Court Opinion

ID: 2814608
Source: CourtListenerOpinion
Date Created: 2015-07-06 15:02:23.468835+00
Date Added: 2024-06-11T12:11:41.352317
License: Public Domain

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.
                                               -1-
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).
                                          -2-
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,
                                            -3-
•.

     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.

                                                  -4-
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).
                                         -5-
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.
                                      -6-
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
                                             -7-
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
                                      -8-
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
                                        -9-
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,
                                             -10-
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.
                               -11-
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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