Authorizes the chief administrator of the courts to establish rules for special proceedings authorized under section 9-518 of the uniform commercial code

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 Department of State ("DOS"), thereby giving notice of that interest to the debtor's future creditors. Typically such a recording, termed a "financing 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 especially 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 government action use the system to retaliate against or harass the government officials behind that action. They do this by filing fraudulent financing 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 9509(a), that an alleged debtor authorize 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 performance 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 available 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 official duties (or, where the petitioner is a lawyer who is not a public employee, for the petitioner's performance of his or her duties representing 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. The UCC amendments proposed by this measure (see bill section four)

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 nothing 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 officer 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.

{1} 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.

{2} 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.