Schnack v. Valley Bank

FILED
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS August 28, 2008
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
WILLIAM D. SCHNACK,
Plaintiff-Appellant,
v. No. 07-4149
(D.C. No. 2:04-CV-1026-DS)
VALLEY BANK OF NEVADA, (D. Utah)
and its successor Bank of America,
Defendant-Appellee.
ORDER AND JUDGMENT *
Before HARTZ, EBEL, and O’BRIEN, Circuit Judges.
William Schnack purchased a certificate of deposit (“CD”) from Valley
Bank of Nevada (“Valley Bank”), a predecessor in interest to Bank of America
(“the bank”). When he attempted to redeem his CD some fifteen years later, the
bank refused payment because it found no record of the CD. Dr. Schnack filed
this diversity suit to compel payment, but the district court dismissed the action,
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument. This order and judgment is
not binding precedent, except under the doctrines of law of the case, res judicata,
and collateral estoppel. It may be cited, however, for its persuasive value
consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
finding that the CD had already been redeemed, or, alternatively, that the claim
was foreclosed by the doctrine of laches. Dr. Schnack appeals, and exercising
jurisdiction under 28 U.S.C. § 1291, we affirm.
I
This case originates from another legal dispute in which Dr. Schnack and
several co-defendants entered into a settlement agreement with Mann Enterprises,
Inc., in 1986. Among other things, the agreement required Dr. Schnack to
“deposit in the Registry of the United States District Court for the District of Utah
. . . $500,000 in cash or equivalent.” Aplt. App., Tab. 3 at 44. Pursuant to this
provision, on April 29, 1986, Dr. Schnack purchased from Valley Bank a
ninety-day CD in the amount of $500,000, proof of which was entered into the
court registry on May 3, 1986. The CD was set to mature on July 28, 1986, but
there is no record of any further activity until May 10, 2001, at which time
Dr. Schnack moved the court to release the money. The court granted the motion,
and on August 29, 2001, Dr. Schnack attempted to redeem his CD from the bank.
The bank denied payment, however, because its earliest accounting records dating
from June 7, 1988, showed no history of the CD. When Dr. Schnack failed to
convince the bank to remit the $500,000, he sued.
The suit culminated in a two-day bench trial, after which the court
dismissed the case. Based on the evidence, the court found that the CD had been
redeemed sometime before June 7, 1988; that Dr. Schnack likely used the
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proceeds of the CD to deposit $581,536.62 into an escrow account pursuant to
another provision of the Mann settlement agreement; and even if the evidence did
not show the CD had been redeemed, the bank had successfully raised the
affirmative defense of laches because more than fifteen years had passed before
Dr. Schnack sought redemption. This appeal challenges nearly all of the district
court’s findings, but particularly these three.
II
We review the district court’s findings of fact for clear error and its legal
conclusions de novo. Orient Mineral Co. v. Bank of China, 506 F.3d 980, 1001
(10th Cir. 2007), cert. denied, 128 S. Ct. 2872 (2008). Dr. Schnack first disputes
the court’s conclusion that the CD was redeemed before June 7, 1988. He argues
that there was no evidence affirmatively showing that the CD had been redeemed
prior to that date, and no record of the CD after that date because the bank
searched the records from the wrong branch. He further asserts there was no
evidence the bank followed its usual procedure for redeeming a CD and the
records relied upon by the court were inaccurate. To buttress his position, he
offers an alternative scenario in which he claims the bank gave him the original
CD, which he deposited into the court’s registry.
We begin with the evidence before the district court, which included the
“Full Trial Reports,” Aplt. App., Tabs 7 & 9, and the “Assignments Trials,” id.,Tabs 8 & 10, from Valley Bank’s Reno Plaza branch, the location where
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Dr. Schnack purchased his CD. Both reports were from June 7, 1988, and January
1, 1992. The Full Trial Reports listed outstanding CDs, while the Assignments
Trials designated whether a CD was being held as security, which would require
release prior to redemption. Neither report contained any reference to
Dr. Schnack’s CD.
The bank also introduced Valley Bank’s Central Information File (CIF)
from September 6, 1988. See id., Tab 12. The CIF was a comprehensive report,
listing all customer accounts, and although it listed Dr. Schnack’s demand deposit
and loan accounts, it did not reference his CD.
Carol Theisen, a former operations officer and current assistant
vice-president of the bank, testified that the absence of an entry on these reports
indicated that the CD had been redeemed. See id., Tab 13 at 121. She explained
that when a customer purchased a CD, the customer would receive a receipt while
the issuing branch would retain the original CD under lock. Outstanding CDs
were then recorded on the Full Trial Reports, which were generated weekly and
audited monthly for accuracy. Ms. Theisen stated that it would be “highly
unlikely” for a locked CD to be missing from the issuing branch and omitted from
the Full Trial Reports, but remain outstanding. Id. at 107. Though she
acknowledged that a matured CD could be held in a suspense account, she
explained that Valley Bank’s policy was to alert customers when a CD had
matured, inform them that it was no longer earning interest, and inquire whether
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they wished to renew the CD. She added that before a CD escheated, the bank
took additional efforts to contact the customer. On this note, Jerad Henry
testified that he examined the bank’s escheatment records but found nothing to
indicate that the CD had been turned over to the state.
Also before the court were all 1099 IRS tax statements issued by the bank
to Dr. Schnack for interest earned from 1991 through 2003. Here again, none of
the statements were generated by Dr. Schnack’s CD. Anna Canas, the custodian
of the statements, testified that the absence of any 1099s for the CD indicated that
it had been inactive and earned no interest from 1991 to 2003.
Based on this evidence, the district court concluded that the CD had been
redeemed prior to June 7, 1988, the date of the bank’s earliest retained records.
We perceive no error in the court’s conclusion. The bank’s reports dating back to
June 7, 1988, showed no trace of the CD; Ms. Theisen testified that the absence
of any entries in any of the bank’s regularly kept business records indicated that
the CD had been redeemed; and she believed, albeit without personal knowledge,
that the bank reports were “100-percent accurate,” id. at 116. This evidence
strongly suggests that the CD had been redeemed sometime before June 7, 1988.
Although Dr. Schnack insists the bank’s reports do not affirmatively show the CD
has been redeemed, the reports are not intended to show that a CD has been
redeemed. Rather, as Ms. Theisen testified, the reports list only open CDs,
which, by negative implication, indicates that a CD not on the reports had already
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been redeemed. See id. at 121. This was a reasonable inference to draw from the
evidence.
Dr. Schnack asserts a host of challenges to this conclusion, but he offers no
evidence to support his contentions. He charges that the bank’s reports were
inaccurate, even though the evidence indicated that the bank took measures to
ensure the accuracy of its records. Ms. Theisen testified that two bank employees
audited the reports monthly by reconciling the Full Trial Reports with the actual
CDs maintained by each branch to ensure that the CDs on the reports matched
those retained by the branch. Although she did not specifically know whether
audits were conducted in 1986 or 1987 before she began working at the Reno
Plaza branch, she knew that audits had been “ongoing” and that “[e]very branch
had audits.” Id. at 110. Dr. Schnack’s insistence that “banks can, and do, make
mistakes,” Aplt. Br. at 21, attempts to ignore the mechanisms the bank
implemented to avoid mistakes and ensure the accuracy of its records, see Aplt.
App., Tab 14 at 142.
Dr. Schnack’s hypothesis that his CD may be discovered at another branch
is similarly unavailing. Ms. Theisen testified that the CD could not have been
held at any branch other than Reno Plaza because that is where the CD was
purchased. Id., Tab 13 at 114. Paula Cobb corroborated that testimony, stating
that CDs issued by a particular branch remain with that branch until redemption
because each branch maintains its own inventory of CDs. Yet even if the CD had
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been retained at another branch, it presumably would have appeared on the CIF;
the fact that it did not demonstrates that this contention is purely speculative.
As for Dr. Schnack’s contention that he received the original CD from
Valley Bank and deposited it in the district court’s registry, that, too, is against
the evidence. Ms. Theisen testified that customers were given only a receipt,
while the original CD was “locked up” at the issuing branch. Id. at 103. She
explained that the “colored piece of paper” with “colored printing on it” received
by Dr. Schnack was his receipt, clearly imprinted with the words, “nonnegotiable
receipt.” Id. Consistent with this testimony, Ms. Cobb stated that the copy given
to customers expressly stated that it was a non-negotiable receipt, while the
original CD retained by the bank contained no similar language. Instead, the
original was encoded with its account and CD numbers, which were used to
balance the general ledger. This testimony makes it apparent that the “hard paper
stock multi[-]colored document” Dr. Schnack claims was the original CD,
Aplt. Br. at 10, actually was his receipt.
None of Dr. Schnack’s remaining contentions provide any basis for
reversal. First, there was no evidence that the bank followed its usual redemption
policy because the bank did not keep, nor was it required to keep, records dating
back more than seven years, and Dr. Schnack offered no evidence of his own to
suggest that the bank deviated from its policy. Second, he is correct that there
would have been no 1099s generated from 1991 through 2003 because the CD
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matured in 1986, but if the CD had rolled over, as he claimed, any interest earned
by the renewed CD during that time frame would have generated a 1099; the fact
that there were no statements related to his CD during that time supports the
court’s conclusion that the CD was redeemed before June 7, 1988. Third,
although the CD could have been held by the bank in a suspense account, there
was no evidence it actually was. Fourth, none of the bank’s records referenced
the CD, but again, because the bank was not required to retain records from as far
back as 1986, it could not affirmatively show when the CD issued, matured, or
was redeemed. And finally, there would have been no need for the bank to
contact Dr. Schnack when the CD matured if he redeemed it upon maturation.
Turning to the next point of contention, Dr. Schnack claims there was no
evidence supporting the court’s finding that he used the proceeds of the CD to
deposit $581,536.62 into an escrow account. The CD was purchased on April 29,
1986, it matured on July 28, 1986, and the escrow deposit was made on
September 15, 1987. By June 7, 1988, there was no record that the CD remained
outstanding. Given this timeline, it is entirely plausible that the CD was
redeemed and the proceeds applied to the escrow deposit. Because Dr. Schnack’s
unsupported testimony to the contrary leaves us without a “definite and firm
conviction that a mistake has been committed,” Anderson v. City of Bessemer,
470 U.S. 564, 573 (1985) (quotation omitted), the court’s ruling will stand.
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Lastly, Dr. Schnack argues that laches cannot bar his suit because the
statute of limitations had not yet run on his CD. Laches is an equitable defense
“primarily left to the discretion of the trial court.” Jicarilla Apache Tribe v.
Andrus, 687 F.2d 1324, 1338 (10th Cir. 1982) (quotation omitted). To invoke the
defense, a “defendant must demonstrate that there has been an unreasonable delay
in asserting the claim and that the defendant was materially prejudiced by the
delay.” United States v. Rodriguez-Aguirre, 264 F.3d 1195, 1208 (10th Cir. 2001)
(emphasis and quotation omitted).
The bank satisfies both criteria. Dr. Schnack waited fifteen years before
attempting to redeem the CD and another three years before bringing this action.
This eighteen-year delay surely prejudiced the bank, because the bank justifiably
destroyed its account records after seven years and cannot now adequately defend
itself. Dr. Schnack argues the statute of limitations had not yet run on his claim
and therefore laches may not be invoked to shorten the statutory period, but
“[w]hether a claim is barred by laches must be determined by the facts and
circumstances in each case and according to right and justice,” id. In this case,
Dr. Schnack failed to “exercise reasonable diligence in protecting his rights.”
Jicarilla Apache Tribe, 687 F.2d at 1338. He believed his CD would renew, but
he received no 1099s relating to the CD from 1991 through 2003 and offered no
evidence indicating that the CD remains outstanding. He claimed the CD could
not be redeemed until the Mann settlement agreement was satisfied, but for
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fifteen years he never even checked on the CD’s status. It is untenable and
unreasonable to leave a $500,000, ninety-day CD unchecked for fifteen years, and
then charge the bank with liability after it justifiably destroyed its records. Under
these circumstances, the district court acted within its discretion in applying
laches as an alternative basis for dismissing the claim.
The judgment of the district court is AFFIRMED.
Entered for the Court
Terrence L. O’Brien
Circuit Judge
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