The U.S. Court of Appeals for the Eighth Circuit recently affirmed the dismissal of several conversion claims brought by the estate of a deceased account holder against a bank, holding that one of the conversion claims was time-barred, and that the estate did not have standing to pursue the remaining conversion claims as the alleged injury was not fairly traceable to the bank.
A copy of the opinion is available at: Link to Opinion
After the death of his wife, the wife's son began to take care of his stepfather ("decedent"). The stepson began taking care of his elderly stepfather by managing the decedent's personal affairs. In doing so, the stepson initiated a scheme to defraud the decedent of his life savings.
Decedent maintained numerous bank accounts including two individual accounts, a business account, and a farm account. The decedent also owned an IRA. Ultimately, the stepson stole over $280,000 from decedent's IRA and also fraudulently endorsed checks from the business and farm accounts at other banks then transferred the funds into accounts that he controlled. All told, the step son stole over $770,000 from the decedent.
In 2018, the decedent's family notified the bank about the potentially fraudulent activity. The bank placed a hold on the relevant accounts. Ultimately, the stepson pled guilty to fraud and was sentenced to serve over 10 years in prison and ordered to pay restitution.
In December 2020, decedent's estate filed a lawsuit in Iowa state court, asserting three common-law conversion claims against the bank. The first claim asserted a theory of conversion based on the stepson's use of forged endorsements of the IRA checks that were deposited into decedent mother and father's account at the bank. The second claim asserted a theory of conversion based on decedent's fraudulent transfer of funds from the business and farm accounts into the stepsons control. The third claim asserted a theory of conversion based on the stepson/decedent mother's account at the bank.
The bank removed the case to federal court. The Estate unsuccessfully moved for leave to amend their complaint twice. The bank moved for summary judgment. For the first claim, the trial court held that the claim was barred by the statute of limitations. For the second claim, the trial court held the estate lacked standing to bring this claim against the bank because the Estate admitted the accounts were located at different banks. For the third claim, the trial court held that since fact that stepson and decedent mother held the account in joint tenancy with a right of survivorship, any rights of decedent husband were extinguished upon the death of decedent wife and the Estate lacked standing.
Thus, the trial court granted the bank summary judgment on all claims.
The Estate appealed. The Eighth Circuit first held that the trial court did not abuse its discretion in denying the Estate leave to amend its Complaint because the Estate did not comply with the local rules by attaching a proposed amended complaint to its motion for leave. The Court of Appeals next reviewed the trial court's summary judgment rulings in favor of the bank.
Initially, the trial court rejected the conversion claim based on the forged IRA checks deposited by stepson into the decedent husband and wife's joint account at the bank because it failed to state a claim, was barred by the statute of limitation and barred by the language of the account agreement. The Eighth Circuit concurred that this claim was barred by the statute of limitations.
Iowa law imposes a three-year statute of limitations for all actions brought "to enforce an obligation, duty, or right arising under" Article 4 of Iowa's UCC. The Estate attempted to argue that the discovery rule applied and should extend the statute of limitations. However, the Iowa Supreme Court already addressed this issue and in a prior ruling by holding that the discovery rule does not apply to commercial conversion actions based on forged endorsements under the UCC. See Husker News Co. v. Mahaska State Bank, 460 N.W.2d 476, 476-77 (Iowa 1990).
Because the stepson deposited the last IRA check at the Bank on September 8, 2017 and the lawsuit was not filed until December 17, 2020 the statute of limitations barred this claim.
The Eighth Circuit held that the second claim was also fatally flawed because the business and farm account were accounts located at different banks than defendant bank. Because the business and farm accounts were not controlled by the defendant bank, the Appellate Court held that any injury to those accounts under a theory of conversion was not traceable to the bank. See Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016). Thus, the Eighth Circuit held, the Estate did not have standing the bring this claim, and the Appellate Court noted that the claim should have been dismissed for lack of jurisdiction and not on summary judgment.
For the third claim, the Estate argued that its interest in the joint account of decedent-mother was not extinguished on the death of the mother. Specifically, the Estate argued that the death of the mother resulted in a constructive trust and that stepson's fraud violated the fiduciary duty he owed to his mother under this arrangement. The Eighth Circuit disagreed and held the Estate had no interest or claim in the property. As a result, the Court of Appeals held that this claim should have also been dismissed for lack of standing because any alleged injury was not traceable to the bank.
Accordingly, the Eighth Circuit affirmed the dismissal as to claim 1 and vacated the summary judgment as to claims 2 and 3 with instructions to dismiss Counts 2 and 3 without prejudice for lack of jurisdiction.
Ralph T. Wutscher
Maurice Wutscher LLP
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