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Registered Agent’s Mistake Leads To Liability Of Zions For Failure To Honor A Levy In Bergstrom


California Bank and Trust building (aka Kajima Building) in Los Angeles. CB&T is a subsidiary of … [+] Zions Bancorporation.


In 2007, a Nevada court entered a $2.1 million judgment against Robert S. Michaels and a company called Northamerican Sureties, Ltd. That same year, the judgment was assigned to Crystal Bergstrom, who I have personally known for many years and who is widely regarded as one of the very best non-attorney judgment enforcers in California if not nationwide. By April of 2019, interest on the judgment had grown it to a little more than $4 million, by which time Bergstrom had figured out that Michaels’ wife, Cheryl Pitcock, held two accounts in the Los Angeles branch of Zions Bancorporation, with one account holding $117,372.35 and the other holding $638.62. Under California law, which follows a community property regime, the community property held by a debtor’s spouse (Pitcock) is available to satisfy a judgment against the debtor (Michaels).

Bergstrom had Zions served with a notice of levy and related documents through its registered agent of record, Corporation Services Company (CSC), the latter being one of the largest (if not the largest) resident agent companies in the nation. Mayhem thereafter ensued.

The function of a registered agent like CSC is to intake court pleadings and the like which are served on its client (Zions) and then forward those documents to the client so that the client can deal with them. Here, Bergstrom served CSC (for Zions) with the notice of levy, the writ of execution, an affidavit that attested that Pitcock was Michael’s spouse, and a blank memorandum of garnishee that specified Zions as “the garnishee”. These documents, which follow a standard form established by the California Judicial Council, were delivered to CSC by a process server on April 2, 2019.

The next day, April 3, CSC sent Bergstrom a letter which rejected service of Bergstom’s documents on the basis that CSC did not represent Northamerican Sureties. What happened is that CSC’s employee only glanced at the documents, and determined that they were being served on Northamerican (who CSC did not act as an agent) instead of Zions (who CSC did act as an agent). This was clearly a mistake by CSC’s employee, and on April 9 upon receiving the letter, Bergstrom called CSC to advise them of their mistake. That same day, still April 9, CSC finally forwarded the documents to Zions, and at 4:00 p.m, the next day, April 10, Zions finally froze Pitcock’s account.

Of course, by that time the horse was already out of the barn. On April 3, Pitcock transferred $15,000 to her LLC, and on April 10 (before 4:00 p.m.) transferred $102,172.35 to her LLC from one account and $438.62 from the other. Thus, Zions finally sent Bergstrom a check for $83 pursuant to the levy.

Bergstrom then filed a motion with the California Superior Court to impose third-party liability on Zions for not timely honoring the levy and freezing Pitcock’s accounts pending the transfer of the levied moneys to the Sheriff. Zions defended against the motion by arguing that neither it nor CSC were negligent, since the name “Northamerican Sureties” had been underlined by the process server, and it was (claimed Zions) the “custom and practice” of CSC to presume that the underlined name was the party to whom the documents were directed, meaning not Zions. Additional arguments were that Bergstrom unreasonably delayed for several days before notifying CSC of its error, and that when Zions was finally notified that it acted “promptly” within one day.

The California Superior Court ultimately agreed with Zions and ruled against Bergstrom, and she appealed. All this led to the opinion of the California Court of Appeals that I shall next relate.

The Court of Appeals first examined the levy procedure, which involves the court issuing a writ of execution to the levying officer (read: sheriff) to enforce the judgment, and a notice of levy which orders the debtor or a third-party (such as Zions here) to turn over the debtor’s property to the levying officer. A third-party can refuse to comply — or fail to comply — with the notice of levy if they have good cause to do so, and the latter exception can arise if the third-party did not know of the levy or did not think that it was applicable to the third-party. Under California’s Enforcement of Judgment Law (EJL), when served with a notice of levy, the third-party must also complete and return a garnishee’s memorandum to the levying officer within ten days.

Once a financial institution like Zions has been served with a notice of levy, an execution lien in favor of the creditor arises on the debtor’s funds being held, and the financial institution must not honor a withdrawal request (check or cash), unless or until there is first enough money in the account to satisfy the amount of the levy, which is about the same as the amount of the judgment. If the third-party, whether a financial institution or not, either refuses or just fails to heed the notice of levy, then it becomes itself directly liable to the creditor for the funds that should have been levied, but were not.

Major financial institutions like Zions process dozens if not hundreds (and sometimes thousands) of such notices of levy per day, so these rules are well-known to them. Of course, the notice of levy has to be received by the bank so that it can do its job, and that’s were the process here fell down. And so now we turn to the Court of Appeals’ treatment of CSC as Zion’s agent.

Agency law operates so that whatever is known, or should be known, by the agent is imputed in knowledge to the principal. Thus, whatever CSC knew or should have known, Zions knew or should have known as well. If there is a glitch in the communications between CSC and Zions, well, that’s a matter of CSC’s liability Zions for negligence, but it does not relieve Zions of being imputed with CSC’s knowledge. This then brings us back to good cause — was CSC’s failure to forward Bergstrom’s documents to Zions good cause for Zions to fail to honor the notice of levy?

The California Superior Court, in ruling for Zions, ruled to the effect that good cause exists so long as the third-party was not either blatant or willful in disregard of the notice of levy. This was just flat wrong, ruled the Court of Appeals, since the applicable statute was not drafted towards that standard.

For its part, Zions argued on appeal that good cause exists so long as the third-party does not have actual knowledge of the notice of levy. But the statute doesn’t say that either, the Court of Appeals ruled, and instead includes a clause which requires that the third-party did not have any “reason to know” about the notice of the levy. Thus:

“If actual knowledge were the sole test, third persons could escape liability by negligently declining to read notices of levy or, worse yet, taking actions to remain willfully ignorant of such notices; either way, the third person would not ‘know’ of the levy. Even more troubling, because a judgment creditor is statutorily required to also serve the account holder and judgment debtor with the notice of levy, a definition of ‘good cause’ that makes a third person’s duty to comply with a notice turn on its actual knowledge would make it far more likely that the judgment debtor or account holder would be able to drain the account before the third person bothers to acquire actual knowledge of the levy and freezes the funds at issue. Such a result is inimical to the purpose of the Law, which is to facilitate—not obstruct—the judgment creditor’s collection of the funds in those accounts.”

The next question was whether Zions could be absolved of liability because CSC’s negligence could not be imputed to Zions. That CSC was negligent was not subject to serious dispute:

“Here, we 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. [citations omitted.] As an entity whose very job is to read papers served on it like the standardized one-page notice of levy form—a form that explicitly requires a judgment creditor to specify, in a fixed location, the third person subject to the notice of levy as the ‘PARTY TO BE NOTIFIED’ —CSC’s failure to read the form properly is even more unreasonable (and hence more negligent).

Nonetheless, Superior Court had ruled that CSC was not negligent on the dubious basis that CSC’s employee was entitled to look at underlining of the debtors’ names on the notice of levy in determining to whom the documents were addressed, as opposed to taking time to actually read the documents to see what they said. Swatting this ridiculous ruling away, the Court of Appeals noted that while the underlining might have been distracting, these were standardized forms with which CSC was presumably very familiar, and CSC’s negligent could not be excused on that basis. Similarly, the Court of Appeals ruled that the Superior Court was wrong in ruling that Bergstrom was herself responsible for the delay, because CSC had mailed its notice of rejection and Bergstrom did not actually receive it until six days later.

But could CSC’s negligence as the agent be imputed to Zions as the principal? Zions here argued that CSC was not its general agent, but only its agent for service of process. This argument was “frivolous”, as the Court of Appeals noted, because Zions had hired CSC to do exactly the one thing it failed at doing: Forwarding process to Zions. Thus, CSC’s failure to forward the notice of levy was solidly within the scope of CSC’s agency to Zions, and Zions was thus responsible for the consequences for its agent’s negligence.

So, Zions is liable for CSC’s screw-up, but for how much? The applicable California levy statute states that the third-party’s duty to deliver the funds “at the time of the levy or promptly thereafter.” So what constitutes promptly thereafter?

Eight days later is not promptly thereafter, so Pitcock’s April 10 transfers totaling $102,610.7 were in violation of the notice of levy, and Zions would be liable to Bergstrom for at least that amount. That leaves the $15,000 which Pitcock transfer of $15,000 on April 3, the day after CSC received the notice of levy.

Bergstrom argued that she was entitled to the $15,000 as well, since the levy was served on April 2, and Zions didn’t freeze funds until 4:00 p.m. the next day according to its internal policy. However, the Court of Appeals did not agree:

“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. As noted above, this 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 bottom line is that the Court of Appeals reversed the lower court with directions to enter an order awarding Bergstrom $102,610.97 against Zions. Whatever happened later between Zions and CSC is not, of course, to be found in the opinion.


The issues relating to a business like Zions being liable for not honoring a proper levy because of the misfeasance of its agent are well-covered by this opinion, and there is no need to repeat that discussion. I will note that CSC is a first-class operation, and this situation is an aberration. I’ve got several professional colleagues who now work for CSC, or have worked for CSC in the past, and there were all first-rate. But even the best organization is only as good as their first-line employees, and one of them here erred and seriously. For what it’s worth, I also think that Zions is a first-rate operation, albeit they probably would have been ahead just to pay Bergstrom, submit their claim to CSC, and move on (but, who knows, the decision to fight this might have been made by CSC’s E&O insurance carrier or something).

What is interesting in this opinion is that the Court of Appeals basically allowed Zions what amounted to a One Day Rule to honor a notice of levy. Or did it? What the Court of Appeals really said is that Bergstrom did not present any evidence that Zion’s delay to 4:00 p.m. on the following business day was unreasonable.

Is this the right holding? Probably not. The Court of Appeals presumes in its holding that the burden of proof that Zion’s internal policy was unreasonable was on Bergstrom. However, the burden of proving the reasonableness of a delay is on the third-party, i.e., Zions, and if Zions put on any evidence that a one-day delay is reasonable, that is not reflected in the opinion. In another case, a trial court and an appellate court might look more closely at this issue and find that a one-day delay is unreasonable, and this opinion does not foreclose that result.

But also note that while the Court of Appeals recognized that a third-party responding to a notice of levy might have some grace period to comply, the Court of Appeals also recognized that the lien on those funds is immediate — there is no grace period for the lien to apply. Where this may come into play is if, or when, Bergstrom chases the remaining $15,000 transferred by Pitcock to her LLC, since the lien would presumably follow those moneys into the LLC and make the LLC directly liable to Bergstrom to repay them. In other words, a savvy or lucky debtor might avoid the levy by a quick transfer, but cannot protect those moneys because the execution lien has already attached.

There is one more thing that this case illustrates: Debtors should deal with old judgments and not just presume that they no longer exist. Here, Michaels suffered judgment in 2007, but it was not until a dozen years later that Bergstrom levied on the account of Michael’s spouse. What happens is that over the passage of time, some debtors get careless until one day they go to the ATM and it gives them a raspberry. Indeed, with many judgment enforcers it is common that if initial enforcement attempts fail, they will simply throw the judgment into a file cabinet, renewing the judgment as necessary, until one day when they randomly pull it out of the file cabinet and do a financial search on the debtor. In the meantime, some debtors will have rehabilitated themselves financially, some debtors will get careless, and these debtors suddenly become found money for the judgment enforcer.


Bergstrom v. Zions Bancorp., 2022 WL 1419910 (Cal.App. Distr. 2, May 5, 2022).

CreditordebtorBergstrom v. Zions Bancorp., 2022 WL 1419910 (Cal.App. Distr. 2, May 5, 2022)

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