March 20, 2014
NYCLA’S JUDICIAL SECTION AND SUPREME COURT COMMITTEE’S COMMENTS ON PROPOSED 22 NYCRR §202.9-a
The NYCLA Judicial Section and Supreme Court Committee strongly support adoption of the proposed new §202.9-a of the Uniform Civil Rules for the Supreme Court. This section implements recently enacted legislation addressing the retaliatory filing of false financial statements against certain state and local government employees and criminal defense attorneys. Specifically, the proposed rules provide an expeditious and needed vehicle for addressing retaliatory filings, and where a pattern of repeated filings exists, allow for injunctive relief. These streamlined and particularized remedies are not otherwise available under the Uniform Commercial Code.
The rules implement legislation that amended the Uniform Commercial Code §9-518(d) (“UCC”) to establish special proceedings to redact or expunge fraudulent financial filings and amended Judiciary Law §212(2) to authorize the Chief Administrative Judge to establish rules for these special proceedings. As explained in the Unified Court System’s request for comments, the proposed new section “establishes venue for special proceedings, permits filing without a fee, sets forth detailed pleading requirements, authorizes the appointment of a referee to hear and determine special proceedings, and provides for the issuance of a judgment that may direct the expungement or redaction of false statements, injunctive relief and any additional relief authorized under the UCC.”
While the request asks for comments on the proposed new section of the Uniform Civil Rules, a general review of the purpose of, and need for, the legislation gives context to the discussion. The following information from the New York State Assembly’s Memorandum In Support of Legislation is of particular importance in considering the proposed rules. The initial legislation was passed to redress “paper terrorism” against public officials, including judges and criminal defense attorneys, by individuals, including members of separatist groups, seeking to retaliate against judges and lawyers through the abuse of Article 9 of the UCC. Article 9 provides a simple way for a creditor to record an interest in a debtor’s property by filing a financial statement with the Secretary of State. The filings can be recorded through the internet and the information becomes publically available by a searchable online database.
The Assembly’s Memorandum states that “members of separatist groups, asserting sovereign nation status, prison inmates and others believing themselves to be victims of unjust government actions” file false financial statements against those officials they believe responsible for the action, asserting claims that do not in fact exist. Because under the UCC the Secretary of State is required to accept the filings without examining their validity, the system does not provide a means of addressing false statements at the time of filings. Moreover, under present policy and procedure, the Secretary of State does not provide a means of expungement, but merely permits a victim to provide opposing, explanatory information.
According to counter-terrorism security staff at the Office of Court Administration, (“counter-terrorism staff”) members of separatist groups and their sympathizers are placing liens in New York by paying $10, showing ID and filing in the county clerk’s office, and in other states, accomplishing this by using Pay Pal and a credit card. As the online databases are routinely accessed to obtain financial information about an individual, such as an applicant for a mortgage or car loan, the false filings can create serious issues with respect to the evaluation of an applicant’s financial circumstances.
Based upon anecdotal reports from affected New York judges and statistical information received from the counter-terrorism staff as discussed below, the Judicial Section and Supreme Court Committee believe that these retaliatory fraudulent filings, or even the threat of them, have become a serious source of harassment of judges, attorneys and court personnel, which can cause serious damage to the credit rating and financial standing of the person affected. All reports we have received concur that absent the special proceedings contemplated by the new statute and the proposed court rules, restoration of the victim’s financial standing is relegated to a difficult, time- consuming and less effective process.
Like the amendment to the UCC, under the proposed new rules, to be eligible to commence such a special proceeding, a petitioner must satisfy three conditions. Petitioner must be 1) an employee of the State or of a political subdivision thereof, or an attorney who has or is representing the respondent in a criminal court, and 2) a person identified as a debtor in a financial statement pursuant to Subpart one of Part five of Article 9 of the UCC. Third, petitioner must bring the proceeding against respondent to invalidate the false financial statement. Moreover, petitioner must plead that the false financial statement was filed in retaliation for petitioner’s official duties, or where petitioner is a lawyer, in performance of his or her duties representing respondent; that the filing is not related to a consumer, commercial or other transaction between petitioner and respondent; that the collateral covered in the financial statement is petitioner’s property; and that prompt redaction or invalidation of the financial statement is required to avoid prejudice to petitioner. As the Assembly’s Memorandum points out, the proposed rules protect legitimate filings by requirements that limit the persons authorized to commence a proceeding and by pleading requirements for the petition.
As discussed below, and as the Assembly’s Memorandum recognizes, these remedies are of significance, as the false financial filings are not only a New York State, but also a nationwide problem. For instance, OCA currently has a proceeding pending in Suffolk County to obtain an expungement directive or similar desist order to be used in Georgia where three New York judges and a hearing officer have had liens filed against them, and where informal efforts by OCA to have the liens dropped have failed.
On March 11, 2014, the New York Law Journal reported on an analogous situation in the civil context where commercial liens were noted as potentially irreparably harmful to a plaintiff’s financial and personal reputation. Judge Robert Patterson of the U. S. Court for the Southern District of New York issued a permanent injunction enjoining a Georgia resident who was a defendant in a civil lawsuit from filing any commercial liens against the plaintiff or attorneys associated with or who represented the plaintiff. The article quotes Judge Patterson as stating that the attorneys and plaintiff “face the risk of irreparable harm as meritless claims are easy to file, difficult to remove and cause financial and reputational harm that is not quantifiable with any certainty.” Despite the injunction, the defendant filed liens in Georgia under the UCC against the plaintiff and certain attorneys, and was found in contempt for violating the order.
At present, according to the counter-terrorism staff, there have been 439 alleged members of separatist groups who have had contacts in one form or another with Unified Court System judges and non-judicial employees, including data-entry personnel in the court clerks’ offices and other employees whose responsibilities do not include discretionary actions. In addition, the counter-terrorism staff tracks activity by separatist groups with respect to approximately 151 employees of the Unified Court System, and while not all of them have had liens filed, these employees have in one way or another been subjected to contact by members of separatist groups, including members identified as sovereign citizens. Based on its approach, New York is in the forefront of responses to “paper terrorism” by addressing the threats and harassment underlying many of the activities of these separatist groups and their sympathizers directed towards government employees, and by conducting training for officials in Maryland, Pennsylvania and the FBI.
This information from the counter-terrorism staff provides support not only for adoption of the proposed rules, but demonstrates that urgent action is required in light of the potential expansion of false filings in this digital age. Therefore, the Judicial Section and the Supreme Court Committee strongly support the adoption of new §202.9-a of the Uniform Civil Rules for the Supreme Court.