The Honorable Michael J. Melloy, Chief Judge, United States 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 HANSEN and MORRIS SHEPPARD ARNOLD, Circuit Judges, and MELLOY,1

District Judge. 

___________

MORRIS SHEPPARD ARNOLD, Circuit Judge.
The Honorable Ortrie D. Smith, United States District Judge for the Western

2

District of Missouri.

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Leo G. Wetherill and LGW Energy Resources, Inc., appeal from the

district court's order granting the defendants' motion for summary

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 with

defendant Putnam Investments, Inc. Defendant State Street Bank and Trust Company

contracted with Putnam to be the account's custodian. Mr. Wetherill and LGW authorized

State Street to redeem Putnam account shares upon the receipt of a signed

check drawn on the Putnam account, and designated Mr. Wetherill as the only

person who was allowed to write checks. They also designated P.O. Box 8651

in Kansas City, Missouri ("the Missouri Box"), as the address of record for

the account.

LGW subsequently appointed Gary Leitner to the position of corporate

secretary. Mr. Leitner prepared tax returns and corporate documents, kept

the corporate books, and managed LGW's various accounts 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

account; as already indicated, that privilege belonged to Mr. Wetherill

alone. 

When Mr. Leitner became secretary, Mr. Wetherill gave him all of

LGW's financial records. He also instructed Mr. Leitner to change the

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 registered

agent. Sometime between April and December, 1986, the address of record

for the Putnam account was changed to P.O.
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Box 4000 in Olathe, Kansas ("the Kansas Box"). The record strongly

indicates that Mr. Leitner made this change and that he did so without

Mr. Wetherill's knowledge. Mr. Wetherill, however, was aware of the

existence of the box and of the fact that some corporate 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. 

From December, 1986, through January, 1989, State Street cashed

checks that Mr. Leitner had fraudulently signed and endorsed in an amount

between $275,000 and $300,000. Mr. Leitner signed Mr. Wetherill's name on the

checks and several times added his own name to Mr. Wetherill's, along with

the notation "treasurer." The defendants neither verified that the

signatures were indeed Mr. Wetherill's nor notified Mr. Wetherill of the

withdrawals. Putnam did send LGW monthly and annual account statements

that contained this information, as well as statements following each

transaction. Putnam also sent monthly, annual, and transactional

statements to LGW's broker.

Mr. Wetherill 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 to provide them with any account-related documents in

its possession and stated that Mr. Wetherill's "business has been subjected

to embezzlement by a former business associate." It was not until a

subsequent letter, dated November 1, 1994, that Mr. Wetherill and LGW

identified the checks at issue, stated that "[t]hese checks were signed

and/or endorsed by an unauthorized person," and asked the defendants to

make good on the losses to the Putnam account. When the defendants refused

to do so, Mr. Wetherill and LGW sued them, seeking recovery on theories of

fraud, negligence, conversion, breach of fiduciary duty, failure to adhere

to commercially reasonable standards, and bad faith.
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II.

We agree with the district court that 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 customer, 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 that

Mr. Wetherill agreed to for their receipt. As the court below correctly held, however,

"[t]he receipt of any writing 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 believe that the record does not reveal any likelihood that the

statements would have arrived at and been received at the Missouri Box any

sooner than they would have at the Kansas Box, at least not significantly

so, partly because they would have been sent by mail in any case and partly

because Mr. Leitner lived in Kansas. We thus believe that the district

court correctly concluded that "the account statements were actually

received by LGW within the time" that they would have been received at the

Missouri Box. The statements were therefore properly sent.

Mr. Wetherill and LGW further contend that even if the statements

were "properly sent" within the meaning of the statute, the time for giving

notice did not begin to run until they discovered or should have discovered

Mr. Leitner'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, it

fixes the time within which the appellants must give notice to the

defendants. Jensen v. Essexbank, 483 N.E.2d 821, 822 (Mass. 1985). U.C.C.

§ 4-406(4)
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establishes a statute of repose under which the time for bringing suit

expires one year following the availability of the relevant account

statements. See 7 RONALD A. ANDERSON, ANDERSON ON THE UNIFORM COMMERCIAL

CODE § 4-406:1, Official Code Comment, ¶ 5, at 451, § 4-406:11 at 458 (3d

ed. 1995).

We believe, moreover, that Mr. Wetherill and LGW would not prevail

even if the statute begins to run when a customer should have discovered

the forgeries. Mr. Leitner's illegal activities lasted from December,

1986, through January, 1989. Mr. Wetherill did not discover Mr. Leitner's

fraud until 1992 or 1993. During this entire period, Mr. Wetherill never

sought to review the account statements in Mr. Leitner's possession, never

sought to review the statements in his broker's possession, and never

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 the

corporate tax returns, would also have revealed the fraud had Mr. Wetherill

reviewed them even once. The fact that Mr. Leitner did not volunteer the

information did not render the information unavailable to Mr. Wetherill and

LGW. Rather, their own tardiness in reviewing their financial status

rendered the information unavailable. Had Mr. Wetherill exercised

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 also

maintain, the statute begins to run when a customer actually discovers the

forgeries. Mr. Wetherill and LGW allege that they discovered the forgeries

in April, 1993. If their proposed interpretation 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 their

broker's May 11, 1993, letter. But that letter informed the defendants only

that Mr. Wetherill had been defrauded and requested the Putnam account

records; it did not state that money had been improperly taken from the

account or that the fraud was related to account activities. Mr. Wetherill

and LGW also assert that a March, 1993, Justice Department subpoena

requesting all records pertaining to the account notified
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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 believe that the defendants did not have notice of Mr. Leitner's

dishonest activities until the November, 1994, letter to them. Therefore,

even if, as Mr. Wetherill 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 activities

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 the

statements 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 depositor 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 fact that the statements were sent to Mr. Leitner did not exempt Mr. Wetherill and LGW from their

responsibility of notifying the defendants. 

Mr. Leitner cashed the final check in January, 1989. When,

presumably in early 1989, the defendants mailed the January statement, the

one-year statute of repose started to run on the final check; it had

already begun running on the earlier checks, because 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 and

LGW's action was barred one year later -- several years before they

notified the defendants in 1994.
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III.

Mr. Wetherill and LGW maintain that § 4-406 applies only to claims

brought under the U.C.C., as, for instance, to warranty claims under U.C.C.

§ 3-417. See Sun 'n Sand, Inc. v. United California Bank, 582 P.2d 920

(Cal. 1978), and Appley v. West, 832 F.2d 1021 (7th Cir. 1987). They

therefore contend that their claims, all of which are common-law causes of

action, are not barred. We disagree.

First of all, § 4-406(4) itself states 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, regardless 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 the

sweeping language of the relevant section that led one commentator to

conclude, we think correctly, that the "time limits imposed by U.C.C. § 4-

406 are applicable without regard to the theory on which the customer

brings his or her action." See 7 RONALD A. ANDERSON, ANDERSON ON THE COMMERCIAL

CODE § 4-406:24 at 466.

More importantly, the Supreme Judicial Court of Massachusetts, whose

law it is we are bound to apply, has specifically held that § 4-406(4) bars

claims sounding in contract or negligence, see Jensen, 483 N.E.2d at 822.

The claims of negligence, conversion, breach of fiduciary duty, and failure

to adhere to commercially reasonable standards are all based on the

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 within

the ambit of Jensen. But Mr. Wetherill and LGW produced in any event

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.
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IV.

The district court's grant of summary judgment is therefore affirmed

for the reasons indicated.

A true copy.

Attest:

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