BILL ANALYSIS �
AB 2364
Page 1
Date of Hearing: April 24, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 2364 (Wagner) - As Introduced: February 24, 2012
As Proposed to be Amended
SUBJECT : CIVIL PROCEDURE: ATTACHMENT
KEY ISSUE : SHOULD SERVICE OF WRITS OF ATTACHMENT AND EXECUTION
OF LEVIES BE REQUIRED TO BE MADE UPON FINANCIAL INSTITUTIONS AT
A CENTRALIZED LOCATION DESIGNATED BY THE INSTITUTION FOR ALL
DEPOSIT ACCOUNTS HELD BY THAT INSTITUTION, RATHER THAN UPON EACH
INDIVIDUAL BRANCH?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
According to the author, this bill is intended to modernize the
procedures applicable to service of attachment and execution
levies against financial institutions. 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. This bill would require all financial
institutions with ten or more California branches, and permit
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. The bill
also seeks to address factors that apparently discourage banks
from exercising authority currently available to them to
designate a central location for service of process. For
example, the bill clarifies that the reach of any levy or writ
served upon a bank's designated central location for California
only extends to accounts in California, and not in other states
or countries. Proponents of the bill contend that by
facilitating service of process at a central location instead of
at individual branches, this bill will increase efficiency by
reducing unnecessary collection expenses currently being spent
on serving multiple branch offices, and will help prevent
unscrupulous debtors from successfully gaming the system by
moving funds from one branch to another in an attempt to protect
their funds from levy. This bill is sponsored by the Business
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Law Section of the State Bar and supported by the California
Bankers' Association; it has no registered opposition.
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
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
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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.
EXISTING LAW :
1)Provides for pre-judgment attachment of a defendant's deposit
accounts and safe-deposit boxes in banks and other financial
institutions by personal service of a copy of the writ of
attachment and a notice of attachment on the financial
institution with which the deposit account is maintained.
(Code of Civil Procedure Sections 488.455 (deposit accounts)
and 488.460 (safe-deposit boxes). All further statutory
references are to this code unless otherwise noted.)
2)Requires a person from whom the sheriff has requested a
garnishee's memorandum to mail or deliver the memorandum to
the levying officer within 10 days of the request, whether or
not the levy is effective. Specifies that the garnishee's
memorandum shall describe any property, or amount and terms of
any obligation, sought to be attached or levied upon that the
defendant is not delivering to the levying officer and the
reasons for not doing so. (Sections 488.610 (attachment of
property) and 701.030 (levy to enforce a money judgment).)
3)Requires personal service of writs, notices, orders, or other
legal process, if on a bank or financial institution, to be
made at the office or branch that has actual possession of the
property levied upon or at which the deposit account levied
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upon is carried. (Section 684.110.)
4)Provides for post-judgment executions of levy on a judgment
debtor's deposit accounts in banks and other financial
institutions by personally serving a copy of the writ of
execution and a notice of levy on the financial institution
with which the deposit account is maintained. (Section
700.140.)
5)Provides that a judgment creditor cannot levy on a bank
account standing in the name of someone other than the
judgment debtor unless the levy is authorized by court order.
(Section 700.160.)
6)Requires a bank, upon delivery of an affidavit by an adverse
claimant, to refuse to pay out a deposit account or to deliver
property to the account holder, if the bank receives an
affidavit from an adverse claimant, as defined, attesting that
the account holder is a fiduciary of the adverse claimant and
is about to misappropriate the funds or property. Further
provides that the bank shall comply with any court order or
injunction properly served by an adverse claimant seeking to
freeze the account. (Financial Code Section 1450.)
7)Requires a bank maintaining a safety deposit box to refuse
access to the box or to deliver the personal property upon
receiving an affidavit (meeting the conditions above) from an
adverse claimant. (Financial Code Section 1620.)
8)Authorizes the director of the Employment Development
Department to levy on a deposit account or personal property
of an employer being held by a bank, for the purpose of
collecting delinquent employer contributions with respect to
unemployment compensation. Further requires notice of the
levy to be delivered or mailed to a central location
designated by the bank. (Unemployment Insurance Code Section
1755.)
COMMENTS : According to the author, this bill is intended to
modernize the procedures applicable to service of attachment and
execution levies against financial institutions. This bill
would require all financial institutions with ten or more
California branches, and permit smaller financial institutions,
to designate a central location at which they will accept
service of levies and other process that would be effective as
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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, 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.
Background on attachment and execution of levy. 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
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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. In short, attachment can be seen as
a pre-judgment security device, while execution of levy is a
post-judgment collection device. 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.
This bill attempts to smooth out past implementation issues.
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
to address this concern by requiring each bank to file a notice
of its designation with the Department of Financial Institutions
(DFI), and by providing incentives to DFI to maintain and update
this information for free on its publically available web site.
The bill is supported by the California Bankers' Association,
which also notes its collaboration with the sponsors of the bill
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to develop these modernized procedures.
Author's proposed amendments. As proposed to be amended, this
bill: (1) updates provisions in the Unemployment Insurance Code
to allow the Employment Development Department (EDD) to continue
to serve notice of levy upon deposit accounts or other property
held by banks, for the purpose of collecting delinquent employer
contributions to unemployment insurance programs; (2) seeks to
make corresponding technical changes to the Financial Code
needed to ensure that service of notices of adverse claims upon
banks is not disrupted under a new centralized scheme; and (3)
omits provisions seeking to specify new procedures to follow
when legal process does not identify the judgment debtor in
precisely the same fashion as he or she is identified in bank
account holder records.
REGISTERED SUPPORT / OPPOSITION :
Support
Consumer Financial Services Committee, Business Law Section of
the State Bar (sponsor)
California Bankers Association (CBA)
Opposition
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334