Court of Appeal:
Hoffstadt Says Policy Under Which There is a Delay Until 4 p.m. the Next Day Is Reasonable
By a MetNews Staff Writer
A bank that, through the fumbling of its agent, failed to honor a notice of levy, thus enabling the debtor’s wife to drain one account and sap all but $200 from another, is liable to a judgment creditor for most of the funds that were withdrawn—but not those taken out before 4 p.m. of the day following service of the notice, in light of the financial institution’s internal policy, the Court of Appeal for this district held yesterday.
Zions Bancorporation’s self-proclaimed wait-a-day rule in responding to levies is reasonable, Justice Brian M. Hoffstadt of Div. Two said, in light of Code of Civil Procedure §701.010(a) which says that a third party serviced with a notice of levy must comply “at the time of levy or promptly thereafter.”
Accordingly, he wrote, Zions is not liable to the judgment creditor for $15,000 withdrawn by the debtor’s wife on April 3, 2019 where the notice of levy and a writ of execution were served on the bank’s California agent for service of process, Corporation Service Company (“CSC”), on April 2. It is liable, however, for $102,615.97, the amount withdrawn on April 10 by Cheryl Pitcock, wife of judgment debtor, Robert S. Michaels, Hoffstadt declared.
Contrary to a finding by Los Angeles Superior Court Judge Ruth Ann Kwan, he determined, there was no “good cause” for the failure to garnish.
Failure to honor the collection effort stemmed from a flub. A CSC clerk failed to see that notice of levy listed “ZB, NATIONAL ASSOCIATION,” a name then used by Zions, as “THE PERSON NOTIFIED.”
On the notice, someone had underlined the words, “Northamerican Sureties, Ltd.” That was a company owned by Michaels which had been his co-defendant in an action in Nevada which resulted in 2007 in a $2.1 million judgment (worth, by April 2019, $4,064,012.61).
By custom, the party being served is underlined; CSC is not an agent for Northamerican, and the notice of levy was rejected on April 3. A letter was sent on that date to the judgment creditor, Crystal Bergstrom, so advising her.
She received the letter on April 9, and immediately telephoned CSC to let it know of its error. CSC then notified Zions by email.
Had Zions immediately frozen the accounts, Pitcock would not have been able to withdraw $102,615.97 on April 10 and the Court of Appeal would not now be ordering entry of judgment for that amount against Zions. However, applying its wait-a-day rule, it determined on April 9 not to honor the notice of levy until 4 p.m. the following day.
Pitcock had left $200 in one of the accounts. Zion took out its costs and fees, made out a check for $83 to Bergstrom, and disavowed any further obligation to her.
Basis of Liability
At issue was whether Zions was excused from honoring the attempt to levy under Code of Civil Procedure §701.020(a), which says:
“If a third person is required by this article to deliver property to the levying officer or to make payments to the levying officer and the third person fails or refuses without good cause to do so, the third person is liable to the judgment creditor for whichever of the following is the lesser amount:
“(1) The value of the judgment debtor’s interest in the property or the amount of the payments required to
“(2) The amount required to satisfy the judgment pursuant to which the levy is made.”
Zions insisted there was “good cause” because “Northamerican Sureties, Ltd.” had been underlined and North American CSC was justified in relying on the “custom and practice” under which the name of the party served is underlined. Hoffstadt disagreed, saying:
“[W]e conclude that CSC’s failure to properly read the notice of levy was unreasonable as a matter of law. As a general matter, a reasonable person is charged with reading the content of documents presented to him or her—particularly where, as here, those documents are legal documents being served; a failure to do so constitutes negligence….As an entity whose very job is to read papers served on it like the standardized one-page notice of levy form…CSC’s failure to read the form properly is even more unreasonable (and hence more negligent).”
“Although the common practice of an industry can be relevant to the standard of care (at least when the standard of care is not one that requires expert testimony)…, such common practices are not controlling….The underlining may have been distracting to CSC, but we refuse to treat it as excusing CSC from looking at the part of the standardized form specifically meant to list the party to be served.”
The jurist went on to say:
“Zions argues that CSC’s negligence in not properly reading the notice of levy is not to be imputed to Zions because CSC was its agent “for service of process, not its general agent.” This argument is frivolous. CSC was Zions’s agent for service of process, which is precisely the context in which CSC made its negligent mistake—that is, as Zions’s agent for service of process.”
Bergstrom argued that deference should not be lent Zions’s “arbitrary internal policy” to delay its response to a notice of levy and that she should be awarded the $15,000 that was withdrawn the day after the notice was served. Hoffstadt noted that §701.010(a) “requires the third person to deliver the property ‘at the time of [the] levy or promptly thereafter,’ ” and reasoned:
“If the duty to deliver was, as plaintiff suggest, instantaneous upon receipt of the notice of levy, we would be writing the words ‘or promptly thereafter’ out of the statute…..[T]his we may not do. Financial institutions can have hundreds, thousands, if not tens of thousands, of depositors—and may receive multiple notices of levy at once in locations all around a state or the country; to expect instantaneous compliance is not realistic. Plaintiff has provided no evidence that the one-business-day delay is unreasonable given these constraints.”
The case is Bergstrom v. Zions Bancorporation, N.A., B309154.
Bergstrom was in pro per. Brian H. Newman of the downtown Los Angeles law firm of Dykema Gossett represented Zions.
Michaels on Dec. 12, 2007, pled guilty in the U.S. District Court of the District of New Jersey to one count of wire fraud committed through Northamerican Sureties. He had cheated a New Jersey company out of $800,000.
On Oct. 6, 2010, was sentenced by a judge of to 18 months in prison.
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