Kidney Cancer Center Assoc. v. North Shore Community Bank and Trust Co. ( 2007 )

FIRST DIVISION
APRIL 23, 2007
No. 1-06-1721
THE KIDNEY CANCER ASSOCIATION, ) Appeal from the
an Illinois Not-For-Profit ) Circuit Court of
Corporation, ) Cook County.
)
Plaintiff-Appellant, )
)
v. ) No. 05 L 011613
)
NORTH SHORE COMMUNITY BANK )
AND TRUST COMPANY, an Illinois )
Corporation, ) The Honorable
) Dennis J. Burke,
Defendant-Appellee. ) Judge Presiding.
JUSTICE GARCIA delivered the opinion of the court.
This is a permissive interlocutory appeal brought pursuant
to Supreme Court Rule 308 (155 Ill. 2d R. 308). The two
certified questions before us are:
(1) Whether a series of conversions of
negotiable instruments over time can
constitute a continuing violation within
the meaning of the Illinois Supreme
Court's decision in Belleville Toyota,
Inc. v. Toyota Motor Sales, U.S.A.,
Inc., 199 Ill. 2d 325, 770 N.E.2d 177
No. 1-06-1721
(2002), for the purpose of determining
when the statute of limitations runs;
see also Rodrigue v. Olin Employees
Credit Union, 406 F.3d 434 (7th Cir.
2005); and
(2) Whether the "discovery rule" applies to
a series of conversions of negotiable
instruments over time for the purpose of
determining when the statute of
limitations runs.
For the reasons that follow, we answer both questions in the
negative.
BACKGROUND
In October 2005, the plaintiff, Kidney Cancer Association,
sued the defendant, North Shore Community Bank & Trust Company,
for negligence and conversion. The verified complaint alleged
that in July 1997, the Bank permitted Carl F. Dixon, the
executive director of the Kidney Cancer Association, to open a
savings account in the Association's name. The plaintiff
asserted that Dixon lacked authority to open such an account.
Between July 1997 and December 2002, Dixon deposited more than
$330,000 worth of donation checks made payable to the Association
into that account. During that time, Dixon withdrew, for cash,
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No. 1-06-1721
all of the deposited donations less 54 cents. Dixon purportedly
made the withdraws in his name, not in the name of the
Association, using nonnegotiable savings account withdrawal
slips.
The plaintiff asserted that the Bank acted in a commercially
unreasonable manner in permitting Dixon to open the account and
withdraw the funds because the Bank: (1) failed to ensure the
Association had authorized Dixon to open the account; (2) failed
to verify the accuracy of the documents Dixon supplied to the
Bank when he opened the account; (3) sent the account statements
to Dixon's personal post office box rather than to the
Association; and (4) permitted Dixon to withdraw the deposited
funds for cash. Because the Bank did not verify Dixon's
authority to open the account and because Dixon lacked that
authority, the Bank's control and possession of the checks made
payable to the Association and deposited in that account were
unauthorized and wrongful. Specifically, the plaintiff alleged,
"The Bank wrongfully and in an unauthorized manner controlled and
possessed the Association's funds because it allowed donation
checks made payable to the Association to be deposited into the
Savings Account without its consent."
The Bank moved to dismiss the complaint pursuant to section
2-615 of the Code of Civil Procedure (Code) (735 ILCS 5/2-615
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No. 1-06-1721
(West 2004)). In March 2006, the trial court granted the Bank's
motion. The court dismissed the negligence count without
prejudice, finding that the defendant failed to state a cause of
action under the Moorman doctrine (Moorman Manufacturing Co. v.
National Tank Co., 91 Ill. 2d 69, 435 N.E.2d 443 (1982)). As to
the conversion count, the court dismissed it with prejudice,
finding that the action was time-barred in that it was filed
after the three-year statute of limitations for conversion had
run. The court cited Belleville Toyota and Rodrigue to support
its finding that the conversion was not a single, continuing
violation but that each withdrawal supported a separate cause of
action.
The plaintiff filed a motion, asking the trial court to
certify its holding for immediate appeal under Supreme Court Rule
308 (155 Ill. 2d R. 308). In June 2006, the court entered an
order certifying the questions set out above. In July 2006, this
court granted this interlocutory appeal.
ANALYSIS
"An instrument is *** converted if it is taken by transfer,
other than a negotiation, from a person not entitled to enforce
the instrument or a bank makes or obtains payment with respect to
the instrument for a person not entitled to enforce the
instrument or receive payment." 810 ILCS 5/3-420(a) (West 2004).
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No. 1-06-1721
Section 3-118 of the Illinois Uniform Commercial Code (UCC)
provides that an action for conversion must be commenced within
three years after the cause of action accrues. 810 ILCS 5/3-
118(g) (West 2004). Although the plaintiff contends that the
three-year statute of limitations does not apply to its "common-
law conversion claim," the plaintiff did not raise that argument
in its Rule 308 motion and it was not certified by the trial
court. That issue, therefore, is not properly before this court.
See Chicago Hospital Risk Pooling Program v. Illinois State
Medical Inter-Insurance Exchange, 325 Ill. App. 3d 970, 977, 758
N.E.2d 353 (2001) ("The scope of our review pursuant to Supreme
Court Rule 308 (155 Ill. 2d R. 308) is strictly limited to the
questions certified by the trial court"). Nevertheless, we are
aware of only one case that holds that the statute of limitations
period for conversion of a negotiable instrument is other than
three years as set forth in section 3-118 of the UCC. That case
is Field v. First National Bank of Harrisburg, 249 Ill. App. 3d
822, 619 N.E.2d 1296 (1993), upon which the plaintiff relies for
its continuing violation theory and which we decline to follow as
explained below.
I. Continuing Violation
"Generally, a limitations period begins to run when facts
exist that authorize one party to maintain an action against
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No. 1-06-1721
another. [Citations.] However, under the 'continuing tort' or
'continuing violation' rule, 'where a tort involves a continuing
or repeated injury, the limitations period does not begin to run
until the date of the last injury or the date the tortious acts
cease.' [Citations.]" Feltmeier v. Feltmeier, 207 Ill. 2d 263,
278, 798 N.E.2d 75 (2003).
The plaintiff cites Field and Haddad's of Illinois v. Credit
Union 1 Credit Union, 286 Ill. App. 3d 1069, 678 N.E.2d 322
(1997), to support its claim that the series of conversions,
carried out from July 1997 through November 2002, were part of a
continuing scheme or plan.
In Field, the plaintiff sought to recover funds that were
improperly obtained by his sister from January 1980 through March
1984. The plaintiff alleged that his sister deposited their
father's pension checks, which were endorsed by their father but
restricted by the words "For Deposit Only," into her personal
account, and that she drew on that account for her personal
needs. Field, 249 Ill. App. 3d at 823-24. The trial court
granted the defendant bank's motion for summary judgment on the
conversion count, finding that it was barred by the applicable
statute of limitations.
On appeal, the plaintiff argued that, for the purposes of
the statute of limitations, the alleged course of conduct was one
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No. 1-06-1721
continuing transaction, not numerous separate transactions.
Field, 249 Ill. App. 3d at 824-25. The plaintiff argued that
because the deposits were made on a monthly basis, in the same
manner, to the same accounts over a four-year period, this
evidenced an ongoing "scheme, plan, conspiracy or the like."
Field, 249 Ill. App. 3d at 825. The Field court agreed with the
plaintiff, explaining that although it was "unable to find any
cases in which a series of checks cashed is said to constitute a
single transaction for purposes of the running of the statute of
limitations," because the plaintiff alleged a tort that involved
a "continued repeated injury," the limitations period did not
begin to run until the date of the last injury or when the
tortious act ceased. Field, 249 Ill. App. 3d at 825. The court
based its determination on the following facts: (1) the checks
were cashed by plaintiff's sister over a continuous four-year
period; (2) each check was made payable to their father; and (3)
all of the checks were restrictively endorsed with "For Deposit
Only." The checks, however, were deposited in an account that
did not bear the payee's name and he received no information
about the accounts from the defendant bank.1 Field, 249 Ill.
1
The Field court's reliance on an ongoing "scheme, plan,
conspiracy or the like" for finding a continuing violation may
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No. 1-06-1721
App. 3d at 826. The Field court further treated the conversion
complaint as a common-law conversion with the applicable five-
year statute of limitations.2 Field, 249 Ill. App. 3d at 826.
In Haddad's of Illinois, the plaintiff alleged that from
1988 until 1990, one of its employees, Raychouni, forged
endorsements on checks payable to the plaintiff and deposited
them into an account at the defendant bank. The plaintiff sued
the defendant bank for conversion of the checks it paid over the
have resonance with regard to the plaintiff's sister in Field or
Dixon here. We find none with regard to the Bank here; nor have
we found a supporting allegation in the complaint against the
Bank.
2
Consequently, the Field court did not consider the purpose
and policy of the Uniform Commercial Code regarding negotiable
instruments. See Rodrigue, 406 F.3d at 447 (same reasons to
reject application of discovery rule to claims of check
conversion also serve to reject application of continuing
violation rule); Copier Word Processing Supply, Inc. v. Wesbanco
Bank, Inc., 640 S.E.2d 102, 111-12 (W. Va. 2006) (purpose and
policy of UCC serve as a basis to reject the application of the
continuing violation rule as well as the application of the
discovery rule in conversion of negotiable instruments.
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No. 1-06-1721
endorsement forged by Raychouni. The trial court granted the
defendant's motion for summary judgment, holding that the
plaintiff's action was barred by the statute of limitations.
Haddad's of Illinois, 286 Ill. App. 3d at 1070.
On appeal, the plaintiff argued that the cashing of the
checks was part of an ongoing plan constituting a single
transaction for purposes of the commencement of the statute of
limitations. The Haddad's of Illinois court first addressed
whether the statute of limitations period was five or three
years. The appellate court concluded: "The proper statute of
limitations for actions for conversion of negotiable instruments
is three years as specifically set forth in the [Uniform
Commercial Code.]" Haddad's of Illinois, 286 Ill. App. 3d at
1072. Regarding the applicability of the continuing tort
doctrine, the Haddad's of Illinois court stated, citing Field,
that "[w]hen a series of checks is cashed as part of an ongoing
scheme or plan, the plan constitutes a single transaction for
purposes of the commencement of the statute of limitations."
Haddad's of Illinois, 286 Ill. App. 3d at 1072. The court
explained that "if plaintiff alleged facts sufficient to show a
plan for Raychouni's conversion of checks ***, the date on which
the last check was deposited would govern as the date for all the
checks for purposes of the statute of limitations." Haddad's of
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No. 1-06-1721
Illinois, 286 Ill. App. 3d at 1072. However, because the
plaintiff did not file its complaint until more than three years
after the last check was deposited, the court did not decide
whether the plaintiff made such a showing. Haddad's of Illinois,
286 Ill. App. 3d at 1073.
In this case, the trial court acknowledged Field and
Haddad's of Illinois, but it relied on the supreme court's
holding in Belleville Toyota when it found that the series of
conversions were not a continuing violation. In Belleville
Toyota, the plaintiff alleged that the defendants violated the
Motor Vehicle Franchise Act (Act) (815 ILCS 710/1 et seq. (West
2004)) and breached a number of dealership agreements between the
parties. In 1980, the parties entered into their first six-year
dealership agreement. Under the agreement, the plaintiff would
submit orders to the defendants for Toyota vehicles. In the
event of shortages, the agreement provided that the defendant
would allocate vehicles to the plaintiff based on the plaintiff's
sales performance. When that agreement expired, the parties
entered into one-year agreements in 1986 and 1987; in 1988, they
entered into a six-year agreement. Under the 1986, 1987, and
1988 agreements, the defendants were required to use their "best
efforts" to provide the plaintiff with vehicles. In the event of
shortage, the defendants agreed to allocate vehicles among their
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No. 1-06-1721
dealerships in a "fair and equitable manner." Belleville Toyota,
199 Ill. 2d at 330.
In 1989, the plaintiff sued the defendants alleging, inter
alia, that the defendants failed to allocate Toyota vehicles in
the quantities contractually required, that these allocations
violated provisions of the Act, and that the defendants
fraudulently concealed their conduct. Belleville Toyota, 199
Ill. 2d at 330.
On appeal, the defendants argued that the plaintiff's claim
was time-barred under the Act and that the trial court
erroneously employed the continuing violation rule to postpone
the running of the statute of limitations. Belleville Toyota,
199 Ill. 2d at 345. The supreme court considered its decision in
Cunningham v. Huffman, 154 Ill. 2d 398, 609 N.E.2d 321 (1993),
where it held that a medical malpractice case was not barred by
the statue of repose where the plaintiff demonstrated a
continuous and unbroken course of negligent treatment, which
constituted one continuing wrong. Belleville Toyota, 199 Ill. 2d
at 346, citing Cunningham, 154 Ill. 2d at 406. The statute of
repose required a plaintiff to file his cause of action no more
than four years after "the act or omission or occurrence alleged
in such action to have been the cause of such injury or death."
735 ILCS 5/13-212(a) (West 2004). The court held that if the
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No. 1-06-1721
term "occurrence" was limited to a single event, unjust results
would follow:
"'[I]f the word occurrence were interpreted to
mean a single isolated event, patients who discovered
that they were gravely injured due to negligent or
unnecessary exposure to X-ray radiation or
administration of medication over a span of years might
be able to recover little, if any, in the way of
damages. This would be so because a single dosage of
radiation or medicine might be harmless, whereas
treatment over time might be either disabling or even
fatal.'" Belleville Toyota, 199 Ill. 2d at 346, quoting
Cunningham, 154 Ill. 2d at 405.
The Belleville Toyota court, however, held that the
defendants' continuing violations of the Act were not comparable
to the cumulative medical negligence in Cunningham. The court
pointed out that in Cunningham, it "did not adopt a continuing
violation rule of general applicability in all tort cases," but
based its decision on the interpretation of the statute of
repose. Belleville Toyota, 199 Ill. 2d at 347.
In its complaint, Belleville Toyota challenged the
individual vehicle allocations under the dealership agreements.
The supreme court held that each allocation was the result of
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No. 1-06-1721
discrete decisions by the defendants. Although the allocations
were repeated, the court held that it "cannot conclude that
defendants' conduct somehow constituted one, continuing,
unbroken, decade-long violation of the Act." Belleville Toyota,
199 Ill. 2d at 348-49. Because each allocation constituted a
separate violation of the Act, each violation supported a
separate cause of action. Therefore, the only violations
properly before the court were those that occurred within the
four-year period before the plaintiff filed its complaint.
The supreme court again considered the continuing violation
rule in Feltmeier. The Feltmeiers were married in 1986 and
divorced in 1997. In 1999, the former wife sued her former
spouse for intentional infliction of emotional distress, alleging
that he engaged in a pattern of domestic abuse from the time they
were married until 1999. Feltmeier, 207 Ill. 2d at 265. The
defendant moved to dismiss the complaint, arguing that it was
barred by the two-year statute of limitations for personal
injuries.
The court explained that a continuing violation "does not
involve tolling the statute of limitations because of delayed or
continuing injuries, but instead involves viewing the defendant's
conduct as a continuous whole for prescriptive purposes."
(Emphasis added.) Feltmeier, 207 Ill. 2d at 279. "A continuing
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No. 1-06-1721
violation or tort is occasioned by continuing unlawful acts and
conduct, not by continual ill effects from an initial violation.
[Citations.] Thus, where there is a single overt act from which
subsequent damages may flow, the statute begins to run on the
date the defendant invaded the plaintiff's interest and inflicted
injury, and this is so despite the continuing nature of the
injury." Feltmeier, 207 Ill. 2d at 278-79.
Although the plaintiff alleged conduct -- assault, battery,
defamation -- that could have given rise to separate and distinct
causes of action, the plaintiff alleged, and the defendant's
conduct as a whole, stated a cause of action for intentional
infliction of emotional distress. Feltmeier, 207 Ill. 2d at 281.
It was the "'pattern, course and accumulation'" of the
defendant's acts that made the conduct sufficiently extreme to be
actionable and to hold otherwise would have been logically
inconsistent, as it is often the cumulative nature of the acts
that give rise to a cause of action for intentional infliction of
emotional distress. Feltmeier, 207 Ill. 2d at 282, quoting
Pavlik v. Karnhaber, 320 Ill. App. 3d 731, 746 (2001). The court
held that the date of the last act was the proper date to begin
the running of the statute of limitations because it was
otherwise impossible to pinpoint the specific moment when enough
conduct had occurred to be actionable. Feltmeier, 207 Ill. 2d at
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No. 1-06-1721
284.
The only post-Belleville Toyota case that specifically
addressed the continuing violation rule as it applied to a series
of conversions was the Seventh Circuit's decision in Rodrigue
(applying Illinois law). In that case, the plaintiff's employee,
Carol Wiltshire, stole 269 reimbursement checks written to the
plaintiff from her patients' insurers over a six-year period.
Wiltshire fraudulently endorsed the checks over to herself and
presented them at the defendant credit union, where they were
accepted. After the plaintiff discovered the embezzlement, she
filed a lawsuit, in federal court, against the credit union.
Rodrigue, 406 F.3d at 435.
The defendant argued "that the conversion of the checks did
not amount to a single or continuous injury under Illinois law
and that the statute of limitations for conversion began to run
with the negotiation of each check[.]" Rodrigue, 406 F.3d at
436. The Seventh Circuit, noting that the Illinois Supreme Court
had not yet considered whether the continuing violation rule
should apply to a cause of action for the "serial conversion of
multiple negotiable instruments," predicted that the court would
find no continuing violation. Rodrigue, 406 F.3d at 441.
The court considered both Field and Haddad's of Illinois,
but applied the analysis in Belleville Toyota, reiterating that
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No. 1-06-1721
"the continuing violation rule does not apply to a series of
discrete acts, each of which is independently actionable, even if
those acts form an overall pattern of wrongdoing." Rodrigue, 406
F.3d at 443. The court explained that like the transactions in
Belleville Toyota, each conversion was a separate cause of
action, not at all dependent on any other conversion.
Specifically, the court held:
"Unlike a cause of action for medical
malpractice based on a course of negligent
treatment with cumulative effects, or a cause
of action for the intentional infliction of
emotional distress arising from a course of
tortious acts considered as a whole, [the
plaintiff's] claim for conversion does not
depend on the cumulative nature of either
Wiltshire's or [the defendant's] acts.
Rather, a cause of action for conversion
arose each time Wiltshire cashed or deposited
one of the checks she had embezzled. ***
Whether Wiltshire had negotiated one check or
1000, [the plaintiff] had a valid cause of
action for conversion; nothing about the
repeated or ongoing nature of Wiltshire's
16
No. 1-06-1721
conduct affected the nature or validity of
[the plaintiff's] suit, beyond increasing her
damages. Moreover, in contrast to a claim
that arises from a cumulation of wrongful
acts, a claim for conversion does not pose
undue difficulty for the victim in
identifying the nature, origin, and extent of
her injury." Rodrigue, 406 F.3d at 443.
The Seventh Circuit further held that there were no potentially
unjust results in applying the statute of limitations because the
plaintiff's belated discovery of her injury had little or nothing
to do with the nature of her claim. Rodrigue, 406 F.3d at 444.
We find Rodrigue persuasive. As our supreme court made
clear in Belleville and Feltmeier, the validity of the continuing
violation rule is dependent upon the cause of action alleged.
While the complaint here alleged a serial conversion of
negotiable instruments by Dixon, it cannot be denied that a
single unauthorized deposit of a donor's check in the account
opened by Dixon in 1997 gave the Association the right to file a
conversion action. The Association's claim that Dixon repeated
this conduct through 2002 based on identical conversions
following his initial deposit in 1997, serves no more than to
"toll" the statute of limitations under the guise of a continuing
17
No. 1-06-1721
violation. Where, as here, each discrete act by Dixon of
wrongfully depositing a donor's check into the account provided a
basis for a cause of action, we need not look to "the defendant's
conduct as a continuous whole for prescriptive purposes."
Feltmeier, 207 Ill. 2d at 279. That the conversions spanned a
period of five years is irrelevant as "nothing about the repeated
or ongoing nature of [Dixon's] conduct affected the nature or
validity of [the plaintiff's] suit." See Rodrigue, 406 F.3d at
443; see also Belleville Toyota, 199 Ill. 2d at 348-49.
Although Belleville Toyota did not explicitly overrule or
discuss the facts in Field or Haddad's of Illinois, the supreme
court's opinion sufficiently clarified when the continuing
violation rule is applicable -- where the pattern, course, and
accumulation of the defendant's acts are relevant to the cause of
action.3 Belleville Toyota, 199 Ill. 2d at 348-49. No mention
3
We note that while the appellate court's decision in
Belleville (Belleville Toyota, Inc. v. Toyota Motor Sales,
U.S.A., Inc. 316 Ill. App. 3d 227, 244, 738 N.E.2d 938 (2000))
cited the Field decision, the supreme court did not in reversing
the appellate court. In this regard, we place little
significance on the supreme court's seemingly approving cite to
Field in Feltmeier (Feltmeier v. Feltmeier, 207 Ill. 2d 263, 278,
18
No. 1-06-1721
was made of an ongoing "scheme, plan, conspiracy or the like" in
Belleville Toyota as relied upon by the Field court. See Field,
249 Ill. App. 3d at 826. In this case, where the Bank negotiated
numerous checks over a five-year period, the pattern, course, and
accumulation of the acts are not relevant to the Association's
cause of action. We, therefore, answer the first question in the
negative.
II. Discovery Rule
The second certified question asks whether the discovery
rule applies to a series of conversions of negotiable instruments
for the purpose of determining when the statute of limitations
runs. We need only look to the Fourth District court's opinion
in Haddad's of Illinois for the answer. "The damage to the
plaintiff occurs [when the instrument is negotiated] and the
applicable statute of limitations then allows three years from
that date to discover the conversion in the ordinary course of
bookkeeping. Absent fraudulent concealment on the part of the
defendant, this should allow ample time for a plaintiff to
discover any injury. Therefore, we find the discovery rule does
not apply to causes of action for conversion of negotiable
instruments." Haddad's of Illinois, 286 Ill. App. 3d at 1075.
798 N.E.2d 75 (2003)).
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No. 1-06-1721
Although Illinois courts have applied the discovery rule to
a number of different tort causes of action, it is only
applicable in conversion-of-negotiable-instrument cases, as made
clear by Haddad's of Illinois, when there are allegations of
fraudulent concealment. Haddad's of Illinois, 286 Ill. App. 3d
at 1073. Citing numerous authorities from outside of Illinois,
that court explained that under the Uniform Commercial Code,
liability on negotiable instruments cannot be open-ended.
Haddad's of Illinois, 286 Ill. App. 3d at 1073-74. In addition,
the victim of the conversion is in the best position to easily
and quickly detect the loss and take appropriate action. Thus,
while it may be harsh not to apply the discovery rule in certain
cases, the rule is inapplicable absent fraudulent conduct.
Haddad's of Illinois, 286 Ill. App. 3d at 1075.
In this case, the plaintiff contends that it was not in the
best position to detect the fraud because it had no knowledge of
the account opened in its name and it did not receive any
statements showing account activity. We do not, however, find
the plaintiff's argument compelling. The fraud was in the
diversion of the donation checks, not in the opening of the
account in the Association's name by Dixon, or in the absence of
the Association's address for purposes of receiving statements of
the account. The fraud involved Dixon stealing $330,000 worth of
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No. 1-06-1721
donation checks from the Association over a five-year period.
The Association, more than the Bank, was in a better position to
establish internal controls for its donations. Because the
plaintiff alleges no fraudulent conduct against the Bank, we hold
that the discovery rule is inapplicable and answer the second
question in the negative.
Certified questions answered; order affirmed.
CAHILL and R. GORDON, JJ., concur.
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