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McCahey v. L.P. Investors

September 30, 1985


Appeal from an order of the United States District Court for the Eastern District of New York, Thomas C. Platt, Judge, 593 F. Supp. 319 (1984), granting the defendants' motion to dismiss the complaint for failure to state a claim, Fed. R. Civ. P. 12 (b) (6). the complaint sought injunctive and declaratory relief on the grounds that New York's post-judgment remedies violate due process. Affirmed

Author: Winter

Before MESKILL, KEARSE and WINTER, Circuit Judges.

WINTER, Circuit Judge

The plaintiff, Cynthia McCahey, appeals from Judge Platt's dismissal of her complaint for failure to state a claim, Fed. R. Civ. P. 12(b) (6). McCahey seeks injunctive, declaratory and monetary relief on the grounds that New York's post-judgment remedies deprived her of property without due process. We affirm.


1. The Underlying Dispute

Because the complaint was dismissed for failure to state a claim, we accept its allegation as true. Gardner v. Toilet Goods Association, 387 U.S. 167, 172, 18 L. Ed. 2d 704, 87 S. Ct. 1526 (1967).

According to the complaint, McCahey is a single mother of three children. She and her family are dependent for support on the Aid to Families with Dependent Children program ("AFDC"). On October 13, 1982, L.P. Investors obtained a default judgment against McCahey for unpaid rent in the amount of $1,979.61. McCahey had notice of the proceeding but did not appear. She does not contest the validity of the judgment.

To collect the judgment, L.P. Investors hired a collection agency, Affiliated Credit Adjusters, which in turn hired an attorney, Allen Rosenthal. On June 14, 1983, Rosenthal telephoned McCahey and asked her to pay the judgment. McCahey refused, explaining that she did not have sufficient funds and was wholly dependent on AFDC. As evidence of her dependent status, she told Rosenthal her public assistance case number.

Rosenthal ascertained that McCahey had a checking account at the island State Bank. The sole source of funds for the account was AFDC. On July 6, the bank received a restraining notice from Rosenthal directing it to stop all payments on the account. Shortly after July 12, McCahey received a letter from the bank informing her that her account had been restrained. The bank charged her $10 for this notice. Soon thereafter, McCahey called the bank and informed a bank employee that her account consisted entirely of welfare money. The bank employee told McCahey that welfare money was exempt from seizure and promised to contact Rosenthal. About July 18, the bank employee informed McCahey that Rosenthal did not believe the account contained only welfare money. The employee also informed McCahey that the bank would nevertheless no longer honor the restraining notice.

Also on July 18, McCahey received a formal Notice to Judgment Debtor from Rosenthal. New York law requires that such a notice be sent to judgment debtors whenever their property is restrained. The Notice disclosed the name of the judgment creditor and information about the underlying judgment. It also informed the judgment debtor that property of the debtor has been taken, that some forms of property are exempt from seizure (one example given is welfare such as AFDC), that the debtor may contact "the person sending this notice" or a lawyer or legal Aid, and that there is a procedure to get property back if the property is exempt.

As suggested by the form, McCahey contacted "the person sending this notice," i.e. Rosenthal, and informed him that the money in the account was welfare money and thus exempt from seizure. Rosenthal asked her to send him a copy of her welfare check. McCahey's next check arrived on August 15, and she then sent Rosenthal a copy.*fn1

On August 26, at the direction of Rosenthal, the Sheriff of Suffolk County served an execution on the bank. Three days later, the Sheriff sent another Notice to Judgment Debtor to McCahey, but McCahey did not receive it. On August 30, the bank turned over $35.13 to the Sheriff. On September 19, the Sheriff turned over the money to Rosenthal. Rosenthal received only $11 because of sheriff's fees. When he called the bank to determine why he had received only $11, the bank again informed him that the money in the account was exempt. Nonetheless, on October 4, 1983, the bank paid the Sheriff the entire balance in the account $406.82.

At some later date, the plaintiff contacted the legal Aid Society, as the Notice to judgment Debtor had recommended. Rather than invoke the procedures provided by New York statute to recover levied property, however, the Legal Aid lawyer attempted to intervene in litigation pending before Judge Lasker, Deary v. Guardian loan Co., 534 F. Supp. 1178 (S.D.N.Y. 1982). In that case, Judge Lasker had declared unconstitutional the predecessor statutes of the ones at issue in the instant case and had retained jurisdiction over the issue of whether the instant statutes were constitutional.*fn2 Leave to intervene in Deary was denied to McCahey. Nevertheless, Rosenthal returned McCahey's money as a consequence of the attempted intervention.*fn3

McCahey then instituted the present action to recover for the loss of the use of her money for four and one-half months.*fn4 She claims that during this period she fell behind in her rent and utility payments, skimped on food and clothing, and was afraid to use her bank account.

2. New York's Current Post-Judgment Remedies

In Deary, Judge Lasker found that New York's earlier post-judgment remedies violated due process because they did not provide notice to the debtor that: (i) property had been seized, (ii) such property might be exempt from seizure, or (iii) there were procedures available to contest the seizure. 534 F. Supp. at 1187-88. After Judge Lasker's decision, the New York legislature enacted the revisions at issue in this case. The revised statutory scheme is set out in the appendices to this opinion.

The current process of enforcing money judgments begins when the attorney for the judgment creditor issues a restraining notice to the holder of the judgment debtor's property. (APPENDIX A) The restraining notice includes information about the underlying action and informs the recipient that transfer of property by the debtor is punishable as contempt of court. if the restraining notice is sent to someone other than the judgment debtor, a copy of it must also be mailed to the judgment debtor within four days of service of the notice.

In addition to the information supplied by the restraining notice, the notice sent to the judgment debtor must state:


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 carefully. 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 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.

In order to obtain possession of the restrained property, the attorney issues an execution to the sheriff. (APPENDIX B) The execution states essentially the same information as the restraining notice. The sheriff then levies on the property by serving the execution on the person in possession. (APPENDIX C) That person must turn over the property to the sheriff "forthwith." If the execution does not state that a Notice to Judgment Debtor has been sent within the prior year by the attorney, then the sheriff must send yet another notice within four days of levy. The sheriff must hold the property for at least fifteen days before turning it over to the judgment creditor. (APPENDIX D)

The judgment debtor has two procedures for disputing seizures. (APPENDIX E) First, by serving notice on the judgment creditor and the sheriff prior to the application of the property to the debt, the judgment debtor can start a "special proceeding" to adjudicate rights in the property. Second, at any time, on its own motion or on that of any interested party, the court can issue protective orders. (APPENDIX F) If the debtor makes a motion to adjudicate his rights in ...

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