Metz v. Bank

• Citation: 75 UCC Rep.Serv.2d 328,649 F.3d 492
• Decision Date: 19 August 2011
• Docket Number: 09–3879,09–4363.,Nos. 09–3751,s. 09–3751
• Parties: Carol METZ, on behalf of herself and all others similarly situated, et al., Plaintiffs–Appellants,v.UNIZAN BANK, et al., Defendants–Appellees.James Loyd, et al., Plaintiffs–Appellants,v.Huntington National Bank, et al., Defendants–Appellees.Billy Blair, et al., Plaintiffs–Appellants,v.Bank One, Defendant,Charter One Bank, et al., Defendants–Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

649 F.3d 492

75 UCC Rep.Serv.2d 328

Carol METZ, on behalf of herself and all others similarly situated, et al., Plaintiffs–Appellants,

v.UNIZAN BANK, et al., Defendants–Appellees.James Loyd, et al., Plaintiffs–Appellants,

v.Huntington National Bank, et al., Defendants–Appellees.Billy Blair, et al., Plaintiffs–Appellants,

v.Bank One, Defendant,Charter One Bank, et al., Defendants–Appellees.

Nos. 09–3751

09–3879

09–4363.

United States Court of Appeals, Sixth Circuit.

Argued: May 31, 2011.Decided and Filed: Aug. 19, 2011.

ARGUED: J. Brian Kenney, Kehoe & Associates, LLC, Cleveland, Ohio, Daniel G. Morris, Law Offices of Daniel G. Morris, Cleveland, Ohio, for Appellants. Frances Floriano Goins, Ulmer & Berne LLP, Cleveland, Ohio, Elizabeth Petrela Papez, Winston & Strawn, Washington, D.C., Michael E. Mumford, Baker & Hostetler LLP, Cleveland, Ohio, for Appellees. ON BRIEF: J. Brian Kenney, Robert D. Kehoe, Kehoe & Associates, LLC, Cleveland, Ohio, Daniel G. Morris, Law Offices of Daniel G. Morris, Cleveland, Ohio, for Appellants. Frances Floriano Goins, Thomas L. Anastos, Reem Shalodi, Ulmer & Berne LLP, Cleveland, Ohio, Michael E. Mumford, Katie M. McVoy, Baker & Hostetler LLP, Cleveland, Ohio, T. Thomas Cottingham III, Jack M. Knight, Jr., Valerie B. Mullican, Winston & Strawn LLP, Charlotte, North Carolina, Patrick M. McLaughlin, McLaughlin & McCaffrey, LLP, Cleveland, Ohio, Marcel C. Duhamel, Elizabeth A. Ratliff, Jocelyn N. Prewitt–Stanley, Vorys, Sater, Seymour And Pease, LLP, Cleveland, Ohio, Karen L. Giffen, Melissa A. Laubenthal, Kathleen A. Nitschke, Giffen & Kaminski, LLC, Cleveland, Ohio, Martha S. Sullivan, Joseph P. Rodgers, Stephen P. Anway, Squire, Sanders & Dempsey L.L.P., Cleveland, Ohio, David M. Dvorin, Chernett Wasserman Yarger, LLC, Cleveland, Ohio, Jay Clinton Rice, Gallagher Sharp, Cleveland, Ohio, Steven A. Anderson, Fitzpatrick, Zimmerman & Rose Co., L.P.A., New Philadelphia, Ohio, Bart Greenwald, Frost Brown Todd LLC, Louisville, Kentucky, Bonnie L. Wolf, Frost Brown Todd LLC, Columbus, Ohio, Mitchell G. Blair, Fritz E. Berckmueller, Kevin R. Carter, Calfee, Halter & Griswold LLP, Cleveland, Ohio, Rosemary Taft Milby, Weltman, Weinberg & Reis Co., L.P.A., Cleveland, Ohio, Orla E. Collier, Mark D. Tucker, Benesch Friedlander Coplan & Aronoff LLP, Columbus, Ohio, Matthew T. Fitzsimmons, R. Christopher Yingling, Nicola, Gudbranson & Cooper, LLC, Cleveland, Ohio, David A. Wallace, Joel E. Sechler, Carpenter Lipps & Leland LLP, Columbus, Ohio, Richard J. Thomas, Amanda J. Banner, Henderson, Covington, Messenger, Newman & Thomas Co., L.P.A., Youngstown, Ohio, Aaron H. Bulloff, Kadish, Hinkel & Weibel, Cleveland, Ohio, Karen Soehnlen McQueen, Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A., Canton, Ohio, for Appellees.Before: MARTIN, NORRIS, and SILER, Circuit Judges.

OPINION

SILER, Circuit Judge.

After falling victim to a Ponzi scheme, the Metz, Loyd, and Blair plaintiffs (collectively “Plaintiffs”) sued a number of banks to recover their lost investments. The district court dismissed all claims filed by the Loyd and Blair plaintiffs as time-barred. It dismissed most claims filed by the Metz plaintiffs as time-barred or for their failure to state a claim but allowed two fraud claims to proceed, both of which were ultimately unsuccessful. The Plaintiffs now appeal. For the reasons below, we AFFIRM.

I.

The Plaintiffs' suits arise out of a Ponzi scheme orchestrated by James P. Carpenter III (“Carpenter”). In 1991, Carpenter pleaded guilty to aggravated theft and bank fraud, served jail time, and was eventually disbarred as an attorney. Later, between 1998 and 2000, he masterminded a Ponzi scheme in which he sold investments in three sham companies. The Blair plaintiffs were sold fraudulent debentures in Rawhide Select, Inc. (“Rawhide”), and the Metz and Loyd plaintiffs were sold fraudulent debentures in Serengeti Diamonds, U.S.A., Inc. (“Serengeti”), and Lomas De La Barra (“Lomas”). Carpenter sold these debentures through salespeople, who told the Plaintiffs they would receive a guaranteed return of over 10 % annual interest. Although Carpenter made interest payments and partial redemptions to investors during the course of the scheme, Rawhide, Serengeti, and Lomas were mere instruments of fraud, and Carpenter stole nearly all of the Plaintiffs' investments.

In 2000, several victims filed a class action against Carpenter in state court. See Posen v. New England Int'l Surety, No. 2000–06–2623 (Summit County Court of Common Pleas) (the “ Posen case”). A class action settlement was eventually reached in which Carpenter consented to a $15,644,384 judgment. A settlement was also reached with his daughter, Ashley Carpenter, who was a teller at Unizan Bank, N.A. (“Unizan”), where Carpenter opened accounts in the names of Lomas and Serengeti. In the settlement, the Posen plaintiffs agreed to release the Carpenters from any further liability arising from the Ponzi scheme.

The Plaintiffs in this case sued two classes of banks Carpenter used to carry out his scheme: drawee banks and depositary banks. The Plaintiffs alleged the drawee banks violated the Uniform Commercial Code's (“UCC”) “properly payable rule” by issuing payment from their checking accounts for checks they wrote to Carpenter's sham corporations. The Plaintiffs alleged the depositary banks violated the UCC and committed fraud by depositing their checks into accounts maintained for Rawhide, Serengeti, and Lomas. The drawee and depositary banks moved to dismiss the Plaintiffs' actions under Federal Rule of Civil Procedure 12(b)(6), alleging that Plaintiffs' UCC and fraud actions were both barred by the applicable statutes of limitations and failed to state a claim.

The district court in Blair and Loyd subsequently dismissed all claims as time-barred. In Metz, the district court dismissed the claims against the drawee banks as time-barred and dismissed most of the claims against the depositary banks for failure to state a claim. However, it allowed the claims of conspiracy to commit fraud and aiding and abetting fraud against Unizan to proceed. Jonas Yoder was then substituted for Carol Metz as the named plaintiff and proposed class representative. After denying class certification, the district court granted Unizan's motion for summary judgment on Yoder's conspiracy claim based on his release of Ashley Carpenter in the earlier Posen litigation. A jury trial was held on Yoder's aiding and abetting fraud claim that resulted in a verdict in favor of Unizan.

II.

The Plaintiffs contend the district courts erred in not applying a discovery rule to their UCC claims and dismissing them as time-barred. Both sides agree the statute of limitations embodied in O.R.C. § 1304.09 applies to the Plaintiffs' “properly payable” claims. Both sides also agree the statute of limitations embodied in O.R.C. § 1303.16(G) applies to the Plaintiffs' other UCC claims. Both statutes of limitations provide that an action “shall be brought within three years after the cause of action accrues.” O.R.C. §§ 1304.09, 1303.16(G) (emphasis added). The only dispute is whether these limitations periods should have started running only when the Plaintiffs discovered the Ponzi scheme.

We review a district court's grant of a Rule 12(b)(6) motion to dismiss de novo. Ind. State Dist. Council of Laborers v. Omnicare, Inc., 583 F.3d 935, 942 (6th Cir.2009). In reviewing the exercise of diversity jurisdiction, we are bound to apply Ohio law in accordance with the currently controlling decisions of its highest court. See Ziegler v. IBP Hog Market, Inc., 249 F.3d 509, 517 (6th Cir.2001). In the absence of such decisions, we may also look to Ohio's lower courts. See Ventura v. The Cincinnati Enquirer, 396 F.3d 784, 792 (6th Cir.2005).

A. The Plaintiffs Cannot Cast Their UCC Claims as Conversion Claims

In seeking to supplement these statutes of limitations with a discovery rule, the Blair and Loyd plaintiffs argue their various UCC claims are actually claims for conversion and are therefore subject to the discovery rule in O.R.C. § 2305.09. Section 2305.09 states, “If the action is ... for the wrongful taking of personal property, the cause[ ] thereof shall not accrue until the wrongdoer is discovered.” The Plaintiffs, however, pleaded none of their UCC claims as conversion claims or as claims for the wrongful taking of personal property ¹; rather, the Plaintiffs raised claims of violation of the properly payable rule, failure to act with ordinary care, breach of the duty of good faith, and money had and received.

Further, even if we interpreted the Plaintiffs' allegations as claims of conversion, the Plaintiffs would be statutorily barred from raising such claims. The Ohio UCC establishes a cause of action for conversion of an instrument, stating, “The law applicable to conversion of personal property applies to instruments.” O.R.C. § 1303.60. However, the same statute bars such claims by issuers of checks. It states, “An action for conversion of an instrument may not be brought by the issuer or acceptor of the instrument....” Id. An issuer is a “maker or drawer of an issued or unissued statement,” O.R.C. § 1303.01(A)(6), and there is no dispute the Plaintiffs are the makers of the arguably converted checks here. Therefore, this provision definitively bars them from bringing a claim for the wrongful taking of personal property, and as a result, the Plaintiffs cannot possibly re-characterize their claims to make use of the discovery rule in § 2305.09.

B. Ohio Law Precludes Application of a Discovery Rule to the Plaintiffs' UCC Claims

The Plaintiffs contend that, even if their UCC claims cannot properly be characterized as claims for conversion, Ohio law nevertheless supports the application of a discovery rule to claims brought under §§ 1304.09 or 1303.16(G). Ordinarily, under Ohio law, “a cause of action accrues and the statute of limitations begins to run at the time...