Authorizes the chief administrator of the courts to establish rules for special proceedings authorized under section 9-518 of the uniform commercial code relating to wrongful financial statements.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A8013
SPONSOR: Gabryszak TITLE OF BILL: An act to amend the judiciary law, the penal law and
the uniform commercial code, in relation to financing statements falsely
filed under the uniform commercial code
This measure is being introduced at the request of the Chief Administra-
tive Judge to redress "paper terrorism" against judges and other public
servants committed to harass them or to retaliate against them for
discharge of their official duties. This is a growing problem, not just
here in New York*, but across the Nation. See National Association of
Secretaries of State, "State Strategies to Subvert Fraudulent Uniform
Commercial Code (UCC) Filings: A Report for State Business Filing Agen-
cies," available at http://nass.org/index.php?option
=comcontent&view=article&id=329%3Anews-release-new-ucc-report-aug12&
catid=964%3Auncategorized-news-releases&Itemid=1 (August 27, 2012).
The Uniform Commercial Code ("UCC") Article 9 provides a simple way for
a creditor to record an interest in a debtor's property with the Depart-
ment of State ("DOS"), thereby giving notice of that interest to the
debtor's future creditors. Typically such a recording, termed a "financ-
ing statement" by the UCC, covers property purchased under a security
agreement subject to attachment (e.g., a vehicle), and is necessary for
a creditor to assert a claim. With the rise of the Internet and espe-
cially smart-phones, filers instantly can record financing statements,
which promptly become publicly available by searchable online database.
Using this database, financial institutions, prospective employers and
members of the public can determine whether someone has debts recorded
against him or her, and assess whether he or she may be a sound credit
risk.
This UCC recording system, however, has been subject to much abuse.
Often, members of separatist groups asserting sovereign status, prison
inmates and others believing themselves to be victims of unjust govern-
ment action use the system to retaliate against or harass the government
officials behind that action. They do this by filing fraudulent financ-
ing statements against those officials thereby potentially creating
serious personal financial difficulties for them. Such "paper terrorism"
can take a variety of forms. These often include the filing of outright
false financing statements, asserting claims that do not in fact exist.
in New York, in particular, they also may include statements asserting
infringement of a copyright enjoyed in one's name.** Moreover, whatever
form the fraudulent filing takes, it invariably runs afoul of the
requirement, under UCC section 9-509(a), that an alleged debtor author-
ize the filing of a financing statement memorializing a claim against
him or her.
Under the UCC as now written, there is no easy means by which to deter
or otherwise prevent such abuse. The DOS must accept each financing
statement filed for recording and subsequently make it available for
public viewing. The result: once a fraudulent financing statement is
recorded - and if sufficient on its face when filed, it must be recorded
- that statement can raise red flags that substantially prejudice the
availability or price of credit, complicate employment prospects and
sully a public servant's reputation.
To combat this abuse, this measure proposes amendments to the Penal Law
and to the UCC. The former (see bill section three) would amend section
175.35 of the Penal Law (entitled "Offering a false instrument for
filing in the first degree") to make it a class E felony offense to
commit the existing class A misdemeanor offense of Offering a False
Instrument for Filing in the Second Degree (see Penal Law § 175.30)
through the knowing filing of a fraudulent UCC financing statement that
identifies the debtor as a State or local officer under section two of
the Public Officers Law, or a judge or justice of the Unified Court
System, where that fraudulent filing is "in retaliation for the perform-
ance of official duties" by the affected public servant. This amendment
is similar to Federal law making it a serious Federal offense "to file,
in any public record or in any private record which is generally avail-
able to the public, any false lien or encumbrance against...the property
of (a Federal judge or Federal law enforcement officer), on account of
the performance of official duties by that individual, knowing or having
reason to know that such lien or encumbrance is false ..." See 18 USC §
1521 (establishing the Federal offense of Retaliating Against A Federal
Judge or Federal Law Enforcement Officer By False Claim Or Slander Of
Title).
The UCC amendments proposed by this measure (see bill section four)
would create a court procedure to summarily invalidate fraudulent liens.
Under this procedure, a State or local public employee or criminal
defense lawyer who has represented the filer in criminal court - listed
as the debtor in a financing statement containing a false statement or
false information - may under certain circumstances commence a special
proceeding for the expungement or redaction of the financing statement.
In this special proceeding, which is exempt from court filing fees, the
petitioner must plead that the offending financing statement was falsely
filed or amended to retaliate for the petitioner's performance of offi-
cial duties (or, where the petitioner is a lawyer who is not a public
employee, for the petitioner's performance of his or her duties repres-
enting the filer in criminal court); that the financing statement is not
one relating to an interest in a consumer transaction, a commercial
transaction or any other transaction between petitioner and respondent;
that the collateral covered in the financing statement is petitioner's
property; and that prompt redaction or invalidation of the financing
statement is necessary to avert or mitigate prejudice to the petitioner.
Where the court finds that the UCC financing statement at issue was
falsely filed, the court may then direct expungement of the financing
statement or redaction of appropriate portions thereof. In such event,
the court must see that a copy of its order is filed with the Secretary
of State; and, if the wrongful filer is incarcerated, with the head of
the correctional facility. The court also may grant relief authorized by
UCC section 9-625 and bar the respondent wrongful filer from filing
other UCC statements without leave of court.
The special proceeding hereby authorized is narrowly-tailored so as not
to otherwise call liens arising from commercial transactions or other
valid liens into question, alter legitimate UCC incentives or impose
burdens upon commercial enterprises. Moreover, it is carefully drawn to
avoid placing burdens upon the DOS.
Finally, this measure also would direct the Chief Administrative Judge
to adopt rules to govern the special proceeding authorized herein,
including rules permitting the court to empower a referee to hear and
determine the matter so as to minimize delay and assure its expeditious
disposition (see bill section two).
As noted, this is by no means a problem that is unique to our State.
Nor do the remedies proposed by this measure promise total protection
for government officials here. Absent co-ordinated efforts by all states
to identify and rebuff abuse of the UCC recording system, there is noth-
ing New York can do to assure its public servants that they will not be
victims of fraudulent filings in other states. This said, the instant
measure is a significant first step in that it will give law enforcement
authorities the tools needed to discourage fraudulent filings in New
York; and public officials generally, along with certain others who play
an active role in the administration of justice, the means by which to
protect their credit and their good name in the public record.
This measure would have no fiscal impact upon the State or any of its
political subdivisions. Bill sections one, two and four, addressed to
establishment of special proceedings to expunge a wrongfully filed UCC
financing statement, would take effect immediately. Section three,
criminalizing as a felony the wrongful filing of such a statement under
certain circumstances where the alleged debtor is a State or local offi-
cer under the Public Officers Law or a judge or justice of the Unified
Court System, would take effect November first next following the date
on which this measure becomes a law.
LEGISLATIVE HISTORY:
None. New proposal.
*Here in New York we are receiving a growing number of reports of judges
who have been victimized, and we are aware that there are many other
State and local officials, in addition to criminal defense attorneys,
who likewise have been targeted.
**A dubious claim at best: viz., it is legally impossible to assert a
copyright in one's name against its use in a public proceeding.
