Does CPLR § 5222-a create a private cause of action that may be enforced in a plenary action? Answer: No.

In Cruz v. TD Bank, N.A., 2013 NY Slip Op 07762, the Court of Appeals, answering questions certified by the Second Circuit, was called upon to determine “whether plaintiffs may bring plenary actions in federal court against their banks seeking money damages allegedly arising from the banks’ failures to send the forms [required by CPLR § 5222-a], among other deficiencies [required by CPLR § 5222-a]”. Id. at 2.

In 2008, the legislature amended CPLR Article 52 by adding a new CPLR §5222-a, which has been called the "Exempt Income Protection Act":

The amendments restricted the scope of the restraint that can be implemented against the bank account of a natural person and created a new procedure aimed at ensuring that this class of judgment debtors is able to retain access to exempt funds. In substance, subject to limited exceptions consistent with federal law, the EIPA precludes a bank from restraining baseline minimum balances in a “natural person’s” account absent a court order. Specifically, $2,500 is free from restraint “if direct deposit or electronic payments reasonably identifiable as statutorily exempt payments…were made to the judgment debtor’s account during the forty-five day period preceding” the restraint (CPLR 5222[h]). Otherwise, the statute excludes from restraint an amount that corresponds to 90% of 60-days wages under the federal or state minimum wage laws, whichever is greater, to be periodically adjusted -- $1,740 as of July 2009 (CPLR 5222[i]). Id.

The amendments also:

[A]dded new notification and claim procedures in CPLR 5222-a intended to educate judgment debtors concerning the types of funds that are exempt from restraint or execution in order to facilitate the filing of exemption claims. A judgment creditor restraining a bank account (in anticipation of a sheriff’s execution by levy or court-ordered transfer of assets) must serve the bank with specific forms: two copies of the restraining notice, an exemption notice and two exemption claim forms (CPLR 5222-a[b][1]), the restraint is void if the judgment creditor fails to provide these documents to the bank; in that event, the bank “shall not restrain the account” (CPLR 5222-a[b][1], nor can the bank charge fees associated with a restraint (CPLR 5222[j]). Id. at 2-3.

And finally, CPLR § 5222-a:

[I]mpose[d] a new obligation on financial institutions because it compels banks to mail to judgment debtors (the account holders) copies of the exemption notices and exemption claim forms received from judgment creditors (CPLR 5222-a[b][3]). The statute states, however, that “[t]he inadvertent failure by a depository institution to provide the notice required…shall not give rise to liability on the part of the depository institution” (CPLR 5222-a[b][3]). Id. at 3.

Judgment debtors “brought putative class actions seeking injunctive relief and money damages against their banks based on allegations that accounts they held at New York branches were restrained in violation of the EIPA”. Id. at 4.

The District Court’s dismissed the complaint finding “no basis to imply a private right of action given the comprehensive nature of the CPLR Article 52 enforcement scheme”. Id. at 5.

Concluding that the cases “presented novel issues of New York law that should be resolved by [Court of Appeals]”, the Second Circuit certified the following questions:

[F]irst, whether judgment debtors have a private right of action for money damages and injunctive relief against banks that violate EIPA’s procedural requirements; and

[S]econd, whether judgment debtors can seek money damages and injunctive relief against banks that violate EIPA in special proceedings prescribed by CPLR Article 52 and, if so, whether those special proceedings are the exclusive mechanism for such relief or whether judgment debtors may also seek relief in a plenary action” (711 F3d 261, 271 [2d Cir 2013]). Id.

At the outset, the Court of Appeals noted that “[i]n the absence of an express private right of action, plaintiffs can seek civil relief in a plenary action based on a violation of the statute “’only if a legislate intent to create such a right of action is fairly implied in the statutory provisions and their legislative history”’. Id.

The Court of Appeals reiterated that a determination whether or not a party has a private cause of action, where a statute does not expressly provide therefor, is predicated upon so-called Sheehy factors:

“(1) whether the plaintiff is one of the class for whose particular benefit the statute was enacted; (2) whether recognition of a private right of action would promote the legislative purpose; and (3) whether creation of such a right would be consistent with the legislative scheme”. Id. at 5-6.

The Court of Appeals found that:

In this case, the banks do not dispute that the first two Sheehy factors are satisfied – plaintiffs fall within the class the EIPA was intended to benefit and permitting judgment debtors to bring plenary suits would arguably promote the legislative purpose of protecting exempt funds from improper restraint by encouraging compliance with the EIPA. However, as is usually true in implied private right of action cases, the controversy focuses on the third factor – whether an intent to create a private right of action would be consistent with, and can be inferred from, the legislative scheme. Id. at 7.

Based thereon, the Court found that:

Thus, when the creditor later takes action to obtain delivery of the restrained funds through some means, such as a sheriff’s execution of the levy or a turnover proceeding, the debtor remains free to assert that the funds are exempt, despite a prior failure to timely submit an exemption form. We do not view this language reserving the rights of debtors to pursue exemptions as creating a new right to bring plenary actions against banks.

Nor would recognition of such a right be compatible with the comprehensive enforcement mechanisms the Legislature included elsewhere in CPLR Article 52. For one thing, the enforcement provisions contain detailed venue provisions that govern the court in which relief may be sought (CPLR 5221). Permitting a party to seek relief for violation of the statute in a plenary action in some other court would essentially read the venue provisions out of the statute. Moreover, the statutory scheme provides several mechanisms for enforcement that can be used to obtain significant relief. Id. at 8-9.

The Court of Appeals held that:

Considering the statutory scheme overall, it appears that the Legislature intended to use banks as a conduit for information so that exemption rights would be timely communicated to judgment debtors but did not intend this role to subject banks to a new type of liability. The point of the legislation was to help debtors notify banks of the presence of exempt funds in their accounts in order to prevent those funds from being restrained in the first instance – not to create yet another opportunity for litigation on the back end after an improper restraint was imposed. Id. at 11.

Summarizing the determination, the Court of Appeals stated that:

We agree with the District Courts that a private right to bring a plenary action for injunctive relief and money damages cannot be implied from the EIPA – and we therefore answer the first certified question in the negative. As for the second certified question, a judgment debtor can secure relief from a bank arising from a violation of the EIPA in a CPLR Article 52 special proceeding as we have explained. And our determination that the legislation created no private right of action compels the conclusion that the statutory mechanisms for relief are exclusive. Banks had no obligation under the common law to forward notices of exemption and exemption claim forms to judgment debtors. It therefore follows that any right debtors have to enforce that obligation, among others imposed under CPLR 5222-a, arises from the statute and, since the EIPA dos not give rise to a private right of action, the only relief available is that provided in CPLR Article 52 (see generally Kerusa Co. LLC v. W 10Z/515 Real Estate Ltd. Partnership, 12 NY3d 236 [2009]). Id. at 12.