CONNOLLY, J.
Joseph Mandolfo (Joe) sued his brother Mario Mandolfo and American National Bank (ANB). Joe alleged that Mario had, with the assistance of ANB, wrongfully deposited checks into his own account. The district court granted summary judgment to Joe against Mario. The court, however, granted summary judgment to ANB, concluding that the statute of limitations barred Joe's claims. We conclude that Joe's common-law claims are displaced
Joe, at one time, owned several businesses, some of which had accounts with ANB. These businesses included grocery stores and franchise restaurants. After his brother Mario lost his job as a teacher, Joe hired Mario to work for him.
Betraying his benefactor, Mario eventually opened his own accounts at ANB and began depositing checks made out to Joe or Joe's companies into these accounts. Based on the record before us, it appears that Mario misappropriated checks from December 1995, until July 20, 2000. Joe contends that Mario embezzled about $1.2 million.
Joe did not discover Mario's misappropriations until 2003, when the Internal Revenue Service contacted him about some "irregularities" that it had uncovered. Within a year of this discovery, on March 19, 2004, Joe sued Mario and ANB. Joe alleged that Mario misappropriated checks belonging to Joe and his companies. He alleged that ANB had assisted Mario's misappropriations by failing to exercise reasonable care in allowing Mario to deposit unendorsed or improperly endorsed checks. In other words, Joe alleged that through its negligence, ANB allowed Mario to collect on checks that did not belong to him.
In October 2004, the court granted Joe summary judgment on his claims against Mario. Mario—who had asserted his Fifth Amendment right not to incriminate himself —did not deny the allegations in Joe's complaint and offered no evidence to refute Joe's claims. The court awarded Joe damages of $678,430.86. Joe's claims against Mario are not at issue in this appeal.
In April 2009, Joe moved to compel discovery for his claims against ANB. Joe had previously served requests for production and interrogatories on ANB, but ANB had not timely responded. Because ANB took more than 30 days to answer Joe's requests, the court awarded Joe attorney fees for the motion to compel as a sanction against ANB.
In May 2009, ANB moved for summary judgment. ANB argued, among other things, that Joe's claims were time barred under Neb. U.C.C. § 3-118(g) (Cum.Supp. 2010), which provides for a 3-year statute of limitations for conversion claims. Joe moved to strike ANB's summary judgment motion. In support of his motion, Joe cited ANB's alleged failures to cooperate with his discovery requests.
The court granted ANB's motion for summary judgment. The court concluded that although Joe had couched his claims against ANB in negligence, he was asserting a claim for conversion under the U.C.C.
Joe moved for a new trial or, in the alternative, to alter or amend the judgment.
Joe assigns, restated and renumbered, that the district court erred as follows:
(1) in granting ANB summary judgment;
(2) in failing to strike ANB's motion for summary judgment as a sanction for ANB's failure to comply with discovery orders; and
(3) in failing to grant Joe's motion for new trial or to alter or amend the judgment.
We will affirm a lower court's grant of summary judgment if the pleadings and admitted evidence show that there is no genuine issue as to any material facts or as to the ultimate inferences that may be drawn from the facts and that the moving party is entitled to judgment as a matter of law.
Whether common-law claims are displaced by the U.C.C. presents a question of law.
Determination of an appropriate sanction for failure to comply with a proper discovery order initially rests with the discretion of the trial court, and its rulings on appropriate sanctions will not be disturbed on appeal absent a showing of an abuse of that discretion.
In granting ANB summary judgment, the court began by noting that Joe alleged that ANB allowed Mario to improperly deposit checks belonging to Joe and his companies into Mario's account. Joe claimed that ANB failed to exercise reasonable care in its practices, which, if exercised, would have prevented Mario's misappropriations. The court noted that although Joe tried to characterize this as negligence, what he was really asserting was a claim for conversion under § 3-420. Joe claims the court erred in this conclusion. Citing a number of our cases
Joe is correct in his claim that some of our earlier cases recognized that common-law claims may exist alongside U.C.C. claims. This remains true. The drafters of the U.C.C. set out to preserve and, when necessary, clarify and conform the law merchant with modern commercial practice.
The U.C.C. has undergone substantial revision since we decided the earlier cases that Joe cites. Neb. U.C.C. § 3-419 (Reissue 1980), the previous section governing conversion of instruments, was replaced with § 3-420.
(Emphasis supplied.)
As noted, Joe's allegations are essentially that ANB allowed Mario to obtain payment on checks for which he was not entitled to receive payment. The facts that Joe alleged mirror the last clause of § 3-420. In other words, on the facts before us, a specific provision of the U.C.C. covers what would otherwise be a common-law claim for conversion or negligence. Thus, the U.C.C. displaces those claims. We conclude that Joe's allegations are claims for conversion under § 3-420. And our approach is consistent with the majority rule.
Having concluded that the U.C.C. displaces Joe's common-law claims, we now determine whether he filed his claims for conversion within the applicable statute of limitations. Section 3-118(g) sets out the statute of limitations: "Unless governed by other law regarding claims for indemnity or contribution, an action (i) for conversion of an instrument, for money had and received, or like action based on conversion... must be commenced within three years after the cause of action accrues."
When dealing with § 3-420 claims, courts generally hold that the cause of action "accrues" at the time the instrument is converted.
But Joe argues that the discovery rule saves his claims. The discovery rule tolls a statute of limitation when the plaintiff did not discover the injury and could not have discovered the injury within the applicable statute of limitations.
Although some courts do apply the discovery rule,
In applying this majority rule, courts promote the U.C.C.'s purpose of promoting swift resolution of commercial disputes. A "discovery rule would be inimical to the underlying purposes of the [U.C.C.], including the goals of certainty of liability, finality, predictability, uniformity, and efficiency in commercial transactions."
In rejecting the discovery rule, many courts reason that the victim of conversion is often in the best position to prevent or detect the loss.
We agree with these courts' reasoning and add further that one of the purposes of the U.C.C. is "to make uniform the law among the various jurisdictions."
We note, however, that there is one exception to this rule. The plaintiff may benefit from the discovery rule when the defendant has engaged in fraudulent concealment.
We hold that when bringing a claim for conversion of a negotiable instrument under § 3-420, a plaintiff is not entitled to the benefit of the discovery rule in the absence of fraudulent concealment. And Joe has failed to plead or create a genuine issue of fact regarding fraudulent concealment. We conclude that the U.C.C.'s 3-year statute of limitations bars Joe's claims.
Joe argues that the court erred in not striking ANB's motion for summary judgment for ANB's alleged failure to comply with discovery orders. Joe argues ANB withheld documents that Joe had requested and that would have helped Joe prosecute his case. ANB responds that it fully complied with the discovery orders and that, even if it did not, the court did not abuse its discretion by allowing ANB to move for summary judgment.
We review the imposition of a discovery sanction for abuse of discretion.
Joe claims that ANB failed to comply with the court's discovery order. The only order in the record about discovery did not order ANB to comply, but, rather, made a finding that "discovery was answered." The order shows that the court did not sanction ANB at that time for not answering at all, but, rather, for answering too late, which implies that ANB did answer. Later, ANB even went further and supplemented its responses after it had moved for summary judgment.
But Joe continued to insist that ANB was not complying with discovery. He moved to strike ANB's motion for summary judgment, because he believed that ANB was not complying. He attached an affidavit to his motion claiming as much.
The district court's decision acknowledged that Joe had moved to strike ANB's summary judgment motion and implicitly overruled it. Because of the
Finally, Joe claims that the trial court erred in denying his motion for new trial or, in the alternative, to alter or amend the judgment. We review such a denial for an abuse of discretion.
Joe's argument is essentially that the lower court erred in determining that the U.C.C. displaced his common-law claims and that the statute of limitations barred his claims. We have, however, already determined that the lower court correctly concluded that the statute of limitations barred Joe's claims. Accordingly, it was not an abuse of discretion to deny Joe's motion.
We conclude that the U.C.C. displaces Joe's claims for common-law conversion and negligence. The 3-year U.C.C. statute of limitations applies. Because of the underlying policies of the U.C.C., we decline to apply the discovery rule to toll the statute of limitations. Joe's claims were thus untimely. We affirm the district court's grant of summary judgment.
AFFIRMED.
WRIGHT, J., not participating.
