LR Credit 10, LLC v Welsh

[*1] LR Credit 10, LLC v Welsh 2007 NY Slip Op 52193(U) [17 Misc 3d 1129(A)] Decided on November 20, 2007 City Court Of Auburn McKeon, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on November 20, 2007
City Court of Auburn

LR Credit 10, LLC, Petitioner,

against

Donald E. Welsh and Caroline M. Walsh and Community Bank, NA, Respondents.



CV07-0971



For the Petitioner:Amanda Perez, Esq.

Mel S. Harris and Associates, LLC

5 Hanover Square 8 FL

New York, NY 10004

For the Respondents:

Michael F. McKeon, J.

Petitioner, a judgment creditor in an action entitled "LR Credit 10, LLC v Donald E. Welsh" commenced this special proceeding pursuant to CPLR §5227, seeking a turnover order for moneys held in an account by respondent Community Bank NA. Previously, on November 29, 2006, a judgment was entered by this court against respondent Donald Welsh in the amount of $6139.39 plus interest. Following entry of the judgment, petitioner issued an information subpoena and questionnaire with restraining notice to Community Bank, NA. The bank in its response disclosed that a joint savings account in the names of respondents Donald Welsh and Caroline Welsh existed with the sum of $821.94 on deposit therein. Petitioner then commenced this proceeding, asking this court to turnover the entire amount of the account, or, in the alternative to turn over at least one half of the account. All respondents were properly served, with Caroline Welsh being personally served, and all have defaulted appearance.

Whether a judgment creditor in a turnover proceeding for a joint account is entitled to the entire account balance or only half of the account when both joint tenants default is unsettled in New York. Under Banking Law §675 (a), a bank may pay all of the proceeds of a joint account to either joint tenant. This creates two conflicting presumptions. "One is that each tenant is said to be possessed of the whole account (citations omitted). The other is that the opening of the account creates a presumption that each of the parties is entitled to half of the account (citations [*2]omitted)." (Mendel v. Chervanyou, 147 Misc 2d 1056 [Civ Ct, Kings County 1990]).

In Mendel, the court reasoned that these presumptions were not actually in conflict, arguing that if each tenant is presumed to possess the whole account, it is reasonable to conclude that each is also presumed to be entitled to half. (See, Mendel, 147 Misc 2d at 1059). The court added that these presumptions are rebuttable and that the burden of proof lies with the judgment creditor to prove that it is entitled to take more than half of the account. (See id. at 1059-1060). As a result, the court held that the default of a nondebtor tenant, while diminishing the proof needed, was not enough by itself to rebut the presumption. (See id. at 1060).

In contrast, the court in Ford Motor Credit Company v. Astoria Federal, (189 Misc 2d 475, 733 NYS2d 583 [Dist. Ct., Nassau County 2001]), rejected the rationale of Mendel and held that the default of the nondebtor tenant is enough by itself to establish that he or she has no ownership interest in the account. "[T]his is especially true when the nonjudgment tenant is personally served and defaults in answering the allegations of the petition which seeks the full amount of the bank account." (Ford, 189 Misc 2d at 477; compare Amalgamated Bank of New York v. Germain, 2004 NY Slip Op 50242(U)(2004) (service on nondebtor tenant was by substitute service)). The court reasoned that any other ruling would undermine the purpose of CPLR §5225 and §5227: "to determine in an expeditious manner the rights of various parties to a bank account." (Id. at 478).

The more recent case of Rappaport, Steele & Company, P.C., v. JP Morgan Chase Bank, N.A.,( 2006 NY Slip Op 51657(U) (2006)), followed the rationale of Ford in granting petitioner the full amount of the joint account held by the judgment debtor and nonjudgment debtor respondents. The court ruled that the respondents' default after being properly served was admission that the entire account belonged to the judgment debtor. (2006 NY Slip Op 51657(U), *1). In so ruling, the court stated that the Ford case represented "better policy because of its equitable and logical merit."(2006 NY Slip Op 51657(U), *2).

The court in Rappaport also relied heavily on the arguments made by court attorney David J. Montag in his New York Law Journal Article, Joint Tenancy and Turnover Petitions. (Montag, Joint Tenancy and Turnover Petitions, NYLJ, Nov. 25, 2002, at 4, col 4). Montag's article raises an interesting policy argument in favor of awarding the whole account in proceedings where respondents have been properly served and are in default. "Consider the 50 percent rule. Debtors knowing this rule may be put in a better position if they do not respond to the turnover petition. If the judgment debtor owns the entire restrained account and the non-debtor is merely an additionally named holder, by defaulting in the turnover proceeding, the debtor will be put in a better position than if a hearing was held and determined that the account was owned by the debtor wholly." (Id.).

Of course, in many of these cases, it would be unlikely that the judgment debtor would be savvy enough to know the law and avoid creditors merely by placing his or her funds in a joint account. As a result, there could be cases where both the judgment debtor and the nonjudgment debtor are unsure of their rights and prejudiced by a turnover proceeding. "While a default admits all factual allegations of the complaint and all reasonable inferences therefrom, it does not admit legal conclusions which are reserved for the court's determination." (See, Direct Merchants Credit Card Bank v. Greenpoint Bank, 2003 NY Slip Op 50784(U)(2003), quoting Silberstein v. Presbyterian Hospital in the City of New York, 95 AD2d 773, 774, 463 NYS2d 254 (2nd Dept 1983)).

[*3]However, to allow a greater remedy to those who default would seem to contravene the purpose of the CPLR and effectively eliminate a remedy to judgment creditors. Moreover, while the risk of prejudice may exist, the nonjudgment debtor is not left without any remedy. By being given proper notice and being properly served, the nonjudgment creditor is provided the opportunity to be heard and to appear before a court.

In the instant case, the respondents were all properly served with the nonjudgment debtor personally served. The papers served outlined the relief being sought by the petitioner. Thus, the nonjudgment debtor, the party at greatest risk, was apprised of this proceeding and given an opportunity to appear and be heard. To require her appearance in order to grant the turnover petition would limit the petitioner's remedy and would effectively reward the respondents for their nonappearance. This would prejudice the petitioner who has done what is required under the law.

Based on the foregoing, this court concludes that the petitioner is entitled to the entire amount on deposit in the bank account currently frozen. Accordingly, the petition for turnover is granted and respondent Community Bank, NA is hereby directed to pay over the entire amount in the account to the petitioner.

Auburn, New York

Dated this 20th day of November 2007

___________________________________

Hon. Michael F. McKeon

City Court Judge

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