BILL ANALYSIS �
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
AB 2364 (Wagner), Page 6
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.
AB 2364 (Wagner), Page 8
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