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Discovery Rule Does Not Apply to Maryland UCC Conversion Claims

Advance Dental Care, Inc. v. SunTrust Bank
CA No.: 10-cv-01286-AW (U.S. Dist. Court for the District of Maryland, November 30, 2012)

by Colleen K. O’Brien, Associate
Semmes, Bowen & Semmes (www.semmes.com)

In this case of first impression, the United States District Court for the District of Maryland held that the discovery rule does not apply to the statute of limitations in Maryland Uniform Commercial Code (“UCC”) conversion claims.

Advance Dental Care, Inc. arose out of its employee’s fraud, whereby the employee stole approximately $400,954.04 from Advance Dental Care, Inc. (“Advance Dental”). The employee took insurance reimbursement checks made out to Advance Dental and endorsed them to herself. The employee then deposited those checks in her SunTrust Bank (“SunTrust”) checking account. The Plaintiff, Advance Dental Care, filed a Complaint against the Defendant, SunTrust, on May 21, 2010, which alleged conversion under the UCC, negligence under the UCC, and common law negligence. After successfully having the negligence counts dismissed, SunTrust filed a motion for partial summary judgment as to the conversion count, which was granted by the Court.

The Maryland UCC statute of limitations states that conversion actions must be commenced within three (3) years after the cause of action accrues. See MD. CODE ANN., COM. LAW § 3-118(g). SunTrust argued that any checks converted prior to April 21, 2007, should be precluded from the lawsuit based on the Maryland UCC’s three-year statute of limitations for conversion claims. The 177 checks upon which SunTrust sought judgment as a matter of law were valued at $344,311.64 (which was the majority of the $400,954.04 claimed to have been stolen). Advance Dental argued that the three-year statute of limitations began running on or about September 14, 2007, when it first “discovered” the conversions. The Court was not persuaded by this argument.

Although the Court of Appeals of Maryland has held that the discovery rule applies to all civil causes of action, see Poffenberger v. Risser, 431 A.2d 677, 680 (Md. 1981), it has never applied the rule with respect to conversion claims under the Maryland UCC. The “vast” majority of courts in other jurisdictions have held that, in the absence of fraudulent concealment on the part of the Defendant asserting the defense, the discovery rule does not apply to UCC conversion claims. Although a few courts have applied the discovery rule to UCC conversion claims, the Court concluded that the Maryland Court of Appeals would follow the majority approach.

Accordingly, the Court granted the Defendant’s Motion for Partial Summary Judgment, and held that of the 192 checks claimed to be converted by Plaintiff, SunTrust was entitled to judgment as a matter of law as to the 177 checks converted prior to April 21, 2007.


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