Enforcing Judgments Against Bank Accounts Held Outside N.Y.

By Richard A. Klass and Elisa S. Rosenthal


[This article first appeared in the November 20, 2014 edition of the New York Law Journal.]


New York Civil Practice Law and Rules Article 52 dictates the procedures that a judgment creditor must follow to exercise its rights to enforce a judgment entered in New York.

When both the judgment debtor and its assets are located within New York State, the procedure is fairly straightforward. When the assets of the judgment debtor are located outside of New York State, however, the ability to levy upon the judgment debtor's assets can be tricky.

There are several factors that both federal and state courts in New York have considered in determining whether or not assets held in another state can be used to satisfy a New York judgment, including: (a) the separate entity rule; (b) jurisdiction; and (c) the type of proceeding.

The Separate Entity Rule

The separate entity rule, one which was adopted from the old English common law, provides that each branch of a bank is considered to be a separate entity. The mere fact that a bank may have a branch inside of New York is insufficient to render accounts outside of New York subject to attachment by a New York court. See Motorola Credit Corp. v. Uzan, 288 F.Supp.2d 558 (S.D.N.Y. 2003).

In 2009, the separate entity rule was loosened by the Court of Appeals, due to the computerization of bank information and centralized systems, Digitrex v. Johnson, 491 F.Supp. 66 (S.D.N.Y. 1980). Indeed, in Koehler v. Bank of Bermuda, 12 N.Y.3d 533 (2009), the New York State Court of Appeals held that the Legislature intended CPLR Article 52 to have extraterritorial reach when it amended CPLR 5224 (Consol. 2011) to facilitate the disclosure of materials located outside of New York to judgment creditors seeking to collect a judgment.

Following Koehler, courts facing similar issues wondered whether the separate entity rule had been completely abrogated by Koehler. See, e.g.,Global Tech. v. Royal Bank of Can., 34 Misc.3d 1209(A) (Sup. Ct. New York Co. 2012), Parbulk II AS v. Heritage Maritime, 35 Misc.3d 235 (Sup. Ct. New York Co. 2011). Subsequent decisions, particularly in the First Department, however, have held that if the Court of Appeals had intended to eliminate the separate entity rule, it would have, and that "any future exception to the separate entity rule would require a pronouncement from the Court of Appeals or an act of the Legislature." Ayyash v. Koleilat, 38 Misc.3d 916, 924 (Sup. Ct. New York Co. 2012) citing Nat'l Union Fire Ins. Co. v. Advanced Empl. Concepts, 269 A.D.2d 101 (1st Dept. 2000).

In fact, several trial courts since Koehler have instead held by the traditionally well-settled rule that "in order to reach a particular bank account the judgment creditor must serve the office of the bank where the account is maintained." See, e.g., Global Tech. v. Royal Bank of Can., 34 Misc.3d 1209(A) (Sup. Ct. New York Co. 2012), Parbulk II AS v Heritage Maritime, 35 Misc.3d 235 (Sup. Ct. New York Co. 2011). The Court of Appeals' deliberate sidestepping1 the issue of the separate entity rule in Koehler may be the impetus for its most recent determination in Motorola Credit v. Standard Chartered Bank, decided on Oct. 23, 2014.

In a divided opinion, the Court of Appeals, in Motorola, affirmed the long-standing common law tenet of the separate entity rule, holding that "limiting the reach of CPLR 5222 restraining notice in the foreign banking context, the separate entity rule promotes international comity and serves to avoid conflicts among competing legal systems." Motorola Credit v. Standard Chartered Bank, No. 162, NYLJ 1202674400477 at *11 [Oct. 23, 2014].

Jurisdiction

The Court of Appeals in Koehler analyzed the issue of jurisdiction in connection with judgment enforcement proceedings. The court explained that since a post-judgment enforcement action is against a person, and the purpose of the proceeding is to force the person to convert property he owns into money for payment to a creditor, that New York has the authority to order the holder of a judgment debtor's asset to turn over property of the judgment debtor held outside the state if the court has personal jurisdiction over a judgment debtor. Koehler, 12 N.Y.3d at 540, citing Siegel, N.Y. Prac. §510, at 866 [4th ed].

In Koehler, the plaintiff sought to enforce a domesticated foreign judgment as against the defendant by issuing a restraining notice to the Bank of Bermuda, which it asserted held stock on behalf of the defendant. The court established personal jurisdiction over the defendant based upon defendant's willingness to subject itself to the court's jurisdiction without objection. The court then determined that, based upon its in personam jurisdiction over the defendant, it can extend its reach to assets of the defendant, even when those assets are held outside of New York State, either in another state or another country. Koehler v. Bank of Bermuda, 12 N.Y.3d 533 (2009). In fact, the court in Koehler went so far as to hold that the broad language of CPLR Article 52 extends to the turnover of out-of-state assets held by a garnishee. Id. at 541.

Utilizing a jurisdictional analysis to determine whether the out-of-state assets of a judgment creditor can be turned over, as in Koehler, has precedential support. In U.S. v. First Nat'l City Bank, the case involved notice and levy of a federal tax lien upon all of the assets of an Uruguayan corporation. U.S. v. First Nat'l City Bank, 379 U.S. 378 (1965). The United States sought to foreclose its tax lien upon all sums held for the corporation in the Montevideo branch office of the bank. Id. The bank had been served with an injunction preventing the bank from transferring any assets of the corporation during the pendency of the foreclosure, but the corporation had not been served. Id.

The U.S. Supreme Court held the bank "has actual, practical control over its branches; it is organized under a federal statute, which authorizes it to sue and be sued, complain and defend, in any court of law and equity, as fully as natural persons as one entity, not branch by branch. Id. The branch bank's affairs are, therefore, as much within the reach of the in personam order entered by the District Court as are those of the home office…" Id.

Although the determinations in Koehler and First Nat'l City Bank appear to put to bed the issue of New York's jurisdiction over out-of-state bank branches, there remains an important factor to address before determining whether, in fact, a judgment should, or needs to be domesticated in a foreign state or whether New York can assert its jurisdiction. The remaining issue is determining whether the proceeding is an attachment proceeding, an injunction proceeding or a turnover/garnishment proceeding.

Collection Proceedings

Under New York law, there are several different ways in which a debtor's assets can be reached; (a) attachment; (b) turnover proceeding; and (c) restraining notice/execution.

Attachment: An attachment proceeding is a pre-judgment remedy involving the seizure of the defendant/debtor's property so that they are no longer able to use the property in order to ensure satisfaction of a prospective judgment. Attachment proceedings in New York are governed by CPLR Article 62, and as stated in Koehler, enable a court to have jurisdiction over the property rather than the person. Koehler, 12 N.Y.3d at 539, ("It is a fundamental rule that in attachment proceedings, the res must be within the jurisdiction of the court issuing the process in order to confer the jurisdiction").

In Abuhamda, moneys were transferred from a bank branch located in New York to a branch in Jordan. Abuhamda v. Abuhamda, 654 N.Y.S.2d 11 (1st Dept. 1997). The court held that it had the authority to order a preliminary injunction to direct the bank to freeze the account in Jordan, based upon the Supreme Court's ruling in First Nat'l City Bank. Id. The fact that the bank did business in New York State subjected the bank to its jurisdiction. Id.

Turnover Proceeding: A turnover proceeding is a post-judgment special proceeding, under CPLR Article 52, in which the judgment creditor may obtain an order from the court forcing a third-party garnishee in possession of property belonging to the judgment debtor to turn the property over to the judgment creditor. The analysis performed in Koehler resulted in a determination that "a New York court with personal jurisdiction over a defendant may order him to turn over out-of-state property regardless of whether the defendant is a judgment debtor or garnishee."

In Gryphon, the plaintiff, through a turnover proceeding, sought to have assets of the defendant turned over to the plaintiff to satisfy the judgment issued against the defendant based upon its non-payment of guaranteed notes. Gryphon Dom. VI v. APP Int'l. Fin. Co., 41 A.D.3d 25 (1st Dept. 2007). The court held that New York had jurisdiction over the defendant based upon the language of the notes and that on the basis of the court's jurisdiction over the defendant it could order the turnover of assets held outside of New York. Id.

Although the Court of Appeals in Koehler appeared to give broad discretion to a judgment creditor in terms of its ability to enforce its judgment, in 2013, the court narrowed the holding in Koehler in the case of Commonwealth of Northern Mariana Islands v. Canadian Imperial Bank of Commerce, 21 N.Y.3d 55 (2013).

In Commonwealth of Northern Mariana Islands, the issue became one of not just possession and custody, but of control over the judgment debtor's assets. Id. The court held that the bank's parent company in Toronto maintained possession and custody over the judgment debtor's assets, not the subsidiary, and the fact that the holder of the assets controls the subsidiary was not sufficient to "compel another entity, which is not subject to this state's personal jurisdiction, to deliver assets held in a foreign jurisdiction." Id.

Restraining Notices/Execution: A restraining notice or execution does not necessarily require court assistance or intervention. Once the court has issued a judgment, the judgment creditor may pursue collection of that judgment pursuant to the rules laid out in CPLR Article 52, including issuance of an income execution, a restraining notice upon a bank, or an execution issued to the sheriff to levy upon property owned by the judgment debtor.

In Global Tech., a restraining notice relative to a judgment was served upon a defendant, Royal Bank of Canada, on its New York branch. The court in Global Tech. discussed that, "a party that seeks a restraining notice need only engage an attorney, who is authorized to issue a restraining notice as an officer of the Court. The court has no involvement with the issue of whether service of the restraining notice upon the garnishee comports with due process until the garnishee challenges the restraining notice…when serving a restraining notice of assets held outside the state, the restraining notice must be served upon the individual bank branches holding the assets of the judgment debtor, rather than the home office or a branch within the State of New York." Global Tech. v. Royal Bank of Can., 34 Misc.3d 1209(A) (Sup. Ct. New York Co. 2012).

The holding in Global Tech. has support in Koehler as well. In the court's analysis of CPLR 5225(a)-(b) (Consol. 1964), the court took special note of the how the authority is invoked; in CPLR 5225(a) the judgment creditor must file a motion to order the judgment debtor to turn over property in his possession, while CPLR 5225(b) requires a special proceeding by the judgment debtor over a garnishee who is not a party to the main action. See Koehler, 12 N.Y.3d at 541.

In Motorola, the issue with Standard Chartered Bank began when Motorola served a restraining order on the New York branch of the defendant, a foreign bank from the United Kingdom. Motorola argued that based upon Koehler, the separate entity rule was no longer valid law. Standard Chartered Bank disagreed, asserting the separate entity rule is essential in the realm of international banking. The Court of Appeals' determination affirmed Standard Chartered Bank's position that "abolition of the separate entity rule would result in serious consequences in the realm of international banking." Motorola v. Standard Chartered Bank at *13.

On the question of how to enforce a judgment against a judgment debtor against assets held outside of New York, a determination of the type of enforcement action must first be ascertained. If the judgment creditor prefers collection by a restraining notice, the separate entity rule applies, and the judgment should then be domesticated in the foreign jurisdiction in order to assert jurisdiction over the assets. Should the judgment creditor instead prefer to enforce its judgment by a turnover proceeding, the court can assert its authority over assets held outside of the state so long as the court has exercised its jurisdiction over the holder of the assets.


Endnotes:

1. "Notably absent from our decision in Koehler was any discussion of the separate entity rule."Motorola Credit v. Standard Chartered Bank, No. 162, NYLJ 1202674400477 at *9 (Oct. 23, 2014).


Richard A. Klass is an attorney with the Law Office of Richard A. Klass in Brooklyn. Elisa S. Rosenthal is an associate of the firm.


Reprinted with permission from the November 20, 2014 edition of the New York Law Journal © 2014 ALM Media Properties, LLC. All rights reserved.
Further duplication without permission is prohibited. ALMReprints.com - 877-257-3382 - reprints@alm.com.

— by Richard A. Klass, Esq. and Elisa S. Rosenthal

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The firm's website: www.CourtStreetLaw.com

Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.

Prior results do not guarantee a similar outcome.

Debt Collection Tips: Motions to Dismiss Affirmative Defenses or Counterclaims

After a suit is filed against a debtor to collect upon a debt, the defendant will file an Answer which may include "affirmative defenses" or "counterclaims."  These allegations must be handled with vigilance from the onset to attempt successful recovery in the litigation.

An "affirmative defense" is a defense to a law suit which must be proved by the defendant.  Examples of affirmative defenses would include, e.g., bankruptcy, statute of limitations, improper service, and accord and satisfaction.  The notion is that those types of defenses would likely be determinative to the claim.  Therefore, the defendant must assert them in the Answer so as not to "surprise" the plaintiff-creditor at the time of trial.  Some affirmative defenses must be asserted either pre-Answer or in the Answer, or they are deemed waived by the defendant.  After receipt of the Answer, the plaintiff's counsel should scan the Answer to identify any affirmative defenses and assess their viability.  To the extent that an affirmative defense seems frivolous, meritless, or superfluous, an appropriate motion to dismiss the affirmative defense should be made sooner rather than later.  The court will then determine whether to sustain the affirmative defense or dismiss it from the onset of the litigation.

As to any counterclaims which may be asserted in the Answer, a careful review must take place as to whether it relates to the matter complained of in the complaint, or relates to a separate matter.  Sometimes, the plaintiff will have an insurance policy which covers the counterclaim, and the insurance company will provide a defense to the counterclaim separate from the prosecution of the underlying suit.  If it is deemed that the counterclaim "fails to state a valid cause of action," then an appropriate motion may be brought to dismiss the same.

— by Richard A. Klass, Esq.

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copyr. 2014 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

New York foreclosure cases nearing 6 year statute of limitations

As reported today in the New York Times, there are increasing numbers of foreclosure cases in New York State where lenders may be unable to seize homes.  Why?  Because the State's statute of limitations on foreclosure cases may be exceeded.

If you have a foreclosure case that has been dragging on for nearly six years, there may be relief on the horizon.

Does this sound similar to your situation?  If so, and if you require legal representation, call my office for more information.

The full New York Times article is available here: http://nyti.ms/1G6IuQ3

— by Richard A. Klass, Esq.

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copyr. 2015 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Debt Collection Tips: Restraining an Account

Once the creditor has obtained a Judgment from a court, one of the options for obtaining payment of the Judgment is to restrain funds of the debtor contained in an account.

The process is to serve a "restraining notice" upon the subject bank, as permitted by statute.  In turn, the bank then holds the funds contained in accounts belonging to the judgment debtor pending further action on the part of the creditor.  This restraint remains in effect upon the funds for a period of one year.

The next step of the creditor is to remove the restrained funds from the bank.  This is done either through an Execution issued to a Sheriff or Marshal (since that person is deemed as "enforcement officer" able to obtain the funds), or through a "turn-over proceeding," where the creditor begins a separate action against the debtor and the bank as a garnishee requesting that the court direct the garnishee/bank to turn over the restrained funds.

Once the restrained funds are delivered to the creditor through either of the above methods, the accounts of the debtor will continue to be restrained by the bank (where, in the event that new funds were deposited, they would be restrained as well) until the creditor issues a "release" letter to the bank or a Satisfaction of Judgment is filed by the creditor.

Where an account of the debtor is held jointly with another person, it is necessary to file a turn-over proceeding, as the court must determine the respective rights of the account-holders to the funds.  One defense to the proceeding is that the debtor is a joint account-holder only for convenience purposes.

— by Richard A. Klass, Esq.

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copyr. 2014 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Debt Collection Tips: Docketing the Judgment

Once the creditor has obtained a Judgment from a court, the collection process has now begun.  In the context of collecting the money due on the Judgment, it may be necessary to "docket" the Judgment in the County Clerk's Office.

In each county of the State, there is a court of general jurisdiction called the "Supreme Court."  In some counties, towns, cities, and villages, there are lower courts (such as Civil Court, District Court, etc.).  Judgments entered in those courts are not automatic liens upon any realty that the debtor may own in the county.  Rather, a "Transcript of Judgment" must be obtained from the court and filed with the County Clerk to create the lien.  Once docketed, the Transcript of Judgment will serve as notice to others that there is a lien upon any realty owned by the debtor; other parties are now aware that the lien must be paid according to its priority.

Judgments entered in a Supreme Court case are automatically docketed with the County Clerk.

Unlike New Jersey or some other states, which have state-wide recognition, the Judgment must be docketed by the filing of a Transcript of Judgment in each county in which the debtor has realty in order to create the lien.

The docketing of a Judgment is also essential when attempting to issue an Income Execution to a County Sheriff in another county (where, perhaps, the employer of a debtor is located).  Another purpose of docketing a Judgment may be where the Judgment was entered in federal District Court and the creditor wants to use a Sheriff instead of a United States Marshall.

— by Richard A. Klass, Esq.

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copyr. 2014 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Difference of Opinion regarding Mandatory Attorney Fee Dispute Arbitration

The Fee Dispute Resolution Program (22 NYCRR §137) was created to mandate arbitration of fee disputes between attorneys and their former clients in civil matters. It has been subject to differing opinions among different departments leading to divergent opinions on the issue of whether or not an arbitration is necessary when the former client fails to object the validity of the underlying fee.

In 2000, the Second Department determined in Scordio that when there is a fee dispute between an attorney and a former client, the attorney was not required to send notice to the former client informing them of their rights to arbitrate when there was no dispute or objection to the reasonableness of the attorney’s fees. Scordio v. Scordio, 270 A.D.2d 328 (2nd Dept. 2000).

The decision in Scordio would ordinarily lend to the notion that an attorney may pursue collection of his fees without notice to a client of his right to arbitration but the rules regarding arbitration of fee disputes were modified and expanded in 2002, and now lists exceptions to when a notice to a client of his right to arbitrate can be waived. In Wexler & Burkhart, the court held that a reading of the Rules in this way would “effectively eviscerate Part 137 of the Rules, a comprehensive scheme for the informal and expeditious resolution of fee disputes between attorneys and clients through arbitration and mediation.” Wexler & Burkart LLP v. Grant, 12 Misc.3d 1162(A) (Nassau Cty. 2006).

The court in Rotker determined that “the rules of the appellate division establish a clear public policy in favor of the arbitration of attorney-client fee disputes.” Rotker v. Rotker, 195 Misc.2d 768 (Westchester Cty. 2003). Rotker was a matrimonial case where the attorneys for the wife instituted a retainer lien against her for non-payment of her fees. The attorneys asserted that since the client had not disputed the fees, under Scordio, they were entitled to payment without arbitration. The court held that even if it was determined that counsel was not fired for cause, the attorneys were required to provide the client notice of her rights to arbitrate the dispute, with said notice given in writing. If the client then failed to avail herself of her right to arbitrate after 30 days of mailing the notice, the right to arbitration would be waived. Id at 790-791.

The court in Rotker went so far as to hold that the failure of former counsel to send the 30-day notice, regardless of whether or not there is a dispute, would mandate the dismissal of any action for unpaid counsel fees. Rotker at 791.

The basic tenet held in these decisions is the idea that if the Scordio argument is used as a means to avoid Rule 137, then nearly anyone can circumvent the protections that Rule 137 was meant to provide. Wexler & Burkhart LLP at 214;

The position of the Wexler & Burkhart decision and the Rotker decision was most recently supported in Noel F. Caraccio, where the court held that regardless of whether there was an objection or dispute as to the fees when they were billed, the attorney was still required to send the 30-day notice of the right to arbitrate. Noel F. Caraccio PLLC v. Thomas, 29 Misc.3d 1230 (A) (City Ct., Rye 2010); Rotker at 791.

Thus, it is questionable as to whether Scordio remains good law, and as such, it is prudent to notify the former client of his rights to arbitrate the fee in order to prevent a dismissal of an attorney’s action for payment.

— Elisa S. Rosenthal, Esq.

Associate

Law Office of Richard A. Klass

Copyr. 2014

Elisa S. Rosenthal, Esq. is an associate of the law firm of Richard A. Klass, Esq.. She practices primarily in the areas of commercial litigation, debt collection/enforcement of judgments, legal malpractice and real estate litigation. She may be reached by phone at (718) COURT-ST [(718) 268-7878)] or www.courtstreetlaw.com.


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copyr. 2014 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

An attorney maintains a common law and statutory charging lien in the judgment

Under common law, an attorney was originally only entitled to a lien upon the judgment but the scope of the charging lien was extended by statute [Judiciary Law §475] to give the attorney a lien upon the client's cause of action as well. The lien comes into existence, without notice or filing, upon commencement of the action or proceeding. See, Matter of Heinsheimer, 241 NY 361 [1915]. In Matter of Heinsheimer, Judge Cardozo stated,

If the attorney got possession of the fund, he had a general lien. If he did not get possession, his lien was for the services that brought the fund into existence. This charging lien still exists under our statutes. It has been enlarged to the extent that it now attaches to a cause of action even before judgment. ‘From the commencement of an action or special proceeding‘ the attorney now has a lien ‘upon his client's cause of action, claim or counterclaim, which attaches to a verdict, report, decision, judgment or final order in his client's favor, and the proceeds thereof in whosoever hands they may come.‘ (Judiciary Law, Cons. Laws, ch. 30, sec. 475.) Except as thus changed, the charging lien is today what it was at common law.

The concept of protecting an attorney’s lien in litigation from inception through and after entry of judgment is an old one. As stated in the decision of Fischer-Hansen v. The Brooklyn Heights Railroad Company, 173 NY 492 [1903].

There is much learning in the books relating to the lien of an attorney upon a judgment for his costs as it existed before the statute, and though now virtually obsolete, it shows the fixed determination of the courts to protect attorneys against fraudulent settlements. The lien upon a judgment was not created by statute, but was ‘a device invented by the courts for the protection of attorneys against the knavery of their clients by disabling their clients from receiving the fruits of recoveries without paying for the valuable services by which the recoveries were obtained.’ Goodrich v. McDonald, 112 NY 157 [1889].

In Peri v. The New York Central and Hudson River Railroad Company, 152 NY 521 [1897], the Court of Appeals held that an attorney’s charging lien is a statutory lien “of which all the world must take notice, and any one settling with a plaintiff without the knowledge of his attorney, does so at his own risk.” In this case, that risk is borne by all of the defendants.

New York Judiciary Law Section 475 provides:

From the commencement of an action, special or other proceeding in any court or before any state, municipal or federal department, except a department of labor, or the service of an answer containing a counterclaim, or the initiation of any means of alternative dispute resolution including, but not limited to, mediation or arbitration, or the provision of services in a settlement negotiation at any stage of the dispute, the attorney who appears for a party has a lien upon his client's cause of action, claim or counterclaim, which attaches to a verdict, report, determination, decision, award, settlement, judgment or final order in his client's favor, and the proceeds thereof in whatever hands they may come; and the lien cannot be affected by any settlement between the parties before or after judgment, final order or determination. The court upon the petition of the client or attorney may determine and enforce the lien.

The Court of Appeals noted, in Matter of City of New York (United States of America-Coblentz), 5 NY2d 300 [1959], that the statute gives an attorney a lien on the cause of action which attaches to the judgment from the commencement of the action. In the decision, the Court stated that Section 475, in substance, declares the common law. The origin of an attorney's lien, whether as retaining or as charging, is obscure, but in all events, irrespective of type, has been recognized and enforced by the courts from very early times (see Fourth Annual Report of N. Y. Judicial Council, 1938, p. 49; 7 C. J. S., Attorney and Client, § 210 et seq.; 5 Am. Jur., Attorneys at Law, § 208 et seq.). The underlying purpose at both common law and now, by statute, is to protect an attorney against the ‘knavery of his client’ (Matter of Rosentover v. Weiss, 247 AD 137 affirmed 272 N.Y 557; Goodrich v. McDonald, 112 NY 157) and, being created by statute, does not require the giving of any notice in order to bring it into existence (Matter of Drake v. Pierce Butler Radiator Corp., 202 Misc. 935) for it is generally regarded as an equitable assignment to the attorney of the fund procured by his efforts to the extent of the amount of his lien (Matter of Herlihy, 274 AD 342).

Other parties do not have the ability to destroy the attorney’s vested property rights in and to the Judgment. See, LMWT Realty Corp. v. Davis Agency, Inc., 85 NY2d 462 [1995] (“Manifestly, then, an attorney's charging lien is something more than a mere claim against either property or proceeds; an attorney's charging lien “is a vested property right created by law and not a priority of payment”).

In enforcing the charging lien, the attorney is not required to solely chase after his client for the money he is owed; he can also pursue the other defendants. In Haser v. Haser, 271 AD2d 253 [1 Dept. 2000], the court held that, under New York law, a plaintiff's attorney may enforce her statutory charging lien against the defendant's own assets, if he still possesses the settlement proceeds or knowingly paid them to the plaintiff so as to deprive the attorney of her compensation (citing to Kaplan v Reuss, 113 AD2d 184, 186-187, affd 68 NY2d 693; Fischer-Hansen v Brooklyn Hgts. R. R. Co., 173 NY 492, 502). The lien which attaches in the attorney's favor cannot be impaired by a collusive settlement.

— by Richard A. Klass, Esq.

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copyr. 2014 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Debt Collection Tips: Docketing a Judgment Lien

Once a Judgment has been entered in a court, there are various methods which may be utilized by the judgment creditor to collect the Judgment from the debtor.

Where the debtor owns real estate, a lien may be placed upon the property. This type of lien is referred to as a Judgment lien under Article 52 of the Civil Practice Law and Rules (CPLR).

The Judgment lien is placed upon real estate by the "docketing" of a Transcript of Judgment with the County Clerk's Office.  Once the Judgment is docketed or registered, the judgment creditor may issue an Execution to the Sheriff to levy and sell the real estate, or merely leave the lien against the property until the debtor sells or transfers the property (at which time, the Judgment will likely be paid from the proceeds at closing).

If the Judgment was obtained in the Supreme Court of the county in which the property is located, no further action is required to docket the lien.

If the Judgment was obtained in another court (such as the New York City Civil Court, federal court, Family Court, or District Court), that court will issue, for a fee, a Transcript of Judgment with a raised seal, which Transcript of Judgment will then be filed with the County Clerk's Office, at which point the lien will be effective.

If the debtor owns real estate in a county different from the one in which the Judgment was entered, a Transcript of Judgment should issue from the County Clerk's Office in which the Judgment was entered and be filed with the County Clerk's Office in which the property is located to effectuate the lien.

— by Richard A. Klass, Esq.

-----------
copyr. 2014 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Debt Collection Tips: Executions

Once a Judgment has been obtained against a debtor, an "Execution" may issue to a Sheriff or Marshal. An Execution is a legal document which directs the Sheriff or Marshal to levy upon certain assets of the debtor.

There are three types of Executions:

1. Property Execution: issues against personal property of any nature belonging to the debtor, including bank accounts, cars, shares of stock, equipment, etc.

2. Real Property Execution: issues against real estate owned by the debtor, permitting the sale of the real estate at auction.

3. Income Execution: issues against a debtor's wages, permitting the garnishment of the debtor's salary or compensation.

Each county of New York State has a Sheriff, who performs the above functions. Within the City of New York, a City Marshal may be selected by the creditor in lieu of a Sheriff (except for real estate sales). Some creditors prefer using a City Marshal instead of a Sheriff because City Marshals are not City employees, but rather work strictly upon a percentage of the amount collected. The perception is that City Marshals have more incentive to work harder because of this fee structure.

According to statute, the Sheriff/Marshal is entitled to collect a levy fee and "poundage" of 5% from the debtor on top of the Judgment amount as a fee.

In some situations, the Sheriff cannot levy upon property, where there may be title issues relating to the ownership of the property, at which time further legal proceedings may be necessary.

— by Richard A. Klass, Esq.

copyr. 2014 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Debt Collection Tips: Issuance of the Summons in a Collection Case

A "Summons" is a legal document which notifies a person that he is being sued by another. The requirement of issuance of a Summons is a fundamental right derived from common law.  There are specific rules relating to the methods of service of the Summons.  In a collection case, however, there are additional rules to consider:

1.  Venue
The venue of a case relates to the jurisdiction in which the case is brought within the State.  Generally, the proper venue of a case is one in which either party resides or where the transaction took place.  The venue of a case to collect upon a consumer credit transaction -- one for which the purpose of the debt was for personal use, as opposed to commercial debt; many credit card cases fall into this category -- must be in one of two places, either in the county in which the debtor resides or the county in which the transaction took place.  Both New York State's Civil Practice Law and Rules (CPLR) and the federal Fair Debt Collection Practices Act (FDCPA) require this rule.  If a debtor applied for credit in Kings County and subsequently moved to Queens County, the Summons may be issued for either county.

2.  Consumer Credit Transaction
According to the CPLR, the top of the Summons must state that the Summons is being issued for a consumer credit transaction.

3.  Spanish Summons
In New York City, the Civil Court Act requires that, in addition to the Summons being issued in English, there must be an additional Summons issued in Spanish.

— by Richard A. Klass, Esq.

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copyr. 2014 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Debt Collection Tips: The necessity of obtaining the debtor's identifying information

Many creditors fail to obtain information from a potential debtor which may be necessary in the collection process.

In order to maximize the successful collection of a debt, a creditor must make sure that it obtains the information which will help (a) locate the debtor and (b) locate his/her assets or sources of income. A creditor should, at a minimum, obtain the following information:

1. Social Security Number

2. Date of Birth

3. Full name, exactly, with middle name.

4. Exact address, with zip code.

5. Employer's name, address, telephone number, supervisor's name and direct extension.

6. Verification of employment signed by employer's human resources department.

7. Bank account information, with branch and account number for each account.

8. Spouse's name, if applicable.

9. Telephone numbers for work and home.

10. Signed authorization from the debtor to obtain credit reports, if applicable.

11. If debtor is to guarantee another's account, all information concerning the primary obligor.

12. Most recent federal and state tax returns, together with W-2, K-1 or 1099 forms.

— by Richard A. Klass, Esq.

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copyr. 2014 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Debt Collection Tips: identify the proper party.

One of the most important steps in the debt collection process is determining the proper party to sue.

In the case of an individual, the creditor must take great strides to ensure that the individual debtor's name is properly spelled, along with the debtor's street address and social security number.

In the case of a corporation, partnership or limited liability company, the exact legal name should be obtained. The legal status of a debtor may be confirmed through the Secretary of State's office. The creditor may also want to run a business credit report, such as a Dun and Bradstreet or Equifax report.

Where a creditor has obtained a personal guarantee of a corporate debt from an individual, it is equally critical that all the same information is obtained for that person.

The identity of a potential debtor should be verified immediately upon consideration of extending credit. Many businesses' credit departments are lax in having account applications signed and reviewed. This first encounter with a debtor is the right time to verify the debtor's status.

Gathering as much information as possible about a debtor will assist in collecting debt from the debtor. At every stage, from pre-suit negotiation to institution of litigation to enforcement of judgment, the exact legal name of the debtor will prove valuable to collection. Liens, credit bureau reports, and attachments of property will prove successful if accurate information is provided.

— by Richard A. Klass, Esq.

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copyr. 2014 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Debt Collection Tips: Suing the proper corporate entity

Many times, a debtor will be identified as the "XYZ Company." Without further information, the creditor cannot know whether the entity which owes the debt is a corporation, sole proprietorship, partnership, or limited liability company.

It is necessary when considering suing a debtor that the proper legal entity be identified. In the case of a corporation, the name must include either "Inc.," "Corp.," or "Ltd." A limited liability company must include "LLC." A partnership or sole proprietorship can be identified from a business certificate filed in the County Clerk's Office. Other forms of legal entities include limited partnerships, professional corporations, and professional limited liability companies.

The necessity of suing the proper party is to ensure that when it comes time to enforce the prospective Judgment, the debtor will be properly identified and the debtor's assets will be leviable. Further, it will help eliminate defenses concerning the jurisdiction of the court over the proper party.

To assist in collection against the proper entity, the creditor should obtain the exact name of the debtor and its type of organization at the onset of the transaction. A search through the records of the Secretary of State's Office can verify the information provided by the debtor. The creditor may also request that the debtor provide a copy of the Certificate of Incorporation or Business Certificate of the entity. In fact, this is a common requirement of a bank when a debtor opens a bank account.

— by Richard A. Klass, Esq.

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copyr. 2014 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Stone Cold

The business idea was a good one: one partner, we’ll call him “Salesman,” was experienced in the stone business. He would bring his knowledge and talents. The other partner, we’ll call him “Moneybags,” would bring his cash. Together, they would launch a business to import and distribute stone material from China. The plan was for Moneybags to invest money into the newly-formed corporation to be used to purchase the stone material, and Salesman was going to make profitable deals, moving the product to market through wholesalers.

In anticipation of launching the business, and in order to buy the stone material, Moneybags gave Salesman more than $250,000, a bit at a time. Every time Moneybags invested a chunk of money, Salesman gave him an “IOU” for the money. After a while, and after a series of exchanges which raised his suspicions, Moneybags became convinced that Salesman was diverting the seed money from the stone business and was using it instead for personal purposes. Thinking he had been defrauded, Moneybags began an action to recoup whatever he could of his original investment. The situation was dire and complicated, but it got worse. During this period, Salesman went on a business trip to Africa and died.

Substitution of wife/administrator as defendant

Before learning that Salesman had died, Moneybags had already brought a lawsuit against Salesman, through counsel other than Richard A. Klass, Your Court Street Lawyer, for breach of contract and embezzlement. After Salesman died, Moneybags’ lawsuit was “stayed” or stopped from proceeding. According to law, when a defendant dies, there is a stay of the legal proceeding until someone is appointed to represent the estate of the deceased. CPLR 1015 (“If a party dies and the claim for or against him is not thereby extinguished the court shall order substitution of the proper parties.”). Salesman’s widow was appointed as the administrator of his estate. At this point, Moneybags sought help from Richard A. Klass. The first step was to substitute the wife/administrator as the defendant in place of her deceased husband.

Elements of Fraud and Conversion

The next, important, step was to amend the Complaint in the action to include various causes of action, including fraud and conversion against the estate of the defendant. To allege fraud, the Complaint contained the essential elements that (a) Salesman made representations to Moneybags about investing the money into buying stone material; (b) those representations were false and misleading; (c) that Salesman made those representations knowingly and with the intent and purpose of inducing Moneybags to invest the money; (d) that Moneybags justifiably relied on those representations to his detriment; and (e) he sustained damages. The Complaint also alleged that Salesman wrongfully took and converted the investment moneys for his own purposes and in derogation of Moneybags’ rights.

Rights as a Shareholder in the Corporation

Aside from alleging that Salesman was a fraudster who diverted his investment moneys into his own pocket, Moneybags also pursued rights afforded to him as a shareholder in a New York State corporation. New York Business Corporation Law Section 717 states that “A director shall perform his duties as a director, including his duties as a member of any committee of the board upon which he may serve, in good faith and with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances.” (Similarly, Business Corporation Law Section 715(h) provides “An officer shall perform his duties as an officer in good faith and with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances.”)

Aiding and Abetting Breach of Fiduciary Duty

Unless some “bite” could be put into the Complaint to allege that the wife and son may have some personal liability, Moneybags realized he was nearly certain to lose his entire $250,000 investment. Richard A. Klass amended the Complaint to allege numerous causes of action against not only the estate of Salesman but also his wife/administrator of the estate and son, including fraud, conversion, constructive trust, accounting, breach of fiduciary duties, aiding and abetting breach of duties, and unjust enrichment. Under New York law, a claim for aiding and abetting breach of fiduciary duty consists of the following elements: (1) a breach of fiduciary duty, (2) that the defendant knowingly induced or participated in the breach, and (3) that the plaintiff suffered damages as a result of the breach. See, S&K Sales Co. v. Nike, Inc., 816 F2d 843 [2 Cir. 1987]. In this case, Moneybags alleged that the wife and son should be held liable to him, and not only Salesman’s estate.

The amendment of the Complaint to include numerous allegations against the several defendants pushed them to immediately settle the case for a substantial percentage of Moneybag’s initial investment.

— by Richard A. Klass, Esq.

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copyr. 2013 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Surprise!

On a recent day, “Jack” (not his real name) went to an ATM to withdraw money from his bank account. To his surprise, he could not. Upon contacting the bank’s customer service department, he discovered that his bank account was restrained and could not be accessed. The bank’s representative informed him that there was a judgment against the joint accountholder—a friend, we’ll call him “Stan”—and this was the reason for the restraint on the account.

Jack remembered that many years ago, when he needed to travel to his home country for several months, he asked Stan if he could put Stan’s name on the bank account in case Jack needed someone to pay his bills while traveling. Ultimately, Stan never used the account—never wrote a check, never made a deposit, and never made any withdrawals. Unfortunately, years later, a creditor of Stan got a judgment against Stan and now, Jack, the primary account holder of the bank account, was paying the price.

Joint bank accounts and Banking Law Section 675

According to New York Banking Law Section 675, a joint bank account is presumed to belong to each of the accountholders—meaning that each person (and his judgment creditors) may access the full amount of the account. Specifically, this section of law provides that, except for fraud or undue influence, the making of deposits into a joint account is evidence that the depositor intended the account to be a joint tenancy. The burden of proving otherwise is upon the person who challenges title, which, in this case, would be the primary accountholder.

Once restrained, a creditor of one accountholder may be able to obtain half or all of the money in the joint account, according to differing court opinions. (One opinion, Ford Motor Credit Co. v. Astoria Federal, 189 Misc.2d 475, holds the creditor is entitled to more than half of account, and another, Mendel v. Chervanyou, 147 Misc.2d 1056, holds that it is not). In any event, in this situation, Jack had the problem where all of the money in the account belonged solely to him and Stan never used the account.

“Convenience” bank accounts

Luckily, there is another concept that applied to this situation. The law recognizes that a bank account may be established as a quasi-joint account, where a person is added merely as a “convenience” to the primary accountholder. This convenience is typically done in situations where there is an elderly parent or disabled person who cannot easily travel to the bank to handle his banking needs.

The account may actually be set up in this exact form from its inception (Banking Law Section 678 authorizes this type of account), or it may operate as one where there is sufficient proof that adding the other name to the account was just for the convenience of the accountholder. Where the account is initially set up as a convenience account, the bank will indicate the same and any deposits will not be presumed to belong to each of the accountholders but just the primary one. Also, upon death of the primary accountholder, the other person will not have a right of survivorship in the account, but the moneys will pass to whomever the primary accountholder has designated in his Will or heirs at law. Where the account is not designated as a convenience account from the onset, Banking Law Section 675 will allow a party to rebut or disprove the general presumption that it was a true joint account—evidence may include the wording written in on the account application or signature card, sources of deposits, usage of the account, and the circumstances in which the account was set up.

Jack’s attorney searched the internet for “exempt property and accounts” for more information and found an article by Richard A. Klass on the subject of the Exempt Income Protection Act (EIPA).* After getting the run-around from the creditor’s attorney for almost three weeks, Jack decided to retain Richard A. Klass, Your Court Street Lawyer.

Upon sending proof regarding the fact that the account belonged to the primary accountholder and that the debtor was on the account only for convenience purposes, along with a letter explaining the law and threatening to sue for attorney’s fees, the creditor’s attorney confirmed the next day that the account would be immediately released.

— by Richard A. Klass, Esq.

* The article, entitled “Analysis of Exempt Income Protection Act,” may be found at www.courtstreetlaw.com/articles/debt-collection-articles/Analysis-of-Exempt-Income-Protection-Act.html

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copyr. 2013 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Credits:
Photograph on page one: ATM in Santillana, 2008, by Handige Harrie. Artwork released by author into the public domain.

What do you do if you are sued for a credit card debt?

Without doubt, one of the most important financial tools used in this country is the credit card. While the first credit card was actually metal-plated and similar to a military dog tag, today’s credit card may take the form of a plastic card with magnetic strip or merely using the combination of numbers to make all sorts of purchases. At this point, the usage of credit cards by consumers is as ubiquitous as maintaining a bank account or driving a car; in fact, many products and services can only be purchased through the use of a credit card. As a result, most consumers in this country have two or more credit cards.

At some point, some consumers will find themselves in a downturn of events due to loss of employment, reduction of salary, illness or divorce, where they may become unable to maintain payment of the balances due on the credit card accounts. Once that happens, the accounts go into delinquency. Due to financial reporting requirements imposed upon banks, credit card delinquencies go through different stages, where the collection of past due amounts will first be attempted internally through the bank’s collection department, then through outside collection agencies, and then eventually through litigation by law firms throughout the country. Consumers who have defaulted on their credit card accounts are very familiar with the persistent telephone calls at all hours from debt collectors (who may be located in this country or calling from overseas call centers) and letter-writing campaigns which could make the post office proud (indeed, many consumers who file bankruptcy cite the annoyances of debt collectors as one of the chief reasons for the filings).

It is important for the consumer to understand that, from the perspective of the creditor, settling the debt and collecting a portion of the credit card debt is the main objective. This means that attempts to settle the credit card with the consumer will be pushed by the creditor at every stage of the process. For certain consumers, this is very beneficial, as significant savings can be accomplished through a reduced lump-sum payment.

Once the almost-terrifying debt collectors’ campaign has ended, and the debt is still owed, the bank will either pursue collection of the debt itself or by selling the debt to another company, either of which will commence a law suit against the consumer to obtain a judgment.

The first step that the collection law firm will take is to file the case in the appropriate local court where either the consumer/former accountholder resides or where the account was opened. The initial document filed with the court will be a “Summons” (which is typically accompanied with the Complaint, which specifies the details of the claim against the consumer). The credit card company will be referred to as the “plaintiff” and the consumer will be referred to as the “defendant” in the Summons.  The next step after the Summons is filed with the court is for the process server to serve a copy of the Summons on the defendant, informing him that a law suit has been filed and that he needs to respond to the Summons and plead any defenses to the case.

Once served, the defendant must serve and file his “Answer.” The filing of the Answer will also place the case onto the court’s pre-trial conference calendar. Each side will have an opportunity to conduct discovery of the other’s evidence, including obtaining copies of credit card applications, agreements, and account statements.

After both parties have completed discovery proceedings, one of them (usually the plaintiff) will make a motion to the judge for “summary judgment,” meaning that there is no need for a trial of the facts and the court should award judgment in favor of one of the parties. If the court grants the motion, then the successful party can enter the judgment (either dismissing the case or awarding a monetary amount). If the motion is denied, then the case will proceed to a trial.

— by Richard A. Klass, Esq.

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copyr. 2013 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Requirement of Stating License Information in a Complaint Against a Consumer

Dunkin Donuts may want us to believe that “America runs on Dunkin,” but the truth is, America runs on its service industry.  In our everyday lives there are people who provide a service to us; whether it is waiting on us in a restaurant, a physician or health care worker taking care of us, or a contractor working on our homes.  America’s service industry is a vital part of our economy and everyday lives.

But what happens when the service provider is not paid for his services?  How can that person collect money that is due them?  Someone who has not been paid for services rendered can file a lawsuit seeking to collect unpaid monies from a consumer/client.

New York’s Civil Practice Law & Rules (the CPLR) Section 3015 provides some guidance when a service provider decides to file a lawsuit against a consumer/client to pay sums due and owing.  Depending on the location or venue of the lawsuit and the type of industry that provided the service, a plaintiff may be required to include in his complaint his license number.

CPLR 3015(e) was recently amended to state that when a plaintiff starts a lawsuit against a consumer, the plaintiff must include in the complaint the name on the license, the license number and the government agency which issued the license if the plaintiff is required to be licensed by the Department of Consumer Affairs of the City of New York, Counties of Nassau, Putnam, Rockland, Suffolk, and Westchester. CPLR 3015(e) provides:

(e) License to do business. Where  the  plaintiff's  cause  of  action against  a  consumer  arises  from the plaintiff's conduct of a business which is required by state or local law to be licensed by the department of consumer affairs  of  the  city  of  New  York,  the  Suffolk  county department  of  consumer  affairs,  the Westchester county department of consumer affairs/weight-measures, the county of Rockland, the county  of Putnam  or  the  Nassau  county  department  of  consumer  affairs,  the complaint shall allege, as part of the cause of action,  that  plaintiff is  duly licensed and shall contain the name and number, if any, of such license and the governmental agency which issued such license; provided, however, that where the  plaintiff  does  not  have  a  license  at  the commencement  of the action the plaintiff may, subject to the provisions of rule thirty hundred twenty-five of this article, amend the  complaint with  the  name  and number of an after-acquired license and the name of the governmental agency which issued such license or move for  leave  to amend  the  complaint in accordance with such provisions. The failure of the plaintiff to comply with this subdivision will permit the  defendant to  move for dismissal pursuant to paragraph seven of subdivision (a) of rule thirty-two hundred eleven of this chapter.

The initial purpose of this legislation was to place the burden on a “home improvement contractor” to establish it was licensed to perform the work at the time the work was performed.  Courts have consistently held that a failure to have a license at the time the work was performed will preclude the contractor from commencing an action.  Working without  a license or obtaining a license after the work was performed is too late, and will result in the lawsuit getting dismissed. (This pleading requirement, which initially began to address issues concerning home improvement contractors, was expanded to include all of the different types of licenses issued by the government agency).

The requirement of the plaintiff to include its license information in the complaint does not mean anyone who needs a government license to perform their work must include their license number.  The Court in NCSPlus v. WBR Management, 37 Misc.3d 227, 949 NYS2d 317 [Sup.Ct., Nassau Co. 2012], determined that the plaintiff, who was a debt collection agency, was not required to include its license information in the complaint because the dispute did not involve a “consumer credit transaction” against a consumer but rather between a debt collection agency and a merchant. (The term “consumer credit transaction” means a transaction where credit is extended to an individual and the money which was the subject of the transaction was primarily for personal, family or household purposes).

Therefore, it is important to remember that if you are a licensed service provider who decides to sue a customer or client, you may need to include your license information in your summons and complaint or you risk having your case thrown out.

— by Elisa S. Rosenthal, Esq.,
Associate
Law Office of Richard A. Klass

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copyr. 2013 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Seminar Announcement: "Nuts and Bolts of Collection Law"

In early November, Richard Klass will help present a seminar entitled The Nuts and Bolts of Collection Law.  This seminar, presented by the National Business Institute, will take place at the Hyatt Place Garden City, in Garden City, New York.  Information follows.

Nuts and Bolts of Collection Law

Date: Wednesday, November 09, 2011

Time: 9:00 am-4:30 pm

Location:

Hyatt Place Garden City
5 North Avenue
Garden City, NY

Facility Phone: 516-222-6277

NBI Product ID#: 57049ER

For more information and to register, click this link:

http://www.nbi-sems.com/SemTeleDetails.aspx/R-57049ER%7C?ctname=SPKEM

Program Description

Ensure Your Clients Get Paid
Winning a judgment against a bad debt doesn't necessarily mean cash in hand. Do you have a firm grasp of the procedures for legally collecting that debt? Are your recovery actions in compliance with the strict guidelines governing collection? Don't rush in unprepared. Maximize your chances for recovery with the practical steps provided in this strategic seminar. Enroll today!

• Avoid collection activities that violate the FDCPA and/or state laws. 
• Learn best practices for discovering debtor assets both pre- and post-judgment. 
• Recognize what provisional and final remedies are available to creditors to collect what is owed. 
• Walk through the procedural steps for executing wage garnishments, judgment liens, attachments and other methods of collection. 
• Know the creditor's rights when collecting debt and when the debtor files for bankruptcy.

Who Should Attend

This basic-to-intermediate level seminar is primarily designed for attorneys and other legal professionals. Those who may also benefit from the collection techniques provided include: collection and loan officers, accounts receivable personnel, credit managers, bankers and controllers.


Course Content

1. The Fair Debt Collection Practices Act (FDCPA) and State Collection Laws
2. Ethical Issues in Collection
3. How to Find Debtors and Their Assets
4. Obtaining a Judgment: A Procedural Guide
5. Collecting a Judgment: A Procedural Guide
6. Creditors' Rights When a Debtor Files Bankruptcy

Continuing Education Credits:

Continuing Legal Education
CLE 7.20 - NJ
CLE 7.00 - NY*

Continuing Professional Education for Accountants

CPE for Accountants: 7.00

Institute of Certified Bankers

ICB: 6.75*

* denotes specialty credits


Agenda

THE FAIR DEBT COLLECTION PRACTICES ACT (FDCPA) AND STATE COLLECTION LAWS

9:00 - 9:45, Richard A. Klass

Scope of the FDCPA
Understanding the Actions Permitted or Restricted by the Act
Demand Letters: Pitfalls to Avoid
Liability and Defenses
State Collection Laws and Their Application/Preemption

ETHICAL ISSUES IN COLLECTION

9:45 - 10:45, Richard A. Klass
Communication With Clients and Other Parties
Disclosure Issues
Aggressive Collection Practices
Unauthorized Practice of Law
Reporting Professional Misconduct

HOW TO FIND DEBTORS AND THEIR ASSETS

11:00 - 12:00, Michael Cardello III
Prejudgment Discovery Methods
Personal vs. Business Assets
Replevin/Self-Help Repossession Considerations

OBTAINING A JUDGMENT: A PROCEDURAL GUIDE

1:00 - 2:00, Michael Cardello III
Filing the Lawsuit
Service of Process
Affirmative Defenses and Counterclaims
Judgments (Default, Summary, etc.)

COLLECTING A JUDGMENT: A PROCEDURAL GUIDE

2:15 - 3:15, Kenneth H. Wurman
Post-Judgment Discovery
Judgment Liens
Wage and Bank Account Garnishment
Attachments
Writ of Execution/Seize and Sale by Sheriff
Charging Orders
Debtor Slow-Pay Motions
Turnover/Receivership
Exemptions by Debtors
Dealing With Fraudulent Transfers

CREDITORS' RIGHTS WHEN A DEBTOR FILES BANKRUPTCY

3:15 - 4:30, Michael D. Brofman


Speakers

RICHARD A. KLASS is an attorney in the Brooklyn office of Your Court Street Lawyer. Mr. Klass is an arbitrator for the small claims part of the civil court of the City of New York, County of Kings. He practices in the areas of collections, bankruptcy, debtor and creditor, commercial litigation, legal malpractice, medical malpractice, personal injury, real estate condominium law, family law, divorce, child custody and private placement adoption law, wills, probate, trusts and estates. Mr. Klass has written numerous articles and has lectured frequently for the Brooklyn Bar Association and New York County Lawyers Association, as well as other professional groups and organizations. Mr. Klass is a member of The American Association for Justice, the New York State Bar Association, the New York County Lawyers Association (chair, The Mentoring Program, Group Mentoring Program) and the Brooklyn Volunteer Lawyers Project (Pro Bono Counsel). He earned his B.A. degree from Hofstra University and his J.D. degree from New York Law School.

MICHAEL D. BROFMAN is a member in the New Hyde Park law firm of Weiss & Zarett P.C., where he practices in the areas of bankruptcy law, debtor/creditor rights, non-judicial workouts and commercial litigation. He has lectured for the Nassau County and New York State bar associations on topics relating to his areas of practice, and is a frequent lecturer for National Business Institute on bankruptcy and secured creditor topics. He is a member of the Nassau County (member, Bankruptcy and Bank sections) and the New York State (member, Committee on Bankruptcy Law and General Practice Section) bar associations, the American Bankruptcy Institute and the Volunteer Lawyer's Project Pro Bono Bankruptcy Panel. Mr. Brofman earned his B.A. degree from the State University of New York at Binghamton and his J.D. degree from Fordham University.

MICHAEL CARDELLO III is a partner in the Litigation Department of Moritt Hock & Hamroff LLP, concentrating in business and commercial litigation. Mr. Cardello represents large and small businesses, financial institutions and individuals in federal and state courts. He has a wide range of experience that includes trials and appellate work in the areas of corporate disputes, shareholder derivative actions, dissolutions, construction disputes, equipment and vehicle leasing disputes and other complex commercial and business disputes. Mr. Cardello earned his B.A. degree in marketing, his M.B.A. degree in finance and his J.D. degree from Hofstra University. While in law school, he was associate editor of the Hofstra Law Review. Mr. Cardello is the current vice-chairman of the Commercial Litigation Committee of the Nassau County Bar Association and also is a member of the Alternative Dispute Resolution and Securities Committee of the Nassau County Bar Association. He lectures on discovery, trial practice, equipment and vehicle leasing issues and e-discovery.

KENNETH H. WURMAN is a partner in the law firm of Naidich Wurman Birnbaum & Maday, LLP, where his practice areas, for more than 30 years, include collections and real estate. Mr. Wurman is a lecturer for National Business Institute on collection matters. He earned his B.S. degree from the State University of New York at Albany and his J.D. degree from New England School of Law. Mr. Wurman is a member of the Nassau County and New York State bar associations.

For more information and to register, click this link:

http://www.nbi-sems.com/SemTeleDetails.aspx/R-57049ER%7C?ctname=SPKEM

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copyr. 2011 Richard A. Klass, Esq.

The firm's website: www.CourtStreetLaw.com

Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.

He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.

Prior results do not guarantee a similar outcome.

A New Way to Award Attorney's Fees

The “American Rule” governs most cases in United States’ courts, where each party to the litigation bears its own costs and attorney’s fees (as opposed to the “English Rule,” according to which the loser of the litigation is chargeable with the winner’s attorney’s fees). There are three exceptions to the “American Rule,” which are when there is:

(a) an agreement between the parties pertaining to attorney’s fees;
(b) a statute which awards reasonable attorney’s fees to the “prevailing party;” or
(c) a court rule provides for attorney’s fees.

Out With The “Old” Ways

Generally, courts around the country use one of two methods to determine the amount of “reasonable attorney’s fees” to be awarded to a party: (1) the “lodestar” method and (2) the “Johnson” twelve-factor method (these methods were the two existing methods endorsed by the US Supreme Court in Hensley v. Eckerhart, 461 US 424 (1983)).

The “lodestar” method figures out the reasonable attorney’s fee to be awarded — which is basically the product of the attorney’s usual hourly rate multiplied by the number of hours worked (for example: $3,500 attorney’s fees award based on 10 hours of the attorney’s hourly rate of $350). After figuring out the product, the fee may be adjusted by the court as part of the court’s fee-setting method — a starting point (if you will) for an initial estimate before considering the particulars of the case’s circumstances.

The “Johnson” method came about from a case titled Johnson v. Georgia Highway Express, 488 F.2d 714 (5th Cir. 1974), in which the court envisioned a one-step inquiry into attorney’s fees, based upon twelve factors, allowing the court to rely more on its experience and judgment with both the attorney and type of case involved. Market forces, which generally influence the hourly rate charged, are not to be the sole determining factor under this method.

In theory, courts that adopted the “lodestar” method were expected to consider fewer variables than the “Johnson” method; in practice, however, many courts consider the same set of variables under both methods to arrive at a fee amount. Some court decisions held that the “Johnson” factors should be applied after applying the “lodestar” calculation; some held that many of the “Johnson” factors were subsumed into the initial calculation.

The Presumptively Reasonable Fee

In a Decision rendered in April 2007 by the United States Court of Appeals for the Second Circuit in the case of Arbor Hill Concerned Citizens Neighborhood Association v. County of Albany, the Second Circuit held that it was abandoning the traditional “lodestar” method in favor of the concept of the “presumptively reasonable fee.” (The Second Circuit Court of Appeals covers cases in the federal courts of New York and Vermont). The Decision actually stated that the term, “lodestar method,” was a metaphor that has “deteriorated to the point of unhelpfulness.”

The Second Circuit decided to switch over to a new method of figuring out the reasonable attorney’s fee to be awarded to a prevailing party termed the “presumptively reasonable fee.” This new way asks the court to bear in mind all of the case-specific variables, including the reasonable hourly rate that a paying client would be willing to pay if he was able to negotiate with his attorney. In determining that, the court should consider, among other things, the “Johnson” factors and the fact that a reasonable, paying client would likely want to spend the minimum amount necessary to effectively litigate the case.

The Forum Rule

The Decision also highlighted a particular issue involved in setting fees — the “forum rule.” To determine the general hourly rate, the court has to consider the “community” in which the court sits; in federal courts, it has generally been the geographic area of the district in which the court is located. The Second Circuit recognized that that area could be skewed, depending on the district. So, the court clarified that a district court may use an out-of-district rate (or a rate in between in-district and out-of-district) if it is clear that a reasonable, paying client would have paid the higher rate; however, the court will presume that a client will either hire counsel located within the district or counsel whose rates are consistent with those of local counsel. The presumption may be rebutted if it can be shown that hiring higher-priced, out-of-district counsel was reasonable under the circumstances.

Like all considerations involved in deciding whether to bring a lawsuit against someone, the issue of attorney’s fees is an important one. Without effective, compensated counsel, a litigant with a true cause may be deprived of “his day in court.” Fee-shifting statutes and agreements for attorney’s fees ensure that each side to a dispute knows the risks of his conduct — whether it be the breach of a contract or commission of an act that a statute or court rule is designed to protect.

— by Richard A. Klass, Esq.

©2007 Richard A. Klass. Art credits: Der Angriff auf die Madonna Scoperta (Die Schlacht von Montebello). Artist: Giovanni Fattori, 1860. Marketing by The Innovation Works, Inc.

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copyr. 2011 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.