Bank of America v. Cory

• Decision Date: 25 January 1985
• Citation: 164 Cal.App.3d 66,210 Cal.Rptr. 351
• Court: California Court of Appeals Court of Appeals
• Parties: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, Plaintiff, Cross-Defendant, Appellant and Cross-Respondent, v. Kenneth CORY, State Controller, Defendant, Cross-Complainant, Respondent and Cross-Appellant. Margaret SLETTLAND and Hanna M. Kerner, Plaintiffs and Respondents, v. Kenneth CORY, State Controller, Defendant and Appellant. Civ. 20871.

Page 351

210 Cal.Rptr. 351

164 Cal.App.3d 66

BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, Plaintiff, Cross-Defendant, Appellant and Cross-Respondent, v. Kenneth CORY, State Controller, Defendant, Cross-Complainant, Respondent and Cross-Appellant.

Margaret SLETTLAND and Hanna M. Kerner, Plaintiffs and Respondents, v. Kenneth CORY, State Controller, Defendant and Appellant.

Civ. 20871.

Court of Appeal, Third District, California.

Jan. 25, 1985.

As Modified on Denial of Rehearing, Feb. 28, 1985.

John M. Anderson, Paul M. Zieff, Richard B. Caine, Frederick M. Pownall, Howard D. Neal, and Landels, Ripley & Diamond, San Francisco, for Bank of America National Trust and Savings Association, plaintiff, cross-defendant, appellant and cross-respondent.

William Alsup, Paul R. Dieseth, and Morrison & Foerster, San Francisco, as amici curiae on behalf of plaintiff, cross-defendant, appellant and cross-respondent.

Gary J. Near, Stephen Kaus, and Kaus & Kerr, San Francisco, for Margaret Slettland and Hannah M. Kerner, plaintiffs and respondents.

Harvey M. Freed, San Francisco, as amicus curiae on behalf of plaintiffs and respondents.

George Deukmejian and John K. Van de Kamp, Atty. Gen., Yeoryios C. Apallas, Jeffrey J. Fuller, and Gail A. Strader, Deputy Attys. Gen., for Kenneth Cory, State Controller, defendant, cross-complainant, respondent, cross-appellant, and appellant.

EVANS, Associate Justice.

Following protracted and convoluted litigation, this appeal places at issue the question of the applicability of a statute of limitations to the California Unclaimed Property Law (Code of Civ.Proc., § 1500 et seq., hereafter UPL) and the enforcement of the UPL or lack thereof by the State Controller, and the propriety and amount of interest and/or penalty assessed upon an order of escheat. Bank of America (Bank), as appellant and cross-respondent in No. 257509, addresses the questions of the applicability of a statute of limitations to the UPL, its retroactivity, and the propriety of the order imposing damages and interest pursuant to Government Code section 12419 in an action seeking to recover property pursuant to the UPL. Controller of the State of California (hereafter Controller), respondent and cross-appellant in No. 257509 and appellant in No. 250500, also contests portions of the interest award, the findings the Controller was not effectively enforcing the UPL prior to the present administration, and that respondent taxpayers contributed significantly to the litigation and are thus entitled to an award of attorney fees.

The legal and factual complexity of the various contentions presented makes necessary the following extensive procedural and factual exposition.

On September 5, 1974, taxpayers filed action No. 250500 seeking to compel then Controller Houston Flournoy to enforce the UPL. The complaint alleged through dereliction of duty the Controller had allowed banking institutions to impose service charges on "dormant accounts" ¹ and to discontinue payment of interest on such accounts. As a result, some dormant accounts which should have been delivered to the state under the UPL had been retained by those banking institutions and consumed by means of charges levied on them.

The Controller filed an answer to the complaint, and shortly thereafter enacted "emergency" regulations pertaining to the UPL. Taxpayers then sought and were granted an injunction stopping the implementation of those regulations; the injunction was based in part on the lack of evidence or factual basis to justify the asserted emergency character of the rules.

On January 29, 1975, the Controller filed a motion for judgment on the pleadings; the motion was granted, and the taxpayers' contemporaneous motion for summary judgment was denied. The order of the trial court granting judgment on the pleadings was ultimately reversed by this court in Farley v. Cory (1978) 78 Cal.App.3d 583, 144 Cal.Rptr. 923, which held taxpayers had standing to pursue their action which sought to compel the Controller to perform his duties.

During September 1975, and pending resolution of the appeal in Farley v. Cory, supra, 78 Cal.App.3d 583, 144 Cal.Rptr. 923, Bank submitted an accounting to the Controller which showed Bank had withheld interest and imposed service charges on dormant accounts from 1959 until 1974 in the amount of $9,486,149. On October 1, 1975, the Controller, pursuant to Government Code section 12419, attempted to state an account for that amount plus interest and damages. Rather than pay the demand, Bank filed a complaint for declaratory relief, seeking to clarify its right to levy charges and discontinue interest payments on dormant savings accounts, and the Controller's right to bring an action after 15 years of apparent acquiescence. (No. 257509.) Controller cross-complained, seeking payment of all improperly withheld charges and interest payments. Shortly thereafter, the Controller moved for partial judgment on the pleadings on certain issues which did not require findings of fact.

On June 20, 1976, Superior Court Judge Irving Perluss granted the Controller's motion and found (1) the Controller's rights under the UPL are derivative and that he succeeded to whatever rights the owners of the abandoned property may have; (2) banking institutions may not impose service charges nor discontinue the payment of interest on dormant accounts in the absence of a statute or a valid contract between the institution and the depositor; (3) banking institutions may not seek to implement the terms of such a contract against the Controller if it could not enforce them against the depositor; and (4) because of the derivative rights of the Controller, he was not barred by any statute of limitations from seeking to recover such funds.

Following the issuance of the opinion in Farley v. Cory, supra, 78 Cal.App.3d 583, 144 Cal.Rptr. 923, in 1978, taxpayers served Bank as a Doe defendant and moved for consolidation of cases No. 250500 and No. 257509. The trial court denied the motion; taxpayers then petitioned this court for a writ of mandate directing the superior court to consolidate the cases, and were ultimately successful.

On the issues as framed by the Perluss order, the consolidated actions finally went to trial in December 1979. Following a six-week trial, Judge Richard Backus issued the following findings of fact and conclusions of law germane to this appeal: (1) Bank was not entitled to impose service charges, or discontinue payment of interest on dormant accounts in the absence of an authorizing statute or a valid contract between it and the depositors; (2) the Controller was not estopped from enforcing the UPL against Bank and was not barred by the statute of limitations; (3) the Controller had properly stated an account with Bank pursuant to Government Code section 12419, and was entitled to recover the amount stated plus interest in the amount of 10 percent per annum and 25 percent damages; however, the court, in that aspect of the proceeding, held Code of Civil Procedure section 338, subdivision 1, which fixes a three-year limitation to be applicable; (4) the Controller did not start to effectively enforce the UPL until challenged by the taxpayers' suit; (5) the Controller was ordered to take all steps reasonably necessary to identify owners of unclaimed accounts paid to him; and (6) that taxpayers are entitled to attorney fees under Code of Civil Procedure section 1021.5 and the common fund doctrine. In its statement of intended decision, the trial court also adopted the Perluss decision.

The UPL was enacted in 1959 (Stats.1959, ch. 1809), and provides for the escheat of certain abandoned property, including "any demand, savings, or matured time deposit, or account subject to a negotiable order of withdrawal, ...." (Code Civ.Proc., § 1513, subd. (a).) That section permits banking institutions and others holding such funds to deduct "reasonable service charges which may lawfully be withheld and which do not (where made in this state) exceed those set forth in schedules filed by the banking organization from time to time with the State Controller." (Emphasis added.)

Prior to 1974, only 31 such schedules had been filed with the State Controller, although there were more than 160 banks operating in California at the time. The Controller's Office was aware Bank was not paying interest on dormant accounts, had "cannibalized" smaller accounts by imposing service charges, and had not filed a schedule of "reasonable service charges." Bank justified this activity by asserting the signature cards signed by depositors were valid contracts for the imposition of service charges and the discontinuance of interest payments. Prior to 1974, that Bank practice had not been challenged by the Controller's Office. From 1959 until 1974, only two audits focusing on the question of service charges imposed on dormant accounts had been performed.

BANK'S APPEAL

APPLICABILITY OF A STATUTE OF LIMITATIONS

Bank appeals from that portion of the judgment finding the Controller was not barred by the three-year period of limitation established by Code of Civil Procedure section 338, subdivision 1. ² It contends an action to enforce the provisions of the UPL is "[a]n action 'upon a liability created by statute' " ( § 338, subd. 1), and as a consequence any attempt to enforce the UPL is time limited by that section. Bank argues the trial court erred in applying the derivative rights theory which allows the Controller to stand in the shoes of the depositor and claim the protection of section 348, ³ which states there is no limitation on the time in which an action to recover money from a holder must be commenced by a depositor. We fail to find merit in Bank's contentions.

The California UPL is not a true escheat statute; rather, it has dual objectives: (1) to reunite owners with unclaimed funds or property, and (2) to give the state, rather than the...