Thomas Rusnack v. Cardinal Bank, N.A.
695 F. App'x 704
| 4th Cir. | 2017Background
- In 2003 Thomas and Analisa Rusnack opened a HELOC with Cardinal Bank; they separated in March 2006.
- On June 22, 2006 Thomas sent the Bank a letter directing it to “freeze” the loan so no further advances would be allowed without both signatures; the Bank acknowledged the freeze and said both signatures would be required to honor items.
- Despite the freeze, the Bank honored two $10,000 checks signed only by Analisa (July 26 and September 12, 2006), increasing the principal by $20,000; the Bank later acknowledged these were errors.
- Rusnack timely notified the Bank after the first withdrawal, made interest payments thereafter, and later filed Chapter 13 bankruptcy in 2014 disputing Cardinal’s proof of claim (Bank claimed ~$70,800; Rusnack listed ~$50,674).
- The bankruptcy court sustained Rusnack’s objection, finding the withdrawals unauthorized and crediting Rusnack’s testimony that he did not benefit from the $20,000.
- The district court reversed, holding the bankruptcy court’s credibility finding was clearly erroneous and alternatively that Rusnack’s objection was time-barred under Virginia’s five-year contract statute; the Fourth Circuit reversed the district court.
Issues
| Issue | Plaintiff's Argument (Rusnack) | Defendant's Argument (Cardinal) | Held |
|---|---|---|---|
| Whether the Bank improperly honored two single-signed checks after a stop/freeze instruction | Rusnack: his June 22 letter functioned as a valid stop-payment/freeze under Va. Code § 8.4-403 and the Bank had actual notice | Bank: disputes that the letter constituted an effective stop or that it was obligated to refuse the checks | Held: The freeze met § 8.4-403’s functional requirements; the Bank erred in honoring the checks (Bank conceded the error) |
| Whether Rusnack must repay the $20,000 because he benefited from the mistaken withdrawals | Rusnack: testified he received no benefit; bankruptcy court found his testimony credible, so Bank cannot recover under Va. Code § 8.3A-418(a) | Bank: the debtor benefited (e.g., funds went to joint debts) so the Bank may recover; district court found debtor’s no-benefit finding clearly erroneous | Held: Bankruptcy court’s credibility finding that Rusnack did not benefit was plausible and not clearly erroneous; Bank may not recover the $20,000 |
| Whether Rusnack’s objection is time-barred by Virginia’s five-year statute for contract actions | Rusnack: objection is a permissible recoupment defense reducing Bank’s claim, which is not barred by statute of limitations; also timely reported the error under Va. Code § 8.4-406 | Bank: objection barred by § 8.01-246(2) five-year limit (raised first in district court) | Held: Bank forfeited the limitations argument by not raising it earlier; even if applied, recoupment would protect Rusnack from the statute of limitations; objection not time-barred |
Key Cases Cited
- Amadeo v. Zant, 486 U.S. 214 (1988) (describes deference of clearly erroneous standard)
- Anderson v. Bessemer City, 470 U.S. 564 (1985) (when two reasonable views exist, factfinder’s choice is not clearly erroneous)
- Jacksonville Airport, Inc. v. Michkeldel, Inc., 434 F.3d 729 (4th Cir. 2006) (standard of review for district court review of bankruptcy court decisions)
- SG Homes Assocs., LP v. Marinucci, 718 F.3d 327 (4th Cir. 2013) (assessing witness credibility and weight of evidence is for the factfinder)
- First Nat’l Bank of Louisville v. Master Auto Serv. Corp., 693 F.2d 308 (4th Cir. 1982) (defines recoupment as reduction of plaintiff’s claim by a defense arising from the same contract)
- Bull v. United States, 295 U.S. 247 (1935) (recoupment is not barred by statute of limitations so long as main action is timely)