BILL ANALYSIS                                                                                                                                                                                                    Ó



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          ASSEMBLY THIRD READING
          AB 2364 (Wagner)
          As Amended April 30, 2012
          Majority vote 

           JUDICIARY           9-1         APPROPRIATIONS      17-0        
           
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          |Ayes:|Feuer, Wagner, Atkins,    |Ayes:|Fuentes, Harkey,          |
          |     |Dickinson, Gorell, Huber, |     |Blumenfield, Bradford,    |
          |     |Jones, Monning, Alejo     |     |Charles Calderon, Campos, |
          |     |                          |     |Davis, Donnelly, Gatto,   |
          |     |                          |     |Hall, Hill, Lara,         |
          |     |                          |     |Mitchell, Nielsen, Norby, |
          |     |                          |     |Solorio, Wagner           |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Wieckowski                |     |                          |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           SUMMARY  :  Establishes procedures for service of process and 
          execution of levies at a central location designated by a bank 
          and its other branches.  Specifically,  this bill  :   

          1)Requires a bank or financial institution that has more than 
            nine branch offices in this state, and authorizes those with 
            less than nine, to designate one or more central locations for 
            service of legal process within the state.  Further provides 
            that if the institution fails to make the designation, then 
            each branch shall be deemed to be a central location at which 
            service may be made.

          2)Requires the bank to file a notice of its designation with the 
            Department of Financial Institutions (DFI), and requires DFI 
            to update its online records to reflect current designations 
            within 10 days of filing.  Further provides that DFI shall 
            provide this information to any person requesting it, and may 
            satisfy this requirement by making the information available 
            for free to the public on its Web site.

          3)Clarifies that where a deposit account or property in a safe 
            deposit box is attached or has been levied upon, if the writ 
            of attachment or levy has been served at the designated 
            central location, the information described in the garnishee's 
            memorandum, which otherwise applies only with respect to 








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            property available at the branch where the levy was made, 
            shall instead apply to all offices and branches of the bank, 
            except as provided.  

          4)Clarifies that if the bank has designated a central location 
            for service, unless the bank elects to treat legal process 
            served at a branch as effective, that legal process so served 
            on the branch will not reach those accounts or property and 
            need not be reported on the garnishee memorandum. 

          5)Deletes the requirement that a writ of execution received at 
            the designated central location applies to all deposit 
            accounts held by the financial institution regardless of the 
            location of that property.  

          6)Clarifies that the effects of service of legal process and 
            execution of levies served within California is limited to 
            accounts and safety deposit boxes maintained at the bank's 
            branches and offices in this state (and not other states or 
            countries.)

          7)Increases, from 20 days to 30 days, the time from a judgment 
            creditor's motion of opposition by which a court must hold a 
            hearing to determine a judgment debtor's claim of exemption 
            from levy.

          8)Makes corresponding technical changes necessary to allow 
            service of notices of adverse claims upon banks that have, or 
            have not yet, designated a central location for service of 
            process.

          9)Makes corresponding technical changes necessary to allow the 
            Employment Development Department (EDD) to serve notice of 
            levy upon deposit accounts or other property held by banks for 
            employers, for the purpose of collecting delinquent employer 
            contributions to unemployment compensation programs.

           FISCAL EFFECT  :  According to the Assembly Appropriations 
          Committee, minor absorbable ongoing costs to DFI for filing 
          banks' designations and making this information available on its 
          Web site.  (Financial Institutions Fund)
           
          COMMENTS  :  According to the author, this bill is intended to 
          modernize the procedures applicable to service of attachment and 








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          execution levies against financial institutions.  This bill 
          requires all financial institutions with more than nine 
          California branches, and permits smaller financial institutions, 
          to designate a central location at which they will accept 
          service of levies and other process that would be effective as 
          to all accounts statewide.

          Under current law, a plaintiff or judgment creditor seeking to 
          levy on an account has to identify and separately serve each 
          branch of a bank at which the defendant or judgment debtor 
          maintains accounts to reach all of those deposits.  According to 
          the bill's sponsor, the Consumer Financial Services Committee of 
          the Business Law Section of the State Bar (Business Law 
          Section), this is because current rules "reflect the 
          pre-Information Age practice by which all of a bank's customer 
          records were maintained locally at the branch at which the 
          account was maintained, often on index cards.  One branch of a 
          bank did not have the tools to readily identify bank-customer 
          relationships at other locations of the same bank.  Hence, 
          existing law was crafted to require service of levies on the 
          particular branch at which the account was maintained and 
          serviced."

          According to the author, this bill seeks to address two problems 
          that arise from these current procedures for service of levies.  
          First, conducting discovery or a debtor's examination to 
          identify the proper branch to serve can add hundreds or even 
          thousands of dollars of unnecessary expenses to the cost of 
          judgment collection, a cost that may be added to the amount owed 
          by the judgment debtor.  Second, the current requirement that 
          the judgment creditor serve the proper branch can also 
          facilitate the concealment of assets by a dishonest judgment 
          debtor, because an examination of the debtor to identify the 
          branch can prompt the debtor to move the funds and game the 
          system.  By facilitating service of process at a central 
          location instead of at individual branches, the author contends 
          this bill will reduce unnecessary expenses on collection, and 
          will prevent unscrupulous debtors from manipulating the rules to 
          avoid their obligations.  For example, given the relatively 
          concentrated nature of the banking industry today, the sponsor 
          estimates that a creditor serving levies on the central 
          locations designated by just a handful of the largest banks 
          would probably capture a sizable majority of all of the deposit 
          accounts and safe deposit boxes in California.








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          This bill amends service of process rules for both attachment to 
          and execution of levies upon accounts, safe deposit boxes, and 
          other property held by the debtor or defendant's bank.  In 
          short, attachment can be seen as a pre-judgment security device, 
          while execution of levy is a post-judgment collection device.  
          Specifically, attachment is an order by a court, while a civil 
          action is pending, directing that money or property of the 
          defendant be held as security for the eventual satisfaction of a 
          judgment, if one is obtained.  In other words, attachment is a 
          provisional remedy to aid the plaintiff in the collection of a 
          money judgment by seizure of the defendant's money or property 
          in advance of a trial or judgment.  It is ordered when a court, 
          after a hearing on an application for a writ of attachment, 
          finds that the plaintiff has established the probable validity 
          of the claim, and that other requirements have been met.  In 
          contrast, writs of execution are issued only after judgment is 
          entered by the court.  They permit the judgment creditor to 
          collect against the property of the judgment debtor, including 
          deposit accounts held by a financial institution.  

          Although current law permits, but does not require, a bank to 
          designate a central location at which it would accept service of 
          levies for accounts throughout its branch system, to date most 
          banks in California have declined to utilize this designation 
          procedure.  This is true, according to the sponsor, even though 
          the development of information processing systems has enabled 
          virtually all financial institutions to centrally process 
          transactions, statements, etc., throughout their branch systems, 
          and many banks that operate multiple branches have already 
          elected to process levies on a centralized basis.  

          The Business Law Section suggests two explanations for this 
          curious state.  First, under current law, the designation would 
          have the effect of extending the reach of any levy not only 
          statewide, but to accounts located in other states and 
          countries, creating a potential duty to conduct nationwide and 
          worldwide searches of databases that banks have been unwilling 
          to assume.  The bill seeks to address this concern by providing 
          that the reach of any levy or writ served upon a bank's central 
          location for California only extends to accounts in California.  
          The second reason cited is that current law lacks specificity as 
          to how the designation would be made or communicated to a 
          creditor seeking to serve the bank with a levy.  The bill seeks 








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          to address this concern by requiring each bank to file a notice 
          of its designation with DFI, and by providing incentives to DFI 
          to maintain and update this information for free on its 
          publically available Web site.  


           Analysis Prepared by  :    Anthony Lew / JUD. / (916) 319-2334 


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