125 So. 3d 493
La. Ct. App.2013Background
- Hardin Compounding Pharmacy (HCP), a business account holder at Progressive Bank, entrusted employee Michael Wallace to deposit customer checks; Wallace forged/altered endorsements and obtained cash payments from the bank.
- HCP discovered the scheme on September 27, 2010, arrested Wallace, and sued Progressive and Wallace on September 2, 2011, alleging at least $158,037.34 was converted over ~36 months.
- HCP pleaded conversion under La. R.S. 10:3-420 and also asserted breach of contract and bank-policy/statutory negligence theories.
- Progressive moved for partial summary judgment, arguing 10:3-420 governs and its one-year prescription bar meant HCP’s claims for conversions before September 2, 2010 were prescribed; auditor affidavit identified $7,971.66 in conversions within the year.
- HCP argued the UCC does not displace contract claims, invoked contra non valentem/discovery rule and fraudulent concealment to toll prescription, and sought discovery to develop evidence of insider collusion.
- The district court granted partial summary judgment; the court of appeal affirmed, applying La. U.C.C. § 3-420 and Specialized Loan Servicing holding that the one-year prescriptive period is not suspended by the discovery rule and that unsupported allegations of fraudulent concealment cannot defeat summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether HCP’s claims are governed by La. R.S. 10:3-420 (conversion of instruments) or by general contract/tort law | HCP: bank breached deposit agreement and internal policies; UCC does not displace supplemental state-law contract/negligence claims | Progressive: facts fit § 3-420 conversion; that statute controls and displaces overlapping common-law/personal-action claims | Court: § 3-420 governs conversion of instruments and supplants general personal-action/breach theories when its definition is met |
| When prescription begins for conversion under § 3-420 | HCP: discovery rule/contra non valentem should suspend one-year period because scheme concealed thefts | Progressive: one-year period begins on date of conversion; discovery rule should not apply | Court: specialized UCC policy controls; one-year prescription begins at conversion; discovery rule does not suspend it (Specialized Loan) |
| Whether fraudulent concealment can toll the one-year prescriptive period | HCP: fraudulent concealment by bank or insider could toll prescription; plaintiff should get discovery to prove it | Progressive: no evidence of fraudulent concealment; plaintiff had opportunity to gather proof and offered only speculation | Court: fraudulent concealment allegation unsupported by admissible evidence cannot defeat summary judgment; plaintiff failed to produce specific facts after reasonable time for discovery |
| Whether summary judgment was premature (need for additional discovery) | HCP: court should allow discovery into bank employee collusion before ruling | Progressive: plaintiff had sufficient time; summary judgment proper on the face of petition and evidence | Court: HCP had reasonable time and produced only speculative affidavit; summary judgment on prescribed claims affirmed |
Key Cases Cited
- Specialized Loan Servs. LLC v. January, 119 So.3d 582 (La. 2013) (UCC § 3-420 conversion governed by one-year prescription; discovery rule does not suspend that period)
- Hogg v. Chevron U.S.A., 45 So.3d 991 (La. 2010) (procedural standards for prescription and summary judgment burdens)
- Webb Carter Constr. Co. v. La. Cent. Bank, 922 F.2d 1197 (5th Cir. 1991) (permitting contract-based recovery for conversion-related losses — decided before § 3-420 amendment)
- Costello v. Citibank (South Dakota) N.A., 48 So.3d 1108 (La. App.) (discussion of UCC conversion claims and interplay with other remedies)