CHARLESTON – Relieving the fears of bankers across West Virginia, the state Supreme Court of Appeals refused to hold a bank accountable for embezzling that happened right under its nose.
Four of five Justices agreed Nov. 15 that the statute of limitations protected WesBanco Bank from a claim of customer Copier Word Processing Supply, a Wood County business that lost about $472,000 to embezzler Doris Hendrickson.
As office manager at Copier Word Processing Supply, Hendrickson intercepted hundreds of checks from vendors, "zeroed out" the corresponding invoices with credit memos, and endorsed the checks.
At WesBanco, she deposited checks in an account she shared with son Steven Hendrickson or in an account in her name only.
She often received cash from deposits into her account. Sometimes she deposited the cash into the account she shared with her son.
The Court opinion did not give the date of the first conversion or the last.
In 2003, someone at Copier caught on to the scheme and she lost her job.
Copier sued her and Wesbanco Oct. 6, 2003, accusing both of conversion and accusing the bank of negligence.
WesBanco filed a cross claim against Hendrickson. She did not respond, and Wood County Circuit Judge Jeffrey Reed entered default judgment against her.
Copier moved for summary judgment against WesBanco. Copier tried to define the conversion as a continuing tort, so the statute of limitations would not start running until the date of the last act of conversion.
WesBanco moved for summary judgment against Copier, arguing that for each act of embezzlement the statute of limitations began running immediately.
That argument would bar Copier's claims over any deposits before Oct. 6, 2000.
In 2005, Judge Reed granted WesBanco's motion and denied Copier's motion.
Reed found that the continuing tort theory did not apply. He found that the statute of limitations began to run from the negotiation of each separate instrument.
Copier asked Reed to certify questions on both points to the Supreme Court of Appeals. Reed granted the motion.
Before the Justices, James Leach and Victoria Sopranik of Parkersburg represented Copier Word Processing Supply. Robert Full of Parkersburg and James Gardill and Christopher Gardill of Wheeling represented WesBanco.
On behalf of the bank, the West Virginia Association of Community Bankers and the West Virginia Bankers Association filed briefs as friends of the court.
The majority agreed with Reed on both points.
Chief Justice Robin Davis wrote that state law "clearly expresses a legislative intent that each act of conversion be treated separately for limitations purposes…"
She followed the theory of continuing tort through a house that shifted, a child that died and a truck driver who inhaled poison.
She quoted from a decision in the driver's case that events in a continuing tort "for all practical purposes are identical, occur repeatedly, at short intervals, in a consistent, connected, rhythmic manner."
She wrote that the conversion did not lend itself to that classification.
She wrote, "... each conversion was a discrete act, a single transaction involving a specifically individual negotiable instrument."
Applying the continuing tort theory, she argued, would be contrary to the policy and purposes behind the Uniform Commercial Code.
The code seeks to simplify commercial transactions, permit continued expansion of commerce through custom and agreement, and make laws uniform among jurisdictions.
She wrote, "Negotiability requires predictable and rapid collection through payment channels. Closely related to negotiability are commercial finality and certainty."
A footnote acknowledged the friendly briefs of the banker groups. Davis wrote, "We appreciate their participation and consider their position in the outcome of this case."
In dissent Justice Larry Starcher wrote that the decision would let wrongdoers get off scot free.
He wrote that the majority assumed WesBanco was sloppy and careless or worse.
He wrote, "Let me be clear that I do not accept as a fact that WesBanco is a wrongdoer in the instant case. For all I know, WesBanco did everything a bank should do with respect to their customer Copier Word Processing, and a jury might well so find."
He wrote, "Copier Word Processing may have been just as negligent as Copier says the bank was –- which is probably the unspoken reason behind the result arrived at by the majority opinion."
He wrote that a jury should make the comparison, not a court "that goes out of its way to express its appreciation of the role played by the West Virginia Association of Community Bankers and the West Virginia Bankers Association…"
Justice Joseph Albright filed a brief dissent, approving Starcher's "sensitive and legally correct" dissent.