BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 2364| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 2364 Author: Wagner (R) Amended: 8/6/12 in Senate Vote: 21 SENATE BANKING & FINANCIAL INSTITUT. COMM. : 6-0, 6/27/12 AYES: Vargas, Blakeslee, Evans, Kehoe, Liu, Walters NO VOTE RECORDED: Padilla SENATE JUDICIARY COMMITTEE : 4-0, 7/3/12 AYES: Evans, Blakeslee, Corbett, Leno NO VOTE RECORDED: Harman SENATE APPROPRIATIONS COMMITTEE : 7-0, 8/6/12 AYES: Kehoe, Walters, Alquist, Dutton, Lieu, Price, Steinberg ASSEMBLY FLOOR : 74-0, 5/29/12 - See last page for vote SUBJECT : Civil procedure: attachment SOURCE : Consumer Financial Services Committee of the Business Law Section of the California State Bar DIGEST : This bill authorizes 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 CONTINUED AB 2364 Page 2 against deposit accounts and the contents of safe deposit accounts held by those institutions, requires that service of such process be made at the central location in all cases where there is such a designation, and restricts the reach of levies served at the central location to deposit accounts and safe deposit boxes maintained at those financial institutions' California locations. This bill establishes mechanisms for use by judgment creditors, in cases where a financial institution has not designated a central location for service of process, and makes other technical, conforming, and clarifying changes. ANALYSIS : Existing law: 1.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. 2.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. This bill: 1.Provides 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 provides that each designated location shall be referred to as a "central location." 2.Requires 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 CONTINUED AB 2364 Page 3 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 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.Provides 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 also provides 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.Provides 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.Provides 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.Requires 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 CONTINUED AB 2364 Page 4 reasonable fee for furnishing that information in another manner, and requires 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.Authorizes a financial institution to modify or revoke any designation of a central location for service of legal process by filing that modification or revocation with DFI, provides a process by which the updated information would become effective, and authorizes judgment creditors to rely on the superseded designation during the 30-day period immediately following the effective date of a revocation or modification. 8.Makes 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. Background 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 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. CONTINUED AB 2364 Page 5 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. Existing 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 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 CONTINUED AB 2364 Page 6 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. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes According to the Senate Appropriations Committee, ongoing costs of approxiamately $75,000 (Financial Institutions Fund) to the DFI to maintain and update the designations filed by financial institutions. SUPPORT : (Verified 8/8/12) Consumer Financial Services Committee of the Business Law Section of the California State Bar (source) California Bankers Association Civil Justice Association of California CONTINUED AB 2364 Page 7 ARGUMENTS IN SUPPORT : The Consumer Financial Services Committee of the Business Law Section of the State 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. ASSEMBLY FLOOR : 74-0, 5/29/12 AYES: Achadjian, Alejo, Allen, Atkins, Beall, Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, Brownley, Buchanan, Butler, Charles Calderon, Campos, Carter, Chesbro, Conway, Cook, Davis, Dickinson, Donnelly, Eng, Feuer, Fong, Fuentes, Furutani, Beth Gaines, Galgiani, Garrick, Gatto, Gordon, Gorell, Grove, Hagman, Halderman, Harkey, Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman, Jeffries, Jones, Knight, Lara, Logue, Bonnie Lowenthal, Ma, Mansoor, Mendoza, Miller, Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel Pérez, Portantino, Silva, Skinner, Smyth, Solorio, Swanson, Torres, Valadao, Wagner, Williams, Yamada, John A. Pérez NO VOTE RECORDED: Ammiano, Cedillo, Fletcher, Hall, Mitchell, Wieckowski JJA:n 8/8/12 Senate Floor Analyses CONTINUED AB 2364 Page 8 SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED