Bergstrom v. Zions Bancorporation, N.A.
| Decision Date | 05 May 2022 |
| Docket Number | B309154 |
| Citation | 78 Cal.App.5th 387,293 Cal.Rptr.3d 458 |
| Parties | Crystal BERGSTROM, Plaintiff and Appellant, v. ZIONS BANCORPORATION, N.A., Defendant and Respondent. |
| Court | California Court of Appeals Court of Appeals |
Crystal Bergstrom, in pro. per., for Plaintiff and Appellant.
Dykema Gossett and Brian H. Newman, Los Angeles, for Defendant and Respondent.
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. )1 provides that a third person's "fail[ure] or refus[al]" 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subject to a levy "without good cause" renders the third person "liable to the judgment creditor" for the amounts withdrawn and covered by the levy.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, 67 Cal.Rptr.3d 330, 169 P.3d 559 ( 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.
In 2007, a Nevada state court entered a $2.1 million judgment against Northamerican Sureties, Ltd. (Northamerican) and Robert S. Michaels (Michaels). By April 2019, the amount of the judgment—with interest and costs—had blossomed to $4,064,012.61.
In August 2007, Crystal Bergstrom (plaintiff) was assigned the judgment, thereby stepping into the shoes of the judgment creditor.
In 2019, plaintiff learned that Michaels’ wife—Cheryl Pitcock (Pitcock)—was the sole or coholder of two Los Angeles-based bank accounts at Zions Bancorporation, N.A. (Zions). As of April 1, 2019,2 the bank account ending in 1130 had a balance of $117,372.35, and the bank account ending in 9928 had a balance of $638.62.
At that time, 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" Northamerican, 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"3 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 "Northamerican 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 "[t]he property to be levied upon is described ... as ... [a]ll accounts in the name of [Northamerican], and/or [Michaels], and/or his spouse [Pitcock] ...."
By the time CSC received the notice of levy, someone had underlined the words "Northamerican Sureties, Ltd." in the box listing the "PLAINTIFF" and "DEFENDANT."
When CSC received the notice of levy and accompanying documents, its employee glanced only at the underlined words "Northamerican Sureties, Ltd." Based on the "common practice of process servers to underline in ink the party to which a legal document is directed when the document is being served," CSC's employee mistakenly believed that the underlined words highlighted the party to be served with the levy, and on that basis rejected the notice of levy because its principal was Zions, not Northamerican. On April 3, CSC mailed a letter notifying plaintiff of the rejection.
Plaintiff received CSC's letter on April 9 and immediately called CSC to inform CSC of its mistake. CSC e-mailed Zions later that day to inform Zions of the levy.
Pursuant to Zions's internal policy, Zions did not freeze the money in Pitcock's accounts until 4 p.m. the following day, April 10.
On April 3, Pitcock withdrew $15,000 from the account ending in 1130 by writing a check to an LLC she controlled.
On April 10, at 2:19 p.m., Pitcock withdrew (1) $102,172.35 from the account ending in 1130 by writing a check to the same LLC she controlled, and (2) $438.62 from the account ending in 9528 by writing a check to herself.
Because all of these withdrawals occurred before 4:00 p.m. on April 10, Zions had not yet frozen the funds.
After deducting costs and fees from the $200 remaining in both accounts, Zions ultimately cut plaintiff a check for $83 pursuant to the levy.
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.
After two rounds of briefing and two hearings, the trial court denied plaintiff's motion. In its written ruling, the court ruled that (1) Zions had "good cause" for not freezing the funds in Pitcock's accounts before April 9 because neither it, nor CSC, was "negligent" in misreading the notice of levy due to the "custom and practice" of assuming that whatever was underlined was the party to whom the notice was addressed; (2) Pitcock's ability to drain the accounts was an event that was largely plaintiff's fault because, in the court's view, plaintiff had been "substantially responsible for CSC's week-long delay" in correcting its error; and (3) Zions acted "promptly" by freezing the funds by 4:00 p.m. of the day after it obtained actual notice of the levy because the term "promptly" grants third parties "some amount of leeway." At the second hearing, the court stated that Zions should not be liable because it did not "blantant[ly]" or "willful[ly]" refuse or fail to implement the levy.
Plaintiff filed this timely appeal.
The propriety of the trial court's ruling lies at the intersection of two bodies of law: (1) the Enforcement of Judgments Law, and (2) the law of agency.
California's Enforcement of Judgments Law (Law) is a " ‘comprehensive and precisely detailed scheme’ governing enforcement of money judgments" in California. ( Kono v. Meeker (2011) 196 Cal.App.4th 81, 86, 126 Cal.Rptr.3d 208.) "As a general rule, the Law authorizes a creditor holding a ‘money judgment’ to ‘enforce’ that judgment against ‘all property of the judgment debtor ....’ " ( O'Brien v. AMBS Diagnostics, LLC (2016) 246 Cal.App.4th 942, 947, 201 Cal.Rptr.3d 305, quoting §§ 695.010, subd. (a), 699.710.)
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, 289 Cal.Rptr.3d 850.)
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; once it does, the third person "shall" "at the time of the levy or promptly thereafter" "deliver to the levying officer any of the [judgment debtor's] property levied upon that is in the [third person's] possession" or "control"4 (1) "unless the third person claims the right to possession of the [judgment debtor's] property," or (2) "[u]nless the third person [otherwise] has good cause for failure or refusal" to comply with the levy. ( § 701.010, subds. (a) & (b)(1).) For purposes of the second exception, " ‘good cause’ includes, but is not limited to, a showing that the third person did not know or...
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