LLC HSBC BANK USA NATIONAL ASSOCIATION v. PHYSICAL THERAPIST ON CALL SALAH MOHAMED SALAHELDIN MOHAMED (2023)

This motion, arising in the context of judgment-enforcement efforts by plaintiff, Hamilton Equity Group, LLC, against defendant Salah Mohamed, requires this court to address what appears to be an issue of first impression relating to the protections for judgment debtors set forth in CPLR 5222-a (c) (4).

Plaintiff holds a 2019 renewal judgment against defendants for $190,347.94. In November 2022, plaintiff served a restraining notice on a Citibank bank account of defendant Salah Mohamed. Mohamed responded to that restraining notice with an exemption claim. Plaintiff now moves for an order modifying its restraining notice to exclude the exempt funds Mohamed held in his Citibank account; upholding the restraining notice with regard to assertedly non-exempt funds in the account; and directing Citibank to turn over to plaintiff all non-exempt funds currently on deposit. Plaintiff's motion is denied.

Mohamed, contending that plaintiff acted in bad faith within the meaning of CPLR 5222-a (c) (4), requests under CPLR 5222-g that this court award him actual damages, $1,000 in statutory damages, and attorney fees against plaintiff. This court is not persuaded that plaintiff acted in bad faith for purposes of CPLR 5222-a (c) (4). Mohamed's request for an award under CPLR 5222-g is denied.

DISCUSSION

1. On November 17, 2022, plaintiff served an information subpoena, restraining notice, and two copies of an exemption claim form on Citibank. Plaintiff also served a CPLR 5222 (d) notice to judgment debtor on Mohamed on November 22. On December 9, 2022, plaintiff received an exemption form from Mohamed in which he claimed that his Citibank account contains exempt funds, including those from Social Security, Social Security disability, public assistance, child support, alimony, and cash deposit of a federal stimulus check from the mother of his children. (NYSCEF No. 28 at ¶¶ 7-8.) Plaintiff then brought this motion, objecting to Mohamed's claim of exemption, on December 12, 2022. (NYSCEF No. 27.) But plaintiff did not serve a copy of the motion on either Mohamed or Citibank until December 22.¹ (See NYSCEF Nos. 34-35.) Defendant argues that plaintiff's motion must be denied due to untimely service. This court agrees.

CPLR 5222-a (d) provides that a judgment creditor's objection to an exemption claim must be served on the bank and judgment debtor "within eight days after the date postmarked on the envelope containing the executed exemption claim form or the date of personal delivery of the executed exemption claim form to the banking institution." And the Court of Appeals has held that "[t]o object to an exemption claim, the creditor must timely commence a special proceeding under CPLR 5240 . . . before the expiration of the eight-day objection period." (Cruz v TD Bank, N.A., 22 NY3d 61, 68 [2013].)

Plaintiff does not provide an affidavit from a person with knowledge. Instead, plaintiff relies only on affirmations of counsel. Counsel represents only that plaintiff "received" the exemption claim form on December 9, 2022. (NYSCEF No. 28 at ¶ 7.) But as discussed above, CPLR 5222-a (d)'s eight-day deadline runs from the postmark or date of personal delivery to the banking institution, not to the judgment creditor. The record contains a copy of a letter from Citibank to plaintiff, dated December 9, that indicates that the claim form "was post marked or personally served" on Citibank on December 8, and enclosing a copy of the form and supporting materials. (NYSCEF No. 33 at 8.) Thus, given this letter, plaintiff's eight-day deadline to object to the exemption claim began running on December 8, rather than December 9, as plaintiff would have it.

But even if plaintiff were correct about when the eight-day period began, it is undisputed that plaintiff's motion was not served on Mohamed until December 22, 2022 (see NYSCEF Nos. 34, 35)—after the expiration of that period regardless.

Plaintiff's counsel contends that this "delay was de minimis" (NYSCEF No. 39 at ¶ 3), and that this court should therefore retrospectively extend plaintiff's time under CPLR 5222-a to serve its motion papers on Mohamed. Plaintiff contends that its extension request is strengthened by the fact that Mohamed's "own papers are late" because they were served one day before the return date, rather than the two days mandated by CPLR 2214. (Id.). This court finds plaintiff's arguments unpersuasive.

CPLR 2004 requires that a party seeking more time must show good cause for granting an extension. Plaintiff does not attempt to provide good cause, beyond a conclusory statement that its delay in service was due to unspecified "law office failure." (NYSCEF No. 39 at ¶ 3.) At most, plaintiff points to defendant's two-day delay in filing opposition papers. Plaintiff does not identify any prejudice it suffered as a result of that delay. It was able, for example, to file reply papers. (See id.) This court is also mindful that counsel for Mohamed filed opposition papers the same day that counsel entered his appearance, and that Mohamed was previously unrepresented in this action.

Further, CPLR 5222-a sets a series of tight deadlines for the processing and evaluation of claims by judgment debtors that funds should be released from restraints as exempt. Disregarding a judgment creditor's failure to comply with one of those deadlines would undermine this carefully drawn, intricate statutory scheme. Doing so would also potentially lengthen the time in which a judgment debtor is denied the use of improperly restrained funds, contrary to the statute's purpose of "insur[ing] that sources of income that are exempt from judgment enforcement [are] not restrained or seized in enforcement of judgments." (Midland Funding LLC v Singleton, 34 Misc 3d 798, 800 [Dist Ct 2011].). The court declines to take that step.

Given plaintiff's undisputed failure to satisfy the eight-day service deadline of CPLR 5222-a (d), plaintiff's motion is denied.

2. Defendant contends that plaintiff acted in bad faith by failing to comply with CPLR 5222-a (c) (4), and that defendant should therefore be awarded actual and statutory damages and attorney fees under CPLR 5222 (g). This court does not agree that plaintiff acted in bad faith for CPLR 5222-a (c) (4) purposes.

That provision requires that where a judgment-debtor's exemption form contains "information demonstrating that all funds in the account are exempt, the judgment creditor shall, within seven days of the postmark on the envelope containing the exemption claim form and accompanying information, instruct the banking institution to release the account, and the restraint shall be deemed void." It is undisputed that plaintiff did not direct Citibank to release the restraint on Mohamed's account within this seven-day window. Indeed, it appears that defendant's account is still restrained. (See NYSCEF No. 36 at ¶ 12.)

That said, the record reflects that plaintiff did file the current motion objecting to Mohamed's exemption claim on December 12, 2022, within seven days from the delivery or postmark date of the exemption form. The statute, although setting a deadline for service of a CPLR 5222-a (d) motion objecting to an exemption claim, does not directly address how the filing of that motion should affect the creditor's obligations under CPLR 5222-a (c) (4).² Nor has this court's research found caselaw on the question.

This court concludes that the only way to harmonize CPLR 5222-a (c) (4) and (d) and give effect to each is as follows. A judgment creditor must file a motion asserting potentially meritorious arguments in response to a claim of exemption, and do so within seven days of the "postmark on the envelope containing the exemption claim form" (or seven days from personal delivery of the exemption claim form to the banking institution). If the judgment creditor files that timely and potentially meritorious motion, the creditor's failure within the seven-day period to instruct the bank to release restrained funds does not constitute bad faith for purposes of paragraph (c) (4) and subsection (g). This approach preserves a creditor's right under subsection (d) to object to an exemption claim; maintains the tight deadlines for creditors to assert those objections set by paragraph (c) (4); and does not allow a creditor to maintain an improper restraint by filing a motion that asserts only implausible or bad-faith arguments for the validity of that restraint.

Here, this court agrees with plaintiff that its arguments for the validity of the restraints on Mohamed's funds are, at, at a minimum, reasonable. This court thus concludes that plaintiff did not act in bad faith within the meaning of the statute.

Accordingly, it is

ORDERED that plaintiff's motion to continue its restraint on Mohamed's funds (and to direct Citibank to turn over the nonexempt funds) is denied; and it is further

ORDERED that plaintiff serve a copy of this order with notice of its entry on all parties, and on nonparty Citibank by overnight mail; and it is further

ORDERED that Citibank release forthwith the funds of Mohamed that were restrained by Citibank pursuant to the November 17, 2022, restraining notice.

4/13/2023

FOOTNOTES

1.   Plaintiff served Mohamed (who was then unrepresented and had not appeared in the action) by mail. (See NYSCEF No. 34.) Mohamed has since retained counsel and appeared.

2.   The advent of electronic filing means that a motion's service and its filing now ordinarily occur simultaneously. But as this motion shows, exceptions to that norm exist, such as in the case of unrepresented litigants.

Gerald Lebovits, J.