Sixth Circuit Joins Majority in Rejecting Discovery Rule for UCC Check Conversion Claims

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The United States Court of Appeals for the Sixth Circuit has joined with the majority of courts in rejecting application of the discovery rule for check conversion claims under the Uniform Commercial Code (“UCC”). In Pate v. Huntington Nat’l Bank, et al., 560 Fed.Appx. 506 (2014), the Sixth Circuit addressed the application of Ohio’s general statutory discovery rule for the wrongful taking of personal property in the context of check conversion subject to UCC § 3-118(g). Ohio Rev. Code § 2305.09 provides that a cause for wrongful taking of personal property “shall not accrue until the wrongdoer is discovered.” UCC § 3-118(g), on the other hand, provides that an action for conversion “must be commenced within three years after the cause of action accrues.”

The vast majority of courts interpreting the UCC provision have applied the three-year statute of limitations to each wrongfully deposited check, with the statute beginning to run as soon as each individual check was deposited with the depository bank. Plaintiffs have attempted to circumvent that limitation by application of the “discovery rule,” whereby the statute of limitations does not begin to run until the conversion is discovered or should have been discovered by the plaintiff. Courts that have rejected the discovery rule have relied both on statutory interpretation as well as the policy reasons underlying the UCC limitations period, including certainty of liability, finality, uniform regulation, and commercial efficiency.

Interpreting Ohio law, the Sixth Circuit predicted that the Ohio Supreme Court would reject the discovery rule in check conversion cases under the UCC. As noted by the panel, Ohio’s general statutory discovery rule would not apply to claims given their own specific statute of limitation, including the limitation found in UCC § 3-118(g). Those statutes were enacted after the more general statutory provision, and the specific statute dealing with check conversion overrides a more general statute dealing with taking of personal property.

While many jurisdictions lack a decision on the issue from their highest court, the Sixth Circuit has now joined the majority of jurisdictions to address the issue in rejecting the discovery rule for check conversion claims under the UCC. See, e.g., Rodrigue v. olin Employees Credit Union, 406 F.3d 434 (7th Cir. 2005); Menichini v. Grant, 995 F.2d 1224 (3rd Cir. 1993).

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