BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                  AB 2364|
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                                 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 
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          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 

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            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 

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            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. 


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          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 

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          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 

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           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 


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                         SUPPORT/OPPOSITION:  SEE ABOVE

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