Article

Note: When Joseph Stephens & Co., Inc. (Judgment Debtor) failed to satisfy a judgment entered pursuant to an arbitral award, David Cikanek (Judgment Creditor) sought to seize funds in a bank account at Citibank (Issuer).

The United States District Court for the Northern District of Illinois, Amy, J., St. Eve, J., applying New York law, denied Judgment Creditor's petition pursuant to the Uniform Commercial Code (UCC) enacted by New York.

Issuer had objected to turning over the funds, claiming that pursuant to an Assignment and Security Agreement, the funds were held as security for a standby LC issued in favor of a landlord in connection with a lease of Judgment Debtor's New York office. These documents "allowed [Issuer], in the event of [Judgment Debtor's] default, to set-off any of its losses against the New York account." Judgment Creditor claimed that the right to exercise set-off was immature and that Issuer had waived the right to set off by failing to assert it in its response to a demand by Judgment Creditor to reveal assets of Judgment Debtor.

The Judge found that under UCC Article 9 of the UCC (Secured Transactions), Issuer had perfected its security interest "automatically by virtue of its maintenance of the account." This fact was dispositive in favor of Issuer because New York law provides that "a security interest perfected prior to entry of judgment trumps the rights of an unsecured judgment creditor" such as Judgment Creditor. The Judge stated that under the applicable statutory scheme, "[in] effect, then, a depository bank's security interest is usually superior to any other secured interest in a deposit account- unless it specifically agrees to recognize the interest."

[JEB/as]

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