BILL ANALYSIS                                                                                                                                                                                                    Ó






                  SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
                             Senator Juan Vargas, Chair


          AB 2364 (Wagner)                        Hearing Date:  June 27, 
          2012  

          As Amended: April 30, 2012
          Fiscal:             Yes
          Urgency:       No
          

           SUMMARY    Would authorize depository institutions with fewer 
          than ten California branches and require depository institutions 
          with ten or more California branches to designate a central 
          location for service of process for attachments and enforcement 
          of judgments against deposit accounts and the contents of safe 
          deposit accounts held by those institutions, would require that 
          service of such process be made at the central location in all 
          cases where there is such a designation, and would restrict the 
          reach of levies served at the central location to deposit 
          accounts and safe deposit boxes maintained at those financial 
          institutions' California locations.  Would establish mechanisms 
          for use by judgment creditors, in cases where a financial 
          institution has not designated a central location for service of 
          process, and make other technical, conforming, and clarifying 
          changes.  
          
           DESCRIPTION
           
            1.  Would provide that a financial institution may, and if it 
              has more than nine branches or offices in this state, shall 
              designate one or more central locations for service of writs 
              of attachment, execution levies, and other legal process for 
              enforcement of judgments within the state, and would provide 
              that each designated location shall be referred to as a 
              "central location."

           2.  Would require any financial institution that designates a 
              central location for service of levies and other legal 
              process for attachments and enforcement of judgments to file 
              a notice of that designation with the Department of 
              Financial Institutions (DFI), as specified.  The information 
              required to be included in this notice is intended to allow 
              an entity that wishes to perform service of process directed 
              at deposit accounts or safe deposit boxes held at an 




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              institution to learn the location, days and hours of 
              service, and other relevant information necessary to allow 
              such service of process to be accomplished.  

           3.  Would provide that, if a financial institution required to 
              designate a central location fails to do so, each branch or 
              office of that institution located in this state shall be 
              deemed to be a central location, and all of that 
              institution's branches and offices shall be deemed to be 
              branches and offices covered by central process.  If such a 
              central location has not been identified, this bill would 
              also provide a mechanism for use by a judgment creditor to 
              determine the branch at which a judgment debtor holds an 
              account, in order to facilitate the levy by that judgment 
              creditor of assets held by that judgment debtor at that 
              financial institution.  

           4.  Would provide that, except as specified, service of legal 
              process at a central location of a financial institution 
              shall be effective against all deposit accounts and all 
              property held for safekeeping, as specified, if those 
              accounts and that property are described in the legal 
              process and held by the financial institution at any branch 
              or office covered by central process and located in this 
              state.

           5.  Would further provide that, unless a financial institution 
              voluntarily elects to act upon process served at a location 
              other than its central location, that service of process 
              shall not be effective (thus, in order to be assured that 
              service of process to attach or execute upon a deposit 
              account or safe deposit box is effective, a process server 
              would have to serve that process at one of a financial 
              institution's central locations for service of process).  

           6.  Would require DFI to provide any person requesting it with 
              a copy of each current filing made by a financial 
              institution pursuant to this act, either by posting such 
              information on its Internet web site or by imposing a 
              reasonable fee for furnishing that information in another 
              manner, and would require DFI to update the information 
              available to the public within ten business days of 
              receiving any modification or revocation of a designation 
              from a financial institution. 

           7.  Would authorize a financial institution to modify or revoke 




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              any designation of a central location for service of legal 
              process by filing that modification or revocation with DFI, 
              provide a process by which the updated information would 
              become effective, and authorize judgment creditors to rely 
              on the superseded designation during the 30-day period 
              immediately following the effective date of a revocation or 
              modification.

           8.  Would make a variety of other technical and conforming 
              amendments to related code sections, which are intended to 
              facilitate the operation of the proposed changes described 
              above.

           EXISTING LAW
           
           9.  Provides that attachment and execution levies served on 
              financial institutions affect only the accounts or property 
              held by the particular branch of the institution at which 
              service of process is made (Code of Civil Procedure Section 
              684.110).

           10. Authorizes, but does not require, a financial institution 
              to designate a central location at which it will accept 
              service of process related to levies in a manner that can 
              affect all accounts throughout the institution's branch 
              system, but does not clarify the manner in which a levying 
              creditor would learn whether such a designation had been 
              made.  Further extends the reach of any levy served at such 
              a central location to any account maintained by that 
              institution anywhere in the United States or in any other 
              country (Code of Civil Procedure Section 700.140).

           COMMENTS

          1.  Purpose:   This bill is sponsored by the Consumer Financial 
              Services Committee of the Business Law Section of the 
              California State Bar, to modernize the service of levies on 
              bank accounts and safe deposit boxes, and ensure that 
              judgment creditors will no longer have to identify the 
              branch of a bank at which an account or safe deposit box is 
              maintained in order to serve a levy.  
           
           2.  Background and Discussion:   According to information 
              provided by this bill's sponsor, the process by which 
              garnishments involving bank accounts are served and 
              processed in California is in need of modernization and 




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              clarification.  California's existing rules were enacted in 
              1982, and reflected a period of time when bank account and 
              safe deposit box information was kept on index cards at 
              individual branches, rather than in electronic databases 
              accessible from multiple locations via computer.

          Under existing law, attachment and execution levies served on 
              depository institutions only affect the accounts or property 
              held by the particular branch of the institution at which 
              service of process is made.  Because of this, a plaintiff 
              seeking an attachment or a judgment creditor seeking to 
              enforce a judgment on assets held by a financial institution 
              must identify and separately serve every branch of that 
              institution at which the defendant or judgment debtor has an 
              account or safe deposit box, in order to reach all of the 
              deposits or safe deposit boxes of that defendant or judgment 
              debtor. 

          In the current age of computers, most banks that operate more 
              than a few branches elect to process levies on a centralized 
              basis, so that levies served on a particular branch are 
              forwarded to the bank's centralized levy processing 
              department, which then handles all aspects of levy 
              processing and prepares the bank's responses.  

          Current law allows depository institutions to designate a 
              central location at which they will accept service of levies 
              that would affect all accounts throughout their branch 
              systems, but does not mandate service at the designated 
              locations.  Existing law also lacks specificity as to how a 
              financial institution would designate a central office, and 
              how a levying creditor would determine whether such a 
              designation had been made.  Existing law also has the 
              unfortunate characteristic of extending the reach of any 
              levy served at a central location to every account of that 
              institution, which is maintained anywhere in the United 
              States or in any other country.  Multi-state and 
              multi-national depository institutions have refrained from 
              using existing central designation provisions, in part to 
              avoid having to search accounts and safe deposit boxes in 
              other states and countries, based on a California levy.  

          Another unfortunate consequence of existing law falls on levying 
              judgment creditors.  Under existing law, in order to 
              identify the bank branch at which a debtor's account is 
              held, the levying creditor must first obtain an Order of 




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              Examination of the Debtor and conduct a debtor examination 
              pursuant to specified sections of the Code of Civil 
              Procedure, or must notice a deposition or conduct other 
              post-judgment discovery to obtain this information.  A 
              judgment debtor who wishes to frustrate collection of a 
              judgment is free to withdraw his or her funds upon being 
              served with an Order of Examination or discovery request, 
              or, alternatively, after testifying, and before the judgment 
              creditor has served the notice of levy and memorandum of 
              garnishee on the bank branch.  

          One alternative, used by a small number of creditors' attorneys, 
              is to serve levies on all bank branches within a short 
              distance of the judgment debtor's location, in the hope that 
              the judgment debtor maintains an account at one of them.  
              However, because service by a process server costs 
              approximately $50 per levy, and debtor examinations and 
              depositions can cost hundreds or thousands of dollars, these 
              are wasteful procedures.  The sponsor observes that these 
              procedures can also add to the amount of the judgment owed 
              by the judgment debtor.

          This bill would solve several of the problems inherent in 
              existing law, which are described above, by doing the 
              following:  a) requiring financial institutions with ten or 
              more branches in California, and authorizing financial 
              institutions with nine or fewer branches in California, to 
              designate one or more central locations for service of legal 
              process for attachment and enforcement of judgments in the 
              state; b) establishing procedures for service of attachments 
              and other process for enforcement of judgments at the 
              financial institution's central location(s) and other 
              branches, c) requiring DFI to maintain a database of current 
              information regarding the central locations designated by 
              financial institutions in California, and to make 
              information in that database available to the public, as 
              specified; and d) establishing new procedures to be used by 
              judgment creditors and others seeking to attach or enforce 
              judgments against deposit accounts or safe deposit boxes, 
              which reflect the existence of central locations.  

          According to this bill's sponsor, the bill would not affect 
              procedures for service of a summons or complaint subpoena.  

           3.  Summary of Arguments in Support:   The Consumer Financial 
              Services Committee of the Business Law Section of the State 




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              Bar is sponsoring this bill for all of the reasons stated 
              above.  The California Bankers Association writes that it 
              worked collaboratively with the State Bar on this measure, 
              which it believes will modernize the procedures applicable 
              to service of attachment and execution of levies.  

          The Civil Justice Association of California is also supportive, 
              because the bill would limit the liability of financial 
              institutions when carrying out attachment and levy 
              procedures.  Although existing law authorizes financial 
              institutions to designate a central location for court 
              orders to be served, the law is unclear about how a central 
              location is designated, and whether a central location would 
              have to reach outside of the state.  AB 2364 clarifies these 
              issues and reduces the associated discovery costs of 
              carrying out those orders.  The bill will also help deter 
              debtors from gaming the system by hiding assets in different 
              locations of a bank, or withdrawing them when creditors seek 
              to identify those locations.  

           4.  Summary of Arguments in Opposition:    None received.

           5.  Outstanding Issue:   Although no amendments are suggested to 
              address this issue at this time, there is one outstanding 
              issue presented by this bill, which deserves mention.  This 
              bill would require DFI to collect service of process 
              information not only from its licensees, but also from any 
              financial institution doing business in California, 
              including federally-chartered financial institutions with 
              California branches and branches of banks chartered in other 
              states that have California branches.  Staff of DFI have 
              expressed concern that DFI lacks a database with which to 
              track the central designation information this bill would 
              require financial institutions to submit to the department 
              pursuant to this bill.  Because the Secretary of State's 
              office already maintains a database of similar information, 
              DFI staff has suggested that the Secretary of State's office 
              would be better suited to accepting the information this 
              bill would require certain financial institutions to 
              provide.

          The sponsor of this bill acknowledges the concerns expressed by 
              DFI staff, but believes they are misplaced.  The sponsor 
              observes that existing law requires service of a levy 
              against a bank account at the branch where the target of the 
              levy maintains his or her account.  Service of a levy on 




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              tangible personal property, such as the contents of a safe 
              deposit box, is also served where the assets are located.  
              Judgment creditors would not normally rely on Secretary of 
              State records to determine where to serve a levy, because 
              they need to know where the assets are.  The sponsor is also 
              uncertain whether the Secretary of State's office has any 
              way to distinguish financial institutions from non-financial 
              institutions within its databases.  

          There was insufficient time in which to resolve this issue prior 
              to the date this analysis was finalized.  However, Committee 
              staff is reaching out to the Secretary of State's office, in 
              an attempt to determine whether they agree with DFI staff on 
              this topic, and to assess whether future amendments might be 
              warranted to make the Secretary of State, rather than DFI, 
              the recipient of the centralized designations for service of 
              process by financial institutions.  

           6.  Amendments:  

               a.     One provision of this bill requires a declaration to 
                 be signed under penalty of perjury.  Given concerns about 
                 the cost of felonies to the state, the Senate follows a 
                 policy of substituting language that avoids the creation 
                 of new penalties of perjury.  The following language is 
                 suggested, to delete the penalty of perjury from this 
                 bill, while still furthering the bill's intent:

               Page 14, line 14, strike "A declaration" and insert:  An 
                 affidavit

               Page 14, line 31, strike "request" and insert:  affidavit

               b.     The sponsor of this bill is also proposing several 
                 technical amendments to make important, but 
                 nonsubstantive changes.  A mockup of this language is 
                 expected to be available for review by Committee members 
                 at the hearing.  The amendments are too technical to 
                 warrant description.  

           









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          LIST OF REGISTERED SUPPORT/OPPOSITION
          
          Support
           
          Consumer Financial Services Committee of the Business Law 
          Section of the California State Bar (sponsor)
          California Bankers Association
          Civil Justice Association of California
           
          Opposition
               
          None received

          Consultant: Eileen Newhall  (916) 651-4102