bank account since it may contain money needed by the debtor to purchase the most basic necessities of life.This interest becomes most compelling where the funds in the bank account are benefits provided by the government and covered by exemptions designed to protect a debtor's means of purchasing basic necessities. Id.
Weighing the interests, we conclude that judgment debtors in this context are entitled to notice of both the creditor's actions and exemptions to which they may be entitled, and must be afforded a prompt opportunity to challenge the creditor's enforcement and to assert their exemptions. This determination of the process due is identical to that reached by other courts faced with this issue. See, e.g., Finberg, 634 F.2d at 58; Deary, 534 F. Supp. at 1186.
We must now address the narrow question presented by this case and evaluate the amended New York postjudgment enforcement procedures to determine if they provide a "constitutional accommodation of the conflicting interests," Mitchell v. W.T. Grant Co., 416 U.S. 600, 607, 40 L. Ed. 2d 406, 94 S. Ct. 1895 (1974), and comply with basic due process requirements. In doing so, we are mindful of the Supreme Court's observation that it is necessary to consider the "probable value, if any, of additional or substitute procedural safeguards" and the "fiscal or adminstrative burdens that the additional or substitute procedure requirement would entail," Mathews v. Eldridge, 424 U.S. 319, 335, 47 L. Ed. 2d 18, 96 S. Ct. 893 (1976).
The New York statute provides that within four days after the service of the restraining notice on the garnishee, a copy of the restraining notice and the notice form required by CPLR Section 5222(e) must be provided to the debtor, N.Y.C. P.L.R. § 5222 (McKinney Supp. 1983). Ms. McCahey argues, inter alia, that the following elements of the notice required by CPLR section 5222 render the notice constitutionally defective.
First, Ms. McCahey contends that the section 5222 notice form states that "[t]he law (New York civil practice law and rules, article four and sections fifty-two hundred thirty-nine and fifty-two hundred forty) provides a procedure for determination of a claim to an exemption," id., and that it does not satisfy due process requirements because it does not adequately explain how to press an exemption claim. Second, plaintiff argues that the provision informing the debtor to contact the person sending the notice is inadequate because it leads a debtor to believe that her adversary will protect her claim to an exemption.
The United States Supreme Court has ruled that due process requires that notice must be "reasonably calculated, under all the circumstances, to appraise interested parties of the pendency of the action and afford them an opportunity to present their objections." Mullane v. Central Hanover Trust Co., 339 U.S. 306, 314, 94 L. Ed. 865, 70 S. Ct. 652 (1950). The notice provided by CPLR section 5222 comports with this standard. Section 5222 gives notice of the exemptions to which a debtor may be entitled and it informs the debtor that she may consult a lawyer, including Legal Aid, and that there is a procedure by which she may claim an exemption. While it is true that the notice does not outline the procedure itself or spell out the specific steps that a debtor must take to assert an exemption, it clearly alerts the debtor of her rights. Although it might be helpful to the debtor if the notice provided more information on these procedures, this detailed information is not required by due process.
The second defect that Ms. McCahey alleges is that the notice contains a provision advising the debtor that she "may contact the person sending this notice." N.Y.C.P.L.R. § 5222 (McKinney Supp. 1983). Again, while "contacting" the creditor's attorney may not be the wisest course of action available to the debtor, the presence of this information in the notice does not rise to the level of a constitutional violation. The notice,in bold type, clearly indicates that the debtor may seek the advice of an attorney, including Legal Aid. "Contacting" the person sending the notice is not the only option given to the debtor. Accordingly, we believe that the notice provided by CPLR section 5222 satisfies due process.
Along with the notice, due process requires a hearing "at a meaningful time." Armstrong v. Manzo, 380 U.S. 545, 14 L. Ed. 2d 62, 85 S. Ct. 1187 (1965). Ms McCahey argues that the CPLR statutory scheme, specifically sections 5239 and 5240, fails to provide a prompt opportunity to challenge the postjudgment enforcement and to assert exemptions.
No evidence has been presented of the use of sections 5239 and 5240 to claim exemptions from restraint and execution.
Thus, we find ourselves, as did Judge Lasker in Deary, 534 F.Supp at 1188, unable to determine if, in practice, these provisions satisfy the requirement of a prompt opportunity to be heard. However, section 5239 of the CPLR permits a challenge in a special proceeding commenced by the service of a "notice of petition" in the same manner as a "notice of motion." Section 403(1) of the CPLR prescribes "at least eight days" notice before a hearing may be held but the State Court would appear to have to power to shorten such time if presented with an order to show cause under section 403(d) and, in any event, could stay any application of property or debt until the debtor had an opportunity to be heard.Given these provisions there would appear to be little or no merit to this aspect of Ms. McCahey's claim.
For the reasons stated above, we find that New York's current postjudgment enforcement procedures satisfy the Due Process Clause of the Fourteenth Amendment of the United States Constitution and dismiss plaintiff's complaint.
SO ORDERED, submit judgment.