Specialized Loan Servicing, L.L.C. v. January, 12-CC-2668

Decision Date28 June 2013
Docket NumberNO. 12-CC-2668,12-CC-2668
CourtSupreme Court of Louisiana




The Opinions handed down on the 28th day of June, 2013, are as follows:





CAPITAL ONE BANK (Parish of Orleans)

For the reasons stated herein, the judgment of the court of

appeal is affirmed.


KNOLL, J., dissents and assigns reasons.

HUGHES, J., concurs with the result.



We granted this writ application to resolve a split in the courts of appeal regarding whether the fourth category of the doctrine of contra non valentem, i.e., the discovery rule, is applicable to suspend prescription of a conversion claim against a payor under La. R.S. 10:3-420(f). After reviewing the record and the applicable law, we find that the discovery rule cannot suspend the one-year prescriptive period of La. R.S. 10:3-420(f). Therefore, we affirm the judgment of the court of appeal.


On August 26, 2010, Specialized Loan Servicing, L.L.C. ("Specialized") filed a petition asserting a claim for damages against Assurant Specialty Property ("Assurant"), American Security Insurance Company ("American Security"), Donyelle January ("January"), and Capital One Bank ("Capital One"). According to the petition, Specialized was the servicer of a note and mortgage agreement executed by January and affecting January's property located at 400 Missouri Street, New Iberia, Louisiana. Specialized was the primary insured on a policy covering the property issued by Assurant and its subsidiary and underwriter,American Security. January was the secondary insured. The petition alleges that following a fire on June 8, 2009, American Security issued a check on June 26, 2009, in the amount of $142,242.33, with January and Specialized named as payees. The check was forwarded by American Security to Assurant, who subsequently forwarded the check to January in conformance with the insurance policy. Along with the check, Assurant included information explaining the procedures to January for endorsing the check and returning it to Specialized. The petition alleges that "[u]nbeknownst to [Specialized], January negotiated the check to Capital One Bank in New Iberia, on or around July 15, 2009" and that "Capital One Bank cashed the check in favor of January without any endorsement by [Specialized]." The petition states that before discovering January had cashed the check, Specialized contacted January and requested a return of the endorsed check. Upon discovering that January had negotiated the check, Specialized contacted Assurant who told them that the check was made payable to "Specialized Loan Servicing and Donyelle M. January." However, Assurant claimed that the check had been altered by somebody erasing the word "and" on the check. Based on these claims, Specialized filed a claim with Capital One, asserting that the check cashed by Capital One contained a fraudulent alteration. On February 8, 2010, Capital One rejected the fraud claim. Specialized then filed this lawsuit claiming damages in the amount of $142,242.33, with interest, attorney fees and other damages. The petition alleged that Capital One was liable for conversion under the Louisiana Uniform Commercial Code (the "La. U.C.C."), La. R.S. 10:3-101 - La. R.S. 10:3-605, and general negligence under La. C.C. art. 2315.

Capital One filed a peremptory exception of prescription, alleging that the claim against it was a claim of conversion under the La. U.C.C., specifically La. R.S. 10:3-420, which claim prescribes one year from the date of negotiation of thecheck. As the check was negotiated on July 15, 2009, and suit was not filed until August 26, 2010, Capital One argued that Specialized's claim against it had prescribed. Specialized opposed the exception by arguing that the doctrine of contra non valentem applied to suspend prescription until Specialized had knowledge that the check had been negotiated, which did not occur until August 27, 2009. The district court overruled the exception, but the court of appeal granted Capital One's writ and reversed. Specialized Loan Servicing, L.L.C. v. January, 12-1145 (La. App. 4 Cir. 9/18/12) (unpublished writ action). The court of appeal found that the claim was prescribed on the face of the petition, and thus the burden shifted to Specialized to prove that the claim was not prescribed. Id. While Specialized attached exhibits to its opposition purporting to show that it did not have knowledge that January had cashed the check until August 27, 2009, Specialized failed to introduce these exhibits into the record and thus they could not be considered. Id. Therefore, the court of appeal found that Specialized failed to meet its burden of proving that its claim against Capital One for conversion was not prescribed. Id.

While the court of appeal found that the doctrine of contra non valentem did not suspend prescription in this case, its discussion of Specialized's attempt to offer exhibits to prove its lack of knowledge implies that the court believed the doctrine could apply in conversion cases on satisfactory proof. We granted Capital One's writ application to decide the narrow legal issue of whether the fourth category of contra non valentem can apply to suspend prescription of a conversion claim under La. R.S. 10:3-420. Specialized Loan Servicing, L.L.C. v. January, 12-2668 (La. 2/22/13), 108 So. 3d 759.


When prescription is raised by peremptory exception, with evidence beingintroduced at the hearing on the exception, the trial court's findings of fact on the issue of prescription are subject to the manifest error-clearly wrong standard of review. London Towne Condominium Homeowner's Ass'n v. London Towne Co., 06-401 (La. 10/17/06), 939 So. 2d 1227, 1231 (cites omitted). However, the sole issue before us is the proper interpretation of La. R.S. 10:3-420. Thus, the case presents a question of law which is reviewed by this court under a de novo standard of review. City of Bossier City v. Vernon, 12-0078 (La. 10/16/12), 100 So. 3d 301; First Nat. Bank, USA v. DDS Const., LLC, 11-1418 (La.1/24/12), 91 So. 3d 944, 951-952; Louisiana Municipal Association v. State, 04-0227 (La.1/19/05), 893 So. 2d 809, 835. A de novo review means the court will render judgment after its consideration of the legislative provision at issue, the law and the record, without deference to the legal conclusions of the tribunals below. City of Bossier City, supra at 303.

La. U.C.C.'s conversion statute, La. R.S. 10:3-420, was enacted as part of the state's 1992 revision to Chapter 3 of Title 10 governing Negotiable Instruments. La. R.S. 10:3-420 applies to circumstances where a payee on a check alleges that a bank paid the check to someone else not entitled to enforce the instrument, providing in pertinent part:

(a) An instrument is converted when
. . .
(iii) it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment.
. . .
(f) Any action for conversion . . . prescribes in one year.

Here, Specialized alleges that Capital One made payment with respect to the check to January, a person not entitled to receive payment.1 Thus, this claim falls squarely under La. R.S. 10:3-420(a)(iii). The conversion occurred when Capital One cashed the check for January. La. R.S. 10:3-420(f) provides that an action for conversion prescribes in one year. Thus, unless the doctrine of contra non valentem applies in this case, Specialized's conversion claim against Capital One prescribed on July 15, 2010, one year from the date Capital One made payment to January.

Although La. C.C. art. 3467 provides that "prescription runs against all persons unless exception is established by legislation," this Court has applied the jurisprudential doctrine of contra non valentem as an exception to this statutory rule.

See e.g., Wimberly v. Gatch, 93-2361 (La. 4/11/94), 635 So. 2d 206, 211. The doctrine of contra non valentem applies as an exception to the statutory prescriptive period where in fact and for good cause a plaintiff is unable to exercise his cause of action when it accrues. The Court has recognized four instances where contra non valentem can apply: (1) where there was some legal cause which prevented the courts or their officers from taking cognizance of or acting on the plaintiff's actions; (2) where there was some condition coupled with a contract orconnected with the proceedings which prevented the creditor from suing or acting; (3) where the debtor himself has done some act effectively to prevent the creditor from availing himself of his cause of action; or (4) where some cause of action is not known or reasonably knowable by the plaintiff, even though his ignorance is not induced by the defendant. Wimberly , supra at 211. However, the doctrine of contra non valentem only applies in "exceptional circumstances." La. C.C. art. 3467, Official Revision Comment (d); State Through Div. of Admin. v. McInnis Bros. Const., 97-0742 (La.10/21/97), 701 So. 2d 937, 940; Renfroe v. State ex rel. Dept. of Transp. and Development, 01-1646 (La. 2/26/02), 809 So. 2d 947, 953.

Here, Specialized argues that the fourth category of contra non valentem applies to suspend prescription because Specialized did not know and could not have known that January improperly cashed the insurance check until American Security informed it of that fact on August 27, 2009.2 The discovery rule provides that prescription...

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