## The Honorable Michael J. Melloy, Chief Judge, United Sta tes District Court for 1 

## the Northern District of Iowa, sitting by designation. United States Court of Appeals 

### FOR THE EIGHTH CIRCUIT

___________ No. 96-2781

___________ Leo G. Wetherill and LGW * Energy Resources, Inc., *
* Appellants, * Appeal from the United States
* District Court for the Western
v. * District of Missouri.
* Putnam Investments, a Mutual * Fund, and State Street Bank & * Trust Company, a State Banking * Corporation, *
* Appellees. *

___________ Submitted: February 13, 1997 Filed: August 8, 1997

___________ Before H ANSEN and MORRIS SHEPPARD ARNOLD, Circuit Judges, and MELLOY, 1 District Judge.

___________ MORRIS SHEPPARD ARNOLD, Circuit Judge.

## T he Honorable Ortrie D. Smith, United States District Judge for the Wester n 2 

## District of Missouri.
-2- Le o G. Wetherill and LGW Energy Resources, Inc., appeal from th e district court's order granting the defendants' motion for summar y 2 judgment and dismissing the complaint. For the reasons discussed below, we affirm.

I. In August, 1985, Mr. Wetherill (LGW' s president, vice-president, and sole shareholder) opened a corporate cash trust account for LGW wit h defendant Putnam Investments, Inc. Defendant State Street Bank and Trust Compan y contracted with Putnam to be the account's custodian . Mr. Wetherill and LGW authorize d State Street to redee m Putnam account shares upon the receipt of a signed check drawn on the Putnam account, and designated Mr. Wetherill as the onl y person who was allowed to write checks. They als o designated P.O. Box 8651 in Kansas City, Missouri ("the Missouri Box"), as the address of record fo r the account.
LGW subsequently appointed Gary Leit ner to the position of corporate secretary. Mr. Leitne r prepared tax returns and corporate documents, kept the corporate books, and managed LGW's various a ccounts in accordance with Mr. Wetherill's instructions, much as a corporate treasurer would

. Mr. Wetherill instructed Mr. Leitner to deposit LGW's corporate profits in the Putnam account , but he was not authorized to remove funds from the
accoun t; as already indicated, that privilege belonged to Mr. Wetheril l alone.

Wh en Mr. Leitner became secretary, Mr. Wetherill gave him all o f LGW's financial records. He also instructed Mr. Leitner to change th e corporate address of record for the state of Kansas to Mr. Leitner's home address in Olathe, Kansas, where Mr. Leitner would be LGW's registere d agent. Sometime between April and December, 1986, the address of record for the Putnam account was changed to P.O.

## -3-

Box 4000 in Olathe, Kansas ("the Kansas Box"). The record strongl y indicates that Mr. Leitner made this change and that he did so withou t Mr. Wetherill's knowledge. Mr. Wetherill, however, was aware of th e existence of the box and of the fact that some c orporate mail was received there. The defendants did not notify Mr. Wetherill of the address change and did not confirm with Mr. Wetherill that this change was authorized.

Fro mDecember, 1986, through January, 1989, State Street cashe d checks that Mr. Leitner had fraudulently signed and endorsed in an amoun t betw een $275,000 and $300,000 . Mr. Leitner signed Mr. Wetherill's name on th e checks and several times added his own name to M r. Wetherill's, along with the no tation "treasurer." The defendants neither verified that th e signatures were indeed Mr. Wetherill's nor notified Mr. Wetherill of the wit hdrawals. Putnam did send LGW monthly and annual account statement s that c ontained this information, as well as statements following eac h tra nsaction. Putnam also sent monthly, annual, and transactiona l statements to LGW's broker.

Mr. Wethe rill and LGW became suspicious of Mr. Leitner's activities late in 1992 or early in 1993 and confirmed the nature of those activities in May, 1993. In a letter dated May 11, 1993, Mr. Wetherill's and LGW's broker asked Putnam t o provide them with any account-related documents in its possession and stated that Mr. Wetherill's "business has been subjecte d to emb ezzlement by a former business associate." It was not until a subsequ ent letter, dated November 1, 1994, that Mr. Wetherill and LG W ide ntified the checks at issue, stated that "[t]hese checks were signe d and /or endorsed by an unauthorized person," and asked the defendants t o make good on the losses to the Putnam account. When the defendants refuse d to do so, Mr. Wetherill and LGW sued them, seeki ng recovery on theories of fraud, negligence, conversion, breach of fiducia ry duty, failure to adhere to commercially reasonable standards, and bad faith.

## -4- II. We agree with the district court tha t Massachusetts law governs this dispute. The Massachusetts version of U.C.C. § 4-406(4) requires a bank customer to report an unauthorized signature on his or her checks to the relevant bank within one year from the time that a bank statement is "made available" to that cu stomer, or the customer "is precluded from asserting against the bank ... [his] unauthorized signature." A statement is "made available " when a bank "sends" its customer an account statement , U.C.C. § 4-406(1), and under U.C.C. § 1-201(38), one "sends" a statement when one deposits it "in the mail ... properly addressed." Mr. Wetherill and LGW maintain that the statements here were not "properly addressed " because they were mailed to an address other than the one tha t Mr. Wetherill agreed to for their receipt. As the court below correctly held, however, "[t]he receipt of any writin g or notice within the time at which it would have arrived if properly sent has the effect of a proper sending." U.C.C. § 1-201(38).

We beli eve that the record does not reveal any likelihood that th e statements would have arrived at and been receiv ed at the Missouri Box any sooner than they woul d have at the Kansas Box, at least not significantly so, partly because they would have been sent by mail in any case and partl y because M r. Leitner lived in Kansas. We thus believe that the distric t
co urt correctly concluded that "the account statements were actuall y received by LGW within the time" that they would have been received at the Missouri Box. The statements were therefore properly sent.

Mr. W etherill and LGW further contend that even if the statement s were "properly sent" within the meaning of the statute, the time for givin g notice did not begin to run until they discovered or should have discovere d Mr. Leitne r's activity. But the time limit in the statute is "not a statute of limitations which might not start to run until the [appellants] knew or should have known of [their employee's] treachery"; rather, i t fix es the time within which the appellants must give notice to th e defendants. Jensen v. Essexbank, 483 N.E.2d 821, 822 (Mass. 1985). U.C.C

. § 4-406(4)

## -5-

estab lishes a statute of repose under which the time for bringing sui t expire s one year following the availability of the relevant accoun t statements. See 7 R ONALD A. A NDERSON , A NDERSON ON THE U NIFORM C OMMERCIA L C ODE § 4-406:1, Official Code Co mment, ¶ 5, at 451, § 4-406:11 at 458 (3d ed. 1995).

We belie ve, moreover, that Mr. Wetherill and LGW would not prevai l
even if the statute begins to run when a customer should have discovered the fo rgeries. Mr. Leitner's illegal activities lasted from December , 1986, through January, 1989. Mr. Wetherill did not discover Mr. Leitner's fraud until 1992 or 1 993. During this entire period, Mr. Wetherill never sought to review the account statements in Mr. L eitner's possession, never sought to review the statements in his broker's possession, and neve r contacted the defendants to ensure that all was as it should be. We think it likely that other records in Mr. Leitner's possession, such as th e corporate tax returns, would also have revealed the fraud had Mr. Wetheril l reviewed them even on ce. The fact that Mr. Leitner did not volunteer the information did not render the information unavailable to Mr. Wetherill an d LGW. R ather, their own tardiness in reviewing their financial statu s rendered the information unavailable. Had Mr. Wetherill exercise d reasonable diligence, he would have discovered the forgeries years before he finally did so.

Mr. Wetherill and LGW likewise would not prevail if, as they als o maintain, the statute begins to run when a custo mer actually discovers the forgeries. Mr. Wetherill and LGW allege that they discovered the forgerie s in April, 1993. If their proposed interpretatio n of the statute is right, they had until April, 1994, to notify the defendants, and they argue that they in fact notified the defendants of the account's problems in thei r broker's May 11, 1993, letter. But that letter informed the defendants onl y that Mr. Wetherill had been defrauded and requested the Putnam accoun t records; it did not state that money had been improperly taken from th e account or that the fraud was related to account activities. Mr. Wetheril l and LGW also assert that a March, 1993, Justice Department subpoen a requesting all records pertaining to the account notified

## -6-

the defendants of Mr. Leitner's activities. Like the May 11 letter , however, the subpoena did not advert to any improper withdrawal of funds from the account.

We believ e that the defendants did not have notice of Mr. Leitner's dishonest activities until the November, 1994, l etter to them. Therefore, even if, as Mr. Wethe rill and LGW maintain, the statute began to run when they actually discovered the fraud, their claim would still be barred , because they did not notify the defendants of Mr. Leitner's activitie s within one year following their discovery of those activities.

Mr. Wetherill and LGW also assert that a bank cannot rely on the § 4-406 defense if it sent th e statement s to a customer's unethical employee. But " Jensen v. Essexbank, 396 Mass. 65 (1985) indicates that Massachusetts [has adopted] the view of a majority of jurisdictions that '[m]isplaced confidence in an employee will not excuse a depo sitor from the duty of notifying the bank ... [because] the depositor is chargeable with the knowledge of all facts a reasonable and prudent examination of his bank statement would have disclosed if made by an honest employee.' " Robert Francis Construction Company, Inc. v. MassBank for Savings , 4 Mass. L. Rptr. 181 n.1 (Mass. Super. Ct. 1995), quoting K&K Manufacturing, Inc. v. Union Bank , 628 P.2d 44, 48 (Ariz. 1981). See also Pine Bluff National Bank v. Kesterson, 520 S.W.2d 253, 258-59 (Ark. 1975). The fa ct that the statements were sent to Mr. Leitner did not exempt Mr. Wetherill and LGW from thei r responsibility of notifying the defendants.

Mr. Lei tner cashed the final check in January, 1989. When , presumably in early 1989, the defendants mailed the January statement, the one-ye ar statute of repose started to run on the final check; it ha d already begun running on the earlier checks, bec ause it runs separately on each item in a series of items. Roy Supply, Inc. v. Wells Fargo Bank, N.A., 46 Cal. Rptr. 2d 309, 323 (Cal. Ct. App. 1995) . Under § 4-406, therefore, Mr. Wetherill's an d LGW's act ion was barred one year later -- several years before the y notified the defendants in 1994.

## -7- III. Mr. Wet herill and LGW maintain that § 4-406 applies only to claim s brought under the U.C.C., as, for instance, to warranty claims under U.C.C

. § 3-4 17. See Sun 'n Sand, Inc. v. United California Bank, 582 P.2d 92 0 (Cal. 197 8), and Appley v. West , 832 F.2d 1021 (7th Cir. 1987). The y therefore contend that their claims, all of whic h are common-law causes of action, are not barred. We disagree.
First of all, § 4-406(4) itself stat es quite generally that the bank customer "is precluded from asserting against the bank [an] unauthorized signature" if the customer does not comply with its notice requirements. The very generality of the language suggests that it bars the bank' s liability in the relevant circumstances, regardl ess of the theory on which the customer is relying. There is nothing in § 4-406(4) that supports the view that only claims under the U.C.C. are barred. It is no doubt th e sweepin g language of the relevant section that led one commentator t o conclude, we think correctly, that the "time lim its imposed by U.C.C. § 4- 406 are ap plicable without regard to the theory on which the custome r brings his or h er action." See 7 R ONALD A. A NDERSON , A NDERSON ON THE C OMMERCIAL C ODE § 4-406:24 at 466.
More importantly, the Supreme Judici al Court of Massachusetts, whose law it is we are bound to apply, has specifically held that § 4-406(4) bar s claims sounding in co ntract or negligence, see Jensen , 483 N.E.2d at 822. The claims of negligence, conversion, breach of fiduciary duty, and failur e to adhere to commercially reasonable standards are all based on th e defendants' alleged failure to act in a reasonable manner, and we do not hesitate to conclude that the rule of Jensen extends to all of them. The other two claims -- for fraud and bad faith -- do not literally fall withi n the ambit of Jensen . But Mr. Wetherill and LGW produced in any even t insufficient evidence in support of these claims to survive a motion for summary judgment, so we need not reach the question of whether § 4-406(4) is applicable to them.

## -8- IV. The district court's grant of summar y judgment is therefore affirmed for the reasons indicated.
A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.