American Federation of Teachers, Afl-Cio v. Bullock ( 2009 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
______________________________
)
THE AMERICAN FEDERATION OF )
TEACHERS, AFL-CIO, et al., )
)
Plaintiff, )
)
v. ) Civ. Action No. 03-79 (EGS)
)
BARBARA BULLOCK, et al., )
)
Defendants. )
)
______________________________)
MEMORANDUM OPINION
In a memorandum opinion dated March 17, 2008, this Court
denied defendant Independence Federal Savings Bank’s (“IFSB”)
motion for summary judgment on all claims brought by plaintiffs
American Federation of Teachers (“AFT”) and Washington Teachers’
Union (“WTU”).1 This Court found that the case was “fraught with
genuine issues of material facts in dispute.” AFT v. Bullock,
539 F. Supp. 2d 161, 163 (D.D.C. 2008). On April 16, 2008, IFSB
filed a motion for reconsideration of this Court’s denial of its
motion for summary judgment, and on May 19, 2008, IFSB filed a
motion for leave to file an amended answer. On December 2, 2008,
this Court held a hearing on defendant’s motions. After careful
consideration of defendant’s motions, plaintiffs’ oppositions,
defendant’s replies, the parties’ oral arguments, the
supplemental briefs, applicable law, and for the reasons stated
1
AFT is a national labor union for teachers affiliated with the
AFL-CIO and WTU is AFT’s local affiliate in Washington, D.C.
herein, this Court GRANTS defendant’s motion for reconsideration
and vacates the Order previously denying defendant’s motion for
summary judgment; all claims against IFSB are dismissed.
Further, this Court DENIES AS MOOT defendant’s motion for leave
to file an amended answer.
I. BACKGROUND
A. Factual Background
1. The Parties
Plaintiff AFT is a national labor union for teachers, which
is an affiliated international union of the AFL-CIO. AFT
represents local labor unions primarily made up of public and
private school teachers, paraprofessionals and higher education
faculty. AFT is a national labor organization with which local
and state labor organizations are affiliated. To affiliate with
the AFT, local unions pay dues. Plaintiff WTU is the local
affiliate of the AFT for teachers in Washington, D.C.
There are a number of individual defendants in this action
(collectively, “Individual Defendants”). Defendant Barbara A.
Bullock (“Bullock”) served as the President of WTU from mid-1994
to September 2002. As President, Bullock was an officer, agent
and representative of the WTU, had check-signing authority for
the WTU’s bank accounts, and had overall responsibility for
administering the affairs of the WTU. Defendant James O. Baxter,
II (“Baxter”) served as the Treasurer of WTU during Bullock’s
tenure as President. Baxter was an agent, employee and
2
representative of the WTU and had check-signing authority for
WTU’s bank accounts and financial responsibility for WTU’s
affairs. Defendant Gwendolyn M. Hemphill (“Hemphill”) was an
employee of the WTU and served as Bullock’s Special Assistant
during Bullock’s tenure as President. Hemphill shared
responsibility for WTU’s day-to-day financial affairs with
Baxter. Defendant Leroy Holmes was a WTU employee and worked as
Bullock’s chauffeur for some portion of the relevant time period.
Defendant Cheryl Martin is Hemphill’s daughter. Defendant
Michael Martin (“Martin”) is Hemphill’s son-in-law and husband of
Defendant Cheryl Martin. Defendant Errol Alderman (“Alderman”)
is an acquaintance of Michael Martin. Defendant Gwendolyn B.
Clark (“Clark”) is Bullock’s sister.
Defendant IFSB is a federally chartered commercial bank that
was founded in 1968. IFSB has six branches in Washington, D.C.
and Maryland. Between 1994 and 2002, WTU maintained several bank
accounts at IFSB, including a “Premier Checking Account,” with
which the WTU conducted its day-to-day business, including
payroll for WTU employees.
2. The Embezzlement Scheme
The Individual Defendants engaged in a scheme to embezzle,
convert, and misuse the WTU’s funds beginning in 1995 and ending
in 2002. Def.’s Facts ¶ 38. There is no indication that the WTU
Executive Board or the WTU’s members authorized the Individual
Defendants’ appropriation of WTU funds for personal use. Id. ¶
39. Between 1995 and 2002, Bullock, Baxter, and Hemphill wrote
3
checks on the WTU’s IFSB bank account for unauthorized, non-union
business. Id. ¶ 40. Hundreds of these checks were made payable
to Holmes, who then cashed the checks at IFSB, retained some of
the cash for himself, and returned the remainder of the cash to
the other Individual Defendants. Def.’s Resp. To Pls.’ Facts ¶¶
15-19. Some of these checks cashed by Holmes exceeded $10,000.
Id. ¶ 20. According to plaintiffs, between 1997 and 2002, the
checks cashed by Holmes on the WTU’s IFSB account totaled between
$1.45 and $1.7 million. While not conceding the exact amount of
each individual check, IFSB does not appear to dispute the total
amount of the checks cashed, but maintains that the “amount and
Plaintiff’s characterization of each check . . . is immaterial to
resolution” of IFSB’s motion for summary judgment. Id. ¶ 15.
In addition to the checks cashed by Holmes, the Individual
Defendants also made purchases with personal and corporate credit
cards and paid the credit card bills with checks written on the
WTU’s IFSB account. Def.’s Facts ¶¶ 41-44. Some of the
Individual Defendants wrote and cashed checks on the WTU’s IFSB
account and kept the cash or deposited the cash in their personal
bank accounts. Id. ¶¶ 45-50. Furthermore, some of the
Individual Defendants embezzled WTU funds by causing checks to be
written on the WTU’s IFSB account and paid to an entity
maintained by Defendants Martin and Alderman, Expressions
Unlimited, and keeping the funds for personal use. Id. ¶ 51.
Between 1995 and 2002, the Individual Defendants embezzled and
4
misappropriated in excess of five million dollars ($5,000,000)
from the WTU. Id. ¶ 54.
The government brought criminal charges against most or all
of the Individual Defendants. Leroy Holmes pled guilty to
Conspiracy to Launder Proceeds of an Unlawful Activity. See
United States v. Leroy Holmes, Criminal No. 03-00032 (D.D.C. Feb.
6, 2003)(RJL). Michael Martin pled guilty to Conspiracy to
Launder Proceeds of an Unlawful Activity. See United States v.
Michael Wayne Martin, Criminal No. 03-00138 (D.D.C. April 11,
2003)(RJL). Barbara Bullock pled guilty to Mail Fraud and Aiding
and Abetting and Conspiracy to Commit Crimes Against the United
States. See United States v. Barbara A. Bullock, Criminal No.
03-00435 (D.D.C. Oct. 7, 2003)(RJL). Errol Alderman pled guilty
to Conspiracy. See United States v. Errol Alderman, Criminal No.
03-00429 (D.D.C. Oct. 15, 2003)(RJL). Cheryl Martin pled guilty
to Conspiracy. See United States v. Cheryl H. Martin, Criminal
No. 04-00054 (D.D.C. Feb. 19, 2004)(RJL). On August 31, 2005,
following a jury trial, Defendants Gwendolyn Hemphill and James
Baxter were convicted on twenty-three criminal counts, including
Conspiracy and Aiding and Abetting, Wire Fraud, Embezzlement from
a Labor Organization, and Money Laundering. Those convictions
were affirmed on appeal. See United States v. Hemphill, et al.,
514 F.3d 1350 (D.C. Cir. 2008).
On April 18, 2006, this Court entered default judgments
against Defendants Barbara Bullock, Gwendolyn Hemphill, James
5
Baxter, Errol Alderman, individually and doing business as
Expressions Unlimited, Cheryl Martin, and Michael Martin,
individually and doing business as Expressions Unlimited. The
Court ordered that the amount of the default judgment shall be
determined pursuant to procedures set forth in Federal Rule of
Civil Procedure 55. On September 28, 2007, the Court granted
plaintiffs summary judgment against Defendant Leroy Holmes.
B. Procedural Background
On December 1, 2006, IFSB filed a motion for summary
judgment against plaintiffs. In its motion, IFSB argued that it
was entitled to summary judgment on all of plaintiffs’ claims on
the grounds that the claims were time-barred. See AFT, 539 F.
Supp. 2d at 166. Citing D.C. Code § 28:4-406, defendant further
maintained that pursuant to District of Columbia banking law,
plaintiffs were under a duty to discover and report the
unauthorized payments within one year because IFSB provided WTU
with monthly bank statements and copies of cancelled checks
written on the WTU account. Id. IFSB argued that all of the
unauthorized signatures, alterations, and forgeries were evident
from the statements and cancelled checks and, because WTU failed
to notify IFSB that the activity on the account was unauthorized,
plaintiffs’ claims were time-barred. Id.Plaintiffs, on the other hand, argued that any applicable
statute of limitations in this case was tolled by the “adverse
domination doctrine.” Id. Plaintiffs asserted that Bullock,
6
Baxter, Hemphill and the other Individual Defendants adversely
dominated, directed, and controlled the WTU throughout their
scheme to embezzle WTU funds, thereby preventing discovery of the
fraud. Plaintiffs also argued that any statute of limitations
was tolled by the Individual Defendants’ fraudulent concealment.
Id. Defendant countered that there was no adverse domination of
the WTU, and therefore the statutes of limitations were not
tolled, because the WTU’s Board, its vice president, and the AFT
had domination and control over the WTU and could have discovered
the embezzlement scheme. Id. at 166-67.
This Court found that whether plaintiff WTU was adversely
dominated, whether the Individual Defendants engaged in
fraudulent concealment, and when the plaintiffs discovered or
should have discovered the embezzlement scheme and the
unauthorized activity with respect to the WTU account, required a
highly fact-intensive inquiry that must be made by the fact
finder. In denying the motion, this Court found that genuine
issues of material fact pervaded these claims and must be decided
by a fact finder at trial. Id. at 167.
On April 16, 2008, IFSB filed a motion for reconsideration,
arguing that it is entitled to summary judgment on all claims
because the claims are time-barred in light of a recent decision
of the D.C. Court of Appeals in Peters v. Riggs National Bank
N.A., 942 A.2d 1163 (D.C. 2008). In Peters, the personal
representative of the Estate of Rhona Graves appealed a grant of
summary judgment against his claims for breach of contract,
7
negligence, and violations of the Electronic Funds Transfer Act.
See Peters, 942 A.2d at 1164. Appellant claimed that appellee
Riggs Bank permitted unauthorized withdrawals from his mother's
account despite her incapacitation and even after her death.
Riggs Bank denied liability, and also argued that appellant's
claims were untimely. In affirming the grant of summary
judgment, the D.C. Court of Appeals held that D.C. Code § 28:4-
406 imposes a “duty to discover and report unauthorized
signatures or alterations to the bank” and that duty is “an
absolute notice requirement for customers as a pre-requisite to
bringing any claim against the bank.” Id. at 1166-67; see also
id. at 1167 (“‘[A] customer who does not . . . discover and
report . . . is precluded from asserting against the bank the
unauthorized signature or alteration’” holding that “D.C. Code §
28:4-406(f) is a statute of repose.” (citation omitted)).
IFSB argues that because Peters stands for the proposition
that § 4-406(f) imposes an absolute notice requirement and that a
statute of repose is not subject to equitable tolling, any facts
in dispute with regard to equitable tolling are not relevant to
the summary judgment inquiry at issue here. Therefore, IFSB
maintains that it is entitled to summary judgment.
IFSB also filed a motion seeking leave to file an amended
answer in order to specifically plead the statute of repose as a
defense. The Court held a motions hearing on December 2, 2008.
At the hearing, the Court ordered plaintiffs to file supplemental
8
briefing to address what, if any, prejudice plaintiffs would
suffer if IFSB were permitted to amend its answer. The Court
also ordered the parties to file supplemental briefing on the
applicability, if any, of Shea v. Rice, 409 F.3d 448 (D.C. Cir.
2005), and Fox-Greenwald Sheet Metal Co. v. Markowitz Brothers,
452 F.2d 1346 (D.C. Cir. 1971). On December 12, 2008, the Court
sua sponte ordered the parties to address the impact, if any, of
the D.C. Circuit’s recent opinion in Long v. Howard University,
550 F.3d 21 (D.C. Cir. 2008).
II. STANDARD OF REVIEW
A. Motion for Reconsideration
The defendant’s motion for reconsideration is governed by
Federal Rule of Civil Procedure 54(b) due to the interlocutory
nature of the Court’s order denying the defendant’s motion for
summary judgment. See Judicial Watch v. Dep’t of Army, 466 F.
Supp. 2d 112, 123 (D.D.C. 2006) (“A ruling that denies a
dispositive motion . . . is an interlocutory judgment.”
(citations omitted)). “The standard of review for interlocutory
decisions differs from the standards applied to final judgments
under Federal Rules of Civil Procedure 59(e) and 60(b).”
Williams v. Savage, 569 F. Supp. 2d 99, 108 (D.D.C. 2008)
(citations omitted). “In particular, reconsideration of an
interlocutory decision is available under the standard ‘as
justice requires.’” Judicial Watch, 466 F. Supp. 2d at 123(citations omitted).
9
“‘As justice requires’ indicates concrete considerations” by
the court, Williams, 569 F. Supp. 2d at 108, such as “whether the
court patently misunderstood the parties, made a decision beyond
the adversarial issues presented, made an error in failing to
consider controlling decisions or data, or whether a controlling
or significant change in the law has occurred,” In Def. of
Animals v. Nat'l Inst. of Health, 543 F. Supp. 2d 70, 75 (D.D.C.
2008) (internal citation and quotation marks omitted).
“Furthermore, the party moving to reconsider carries the burden
of proving that some harm would accompany a denial of the motion
to reconsider.” In Def. of Aminals, 543 F. Supp. 2d at 76.
“These considerations leave a great deal of room for the court’s
discretion and, accordingly, the ‘as justice requires’ standard
amounts to determining ‘whether reconsideration is necessary
under the relevant circumstances.’” Judicial Watch, 466 F. Supp.
2d at 123 (quoting Cobell v. Norton, 224 F.R.D. 266, 272 (D.D.C.
2004)).
B. Motion for Summary Judgment
Under Federal Rule of Civil Procedure 56(c), summary
judgment is appropriate if the pleadings on file, together with
the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56(c). Material
facts are those that “might affect the outcome of the suit under
the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S.
10242, 248 (1986). The party seeking summary judgment bears the
initial burden of demonstrating an absence of genuine issue of
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986); Tao v. Freeh, 27 F.3d 635, 638 (D.C. Cir. 1994). In
considering whether there is a triable issue of fact, the court
must draw all reasonable inferences in favor of the non-moving
party. Tao, 27 F.3d at 638.
III. Discussion
A. Defendant’s Motion for Reconsideration
The parties raise several legal issues in their filings:
(1) the application of federal or state law as to the accrual of
the limitation period; (2) whether defendant is equitably
estopped from raising a statute of repose defense; (3) whether
D.C. Code § 28:4-406(f) has a good faith requirement; (4) whether
§ 4-406(f) applies to the checks used in the embezzlement scheme;
(5) whether a statute of repose is an affirmative defense; and
(6) whether Peters bars all of plaintiffs’ claims. In order to
resolve ISFB’s motion for reconsideration, it is necessary to
consider each of these legal issues to determine if they are
applicable and, if so, whether there are material facts in
dispute with regard to any issue.
a. Applying Federal v. State Law
Plaintiffs contend that Peters is not controlling in this
case as to the period of accrual of the limitation period because
determination of when the period commences is a matter of federal
11
law. Pls.’ Opp’n at 24. Defendant counters that plaintiffs have
not asserted any claims against IFSB that are based on a federal
statute and that the state law claims brought against IFSB are in
federal court based solely on supplemental jurisdiction. Def.’s
Reply at 25. Defendant further maintains that federal equitable
tolling statutes are not applicable to statutes of repose.
The doctrine of equitable tolling provides that a party’s
excusable ignorance may toll the limitations period. See Lehman
v. United States, 154 F.3d 1010, 1016 (9th Cir. 1998). A
statute of repose, however, serves as an absolute barrier to an
untimely suit and cannot be equitably tolled under any
circumstances. See Pettaway v. Teachers Ins. & Annuity Ass’n of
Am., 547 F. Supp. 2d 1, 7 (D.D.C. 2008); see also In re Greater
Se Cmty. Hosp. v. HCA Inc., 365 B.R. 293, 305 n.24 (Bankr. D.D.C.
2006)(“The court recognizes that the doctrine of equitable
estoppel does not apply to actions brought under the [Illinois
Uniform Fraudulent Transfers Act] because that statue contains a
statute of repose.”). The Court agrees with IFSB. Plaintiffs
have asserted only state law claims against IFSB, and federal
equitable tolling does not apply to statutes of repose. State
law applies, and Peters is controlling in this case.
b. Equitable Estoppel
Plaintiffs claim that even if Peters applies and equitable
tolling is not available, equitable estoppel still precludes ISFB
from raising a statute of repose defense due to fraudulent
12
concealment. Equitable estoppel holds that a defendant may be
precluded from taking a position because of affirmative
misconduct. See Lehman, 154 F.3d at 1016-17. Defendant
contends, however, that equitable estoppel does not bar IFSB from
relying on the statute of repose defense. Plaintiffs did not
allege that IFSB engaged in fraud in either their First Amended
Complaint or in their summary judgment brief, but instead attempt
to impute the fraudulent conduct of the Individual Defendants to
IFSB. To establish fraudulent concealment, a plaintiff must show
an affirmative act of concealment. See Williams v. Conner, 522
F. Supp. 2d 92, 100 (D.D.C. 2007) (citing Sprint Commc’ns Co. v.
FCC, 76 F.3d 1221, 1226 (D.C. Cir. 1996)). Plaintiffs allege
that IFSB “took affirmative steps to aid and abet the concealment
of the embezzlement.” Pls.’ Opp’n at 17. Defendant counters
that the sending of bank statements to plaintiffs demonstrates
disclosure, not concealment, and that plaintiffs did not bring a
claim against IFSB for aiding and abetting the Individual
Defendants’ fraudulent concealment of the embezzlement. See
Def.’s Reply at 19. Defendant further maintains that because
plaintiffs do not allege that IFSB itself fraudulently concealed
information, equitable estoppel should not apply. Id. at 20.
The Court is persuaded by IFSB’s argument. There is no
evidence to support plaintiffs’ theory that IFSB engaged in
fraud, or that the Individual Defendants’ fraudulent conduct can
be imputed to IFSB. Therefore, equitable estoppel does not
preclude defendant from raising a statute of repose defense.
13
C. Requirement of Good Faith
D.C. Code § 28:4-406 requires bank customers to discover and
report unauthorized signatures or alterations to the bank and
establishes an absolute notice requirement before plaintiffs can
bring any claim against the bank.2 See Peters, 942 A.2d at 1166-
67. Plaintiffs argue that the statute of repose in § 4-406(f)
does not apply and cannot be used by defendant as a defense
because IFSB did not act in good faith. Plaintiffs contend that
while § 4-406(f) does not explicitly refer to good faith, good
faith is required by “both the full subtitle and good public
policy.” Pls.’ Opp’n at 9. Defendant counters that Peters makes
clear that § 4-406(f) provides an absolute notice requirement and
does not impose a prior pre-condition of good faith. See Def.’s
Reply at 15.
Section 4-406(f) “is devoid of any language which limits the
customer’s duty to discover and report unauthorized signatures
and alternations to items paid in good faith by the bank.”
Halifax Corp. v. First Union Nat’l Bank, 546 S.E.2d 696, 703 (Va.
2001).3 In Halifax, the absence of the term “good faith” was
2
D.C. Code § 28:4-406 reads in relevant part:
Without regard to care or lack of care of either the
customer or the bank, a customer who does not within
one year after the statement or items are made
available to the customer . . . discover and report the
customer’s unauthorized signature on or any alteration
on the item is precluded from asserting against the
bank the unauthorized signature or alteration.
D.C. Code § 28:4-406(f).
3
Va. Code § 8.4-406 mirrors D.C. Code § 28:4-406.
14
significant, especially given the fact that the term “good faith”
does appear in other sections in the statute. Id. According to
defendant, if § 4-406(f) was meant to be limited to items paid in
good faith, it would have articulated the good faith requirement
explicitly. The Court agrees. Peters states that § 4-406(f) was
intended to be an absolute bar. Therefore, § 4-406(f) does not
impose a prior pre-condition of good faith. See Peters, 942 A.2d
at 1167-69.
d. Checks with Unauthorized Signatures or
Alterations
Plaintiffs contend that claims related to challenged checks,
known as “red flag checks,” are not barred by § 4-406(f). Pls.’
Opp’n at 5-9. They argue that because § 4-406 refers to
“unauthorized signatures” and “alterations” on checks, the
provision does not apply to red flag checks with the signatures
of the Individual Defendants because those checks do not contain
“unauthorized signatures.” Id. Plaintiffs’ argument is without
merit. An “unauthorized signature” under the D.C. Code is a
signature “made without actual, implied, or apparent authority
and includes a forgery.” § 28:1-201(43). The customer was the
WTU, not any of the Individual Defendants. While the Individual
Defendants were authorized to sign checks for plaintiffs’
official business, the Individual Defendants were not authorized
to sign checks for their own use and as part of the embezzlement
scheme. They had no “actual, implied, or apparent authority” to
write checks for their own use, and the instruments, thereby,
15
“include[d] a forgery.” Id. Therefore, claims related to the
red flag checks are barred by § 4-406(f).
e. Statute of Repose as Affirmative Defense
Having determined that state law applies, equitable estoppel
does not apply, there is no good faith requirement in § 4-406(f),
and that claims related to the red flag checks are barred by § 4-
406(f), the Court must next determine whether any of plaintiffs’
claims can survive in light of Peters. The heart of the
defendant’s motion for reconsideration is defendant’s argument
that it adequately plead the statute of repose in its answer,
and, therefore, all of plaintiffs’ claims are barred.
The issue here is whether a statute of repose is an
affirmative defense that must be pled, the failing of which
waives the defense. IFSB argues that statutes of repose are not
affirmative defenses and need not be specifically mentioned in an
answer. In its answer IFSB did not specifically mention “statute
of repose” but it did argue that “Plaintiffs are barred from
pursuing their claims against IFSB by the applicable statutes of
limitations.” Answer at 27. Because Peters says that the
statute at issue is a statute of repose, AFT argues that pleading
the statute of limitations is not sufficient if a party intends
to plead the statute of repose as an affirmative defense.
In order to address this issue, the Court directed the
parties to file supplemental briefing on the implications of Shea
v. Rice, 409 F.3d 448, 455 (D.C. Cir. 2005), and Fox-Greenwald
16
Sheet Metal Co. v. Markowitz Bros, 452 F.3d 1346, 1356 (D.C. Cir.
1971). Specifically, the Court was interested in the possible
significance of the statement, “statutes of limitations are
statutes of repose; their purpose is to quiet stale
controversies, the evidence as to which may be eroded by time.”
Fox-Greenwald, 452 F.3d at 1356.
Some courts, though not the D.C. Circuit or the D.C. Court
of Appeals, have explicitly found that statutes of repose are not
affirmative defenses, and therefore need not be pleaded in a
defendant’s answer. See, e.g., Roskam Baking Co., Inc., v.
Lanham Machinery Co., Inc., 288 F.3d 895, 902-904 (6th Cir.
2002); Cheswold Volunteer Fire Co. v. Lamberston Constr. Co., 489
A.2d 413, 421 (Del. 1985). AFT argues that some courts have
found that statutes of repose, by themselves, are affirmative
defenses subject to waiver if not affirmatively pled in the
answer. See Baxter v. Sturm, Ruger, & Co., 13 F.3d 40, 41 (2d
Cir. 1993). In Baxter, however, the Second Circuit did not hold
that a statute of repose is an affirmative defense. Baxter
simply noted that “Sturm, Ruger raised several affirmative
defenses, including the assertion that Baxter’s claims were
barred by the Oregon statute of repose for product liability
actions.” Id. This simply means that Sturm, Ruger raised the
statute of repose in its answer, not that the statute of repose
needed to be raised at the risk of waiver. Likewise, in Federal
Insurance Company v. Boston Water & Sewer Commission, 514 F.
17Supp. 2d 130, 133 (D. Mass. 2007), also cited by plaintiffs, the
court did not find that a statute of repose was an affirmative
defense. Rather, the court merely noted that the plaintiffs had
agreed to drop a claim against one of the defendants, making the
statute of repose, which had been plead as an affirmative
defense, moot. Id. In Bonti v. Ford Motor Company, 898 F. Supp.
391, 394 (S.D. Miss. 1995), the court specifically did not reach
the question of whether a statute of repose is waived if not pled
as an affirmative defense. In fact, the court found that the
defendant’s answer stating, “[t]he Plaintiff’s claims may be
barred by applicable statutes of limitation of other states
including, but not limited to, those of South Carolina and North
Carolina,” had in fact sufficiently plead the statute of repose
as a defense. Id. Defendant’s answer in Bonti is strikingly
similar to IFSB’s answer. See IFSB’s Answer, Affirmative
Defenses at ¶ 3 (“Plaintiffs are barred from pursuing their
claims against IFSB by the applicable statutes of limitations.”);
see also id. at ¶ 9 (“Plaintiffs failed to reasonably take
advantage of preventative and corrective opportunities provided
by IFSB to avoid harm.”).
This Court is persuaded by the Sixth Circuit’s adoption of
the reasoning in Cheswold Volunteer Fire Company. In Cheswold,
the Delaware Supreme Court reasoned that:
While the running of a statute of limitations
will nullify a party’s remedy, the running of
a statute of repose will extinguish both the
remedy and the right. The statute of
limitations is therefore a procedural
18
mechanism, which may be waived. On the other
hand, the statute of repose is a substantive
provision which may not be waived because the
time limit expressly qualifies the right
which the statute creates.
489 A.2d at 421 (citations omitted).
Accordingly, a statute of repose is not an affirmative
defense that must be pled in an answer to avoid waiving the
defense. A statute of repose extinguishes a plaintiff’s cause of
action before it accrues, while a statute of limitations does not
nullify the action, but nullifies a party’s remedy.
Even if a statute of repose were a statute of limitations
defense that must be pled in the answer, Long v. Howard
University, 550 F.3d 21 (D.C. Cir. 2008), provides guidance as to
the degree of specificity required in an answer. The bar is not
a high one to meet. The issue in Long was whether Howard
University had waived its statute of limitations defense by
“failing to raise it beyond the ‘boilerplate’ assertion in its
answer.” Id. at 24. The D.C. Circuit found that Howard
University had met its burden under Rule 8, and that even a
“boilerplate” assertion of the statute of limitations as an
affirmative defense in its answer was sufficient to preserve that
affirmative defense at trial. Id. at 24-25.
IFSB notes that in its Ninth Affirmative Defense, IFSB
clearly stated that “Plaintiffs failed to reasonably take
advantage of preventative and corrective opportunities provided
by IFSB to avoid harm.” IFSB raised the statute in its answers
to interrogatories, in response to Plaintiff’s interrogatory
19
seeking factual details in support of IFSB’s Ninth Affirmative
Defense. IFSB responded to the interrogatory by answering that
“IFSB was prepared to act on any report made under D.C. Code
28:4-406. . . . For seven years, no one ever informed the Bank
that the activity on the account was unauthorized.” The parties
also argued the applicability of § 4-406(f) in their respective
motion for and opposition to summary judgment.
IFSB clearly put plaintiffs on notice in its answer and then
in response to a request for clarification of its Ninth
Affirmative Defense that IFSB believed that plaintiffs’ suit was
barred by the statute of limitations and § 4-406(f). Plaintiffs
“could not have been prejudiced during discovery in [their]
ability to obtain factual information relevant to the statute-of-
[repose] issue. Moreover, [plaintiffs] could have sought clearer
statements from [IFSB] about its statute-of-[repose] defense by
using the procedures specified in Rule 36(a)(6) or 37(a)(4) of
the Federal Rules of Civil Procedure.” Long, 550 F.3d at 25.
IFSB’s statute of repose argument was properly raised and is
properly before this Court.
f. Peters Bars All Claims by Plaintiffs
Section 4-406(f) imposes upon customers a duty to discover
and report unauthorized signatures or alterations to the bank.
In Peters, the D.C. Court of Appeals was clear:
[A] statute of repose . . . establishes an
absolute time period within which legal
proceedings must be initiated, regardless of
when a cause of action accrues. Based on the
clear statutory language of D.C. Code §
2028:4-406(f) - “A customer who does not . . .
discover and report . . . is precluded from
asserting against the bank the unauthorized
signature or alteration” - we hold that D.C.
Code § 28:4-406(f) is a statute of repose.
Peters, 942 A.2d at 1167 (internal citation omitted). Section 4-
406(f) establishes an absolute notice requirement for customers
as a pre-requisite to bringing any claim against the bank.
Defendant contends that all of plaintiffs’ claims are
barred, including the aiding and abetting claims, because
plaintiffs failed to give notice to IFSB regarding the underlying
checks. Defendant points to cases which have held that U.C.C. §
4-406(f) bars all claims against a bank, including conversion and
breach of fiduciary duty, which underlie plaintiffs’ aiding and
abetting claims. Def.’s Reply at 22; see Jensen v. Essexbank,
483 N.E.2d 821 (Mass. 1985) (cited favorably by Peters); Harvey
v. First Nat’l Bank of Powell, 924 P.2d 83, 87 (Wyo. 1996)
(“Appellants attempt to avoid the statutory time limitation by
couching their unauthorized signatures claim in different terms;
i.e., claims under tort and contract and fiduciary duty theories.
They cannot overcome the one-year bar by attempting to assert
their claims in different terms. Plaintiffs’ argument is without
merit.”); Siecinski v. First State Bank, 531 N.W.2d 768, 771
(Mich. App. 1995) (barring conversion, negligence and contract
claims).
Plaintiffs counter that the aiding and abetting claims are
not duplicative of the negligence claim and should not be
disposed of with the other claims. They further contend that the
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aiding and abetting claims require different factual proof and
defenses. Plaintiffs argue that because § 4-406(f) only deals
with the negation of a duty by IFSB, that section only reaches
WTU’s negligence claim. See Pls.’ Opp’n at 23. Plaintiffs also
argue that regardless of whether § 4-406(f) applies to this
action, plaintiffs should be allowed to use the evidence
regarding forged and altered checks to prove its aiding and
abetting claims.
Plaintiffs’ arguments are unpersuasive. Section 4-406(f)
bars all of plaintiffs’ claims. Peters clearly holds that the
notice requirement laid out in § 4-406(f) is a pre-requisite to
bringing any claim against IFSB. Peters, 942 A.2d at 1169 (“‘A
statute of repose . . . establishes an absolute time period
within which legal proceedings must be initiated.’” (quoting
Sandoe v. Lefta Assocs., 559 A.2d 732, 735 n.5 (D.C. 1988))).
All of plaintiffs’ claims must fail.
B. Defendant’s Motion for Leave to File Amended Answer
As a precaution, and in the event that the Court denied
defendant’s motion for reconsideration, IFSB filed a motion for
leave to file an amended answer pursuant to Federal Rule of Civil
Procedure 15(a) and Local Rule 15.1. IFSB seeks to include two
additional affirmative defenses: (1) plaintiffs’ claims are
barred by the applicable statute of repose in § 4-406(f); and (2)
plaintiffs’ claims are barred by the applicable statute of repose
in § 4-406(f) as amended and shortened by agreement of the
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parties. See Am. Answer at 34. Given the disposition of the
motion for reconsideration in IFSB’s favor, this motion is denied
as moot. Any prejudice plaintiffs’ claim would result from this
motion is, likewise, moot.
III. Conclusion
The defendant’s motion for reconsideration is GRANTED; the
Order previously denying defendant’s motion for summary judgment
is VACATED, the defendant’s motion for summary judgment is
GRANTED and all claims against IFSB are dismissed. Defendant’s
motion for leave to file an amended answer is DENIED AS MOOT.
This is a final appealable order. See Fed. R. App. P. 4(a). An
appropriate Order accompanies this memorandum.
Signed: Emmet G. Sullivan
United States District Judge
March 31, 2009
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