Banking Law Archives - New York Appellate Digest

Banking Law, Civil Procedure, Foreclosure

THE DISCHARGE IN BANKRUPTCY DID NOT ACCELERATE THE DEBT AND THEREFORE DID NOT START THE STATUTE OF LIMITATIONS RUNNING; THE IN REM FORECLOSURE ACTION REMAINS VIABLE (FOURTH DEPT).

The Fourth Department, in a full-fledged opinion by Justice Carni, determined that the mortgage debt was not accelerated by a discharge in bankruptcy, therefore the statute of limitations was not triggered and an in rem foreclosure action remains viable:

… [O]nce a mortgage debt is accelerated, the entire amount is due and the Statute of Limitations begins to run on the entire debt” … . “Where the acceleration . . . is made optional with the holder of the note and mortgage, some affirmative action must be taken evidencing the holder’s election to take advantage of the accelerating provision, and until such action has been taken the provision has no operation” … . Here, the mortgage provided plaintiff the option to accelerate the debt under certain circumstances, but did not state that the debt would be automatically accelerated if defendant obtained a discharge in bankruptcy.

We reject defendant’s contention that the discharge in bankruptcy automatically accelerated the debt and thus triggered the statute of limitations with respect to the entire debt … .

“[E]ven after the debtor’s personal obligations have been extinguished [by chapter 7 discharge], the mortgage holder still retains a right to payment in the form of its right to the proceeds from the sale of the debtor’s property,” and a bankruptcy proceeding does not “impair [the mortgage holder’s] right to commence an action against [the debtor] in rem to seek payment from the proceeds of a foreclosure sale” … . … [C]hapter 7 discharge removes the “mode of enforc[ement]” against the debtor in personam, but the obligation otherwise remains intact and does not impact an action in rem … . Wilmington Sav. Fund Socy., FSB v Fernandez, 2019 NY Slip Op 08290, Fourth Dept 11-15-19

November 15, 2019/by Bruce Freeman

Banking Law, Fraud, Uniform Commercial Code

BANK NOT LIABLE FOR PAYMENT RE: FRAUDULENT CHECKS SIGNED BY PLAINTIFF BUT ALTERED BY PLAINTIFF’S BOOKKEEPER TO PAY OFF HER CREDIT CARD BILLS (FIRST DEPT).

The First Department determined defendant bank (Citibank) and Citi Credit were not liable for cashing checks which were signed by plaintiff but which were altered by plaintiff’s bookkeeper to pay off her credit card bills. Plaintiff was notified of the fraud by Citibank:

Citibank’s actual knowledge of the fraud in February 2016 is, at this pleading stage, enough to sustain the claim of commercial bad faith that would render Citibank ineligible for the protection of UCC 3-405(1)(c) … , i.e., the “fictitious payee” or “padded payroll” defense … .

… UCC 3-405(1)(c) bars plaintiffs’ claims against Citi Credit. Nowhere in any of their papers — either the complaint or Dr. Weiser’s opposition affidavit — do plaintiffs allege other than conclusorily that Citi Credit, like Citibank a subsidiary of defendant Citigroup, Inc., had actual knowledge of the fraud. …

Although plaintiffs’ claims against Citibank are not barred by UCC 3-405(1)(c), they are barred by plaintiffs’ failure to satisfy a condition precedent to suit created by UCC 4-406(4) and Citibank’s checking account rules and regulations as set forth in its CitiBusiness Client Manual … . Plaintiffs failed, as required by the manual, to “notify us [Citibank] in writing within 30 days after we send or make available to you [plaintiffs] your account statement and accompanying items of any errors, discrepancies, or unauthorized transactions.” Weiser v Citigroup, Inc., 2019 NY Slip Op 06440, First Dept 9-3-19

September 3, 2019/by Bruce Freeman

Banking Law, Civil Procedure, Debtor-Creditor

THE CONTENTS OF A SAFE DEPOSIT BOX CONSTITUTED THE PROPERTY OF JOINT TENANTS WITH RIGHTS OF SURVIVORSHIP, THEREFORE THE CONTENTS ARE AVAILABLE TO SATISFY A JUDGMENT AGAINST ONLY ONE OF THE JOINT TENANTS (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Gische, in a matter of first impression, determined the presumption of joint tenancy with rights of survivorship applied to the contents of a safe deposit box. The judgment debtor NYCB was owed $11 million by one of two persons (Rachel and Ari) who signed rental agreements for a safe deposit box. The First Department held that Supreme Court properly ordered the safe deposit box opened and the contents turned over to satisfy the judgment against Ari:

CPLR 5225(b) provides for an expedited special proceeding by which a judgment creditor can recover “money or other personal property” belonging to a judgment debtor “against a person in possession or custody of money or other personal property in which the judgment debtor has an interest” in order to satisfy a judgment … . When two or more persons open a bank account, making a deposit of cash, securities, or other property, a presumption of joint tenancy with right of survivorship arises (Banking Law § 675[b] …). If the presumption is applied, each named tenant “is possessed of the whole of the account so as to make the account vulnerable to the levy of a money judgment by the judgment creditor of one of the joint tenants” … .

By relying on the terms of the rental agreement, NYCB met its burden of establishing Ari and Rachel as joint tenants with rights of survivorship of the safe deposit box account. The safe deposit box is controlled by each of them, each of them has access to the box at all times, and each of them can deposit property into the box or remove property from it without each other’s permission. Should either one of them die, the survivor would have access to the box and could remove all its contents … . Matter of New York Community Bank v Bank of Am., N.A., 2019 NY Slip Op 00544, First Dept 1-24-19

January 24, 2019/by Bruce Freeman

Banking Law, Lien Law, Real Property Actions and Proceedings Law (RPAPL)

BANK WAS ENTITLED TO A LIEN ON THE SUBJECT PROPERTY PURSUANT TO THE DOCTRINE OF EQUITABLE SUBROGATION (SECOND DEPT).

The Second Department, reversing Supreme Court, in this action to quiet title, determined that HSBC Bank was entitled to summary judgment on its counterclaim to impose an equitable lien on the subject property:

Under the doctrine of equitable subrogation, where the “premises of one person is used in discharging an obligation owed by another or a lien upon the premises of another, under such circumstances that the other would be unjustly enriched by the retention of the benefit thus conferred, the former is entitled to be subrogated to the position of the obligee or lien-holder” … . …

[The] submissions established that HSBC, as assignee of the FA mortgage, which secured the loan proceeds used to satisfy the Berkshire mortgage, which secured the loan proceeds used to satisfy the plaintiff’s mortgage obligation to Ocwen, was entitled to be put in the place of Ocwen as holder of the mortgage lien in the sum of $207,566.25 … . Lombard v Yacoob, 2019 NY Slip Op 00427, Second Dept 1-23-19

January 23, 2019/by Bruce Freeman

Banking Law, Conversion, Fraud

COMPLAINT ALLEGED VALID CAUSES OF ACTION FOR AIDING AND ABETTING FRAUD AND AIDING AND ABETTING CONVERSION AGAINST A BANK WHICH PROVIDED A LETTER TO PLAINTIFF STATING DEFENDANT MAINTAINED ENOUGH IN HIS BANK ACCOUNTS TO COVER A POST-DATED CHECK FOR OVER $400,000 (FIRST DEPT).

The First Department, reversing Supreme Court, over a dissent, determined that plaintiff auction house stated causes of action for aiding and abetting fraud and aiding and abetting conversion against defendant bank HSBC. Defendant Stettner bid over $425,000 for antique jewelry and sought to pay with a post-dated check. At plaintiff’s request HSBC provided a letter attesting to Stettner’s good standing at the bank and stating that Stettner maintained a balance of between $1 and $20 million. Stettner’s check bounced. The dissent argued that the complaint did not allege the bank’s knowledge of the fraud and conversion:

“A plaintiff alleging an aiding-and-abetting fraud claim must allege the existence of the underlying fraud, actual knowledge, and substantial assistance” … . In turn, the elements of an underlying fraud are “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury” … . …

Aiding and abetting conversion requires the existence of a conversion by the primary tortfeasor, actual knowledge, and substantial assistance… . “A conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person’s right of possession” … . William Doyle Galleries, Inc. v Stettner, 2018 NY Slip Op 08743, First Dept 12-20-18

December 20, 2018/by Bruce Freeman

Banking Law, Civil Procedure, Corporation Law, Fiduciary Duty

UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the shareholder derivative action against HSBC (bank) alleging breach of a fiduciary duty to implement money laundering prevention safeguards should not have been dismissed. The nominal defendant, HSBC Holdings, is organized under the laws of the United Kingdom and is headquartered in London. The motion to dismiss alleged the failure to seek permission for the action from the English High Court, as well as the failure to demonstrate the futility of seeking redress from the corporation, and the doctrine of forum non conveniens, required dismissal of the complaint. The Second Department held that the rule requiring permission of the English court was procedural and therefore the law of the forum (New York), not the United Kingdom, applied. The Second Department further held that the complaint demonstrated the futility of first seeking redress from the corporation and New York was the proper forum:

… [T]he Court of Appeals decided Davis v Scottish Re Group Ltd. (30 NY3d 247), which held that a Cayman Islands court rule requiring plaintiffs in shareholder derivative actions to first apply to the Cayman Islands Grand Court for leave to continue the action is a procedural rule of the Cayman Islands, and “therefore does not apply where, as here, a plaintiff seeks to litigate his derivative claims in New York” … . … Based upon the analysis set forth in Davis, we find that the judicial-permission requirement set forth in the UK Companies Act is a procedural rule applicable only in England and Wales, or Northern Ireland. …

As an alternative ground for affirmance … , the nominal defendants contend that the plaintiff lacks standing under New York law pursuant to Business Corporation Law § 626(c) because the amended complaint fails to allege that the plaintiff made efforts to secure initiation of the action by the board itself or set forth the reasons for not making such effort … . * * *

In view of the illegal purpose, magnitude, and duration of the alleged wrongdoing, as well as the identity of beneficiaries to the transactions, the allegations were such that the transactions should have come to the attention of senior management and the board of directors … . * * *

… [G]iven that the allegations of wrongdoing occurred in New York, that only 21 of the 75 individual defendants live and work outside of New York, and that 3 of the nominal defendants are either incorporated or headquartered in New York, the Supreme Court providently exercised its discretion in determining that the nominal defendants were not entitled to dismissal on the ground of forum non conveniens [CPLR 327]. Mason-Mahon v Flint, 2018 NY Slip Op 07716, Second Dept 11-14-18

CORPORATION LAW (UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/CIVIL PROCEDURE (CORPORATION LAW, UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/BANKING LAW (UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/FIDUCIARY DUTY (CORPORATION LAW, UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/SHAREHOLDER DERIVATIVE ACTION (UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/MONEY LAUNDERING (BANKING LAW, UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/CPLR 327 (UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/BUSINESS CORPORATION LAW 626 (UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))

November 14, 2018/by Bruce Freeman

Banking Law, Foreclosure

PLAINTIFF BANK DID NOT MEET FACE TO FACE WITH DEFENDANT BEFORE THREE MONTHLY MORTGAGE PAYMENTS WERE MISSED, PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT IN THIS FORECLOSURE ACTION SHOULD NOT HAVE BEEN GRANTED (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined plaintiff’s motion for summary judgment in this foreclosure action should not have been denied. Plaintiff bank did not seek a face to face meeting with defendant before three mortgage payments were missed:

In her pro se answer to the amended complaint, defendant alleged that the loan was subject to Federal Housing Administration guidelines and that plaintiff failed to comply with the regulations of the Department of Housing and Urban Development requiring the mortgagee to undertake certain pre-foreclosure measures, including a face-to-face meeting with the mortgagor, with respect to such loans. Although defendant did not specifically cite 24 CFR 203.604, the regulation establishing the face-to-face meeting requirement, in her answer, we afford the pro se answer a liberal reading … , and conclude that defendant “sufficiently apprise[d] plaintiff” that she was challenging plaintiff’s compliance with the requirements of that regulation … .

Plaintiff failed to establish that it complied with the requirements of 24 CFR 203.604 and thus failed to establish that it was entitled to judgment as a matter of law on the amended complaint… . More specifically, plaintiff did not arrange or attempt to arrange a face-to-face interview with defendant at any time “before three full monthly installments . . . [were] unpaid” (§ 203.604 [b]). Instead, the first attempt was made in June 2011, i.e., more than six months after the first installment went unpaid. Moreover, plaintiff did not establish that it sent notices to defendant by certified mail, as required by section 203.604 (d). Bank of Am., N.A. v Spencer, 2018 NY Slip Op 07573, Fourth Dept 11-9-18

FORECLOSURE (PLAINTIFF BANK DID NOT MEET FACE TO FACE WITH DEFENDANT BEFORE THREE MONTHLY MORTGAGE PAYMENTS WERE MISSED, PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT IN THIS FORECLOSURE ACTION SHOULD NOT HAVE BEEN GRANTED (FOURTH DEPT))/BANKING LAW (FORECLOSURE, PLAINTIFF BANK DID NOT MEET FACE TO FACE WITH DEFENDANT BEFORE THREE MONTHLY MORTGAGE PAYMENTS WERE MISSED, PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT IN THIS FORECLOSURE ACTION SHOULD NOT HAVE BEEN GRANTED (FOURTH DEPT))

November 9, 2018/by Bruce Freeman

Banking Law, Evidence, Negligence, Uniform Commercial Code

BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT),

The Second Department determined defendant bank’s (Capital One’s) motion for summary judgment in this forged-check negligence action was properly denied (without the need to consider the opposing papers). One of plaintiff corporation’s employees forged company checks made out to herself amounting to over $84,000. Plaintiff sued the bank for negligence pursuant to Uniform Commercial Code (UCC) article 4:

Under article 4 of the UCC, with regard to repeated forgeries by the same wrongdoer, the customer’s failure to exercise reasonable care and promptness in examining its bank statements and to timely notify the bank of the forgeries in accordance with UCC 4-406(2)(b) generally will result in the customer being precluded from asserting claims against the bank in connection with the loss associated with any such forgeries … . However, the loss of repeated forgeries may be shifted back to the bank in the circumstance where the bank failed to use ordinary care in paying the forged checks … . With regard to the issue of ordinary care, UCC 4-103(3) provides that “in the absence of special instructions, action or non-action consistent with clearing house rules and the like or with a general banking usage not disapproved by this Article, prima facie constitutes the exercise of ordinary care.” Thus, under this “safe harbor” provision, a bank can ensure that its conduct at least prima facie meets an ordinary care standard, by showing that it acted in accordance with general banking rules or practices … . However, it is the bank, as the party that benefits from the “safe harbor” provision, that bears the burden of proving general clearing house rules or general banking usage in order to establish ordinary care … . …

Capital One did not meet its burden of showing that it acted in accordance with general banking rules or general clearing house rules, and therefore, it failed to demonstrate prima facie that it exercised ordinary care in paying the forged checks … .Capital One’s submissions failed to provide any evidentiary basis that its processing of the forged checks comported with general banking usage. Redgrave Elec. Maintenance, Inc. v Capital One, N.A., 2018 NY Slip Op 0316, Second Dept 5-2-18

BANKING LAW (BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))/UNIFORM COMMERCIAL CODE (FORGED CHECKS, BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))/EVIDENCE (BANKING LAW, UNIFORM COMMERCIAL CODE, FORGED CHECKS, BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))/NEGLIGENCE (BANKING LAW, FORGED CHECKS, BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))/CHECKS (BANKING LAW, UNIFORM COMMERCIAL CODE, FORGED CHECKS, BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))/FORGED CHECKS (BANKING LAW, UNIFORM COMMERCIAL CODE, BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))

May 2, 2018/by Bruce Freeman

Banking Law, Civil Procedure, Debtor-Creditor

NOT CLEAR WHETHER $1740 EXEMPTION FROM A JUDGMENT CREDITOR’S RESTRAINT OF FUNDS HELD BY A BANK APPLIES TO ALL ACCOUNTS IN THE AGGREGATE OR TO EACH ACCOUNT, BANK’S MOTION TO DISMISS THE COMPLAINT ALLEGING EACH ACCOUNT MUST BE CONSIDERED SEPARATELY PROPERLY DENIED.

The Second Department determined the Bank of America’s (BOA’s) motion to dismiss a CPLR Article 52 proceeding contesting BOA’s application of the Exempt Income Protection Act (EIPA) was properly denied. The EIPA exempts $1740 in a bank account from restraint by judgment creditors. BOA aggregated the amount in all of the plaintiffs’ accounts, sent the plaintiffs $1740 and froze the rest. The plaintiffs argued the accounts should not be aggregated, rather the $1740 exemption should be applied to each account separately. The court deemed the statutory language ambiguous (the word “account,” singular, was used). The Second Department noted that Supreme Court’s conversion of the action to the correct format, a CPLR Article 52 special proceeding, was proper:

… [W]e find that CPLR 5222(i) is ambiguous as to whether it applies to an “amount” on deposit at a bank or to each “account” maintained at a bank. Turning to the legislative history of the EIPA, the bill jacket indicates that the stated legislative purpose was to create a procedure for the execution of money judgments on bank accounts containing exempt funds to ensure that debtors can keep access to exempt funds … . The legislative history, as reflected in the bill jacket, particularly in a letter in support of the bill written by the bill’s Assembly sponsor, Helene Weinstein, indicates that the statute applies to each account.

Accordingly, BOA failed to establish its entitlement to dismissal of the cause of action alleging violations of the EIPA, and that branch of its motion pursuant to CPLR 3211(a) was properly denied. Jackson v Bank of Am., N.A., 2017 NY Slip Op 02780, 2nd Dept 4-12-17

CIVIL PROCEDURE (EXEMPT INCOME PROTECTION ACT (EIPA), NOT CLEAR WHETHER $1740 EXEMPTION FROM A JUDGMENT CREDITOR’S RESTRAINT OF A FUNDS HELD BY A BANK APPLIES TO ALL ACCOUNTS IN THE AGGREGATE OR TO EACH ACCOUNT, BANK’S MOTION TO DISMISS THE COMPLAINT ALLEGING EACH ACCOUNT MUST BE CONSIDERED SEPARATELY PROPERLY DENIED)/BANKING LAW (EXEMPT INCOME PROTECTION ACT (EIPA), NOT CLEAR WHETHER $1740 EXEMPTION FROM A JUDGMENT CREDITOR’S RESTRAINT OF A FUNDS HELD BY A BANK APPLIES TO ALL ACCOUNTS IN THE AGGREGATE OR TO EACH ACCOUNT, BANK’S MOTION TO DISMISS THE COMPLAINT ALLEGING EACH ACCOUNT MUST BE CONSIDERED SEPARATELY PROPERLY DENIED)DEBTOR-CREDITOR LAW (EXEMPT INCOME PROTECTION ACT (EIPA), NOT CLEAR WHETHER $1740 EXEMPTION FROM A JUDGMENT CREDITOR’S RESTRAINT OF A FUNDS HELD BY A BANK APPLIES TO ALL ACCOUNTS IN THE AGGREGATE OR TO EACH ACCOUNT, BANK’S MOTION TO DISMISS THE COMPLAINT ALLEGING EACH ACCOUNT MUST BE CONSIDERED SEPARATELY PROPERLY DENIED)/EXEMPT INCOME PROTECTION ACT (EIPA) (NOT CLEAR WHETHER $1740 EXEMPTION FROM A JUDGMENT CREDITOR’S RESTRAINT OF A FUNDS HELD BY A BANK APPLIES TO ALL ACCOUNTS IN THE AGGREGATE OR TO EACH ACCOUNT, BANK’S MOTION TO DISMISS THE COMPLAINT ALLEGING EACH ACCOUNT MUST BE CONSIDERED SEPARATELY PROPERLY DENIED)

April 12, 2017/by CurlyHost

Banking Law, Civil Procedure

FOREIGN DEFENDANTS’ USE OF A NEW YORK CORRESPONDENT BANK ACCOUNT IN A SWISS BANK PROVIDED JURISDICTION OVER A LAWSUIT AGAINST THE BANK BY A SAUDI NATIONAL.

The Court of Appeals, in a full-fledged opinion by Judge Rivera, over a three-judge dissent and a concurrence, reversing Supreme Court, determined money-laundering transactions using a correspondent bank account in a New York branch of a Swiss bank provided jurisdiction over a lawsuit involving foreign parties. The individual plaintiff is a Saudi resident and co-owner of plaintiff corporation which builds oil rigs. Plaintiffs alleged three of its employees received bribes and kickbacks which were then deposited in defendant-bank (Pictet, based in Geneva) using a correspondent bank account in New York State:

We conclude that defendants’ use of the correspondent bank accounts was purposeful and that plaintiffs’ aiding and abetting and conspiracy claims arise from these transactions. … [T]he requirements of CPLR 302 (a)(1) are satisfied where the quantity and quality of contacts establish a “course of dealing” with New York, and the transaction and claim are not “merely coincidental” … . * * *

… [T]he defendants actively used a correspondent bank to further a scheme that caused harm. … [T]he defendants’ use of the New York account to transfer money provided the employees with the “laundered” profits from the bribery and kickback scheme. Also, … defendants used the correspondent account in New York “to move the necessary” money … . * * *

Here, the money laundering could not proceed without the use of the correspondent bank account, and, as plaintiffs argue, their claims require proof that the bribes and kickbacks were in fact paid. Rushaid v Pictet & Cie, 2016 NY Slip Op 07834, CtApp 11-22-16

CIVIL PROCEDURE (FOREIGN DEFENDANTS’ USE OF A NEW YORK CORRESPONDENT BANK ACCOUNT IN A SWISS BANK PROVIDED JURISDICTION OVER A LAWSUIT AGAINST THE BANK BY A SAUDI NATIONAL)/JURISDICTION (FOREIGN DEFENDANTS’ USE OF A NEW YORK CORRESPONDENT BANK ACCOUNT IN A SWISS BANK PROVIDED JURISDICTION OVER A LAWSUIT AGAINST THE BANK BY A SAUDI NATIONAL)/BANKING LAW (FOREIGN DEFENDANTS’ USE OF A NEW YORK CORRESPONDENT BANK ACCOUNT IN A SWISS BANK PROVIDED JURISDICTION OVER A LAWSUIT AGAINST THE BANK BY A SAUDI NATIONAL)

November 22, 2016/by CurlyHost