Mark D. Dean, P.S.C. v. Commonwealth Bank & Trust Co.
2014 Ky. LEXIS 326
| Ky. | 2014Background
- Mark D. Dean, P.S.C. maintained an escrow checking account at Commonwealth Bank; Dean and employee Jody Wills were listed as authorized signatories and only one signature was required.
- From Sept. 2003 to March 2005 Wills engaged in a check‑kiting/embezzlement scheme moving funds between the firm’s accounts (Commonwealth and Citizens Union); she intercepted monthly bank statements to hide the scheme.
- Commonwealth Bank sent monthly statements and copies of items to the firm at the address on the signature card; bank suspected kiting in early 2005 and placed a hold; last account activity was March 2005.
- Dean (the firm) sued Commonwealth Bank in 2009 asserting UCC and common‑law claims for bank liability; Commonwealth moved for summary judgment asserting UCC statutes of limitation and displacement of common‑law claims.
- Trial court granted summary judgment on the UCC claim as time‑barred; Court of Appeals affirmed on different grounds — holding KRS 355.4‑406’s one‑year repose (duty to inspect statements) barred all claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of KRS 355.4‑406 (one‑year repose for failure to report unauthorized signatures) | Dean: Court of Appeals raised statute sua sponte and KRS 355.4‑406 is inapplicable to these claims | Bank: Customer had duty to inspect statements; firm failed to timely report; KRS 355.4‑406 precludes claims | Appellate court properly considered it as alternative ground, but Supreme Court found KRS 355.4‑406 inapplicable because signatures were not “unauthorized” under the UCC (apparent authority present) |
| Whether Wills’s signatures were “unauthorized” under the UCC | Dean: Signatures were unauthorized because Wills was misusing her signing power and only discoverable in hindsight | Bank: Wills was an authorized signer per signature card; bank reasonably relied on that designation | Held: Wills had apparent authority (signature card, one‑signature rule); under UCC definition her signatures were not “unauthorized” for purposes of KRS 355.4‑406 |
| UCC statute of limitations / discovery rule (KRS 355.4‑111) | Dean: Discovery rule or fraudulent concealment should toll limitations; he only learned in 2008 | Bank: Claims accrued when statements were available; discovery rule does not save the claim | Held: Discovery rule unavailable here — Dean, as account holder and fiduciary, had constructive/actual ability to discover the fraud by reasonable diligence; UCC claim barred by 3‑year statute |
| Whether UCC displaces plaintiff’s common‑law claims | Dean: Common‑law claims survive; statute of limitations for common law should differ | Bank: Articles 3 & 4 provide comprehensive remedies and displace overlapping common‑law claims | Held: Articles 3 and 4 provide a comprehensive remedial scheme for these transactions; common‑law claims are displaced and time‑barred by UCC limitations |
Key Cases Cited
- United States v. Stone, 954 F.2d 1187 (6th Cir. 1992) (definition and mechanics of check kiting)
- Williams v. United States, 458 U.S. 279 (U.S. 1982) (illustration of check‑kiting scheme)
- Fischer v. Fischer, 348 S.W.3d 582 (Ky. 2011) (appellate court may affirm on alternative grounds appearing in the record)
- Fluke Corp. v. LeMaster, 306 S.W.3d 55 (Ky. 2010) (limited availability of the discovery rule)
- Ping v. Beverly Enterprises, Inc., 376 S.W.3d 581 (Ky. 2012) (elements of apparent authority)
- Honeycutt v. Honeycutt, 822 A.2d 551 (Md. Ct. Spec. App. 2003) (signature card can control and render authorized signatures binding on principal)
- Atlanta Sand & Supply Co. v. Citizens Bank, 622 S.E.2d 484 (Ga. Ct. App. 2005) (authorization by corporate resolution/signature card precludes bank liability for agent’s misuse)