Rena Swanson v. Rhonda Wilson

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 11a0344n.06
No. 10-5064
FILED
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT May 20, 2011
LEONARD GREEN, Clerk
Rena Purintun Swanson, )
)
Plaintiff-Appellant, ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
v. ) COURT FOR THE EASTERN
) DISTRICT OF KENTUCKY
Rhonda Renee Purintun Wilson; Kim Lane Wilson; )
Capitol Indemnity Corporation; ) OPINION
)
Defendants-Appellees. )
)
BEFORE: GUY, CLAY, and McKEAGUE, Circuit Judges.
McKeague, Circuit Judge. Plaintiff Rena Swanson filed suit against her mother, Rhonda
Wilson; her step-father, Kim Wilson; and several corporate entities to recover her share of a lawsuit
settlement related to her father’s accidental death when she was young. Swanson alleges that her
mother was a fiduciary in several respects, and breached the duties she owed her daughter by
concealing the existence of settlement proceeds belonging to Swanson, and by using fraudulent
means to gain access to Swanson’s settlement funds for her own use and benefit.
The district court concluded that this action was barred by the applicable statute of
limitations. Though we disagree with particular determinations made by the district court, we agree
with its ultimate conclusion and therefore AFFIRM the grant of summary judgment.
I. BACKGROUND
No. 10-5064
Rena Swanson v. Rhonda Wilson, et al.
Plaintiff Rena Swanson (“Rena” or “Plaintiff”) was three years old when her father, Leroy
Purintun (“Leroy”), was killed in an oil tank explosion in Illinois. Following the accident, his wife,
Defendant Rhonda Renee Purintun Wilson (“Rhonda”) brought a wrongful death action in Illinois
state court as administratrix of Leroy’s estate, and as guardian of her two minor children, Rena and
her sister, Melissa. The case was settled in 1990—at that time, Rena was nine years old.
Rena’s claims were settled for $234,375. The defendants in that settlement agreed to pay
$109,375 immediately, with approximately $95,000 going to litigation costs and attorney’s fees,
$1,193 to pay estate costs and fees, and the remaining $12,388.71 to be used to open a restricted
bank account in Rena’s name. The court and parties intended that this account is where Rena’s
portion of the immediate settlement proceeds, as well as future payments, would be deposited and
held until she attained majority (or the Circuit Court of Cook County ordered the funds released).
The settlement also provided that Safeco Insurance Company of America (“Safeco”), the
liability insurer of the defendants in the wrongful death suit, would make periodic payments to Rena.
This payment schedule included $300 monthly payments until Rena reached the aged of 18, with an
interest rate of six percent compounded annually—these payments would be made to the secure bank
account. The settlement also included nine large lump-sum payments to be paid periodically to Rena
between the ages of 18 and 22—these payments would total $248,000.1
1
Safeco made a qualified assignment of its payment obligation to Symetra Assigned Benefits
Service Company. To fund the payments, Symetra entered into an annuity contract with Symetra
Life Insurance Company (“Symetra Life”). Safeco also issued a surety bond under which it promised
to make the settlement payments to Rena if Symetra failed to perform. Claims against the corporate
successors to these parties were settled and are not involved in this appeal. The only remaining
parties are Rena Swanson; her mother, Rhonda Wilson; her stepfather, Kim Wilson; and Capitol
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In order to facilitate the creation of the restricted account and the deposit of the first
settlement payment, the Probate Court appointed Rhonda as the guardian of Rena’s court estate.
Defendant Capitol Indemnity Corporation obligated itself as surety on Rhonda’s fiduciary bond.
Rhonda opened an account in Rena’s name at American National Bank and Trust Company of
Chicago (“American National Bank”) and deposited the original $ 12, 388.71 payment into that
account. That same day, following production of the necessary documents to the Probate Court, the
Court closed Rena’s estate, discharged Rhonda from further duty as guardian of that estate, and
released Capitol from further surety obligations. Rhonda, however, remained Rena’s sole legal
guardian.
For the next nine years, Symetra Life deposited all of the scheduled monthly payments and
the first lump-sum payment directly into Rena’s restricted bank account at American National Bank.
Though Rhonda was the signatory on this account, the Probate Court had indicated that no
withdrawals could be made without court approval, and there is no indication that any funds were
removed from the account during that time.
In early 1995, Rhonda and Rena moved to California. Later that year, Rhonda married
Defendant Kim Wilson (“Kim”), and the family moved to 8500 Todd Court, Riverside, California.
Three years later, Rena turned eighteen on September 28, 1998, at which time, she still resided with
Rhonda and Kim. Rena alleges that in the nine years between the settlement and her reaching the
age of majority, she was never informed of the existence of the settlement benefitting her. Rena’s
Indemnity Corporation, the surety on Rhonda’s fiduciary bond.
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grandmother stated in her deposition that Rhonda told her not to mention the money to Rena,
because Rena was too immature to handle it. Rena alleges that her mother intentionally withheld
the existence of the settlement and money from her.
Shortly after her eighteenth birthday, Rena had an argument with her mother and moved out
of the house. She flew to Guam to be with her boyfriend, Robert, who was in the U.S. Navy. Rena
and Robert were married in December 1998, and they remained in Guam until August 1999. At that
time, Robert was discharged from the U.S. Navy, and the family moved back in with Rhonda and
Kim. When Robert found another job, he and Rena made plans to move into their own apartment.
However, before they moved, Rhonda induced Rena to sign a Durable Power of Attorney,
which empowered Rhonda to act on Rena’s behalf with respect to various matters, including banking
transactions. She told Rena this would allow her to “help” with various matters. The document
stated that Rhonda was granted a general power of attorney, appointed as Rena’s “attorney-in-fact,”
and authorized Rhonda to “act in my name, place, and stead in any way which I myself could do”
with respect to certain matters. Specifically, Rena initialed spaces on the document authorizing her
mother to act for her in “tangible personal property transactions,” “bond, share and commodity
transactions,” and importantly, “banking transactions” and “records, reports and statements.”
Rhonda then signed the form, stating that she “accepts this appointment” and “agrees to act and
perform in said fiduciary capacity consistent with [Rena’s] best interests.” This Power of Attorney
was executed on October 25, 1999.
In November 1999, Rena and Robert moved into their own apartment in California. Also
during that month, American National Bank in Illinois received a letter, purportedly signed by Rena,
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which stated: “I, Rena S. Purintun, have reached the age of majority and would like all of my funds
released, including the CD deposit. I have enclosed all of the documents you require. Please send
the check promptly.” The letter included copies of Rena’s birth certificate, California identification
card, and Social Security card. The return address on the letter was “8500 Todd Court, Riverside,
California,” her mother’s address where Rena no longer resided. Although denied by Rhonda, Rena
alleges that she did not send or authorize this letter, and that her mother signed her name and
requested the money.
On November 9, 1999, pursuant to the letter, American National Bank closed the restricted
account and issued two cashier’s checks, made payable to Rena, for a total of $67,957.05. Both
checks were sent to California and were apparently cashed on November 17, 1999. The defendants
contend that Rena cashed these checks, but Rena asserts that she did not; records do not exist to
demonstrate where or by whom the checks were cashed.
On December 19, 2000, Symetra Life also received a notarized letter, purportedly signed by
Rena, requesting that Symetra Life “[p]lease forward all of the payments you are holding on my
Annuity Contract . . . to my above address.” The return address was again “8500 Todd Court,”
Rhonda and Kim’s home, where Rena had not lived for over a year. Symetra Life honored the
request and sent the remaining checks to Rena at Rhonda’s address. The first check was cashed at
a Bank of America branch. Rena denies that she was the one who requested this change, but states
that her mother had her sign several documents she did not understand, and had her sign a blank
sheet of paper, in order to help her with her finances.
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In early 2001, Robert lost his job and he and Rena planned to move with their two daughters
to Georgia, to be near Robert’s mother. Before this move, Rhonda and Rena opened a joint bank
account with Bank of America. Rhonda told Rena that having such an account would help her,
because she would put her own (Rhonda’s) money in it occasionally to help Rena pay living
expenses. Rhonda also promised that when Rena bought a house, she would help with the down
payment. Besides the first check, all remaining checks from Symetra Life were deposited into this
joint account. Each was purportedly endorsed by “Rena S. Purintun,” with a few additionally
bearing the endorsement of “Rhonda Renee Wilson.” Rhonda admits signing Rena’s name to checks,
but denies that these were unauthorized forgeries.
After living in Georgia for about six months, Rena and Robert again moved in September
2001, to live with Robert’s father in Minnesota. In November of that year, Rhonda apparently asked
her mother for financial help. Her mother sent Rena an email, saying she would send a couple
hundred dollars that Rena requested, but that “we won’t be able to send you anymore for a long
time.” Rhonda continued that “I can’t continue to help you and Melissa with money because I will
end up with no home and no money. . . . After all I have given a lot already.” At this time, however,
the joint account contained at least $62,000 of Rena’s money; Rena claims she was unaware of these
funds.
In April 2002, Rena visited her (estranged) sister, Melissa, in Wisconsin. Rena learned from
Melissa that she might be entitled to receive some money in connection with their father’s death.
Melissa told her that she had received a large amount of money, and that Rena had a right to receive
a similarly large sum from their mother, Rhonda. Following this discussion, Rena asked Rhonda
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about the money, but Rhonda told Rena that Melissa had lied about the money. As the district court
in this case stated, “Rena apparently believed Rhonda’s explanation, for she did not contact Melissa
again, nor did she speak to anyone else about the settlement money.” Rena claims that even at this
time, she “had no idea about the settlement and the significant funds that had been funneled” from
her Illinois account to Rhonda and Kim.
In October 2002, Robert and Rena wanted to buy a house, but when Rena asked Rhonda to
assist them, she refused. Worried that her family might soon have nowhere to live, Rena
remembered the joint bank account opened in 2001. She called Bank of America to inquire about
the account’s balance, and was surprised to learn that the account contained $62,520.71. According
to Rena, she learned on November 29, 2002 that the source of the funds had been checks that bore
her name, coming from an annuity company in Washington.
On December 3, 2002, Safeco Life received a notarized letter from Rena ,which read: “I have
not received, deposited, or cashed any checks from Safeco Insurance. I first became aware that
checks issued to my name from Safeco Insurance were being signed, deposited, and withdrawn on
11/29/2002.” In response, Safeco Life faxed two letters to Rena. The first, on December 3, 2002,
explained that its annuity contract was purchased “to fund payment obligations under a settlement
agreement for a personal injury or wrongful death claim.” It further detailed all of its payments made
to Rena’s restricted minor’s account at American National Bank (totaling approximately $29,000),
and check payments made out to Rena—beginning in 1998—totaling approximately $248,000. The
second fax, sent on December 6, 2002, included copies of the settlement agreement and the last three
settlement checks, all of which were deposited into the joint account (these totaled $173,000).
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When she received the first letter from Safeco, Rena promptly opened an individual bank
account at Bank of America and transferred the entire balance of the joint account into her personal
account. However, Rena testified that at this time, she did not understand what all of this meant, and
was trying to figure out what was going on. She states that transferring the funds “would protect this
part of the money while Rena continued her investigation.”
In February 2003, Rena and Robert purchased a house in Minnesota. In June 2003, Rhonda
and Kim moved to Kentucky. Shortly after the move, Rena called Rhonda and Kim, confronting
them about the money and demanding an explanation regarding the existence and location of her
settlement money. Rhonda and Kim denied the existence of any settlement money belonging to
Rena or any wrongdoing. Instead, Rhonda told Rena that she (Rhonda) had committed tax fraud:
she insinuated that the money was really hers (Rhonda’s), the tax fraud scheme was why the money
was in Rena’s name, and that she had done nothing wrong to Rena.
In July 2003, Rena sent affidavits to Safeco which stated that the signatures on the lump-sum
checks issued in her name were “forgeries.” She also sent a letter dated July 21, 2003, requesting
that Safeco send her all information regarding her annuity account, including the account number
for the American National Bank account. She stated, “I need these numbers to inquire about this
account as it may have been taken by my mother in the same fashion as the checks made payable to
me from Safeco.” Rena contacted American National Bank on July 22, 2003, and was informed that
her restricted account had been emptied in 1999. Rena denied sending the notarized letter
authorizing the closing of the account, and requested that the bank send her all bank statements for
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the account. Rena received those records—showing all deposits and the withdrawal—on August 25,
2003.
On October 29, 2003, Rena filed a Motion for Accounting before the Circuit Court of Cook
County Probate Division, in Illinois. Rena alleged in that motion that Rhonda had not only
concealed the existence of the settlement funds, but had forged her signature on various letters and
checks in order to gain control and use of the money intended for Rena. The record does not reflect
whether or how the Probate Court ruled on this motion. Then on January 26, 2004, Rena formally
filed a Complaint against Rhonda in the Chancery Division of Cook County. She alleged that her
mother was in a fiduciary relationship with her, and that she had hidden the existence of the funds,
used her Power of Attorney to withdraw the American National Bank funds, and directed the annuity
payments to her own California address. The complaint demanded a complete accounting of all
funds received; but also asked that (1) Rhonda pay the costs of the accounting, (2) Rhonda pay
Rena’s attorney’s fees, (3) Rhonda be “ordered to cease and desist dissipating funds intended for the
Plaintiff, and (4) “any further relief the court deems just and proper.” The record does not indicate
how the Probate Court ruled on this motion.
Rena filed the instant action on March 9, 2007. In the Complaint, Rena repeated these
allegations against Rhonda, and added claims against Kim and the various corporate entities.
Shortly, the claims against JPMorgan Chase, Safeco, Symetra, and Symetra Life were all settled.
The only remaining claims were against Rhonda for (1) an accounting, (2) breach of fiduciary duty
and/or constructive fraud, (3) conversion, and (4) fraud; against Kim Wilson for (1) conversion, and
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(2) aiding and abetting fraud; and against Capital Indemnity Corporation for indemnification of
Rhonda.
Defendants filed a Motion for Summary Judgment, and Rena filed a Motion for Partial
Summary Judgment. On December 22, 2009, the district court concluded that all of Rena’s claims
were time-barred by the applicable statute of limitations, and thus granted Defendants’ motion for
summary judgment. Rena timely appealed.
II. Standard of Review
This Court reviews a district court’s grant of summary judgment de novo. Parsons v. City
of Pontiac, 533 F.3d 492, 499 (6th Cir. 2008). Summary judgment is appropriate where “the movant
shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” FED . R. CIV . P. 56(a). Where, as here, the defendant moves for summary
judgment based on statute-of-limitation grounds, summary judgment is appropriate if the statute of
limitations has run and there is no genuine issue of material fact as to when the plaintiff’s cause of
action accrued. Campbell v. Grand Trunk W. R.R. Co., 238 F.3d 772, 775 (6th Cir. 2001). The
burden is on a defendant to show that the statute of limitations has run. Id. However, once the
defendant carries that burden, the plaintiff has the burden to establish an exception to the statute,
such as tolling or late discovery of the injury. Id. Here, the injury clearly began in 1999, which is
beyond the applicable statute of limitations in any relevant jurisdiction. Therefore, the burden falls
on the Plaintiff to demonstrate that an exception to the statute makes her suit timely.
III. The Applicable State Law
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A district court, sitting in diversity, must apply the law of the forum state in determining
statute of limitations questions. See, e.g., Atl. Richfield Co. v. Monarch Leasing Co., 84 F.3d 204,
205 (6th Cir. 1996). Here, that is Kentucky. See Combs v. Int’l Ins. Co., 354 F.3d 568, 577 (6th Cir.
2004). The district court correctly determined that the statute of limitations is governed by
Kentucky’s borrowing statute, Kentucky Revised Statutes § 413.320, which states:
When a cause of action has arisen in another state or country, and by the laws of this
state or country where the cause of action accrued the time for the commencement
of an action thereon is limited to a shorter period of time than the period of limitation
prescribed by the laws of this state for a like cause of action, then said action shall
be barred in this state at the expiration of said shorter period.
KY . REV . STAT . ANN . § 413.320. A three-step analysis is therefore necessary to determine the
applicability of this statute: (1) did the cause of action accrue in another state? (2) If so, is that
state’s statute of limitations for the particular cause of action shorter than the corresponding
Kentucky statute of limitations? (3) If so, application of the accrual state is applied; if not,
Kentucky’s statute of limitations is applied. See Willits v. Peabody Coal Co., Nos. 98-5458, 98-
5527, 1999 WL 701916, at *12 (6th Cir. Sept. 1, 1999).
Here, the relevant Kentucky statute of limitations is five years. See KY . REV . STAT . ANN .
§ 413.120. The Illinois provision applicable to these causes of action is also five years. See 735 ILL.
COMP . STAT . 5/13-205. California, however, provides for either a three- or four- year limitation
period. See CAL. CIV . PROC. CODE §§ 338(d), 343. Therefore, if the cause of action accrued in
California, that state’s statute of limitation would apply in place of Kentucky’s.
The district court determined that the place of accrual was California. First, it stated that
looking to “where the injury is sustained” is not helpful in a case—like this one—that involves
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purely economic injury. It then rejected Plaintiff’s argument that Illinois is the “logical choice” for
where the action accrued, construing her argument as a contention that Illinois had the “most
significant relationship” to the case, which is a standard that has been rejected by this Court under
Kentucky’s borrowing statute. See Combs, 354 F.3d at 592. Lastly, the district court stated that
instead, this Court has looked to when a cause of action accrued to determine the place of accrual.
It then determined that the “when” in this case was when the defendant committed the first allegedly
wrongful conduct of requesting the funds—before any money was actually removed from the
Plaintiff’s accounts—and that therefore, the “where” was where the defendant acted—in California.
A. The Place of Accrual
“Where” a cause of action accrues, for purposes of Kentucky’s borrowing statute, is unclear.
In cases, like this one, where the location of accrual is not readily apparent, this Court has looked
to when a cause of action accrued to determine the place of accrual. “[T]he elements of time and
place of accrual are inextricably intertwined: ‘The time when a cause of action arises and the place
where it arises are necessarily connected, since the same act is the critical event in each instance.
The final act which transforms the liability into a cause of action necessarily has both aspects of time
and place.’” CMACO Auto. Sys., Inc. v. Wanxiang Am. Corp., 589 F.3d 235 (6th Cir. 2009) (quoting
Willits, 188 F.3d 510, at *12. Therefore, we must determine both when and where Rena’s cause of
action accrued.
This Court has previously predicted how Kentucky would determine where an action accrues
for purposes of its borrowing statute. However, in Willits v. Peabody Coal Co., 188 F.3d 510, 1999
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WL 701916 (6th Cir. 1999), we addressed a breach of contract claim, not a tort claim,2 but agreed
with the parties that “a cause of action accrues when and where the breach occurs and the injured
party holds the right to sue.” Id. at *12 (citation omitted). Willits went on to determine that the
contract action accrued in Missouri, where the defendant breached the contract, not where the
plaintiffs each received their royalty checks by mail. Id. at *13.
However, we do not find Willits’ result to be controlling in this case. First, it relied upon
Kentucky’s Uniform Commercial Code statute of limitations, regarding contracts of sale, not on any
Kentucky law of torts. Furthermore, the reasoning that “a cause of action accrues where the breach
occurs and the injured party holds the right to sue” is not helpful here, for unlike in a contract-breach
action, the time of the defendant’s fraudulent conduct in this tort case is not also the time the plaintiff
held the right to sue—because it was not the time when injury actually occurred. To the extent that
Willits is instructive, it must be interpreted correctly in the tort context: “a cause of action accrues
when and where the breach occurs and the injured party holds the right to sue,” id. at 12, and
therefore, a cause of action does not accrue until both the wrong (breach) occurs and the injured
party holds the right to sue: in other words, injury must occur before the action accrues.
Later, in a published case, Combs v. International Insurance Co., 354 F.3d 568 (6th Cir.
2004), this Court again dealt with Kentucky’s borrowing statute, although this time it was primarily
grappling with the plaintiff’s contention that the statute should incorporate a “most significant
2
There are indications that Kentucky treats such issues differently for torts and for contracts.
See, e.g., Combs, 354 F.3d at 592-93 (detailing different treatment of contract and tort cases, and
concluding “Kentucky began to depart from the lex loci approach to torts . . . . The Kentucky
Supreme Court, however, did not make the same change with respect to contract cases”).
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relationship test,” which Combs declined to do. Combs acknowledged that “[t]his is a highly
uncertain area of state law, forcing us to make an educated ‘Erie Guess.’” Id. at 577.
The Court noted problems in the application of borrowing statutes, and stated that the “most
significant relationship” test “has at least arguable policy advantages over lex fori because the state
with the most significant relationship with the parties and the dispute is probably the state with the
greatest interest in the action’s outcome.” Id. at 580. However, the Court also noted that the
“accrual approach” found in the text of Kentucky’s statute “produce[s] several meaningful policy
advantages” as well. Id. at 589. “If Kentucky fails to respect that a cause of action accrues in a
foreign jurisdiction, like New York, although the final event necessary for the cause of action
occurred in New York, Kentucky shows disrespect for New York’s territoriality in derogation of
comity principles that the Kentucky Supreme Court may value.” Id. at 591. Ultimately, the Court
determined that “Kentucky would not apply a ‘most significant relationship’ analysis when applying
Kentucky’s borrowing statute.”3 Id. at 592.
3
There is at least some indication that this prediction, too, was incorrect. Combs relied in
large part on its conclusion that while “Kentucky began to depart from the lex loci approach to torts,”
it “did not make the same change with respect to contract cases.” Combs, 354 F.3d at 592. But in
Schnuerle v. Insight Comm. Co., L.P., —S.W.3d—, 2010 WL 5129850 (Ky. 2010), the Kentucky
Supreme Court cited the Restatement for the rationale of discarding “lex loci contractus”: “[t]he
modern test is which state has the most significant relationship to the transaction and the parties.”
Id. at *4. In Saleba v. Schrand, 300 S.W.3d 177 (Ky. 2009), the Kentucky Supreme Court noted
that—at least in a choice of law dispute—“Kentucky has consistently applied § 188 of the
Restatement (Second) of Conflict of Laws to resolve choice of law issues that arise in contract
disputes. [That section] states in its entirety: ‘[t]he rights and duties of the parties with respect to
an issue in contract are determined by the local law of the state which, with respect to that issue, has
the most significant relationship to the transaction and the parties. . . .’” Id. at 181.
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Therefore, this Court predicted that in Kentucky, when the “final event necessary for the
cause of action occurred” elsewhere, that state’s law should govern. In struggling with what test to
apply, however, the Court then stated:
[T]he notion that the cause of action accrues where the injury is sustained is not
particularly helpful in this case because it begs the question of where the plaintiff
sustained the injury. Plaintiff’s action involves an abstract injury—by allegedly
breaching its promise to pay in a letter Defendant mailed from New York to three
jurisdictions, Decedent was not reimbursed for litigation expenses accumulated
primarily in California but related to a Kentucky enterprise. Asking where Decedent
“got hurt” does not help us.
Id. at 582. Combs ultimately predicted that under Kentucky law, the cause of action “accrued” in
the place of breach for a contract suit. It did not, however, reach the issue here—whether, in a torts
case, the place of breach or place of injury is “where” the claim accrued.
Here, the unpublished Willits and, arguably, Combs would suggest that “where” a claim
accrues for purposes of Kentucky’s statute must be determined by where the defendant’s wrongful
conduct occurred. This is what the district court concluded. A panel cannot reconsider a prior
published case that interpreted state law, “absent an indication by the [state] courts that they would
have decided [the prior case] differently.” Blaine Constr. Corp. v. Ins. Co. of N. Am., 171 F.3d 343,
350 (6th Cir. 1999). However, it seems just such a decision has come down in Kentucky.
In Queensway Financial Holdings Ltd. v. Cotton & Allen, P.S.C., 237 S.W.3d 141 (Ky.
2007), the Kentucky Supreme Court, considering a claim of professional negligence, dealt with its
own statute of limitations, and directly answered the question of when a cause of action accrues.
The accrual rule is relatively simple: “‘[A] cause of action is deemed to accrue in
Kentucky where negligence and damages have both occurred.” [Michels v. Sklavos,
869 S.W.2d 728 (Ky. 1994)] at 730 [internal citations omitted] . . . . Basically, “a
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‘wrong’ requires both a negligent act and resulting injury. Damnum absque injuria,
harm without injury, does not give rise to an action for damages against the person
causing it.” Id. at 731. The difficult question when applying the rule is usually not
whether negligence has occurred but whether an “‘irrevocable non-speculative
injury’” has arisen. Id. at 730 (quoting Northwestern Nat. Ins. Co. v. Osborne, 610
F. Supp. 126, 128 (E.D. Ky. 1985)).
Queensway, 237 S.W.3d at 147. The Court further stated that “mere knowledge of some elements
of a tort claim, such as negligence without harm, is insufficient to begin running the limitations
period where the cause of action does not yet exist.” Queensway, 237 S.W.3d at 148 (citing Michels,
869 S.W.2d at 721-32). This is because wrongful conduct, without injury, “does not give rise to an
action,” and therefore the action accrues once all of the elements supporting liability have actually
occurred. See id.
Here, an action for fraud requires not only the allegedly wrongful conduct by the defendant,
but also a loss to the plaintiff. Thus, the “when” for accrual purposes in Kentucky—and in this
case—is not judged by when the defendant breached, as the district court found. Instead, it is
determined by when the injury occurred. Here, that is the time that the fraudulent communications
from the defendant actually resulted in the funds being wrongly taken from the Plaintiff.
The When in this Case
The time at which Plaintiff actually suffered injury is also not clear in this case. On one hand,
during the relevant time period, Rhonda held a Power of Attorney over Rena’s banking transactions.
Arguably, then, Rhonda’s removal of the funds from the Illinois bank account was not itself a loss
to Plaintiff. For example, if Rhonda—as a fiduciary—had removed the funds from the Illinois
account, but handled them faithfully on Rena’s behalf, no injury would actually have resulted to
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Rena. Instead, it was when the fiduciary acquired the funds and misappropriated them for herself
that injury actually resulted. Since Rena focuses on her mother’s position as a fiduciary, this is a
logical approach to determining the injury.
On the other hand, it is unclear whether Rhonda’s alleged acts to remove the funds
constituted fiduciary acts, because she did not sign the forms under her Power of Attorney status,
clearly acting on Rena’s behalf. Instead, the documentation sent to the bank could be viewed as
strictly fraudulent, because Rhonda pretended to be Rena herself. If the act is viewed as one of mere
fraud, not an act within Rhonda’s fiduciary power, then the injury occurred when the funds were
wrongly removed from Plaintiff’s Illinois annuity account. In that scenario, the funds were removed
under false pretenses, and as soon as the funds were emptied, the Plaintiff suffered the loss. If that
is true, then the claim accrued when the bank emptied the account.
However, we need not decide which approach to take, for both ultimately lead to the same
conclusion as to where the claim accrued.
The Where in this Case
Under this Court’s precedent, the “when” also tells us the “where.” If Rhonda was a
fiduciary and thus no loss occurred until the funds were actually misappropriated, then the loss
occurred when Rhonda actually took the funds, and where the loss occurred—California. The
monies from the Illinois account were sent to California, and it was there that Rhonda received them,
signed Rena’s name to them, and took the funds for herself. Therefore, California is both the place
where the loss actually occurred, and where Rena “felt” it—because she was living in California at
that time.
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If, in the alternative, Rhonda simply committed fraud, then the injury occurred when the
funds were removed from the Illinois account. However, this does not mean that the injury occurred
in Illinois. While Kentucky has not spoken on this issue, several jurisdictions have recognized that
economic loss cases present a special situation. In these cases, the injury is said to happen where the
plaintiff resides and thus “feels” the loss, not where the account happens to be. In Caproni v.
Prudential Sec., Inc., 15 F.3d 614 (6th Cir. 1994), this Court interpreted Michigan’s similar
borrowing statute in a securities fraud action. Caproni “adopted the Second Circuit’s ‘sensible rule’
that the place where the economic impact is felt, normally the plaintiff’s residence, is the place of
accrual.” Freeman v. Laventhol & Horwath, 34 F.3d 333, 340 (6th Cir. 1994) (quoting Caproni, 15
F.3d at 618). The Court held that “to the extent these four plaintiffs resided in states other than
Kentucky and felt the economic impact of the bond default in their respective states of residence,
those states represent the place where the economic injury was suffered.” Id. at 341. In doing so,
the Court cited to Arneil v. Ramsey, 550 F.2d 774 (2d Cir. 1977), which reasoned that, “to the extent
[the plaintiffs] suffered a financial loss from their transaction with [the defendant], they suffered it
in Washington [where they resided], [t]o the extent they became poorer men, they became poorer
Washingtonians.” Caproni, 15 F.3d at 619 (quoting Arneil, 550 F.3d at 780).
Furthermore, this Court later assessed a similar action in Kentucky. In Freeman, this Court
held that for the purpose of determining the applicability of Kentucky’s borrowing statute, the
residence of the plaintiffs controlled. Freeman, 34 F.3d at 341 (“We find that to the extent these four
plaintiffs resided in states other than Kentucky and felt the economic impact of the bond default in
their respective states of residence, those states represent the place where the economic injury was
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suffered.”). The rationale in these cases is not limited to securities cases; instead, it is that
“economic” harm is felt where a plaintiff resides. Therefore, this Court has already predicted how
Kentucky would apply its borrowing statute in this case: it would find that Rena’s harm was felt
where she was living when first injured—California.
Lastly, at least one Kentucky case suggests that Kentucky would elect to apply the California
statute of limitations in this case even if Rena was injured in Illinois. In Abel v. Austin, –S.W.3d –,
2010 WL 2132745 (Ky. App. 2010), the Kentucky Court of Appeals addressed a choice of law
question, and began with examination of the borrowing statute. The case involved claims of breach
of fiduciary duty, misrepresentation, and fraudulent conveyance, where the plaintiffs alleged that
their lawyers had mishandled or misappropriated class action settlement funds. Id. at *1. The
appellants relied on Queensway to argue that both negligence and damages must occur in order for
a cause of action to arise, and therefore that the causes of action accrued in Kentucky because
deprivation of funds occurred there, rather than in Alabama, where the breach occurred. Id. at *8.
The court rejected the appellants’ argument: “[E]ven though the action may have accrued in
Kentucky [because the injury occurred there], nothing mitigates against a determination that the
action also accrued in Alabama.” Id. at *8 (emphasis added). The court noted that the defendants’
actions occurred only in Alabama, that the defendants never met with any of the appellants because
they simply sent the funds from Alabama to Kentucky, and that the events were “processed, settled,
reviewed, and confirmed by an Alabama court.” Id. Because the applicable Alabama statute of
limitations was shorter, the court applied the Alabama statute and dismissed the claims.
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Abel, then, indicates that a cause of action in this context can “accrue” in more than one state,
and that when that occurs, the shorter statute of limitations should govern. Under Abel, both parties
may be correct: the action accrued in California because the parties both resided there and the
defendant’s alleged misconduct occurred there, and it accrued in Illinois because that is where the
money was fraudulently taken. But in such a conflict, if a state’s statute of limitations is shorter than
Kentucky’s, it controls. Because California’s statute is shorter here, that law would still apply.
Simply put, all roads lead to California. This Court need not decide whether Rena was
injured when Rhonda misappropriated the funds, Rena was injured by the Illinois loss but felt it
where she resided, or the action accrued in more than one place, for the California statute of
limitations inevitably applies.
IV. The Length of the Statute of Limitations
In California, the limitations period for an action based on fraud or mistake is three years,
CAL. CIV . PROC. CODE § 338(d), but the limitations period for breach of fiduciary duty is usually four
years, id. § 343.4 Plaintiff argues that if California law applies, the four-year provision governs;
Defendants argue that the three-year provision controls. However, in California, “[t]he statute of
limitations to be applied is determined by the nature of the right sued upon, not by the form of the
action or the relief demanded.” Day v. Greene, 59 Cal. 2d 404, 411 (1963). Therefore, in deciding
what statute of limitations to apply to Rena’s claims, we must look to the gravamen of her complaint
4
No statute of limitations expressly applies to a cause of action for breach of fiduciary duty,
but a cause of action not specifically subject to another statute of limitations is governed by § 343,
including breach of fiduciary duty. Stalberg v. W. Title Ins. Co., 230 Cal. App. 3d 1223, 1230 (Cal.
App. 6 Dist. 1991).
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rather than the cause of action pled. City of Vista v. Robert Thomas Sec., Inc., 84 Cal. App. 4th 882,
889, 101 Cal. Rptr. 2d 237 (2000). Where the gravamen of the breach of fiduciary cause of action
is fraud, the applicable limitation period is the three year period found in § 338. Mullin v. Valley of
Cal., Inc., No. A124641, 2010 WL 3158617, at *4 n.2 (Cal. App. 1 Dist. Aug. 11, 2010).
California courts have consistently applied the three-year period to cases like this one that
involve both fraud and fiduciary issues. For instance, in City of Vista, Vista brought a claim for
“breach of fiduciary duty” against its former securities dealers based on the dealers’ alleged conduct
in misrepresenting the nature of securities sold to the city and charging a markup rate for those
securities. See 84 Cal. App. 4th at 885. On appeal, the city contended that a four-year limitations
period applied to its claim. The Court of Appeals disagreed, holding that because “[t]he gravamen
of Vista's complaint is that [defendants'] acts constituted actual or constructive fraud,” the three-year
statute of limitations applicable to fraud claims governed the breach of fiduciary duty action. Id.
The state’s courts have reached the same result in a variety of cases. See, e.g., Wyatt v. Union Mortg.
Co., 24 Cal. 3d 773, 786 n.2 (1979) (holding that where the “gravamen of respondents’ cause of
action is that the appellants committed actual and constructive fraud by conspiring to breach their
fiduciary duties[,] . . . Code of Civil Procedure section 338, subdivision 4 states the applicable statute
of limitations”); Hatch v. Collins, 225 Cal. App. 3d 1104, 1110 (Cal. App. 1990) (applying the
three-year statute of limitations to a claim for breach of fiduciary duty where the action was “founded
upon a fraudulent conspiracy” by defendants to defraud plaintiff in a real estate transaction); Greene
Trio Music, LLC v. Jackson, No. B200087, 2008 WL 2719582 (Cal. App. 2 Dist. July 14, 2008)
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(holding that the three-year provision, not the four-year “catch-all,” was applicable when the breach
of fiduciary duty claim essentially alleged constructive fraud on the part of the defendant fiduciary).
Therefore, under California law, the three-year statute of limitations applies.
V. The Date of Discovery
The district court found that the “discovery rule” was applicable to toll the statute of
limitations in this case. Therefore, the true date of injury—when the plaintiff was first allegedly
deprived of her funds—was not used as the start date for the limitations period. In applying the
discovery rule, the district court stated that the statute of limitations begins to run “when [the
plaintiff] has been put on notice that she may have been injured,” and that this is a “reasonable
person” standard, not a subjective one. Ultimately, the court relied on Rena’s letter to Symetra,
which explicitly stated, “I first became aware that checks issued to my name from Safeco Insurance
were being signed, deposited, and withdrawn on 11/29/2002.” The court concluded that this letter
established that “no later than November 29, 2002, Plaintiff had knowledge of sufficient facts to put
her on notice that funds had been stolen from her, thereby triggering her obligation to investigate
further in order to determine the extent and cause of her injury.”
First, the court correctly concluded that the “discovery rule” tolls the statute of limitation in
a case such as this, where the plaintiff is unaware of the existence of his or her cause of action due
to concealment by another. See Jolly v. Eli Lilly & Co., 751 P.2d 923, 928 (Cal. 1988). “‘[U]nder
the delayed discovery rule, a cause of action accrues and the statute of limitations begins to run when
the plaintiff has reason to suspect an injury and some wrongful cause . . . .’” E-Fab, Inc. v.
Accountants, Inc. Serv’s, 153 Cal. App. 4th 1308, 1319 (emphasis added) (quoting Fox v. Ethicon
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No. 10-5064
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Endo-Surgery, Inc., 35 Cal. 4th 797, 803 (2005)). Notice sufficient to trigger accrual of a cause of
action under the delayed discovery rule may be actual or constructive. E-Fab, 153 Cal. App. 4th at
1318.
However, Rena argues that the district court erred in applying the ordinary discovery rule,
because her mother was her fiduciary and therefore “inquiry” or “constructive” notice does not apply.
Instead, she argues, the accrual is postponed “until the beneficiary has knowledge or notice of the
act constituting a breach of fidelity.” United States Liab. Ins. Co. v. Haidinger-Hayes, Inc., 1 Cal.
3d 586, 596 (Ca. 1970). Her argument is essentially that the plaintiff has placed trust in the
defendant fiduciary and thus, there is no duty to exercise due diligence in discovering the fraud.
Instead, she argues, the clock does not begin to run until the plaintiff has actual notice of the fraud.5
5
Defendants argue strenuously that Rhonda was no longer in a fiduciary capacity to her
daughter at all. This argument is unpersuasive, as Rhonda served in a fiduciary capacity both as the
administratrix of Rena’s father’s estate, and as Rena’s guardian when Rena was a minor. These roles
included the duty to protect the interest of beneficiaries, and the duty to manage property in the
minor’s name. See Morgan v. Asher, 49 Cal. App. 172 (Cal. App. 1920) (finding that where a
mother was both the trustee of her husband’s estate and the guardian of her daughter, “[i]t was her
duty . . . independent of and apart from such probate proceedings . . . to see to it that those several
persons entitled to their distribute share in said estate were fully informed as to their rights in the
premises, to the end that said rights might be fully protected in the distribution of said estate”); see
also Sohler v. Sohler, 135 Cal. 323 (1902) (holding that as a child’s mother and legal guardian, the
defendant “was under most solemn obligation to protect the legal rights of her infant and dependent
offspring”). “The duty of a fiduciary embraces the obligation to render a full and fair disclosure to
the beneficiary of all facts which materially affect his rights and interests. ‘Where there is a duty to
disclose, the disclosure must be full and complete, and any material concealment or
misrepresentation will amount to fraud. . . .’” Neel v. Magana, Olney, Levy, Cathcart & Gelfand, 6
Cal. 3d 176, 188-89 (1971) (quoting Pashley v. Pac. Elec. Ry. Co., 25 Cal. 2d 226, 235 (1944)).
Therefore, at the very least, Rhonda’s wilful concealment of the settlement’s existence and location
was a breach of her fiduciary duty as Rena’s guardian, and such breach did not disappear simply
because Rena reached the age of majority.
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However, the very case relied upon by Plaintiff goes on to say that “[u]nder the fiduciary
rules above stated . . . the cause of action did not commence to run until plaintiff knew or should
have known of the breach.” Id. at 597 (emphasis added). Moreover, while Plaintiff does cite several
cases (mostly from Kentucky) that toll the statute beyond the “normal” inquiry notice period, these
cases focus on the fact that the plaintiff’s trust in the fiduciary actually prevented the plaintiff from
having notice of the defendant’s wrongdoing—their trust reasonably foreclosed suspicion.6
The distinction between the usual “discovery rule” and the rule allowing late discovery in
fiduciary cases “is that in the latter situation the duty to investigate may arise later by reason of the
fact that the plaintiff is entitled to rely upon the assumption that his fiduciary is acting in his behalf.”
Eisenbaum v. W. Energy Res., Inc., 218 Cal. App. 3d 314, 325 (1990) (quoting Bedolla v. Logan
& Frazer, 52 Cal. App. 3d 118, 131 (1975) (emphasis omitted). Ultimately, as Plaintiff
acknowledges, the reason for the somewhat-different treatment of “discovery” in the fiduciary
context is that “[w]here a fiduciary relationship exists, facts which ordinarily require investigation
may not incite suspicion.” Eisenbaum, 218 Cal. App. 3d at 325 (internal citation omitted).
6
For example, in a case involving a fraudulent land conveyance, Lemaster v. Caudill, 328
S.W.2d 276, 281-82 (Ky. 1959), the Kentucky Supreme Court did not apply normal “constructive
notice” rules to the defendant’s recording of a deed, because the fiduciary relationship and the
defendant’s actions “lulled [the plaintiff] into a false sense of security.” Id. at 281. Instead of
running the clock from when the deed was filed, the court found that the clock ran from the time that
one of the rightful heirs checked the county records and found a record of the deed in controversy.
See id. at 279. The Kentucky Supreme Court later explained that the actual notice requirement in the
land conveyance context is necessary because “persons in a confidential relationship do not have the
reason or occasion to check up on each other that would exist if they were dealing at arm’s length.”
McMurray v. McMurray, 410 S.W.2d 139, 142 (Ky. 1966).
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Plaintiff therefore contends that because her mother was a fiduciary, “inquiry notice” is
inapplicable because she had no duty to inquire. But this is not so. Eisenbaum states that “[t]he
existence of a trust relationship limits the duty of inquiry”—it does not completely eliminate it. Id.
at 324 (emphasis added). The duty is limited to the extent that a plaintiff is “entitled to rely on the
statements and advice provided by the fiduciary.” Id. The duty to inquire does not arise until the
facts—considering the fiduciary relationship—warrant suspicion. See id. (citing Hobbs v. Bateman
Eichler, Hill Richards, Inc., 164 Cal. App. 3d 174 (1985)). However, “once a plaintiff becomes
aware of facts which would make a reasonably prudent person suspicious, the duty to investigate
arises and the plaintiff may then be charged with knowledge of the facts which would have been
discovered by such an investigation.” Hobbs, 164 Cal. App. 3d at 202.
Here, if Plaintiff had learned of the peculiar activity in the joint account and the existence of
checks with her name on them, but had asked her mother and relied upon her mother’s assurances
that everything was fine, this rule would be applicable. Rena would not be penalized for trusting her
fiduciary and failing to see through the lies in order to investigate. The district court correctly
applied this rule in its opinion: the court found that the first time Rena was told about the
settlement—by her sister in April 2002—that the clock did not begin to run because her mother
denied it and “Rena apparently believed Rhonda’s explanation.”
Instead, the district court found that Rena had notice of wrongful conduct on November 29,
2002, when Rena admits she learned that checks, in her name, from an annuity company, “were
being signed, deposited, and withdrawn.” Rena testified at her deposition that at this time, she did
not understand what all of this meant, and was “trying to figure out what was going on.” We find
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that, given the fiduciary relationship with her mother and our duty on summary judgment to view
all facts in the light most favorable to the non-moving party, the district court inappropriately
attributed knowledge to Rena as of November 29, 2002, when she had simply learned of the checks’
existence. At this time, arguably, Rena could have believed that the funds were not truly hers, that
her mother had simply banked on her behalf, or that a legitimate explanation was possible.
But the district court’s determination was only off by a matter of days. Starting with the
discovery of the checks, it does not appear that Rena was still trusting and relying upon her fiduciary.
See Mills v. Forestex Co., 108 Cal. App. 4th 625, 648 (2003) (noting that the discovery rule is an
objective test, looking to what a reasonable inquiry would have revealed). The facts show that, upon
speaking with the bank, Rena immediately wrote a letter to Symetra, stating that she was not the one
who had deposited or withdrawn the funds, and she promptly received information in return that told
her the full details of the settlement and amounts of the funds involved. She promptly removed all
funds from the joint account and placed them in a private one. All of this occurred between
November 29, 2002 and December 6, 2002.
By December 6, 2002, Rena knew (1) that checks with her name had been deposited and
withdrawn from an account that, besides herself, only her mother had access to; (2) the checks had
come from an annuity fund to satisfy “payment obligations under a settlement agreement for a
personal injury or wrongful death claim,” despite her mother’s prior statements that no settlement
existed; (3) the amounts and dates of each check made out to Rena, and the fact that she never
received these funds; (4) the exact details—including actual copies—of the settlement agreement
for her benefit; (5) that at least $173,000 of these funds had been deposited into the joint account,
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but less than $70,000 now remained. While she may not have understood the full details of the
alleged fraud, Rena had “[become] aware of facts which would make a reasonably prudent person
suspicious.” Hobbs, 164 Cal. App. 3d at 202. Moreover, Rena was subjectively suspicious, as she
responded by transferring the money and removing the funds from her mother’s reach. Rena Dep.
at 77, 170, 242. Therefore, no later than December 6, 2002, the duty to investigate did arise, and the
statute of limitations began to run.7
Consequently, under the three-year statute of limitations, Rena’s claim was required to be
filed no later than December 6, 2005. Her claim was fifteen months too late. The district court
correctly determined that Rena Swanson’s claims were barred by the applicable statute of limitations.
Therefore, we AFFIRM the district court’s grant of summary judgment.
7
There are no hard and fast rules for determining what facts or circumstances will compel
inquiry by the injured party and render her chargeable with knowledge. See Dabney v. Philleo, 38
Cal. 2d 60, 60-65 (1951). Ordinarily, it is a question for the trier of fact. However, the district court
was addressing a motion for summary judgment, and thus, once Defendant demonstrated the absence
of genuine issues of material fact, Rena’s burden was to show more than “some metaphysical doubt,”
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986), and to produce
evidence showing that a genuine issue remained. See Plant v. Morton Int’l, Inc., 212 F.3d 929, 934
(6th Cir. 2000). Because Plaintiff’s own statements show that she was aware of the information
given to her by Safeco and acted upon it at an ascertainable date, no rational fact finder could find
for her, and it was appropriate for the district court to determine that Rena was on notice as a matter
of law. See Ercegovich v. Goodyear Tire & Rubber Co., 154 F.3d 344, 349 (6th Cir. 1998).
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