Relying on the statute of limitations, a panel of the Fifth District Appellate Court has affirmed the dismissal of a woman’s lawsuit over funds that were stolen by her former and now-deceased Alton attorney.
In 2010, Corrine Hawkins sued her attorney, Dennis Nalick, and his bank, National City Bank, in an attempt to recover the inheritance money she lost when Nalick forged her name on a check and converted the funds to his own use.
Hawkins had hired Nalick to assist her in an Ohio probate proceeding involving inheritance money her mother left her when she died in 2004.
After her mother’s estate sent Nalick a $137,826.43 check payable to Hawkins, he forged her endorsement on the check, deposited it in his law office’s account with National City Bank and converted the funds to his own use at some point in 2006.
Hawkins contends that Nalick made misrepresentations to her over the delay in payment of her inheritance check and as such, hired a new attorney.
She subsequently discovered that her mother’s estate had already cut the check and that Nalick forged it. In April 2010, she filed a lawsuit against Nalick and his bank in Madison County Circuit Court.
The incident also led the Illinois Attorney Registration & Disciplinary Commission to lodge a complaint against Nalick, who had a history of disciplinary matters dating back to the late ’90s.
In 2011, Nalick admitted that he deposited Hawkins’ check into his own account and pled guilty to mail fraud charges levied against him in a federal criminal case.
Nalick, however, according to a Madison County coroner’s jury, committed suicide on the day he was set to be sentenced.
The count in Hawkins’ lawsuit against Nalick was resolved when summary judgment was entered against the special representative of Nalick’s estate, the appellate court opinion states.
Hawkins’ lawsuit also included claims against the bank under theories of conversion and negligence.
The bank filed a motion for summary judgment, asserting Hawkins’ claims were barred by the three-year statute of limitations in Section 3-118(g) of the Uniform Commercial Code (UCC).
The bank argued that the discovery rule, which Hawkins’ asserted in her counts against the bank, doesn’t apply to claims for check conversion and that she failed to prove it fraudulently concealed the conversion of her funds.
Although Hawkins admitted she didn’t have any evidence that the bank fraudulently concealed the conversion of the check, she claimed that the statute of limitations should still be tolled under the discovery rule.
The discovery rule, according to the appellate court opinion, tolls the beginning of the statute of limitations until the injured plaintiffs knows or should have reasonably known she had been injured.
Madison County Circuit Judge Dave Hylla agreed with the bank’s arguments in November 2011 and entered summary judgment in its favor.
Hawkins appealed and on Wednesday, a unanimous panel of the Fifth District Appellate Court affirmed Hylla’s ruling.
Justice Bruce Stewart delivered the panel’s 11-page opinion. Justices James Donovan and James Wextten concurred.
“Although the mechanical application of the statute of limitations in the present case leads to a harsh result, courts addressing this issue have noted that greater good is served by the strict application of the limitations period,” Stewart wrote.
Stewart explained in the panel’s analysis that checks are negotiable instruments subject to the UCC’s provisions and that a check is converted when it is taken by transfer from a person not entitled to enforce it.
In order for a financial institution to be held liable for a conversion, Stewart wrote that the UCC requires a plaintiff to prove that 1) she owned, held an interest in or had the right to possess a negotiable instrument, 2) someone forged the plaintiff’s endorsement on the check and 3) the bank negotiated the check without her authorization.
Stewart added that under Section 3-111(g) of the UCC, a plaintiff has three years to bring an action based on conversion of a negotiable instrument.
Although it is undisputed that Nalick deposited Hawkins’ forged check sometime in 2006 and Hawkins did not learn of her attorney’s actions until 2010, Stewart wrote that Hawkins’ complaint was filed outside of the three-year period of statute of limitations.
When it came to Hawkins’ argument over the discovery rule, Stewart noted that “the Illinois Supreme Court has not addressed the issue of the applicability of the discovery rule in a case of conversion of a negotiable instrument,” but lower courts have determined the discovery rule can’t toll the statute of limitations in the UCC.
To bolster the court’s reasoning, Stewart pointed to the 1997 ruling of the Fourth District Appellate Court in Haddad’s of Illinois v. Credit Union.
In that case, which dealt with alleged forgeries and deposits of checks, the appellate court affirmed the lower court’s ruling that granted the bank’s motion for summary judgment based on Section 3-111(g) and held that the discovery rule didn’t apply.
When the plaintiff in Haddad’s appealed, Stewart wrote that the appeals panel looked to other jurisdictions for guidance because the issue was one of first impression in Illinois.
“In the present case, we have also reviewed the case law in other jurisdictions and have determined that the overwhelming majority of other jurisdictions that have addressed this issue have declined to apply the discovery rule to toll the statute of limitations for actions alleging the conversion of negotiable instruments,” Stewart wrote.
He noted that Illinois courts addressed the issue again in 2007 in Kidney Cancer Association v. North Shore Community Bank & Trust Co. and once again found that the plaintiff’s conversion claims were barred by the statute of limitations.
Unlike the plaintiffs in Haddad’s and Kidney Cancer Association, Stewart wrote that “there is no indication that the plaintiff in the present case was in the best position to easily and quickly detect the loss and take appropriate action or that she could have detected the conversion sooner with adequate bookkeeping.”
“Nonetheless,” he added, “we believe that we must apply the three-year statute of limitations on claims for the conversion of negotiable instruments.”
He also noted that the Supreme Court of Nebraska recently surveyed the rulings of other jurisdictions on the issue and came to the same conclusion.
“Although the Illinois Supreme Court has not addressed the applicability of the discovery rule to section 3-118(g) of Illinois’s version of the UCC, the court has stated that Illinois generally follows the majority interpretation of UCC provisions,” Stewart explained.
According to the opinion, Alton attorney Robert D. Larson represented Hawkins and Kurt Reitz, Mike Bartolacci and Matthew Landwehr of Thompson Coburn LLP in Belleville represented the bank.
Larson did not immediately return a message seeking comment so it is unclear whether Hawkins will appeal the ruling to the Illinois Supreme Court.