Bank of Hawaii v. Benchwick

• Decision Date: 14 January 1966
• Docket Number: Civ. No. 1892.
• Citation: 249 F. Supp. 74
• Parties: BANK OF HAWAII, Plaintiff, v. Stephen R. BENCHWICK, Bernice Benchwick, W. S. Schneider, Betty Schneider, W. D. Spruance, Jr., Edgar D. Crumpacker, William F. Thompson, Jr., as Clerk of the United States District Court for the District of Hawaii, and the United States of America, Defendants.
• Court: U.S. District Court — District of Hawaii

249 F. Supp. 74

BANK OF HAWAII, Plaintiff, v. Stephen R. BENCHWICK, Bernice Benchwick, W. S. Schneider, Betty Schneider, W. D. Spruance, Jr., Edgar D. Crumpacker, William F. Thompson, Jr., as Clerk of the United States District Court for the District of Hawaii, and the United States of America, Defendants.

Civ. No. 1892.

United States District Court D. Hawaii.

January 14, 1966.

Anderson, Wrenn & Jenks, by Tobias C. Tolzmann, Honolulu, Hawaii, for plaintiff.

William F. Hannon, Castro Valley, Cal., for defendants Stephen R. Benchwick and Bernice Benchwick.

W. S. Schneider and Betty Schneider, defendants pro se.

Herman T. F. Lum, U. S. Atty., Dist. of Hawaii, by Yoshimi Hayashi, Asst. U. S. Atty., for defendant William F. Thompson, Jr., Clerk, U. S. Dist. Court for Dist. of Hawaii.

TAVARES, District Judge.

This is a civil action, in the nature of a creditor's bill, filed by the plaintiff Bank against several defendants, including the Clerk of this Court, to reach and have applied to a judgment in its favor and against the defendant Stephen R. Benchwick, the sum of $10,000 in cash deposited in the registry of this Court on behalf of Benchwick as security for bail pending appeal from a judgment of conviction by this Court in the matter of United States of America vs. Stephen R. Benchwick, Criminal No. 11,546. The case raises a number of largely unique questions as to the amenability to suit of funds deposited in the registry of a federal court, and of a clerk of such court on account of such funds.

Late in 1958, the defendant Benchwick undertook a scheme whereby he would draw checks on a branch of plaintiff Bank in amounts substantially in excess of credits to his account. These checks were used to purchase securities from a Honolulu stockbroker. The manager of the Bank's branch caused these checks to be paid, but instead of charging them to Benchwick's account so as to reflect overdrafts, he charged them to a deferred items account, which had the effect of concealing the overdrafts from the Bank's central office. Further manipulations of the branch's books were successfully effected by the manager from time to time for the benefit of federal and state auditors. Benchwick's account would remain in this condition for periods up to two weeks or more, at which time he would sell the securities he had purchased and deposit the proceeds. At this point, the branch manager would charge the outstanding but suspended checks against Benchwick's account, thereby creating a record which ostensibly reflected normal clearance.

So long as the stock market continued to rise, Benchwick was able to realize periodic short-term gains on stock transactions using the Bank's money in this manner. In the closing weeks of 1959, however, at a time when checks totaling some $82,850 were outstanding, the stock market inevitably went down instead of up, and Benchwick found himself holding securities of a value less than the amount of the outstanding checks. He liquidated his stock account but, instead of applying the proceeds to the reduction of his outstanding obligation to the Bank, he repaired to Nevada with a view to recoupment at the gaming tables. He claimed that his luck was bad and that he lost all but a small portion of the entire amount. No further deposits were made to his account at the Bank.

The branch manager being obviously unable to keep $82,850 worth of charges suspended in the air indefinitely, the loss soon came to the attention of the Bank's central office. The Bank promptly filed suit against Benchwick in a Hawaii state court, and on May 3, 1960, recovered a $92,254.51 judgment for the amount of such checks, certain unrelated unpaid loans, together with interest and costs. On August 1, 1960, Benchwick having removed to California, the Bank obtained a judgment of the United States District Court for the Northern District of California, on its Hawaii state court judgment, in the amount of $93,662.17.

In the meantime, Benchwick was indicted in this Court under 18 U.S.C. § 2 (a) for having aided and abetted the branch manager in the wilful misapplication of the funds of a federally insured bank in violation of 18 U.S.C. § 656. Following a jury-waived trial before District Judge Boldt, on a temporary assignment to this District from the Western District of Washington, Benchwick was on February 2, 1961, convicted and sentenced to the maximum penalty, namely, five years imprisonment and a fine of $5,000. Evidence adduced at the criminal trial gave rise to a reasonable belief that Benchwick may not have gambled away as much as he claimed and may have secreted for future reference a substantial portion of the proceeds of liquidating his stock account.

It was against this background that the present action was filed. Benchwick appealed his conviction and applied for admission to bail pending appeal. Judge Boldt fixed bail at $10,000, and indicated that in the event of affirmance on appeal, $5,000 out of the $10,000 bail bond would be applied to the fine. Promptly on February 11, 1961, Benchwick's Hawaii attorney deposited with the Clerk of this Court the sum of $10,000 cash as security for the bail bond. With equal promptness, the Bank, on February 17, 1961, filed the complaint herein naming as defendants Benchwick, Bernice Benchwick, his wife, Betty and W. S. Schneider, his sister and brother-in-law, W. D. Spruance, his then California attorney, Edgar D. Crumpacker, his then Hawaii attorney, William F. Thompson, Clerk of this Court, and the United States of America.

The complaint alleged that Benchwick, by the fraudulent stratagem and scheme above described, had obtained the possession of a fund of $82,850 of the Bank's money; that he delivered a portion thereof for safekeeping to his wife, his in-laws or his California attorney; that some $11,000 was withdrawn from such fund and transmitted to his Hawaii attorney, who in turn deposited $10,000 of that amount with the defendant Clerk as security for bail pending appeal; and that the Bank had not consented to the use of its money in this fashion. It was prayed that the $10,000 be declared impressed with a trust in favor of the Bank, and that the defendant Clerk be directed to pay the same over to the Bank.

In the alternative, the complaint alleged the above described judgments and the Bank's inability to find any assets of Benchwick subject to execution, and prayed that if the $10,000 deposit be found to be the property of Benchwick, rather than of the Bank, that it be applied to the Bank's judgment. It was further prayed that any transfers of the fund by Benchwick to his wife, in-laws or attorneys, or transfers back and forth among those defendants, be set aside as fraudulent conveyances. These prayers for alternative relief were expressly made subject to the contingencies and purposes for which the fund had been deposited.

Simultaneously with the filing of this complaint, the Bank filed a motion in the criminal case for an order authorizing the imposition of a lien upon the $10,000 fund.

Benchwick and his wife jointly filed an answer in which it was claimed that the fund deposited had come from the wife's separate property, and was neither the Bank's nor Benchwick's. Benchwick's in-laws, the Schneiders, did not engage counsel or file a formal answer, but did address to the Court a letter, which for the purposes hereof has been treated as an answer and appearance of such defendants in propria persona, disclaiming any interest in the fund, alleging that they had lent money to Benchwick's wife and suggesting that some of that money may have been used to make the deposit in question. The defendants W. D. Spruance, Jr. and Edgar D. Crumpacker, Benchwick's then California and Hawaii attorneys, defaulted.

The United States of America interposed a motion to dismiss as to it on the grounds of sovereign immunity, which motion was granted. The defendant Clerk of this Court likewise filed a motion to dismiss claiming that the Court lacked jurisdiction over the subject matter because the prayer for specific relief against the Clerk, as a government officer, was, in effect, a suit against the sovereign, which had not waived its immunity; that the complaint failed to state a claim upon which relief could be granted, because the fund which was the object of the action was property in custodia legis and hence immune from and not available for relief of strangers to the purpose for which the Court took custody thereof; and that the United States was a necessary and indispensable party, and because it could not properly be joined the entire action must fail.

The Court's jurisdiction, said in the complaint to be inherent, was not otherwise challenged. Putting other obstacles to suit aside, it is clear beyond question that this Court, independent of the citizenship of the parties, or the presence or absence of statute, must have the power, inherent in its very existence as a court, to entertain actions and otherwise dispose of claims concerning property in its custody. Its ability to function as an effective instrument for the dispensation of justice would otherwise be less than complete. Cf. Gumbel v. Pitkin, 124 U.S. 131, 145, 8 S.Ct. 379, 31 L.Ed. 374 (1888); 1 Moore, Federal Practice, paragraph 0.60 6.

The Court denied the Clerk's motion to dismiss. Since the Court's sufferance of the maintenance of the creditor's bill against the Clerk was tantamount to impressing the fund in question with an equitable garnishment, Clarke v. Chicago B. & Q. R. Co., 91 F.2d 561, 563 (10 Cir. 1937), plaintiff's motion in the criminal case for an order authorizing the imposition of a lien on the fund was denied as superfluous. An order was entered in that case, however, forbidding the Clerk from releasing all or any part of the fund until further order of the Court.

The argument that the Clerk of this Court enjoys sovereign immunity assumes that prior to or immediately upon the deposit of...