Security for Costs may be requested by a defendant being sued by an out-of-state litigant to ensure that, in the event the defendant is successful in the lawsuit, he will recover the costs of the action. The defendant’s motion for posting security can stop a plaintiff’s lawsuit dead in its tracks.
National Bank May Be Considered a Non-Resident Plaintiff.
A New York State consumer was sued for defaulting on a credit card account. In the complaint, the plaintiff stated it is a National Bank located in Utah. The defendant retained Richard A. Klass, Esq., Your Court Street Lawyer, who filed an Order to Show Cause under CPLR 8501, requesting that the judge direct the plaintiff post security for costs, pointing to the fact that it may be considered an out-of-state litigant.
Security Directed “as of Right” or in the Court’s Discretion.
In response to a defendant’s motion, a judge can order the plaintiff to deposit money or a bond with the court clerk to cover the defendant’s costs, depending on the status of the plaintiff and the circumstances of the lawsuit. CPLR 8501 provides:
(a) As of right. Except where the plaintiff has been granted permission to proceed as a poor person or is the petitioner in a habeas corpus proceeding, upon motion by the defendant without notice, the court or a judge thereof shall order security for costs to be given by the plaintiffs where none of them is a domestic corporation, a foreign corporation licensed to do business in the state or a resident of the state when the motion is made.
(b) In court’s discretion. Upon motion by the defendant with notice, or upon its own initiative, the court may order the plaintiff to give security for costs in an action by or against an assignee or trustee for the benefit of creditors, a trustee, a receiver or debtor in possession in bankruptcy, an official trustee or committee of a person imprisoned in this state, an executor or administrator, the committee of a person judicially declared to be incompetent, the conservator of a conservatee, a guardian ad litem, or a receiver.
The motion can be made by the defendant at any point during the litigation. See, Cie Noga, S.A. v Heather Fin. Corp., 130 Misc 2d 1086, 1088 [Sup Ct 1986] (“The rule is that there is ‘no time limitation placed upon the defendants’ right to seek security’ (Green v. Roosevelt Hotel, 47 Misc.2d 177, 261 N.Y.S.2d 942 (Sup.Ct.N.Y.Co.1965); Siegel, N.Y. Practice § 414, Costs (West 1978) and a defendant’s motion for costs may be made and must be granted ‘at any stage of the action’. Gilbert v. 503–507 West 177th St. Corp., 186 Misc. 78, 58 N.Y.S.2d 690 (Sup.Ct.NY Co.1945); Snyder v. Griswold, 140 Misc. 82, 250 N.Y.S. 26 (Sup.Ct.Chautauqua Co.1931).”)
In Citibank (S. Dakota), N. A. v Gonzalez, 114 Misc 2d 1007 [Civ Ct 1982], the court held that the plaintiff, a national banking association based in South Dakota not licensed to do business in New York, was required to post security for costs as a non-resident plaintiff pursuant to CPLR 8501(a) upon defendant’s motion, since national banks are subject to State law unless the State law expressly conflicts with Federal law or infringes upon national banking laws or imposes an undue burden upon the performance of the national banks’ functions, factors which were not presented; specifically, that provision of the National Bank Act which empowers a national bank to sue in the state courts as fully as a natural person could (US Code, Title 12 § 24), does not exempt plaintiff from the requirement that it post security for costs under CPLR 8501(a), and the mandatory provisions of said State statute do not constitute an undue restraint on interstate commerce.
Lawsuit Stayed [Frozen] Pending Security for Costs.
As part of the request for security for costs, CPLR 8502 provides for entry of an Order directing that all proceedings in the lawsuit are stayed pending the posting of security for costs. [See footnote 1] In the credit card lawsuit, the judge signed the Order to Show Cause with an interim stay of proceedings pending the plaintiff’s posting of an undertaking. [See footnote 2] A further request for the costs of the action under CPLR 8101 [See footnote 3] and 8201 [See footnote 4] was made to the court as well.
Constitutionality of Article 85 Upheld.
In the past, out-of-state plaintiffs have had a hard time accepting that their lawsuits can be stayed while they are forced to post money or a bond with a New York court clerk. In a recent New York State Court of Appeals case, Clement v Durban, 32 NY3d 337, 346-47 [2018], in which there was a challenge to the constitutionality of CPLR Article 85, New York State’s highest court upheld the statute, holding:
For these reasons, we conclude that sections 8501(a) and 8503 do not unduly burden nonresidents’ fundamental right to access the courts because they impose marginal, recoverable security for costs on only those nonresident plaintiffs who do not qualify for poor persons’ status pursuant to CPLR 1101, or fit any other statutory exemption. Where these nonresident plaintiffs do not prevail in their litigation, they must pay the same costs required of non-prevailing residents, but are simply required to post the security applied to those costs at an earlier date. Conversely, should nonresident plaintiffs prevail, their security is refunded, with any accrued interest (see Smith, 245 N.Y. at 493, 157 N.E. 753 [“the effect of the apparent discrimination is not to cast upon the non-resident a burden heavier in its ultimate operation than the one falling upon residents, but to restore the equilibrium by withdrawing an unfair advantage”]; see also CPLR 2601, 2605, 2607). Even if, as plaintiff contends, this provides resident litigants with “some detectable litigation advantage” (McBurney, 569 U.S. at 231, 133 S.Ct. 1709), imposing a “relatively minor hardship” (Landise, 141 A.3d at 1076) on a limited class of nonresident plaintiffs is not enough to constitute an impermissible burden, such that nonresident plaintiffs do not have reasonable and adequate access to the courts.
Footnotes
[1]
§ 8502. Stay and dismissal on failure to give security.
Until security for costs is given pursuant to the order of the court, all proceedings other than to review or vacate such order shall be stayed. If the plaintiff shall not have given security for costs at the expiration of thirty days from the date of the order, the court may dismiss the complaint upon motion by the defendant, and award costs in his favor.
[2]
§ 8503. Undertaking.
Security for costs shall be given by an undertaking in an amount of five hundred dollars in counties within the city of New York, and two hundred fifty dollars in all other counties, or such greater amount as shall be fixed by the court that the plaintiff shall pay all legal costs awarded to the defendant.
[3]
§ 8101. Costs in an action.
The party in whose favor a judgment is entered is entitled to costs in the action, unless otherwise provided by statute or unless the court determines that to so allow costs would not be equitable, under all of the circumstances.
[4]
§ 8201. Amount of costs in an action.
Costs awarded in an action shall be in the amount of:
1. two hundred dollars for all proceedings before a note of issue is filed; plus
2. two hundred dollars for all proceedings after a note of issue is filed and before trial; plus
3. three hundred dollars for each trial, inquest or assessment of damages.
Richard A. Klass, Esq.
Your Court Street Lawyer
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Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn, New York. He may be reached at (718) COURT●ST or RichKlass@courtstreetlaw.com with any questions.
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