Banking Law Roundup


No. 82  Perspectives on Developments in the Law from The Sharp Law Firm, P.C.  January 2013

Three-Year Statute Governs Conversion of Check

        Conversion and negligence claims against a bank, arising from a lawyer’s forgery of a client’s signature to a settlement check, are governed by the three-year statute of limitation of 810 ILCS 5/3-118(g), a panel in the Appellate Court’s Fifth District has held. 

            Moreover, the panel held that Illinois’ “discovery rule” does not apply in such contexts and that only acts of fraudulent concealment by the defendant bank will toll the statute.  Hawkins v. Nalick, 2012 IL App (5th) 110553. 

            The case is similar to but distinguishable from Newell v. Newell, 406 Ill. App. 3d 1046 (2011), discussed in Sharp Thinking No. 43 (March 2011).  Newell involved conversion by withdrawal from a savings account and the three-year bar of 810 ILCS 5/4-111.  It held that the discovery rule, under which the statute does not commence to run until the plaintiff knows or should know of her cause of action, did apply.  The Hawkins panel conceded there were “no facts suggesting that the plaintiff should have known about her conversion claim prior to the running of the statute.”  Acknowledging that its approach led to “a harsh result,” the court reasoned that the discovery rule is “inimical to the underlying purposes” of the Uniform Commercial Code, such as “certainty of liability, finality, predictability, uniformity, and efficiency in commercial transactions.” 

Lawyer Liable for Bank’s Attorney Fees in IOLTA Litigation

        A lawyer into whose Interest on Lawyers Trust Accounts (“IOLTA”) account were deposited two settlement checks with inauthentic client signatures has been held liable to indemnify the bank for its attorneys fees incurred in litigation over the matter.

            The court in Henry v. Waller, 2012 IL App (1st) 2514726, acted pursuant to an indemnification provision in the account agreement, which it sustained reasoning that “no bank would willingly undertake the risk of incurring attorney fees and costs . . . in return for the privilege of providing a depositor with an IOLTA account that generates a relatively small amount of bank fees.”  Given the broad language of the indemnity clause, the court said it was immaterial that a power of attorney allegedly gave the lawyer the right to sign the client’s name to the settlement checks.  Also ruled immaterial was the fact that the indemnifying lawyer paid over the settlement to a separate, referring lawyer, and it was he who embezzled the client’s funds.

No Stay Violation By Bank Holding Onto Garnished Funds

            Absent a court order or the garnishing creditor’s release, a garnishee bank does not violate the automatic stay of 11 U.S.C. § 362 by refusing to release garnished funds upon receipt of notice of the account holder’s bankruptcy, a bankruptcy court in Pennsylvania has concluded.

            Noting that courts nationwide have disagreed on whether the bankruptcy stay creates a duty to release funds to the bankrupt in such a context, In re Linsenbach, 482 B.R. 522 (M.D. Pa. 2012), was persuaded by the fact that an immediate-release rule might do damage to the garnishing creditor’s rights without providing that creditor with adequate protection as may be required by bankruptcy law.  Quoting In re Giles, 271 B.R. 903 (Bankr. M.D. Pa. 2002), the court said the right of adequate protection “cannot be rendered meaningless by an interpretation of § 362(a)(3) . . . that would compel turnover even before an opportunity for the court’s granting adequate protection.”

National Bank Act Preempts Two State Laws, California Says

            The National Bank Act, 12 U.S.C. § 1 et seq. (“NBA”), preempts a state statute governing disclosures which must be made in connection with provision of credit-card “convenience checks,” the California Supreme Court has held.

            As regards national banks, the court said such disclosures are governed by federal banking regulations and the state law improperly sought to place additional, and in some instances contradictory, requirements upon such banks.  Parks v. MBNA Am. Bank, 54 Cal. 4th 376 (2012).

            “Congress intended national banks to have broad power to engage in the ‘business of banking’ by ‘loaning money on personal security’ (12 U.S.C. § 24, par. Seventh), and that power would be significantly impaired if national banks had to comply with a diverse or duplicative patchwork of local disclosure requirements,” the high court said.

            In another case, California’s intermediate Court of Appeals has held that the NBA preempts a state law requiring a national bank, as a putative “foreign corporation,” to hold a certificate of authority from state officials in order to utilize the substitute-service provisions of Iowa’s long-arm statute.  Wells Fargo Bank v. Baker, 204 Cal. App. 4th 1063 (2012). 

            Reviewing a challenge to an Iowa judgment which had been registered for enforcement in California, the Califorinia court rejected the debtor’s argument that the judgment was void because procured without compliance with the Iowa statute.  Finding that the statute impermissibly discriminated against national banks in favor of local banks, the court said that “[e]ven the most limited aspects of state licensing requirements have been preempted because they created impermissible conditions upon the authority of a national bank to do business.”

            For further background on the NBA, see Sharp Thinking Nos. 2 (December 2007) and 17 (February 2009).

HAMP Creates No Private Cause of Action, 11th Cir. Says

            Another federal court of appeals has agreed with that portion of Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012), which holds that the Obama Administration’s Home Affordable Mortgage Program (“HAMP”) does not contain a federal private right to sue.

            However, Miller v. Chase Home Finance, LLC, 677 F.3d 1113 (11th Cir. 2012), ignores Wigod in stating that the plaintiff failed to state viable claims under state law also.  In Wigod, the 7th Circuit ruled that a mortgagor could assert claims under state-law theories for a mortgagee’s failure to modify a mortgage under HAMP as allegedly promised.  See Sharp Thinking No. 61 (April 2012).  In contrast to Wigod, the 11th Circuit in Miller curtly rejected the plaintiff’s contract and promissory estoppel claims.   

                                                                        John T. Hundley,, 618-242-0246

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No. 82