STATE OF NORTH CAROLINA                            IN THE GENERAL COURT OF JUSTICE

FORSYTH COUNTY                                                        SUPERIOR COURT DIVISION

 

 

PHILIP A.R. STATON, et al.

 

Plaintiffs,

 

v.

 

JERRI RUSSELL, et al.

 

Defendants, Cross-Claimants and Third-Party Defendants.

 

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CIVIL ACTION NO: 96 CvS 1409

 

INGEBORG STATON, et al.

 

Plaintiffs,

 

v.

 

CENTURA BANK, et al.

 

Defendants and Third-Party Defendants.

 

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CIVIL ACTION NO: 96 CvS 7224

 

PIEDMONT INSTITUTE OF PAIN MANAGEMENT, et al.

 

Plaintiffs,

 

v.

 

CENTURA BANK, et al.

 

Defendants and Third-Party Defendants.

 

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CIVIL ACTION NO: 96 CvS 7140

 

INGEBORG STATON, et al.,

 

Plaintiffs,

 

v.

 

CENTURA BANK, et al.

 

Defendants.

 

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CIVIL ACTION NO: 99 CvS 5156

 

 

 

 

INGEBORG E. STATON, et. al.,

 

Plaintiffs,

 

v.

 

THE PIEDMONT INSTITUTE OF PAIN MANAGEMENT, et al.,

 

Defendants.

 

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      CIVIL ACTION NO: 99 CvS 2628

 

CENTURA DEFENDANTS’ BRIEF IN SUPPORT OF MOTION

FOR SUMMARY JUDGMENT AND MOTIONS TO DISMISS

AGAINST INGEBORG STATON, ET AL


INDEX

 

STATEMENT OF THE CASE AND FACTS…………………………………………..………1

 

FACTS….……………………………………………………………………………..…………1

 

I.          THE TRUSTS ARE IMPROPER PARTIES…….……………………………………...2

 

II.         THE 99 COMPLAINT FAILS TO STATE A CLAIM………………..………………..3

 

III.             CENTURA IS ENTITLED TO JUDGMENT ON THE PLEADINGS,

             OR IN THE ALTERNATIVE, SUMMARY JUDGMENT ON ALL

             CLAIMS ASSERTED BY THE INGEBORG PLAINTIFFS…………………………..5

 

IV.        THE INGEBORG PLAINTIFFS’ CLAIMS ARE BARRED BY STATUTES

             OF LIMITATIONS…..………………………………………………………………....5

 

V.         N.C. GEN. STAT. § 25-4-406 BARS ALL CLAIMS INVOLVING

             WITHDRAWALS FROM  CENTURA DEPOSIT ACCOUNTS……………………..9

 

     A.     Section 25-4-406(2)(b) Precludes Any Recovery Against The

          Centura Defendants…………………………………………….…………..…11

 

            1.            Bank statements sent to the Brames were made available

                        to the Statons for purposes of 25-4-406……………………………....12

 

            2.            Checks, checking account withdrawal slips and telephone

                        transfers by the Brames were “items.”………………………………..14

 

            3.            Centura paid all items in good faith and with ordinary care……..……15

 

                a.        Use of Philip’s social security number has no relevance……….17

 

                b.        The number and size of transactions is irrelevant………………18

 

            4.            The Statons failed to exercise reasonable care to examine their

                        statements………………………………………………..……………19

 

            5.            If the Brames were not authorized to withdraw funds from

                        the Accounts, such withdrawals involved “unauthorized

                        signatures” under 25-4-406………………………….………………..20

 

            6.            Centura has never been notified of any allegedly unauthorized

                        items………………………………………………………………….21

 

     B.     The Statons’ Claims Against Centura Are Barred By The Repose

                        Periods of 25-4-406(4) and 25-4A-505……………………………………….22


 

VI.        THE STATONS’ NEGLIGENCE PRECLUDES THEM FROM

             ASSERTING THE BRAMES’LACK OF AUTHORITY AGAINST

             CENTURA…………………………………………………………...………………25

 

VII.      THE INGEBORG PLAINTIFFS HAVE NOT STATED A CLAIM

             UNDER THE UNIFORM FIDUCIARIES ACT…………………………………….26

 

VIII.     THE INGEBORG PLAINTIFFS DO NOT ALLEGE A CLAIM FOR

             MISAPPROPRIATION OF FUNDS OR CONSPIRACY TO

             MISAPPROPRIATE FUNDS……………………….………………………………28

 

CONCLUSION………………………………………………..……………………………..30

 

CERTIFICATE OF SERVICE………………………………………………………………..32

 

 

 


 

STATEMENT OF THE CASE AND FACTS[1]

 

Ingeborg, Mercedes and the Trusts alleged numerous claims against Centura, Jarvis and Wrenn in three separate but virtually identical pleadings filed in March, 1998.  The purported claims are: (1) conversion; (2) conspiracy to misappropriate and misappropriation; (3) breach of fiduciary duty/constructive fraud;[2] (4) fraud; (5) unfair and deceptive trade practice; (6) negligent misrepresentation; (7) violation of the UFA; and (8) negligence/gross negligence.  The Centura Defendants have moved to dismiss the Trusts as improper parties, have moved to dismiss all claims of the Ingeborg Plaintiffs for failure to state a claim upon which relief can be granted or, alternatively, for summary judgment.

On August 4, 1999, the Ingeborg Plaintiffs filed their fourth lawsuit by way of the 99 Complaint.  In response, the Centura Defendants and Additional Centura Defendants filed Motions to Dismiss or, in the Alternative, for More Definitive Statement or Stay.  The following arguments are respectfully submitted in support of the above motions.[3]

FACTS

The Centura Defendants restate and incorporate by reference the Facts and Statement of Case set forth in Centura’s Brief Against Philip, Centura’s Brief Against PIPM and the facts set forth in Poyner & Spruill’s Briefs.

I.                   THE TRUSTS ARE IMPROPER PARTIES.

 

Any party that is not a natural person is required to “make an affirmative averment showing its legal existence and capacity to sue.”  N.C.R. Civ. P. 9.  No such averment has been made regarding the Trusts,[4] presumably because trusts do not have the capacity to bring a lawsuit.  See Broussard v. Meineke Discount Muffler Shops, Inc., 945 F. Supp. 901, 909 (E.D.N.C. 1996) (“trust fund or bank account is not considered a legal entity because it cannot function legally.”), rev’d on other grnds., 155 F.3d 331 (4th Cir. 1998); see also Jacobs v. Weinstein, 91 N.C. App. 138, 145, 370 S.E.2d 860, 865 (1988) (trust estate not legal entity that shields trustee from liability).  Claims asserted by Ingeborg and Mercedes individually are insufficient to state claims in their capacity as trustees of their respective trusts.[5]  Therefore, the Trusts have not met the requirements of Rule 9(a).

North Carolina law also requires that “[e]very claim . . . be prosecuted in the name of the real party in interest . . . .”  N.C.R. Civ. P. 17; see also N.C. Gen. Stat. § 1-57.  A real party in interest “is the person who by substantive law has the legal right to enforce the claim in question.”   Energy Investors Fund, L.P. v. Metric Constructors, Inc., 351 N.C. 331, 337, 525 S.E.2d 441, 445 (2000). As discussed above, the Trusts do not have the capacity to sue and, therefore, cannot be the real party in interest.  Thus, the Trusts must be dismissed.[6]

II.                THE 99 COMPLAINT FAILS TO STATE A CLAIM.

 

The Ingeborg Plaintiffs filed their 99 Complaint on July 14, 1999, and amended it on August 4, 1999.  The 99 Complaint purports to assert claims for negligent supervision, “concealment” and alleged violations of 18 U.S.C. § 215 and 12 U.S.C. § 503.  The Ingeborg Plaintiffs attempted to assert the same claims by amendment to their Complaints in 96 CvS 1409, 96 CvS 7140, and 96 CvS 7224.[7]  This Court denied those proposed amendments by Order dated May 25, 2000.[8]  The 99 Complaint fails to state a claim because:  (1) it restates claims the Court has already denied leave to amend; (2) the claims for negligent supervision are barred by the statute of limitations; and (3) the concealment claims have already been dismissed.

The 99 Complaint involves the same facts and transactions that are at issue in the Ingeborg Plaintiffs’ other lawsuits against Centura.  “[U]nder our law the same subject matter and circumstances can give rise to but one suit for redress against the same defendant, though many claims or theories of recovery may be asserted therein.”  Ward v. Pitt County Mem. Hosp., Inc., 81 N.C. App. 521, 522, 344 S.E.2d 583, 584 (1986); see also Rogers Builders Inc. v. McQueen, 76 N.C. App. 16, 23, 331 S.E.2d 726, 730 (1985) (“A party is required to bring forth the whole case at one time and will not be permitted to split the claim or divide the grounds for recovery . . . .”). Therefore, the Ingeborg Plaintiffs cannot maintain a separate lawsuit for the same claims asserted and denied in their motions to amend.


Further, the Ingeborg Plaintiffs’ claim for failure to “supervise and exercise due care in the supervision of Centura agents and employees . . . .” is barred by the three-year statute of limitations. (99-Complaint ¶ 41).  See N.C. Gen. Stat. § 1-52(5); Trexler v. Pollock, 135 N.C. App. 601, 603, 522 S.E.2d 84, 86 (1999) (Section 1-52(5) governs negligence actions).   A cause of action accrues and the statute of limitations begins to run on a negligent supervision claim when the wrong is complete, even though the injured party did not then know the wrong had been committed.  Wilson v. Development Co., 276 N.C. 198, 214, 171 S.E.2d 873, 884 (1970).  The Ingeborg Plaintiffs’ purported claim for negligent supervision clearly accrued, if at all, before July 14, 1996, more than three years prior to the time the Ingeborg Plaintiffs filed the 99 Complaint on July 14, 1999.

The Ingeborg Plaintiffs’ claim for “concealment” is based upon allegations that Centura failed to disclose the identity of persons with knowledge of the transactions at issue, the salaries and other compensation of Centura employees, the profitability of certain accounts and other bank records.  In the Order denying the Ingeborg Plaintiffs’ motions to amend, this Court held that such, “[d]iscovery disputes are resolved by reference to the appropriate rules of civil procedure, “ and that North Carolina does not recognize the claim of “concealment.”  (Order at 3).  Thus, this Court has already held the Ingeborg Plaintiffs’ “concealment” claim  must be dismissed.  Likewise, this Court has already held that the Ingeborg Plaintiffs’ claims under 18 U.S.C. § 215 and 12 U.S.C. § 503 are barred by the statute of limitations.  (Order at 7).  For the foregoing reasons, the Ingeborg Plaintiffs’ 99 Complaint should be dismissed in its entirety.

 

 

 

III.             CENTURA IS ENTITLED TO JUDGMENT ON THE PLEADINGS, OR IN THE ALTERNATIVE, SUMMARY JUDGMENT ON ALL CLAIMS ASSERTED BY THE INGEBORG PLAINTIFFS.

 

The Ingeborg Plaintiffs assert claims based upon many of the same theories of recovery as Philip.[9]  For the reasons set forth in Centura’s Brief Against Philip, Centura is entitled to judgment on the pleadings or, alternatively, summary judgment upon the Ingeborg Plaintiffs’ claims for conversion, breach of fiduciary duty/constructive fraud, fraud, Chapter 75, negligent misrepresentation and negligence/gross negligence.

IV.              THE INGEBORG PLAINTIFFS’ CLAIMS ARE BARRED BY STATUTES OF LIMITATIONS.

 

Claims for conversion,[10] conspiracy to misappropriate and misappropriation,[11]  negligence/gross negligence,[12] breach of fiduciary duty[13] and breach of the UFA[14] are subject to three year statutes of limitations.  Subject to certain statutory exceptions not applicable here,[15] these statutes of limitations  “begin[] to run when the plaintiff’s right to maintain an action for the wrong alleged accrues.  The cause of action accrues when the wrong is complete, even though the injured party did not then know the wrong had been committed.”  Wilson, 276 N.C. at 214, 171 S.E.2d at 884.  “It does not matter that further damage could occur; such further damage is only aggravation of the original injury.”  Pembee Mfg. Corp. v. Cape Fear Const. Co., 313 N.C. 489, 493, 329 S.E.2d 350, 354 (1985).

The Ingeborg Plaintiffs first filed claims against the Centura Defendants on March 3, 1998.  (1998 Certificates of Service and Acceptances of Service in 96 CvS 1409, 96 CvS 7140, and 96 CvS 7224). As the above claims are based upon alleged acts by the Centura Defendants occurring before March 3, 1995, they are barred by the three year statutes of limitations.  For example, the PIM Account was opened in June, 1993 (Jerri-Dep. pp. 851-52); (App-p.49-50), the Statons’ funds were wired to the PIM Account in July, 1993 (Philip-Dep. p. 671); (App-p.197), the $2 million transfer to the Staton Foundation occurred in November, 1993 (Philip-Complaint ¶ 70), and Ingeborg’s CLTs were created in December, 1993 and October, 1994 (I&M-Complaint ¶¶ 233, 258).  Thus, the Ingeborg Plaintiffs’ claims for conversion,[16] conspiracy to misappropriate and misappropriation, negligence/gross negligence, breach of fiduciary duty and breach of the UFA are all barred by statutes of limitations, regardless of when the Ingeborg Plaintiffs contend they discovered the allegedly wrongful acts upon which these claims are based.

Claims of negligent misrepresentation, grossly negligent misrepresentation and fraud are also subject to a three year statute of limitations.  See N.C. Gen. Stat. § 1-52(5); Barger v. McCoy Hillard & Parks, 346 N.C. 650, 666, 488 S.E.2d 215, 224 (1997) (negligent misrepresentation).  The statute of limitations begins to run on these claims from the date the alleged misrepresentation or fraud was or reasonably should have been discovered in the exercise of ordinary care or reasonable diligence. Hyde v. Taylor, 70 N.C. App. 523, 528-29, 320 S.E.2d 904, 908 (1984) (emphasis added).  The Ingeborg Plaintiffs  bear the burden of proving that they did not and could not reasonably have discovered the alleged wrong within the allotted time.  Id. 

The Ingeborg Plaintiffs’ fraud and misrepresentation claims are based upon allegations that Centura should not have allowed the Brames to set up the PIM Account and should have called the Statons to verify the Brames’ authority.  (2000-Ingeborg-Dep. pp. 111-12, 128-140); (App-p.108-109, 111-123).  However, had the Ingeborg Plaintiffs exercised ordinary care to protect their own interests, they would have discovered the alleged fraud and misrepresentation by the Centura Defendants in July, 1993, when the Statons’ funds were wired into the PIM Account or, at the latest, in August, 1993, when the July statement for the PIM Account was generated.  Ingeborg admits doing nothing to obtain information or documentation that she contends Philip and the Brames refused to provide, even though she found their failure to give her information suspicious.  (Ingeborg-Dep. p. 415; 2000-Ingeborg-Dep. p. 119); (App-pp. 97, 110).  Mercedes admits that she never trusted Tom and believed Tom had a bad influence on Philip.  (Mercedes-Dep. pp. 197-98); (App-pp. 136-37).  Nonetheless, Mercedes entrusted $27 million to Philip and the Brames and never asked for records regarding her funds.  (Mercedes-Dep. pp. 228, 238); (App-pp. 140-41).  Had either Ingeborg or Mercedes exercised ordinary care by insisting upon information and documentation, or taken action when none was produced, they would have discovered the allegedly wrongful acts of which they complain.

Philip was Ingeborg and Mercedes’ agent, a trustee of the Trusts and attorney-in-fact for them in their capacity as trustees of their Trusts.  (I&M-Complaint ¶¶ 327-31); (Philip-Dep. pp. 10-12); (Exs. 67, 81, 127, 147, 148, 149, 386); (App-pp.145-47, 254, 258-60, 294-99, 311-331, 377).  Ingeborg, Mercedes and the Trusts are chargeable with what Philip knew or should have known in the exercise of ordinary care.  Norburn v. Mackie, 262 N.C. 16, 24, 136 S.E.2d 279, 285 (1964) (“[A] principal is chargeable with, and bound by, the knowledge of or notice to his agent . . .  although the agent does not in fact inform his principal thereof.”); see also  Neal v. Pender-Hyman Hardware Co., 122 N.C. 104, 104, 29 S.E. 96, 96-97 (1898) (principals are chargeable not only with knowledge that the agent actually has, but also with knowledge that the agent could have gained through the exercise of ordinary care);  3 Am. Jur. 2d Agency § 281 (1986).

In 1992 and 1993, prior to wiring the funds to the PIM Account, Philip requested financial records from the Brames, but never received them.  (Philip-Dep. pp. 435, 441-42); (App-pp.190-92).  Philip was unable to get the information he requested from the Brames even though he communicated with them “a couple of times a week.”  (Philip-Dep. p. 443); (App-p.193). Despite this, Philip never requested copies of bank statements or other records from Centura.  (Philip-Dep. p. 684); (App-p. 210).  Philip never even called Centura after the funds were wired.  (Philip-Dep. p. 713); (App-p.239).  Philip never took any steps to verify how the Brames had invested any of the money. (Philip-Dep. p. 687); (App-p. 213).  Had Philip done so, he would have discovered by August, 1993 that the Brames were the only authorized signatories for the PIM Account, the PIM Account was designated a partnership account with his social security number as the TIN, and the Statons’ funds were held in a single account.

Thus, the statute of limitations applicable to the Ingeborg Plaintiffs’ fraud and misrepresentation claims started running, at the latest, in August, 1993.  The statute of limitations was not tolled by their failure to discover the alleged wrongs until December, 1995 (Ingeborg-Dep. p. 21); (App-p. 107), because they failed to exercise ordinary care to discover the alleged wrongdoing.  The Ingeborg Plaintiffs’ claims for fraud and negligent misrepresentation are, therefore, barred by the statutes of limitations.[17]

Unfair and deceptive trade practices claims are subject to a four year statute of limitations, which begins to run when the right to sue arises.  N.C. Gen. Stat. § 75-16.2; see also Thurston Motor Lines v. General Motors Corp., 258 N.C. 323, 325, 128 S.E.2d 413, 415 (1962) (N.C. Gen. Stat. § 75‑16 claim accrues when “the right to institute and maintain a suit arises.”); Hinson v. United Fin. Svcs. Inc., 123 N.C. App. 469, 475, 473 S.E.2d 382, 386-87 (1996) (same).  The Ingeborg Plaintiffs’ Chapter 75 claims arose in 1993 and, therefore, are also barred by the four year statute of limitations.

V.                 N.C. GEN. STAT. § 25-4-406 BARS ALL CLAIMS INVOLVING WITHDRAWALS FROM CENTURA DEPOSIT ACCOUNTS.

 

The Statons were not customers of Centura under North Carolina law.  See Section II.C.2.a.(i) of Centura’s Brief Against Philip.  However, even if they were and even if they did not authorize the Brames’ withdrawals of funds as alleged, the Statons’ claims against Centura are barred as a matter of law because such transactions were not timely reported to Centura, if at all.  (Ingeborg-Dep. p. 21); (App-p.107).  The reason a bank customer is obliged to look at bank statements is to be able to comply with 25-4-406,[18] which requires: 

 

(1)  When a bank sends to its customer a statement of account accompanied by items paid in good faith in support of the debit entries . . . or otherwise in a reasonable manner makes the statement and items available to the customer, the customer must exercise reasonable care and promptness to examine the statement and items to discover his unauthorized signature[19] or alteration on an item and must notify the bank promptly after discovery thereof.  A customer will be considered to have acted with reasonable care and promptness if he notifies the bank within 60 days of receipt of the statement of account accompanied by such items.

 

(2)  If the bank establishes that the customer failed with respect to an item to comply with the duties imposed on the customer by subsection (1) the customer is precluded from asserting against the bank

 

(a)  his unauthorized signature or any alteration on the item if the bank also establishes that it suffered a loss by reason of such failure; and

 

(b) an unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank after the first item and statement was available to the customer for a reasonable period not exceeding fourteen calendar days and before the bank receives notification from the customer of any such unauthorized signature or alteration.

 

(3)  The preclusion under subsection (2) does not apply if the customer establishes lack of ordinary care on the part of the bank in paying the item(s).

 

(4)  Without regard to care or lack of care of either the customer or the bank a customer who does not within one year from the time the statement and items are made available to the customer (subsection (1) of this section) discover and report his unauthorized signature or any alteration on the face or back of the item . . . is precluded from asserting against the bank such unauthorized signature. . . .   (emphasis added).

 

The preclusive effect of 25-4-406 applies to all claims brought by a plaintiff for losses resulting from unauthorized signatures, regardless of the theory under which the claim is brought.[20]  See 7 Ronald A. Anderson, Anderson on the Commercial Code (3d ed.) § 4-406:24 at 466 (“[T]ime limits imposed by 4-406 are applicable without regard to the theory on which the customer brings his or her action.”); Wetherill v. Putnam Investments, 122 F.3d 554, 558 (8th Cir. 1997) (summary judgment granted based upon sweeping language of 4-406, which bars claims for negligence, conversion, breach of fiduciary duty and failure to adhere to commercially reasonable standards); Mac v. Bank of America, 90 Cal. Rptr. 2d 476, 478 (1999) (4-406 applies to any cause of action regardless of how the pleadings are framed); Euro Motors Inc. v. Southwest Financial Bank, 696 N.E.2d 711, 716 (Ill. App. 1998) (summary judgment granted for defendant upon plaintiff’s breach of contract and conversion claims pursuant to 4-406); Henrichs v. Peoples Bank, 992 P.2d 1241, 1243 (Kan. App. 1999) (summary judgment granted because 4-406(f) barred claims that bank negligently or knowingly allowed misappropriation of account holder’s funds); Harvey v. First Nat. Bank of Powell, 924 P.2d 83, 87 (Wyo. 1996) (judgment as a matter of law granted because 4-406 barred claims under tort, contract or fiduciary duty theory).   Therefore, the Statons’ failure to notify Centura within the time limits imposed by either 25-4-406(2) or 25-4-406(4), bars all claims based upon allegedly unauthorized withdrawals from Centura deposit accounts as a matter of law.

A.                 Section 25-4-406(2)(b) Precludes Any Recovery Against The Centura Defendants

 

Section 25-4-406(2)(b) precludes a customer that fails to promptly report his unauthorized signature from recovering from a bank for additional unauthorized items by the same wrongdoer if the customer does not notify the bank within 14 days after the bank statement containing the first unauthorized items is made available to the customer.  Section 25-4-406(2)(b) applies to any item paid by the bank after the 14 day period and before the customer notifies the bank of his unauthorized signature, including items paid out of accounts other than the one involving the wrongdoer’s initial unauthorized signature.  Burnette v. First Citizens Bank and Trust Co, 48 N.C. App. 585, 588, 269 S.E.2d 317, 319 (1980). 

Centura made bank statements available to the Statons.  See Section V.A.1. below.  The Statons failed to notify Centura of anything for almost three years.  (Ingeborg-Dep. pp. 378-79); (Mercedes-Dep. p. 246); (Philip-Dep. p. 911); (App-pp. 93-94, 143, 241).  The allegedly unauthorized signatures all involve the Brames.  Thus, 25-4-406(2)(b) bars all claims arising out of items paid by Centura regardless of the account from which the items were paid.[21]   See Burnette, 48 N.C. App. at 588, 269 S.E.2d at 319.

1.                  Bank statements sent to the Brames were made available to the Statons for purposes of 25-4-406.

 

Applying N.C. Gen. Stat. § 53-52,[22] the predecessor to 25-4-406, the North Carolina Supreme Court held that:

The mailing of statements and checks and the acceptance thereof from the Post Office by plaintiff in person or through his authorized agent constituted a ‘receipt’ by plaintiff within the meaning of the statute.  Once the vouchers came into plaintiff’s possession, actual or constructive, by delivery to his authorized agent, the clock started, and time began to run against the depositor.  It makes no difference whether he looked at his statement and failed to discover the voucher, or, if as is here suggested, the agent was again unfaithful to his trust and extracted the vouchers from the statement before the depositor had an opportunity to examine the statement.


Schwabenton v. Security National Bank of Greensboro, 251 N.C. 655, 657-58,111 S.E.2d 856, 858 (1960) (emphasis added).  Modern U.C.C. case law of other jurisdictions has been described as:

virtually unanimous in holding that, once account statements are mailed to the account holder’s proper address, the risk of nonreceipt falls on the account holder and interception of the statement by a wrongdoer does not relieve the account holder of the duty to examine the statements and report unauthorized items to the bank.

 

Stowell v. Cloquet Co-op Credit Union, 557 N.W.2d 567, 571-72 (Minn. 1997); see also Wetherill, 122 F.3d at 556 (bank statements were made available to corporate customer despite fact that dishonest corporate secretary changed address and intercepted statements without the corporate president’s knowledge); Brown v. Cash Management Trust of America, 963 F. Supp. 504, 506 (D. Md. 1997) (account statements provided to plaintiff’s agent complied with 4-406 and it would be absurd to suppose that the defendant’s liability turns upon plaintiff’s agent’s failure to provide copies to plaintiff); Cooley v. First Nat. Bank of Little Rock, 635 S.W.2d 250, 252 (Ark. 1982) (statements mailed to address provided by the depositor as reflected on the signature card were made available within meaning of  4-406, despite plaintiff’s claim that he never received statements); Henrichs, 992 P.2d at 1243-44 (statements were made available for purposes of 4-406 when mailed to address of customer’s attorney-in-fact listed on signature card); Woods v. MONY Legacy Life Ins. Co., 641 N.E.2d 1070, 1072-73 (N.Y. 1994) (statements made available to customer by sending them to her attorney); Mesnick v. Hempstead Bank, 434 N.Y.S.2d 579, 580 (N.Y. Sup. Ct. 1980) (bank statements intercepted by customer’s estranged husband were made available to customer). 

The policy for placing the risk of nonreceipt of bank statements upon the account holder is obvious, and clearly applicable here:

Although the depositor [is] not better able than the bank to discover isolated forgeries, he [is] in a better position to uncover a pattern of forgery by a trusted employee, friend or relative * * *.  To discharge [the duty imposed by section 4-406 to examine the bank statements] a depositor must necessarily obtain


possession of the bank statements and scrutinize them or bear the losses which flow from his unreasonable lack of concern.

 

Stowell, 557 N.W.2d at 572, (quoting Mesnick, 434 N.Y.S.2d at 580 (asterisks and alterations in original, emphasis added).  Stated another way:

The U.C.C. facilitates financial transactions, benefiting both consumers and financial institutions by allocating responsibility among the parties according to whoever is best able to prevent a loss.  Because the customer is more familiar with his own signature, and should know whether or not he authorized a particular withdrawal or check, he can prevent further unauthorized activity better than a financial institution, which may process thousands of transactions in a single day.

 

American Airlines Employees Fed. Credit Union v. Martin, 29 S.W.3d 86, 92 (Tex. 2000) (footnote omitted, emphasis added).

At all times during which accounts holding Staton funds were maintained at Centura, the Statons knew that the Brames were managing their funds and that the Brames were receiving the bank statements for the accounts.  (Ingeborg-Dep. p. 376); (Mercedes-Dep. p. 246); (Philip-Dep. pp. 441-42, 454, 684); (App-pp. 92, 143, 191-92, 194, 210).  Despite their contentions that the Brames failed to provide statements to them, the Statons never requested that Centura send statements directly to the Statons or anyone other than the Brames.  (Ingeborg-Dep. p. 378); (Mercedes-Dep. pp. 227-28); (Philip-Dep. p. 911) (App-pp. 93, 139-40, 241).   By sending bank statements to the Brames, Centura made statements available to the Statons.

2.                  Checks, checking account withdrawal slips and telephone transfers by the Brames were “items.”

 

Section 4-406 applies to “items” paid by a bank.  The U.C.C. defines an “item” as “any instrument for the payment of money even though it is not negotiable but does not include money.”  N.C. Gen. Stat. § 25-4-104(g) (1995).  Checks, savings account withdrawal slips, journal vouchers for transfers pursuant to telephone requests and handwritten notes have all been held items for purposes of 4-406.  See Burnette, 48 N.C. App. at 588, 269 S.E.2d at 319 (savings account withdrawal slip); Martin, 29 S.W.3d at 92-93 (journal vouchers containing the date, amount of transfer and account number); Borowski v. Firstar Bank Milwaukee, 579 N.W.2d 247, 253 n. 11 (Wis. Ct. App. 1998) (handwritten notes left in overnight depository boxes requesting that cashiers checks be sent to the account holder). Other than wire transfers,[23] all withdrawals from the PIM Account were made by checks, withdrawal slips or journal vouchers representing telephone requests, all of which are “items.”

3.                  Centura paid all items in good faith and with ordinary care

 

To invoke the protection of 25- 4-406(2), a bank must pay the items in good faith and with ordinary care.  See N.C. Gen. Stat. § 25-4-406(1), (3).  Good faith is defined as “honesty in fact in the conduct or transaction concerned.”  N.C. Gen. Stat. § 25-1-201(19)(1995) (emphasis added).  The inquiry as to good faith and ordinary care is therefore limited to examination of the bank’s payment of the particular items at issue.  See City Nat. Bank v. Rojas, 64 N.C. App. 347, 349, 307 S.E.2d 387, 389 (1983). 

The Statons contend that Centura should not have paid items[24] signed by the Brames because the Brames misapplied the funds obtained.  (e.g. I&M-Complaint ¶ 79).  However, the Brames were the signatories for all depository accounts containing Staton funds.  In that situation, the bank’s internal review procedures to detect forgeries or other alterations are irrelevant.  See Latallo Establissement v. Morgan Guarantee Trust Co. of N.Y., 553 N.Y.S.2d 686, 689 (N.Y. Sup. Ct. 1990) (bank’s compliance with internal review procedures was irrelevant because claims were based upon misappropriations by authorized signatory).  Centura had no reason to question the Brames’ signatures or instructions and, therefore, acted with ordinary care by paying items upon the Brames’ signatures and instructions.

When a defendant cashes checks without knowledge that the checks are unauthorized, the defendant acts in good faith and with ordinary care.[25]  Hartford Accident and Indemnity Co. v. Dean’s Shop-Rite, Inc., 48 N.C. App. 615, 269 S.E.2d 282 (1980) (applying 25-3-406).  In Hartford, an employee, without authority from her employer, signed and delivered a signature card to the bank naming herself as an authorized signatory on her employer’s checking account. Id. at 615, 269 S.E.2d at 282.  During the next five months, the employee cashed a number of unauthorized checks at the defendant grocery store.  Id.  The defendant was not notified that the checks were unauthorized until over a year after it cashed the first check.  Id. at 616, 269 S.E.2d at 283.   However, the defendant knew when it cashed the checks that the employee had cashed forged checks in the past. 

Affirming summary judgment for the defendant based upon N.C. Gen. Stat. § 25-3-406, the Court of Appeals found that the defendant acted with honesty in fact and in accordance with the commercially reasonable standards of its business, stating:

It may be that the defendant should have been more cautious since it knew [the employee] had previously cashed forged checks.  That is not the test of G.S. 25-3-406.[26]  The defendant did in good faith cash the checks in the reasonable commercial standards of its business. 

 

Id. at 617, 269 S.E.2d at 283.  Courts in other jurisdictions have granted summary judgment for  banks when the plaintiff failed to show that the items at issue were not paid in good faith and with ordinary care.  See Vickers v. Broxton State Bank, 495 S.E.2d 645, 647 (Ga. App. 1998) (where plaintiff failed to produce any evidence showing the bank paid checks without honesty in fact, items were paid in good faith as a matter of law under 4-406 ); see also Simcoe & Erie Gen. Ins. Co. v. Chemical Bank, 770 F. Supp. 149, 154 (S.D.N.Y.1991) (customer failed to exercise ordinary care by allowing one employee to draw checks, keep the books and reconcile statements and bank had authorization card on file allowing same employee to cash checks).    Centura paid all items as directed by the signatories, the Brames, without any knowledge that they lacked authority.

a.                  Use of Philip’s social security number has no relevance.

 

To overcome the lack of any evidence that Centura paid items with knowledge of the Brames’ purported lack of authority, the Statons allege that the use of Philip’s social security number as the TIN for the PIM Account and/or numerous, large transactions should have placed Centura on notice of the Brames’ alleged defalcations. The Statons cannot produce any evidence that use of a partnership TIN would have prevented the Brames’ alleged defalcations or somehow indicated to Centura that the Brames intended to withdraw money for unauthorized purposes.  See Bagby v. Merill Lynch, Pierce, Fenner & Smith, Inc., 104 F. Supp. 2d 1294, 1296 (D. Kan. 2000) (noting that trustee transferred stock portfolio owned by the trust to an account in trustee’s name, using grantor’s individual social security number as the TIN, but attributing no significance to these facts in analyzing plaintiff’s negligence and breach of fiduciary duty claims against depository).  Reporting interest earned on an account has no significance with respect to the authority to withdraw money from that account.  Centura is unaware of any case holding that an incorrect TIN allowed or contributed to an agent’s alleged defalcations.  The use of Philip’s social security number is a red herring intended to divert attention from the Statons’ own lack of care.  It fails to show any lack of good faith or ordinary care in the payment of any item by Centura.

b.                  The number and size of transactions is irrelevant.   

 

Allegations that numerous and/or large transactions conducted by the Brames should have placed Centura on notice that the Brames were exceeding their authority also lack merit.  In Ind-Com, the Court of Appeals held the defendant bank was entitled to summary judgment where the plaintiff failed to produce evidence to support its allegation that the amounts and payees of checks placed the bank on notice of forgeries.  58 N.C. App. at 217, 293 S.E.2d at 217.  Additionally, in Software Design and Application Ltd. v. Hoefer & Arnett, Inc., a case involving almost identical facts to these cases, the contention that large and/or numerous transactions evidence wrongful conduct was explicitly rejected. 49 Cal. App. 4th 472 (1996).

In Software Design, a corporation and its owner (collectively, the “Corporation”) hired a financial consultant, McDonald, to manage investments.   Id. at 476.  McDonald opened two brokerage accounts, each in the name of a purported limited partnership also named Software Design and Application, Ltd.  Id. at 477.  No such partnership existed.  Id.   McDonald falsified papers identifying himself as general partner and designated himself as sole signatory on both accounts, but he did not present any documentation showing that the Corporation was a partner or authorizing McDonald to transact business on the Corporation’s behalf.   The Corporation had no knowledge that McDonald had taken these actions and never authorized McDonald to open an account in the name of a limited partnership or to name himself as sole signatory.  Id.   The Corporation transferred its investment portfolio to one of the brokerage accounts set up by McDonald.  Id.  The documentation provided to the broker at the time of the transfer specifically stated that the Corporation, not the partnership, owned and controlled the securities and funds being transferred into the partnership’s account.  Id.  McDonald never gave the Corporation any reports on either account and had the monthly statements sent to a post office box he represented to be the office of the limited partnership. 

After McDonald depleted over $1,500,000 of the Corporation’s assets, the Corporation sued the brokerages and banks used by McDonald for negligence, conversion and violation of the U.C.C.  Id.  The court affirmed dismissal of all claims.  Id. at. 486.  The Corporation argued that repeated withdrawals of funds in large amounts and in rapid succession was evidence of illegal or fraudulent activity.  The court described these arguments as “almost too absurd to address.”  Id. at 483.  The court stated that “[a]ccount activity, whether large sums or small, whether frequent or infrequent, is the nature of the beast - far from being suspicious, it is expected, routine behavior.”  Id.  Allegations by the Statons that the size and quantity of transactions conducted by the Brames somehow demonstrate that Centura lacked honesty in fact or failed to exercise ordinary care are untenable.

4.                  The Statons failed to exercise reasonable care to examine their statements.

 

The Statons not only failed to exercise reasonable care to examine bank statements as required by 25-4-406(1).  They failed to do anything for almost three years.  Failure to give notice that a check was unauthorized has been held negligence as a matter of law in North Carolina.  Hartford, 48 N.C. App. at 618, 269 S.E.2d at 284 (account holder’s failure to notify bank of unauthorized signature within one year was negligence substantially contributing to the making of unauthorized checks under § 25-3-406).      

Missouri’s Court of Appeals has taken precisely the same course.  In Dean v. Centerre Bank of North Kansas City, trustees opened an account for a trust at the defendant bank.  684 S.W.2d 373 (Mo. Ct. App. 1984).  The trustees hired an accountant to receive the monthly bank statements and to deposit the income from the trust.  Id. at 373.  For almost two years the trustees did not question the accountant about the account or review any statements or cancelled checks.  Id. at 374.  The accountant forged checks on the account.  Applying 4-406, the court held that the trustees failed to exercise reasonable care by “turning over the checking account to their agent . . .  without supervision or audit.”  Id. at 376.

5.                  If the Brames were not authorized to withdraw funds from the Accounts, such withdrawals involved “unauthorized signatures” under 25-4-406.

 

Under 25-4-406, the customer has a duty to discover and promptly notify the bank of “his unauthorized signature.”  An unauthorized signature is a signature “made without actual, implied, or apparent authority and includes a forgery.”  N.C. Gen. Stat. § 25-1-201(43) (1995); see also N.C. Gen. Stat. §25-3-406, Official Comment 2 (“Unauthorized signature is a broader concept that includes not only forgery but also the signature of an agent which does not bind the principal under the law of agency”); White and Summers, U.C.C. § 16-4, p. 72 (4th Ed. 1995) (“Commerce demands and [the U.C.C.] provides that agents may sign negotiable instruments and thus bind their principals.”).  The U.C.C. permits a person to appoint an agent or representative to sign on his behalf.  N.C. Gen. Stat. § 25-3-403(1) (1995) (“A signature may be made by an agent or other representative, and his authority to make it may be established as in other cases of representation.”).  Thus, “unauthorized signature” encompasses agency concepts.  See Martin, 29 S.W.3d at 93 (journal vouchers signed or initialed by tellers to execute telephone transfers at direction of customer’s girlfriend, who fraudulently added her name to signature card, were unauthorized signatures).

In a case involving almost identical facts, 4-406 was held to bar the plaintiffs’ claims.   Henrichs 992 P.2d at 1244.  In Henrichs, the customer’s attorney-in-fact, who held a general power of attorney and who was authorized by the signature card to make withdrawals from the customer’s account, misappropriated the customer’s funds.  Id.  The Kansas Court of Appeals affirmed summary judgment for the bank based upon 4-406.

6.                  Centura has never been notified of any allegedly unauthorized items.

 

Section 4-406(1) imposes on a customer the duty to notify[27] the bank promptly of an unauthorized signature.  Under 25-4-406(2)(b), failure to notify the bank of an unauthorized signature within 14 days after the first statement identifying that unauthorized signature precludes a customer from recovering for subsequent unauthorized items by the same wrongdoer, until the customer notifies the bank of the unauthorized signature.[28]  A person notifies or gives notice to another by “taking such steps as may be reasonably required to inform the other . .  . .”  N.C. Gen. Stat. § 25-1-201(26) (1995).

The Statons have never identified the first unauthorized item they contend Centura paid.  They instead contend that the Brames lacked authority, or began exceeding their authority, as soon as Staton money was wired to the PIM Account in July, 1993.   (I&M-Complaint ¶¶ 96-111); (Philip-Complaint ¶¶ 50, 64, 74).   Philip admits that he did not learn that Tom had taken millions of dollars from the PIM Account until September 28, 1995.  (Philip-Complaint ¶ 108).  Likewise, Ingeborg and Mercedes admit that they did not learn of the Brames’ alleged defalcations until at least October, 1995.  (Ingeborg-Dep. p. 415); (Mercedes-Dep. p. 21); (App-pp. 97, 126).  Since the Brames’ alleged defalcations were not discovered until late 1995, the Statons could not have notified Centura of unauthorized signatures for over two years after the first allegedly unauthorized transactions by the Brames in July, 1993.  Therefore, the Statons clearly failed to notify Centura of the Brames’ unauthorized actions within 14 days as required by 25-4-406(2)(b).

B.                 The Statons’ Claims Against Centura Are Barred By The Repose Periods of 25-4-406(4) and 25-4A-505.

 

Even if the issues of good faith and ordinary care are questions of fact, the Statons’ claims are barred as a matter of law by 25-4-406(4) and 25-4A-505.  Section 25-4-406(4) provides, “[w]ithout regard to care or lack of care of either the customer or the bank,” a customer is barred from asserting any claim based on unauthorized items paid by the bank that the customer failed to report within one year following the statement containing such unauthorized item being made available to the customer.  See Burnette, 48 N.C. App. at 588, 269 S.E.2d at 319 (25-4-406(4) (bars recover of any loss sustained on any item after one year); see also Henrichs, 992 P.2d at 1243.  Section 25-4-406 applies to “items.”[29]  Section 25-4A-505 contains a similar one year repose period for wire transfers.

Sections 25-4-406(4) and 25-4A-505 are statutes of repose, which establish a condition precedent to an action based upon an unauthorized item or wire transfer.  See Wetherill, 122 F.3d at 557; see also Martin, 29 S.W.3d at 91-92 (4-406(4) precludes a customer from asserting his unauthorized signature against the bank if the customer fails to discover and report the unauthorized signature within one year after the statement showing the transaction is made available).  Unlike statutes of limitations that may not start to run until the plaintiff knew or should have known of the act complained of, a statute of repose begins and continues to run regardless of whether the customer knew or should have known of the unauthorized signature.  See Colony Hill Condominium I Assoc. v. Colony Co., 70 N.C. App. 390, 394, 320 S.E.2d 273, 276 (1984) (statute of repose, unlike an ordinary statue of limitations, defines substantive rights to bring an action); see also Wetherill, 122 F.3d at 557 (notice requirement of 4-406(4) does not depend upon discovery of unauthorized signature by customer).  Whether a statute of repose has expired is strictly a legal issue, and if the pleadings or proof show that it has expired, summary judgment is appropriate.  Colony Hill, 70 N.C. App. at 394, 320 S.E.2d at 276; see also  Wetherill, 122 F.3d at 557 (upholding summary judgment for defendant based upon 4-406(4)).

All withdrawals from the PIM Account involved either items or wire transfers.  Centura made statements available to the Statons and their claims are based upon allegedly unauthorized signatures by the Brames.  See Sections V.A.1, V.A.5., above.  Under 25-4-406(4), a customer must discover and report any unauthorized signature to the bank within one year from the date the bank statement containing the item is mailed to the customer.[30]  See Wetherill, 122 F.3d at 556 (under 4-406, statement made available when sent, and 1-201(38) provides statement is sent when deposited in the mail).  The Statons have yet to identify the items they contend were unauthorized. 

Philip and Ingeborg wrote to Centura after they contend they first learned of the Brames’ alleged defalcations.  (Jarvis Aff.); (Ex. 643); (App-pp.1-7, 403).  However, none of their letters indicated that they contended Centura had wrongfully honored any item.  For example, on March 2, 1996, Philip’s lawyers sent a letter to G.R. Jarvis directing that no funds be transferred from specified accounts without Philip’s prior approval.  (Jarvis-Aff.); (App-pp.1-7).  The letter did not identify any items that Centura allegedly wrongfully paid or identify any transaction conducted by either of the Brames that was allegedly unauthorized.  See Watseka First Nat. Bank v. Horney, 686 N.E.2d 1175, 1179-80 (Ill. App. Ct.. 1997) (handwritten note asking bank for copies of checks and bank statements because customer suspected forgery was not a report under 4-406(4)); Villa Contr. Co., Inc. v. Summit Bancor., 695 A.2d 762 (N.J. Sup. Ct. Law Div. 1996) (meeting to voice general concern about irregularities was insufficient to place bank on notice, customer should have notified bank of exact items bearing forged signatures).

Likewise, Ingeborg sent Mr. Jarvis a letter on February 29, 1996, in which she stated:

I want to thank you for having the opportunity to conduct business with Centura Bank and I want to let you know that my intentions from this date on are to continue my normal business through my representative, Mrs. Jerri Brame or my own authority. . . .

 

(Ex. 643); (App-p. 403).

 

The letters sent to Centura clearly fail to qualify as a “report.”  In fact, Ingeborg’s letter is a reaffirmation of Jerri’s authority to act on Ingeborg’s behalf.  The Statons do not allege and no evidence indicates that any report was made to Centura of the specific items and wire transfers that were allegedly unauthorized.  (Jarvis-Aff.); (App-pp. l-7).    The first action naming Centura as a defendant was filed by Philip on November 25, 1996.  The Ingeborg Plaintiffs did not assert claims against Centura until March 3, 1998.  Despite containing extensive and detailed fact allegations, the complaints filed against Centura do not identify the items that the Statons contend Centura wrongfully paid.[31] 


The last statement identifying any arguably unauthorized withdrawal from the PIM Account is dated October 23, 1995.[32]  Even if filing a complaint that does not specify the allegedly unauthorized items and wire transfers met the report requirements of 25-4-406(4) and 25-4A-505, the bank statements identifying the allegedly unauthorized items and wire transfers were clearly made available to the Statons more than one year prior to the first lawsuit filed against Centura by Philip on November 25, 1996 and by the Ingeborg Plaintiffs on March 3, 1998.  Therefore, 25-4-406(4) and 25-4A-505 bar all claims against Centura based upon allegedly unauthorized withdrawals of Staton funds from Centura deposit accounts as a matter of law.

VI.              THE STATONS’ NEGLIGENCE PRECLUDES THEM FROM ASSERTING THE BRAMES’ LACK OF AUTHORITY AGAINST CENTURA.

 

Under 25-3-406:

Any person who by his negligence substantially contributes to a material alteration of the instrument or the making of an unauthorized signature is precluded from asserting the alteration or lack of authority against a holder in due course or against a drawee or other payor who pays the instrument in good faith and in accordance with the reasonable commercial standards of the drawee’s or payor’s business.  

 

Official comment 5 to §25-3-406 states that a “drawee is protected by an estoppel, and the task of pursuing the wrongdoer is left to the negligent party.”  Article 3 of the UCC applies to drafts, checks, certificates of deposit and notes.  See N.C. Gen. Stat. §25-3-103 (1995); see also N.C. Gen. Stat. §  25-3-104(2). 

The Court of Appeals has recognized that summary judgment may be granted based upon   25-3-406.  In Hartford, the Court of Appeals held that by waiting over one year after the first unauthorized check before notifying the defendant grocery store which cashed the checks that certain checks were unauthorized, the account holder, by its negligence, substantially contributed to the making of the unauthorized checks as a matter of law.  48 N.C. App. at 617-18, 269 S.E.2d at 283-84.  The court based its holding upon the one year repose period in 25-4-406(4).

By failing to notify Centura of the Brames’ alleged lack of authority for almost three years, the Statons substantially contributed to the unauthorized signatures as a matter of law.  Hartford,  48 N.C. App. at 617-18, 269 S.E.2d at 283-84.  Thus, Centura is entitled to summary judgment upon all claims based upon allegedly unauthorized checks paid from Centura deposit accounts.

VII.           THE INGEBORG PLAINTIFFS HAVE NOT STATED A CLAIM UNDER THE UNIFORM FIDUCIARIES ACT.

 

The UFA relieves Centura of any obligation to monitor the use of Staton funds by the Brames.  N.C. Gen. Stat. § 32-1, et seq.   N.C. Gen. Stat. § 32-8 provides:

If a deposit is made in a bank to the credit of a fiduciary as such, the bank is authorized to pay the amount of the deposit or any part thereof upon the check of the fiduciary, signed with the name in which such deposit is entered, without being liable to the principal, unless the bank pays the check with actual knowledge that the fiduciary is committing a breach of his obligation as fiduciary in drawing the check or with knowledge of such facts that its action in paying the check amounts to bad faith.

 

If, however, such a check is payable to the drawee bank and is delivered to it in payment of or as security for a personal debt of the fiduciary to it, the bank is liable to the principal if the fiduciary in fact commits a breach of his obligation as fiduciary in drawing or delivering the check.[33]

North Carolina has few reported cases addressing the provisions of the UFA.[34]  Edwards v. Northwestern Bank,[35] applied N.C. Gen. Stat. § 32-9.[36]  53 N.C. App. 492, 493, 281 S.E.2d 86, 87 (1981) (“Edwards II”).  The plaintiff in Edwards II was a receiver seeking to recover allegedly wrongfully diverted assets of Durham Wholesale by one of its officers, Greenberg.  The defendant bank granted Durham Wholesale a $500,000 line of credit and advanced $400,000 in Durham Warehouse’s checking account.  Greenberg, an authorized signatory upon the account, wrote a check upon the account for $250,000, in exchange for which the bank issued four cashier’s checks made payable to another corporation in which Greenberg was a principal.

Upholding directed verdict for the bank, the Court of Appeals stated that the “bank’s liability arose, if at all, when it paid the check.”  Id. at 494, 281 S.E.2d at 86.  Given that there was no evidence available to the bank that Greenberg was breaching a fiduciary duty by drawing the check, the bank was not liable for paying the check.  Id.  Moreover, subsequent events or evidence of the use of the funds or endorsements on the checks after the check was drawn “was not relevant to the question of the bank’s liability.”  Id. 

Applying the above principals, the Brames were authorized signatories over all deposit accounts at Centura containing Staton funds, with express authority to withdraw and otherwise manage the funds pursuant to the Service Agreement, which governed the terms of the account.  (Jarvis Aff.); (App-pp. 1-4, 8-42).  Although the Brames may have misappropriated Staton money after withdrawing it, the withdrawal of Staton money by authorized signatories, the Brames, failed to place Centura on notice of any misappropriation by the Brames.  See  Edwards, 53 N.C. App. at 494, 281 S.E.2d at 86; Lattallo, 553 N.Y.S.2d at 687.  Moreover, Centura was given the June 25, 1993 Appointment of Agent and Power-of-Attorney, a facially valid power of attorney, which gave the Brames complete authority to withdraw and otherwise manage the funds Philip wired into the PIM Account.  (Ex. 386); (App-p. 377).  Centura  had no duty to assure the proper application of funds by the Brames once they were withdrawn.  See Empire Trust Co. v. Cahan, 274 U.S. 473, 479 (1927); Crosby v. Loudon Nat. Bank of Leesburg, 235 F.2d 540, 543 (4th Cir. 1956); Grabowski v. Bank of Boston, 997 F. Supp. 111, 129 (D. Mass. 1997).  Thus, the Ingeborg Plaintiffs cannot establish any breach of the UFA by Centura.

VIII.        THE INGEBORG PLAINTIFFS DO NOT ALLEGE A CLAIM FOR MISAPPROPRIATION OF FUNDS OR CONSPIRACY TO MISAPPROPRIATE FUNDS.

North Carolina has not recognized the tort of misappropriation outside the context of corporate directors and officers who misappropriate funds of the corporation.  Only one reported case has set forth elements for this claim in the corporate context.  See Outen v. Mical, 118 N.C. App. 263, 268, 454 S.E.2d 883, 887 (1995) (setting forth the elements of corporate misappropriation, but finding that evidence was insufficient to establish such a claim). 

            Even if the claim of misappropriation were recognized in North Carolina and the elements for such a claim were divined by analogy outside the corporate context, the Statons have not alleged facts to support the elements of the claim.  In Outen, the court stated that

to find misappropriation, a party must prove that the accused (1) misappropriated funds, i.e. used funds for a purpose that does not benefit the corporation; (2) converted the funds for a use not beneficial to the corporation; and (3) converted the funds without authority.

 

118 N.C. App. at 268, 454 S.E.2d at 887 (emphasis added).  Thus, conversion is a prerequisite to misappropriation.  For the reasons set forth in section II.E. of Centura’s Brief Against Philip, the Ingeborg Plaintiffs have not alleged and cannot establish a claim for conversion against Centura.  Therefore, the purported claim for misappropriation must be dismissed.

            “An action for civil conspiracy will lie when there is an agreement between two or more individuals to do an unlawful act or to do a lawful act in an unlawful way, resulting in injury inflicted by one or more of the conspirators pursuant to a common scheme.”  Jones v. City of Greensboro, 51 N.C. App. 571, 583, 277 S.E.2d 562, 571 (1981) (citations omitted), overruled on other grounds Fowler v. Valencourt,  334 N.C. 345, 435 S.E.2d 530 (1993).  The North Carolina Supreme Court has stated:

Accurately speaking, there is no such thing as a civil action for conspiracy.  The action is for damages caused by acts committed pursuant to a formed conspiracy, rather than by the conspiracy itself; and unless something is actually done by one or more of the conspirators which results in damage, no civil action lies against anyone.  The gist of the civil action for conspiracy is the act or acts committed in pursuance thereof -- the damage -- not the conspiracy or the combination.  * * *  To create civil liability for conspiracy there must have been an overt act committed by one or more of the conspirators pursuant to the scheme and in furtherance of the objective.

 

Shope v. Boyer, 268 N.C. 401, 405, 150 S.E.2d 771, 774 (1966) (quoting Reid v. Holden, 242 N.C. 408, 88 S.E.2d 125 (1955)) (citations omitted, emphasis added).  Therefore, the Ingeborg Plaintiffs must show that Centura acted pursuant to a common scheme and objective and that injury resulted from an act in furtherance of the alleged conspiracy.

            To withstand a motion for summary judgment, a plaintiff who alleges civil conspiracy must “come forward with facts, as distinguished from allegations, sufficient to indicate he will be able to sustain his claim at trial.”  Dickens v. Puryear, 302 N.C. 437, 456, 276 S.E.2d 325, 337 (1981) (citations omitted, emphasis added) (“[T]he evidence of the agreement must be sufficient to create more than a suspicion or conjecture in order to justify submission of the issue to a jury.”).  The Ingeborg Plaintiffs can not establish any facts that show that Centura conspired with anyone to defraud them.  Conclusory statements of damages do not demonstrate an agreement constituting a conspiracy.

            Moreover, if the Ingeborg Plaintiffs’ civil conspiracy claim is allowed to proceed, it would have the effect of an “end-run” around the pleading requirements for fraud, negligent misrepresentation, constructive fraud and the other claims in the Ingeborg Plaintiffs’ Complaints.  In Jones, the court stated that a plaintiff “cannot . . . use the same alleged acts to form both the basis of a claim for conspiracy to commit certain torts and the basis of claims for those torts.”  Jones, 51 N.C. App. at 584, 277 S.E.2d at 571 (emphasis in original) (affirming summary judgment upon conspiracy claim because the plaintiff had alleged the same facts to establish the conspiracy as those alleged to have caused injury).  The Ingeborg Plaintiffs have alleged that Centura conspired to misappropriate the funds.  However, as stated above, the facts do not support such a cause of action.  Therefore, Centura is entitled to judgement as a matter of law upon the Ingeborg Plaintiffs’ claims for misappropriation and conspiracy to misappropriate.

CONCLUSION

 

For the reasons and based upon the authorities above, the Centura Defendants and Additional Centura Defendants respectfully pray that the Court dismiss the Trusts as parties, dismiss the Ingeborg Plaintiffs’ 99 Complaint, and that judgment on the pleadings or summary judgment be granted in favor of the Centura Defendants upon all claims asserted in the Ingeborg Plaintiffs’ Complaints.     


This the 5th day of February, 2001.

 

 

__________________________________

Daniel W. Fouts

N. C. State Bar No. 1508

 

__________________________________

Robert G. Baynes

N. C. State Bar No. 252

 

________________________________

W. Winburne King, III

N. C. State Bar No. 6709

Attorneys for Centura Bank

 

 

OF COUNSEL:

 

ADAMS KLEEMEIER HAGAN HANNAH & FOUTS

A Professional Limited Liability Company

Lake Point

701 Green Valley Road, Suite 100

Post Office Box 3463

Greensboro, NC  27402

(336) 373‑1600


CERTIFICATE OF SERVICE

 

            The undersigned hereby certifies that a copy of the foregoing CENTURA DEFENDANTS’ BRIEF IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT AND MOTIONS TO DISMISS AGAINST INGEBORG STATON, ET AL. was duly served upon counsel and unrepresented parties in accordance with the provisions of Rule 5 of the North Carolina Rules of Civil Procedure by hand delivery:

 

James R. Fox, Esq.

Bell Davis & Pitt, P.A.

Post Office Box 21029

Winston-Salem, NC 27120-1029

Fred R. Harwell, Jr., Esq.

Davis & Harwell, P.A.

101 S. Stratford Rd., Suite 450

Winston-Salem, NC 27104

 

and depositing it in the United States Mail, first-class postage prepaid upon the following:

Larry B. Sitton, Esq.

Smith Helms Mulliss & Moore, L.L.P.

Post Office Box 21927                        

Greensboro, NC 27420

George W. Boylan, Esq.

Special Deputy Attorney General

Post Office Box 629

Raleigh, NC 27602-0629

Richard V. Bennett, Esq.

Bennett & Guthrie, L.L.P.

1560 Westbrook Plaza Drive

Winston-Salem, NC 27103

Robert M. Elliot, Esq.

Elliot Pishko Gelbin & Morgan, P.A.

Post Office Box 20545

Winston-Salem, NC 27120-0545

James W. McGrath, Esq.

Piedmont Institute of Pain Management

1100-C S. Stratford Road, Suite 305

Winston-Salem, NC 27103

Reginald F. Combs, Esq.

Blanco Tackabery Combs & Matamoros, P.A.

Post Office Box 25008

Winston-Salem, NC 27104

Mr. Samuel Thomas Brame

Post Office Box 11375

Winston-Salem, NC 27116

Ms. Jerri S. Russell

Post Office Box 30218

Winston-Salem, NC 27130

Jeffrey S. Lisson, Esq.

120 Fayette Street

Winston-Salem, NC 27101

 

 

            This the    5th    day of February, 2001.

 

                                                                                    _________________________________

                                                                                    Robert G. Baynes

 



[1]  All capitalized terms used herein are defined in the attached Appendix (cited herein as “App-p.#”) to Centura’s Briefs Against Philip, Ingeborg and PIPM.

[2]  Breach of fiduciary duty and constructive fraud are a single cause of action in North Carolina.  See Estate of Smith v. Underwood, 127 N.C. App. 1, 10, 487 S.E.2d 807, 813 (1997) (claim for breach of fiduciary duty is also referred to as a constructive fraud claim). See also Centura’s Brief Against Philip, Section III.D.

[3]   Certain defenses set forth herein also bar claims asserted by Philip.  Rather than restate these same defenses in their entirety in Centura’s Brief Against Philip, the Centura Defendants have noted herein the defenses that apply to the virtually identical claims asserted by Philip.

[4]  The Ingeborg Plaintiffs make averments regarding the Trusts’ existence, but not their capacity to sue.  (I&M-Complaint ¶¶ 3, 4).

[5]  Rule 9(a) requires trustees to state that they are suing as trustees and the basis for their authority.  See Duke Power Co. v. Daniels, 86 N.C. App. 469, 471, 358 S.E.2d 87, 89 (1987). 

                [6]  The Ingeborg Plaintiffs may argue that they should be permitted to amend their Complaints under Rule 17(a) to avoid dismissal.  They should not.  See e.g. Isaac v. Mount Sinai Hospital, 490 A.2d 1024, 1027 (Conn. App. Ct. 1985) (where suit is brought in name of entity without legal capacity to sue, there is “no legally recognized entity for which there could be a substitute”).  Cf. In the Matter of Granting of Variance by Town of Franklin, 131 N.C. App. 846, 850, 508 S.E.2d 841, 844 (1998) (“a pleading may not be amended to confer jurisdiction”); and Transcontinental Gas Pipeline Corporation v. Calco enterprises, 132 N.C. App. 237, 242, 511 S.E.2d 671, 675 (1999).

 

[7]  See Centura Defendants’ Response to Ingeborg Staton, et al.’s Second Motions to Amend.

[8]  The Court did allow the Ingeborg Plaintiffs to amend their Complaints to assert claims of spoliation.  However, the Ingeborg Plaintiffs do not purport to assert a claim for spoliation in their 99 Complaint.

[9]  The Ingeborg Plaintiffs’ Complaints also contain claims for alleged violations of the UFA, misappropriation and conspiracy to misappropriate, which Philip has not asserted.  These claims are discussed below.

[10]  See N.C. Gen. Stat. § 1-52(4).

[11]    See N.C. Gen. Stat. § 1-52(4) (three year statute of limitations for claims involving “taking, detaining, converting, or injuring any goods or chattels . . .”)

[12]  See N.C. Gen. Stat. § 1-52(5); Wilson v. McLeod Oil Co., 327 N.C. 491, 503, 398 S.E.2d 586, 593 (1990) (common law negligence claims are governed by N.C. Gen. Stat. § 1-52(5)).

[13]  See N.C. Gen. Stat. § 1-52(1); Tyson v. North Carolina National Bank, 305 N.C. 136, 141-42, 286 S.E.2d 561, 564-65 (1982) (three year statute of limitations for breach of fiduciary duty is based on the statute of limitations for breach of contract, which does not have a discovery rule).

[14]  See N.C. Gen. Stat. § 1-52(2).

[15]  North Carolina General Statute § 1-52(16) extends the running of the statute in certain cases when bodily harm or injury to the plaintiff’s property is not immediately apparent.  However, the term “physical damage” is literally interpreted and not applicable to claims arising from the loss of property.  See First Investors Corp. v. Citizens Bank, Inc., 757 F. Supp. 687, 691 (W.D.N.C. 1991) (refusing to apply § 1-52(16) in an action for conversion).

[16]  Philip alleges that his funds were converted “immediately upon receipt of those funds at Centura Bank by wire transfer” in July, 1993.  (Philip-Complaint ¶ 219).  Philip later alleges that Centura converted the transaction proceeds after this initial conversion.  (Philip-Complaint ¶¶ 219, 227).  It is impossible to convert funds twice.  Thus, the statute of limitations had already run on Philip’s conversion claims when he filed his first complaint against Centura on November 25, 1996.

[17] As stated above, Philip reasonably could have discovered any alleged misuse of his money by August, 1993. Philip did not file suit against Centura until November, 1996.  Therefore, his claims for fraud and negligent misrepresentation are also barred.

[18]  Effective October 1, 1995, North Carolina amended 25-4-406.  Since the transactions at issue in these cases occurred prior to October 1, 1995, the version of 25-5-406 in effect prior to the 1995 amendments applies.

[19]  To the extent that it can be established that any withdrawals of the Statons’ funds by the Brames were wrongful, the signatures for those withdrawals were “unauthorized signatures” within the meaning of 4-406.  See Section V.A.5., below.

[20]  Few North Carolina cases have addressed 25-4-406.  Cases from other jurisdictions are instructive, however, given that one of the underlying purposes of the U.C.C. is to make uniform the law among various jurisdictions.  N.C. Gen. Stat. § 25-1-102(2)(c) (1999); see Alamance County Bd. of Educ. v. Bobby Murray Chevrolet, Inc., 121 N.C. App. 222, 226, 465 S.E.2d 306, 310 (1996) (when a provision of the U.C.C. has not been interpreted by North Carolina’s appellate courts, case law from other jurisdictions interpreting the U.C.C. affords guidance).

[21]  Although 25-4-406(b)(2) does not apply to items in the first bank statement in which a wrongdoer’s unauthorized signatures are identified, claims based upon occurrences during the first statement period after Philip wired over $119 million to the PIM Account in 1993 are clearly barred by the repose periods of 25-4-406(4) and 25-4A-505.  See Section V.B. below.

[22]  N.C. Gen. Stat. § 53-52 provided that “No bank shall be liable to a depositor for payment by it of a forged check or other order to pay money unless within sixty days after the receipt of such voucher by the depositor he shall notify the bank that such check or order so paid is forged.”

[23]  N.C. Gen. Stat. § 25-4A-505 contains a one year repose period for wire transfers and bars the Statons’ claims against Centura to the extent such claims involve wire transfers.  See Section V.B., below. 

[24]  The Statons have failed to identify any specific items they contend were unauthorized. 

[25]  In Ind-Com Elec. Co. v. First Union Nat. Bank, the North Carolina Court of Appeals declined to decide whether a bank’s duty to act in accordance with “reasonable commercial standards” under §  25-3-406 is equivalent to a bank’s duty to exercise “ordinary care” under 25-4-406.  58 N.C. App. 215, 217, 293 S.E.2d 215, 216 (1982).  However, at least one other court has held that compliance with reasonable commercial standards  demonstrates ordinary care.  Ashley-Hall Interiors, Ltd., Inc. v. Bank of New Orleans, 389 So. 2d 850, 854-55 (La. Ct. App. 1980).  

[26]  Section 25-3-406 provides, in pertinent part, that “[a]ny person who by his negligence substantially contributes to . . . the making of an unauthorized signature is precluded from asserting the . . . lack of authority against . . . [a] payor who pays the instrument in good faith and in accordance with reasonable commercial standards of the . . . payor’s business.”  N.C. Gen. Stat. § 25-3-406 (emphasis added).

[27]  Section 25-4-406(4) also requires that an unauthorized signature be “reported” to the bank.  See Section V.B., below.  Although no North Carolina appellate court has specifically addressed whether notice under 25-4-406(1) is the same as a report under 25-4-406(4), the Court of Appeals has stated that 25-4-406(4) “makes provision for notifying a bank of unauthorized checks.”  Hartford, 48 N.C. App. at 617, 269 S.E.2d at 283 (emphasis added).  Therefore, the cases addressing a customer’s duty to report unauthorized signatures under  4-406(4) are instructive on what is required for a customer to give notice to a bank under 4-406(1).      

[28]  Section 25-4-406(b)(2) does not apply to items in the first bank statement listing the first unauthorized item.  However, the first allegedly unauthorized items in the PIM Account were paid sometime in 1993, and claims brought in 1996 and 1998 are clearly barred by the one year repose periods of 25-4-406(4) and 25-4A-505.  See, Section V.B., below.

[29]  See Section V.A.2. above. 

[30]  Section 25-4A-505 contains a similar provision requiring the customer to notify the “bank of the customer’s objection to payment within one year after the notification [of the wire transfer order] was received by the customer.”  Bank statements provided by Centura identify each wire transfer out of the account.

[31]  The Statons do not specify any alleged wrongful transactions, despite the admission of Philip’s expert that at least some of the transactions in the accounts were made for the benefit of the Statons.  (Rowland-Dep. pp. 33, 39, 52, 58-59) (App-pp. 68-73).

[32]  The Statons received the final withdrawal of $10,176,931.71 from the PIM Account on November 23, 1995.  To find an allegedly unauthorized withdrawal one would necessarily have to look earlier statements.  The statement immediately proceeding the November 23, 1995 statement is dated October 23, 1995.

[33]  There is no evidence that any payment on the Brames’ personal loans at Centura was made from an account in the name of the Statons or the Brames as fiduciaries.  A list of the source of all payments accepted by Centura in satisfaction of personal loan obligations of the Brames is contained in the Appendix.  (Ex. 1153); (App-pp.462-64).  As the list indicates, all loan payments came from the accounts of S&B Investments, Jerri Russell Brame or ST Brame.  Even though these accounts may have contained Staton money, acceptance of a check drawn upon such accounts is not acceptance of a check drawn upon a deposit in the name of a fiduciary as such under N.C. Gen. Stat. § 32-8.  See County of Macon v. Edgcomb,654 N.E.2d 598, 603 (Ill. App. Ct. 1995) (bank did not violate UFA by accepting payments to agent’s personal account and then accepting loan payments out of agent’s account). 

[34]  The North Carolina Court of Appeals has, however, held that a breach of the UFA does not constitute an unfair and deceptive trade practice under Chapter 75.  Moretz v. Miller, 126 N.C. App. 514, 517-519, 486 S.E.2d 85, 87-88 (1997).

[35]  Although one case, two reported decisions arise out of Edwards.  Edwards v. Northwestern Bank, 39 N.C. App. 261, 250 S.E.2d 651 (1979) and Edward v. Northwestern Bank, 53 N.C. App. 492, 281 S.E.2d 86 (1981).

[36]  N.C. Gen. Stat. § 32-9 is virtually identical to 32-8, except that 32-9 applies to deposits in the name of the principal, whereas 32-8 applies to deposits in the name of the fiduciary as such.