Academic journal article Albany Law Review

Restraining Notices

Academic journal article Albany Law Review

Restraining Notices

Article excerpt

Introduction I. Restraining Notices       A. What Are They?       B. Lien Significance       C. Order of Which Court?       D. Who May be Served and How?           1. Service on the Judgment Debtor or Obligor           2. Service on Third Parties       E. Transfers       F. Property           1. Personal           2. Secured Creditors as Garnishees           3. Purchasers of Restrained Personal Property           4. Real Property Analogies           5. Exempt Property           6. Fraudulently Conveyed Property           7. Alter Ego Cases       G. Debts       H. Right to Setoff       I. Paying Debts v. Setting off Debts       J. Contingent Debts       K. After-Acquired Property and After Arising Debts       L. Rent as Conditional Debt       M. Voluntary Compliance       N. Effectiveness and Reason to Believe       O. Specified in the Notice       P. Duration       Q. Court Permission for a Second Restraining Notice       R. Twice the Amount of the Judgment       S. Foreign Entities Present in New York       T. The Effect of a Bankruptcy Petition II. Banks and the Exempt Income Protection Act       A. In General       B. A New Exception       C. Notice to the Debtor in the Case of Bank Accounts       D. Bank Duties in the case of Restraining Notices and           Executions           1. Debtor Remedies When the CPLR Is Violated           2. The Immunity For Banks           3. The Adequacy of Other Remedies           4. The Implications for Pre-Judgment Attachment           5. The Judgment Creditor's Liability for Bank              Failures           6. Bank Liability Under Federal Civil Rights              Legislation       E. Claims of Exemption III. Information Subpoenas IV. Conclusion 


"In many respects this topic gives law its ultimate test." (1)

In Verizon New England, Inc. v. Transcom Enhanced Services, Inc., (2) a dodgy internet provider lost a major money judgment. (3) The judgment creditor served a restraining notice on a customer of the debtor. (4) The restraining notice prohibited the customer from paying any debt to the internet provider or from assigning, transferring, or interfering with property in which the internet provider had an interest. (5) Anticipating such a court order and anxious to receive services from the debtor, the customer had simply arranged to pay in advance. (6) According to the New York Court of Appeals, this had the effect of completely negating the restraining notice served on the customer. (7)

Dissenting from the appellate division opinion in the case, Justice Angela M. Mazzarelli warned, "[t]he majority's narrow view of what constitutes property for purposes of CPLR article 52 ... places in [the customer's] hands a virtual road map for frustrating the efforts of judgment creditors." (8)

In this Article, I will assess whether Justice Mazzarelli's remark is justified. My conclusion is that Verizon exposes serious weaknesses in the New York law of money judgment collection. Nevertheless, the decision in Verizon seems eminently correct on the existing statutory scheme in New York. The fault is not with the stars who populate the Court of Appeals but in ourselves, whose elective representatives enacted the CPLR and, in particular, an overzealous extension of the common law right of setoff in New York Debtor & Creditor Law section 151.

Verizon reveals many flaws in the CPLR's governance of the restraining notice and in the surrounding environment of money judgment enforcement. First, the CPLR defines "debt" in a distinctly old fashioned way. According to CPLR section 5201(a), "[a] money judgment may be enforced against any debt, which is past due or which is yet to become due, certainly or upon demand of the judgment debtor." In New York, contingent debts are not debts at all. (9)

As is well known, in ABKCO Industries, Inc. v. Apple Films, Inc., (10) the Court of Appeals attempted to palliate this defect by ruling that contingent debts are also contingent property interests of the judgment debtor. …

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