Opinion
No. CV 04 4001435
December 11, 2008
MEMORANDUM OF DECISION
The seeds of this dispute were planted twenty years ago when a generous grandmother funded certificates of deposit for the benefit of her grandchildren. In 1987 and 1988, Mildred Spiers funded two investment savings accounts for her grandchildren, the plaintiffs, David and Susannah Braffman. The passbooks were turned over to David and Susannah's parents as the accounts' custodians, the plaintiffs, Gerald and Elaine Braffman. In January of 2004, Gerald Braffman presented the passbooks to the defendant, Bank of America. The defendant advised Gerald Braffman that there were no records of the accounts and therefore, the accounts must have been closed or had escheated to the State of Connecticut. After determining that the State of Connecticut was not holding the escheated funds, the plaintiffs brought suit against the defendant asserting their entitlement to payment of the account balances plus the accrued interest over the past twenty years.
Posture of the Case
The plaintiffs' complaint has two counts. The first count alleges that on November 9, 1988, Elaine Braffman, as custodian for David Braffman, opened an account with the Society for Savings. The account was created by a deposit of $100,000. Gerald Braffman made demand for payment on January 5, 2004, but the defendant refused to make payment of the principle and accrued interest. The complaint alleges that the defendant has fraudulently concealed the account in violation of General Statutes § 52-595. The complaint further alleges a breach of a fiduciary duty to the plaintiffs. The second count alleges that on November 12, 1987, Gerald Braffman, as custodian for Susannah Braffman, opened an account with the Society for Savings. The account was created by a deposit of $33,079.37. Gerald Braffman made demand for payment on January 5, 2004, but the defendant refused to make payment of the principle and accrued interest. The complaint alleges that the defendant has fraudulently concealed the account in violation of § 52-595. The complaint further alleges a breach of a fiduciary duty to the plaintiffs. The complaint prays for monetary damages, interest, punitive damages and treble damages.
Through a series of mergers, acquisitions or other transactions the defendant, Bank of America, became the successor in interest of the Society of Savings.
The defendant filed an answer and special defenses to the plaintiffs' amended complaint. Specifically, the defendant alleges that the accounts' custodians lack standing as David and Susannah are no longer minors; the plaintiffs' claims are barred by laches; the plaintiffs' claims are barred because the defendant has paid the accounts; and the plaintiffs' claims are barred because of their unreasonable and inexcusable delay in discovering that they were no longer receiving interest or statements on the accounts, which unfairly prejudiced the defendant's ability to defend this action.
Evidence was taken on June 19 and 20, 2008. The plaintiffs filed their post-trial brief on August 8, 2008. The brief argued that a debtor-creditor relationship existed between the plaintiffs and the defendant and that upon presentation of the original passbooks, the burden shifted to the defendants to prove payment. The plaintiffs further disputed the validity of the defendant's special defenses and requested that judgment enter in their favor in the amount of the original deposits plus accrued interest. In addition, the plaintiffs offered evidence of interest rates from a Federal Reserve Website to calculate the interest they claimed. They further claimed statutory interest from the date of the demand, January 5, 2004, to the present. The plaintiffs have not briefed and therefore, are deemed to have abandoned their claims of fraudulent concealment, breach of a fiduciary relationship, and demand for punitive damages and treble damages.
The defendant's post-trial brief, filed August 4, 2008, argued that mere possession of an uncancelled passbook was insufficient to meet the plaintiffs' burden of proof in light of bank procedures that allow negotiation of certificates of deposit without a passbook and also that the defendant had established its equitable defense of laches and of payment. The defendant attacked the testimony of Elaine and Gerald Braffman that they had not negotiated the payment on the accounts. The defendant has not briefed and therefore, is deemed to have abandoned its claims of lack of standing and unreasonable and inexcusable delay.
The parties filed reply briefs. The defendant objected to the plaintiffs' request that the court utilize the Federal Reserve website to establish the presumed interests rates applicable to the certificates of deposit after their initial maturity. The plaintiffs requested the court to take judicial notice of certain information regarding one of the witnesses called by the defendant. The defendants moved to strike the supplemental evidentiary offerings of the plaintiffs. The plaintiffs objected to the defendant's objection. Thereafter, no further briefs were filed. With regard to the plaintiff's submission of information from a Federal Reserve Website and the plaintiff's submission of records of a bankruptcy filing by one of the defendant's witnesses, the court has reviewed the submissions as well as the objections. The objections and the motion to strike are denied. The court will take into consideration the circumstances of the offer of the evidence in determining the weight it will give to the submitted evidence.
Discussion
The parties agree that in 1987 and 1988, the Society for Savings and the plaintiffs entered into a debtor-creditor relationship as evidenced by the two passbook Investment Savings Accounts (ISAs). The November 1987 account was funded with a deposit of $100,000. The interest, as indicated by the account book, was to accumulate, and the maturity date on the account was three years. The passbook had an effective yield of 9.381 percent and further stated, "Interest will not be paid after maturity date unless renewed or redeposited." The November 1988 account was funded with a deposit of a $33,079.37. The maturity of the CD was one year. The passbook had an effective yield of 9.110 percent and further noted, "Interest will not be paid after maturity date unless renewed or redeposited." The parties also agree that the defendant refused to pay the principal and accrued interest on the demand of Gerald Braffman in January 2004, because it had no records of the continued existence of either account.
The first issue presented is the evidential effect of the presentation of the original passbooks. The plaintiffs claim that they have presented a prima facie case of non-payment by virtue of the presentation of the uncancelled passbooks and that the burden of proof and persuasion has shifted to the defendant to prove payment. The plaintiffs cite New Jersey and Virginia case law for this proposition. "It is also well-settled that the creditor's possession of an uncancelled instrument of obligation shifts the burden of going forward as well as the burden of persuasion to the debtor to prove the affirmative defense of payment." Pagano v. United Jersey Bank, 276 N.J.Super. 489, 496, 648 A.2d. 269 (N.J.Super.A.D. 1994), aff'd, 143 N.J. 220, 670 A.2d 509 (1996). The Virginia Supreme Court did not adopt a burden shifting rule, although it did characterize the plaintiff's presentation of the original passbook as "affirmative evidence of non-payment . . ." Wool v. Nationsbank, N.A., 248 Va. 384, 386, 448 S.E.2d 613 (1994).
Other jurisdictions have also found that the plaintiff's possession of a passbook shifts the burden of proof onto the bank to prove the special defense of payment. "In this action to recover the principal sum plus interest on a certificate of deposit (CD), plaintiff presented evidence of the certificate of deposit, thus shifting the burden to defendant bank to establish the defense of payment Olko v. Citibank, N.A., 44 App.Div.3d 356, 842 N.Y.S.2d 437 (2007); see also Compass Bank v. Richerson, 724 So.2d 10, 13 (Ala.Civ.App. 1998), cert. denied, 724 So.2d 14 (Ala. 1998); Flanagan v. Fidelity Bank, 438 Pa.Super. 516, 521 n. 2, 652 A.2d 930 (1995); Blackstone v. First National Bank, 64 Wyo. 318, 325, 192 P.2d 411 (1948).
The Virginia court determined that the common-law presumption of payment could be rebuffed by a preponderance of the evidence. See Wool v. Nationsbank, NA., supra, 386. If further determined that the plaintiff's presentation of the original passbook was "arguably sufficient to raise a presumption of non-payment . . . [given that the] certificate stated on its face that it would be automatically renewed every six months unless redeemed by the holder or called by the issuing institution . . . [and] further stated that it `must be surrendered to the bank when paid.'" (Citation omitted.) Id. The common law presumption of payment is different from a rule that shifts the burden of proof onto the defendant to prove payment upon the plaintiff's presentation of an original passbook. Connecticut has adopted the common law presumption of payment, but has not addressed whether it applies to bank accounts. See Judson v. Phelps, 87 Conn. 495, 498, 89 A. 161 (1913); Barber v. International Co., 74 Conn. 652, 656, 51 A. 857 (1902); LaBarre v. Quinn, 17 Conn.Sup. 134, 135 (1950); Marshall v. Sarafin, 11 Conn.Sup. 327, 330 (1942).
The defendant directs the court's attention to a Connecticut Appellate Court case. In Schiavone v. Bank of America, N.A., the plaintiff presented an uncancelled savings investment certificate for an account opened twelve years earlier. See 102 Conn.App. 301, 303, 925 A.2d 438 (2007). The Appellate court determined, "the plaintiff's possession of the original certificate of deposit, in light of the bank's procedures, was not proof that he had not cashed in that certificate." Id., 305. In addition to the uncancelled certificate, the Schiavone trial court reviewed the bank's policies, drawing inferences therefrom, and also considered the plaintiff's conduct and circumstances prior to demand in determining the plaintiff had not met his burden of proof. See Schiavone v. Bank of America, N.A., Superior Court, judicial district of Middlesex, Docket No. CV 05 4003175 (September 20, 2006, Aurigemma, J.). The Appellate Court stated, "[w]e conclude, in light of all the evidence and the pleadings in the record as a whole, that the court's finding that the plaintiff did not sustain his burden of proof was proper." Schiavone v. Bank of America, N.A., supra, 305.
These policies included: maintaining records of all accounts for seven years after the account is closed; sending out a notice of maturity ten days prior to the maturity date of the CD and rolling over the amount in the account to a new certificate of the same duration if the customer did not withdraw the amount; and allowing accounts to be withdrawn without presentation of the original passbook, so long as two forms of identification were presented. See Schiavone v. Bank of America, N.A., Superior Court, judicial district of Middlesex, Docket No. CV 05 4003175 (September 20, 2006, Aurigemma, J.).
Although Schiavone does not directly discuss and reject the rule of law that would shift the burden of proof onto the defendant to show payment, it is implicit in the opinion that no such burden shifting is recognized in Connecticut. Schiavone approved the trial court's weighing of all of the evidence in evaluating the plaintiff's claim of non-payment. The court declines to follow the plaintiffs' suggestion to employ a burden shifting analysis. The burden of proof by a fair preponderance of the evidence remains on each party with regard to their respective assertions.
In addition to the presentation of the original passbooks, the plaintiffs rely upon the testimony of Elaine and Gerald Braffman, the accounts' custodians. Both testified that they did not communicate with the defendant or its predecessors regarding these accounts until the demand for payment in 2004. Both deny filing any affidavit of lost or misplaced passbooks that would allow them to close the accounts without presenting the original passbooks and therefore, adamantly deny receiving payment. They understood that Mildred Spiers intended these financial gifts be given to the children upon the occurrence of a "major life cycle event." They rely upon this understanding to explain why they did not actively look for and monitor the passbooks. Gerald Braffman testified that he thought the certificates of deposits were gold-edged investments, which would be safe and that they would continue to roll over and earn interest. Therefore, he believed these accounts did not require frequent monitoring, as a stock investment would require.
The plaintiffs claim that David and Susannah Braffman only became aware of the gifts in 2004, when their father advised them of the defendant's refusal to pay the accounts and his intent to file suit on their behalf.
Furthermore, Elaine and Gerald Braffman had a very successful law practice. They were able to pay for private elementary school, private high schools, private colleges and private law school degrees for each of their three children. At the time these accounts were opened and until the date of trial Elaine and Gerald Braffman resided on Brookwood Drive in Woodbridge, Connecticut, which they purchased for cash in 1982.
Gerald Braffman testified that during the time period in question, 1988 through 1999, he was very busy in his law practice, which included and involved late night meetings. He described receiving mountains of tax reports, 1099s from the various investments that he had funded for his children or that his mother had funded for his children on an annual basis. He placed these tax receipts or records into separate envelopes; one envelope for him and his wife, one for each of his children, and one for his law practice. He then provided all of these envelopes to his accountant of long standing, John Salvatore. He testified that he did not look at the individual tax reporting documents and thus, had no specific memory of them. He relied on the professionalism of Mr. Salvatore to make sure that his income, his firm's income and his children's income were properly reported.
David Braffman produced his tax returns for 2000, 2002 and 2003. Susannah Braffman produced tax returns from 1998 through 2003. The tax returns reveal a significant amount of interest or dividend income. The plaintiffs were unable to produce, however, David and Susannah's tax returns from 1988 through 1997, a time period which might have shed light on when, if ever, the defendant paid interest on these accounts and might also have revealed when the interest payments stopped.
The plaintiffs claimed the tax returns were destroyed as a result of a flood in their basement.
The defendant established that at the time these accounts were opened it was the policy of the defendant to have signature cards created, which would define the terms of the account contract as well as social security information and mailing addresses for the purposes of communicating with the account holder and reporting taxable income. The specific terms of these certificates of deposit, included in the passbook, clearly and expressly advised the holder of the passbook that "Interest will not be paid after maturity date unless renewed or redeposited." (Emphasis added.) The language on the passbook put the plaintiff custodians on notice that they needed to be active in the management of these accounts.
The defendant also established its policies with regard to accounts, such as those held by the plaintiffs. Forty-five days prior to the maturity date of an account, the bank would generate an automated letter advising the customer that the maturity date was approaching and what options the account holder had. Specifically, the bank would ask whether the customer wanted the proceeds mailed out by check, reinvested in another certificate of deposit of the same duration at the then-prevailing interest rates or rolled over into some other account. In the absence of any instructions from the certificate holder, the bank would have rolled over the certificate of deposit into an instrument of similar length and paying whatever the prevailing CD interest rate was at the time. Furthermore, the bank would file federal income reporting forms for the interest earned to the federal government and the account holder on an annual basis.
The defendant also provided credible testimony regarding federal and state bank regulations and procedures governing the merger of banks. These regulations and procedures make it unlikely that these accounts were lost in such a transaction. Each of these corporate transactions requires that the merged bank and the acquiring bank to go through a strict due diligence review and audit to ensure a proper transfer of all customers accounts, such as the ISAs in question. The defendant had rigorous and redundant internal auditing functions to track customer accounts and interest paid. Furthermore, the defendant's policies allowed a customer to close an account without the passbook being presented or surrendered. A customer could represent to the bank that the passbook had been lost or misplaced, present suitable identification and then would be allowed to access the CD funds to close the account or to withdraw funds from the account.
In addition to the testimony of the witnesses, there are several state statutes and regulations that are material to the court's determination of the issues presented by this case. State statutes create presumptions related to the abandonment of accounts, such as the passbooks in question, and set a time frame in which the funds would escheat to the state. General Statutes § 3-57a(a)(1) provides: "The following property held or owing by a banking or financial organization is presumed abandoned unless the owner thereof is known to be living by an officer of such organization: Any demand or savings deposit made in this state with a banking organization, together with any interest or dividend thereon, excluding any charges that lawfully may be withheld, unless the owner has, within three years: (A) Increased or decreased the amount of the deposit, or presented the passbook or other similar evidence of the deposit for the crediting of interest; or (B) corresponded in writing with the banking organization concerning the deposit; or (C) otherwise indicated an interest in the deposit as evidenced by (I) a memorandum on file with the banking organization or (ii) the fact that the Internal Revenue Service Form 1099 sent from the banking organization to the owner is not returned to the banking organization by the United States Postal Service." In regard to the procedure when a savings deposit account are deemed abandoned, § 3-65a(b) provides: "Within ninety days after the close of the calendar year in which property is presumed abandoned, the holder shall pay or deliver such property to the Treasurer and file, on forms which the Treasurer shall provide, a report of unclaimed property."
In the present case, and assuming the statutory abandonment periods would not commence to run until after the initial term of the account, the three-year certificate for the benefit of David Braffman would have been deemed abandoned by November of 1993 and escheated to the State in 1994. The one-year certificate of deposit for the benefit of Susannah would have matured in November of 1989. The account would have been deemed abandoned in November of 1992 and escheated to the State in 1993.
Furthermore, testimony established that when funds are escheated to the state or are fully withdrawn from an account, the defendant closes the account and retains account records for a period of seven years. Once the seven-year period elapses, however, the records are destroyed. The seven-year document retention period employed by the defendant is permitted under both Connecticut and Federal law. See General Statutes § 36a-40; 12 U.S.C. § 1829b(g). Section § 36a-40 provides: "The commissioner may, by regulation adopted in accordance with chapter 54, prescribe periods of time for the retention of records of any Connecticut bank or Connecticut credit union. Records which have been retained for the period so prescribed may thereafter be destroyed, and no liability shall thereby accrue against the Connecticut bank or Connecticut credit union destroying them. In any cause or proceeding in which any such records may be called in question or be demanded of any such bank or credit union or any officer or employee thereof, a showing that the period so prescribed has elapsed shall be sufficient excuse for failure to produce them." The Federal statute similarly provides: "Any type of record or evidence required under this section shall be retained for such period as the Secretary may prescribe for the type in question. Any period so prescribed shall not exceed six years unless the Secretary determines, having regard for the purposes of this section, that a longer period is necessary in the case of a particular type of record or evidence." 12 U.S.C. § 1829b(g).
Section 36a-40-3(c)(3)(F) of the Regulations of Connecticut State Agencies requires banks to maintain records of certificates of deposit accounts for "seven years after date paid," and Sections 36a-40-3(c)(3)(B) and (B) require banks to maintain records of affidavits of lost passbook accounts for seven years and records of unclaimed accounts for three years after escheatment to the State.
Based upon testimony adduced at trial, the funds from the plaintiffs' accounts have not escheated and are not held by the State of Connecticut. Thus, the court is presented with the following alternatives. The plaintiffs deny they have closed the accounts and assert that the defendant has lost the records of these accounts, perhaps because of the intervening bank mergers, and still owes them the principle and accrued interest. The defendants assert that the plaintiffs, some time between the opening of the accounts and January of 1997, filed an affidavit claiming a lost or misplaced passbook, received the principal and accrued interest and closed out the accounts.
Upon this evidence, the court finds that the plaintiffs have not met their burden of proof. The court finds that all of the testimony in this case provided by the plaintiffs and the defendant was credible. Each witness testified forthrightly, without any indication of an intent to deceive or hide facts from the court. It is clear to the court, however, that the plaintiff parents were very successful and busy individuals. The events that were critical to the court's determination occurred more that a decade before the plaintiffs' testimony in this case. With such a lapse of time, the court is wary of relying solely upon memory testimony. For the significant time period in this case neither the plaintiff nor the defendant possessed or offered documentary evidence that would have corroborated the plaintiffs' testimony. There was evidence in this case that contradicted or was inconsistent with the plaintiff's testimony.
It is significant to the court that the plaintiffs' accountant reviewed the Braffmans' tax information against the prior years reported income to make certain that he had received appropriate documentation from all expected sources. The accounts in question would have generated $9,000 annually of reportable interest for David during the first three years the original certificate was in force. Susannah would have received approximately $3,000 annually of interest income during the term of her certificate. It is difficult to believe that the plaintiffs and their accountant would fail to notice and question early on either the defendant's failure to pay and report interest, or the stopping of such interest payments after they had started in 1989 or 1990. In addition, the court finds it unlikely that the plaintiffs, who have resided at the same address from 1982 to the present, did not receive any of the notices from the defendant.
It is understandable to the court that the plaintiffs may have forgotten filing lost or misplaced passbook affidavits as early as 1989 or 1991. In addition, it would have made good sense to shift the grandmother's gifts to investments that had a better rate of return after the initial ISAs matured. It is also significant to the court that this suit involves not one but two accounts opened on separate dates and under separate social security numbers. It is unlikely that the defendant would lose not one, but two, of the plaintiffs' accounts. Furthermore, the court takes judicial notice of the case of Matthew Braffman v. Webster Bank, Superior Court, judicial district of New Haven, Docket No. CV 07 5013397, in which another child of Elaine and Gerald Braffman asserts that Webster Bank refused to pay on a certificate of deposit opened in 1989. Demand for payment on the $29,850 account was made April 29, 2004. The claims made by Matthew Braffman are substantially similar to the claims asserted in this case. This court finds it improbable that two banking institutions would lose three separate accounts held by members of the same family.
The Federal Reserve website, documenting historical interest rates, shows that interest rates have substantially declined after a peak in 1989.
Based upon all of the above evidence the court finds that the plaintiffs have not sustained their burden of proof with regard to the claims of count one and count two. The plaintiffs have not provided persuasive evidence that the accounts in question have not been paid by the defendant or its predecessors. Judgment is hereby entered in favor of the defendant, Bank of America with costs.