181 So. 3d 204
La. Ct. App.2015Background
- Carmen Baloney, who performed funeral-director and some billing/collection tasks for Baloney Funeral Home, L.L.C. (BFH), endorsed and delivered 197 checks payable to BFH to Garyville General Store, which deposited them into its account at First National Bank USA (the Bank). BFH had no account at the Bank.
- BFH sued the Bank, Garyville, and Carmen for conversion of the checks (≈ $630,000), alleging collusion and that the Bank enabled cashing of corporate-payee checks into Garyville’s account.
- The Bank moved for summary judgment and filed an exception of prescription asserting La. R.S. 10:3-420’s one-year prescriptive period for conversion claims; trial court sustained prescription for checks older than one year and granted summary judgment for the rest. BFH’s motion for new trial was initially denied but later reversed on appeal and remanded for hearing.
- On remand, the trial court again maintained the prescription ruling (checks before Dec. 28, 2009) and granted summary judgment for the remaining checks; BFH appealed both rulings.
- The appellate court affirmed the prescription ruling (holding the U.C.C. one-year period applies and discovery/fraudulent-concealment doctrines did not suspend it on these facts) but reversed summary judgment because genuine issues of material fact existed whether Carmen was a "responsible employee" under La. R.S. 10:3-405 and whether the Bank failed to exercise ordinary care.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of U.C.C. one-year prescription for check-conversion (La. R.S. 10:3-420) | BFH argued contra non valentum (discovery or fraudulent concealment) should suspend prescription | Bank argued the one-year prescriptive period applies and discovery/fraudulent-concealment do not suspend it for U.C.C. conversion claims | Held: La. R.S. 10:3-420 governs; one-year prescription applies and discovery rule does not suspend it in U.C.C. conversion cases; no evidence of bank fraudulent concealment, so prescription sustained for checks before Dec. 28, 2009. |
| Application of discovery rule/contra non valentum to non-customer conversion claims | BFH relied on LaCombe and argued discovery/contra non valentum should suspend prescription | Bank relied on Specialized Loan and other authorities rejecting discovery-rule tolling for 10:3-420 claims | Held: Discovery rule does not suspend the one-year prescriptive period for U.C.C. conversion claims (follow Specialized Loan). |
| Fraudulent concealment tolling of prescription | BFH argued fraudulent concealment may suspend prescription | Bank argued BFH produced no evidence of bank concealment | Held: No record support that the Bank fraudulently concealed conversions; fraudulent-concealment tolling not applied. |
| Bank’s liability under La. R.S. 10:3-405 (responsible employee; ordinary care) | BFH contended Carmen was not a “responsible employee” and raised material facts that the Bank failed ordinary-care standards when accepting checks payable to BFH | Bank argued Carmen was a responsible employee and that it acted in good faith and followed ordinary banking practice | Held: Genuine issues of material fact exist about whether Carmen was a responsible employee and whether the Bank failed to exercise ordinary care; summary judgment was improperly granted and is reversed as to post-Dec. 28, 2009 checks (case remanded). |
Key Cases Cited
- LaCombe v. Bank One Corp., 953 So.2d 161 (La. Ct. App. 2007) (applied discovery rule to suspend prescription in a conversion context)
- Specialized Loan Servicing, LLC v. January, 119 So.3d 582 (La. 2013) (supreme court held discovery rule does not suspend one-year U.C.C. conversion prescription)
- Hardin Compounding Pharmacy LLC v. Progressive Bank, 125 So.3d 493 (La. Ct. App. 2013) (held no distinction between customers and third parties for U.C.C. prescription application)
- Med Data Serv. Bureau, L.L.C. v. Bank of Louisiana, 898 So.2d 482 (La. Ct. App. 2004) (discussed bank ordinary-care issues in third-party check deposit/conversion context)