No Private Right of Action Against Banks Under the Exempt Income Protection Act

On October 26, 2013, we noted that on October 15, 2013, the Court of Appeals had heard argument in Cruz v. TD Bank, N.A., Docket No. 191, a matter considering two questions certified from the Second Circuit on whether there is a private right of action under the Exempt Income Protection Act of 2008 ("EIPA"). On November 21, 2013, the Court of Appeals issued its decision in Cruz v. TD Bank, N.A., 2013 NY Slip Op. 07762.

At issue were EIPA provisions that "compel[] banks served with restraining notices by judgment creditors to forward certain forms to judgment debtors intended to assist them in asserting potential claims that their accounts contain funds that are exempt from restraint or execution." The federal cases raised the question of 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, among other deficiencies." The Court of Appeals found that there was no private right of action under the EIPA.

The Court of Appeals explained:

In 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 legislative intent to create such a right of action is fairly implied in the statutory provisions and their legislative history. This determination is predicated on three 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

We have repeatedly recognized the third as the most important . . . .

. . .

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.

In finding no private right of action under the EIPA legislative scheme, the Court of Appeals concluded:

[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 does not give rise to a private right of action, the only relief available is that provided in CPLR Article 52.