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Supreme Court tells Dean no

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Lawyer, not bank will have to cover escrow money stolen in from 2003-05

By Lisa King

A year after the presentation of oral arguments in a suit Shelbyville Attorney Mark Dean brought against Commonwealth Bank & Trust for not noticing that his secretary was embezzling hundreds of thousands of dollars from him, the Kentucky Supreme Court issued a ruling yesterday in favor of the bank.

All seven justices sat on the unanimous opinion, written by Deputy Chief Justice Mary Noble.

Officials at Commonwealth Bank & Trust expressed satisfaction with the high court’s decision.

“It’s been a very long and laborious process, and it had to go through the entire process to be adjudicated, but we were very, very pleased with the decision and we were very, very pleased that it was a unanimous decision, and we also feel like at the end of the day that the bank was truly vindicated through the legal system,” said John Key, bank president.

John McGarvey, attorney for the bank, said the thought Noble’s opinion was outstanding, and not just because it was in favor of his client.

“I have read every word of all thirty-nine pages of it,” he said. “I thought it was one of the most intellectually sound and through expositions on issues involving the UCC [Uniform Commercial Code] I’ve ever read in Kentucky.”

Neither Dean nor his attorney, Larry Zielke responded to phone calls seeking comment from The Sentinel-News.

Noble’s opinion focused on three components of the case, the statute of limitations on the filing of the case, whether or not the bank was negligent in permitting Dean’s secretary Jody Wills to cash checks that he says should have been deemed suspicious and whether or not he showed reasonable diligence in keeping track of his own financial affairs.

Dean filed the suit in January 2009, accusing the bank of a violation of a Kentucky Uniform Commercial Code, as well as aiding and abetting fraud and illegal activity and breach of duty of ordinary care.

In 2008, Dean learned that his secretary, Jody Wills, who had been with him since he opened his office in 1998, had diverted more than $800,000 from his clients’ escrow accounts, thefts that had been occurring from 2003 to 2005.

Wills wrote herself duplicate payroll checks and paid her credit card bills and mortgage payments on her home with funds stolen from the accounts. To cover up those thefts, she floated checks among numerous banks that involved more than $2.6 million.

The lawsuit was dismissed in 2010 by Shelby County Circuit Judge Charles Hickman in a summary judgment, a decision upheld in 2011 by the Kentucky Court of Appeals, with the court writing that Dean should have been aware of Wills’ check-kiting scheme.

Dean then petitioned the Supreme Court and last year was granted a discretionary review, which is the authority of the court to decide if a case merits being heard.

During oral arguments before Supreme Court justices in June 2013, Zielke argued that Dean had no way of knowing that Wills was stealing money from him because her embezzlement scheme was so elaborate.

Wills had pleaded guilty and had received probation for the theft of $720,000 from Dean’s escrow account. She was jailed by Hickman at the beginning at 2012 for falling behind on her restitution schedule of $600 per week to Dean, but she was paroled in March and her restitution significantly reduced.

Noble writes in her opinion that Wills had started embezzling from Dean in 2003 and that in 2005, bank officials noticed suspicious activity and told him about it. But he claimed that the bank did not inform him and that he did not find out about it until informed of it by the FBI in 2008.

McGarvey said that it must be understood that there is no statute of limitations for such a situation and that it must be determined by the court.

“It’s significant in that it finds the statute of limitations is contained in the UCC, it’s not something that can be told,” he said. “It’s subject to what we call an absolute bar rule.”

The opinion says that according to Kentucky law, if a customer brings a claim more than a year after statements are sent out, the claim is absolutely barred.

Also, in his suit, Dean had charged that the bank should not have allowed Wills to pass checks deemed suspicious.

Noble writes that when an employer, such as Dean, authorizes an employee to write checks on its account and tells the bank that the employee is so authorized the bank does not act wrongly by paying checks written by the employee.

“Because Wills had apparent authority to sign the checks, her action was binding on the firm with respect to the bank, making the checks payable,” she wrote.

Noble also disputed Dean’s argument that he had no way of knowing what Wills was doing, saying that he did not make a great enough effort to scrutinize his own finances.

“Because Dean failed to even look into the matter, having apparently not looked at the bank statements for more than a year, it is unquestionable that he did not exercise reasonable diligence,” she wrote. “Had he simply compared his own records of items that should have been drawn on the escrow account with the bank statements, he would have seen numerous suspicious items. Instead, he relied on an employee to review the statements, and entrusted that employee with surprisingly broad control over the escrow account. The employee abused that trust. That is not reasonable diligence.”

As to why the case had taken a year at the Supreme Court level, Kevin King, staff attorney for Justice Michelle Keller, said that time frame is not as unreasonable as one might think.

“It varies; I can’t tell you what the rhyme or reason is for it [time length for cases],” he said. “I can remember when I was practicing, there were some that took a lot longer than that, and there were some that took a lot less time than that. I can’t tell you what typical would be.”

McGarvey said he thought the reason was two-fold.

“A lot of cases came out today; we had a very heavy docket load,” he said. “They did deliver a thirty-nine page decision – that’s extraordinarily long. It took a lot of research and a lot of drafting. When I see the authorities that were cited, the doctrines that were examined; a lot of work went into this opinion.”