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Keeler v. Wells Fargo Bank, N.A.

Court of Common Pleas of Delaware, New Castle

December 5, 2017

WELLS FARGO BANK, N.A., a subsidiary of Wells Fargo & Co., Defendant.

          Elwood T. Eveland, Jr., Esq. The Eveland Law Firm Attorney for Plaintiff

          Kevin J. Mangan, Esq. Nicholas T. Verna, Esq. (argued) Womble Bond Dickinson LLP Attorneys for Defendant


          Sheldon K. Rennie, Judge

         Facts & Procedure

         On January 5, 2017, Plaintiff, Kathleen Keeler ("Keeler"), filed a Complaint against Defendant, Wells Fargo Bank ("Wells Fargo"), alleging a breach of contract and violation of Delaware's Uniform Commercial Code ("UCC") § 4-406.[1] Keeler's employee fraudulently cashed checks connected to her Wells Fargo bank accounts from October 15, 2013 to December 5, 2013.[2] Keeler sought reimbursement from Wells Fargo and was denied.[3] The Complaint does not state when the employee's fraud was first brought to Keeler's attention, but she asserts that she verbally reported the fraud to a Wells Fargo employee on December 5, 2013 and again on December 16, 2013, when she opened new accounts with Wells Fargo.[4]

         Wells Fargo, however, did not provide Keeler with "appropriate forms" to file a fraud claim with the bank until April 2014.[5] On August 8, 2014, after Keeler filed her claim, Wells Fargo formally denied her claim of fraud.[6] Keeler avers that Wells Fargo breached its contract with her and failed in its duty to credit her account pursuant to 6 Del. C. § 4-406.[7] Keeler seeks judgment against Wells Fargo in the amount of $22, 200 along with reasonable attorney's fees, costs, and pre- and post-judgment interest at the legal rate.[8]

         On October 13, 2017, Wells Fargo filed a Motion for Judgment on the Pleadings, asserting that the Complaint is barred by the Statute of Limitations set forth in 6 Del. C. § 4-1 ll.[9] Wells Fargo claims that this suit is untimely because it was filed three years after the alleged fraudulent checks were cashed and should be dismissed with prejudice.[10] Although § 4-111 does not state when an "action accrues, " Wells Fargo relies on the language of Comment 5 to § 4-406, which states: "Section 4-111 sets out a statute of limitations allowing a customer a three-year period to seek a credit to an account improperly charged by payment of an item bearing an unauthorized indorsement."[11] Wells Fargo argues that its interpretation of Comment 5 aligns with Delaware law that the statute of limitations generally begins when the parties are capable of knowing that they can sue or be sued.[12] Hence, Wells Fargo argues that because the fraudulent activity allegedly occurred between October 15, 2013 and December 5, 2013, and the Complaint was not filed until January 5, 2017, the case is time-barred.[13] Also, Wells Fargo argues that the "discovery rule" does not apply to the UCC but, even if it does, Keeler had actual knowledge of the fraud on December 5, 2013.[14]

         On November 1, 2017, Keeler filed an Answer to Wells Fargo's Motion.[15] Keeler argues that Comment 5 to § 4-406 does not expressly or implicitly state when the cause of action for an improper charge accrues.[16] In addition, Keeler asserts that her verbal reports of fraud to Wells Fargo on December 5, 2013, and again on December 16, 2013, should not be considered in the statute of limitations analysis, because she was not provided with the appropriate forms to make a claim until April 29, 2014.[17] Keeler contends that the statute of limitations should begin to run from August 8, 2014, when Wells Fargo denied her fraud claim.[18]

         On November 2, 2017, Wells Fargo filed a Reply in Support of its Motion.[19] Wells Fargo argues that any "obligations" it has to Keeler are according to § 4-401 and not § 4-406.[20] Section 4-401 allows a bank to charge a customer's account if the "item" is "properly payable."[21]Therefore, Wells Fargo argues that because it charged the account, and Keeler is claiming the fraudulent items were not "properly payable, " the action-by its very nature-must accrue when Keeler's account was charged.[22] Wells Fargo also notes that courts in other jurisdictions have held that the statute of limitations for negotiable instruments begins to run when the instrument is negotiated, under both UCC Article 3 and Article 4.[23]

         The Law

         Court of Common Pleas Civil Rule 12 provides, "[a]fter the pleadings are closed but with such time as to not to delay the trial, any party may move for judgment on the pleadings."[24] On such a motion, the applicable standard is "almost identical" to the standard for a motion to dismiss, and requires the Court to accept all of the well-pled facts in the Complaint as true and construe all reasonable inferences in favor of the non-moving party.[25] The Court will grant a motion for judgment on the pleadings when "no material issues of fact exist and the moving party is entitled to judgment as a matter of law."[26] "[F]or purposes of the motion, the moving party admits the allegations of the opposing party's pleading, but contends that they are insufficient as a matter of law."[27]


         In Wells Fargo's Motion and subsequent briefing, it argues the general principle of accrual-the statute of limitations begins to run when the victim is able to sue.[28] Conversely, Keeler proffers a fact-specific argument that the statute of limitations should not begin to run until the victim is notified by the bank that it will not reimburse the victim's account.[29]

         Both parties have conceded that the UCC does not define when a claim accrues relevant to 6 Del. C. § 4-401 or § 4-406, [30] and neither party has provided applicable Delaware case law. The Court's own research has yielded only one Delaware case that tangentially addresses the applicability of Article 4's statute of limitations to a claim of improper payment.[31] In the absence of Delaware case law on point, the Court examined the prevailing views in other jurisdictions. Three distinct approaches have emerged. One approach is to apply the "discovery rule" to State UCC claims that are inherently unknowable; therefore, allowing the statute of limitations to accrue when the victim knew or should have known of the wrong.[32] A second approach is to apply the statute of repose in place of the three-year statute of limitations and require the victim to notify the bank of fraudulent charges on the account within one year of receiving an accounting statement from the bank.[33] This, in effect, interposes a one-year statute of limitations rather than the UCC's three-year statute of limitations, and focuses on when the victim properly notified the bank.[34]Finally, under a third approach, other jurisdictions agree with Wells Fargo's interpretation that the statute of limitations begins to accrue when negotiable instruments are negotiated-that is, when the account is debited-under both Article 3 and Article 4.[35]

         While all three approaches are detrimental to Keeler's case, this Court finds the third approach to align with Delaware legal principles. Applying the first approach to the facts in this case would require this Court to apply the "discovery rule" to a knowable UCC claim, which is counter to Delaware policy.[36] The second approach wrongly equates the procedural statute of limitations with the substantive statute of repose under the UCC.[37] In Delaware, the two limitation periods are separate.[38] In Admiral Holding v. The Town of Bowers, the Superior Court stated:

It must first be noted that there is apparent confusion in the law as to the distinction between a statute of repose and a statute of limitations. Woolley's Delaware Practice equates the two, noting, "Statutes of limitations are founded in wisdom and sound policy. They have been termed statutes of repose and are regarded as highly beneficial." More recent definitions, however, draw a distinction between statutes of limitations and statutes of repose, observing that:
A statute of repose ... limits the time within which an action may be brought and is not related to the accrual of any cause of action; the injury need not have occurred, much less have been discovered. Unlike an ordinary statute of limitations which begins running upon accrual of the claim, the period contained in a statute of repose begins when a specific event occurs, regardless of whether a cause of action has accrued or whether any injury has resulted.

         Black's Law Dictionary similarly differentiates between statutes of repose and statutes of limitations:

A statute of limitations bars an action unless the plaintiff files the action within a specified period of time after the injury occurs. A statute of repose on the other hand terminates any right of action after a specified period of time has elapsed, regardless of whether an injury has yet occurred.[39]

         This Court finds the second approach to be flawed because it improperly subsumes a substantive limitation into the analysis of a procedural limit.[40] Indeed, at the motion to dismiss stage, applying the statute of repose rather than the statute of limitations to a cause of action for a bank's improper payment is problematic, because the statute of repose does not require the court to determine when the claim accrues.[41]

         Conversely, the third approach is intuitive, [42] creates consistency, and accords with the UCC's founding principle of uniformity.[43] Hence, this Court is apt to follow jurisdictions that adhere to the third approach. Applying the third approach to the present case, this Court finds that the statute of limitations on each check began to run when they were cashed between October 15, 2013 and December 5, 2013. ...

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