C.B. Harris & Company, Inc. v. Wells Fargo & Company , 113 F. Supp. 3d 166 ( 2015 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
C.B. HARRIS & COMPANY, INC.
Plaintiff,
v. Civil Action No. 14-1096 (GK)
WELLS FARGO & COMPANY,
And
ONE OR MORE JOHN DOES,
Defendants.
MEMORDANDUM OPINION
Plaintiff C. B. Harris & Company, Inc. ("Harris") brings this
action against Wells Fargo Bank, N.A. 1 ("Wells Fargo") and one or
more John Does, seeking monetary damages for breach of contract.
This matter is before the Court on Defendant's Motion to Dismiss
("Motion") [Dkt. No. 8-1]. Upon consideration of the Motion,
Opposition ("Opp'n") [Dkt. No. 9], and Reply ("Reply") [Dkt.
No. 10], and for the reasons set forth below, the Court concludes
that Harris's claim is time-barred by the D.C. Statute of
Limitations and thus the Motion shall be granted.
1Plaintiff incorrectly named Defendant as "Wells Fargo & Company"
in its First Amended Complaint. Wells Fargo & Company is a bank
holding company, of which Wells Fargo Bank, N.A. is a wholly
owned subsidiary. Motion at 1.
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I . Background
A. Factual Background 2
Harris was started by its president, Cynthia B. Harris ("Ms.
Harris"), and is a District of Columbia corporation that provides
government and corporate services, including document conversion,
records management, training and development, and project
management. In 2001, Ms. Harris hired her cousin, Howard E. Person,
Jr. ("Person"), as Harris's Finance Director. Motion at 1. Person
did not have a college degree, had previously been convicted of
stealing money from an employer, and had little relevant experience
in finance. Reply at 1.
On or about October 20, 2003, Harris opened a factoring
account 3 with Commerce Funding Corporation (now Wells Fargo) .
FAC ~ 6. The parties agreed upon the terms of the bank services
that Wells Fargo would provide and, at an unspecified time, they
reduced their oral agreement to writing. FAC ~~ 7, 8. While Harris
2 For purposes of ruling on a motion to dismiss, the factual
allegations of the complaint must be presumed to be true and
liberally construed in favor of the plaintiff. Aktieselskabet AF
21. November 2001 v. Fame Jeans Inc., 525 F.3d 8, 15 (D.C. Cir.
2008). Therefore, the facts set forth herein are taken from
Plaintiff's First Amended Complaint ( "FAC") [Dkt. No. 7] .
3 "Factoring is a type of financing where one business (the
factoring client) sells its right to receive payment for goods
sold or services rendered to customers (account debtors) to another
business (the factor) at a discounted price." New Century Fin.,
Inc. v. Olympic Credit Fund, Inc., 487 Fed. App'x 912, 913 (5th
Cir. 2012).
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does not have a copy of the agreement, Wells Fargo has not disputed
the existence of a contract.
Harris contends that the terms of the contract require Wells
Fargo to prevent unauthorized persons from accessing Harris' s
funds. FAC ~~ 11, 12. Ms. Harris is the only person authorized to
withdraw funds from Harris' s account. Proof of her identity--
either her ID or signature- -is required before any of Harris' s
funds can be withdrawn from the account. FAC ~~ 13, 14.
On or about March 19, 2008, Wells Fargo wired $695,892.10 to
a SunTrust Bank account controlled by Person. FAC ~ 19. On or about
May 13, 2008, Wells Fargo wired another $319,725.33 to Person's
SunTrust Bank account. FAC ~ 20. Harris contends that neither
transfer was authorized by it or Ms. Harris. FAC ~ 22.
From 2008 to 2011, while serving as Harris's Finance Director,
Person allegedly defrauded Harris out of over $3 million. FAC ~ 24.
Harris was not aware of the alleged fraud prior to Person's abrupt
resignation on September 26, 2011. FAC ~~ 25, 26. Upon Person's
resignation, Harris investigated matters affecting its financial
affairs and thereafter became aware that Person had mishandled
Harris's funds. FAC ~~ 26, 27.
On or about January 24, 2012, Harris identified unauthorized
transfers by Person from one of Harris's accounts at SunTrust Bank,
amounting to approximately $1,597,808.30. FAC ~ 29. On July 29,
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•.
2013, in the course of a federal investigation into criminal
charges against Person, Ms. Harris was provided with a document
bearing alleged forgeries of her signature. FAC ~ 33. Harris does
not specify the nature of the document, but states that it was at
this time that it first became aware of Wells Fargo's alleged
breach of its contractual duties. FAC ~ 33.
Person allegedly "concealed a number of unauthorized
transfers by denying [Ms.] Harris access to certain
statements and by creating phony invoices and reports." FAC ~ 28.
Additionally, at Person's request, Wells Fargo sent the monthly
bank statements for Harris's factoring account to Person's
personal mailing address and not to Harris. FAC ~ 32.
B. Procedural Background
Plaintiff filed its Complaint with this Court on June 28,
2014. [Dkt. No. 1] and the FAC on August 18, 2014, alleging breach
of contract. FAC ~ 23. On September 04, 2014, Wells Fargo filed
the present Motion to Dismiss [Dkt. No. 8-1]. Wells Fargo argues
that the claim must be dismissed because it is untimely and fails
to state a valid legal claim. See Motion at 5, 7. Plaintiff filed
its Opposition [Dkt. No. 9] on September 18, 2014, and Wells Fargo
filed its Reply [Dkt. No. 10] on September 29, 2014.
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II. Legal Standard
To survive a motion to dismiss under Rule 12(b) (6) for failure
to state a claim, the plaintiff need only plead "enough facts to
state a claim to relief that is plausible on its face" and to
"nudge [ [his or her] claims across the line from conceivable to
plausible." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570
(2007). "[O] nee a claim has been stated adequately, it may be
supported by showing any set of facts consistent with the
allegation in the complaint." Id. at 563.
Under the Twombly standard, a "court deciding a motion to
dismiss must not make any judgment about the probability of the
plaintiff's success . [,] must assume all the allegations in
the complaint are true (even if doubtful in fact) [, and]
must give the plaintiff the benefit of all reasonable inferences
derived from the facts alleged." Fame Jeans Inc., 525 F.3d at 17(internal citations and quotation marks omitted) . The court does
not, however, accept as true "legal conclusions or inferences that
are unsupported by the facts alleged." Ralls Corp. v. Comm. On
Foreign Inv. In U.S., 758 F.3d 296, 315 (D.C. Cir. 2014) (citation
omitted). Furthermore, a complaint which "tenders 'naked
assertion[s]' devoid of 'further factual enhancement'" will not
suffice. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Twombly, 550 U.S. at 557) (alteration in Iqbal).
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III. Analysis
A. D.C. Statute of Limitations
1. The Discovery Rule
The parties agree that Plaintiff's claim is subject to a
three-year statute of limitations. D.C. Code§ 12-301(7). However,
the parties disagree with regard to when the cause of action
accrued. If Harris's cause of action accrued at the time of the
transfers from Harris' s factoring account with Wells Fargo to
Person's account, namely on March 19, 2008, or May 13, 2008, the
claim is barred by the statute of limitations. Harris though,
argues that the discovery rule applies and therefore the cause of
action did not accrue until July 29, 2013, when Harris "first
discovered some evidence of Wells Fargo's [alleged] wrongdoing."
Opp'n at 3-4. Therefore, if the discovery rule is applicable,
Harris's cause of action may not be time-barred.
As a general rule, "[w] here the fact of an injury can be
readily determined, a claim accrues for purposes of the statute of
limitations at the time the injury actually occurs." Colbert v.
Georgetown Univ., 641 A.2d 469, 472 (D.C. 1994) (en bane). Where
the injury is not apparent or the relationship between the injury
and the tortious conduct is obscure, courts will determine when
the claim accrues through application of the discovery rule. See
Burns v. Bell, 409 A.2d 614, 615-16 (D.C. 1979); Bussineau v.
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President & Dirs. of Georgetown College, 518 A.2d 423, 425 (D.C.
1986) . The discovery rule provides that a cause of action accrues
when the plaintiff has either actual notice of her cause of action,
or is deemed to be on inquiry notice. See Diamond v. Davis, 680
A.2d 364, 372 (D.C. 1996).
Wells Fargo argues that the discovery rule does not apply
because Harris could and should have discovered the harm through
reasonable diligence. The District of Columbia Court of Appeals
has articulated four factors for courts to consider when
determining application of the discovery rule. These four factors
are: ( 1) the justifiable reliance of a plaintiff on the
professional skills of those hired to perform their work, (2) the
latency of the deficiency, (3) the balance between the plaintiff's
interest in having the protection of the law and the possible
prejudice to the defendant, and ( 4) the interest in judicial
economy. Ehrenhaft v. Malcolm Price, Inc., 483 A.2d 1192, 1202-03
(D.C. 1984); see also Kuwait Airways Corp. v. Am. Sec. Bank, N.A.,
890 F.2d 456, 461 (D.C. Cir. 1989), on reh'g (Jan. 10, 1990).
2. The Discovery Rule Does Not Apply
In evaluating the first factor, justifiable reliance, the
ability of an ordinary person to detect the violation is critical.
See Kuwait Airways, 890 F.2d at 461 (citing Woodruff v. Mcconkey,
524 A.2d 722, 727 (D.C. 1987)). In Kuwait Airways, the court ruled
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that the reliance factor weighed against application of the
discovery rule because "an ordinary business could have detected
the siphoning off of funds within a three-year period of their
conversion, without hiring another professional." Id. Similarly,
Harris is an "ordinary business, 11
which could have detected the
allegedly unauthorized fund transfers within the three-year
statute of limitations period.
While Harris should have been able to rely on Wells Fargo to
act in a reasonable manner, "the issue of the parties' duties to
one another goes to the merits in a case where the discovery rule
applies, and not to the prior question whether it should apply."
Id. (internal citation and quotation marks omitted). Therefore,
the reliance factor militates against application of the discovery
rule.
The second factor is the latency of the deficiency. There is
a latency of the deficiency when the actual injury does not
manifest itself until a long period of time after the negligent
act. See Woodruff, 524 A.2d at 727. For example, in cases of
asbestosis or a construction design deficiency, a long incubation
period may cloud an otherwise apparent relationship between the
injury and the alleged wrongdoing.
The alleged injury to Harris--the loss of money--is not one
that is latent in nature, as it occurred immediately upon Wells
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Fargo's alleged breach of contract by permitting the unauthorized
transfers. In Kuwait Airways, the court ruled that"the injury to
the payee in a conversion case manifests itself at the time the
wrongful act occurs--that is, when the forger deposits or cashes
the check." 890 F.2d at 461-62. Here, similarly, when the transfers
were complete, the alleged injury was capable of being discovered.
Therefore, this factor also weighs against applying the discovery
rule.
Nor does the balance of the competing interests favor
application of the discovery rule. The "determination as to when
a claim accrued has been guided by considerations of basic fairness
" Farris v. Compton, 652 A.2d 49, 55 (D.C. 1994). So guided,
a court should favor application of the discovery rule when "the
magnitude of the injury to the plaintiff and his interest in
relief" outweighs "the potential prejudice to the defendant and
the latter's interest in being free from stale claims." Burns, 409
A.2d at 616.
The magnitude of the injury to Harris and its interest in
relief is obviously substantial. In addition, the search for truth
will likely not be seriously impaired by the loss of evidence.
However, as the court in Kuwait Airways emphasized, "[t] he finality
of transactions promoted by an ascertainable definite period of
liability is essential to the free negotiability of instruments on
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which commercial welfare so heavily depends . ." 890 F.2d at
462 (quoting Fuscellaro v. Indus. Nat'l Corp., 368 A.2d 1227, 1231
(R. I. 1977) As such, the balance of competing interests favors
Wells Fargo and militates against invocation of the discovery rule.
The fourth factor of judicial economy does not weigh for or
against applying the discovery rule. Denying application of the
discovery rule here would not "encourage litigation in the first
instance, rather than as a last resort." Ehrenhaft, 483 A.2d at
1203.
In sum, this breach of contract claim is not one that
justifies application of the discovery rule. The injury--the loss
of money--is by nature apparent at the time of the alleged wrongful
transfers, and the relationship between the injury and Wells
Fargo's alleged breach of contract is not obscure. The four factors
discussed above also weigh against application of the discovery
rule. Therefore, the Court concludes that the discovery rule is
not applicable to Harris's claims.
3. Fraudulent Concealment
Plaintiff argues that, even if the discovery rule is not
applicable, fraudulent concealment should still toll the statute
of limitations. Where the basis of a cause of action is
fraudulently concealed from a plaintiff, , courts have created an
exception to the "time of the act" rule. See William J. Davis,
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Inc. v. Young, 412 A.2d 1187, 1191 (D.C. 1980). When the "defendant
[has] done something of an affirmative nature designed to prevent
discovery of the cause of action," the statute of limitations will
not commence to run until the plaintiff discovers or has a
reasonable opportunity to discover the wrong. Id. (citing Searl v.
Earll, 221 F.2d 24 (D.C. Cir. 1954)).
Harris states that Wells Fargo concealed Person's alleged
embezzlement by diverting its bank statements to Person, but it
has not alleged that Wells Fargo did so fraudulently or in order
to conceal the alleged breach of contract. 4 Opp'n at 5. In the
absence of any allegation of fraudulent action by Wells Fargo, the
Court concludes that there is no justification for tolling the
statute of limitations.
B. Failure to State a Claim
Having found that Harris' s claim is barred by the D. C. Statute
of Limitations, the Court need not reach Defendant's contention
that Plaintiff has failed to state a claim.
4 Harris also contends that Wells Fargo concealed Person's
alleged embezzlement by refusing Harris's requests to provide
bank statements. Opp'n at 5. This contention is not relevant for
purposes of determining the applicability of fraudulent
concealment, as Harris has not indicated that it requested the
statements before it was aware of its cause of action against
Wells Fargo. Therefore, it cannot be said that Wells Fargo was
attempting to fraudulently conceal Harris's cause of action.
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IV. Conclusion
For the foregoing reasons, Defendant's Motion to Dismiss
shall be granted. An Order shall accompany this Memorandum Opinion.
July 6, 2015
United States District Judge
Copies via ECF to all counsel of record
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