Originally published in The Docket, November 2007
by Mark A. Van Donselaar
In cases involving stolen checks, the appellate districts split on the application of the “continuing violation rule”.
Beware, plaintiffs’ attorneys: the statute of limitations for filing an action for the conversion of several negotiable instruments may, in effect, be shortening. The reduction will not be the result of an amendment to the actual statute of limitations itself. Rather, the source stems from court rulings on the applicability of the continuing violation rule to cases involving the conversion of multiple negotiable instruments over a protracted period of time.
Since 1993, persons who have had a series of negotiable instruments stolen from them have been permitted to rely on the application of continuing violation rule to, in effect, extend the statute of limitations for filing an action based on the converted checks. However, the First Appellate District’s recent decision in Kidney Cancer Ass’n v. North Shore Community Bank & Trust Company1 has created a split between the appellate districts as to whether the continuing violation rule applies to cases where multiple negotiable instruments have been converted in what a plaintiff alleges to be a common plan or scheme by a single defendant. This article will review Illinois and Seventh Circuit cases pertaining to the continuing violation rule, and discuss whether the rule applies to situations where a series of negotiable instruments have been converted.
Generally, a cause of action for conversion of personal property must be brought within five years of the cause of action accruing.2 However, section 3-118(g) of the Uniform Commercial Code – Negotiable Instruments3 provides that actions for conversion of a negotiable instrument must be commenced within three years of the action accruing.4 When faced with two statutes of limitations that arguably both apply to the same cause of action, the statute of limitation that more specifically relates to the action must be applied.5 Therefore, the limitations period for actions for conversion of negotiable instruments is three years, as set out by 810 ILCS 5/3-118(g).6
Usually, the statute of limitations begins to run when facts exist that would authorize one party to maintain an action against another.7 But, under the “continuing violation” or “continuing tort” rule, the statute of limitations is put on hold, so to speak, until the last injury has been suffered and the tortious acts have ceased.8
Field v. First Nat’l Bank of Harrisburg9 was the first Illinois case to face the issue of whether the continuing violation rule applies to the conversion of a series of checks.10 In Field, the administrator of the estate of Raymond Ewell Field brought suit against Field’s sister and the bank where she deposited checks into her own account that were payable to their father and restrictively endorsed, “for deposit only.” The plaintiff alleged that over the course of four years, numerous checks payable to Raymond and restrictively endorsed were deposited into his daughter’s accounts and then put to her own use.
The primary issue in Field was whether the alleged course of conduct was one transaction or numerous separate transactions for purposes of the calculating when the statute of limitations began.11 The trial court granted partial summary judgment, finding that the statute of limitations barred any action based on conduct that occurred more than five years prior to the lawsuit being filed.12 (Why the trial court used the more general five-year statute of limitations which applies to most actions for conversion of personal property, rather than the three-year statute of limitations set out in the provisions of the Uniform Commercial Code – Negotiable Instruments is not explained in the appellate court’s opinion.)
The appellate court reversed, agreeing with the plaintiff that the alleged course of conduct was one continuous transaction or scheme for determining the commencement of the statute of limitations.13 The appellate court based its finding on the fact that the checks were cashed by the sister, continuously over a four-year period, despite each check being payable to Raymond and each being restrictively endorsed “For Deposit Only.”14 Thus, Field established the precedent that when several checks are stolen as part of a single plan or scheme, the continuous tort rule applies and the statute of limitations for actions based on the checks does not run until the last check has been stolen.
Subsequent to Field, the Illinois Supreme Court analyzed the continuing tort rule in Feltmeier v. Feltmeier,15 in which the Supreme Court of Illinois ruled on the applicability of the continuing violation rule with respect to the tort of intentional infliction of emotional distress (IIED). In Feltmeier, a woman sued her ex-husband for IIED. The complaint alleged that from October 1986 until after December 1998, the ex-husband had intentionally caused emotional distress to the woman or acted with reckless disregard as to whether his conduct would cause emotional distress to her. The ex-husband filed a §2-619 motion to dismiss, claiming that a majority of the facts alleged were not actionable because the statute of limitations had run. The woman responded by arguing that the ex-husband’s actions constituted a “continuing tort” for purposes of the statute of limitations, and that her complaint was filed within the two years of the last tortious act committed by her ex-husband.
The Supreme Court began by explaining that under the continuing violation or continuing tort rule, the limitations period does not begin to run until the date of the last injury or the date that the tortious acts cease.16 The Court clarified that a continuing violation or tort is found when there are continuing unlawful acts or conduct, not simply continued ill effects from a single unlawful act.17 Therefore, the Court found that if the alleged actions of a defendant are each a separate violation rather than one continuous, unbroken violation, then the continuing violation rule is not applicable.18 Furthermore, the Court explained that the continuing tort rule does not involve tolling the statute of limitations as a result of delayed or continuing injuries. Instead, the court viewed the alleged wrong as a continuous whole.19 As to whether a particular set of actions will be considered a continuous tort rather than a number of individual, actionable torts, the Court seemed to reason that an action for IIED is often a claim that arises out of the accumulation of several distinct acts.20 The Court explained that it would be inconsistent to find that the cumulative effect of several acts gives rise to a claim for IIED, but that the statute of limitations for IIED runs from the date of each separate act.21
The same rationale would not seem to apply to a situation involving the conversion of several negotiable instruments. Arguably, the disparity between the facts in Feltmeier and those in most cases involving converted negotiable instruments makes Feltmeier distinguishable. However, Feltmeier is still relevant to a case brought for conversion of negotiable instruments because the Court in Feltmeier cited Field and noted its holding.22 It seems highly unlikely that the Illinois Supreme Court would cite to an appellate court case as authority for a particular proposition and make note of the lower court’s opinion if it did not agree with the opinion rendered by the appellate court. Therefore, Feltmeier is relevant to the situation where several negotiable instruments have been converted as part of a common plan or scheme.
In Rodrigue v. Olin Employees Credit Union,23 the Seventh Circuit addressed the issue of whether the continuing tort rule should apply to a case where 269 checks were stolen over the course of more than seven years. Though Rodrigue is not binding authority in Illinois state courts,24 the Seventh Circuit stated that it was required to apply the law as it believed the Illinois Supreme Court would if it were deciding the same case.25 The district court judge had followed Field and applied the continuing tort rule, awarding damages based on all 269 checks, even though more than three years had passed between the time that many of the checks were converted and the lawsuit was filed. The Seventh Circuit began by examining Field and found that the case clearly supported the district court’s ruling.26 However, the court was not convinced that the Illinois Supreme Court would also agree with Field.27
Instead, the Seventh Circuit compared Feltmeier, where the continuing tort rule was applied, with the Illinois Supreme Court Case Belleville Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc.28 where the continuing tort rule was not applied, and reasoned that the Illinois Supreme Court would not apply the continuing tort rule to a cause of action for conversion of several negotiable instruments.29 The key factor in the court’s determination was that the plaintiff’s claim did not depend upon the cumulative nature of the defendant’s actions.30 Rather, the conversion of each check was an independent, actionable wrong.31 In fact, the court went so far as to say that the fact that over 200 checks were converted during an 85-month period was irrelevant as far as the plaintiff’s right to sue for conversion.32 In the court’s opinion, whether one check or 100 had been converted, nothing about the repeated, ongoing conversions changed the plaintiff’s claim for conversion apart from increasing her damages.33/sup>
The Seventh Circuit noted that the Illinois Supreme Court cited Field in its Feltmeier opinion, but found the citation to be for “illustrative purposes only.”34 Therefore, the court did not find Feltmeier to be an endorsement of the holding reached in Field, or an indication of how the Illinois Supreme Court would decide the question of whether to apply the continuing tort rule to the conversion of several negotiable instruments.35
Finally, the appellate court noted that the plaintiff did not argue that her claim was timely based on the discovery rule.36 The court found that, similar to the discovery rule, the continuing tort rule is based, at least partially, on the idea that where a cause of action arises from the cumulative nature or impact of a series of acts over time, it can be difficult to discern the wrongfulness of the defendant’s acts while they are still occurring.37 Because of similarities between the continuous tort rule and the discovery rule, the court examined whether the discovery rule had been applied to a situation involving the conversion of negotiable instruments and found that Illinois and a majority of other jurisdictions have not applied the discovery rule in that context.38
Finally, the Seventh Circuit thoroughly examined whether the application of either the discovery rule or the continuing tort rule would be contrary to the underlying purposes and goals of the Uniform Commercial Code (U.C.C.). The court stated that the goals of the U.C.C. were to create a system of certainty of liability, finality, predictability, uniformity, and efficiency in commercial transactions39 In keeping with those goals, negotiable instruments are intended to facilitate the rapid flow of commerce and to foster efficiency.40 The court found that application of the continuing tort rule to the conversion of negotiable instruments would not further the goals of the U.C.C. because the result would be that plaintiffs would have a longer period to sue on a claim, thereby undermining the finality of transactions involving such negotiable instruments.41/sup>
Even though the court in Rodrigue postulated that the Illinois Supreme Court would not apply the continuing tort rule to the conversion of several negotiable instruments, its ruling did not create a split of authority for Illinois courts, because state courts are not bound by federal court decisions.42 Therefore, it was not until the First District Appellate Court’s decision in Kidney Cancer Association that there was a split of authority for Illinois courts with respect to the application of the continuing violation rule to the conversion of several negotiable instruments.
Kidney Cancer Ass’n was another case in which an employee – in this case, the executive director of Kidney Cancer Association – stole funds belonging to his employer. Counts for negligence and conversion were filed against the bank involved in the transactions. The bank brought a motion to dismiss pursuant to § 2-615 of the Code of Civil Procedure.43 The trial court granted the motion and dismissed the negligence count without prejudice, and dismissed the conversion count with prejudice, finding that it was barred by the statute of limitations.
The appellate court began its examination of the continuing violation issue by reviewing the relevant case law, including the cases discussed above. The court stated that while the complaint alleged several conversions of negotiable instruments, each unauthorized deposit by the plaintiff’s employee gave the plaintiff a viable right to file an action for conversion.44 The court found the fact that the conversions spanned a five-year timeframe to be irrelevant because the repetitious nature of the violations did not affect the nature or validity of the plaintiff’s action.45 Moreover, the court stated that, at least in its view, the Illinois Supreme Court has made clear that the continuing violation rule only applies when the pattern, course, or accumulation of the defendant’s actions are relevant to the cause of action.46 Ultimately, the appellate court found the reasoning of Rodrigue more persuasive than that of Field.47
Illinois judges and practitioners are left with a split of authority in the appellate court districts. Those in the first and fifth district are bound to follow the ruling of the respective appellate districts. However, those from each of the other districts in Illinois are left with the difficult decision of choosing between two equally authoritative precedents. Of course, the entire issue could be settled by an Illinois Supreme Court ruling on the issue, but until then, or until more districts rule in favor of one side or the other, practitioners will argue and judges will struggle with which rule to apply.