California Court of Appeal, Crystal Bergstrom v. Zions Bancorporation, Docket No. B309154

 

Enforcement of Judgments

 

Judgment Creditor

 

Writ of Execution

 

Notice of Levy

 

Service of Process

 

Motion for a Court Order Imposing Third Party Liability

 

Garnishee’s Memorandum

 

When Account in the Name of Someone Other Than Judgment Debtor

 

Execution Lien

 

Oral Argument

 

California Law

 

 

 

 

A judgment creditor seeking to seize funds in bank accounts held by the judgment debtor’s spouse served a notice of levy on the bank’s agent for service of process.  Although the notice of levy form unambiguously listed the bank as the party to be served, the agent misread the form and rejected it.  By the time the agent informed the bank of its mistake and the bank then froze the funds, the spouse had all but drained the accounts. The Enforcement of Judgments Law (Code Civ. Proc., § 680.010 et seq.) provides that a third person’s “failure or refusal” to deliver property subject to a levy “without good cause” renders the third person “liable to the judgment creditor” for the amounts withdrawn and covered by the levy. (§ 701.020, subd. (a).) In deciding whether the bank is liable to the judgment creditor for the agent’s mistake in this case, we must answer two questions: (1) When does an agent’s mistake constitute “good cause” that therefore excuses its principal’s failure to deliver property subject to a levy, and (2) was the agent negligent in this case for misreading the form?  Because “good cause” exists if a third party does “not know or have reason to know of the levy” (§ 701.010, subd. (c)), because the “reason to know” standard looks to what “a reasonable person . . .  would have inferred” (Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 547 (Doe)), and because an agent’s knowledge is imputed to its principal (Civ. Code, § 2332), we hold that “good cause” exists only when the agent’s mistake that causes the agent (and, hence, the principal) to not have reason to know of the levy is a mistake that a reasonable person would make—in other words, when the agent’s mistake does not amount to negligence. Further, because the agent in this case was negligent in misreading the standardized form it was served with, the agent for service of process—and hence its principal, the bank—had reason to know of the levy, such that the bank is liable to the judgment creditor for some (though not all) of the funds withdrawn. Accordingly, we reverse the trial court’s ruling in the bank’s favor and remand for further proceedings.

 

 

(…) Corporation Service Company (CSC) was acting as Zions’s agent for service of process for California-based matters. On March 29, plaintiff obtained a writ of execution in the amount of $4,944,759.25 from the Los Angeles Superior Court.

 

 

On April 2, plaintiff had a process server serve CSC with (1) the writ of execution, (2) a notice of levy on “all accounts standing in the name of” North american, Michaels, or Pitcock, (3) a spousal affidavit attesting that Pitcock was Michaels’s spouse, and (4) a blank memorandum of garnishee form listing “ZB, National Association” as the “garnishee.” The notice of levy is a one-page standardized form that in this case had the following information filled in:

 

•Among a series of boxes in the top third of the form, the notice of levy had a box that listed the “PLAINTIFF” as “Judicial Judgment Enforcement Services” (which is plaintiff’s company) and the “DEFENDANT” as “North american Sureties, Ltd., and Robert S. Michaels.”

 

•Immediately under the boxes, the notice of levy stated: “TO THE PERSON NOTIFIED (name):  ZB, NATIONAL ASSOCIATION.”

 

•Beneath that notification, the notice of levy stated that “the property to be levied upon is described . . . as . . . all accounts in the name of North american, and/or Michaels, and/or his spouse Pitcock . . ..”

 

 

(…) In January 2020, plaintiff filed a motion for a court order imposing third party liability on Zions for its noncompliance with the April 2 notice of levy. Plaintiff sought to hold Zions liable for the $117,815.97 Pitcock was able to withdraw on April 3 and April 10 due to Zions’s delay in freezing the funds in the accounts plaintiff controlled.

 

 

(…) When a creditor has a judgment in its favor against a debtor, the creditor seeking to enforce that judgment against the debtor’s property must (1) obtain a writ of execution from the trial court, which is directed to the sheriff or other levying officer and authorizes them to enforce the judgment (§§ 699.510, subd. (a), 699.520), and (2) complete and serve a notice of levy, which is directed to the judgment debtor or third person holding the debtor’s property and notifies them of their duties and rights (§ 699.540). (See Meyer v. Sheh (2022) 74 Cal.App.5th 830, 837-838.) When the debtor’s property is in the possession of a third person (such as a financial institution), the judgment creditor may serve the writ of execution and the notice of levy upon the third person.

 

 

(…) Within 10 days after service, the third person must also complete a garnishee’s memorandum. (§ 701.030.)

 

 

(…) When the third person is a “financial institution” and the property to be levied is a deposit account with that institution, the procedures to be followed turn on whose name is on the account. When the account is in the judgment debtor’s name, the judgment creditor must follow the procedures applicable to any levy served on a third person and must also serve the judgment debtor with notice of the levy. (§§ 700.140, subd. (a), 699.550.) When the account is in the name of someone other than the judgment debtor, the judgment creditor must not only follow the procedures applicable to any levy served on a third person and serve the judgment debtor with notice of the levy, but must also (1) obtain “a court order authorizing the levy” unless, as pertinent here, the account is in the name of the “judgment debtor’s spouse or registered domestic partner,” in which case an “affidavit” attesting to the relationship will suffice, and (2) serve the account holder with notice of the levy. (§ 700.160, subds. (a), (b)(2).)

 

 

(…) Once the financial institution is properly served as detailed above, an execution lien “arises” as to the “amounts in the deposit account at the time of service on the financial institution.” (§ 700.140, subds. (b) & (c).) While this lien is in effect, the financial institution is not to “honor a withdrawal request or a check or other order for the payment of money from the deposit account” unless there still will be “sufficient funds... available to cover the levy” (id., subd. (d)), and the institution cannot be held liable to the depositor for doing so (id., subd. (e)). This limitation on the financial institution’s discretion is an express statutory exception to the usual duty of a financial institution to honor its contractual relationship with its depositor even when third parties might make a claim against funds in a depositor’s account. (Grover v. Bay View Bank (2001) 87 Cal.App.4th 452, 456 [noting bank’s obligations to depositor except when the Law applies]; Chazen v. Centennial Bank (1998) 61 Cal.App.4th 532, 537, 539, 542; Fin. Code, § 1450, subd. (b) [obligating banks to honor depositor’s checks absent an “appropriate order against the bank from a court”].)

 

 

(…) If the financial institution (as a third person) “fails or refuses” to “deliver property to the levying officer” “without good cause to do so,” the financial institution “is liable to the judgment creditor for” the amount of the levy. (§ 701.020, subd. (a).)

 

 

(…) (E.g., Jespersen v. Zubiate-Beauchamp(2003) 114 Cal.App.4th 624, 633 [“a judge’s comments in oral argument may never be used to impeach the final order”].)

 

 

Section 701.020 entitles the judgment creditor to “the value of the judgment debtor’s interest in the property,” but only to the extent that the third person “fails or refuses without good cause” to deliver property to the levying officer. (§ 701.020, subd. (a).) Although the execution lien comes into being upon service of the notice of levy (§ 700.140, subd. (b)), the third person’s duty to deliver comes into being “at the time of the levy or promptly thereafter.” (§ 701.010, subd. (a).) Zions explained its internal policy of responding to notices of levy by freezing the affected funds by 4:00 p.m. on the business day after the notice of levy is served. Because CSC (and hence Zions) had “reason to know” of the levy on April 2, Zions is responsible for any withdrawals after 4:00 p.m. the next day—on April 3. Thus, Zions is not liable for the $15,000 withdrawn by Pitcock prior to 4:00 p.m. on April 3, but is liable for all of the withdrawals thereafter because Zions thereafter “failed or refused without good cause” to freeze the assets. This makes Zions liable for Pitcock’s two withdrawals on April 10, which total $102,610.97. Zions may also be liable for costs and reasonable attorney fees incurred by the judgment creditor in establishing the liability. (§ 701.020, subd. (c).)

 

 

DISPOSITION

 

The order is reversed with directions. The trial court is directed to enter an order awarding plaintiff $102,610.97, and to conduct a further hearing on whether to award costs and reasonable attorney fees. Each party is to bear its own costs on appeal.

 

 

 

 

(California Court of Appeal, Crystal Bergstrom v. Zions Bancorporation, May 5, 2022, Docket No. B309154, Certified for Publication)

Supreme Court of Texas, Compass Bank v. Calleja-Ahedo, Docket No. 17-0065

Internet Law

Identity Theft

Data

Bank Account

Statement of Account

Texas Law and UCC

An identity thief drained F. C.-A.’s bank account through a series of fraudulent transactions in 2012 and 2013. C. sued his bank to recover the stolen funds. The question now is whether C. or his bank must suffer the financial consequences of the theft.

Section 4.406 of the Business and Commerce Code contains the Texas legislature’s answer to that question. “If a bank sends or makes available a statement of account . . . the customer must exercise reasonable promptness in examining the statement. . . to determine whether any payment was not authorized” and “must promptly notify the bank of the relevant facts” regarding the unauthorized payment. TEX. BUS. & COM. CODE § 4.406(c). Section 4.406 limits the liability of the bank when the customer fails to comply with these duties. Id. § 4.406(d).

(…) Section 4.406 precludes C.’ s attempt to hold his bank liable for the losses.

The deposit agreements between C. and his bank do not alter this outcome. (…) (Parties may, by agreement, alter the requirements of section 4.406).

Although the Bank sent statements to the imposter’s address, it made the statements available to C. by other means, triggering his statutory duties to promptly examine the statements and report the fraud. The only remaining question is whether the deposit agreements modify the statute to require a result different from that dictated by applying the text of section 4.406. (…) We conclude that they do not.

C. never signed up for online banking. After June 2012, C. did not receive statements at his brother’s address. He did not notify the Bank of any concerns until eighteen months later, in late January 2014.

(See also Kaplan v. JPMorgan Chase Bank, N.A., 2015 WL 2358240, at *7 (N.D. Ill. May 12, 2015) (holding that statements were made available to customer under UCC § 4-406 because they were available online and customer could obtain statements by requesting them in person or by phone, and rejecting customer’s argument that the statements were not made available because she never received them)).

(…) Recovery of these remaining amounts is nevertheless barred by subsection 4.406(d)(2), which provides that, after an initial unauthorized withdrawal, subsequent withdrawals “by the same wrongdoer” cannot be recovered from the Bank if “the customer had been afforded a reasonable period of time, not exceeding 30 days, in which to examine the item or statement of account and notify the bank.” The UCC’s official comment accurately explains the effect of this provision.

(Supreme Court of Texas, Compass Bank v. Calleja-Ahedo, Dec. 21, 2018, Docket No. 17-0065)

Affaire rendue en application du droit de l’état du Texas, lequel reprend le contenu de l’UCC, de sorte que l’on peut s’attendre à des décisions identiques dans les autres états qui considèrent également l’UCC dans ce domaine.

Manifestation de volonté par Internet : selon le droit texan et l’UCC, un relevé de compte bancaire périodique mis à disposition du client doit être contesté dans un certain délai. A défaut, le client est déchu de son droit une fois le délai écoulé.

De la sorte, et c’est en cela que la présente affaire est d’intérêt, un relevé de compte bancaire, mis à disposition du client par le système gratuit e-Banking, sans égard au fait de savoir si le client a installé ce service, et sans savoir si le client dispose d’Internet, est réputé valablement communiqué au client. Ainsi, après le délai prévu pour contester le relevé, le client qui n’a ni consulté Internet ni contesté le relevé est déchu de son droit de contestation.

Cette réglementation légale peut être modifiée conventionnellement.

En l’espèce, le client avait demandé à la banque d’adresser ses relevés à un membre de sa famille. Puis un imposteur est parvenu à obtenir en sa faveur des versements, en plusieurs fois, portant sur la totalité du compte. Dès le premier versement, les relevés bancaires ont été adressés à l’imposteur et non plus au membre de la famille du client. Ni ce proche ni le client ne se sont préoccupés de cette situation, le client ne remarquant que bien plus tard que son compte bancaire était vide. En application de ce qui précède, il ne peut rendre la banque responsable de cette situation et doit supporter intégralement sa perte.

Shaw v. United States, Docket 15-5991

Bank account: Property rights: Bailment: Common law:

When a customer deposits funds, the bank ordinarily becomes the owner of the funds and consequently has the right to use the funds as a source of loans that help the bank earn profits (though the customer retains the right, for example, to withdraw funds). Michie, Banks and Banking, ch. 9, §1, pp. 1–7 (2014) (Michie); id., §4b, at 54– 58; id., §38, at 162; Phoenix Bank v. Risley, 111 U. S. 125, 127 (1884). Sometimes, the contract between the customer and the bank provides that the customer retains owner­ship of the funds and the bank merely assumes possession. Michie, ch. 9, §38, at 162; Phoenix Bank, supra, at 127. But even then the bank is like a bailee, say, a garage that stores a customer’s car. Michie, ch. 9, §38, at 162. And as bailee, the bank can assert the right to possess the depos­ited funds against all the world but for the bailor (or, say, the bailor’s authorized agent).  Am. Jur. 2d, Bailment §166, pp. 685–686 (2009). This right, too, is a property right.  W. Blackstone, Commentaries on the Laws of England 452–454 (1766) (referring to a bailee’s right in a bailment as a “special qualified property”).

Neder v. United States, 527 U. S. 1, 21–25 (1999) (bank fraud statute’s definition of fraud reflects the common law).

Secondary sources: Michie, Banks and Banking, ch. 9, §1, pp. 1–7, ch. 9, §38, at 162 (2014); Am. Jur. 2d, Bailment §166, pp. 685–686 (2009); W. Blackstone, Commentaries on the Laws of England 452–454 (1766); O. Holmes, The Common Law 132 (1881).

(U.S.S.C., December 12, 2016, Shaw v. United States, Docket 15-5991, J. Breyer, unanimous).

Les notions de droit de propriété et de "bailment" en rapport avec un compte bancaire. Même si le contrat entre la banque et son client dispose que le client conserve la propriété des fonds tandis que la banque n'est au bénéfice que d'un droit possessoire, la banque sera tout de même assimilée à un "bailee", tout comme l'est par exemple un garagiste qui entrepose le véhicule d'un client. Comme "bailee", la banque peut invoquer son droit possessoire erga omnes, sauf envers le propriétaire des fonds déposés. Ce droit est un des droits de propriété.