John R. Fuller v. Community National Bank

03/27/2020
IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
October 15, 2019 Session

JOHN R. FULLER v. COMMUNITY NATIONAL BANK

Appeal from the Chancery Court for Hamilton County
No. 17-0630 Pamela A. Fleenor, Chancellor

No. E2018-02023-COA-R3-CV

Plaintiff John R. Fuller invested more than a million dollars with Jack Brown, who,
unbeknownst to Fuller, was running a Ponzi scheme that eventually resulted in Brown’s
involuntary bankruptcy and significant losses to numerous investors. Brown had several
accounts with Community National Bank (the bank). Brown later died and plaintiff was
unsuccessful in recovering from him or his estate. In this action, plaintiff sued the bank,
alleging negligence; fraud; aiding and abetting Brown’s fraud and breach of contract,
unjust enrichment, and breach of fiduciary duty; and violations of Tennessee’s versions
of the Uniform Fiduciaries Act, Tenn. Code Ann. § 35-2-101 (2015) et seq., and Uniform
Commercial Code, Tenn. Code Ann. §§ 47-3-307(b)(2) and 47-3-402(a) (2001). The trial
court granted the bank summary judgment. It held plaintiff’s action was barred by the
equitable doctrine of unclean hands, based on its finding that plaintiff “was using Brown
to launder his ill-gotten gains,” namely, “upwards of one million dollars in cash [plaintiff
kept] in safes to avoid paying income tax . . . accumulated from poker machines in his
store.” The trial court further held that plaintiff’s UCC claims were barred by the
applicable three-year statute of limitations, Tenn. Code Ann. § 47-3-118(g); that plaintiff
“set forth no facts that demonstrate a genuine issue that [the bank] had knowledge of any
breach of Brown’s fiduciary duty or had knowledge of such facts that its actions . . .
amounted to bad faith”; that plaintiff’s common law claims were displaced by the UCC;
that he could not establish an unjust enrichment claim because he did not confer any
benefit upon the bank; and that plaintiff failed to establish any damages stemming from
the bank’s conduct. We affirm.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed; Case Remanded

CHARLES D. SUSANO, JR., J., delivered the opinion of the court, in which D. MICHAEL
SWINEY, C.J., and THOMAS R. FRIERSON, II, J., joined.

1
Whitney Durand, Chattanooga, Tennessee, for the appellant, John R. Fuller.

Joseph R. White and Joseph Alan Jackson II, Chattanooga, Tennessee, for the appellee,
Community National Bank.

OPINION

I.

Jack Brown ran a business called Brown’s Tax Service. He also was licensed to
sell annuities for several insurance companies. Brown persuaded plaintiff to buy two
annuities from Allianz Life Insurance Company for about $600,000. Not long thereafter,
Brown convinced plaintiff to withdraw the money from the annuities and invest it
directly with Brown. Plaintiff processed the withdrawal applications and sent them to
Allianz, which mailed checks to plaintiff at his post office address of record. Brown
intercepted these mailings, fraudulently forged plaintiff’s endorsements on the checks,
and deposited the money into his business checking account with the bank held by
Brown’s Tax Service. The bank’s records show that during the second half of 2008,
Brown presented five checks from Allianz, purportedly bearing plaintiff’s endorsement
signature, which totaled $292,853.46. Plaintiff also loaned Brown approximately
$948,000, evidenced by promissory notes from Brown to plaintiff, based on Brown’s
assurances that he could invest the money and earn a high rate of return.

Plaintiff owned and operated a gas station and convenience mart in the Soddy-
Daisy area. He testified that he received shipments of gasoline and diesel fuel from
Benton Oil Company, but because Benton “had a messed up bookkeeping system” and a
“malfunctioning computer,” it failed to bill plaintiff for over a million dollars’ worth of
fuel. When Benton caught the error, it eventually billed plaintiff $485,000. Plaintiff got
the money to pay the bill from Brown, who wrote him five checks drawn on the Brown’s
Tax Service account in total amount of $485,000. The ten above-referenced checks ̶ five
from Allianz to plaintiff bearing forged endorsements and misappropriated by Brown,
totaling $292,853.46, and five drawn from the Brown’s Tax Service account to plaintiff
totaling $485,000 ̶ are the only financial transactions involving plaintiff and the bank.

Plaintiff owned eight video poker machines that were in his convenience store,
which customers would use for gambling, that plaintiff testified were “played heavy.”
He put the cash profits from the machines in three safes. At times he had over a million
dollars in cash stored there. Plaintiff testified as follows:

2
Q: You would, from time to time, deliver to Jack, in some --
what? In a briefcase or in a big box or --

A: Garbage bag. I mean, a big brown paper sack.

Q: A big paper sack. What was the -- how much money
would you give him at a time? Fifty thousand? A hundred
thousand?

A: At least a hundred thousand most of the time. One time,
fifty thousand.

* * *

Q: And did you hand over to Mr. Brown a million dollars in
cash?

A: Yes.

* * *

Q: And where did you have -- where did the other premium
for the Allianz annuities come from?

A: Out of my safe. I took money out of my safe and put it in
the bank. No, I didn’t put that in the bank. I give it to Jack
Brown, and Jack Brown probably run it through his check-
cashing deal.

* * *

Q: And why did you not -- why did you not put it in the
bank?

A: I didn’t feel comfortable doing that.

Q: And why is that?

A: Well, for one reason, I wanted to accumulate cash and
evade paying tax -- income tax on it.

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 Brown’s Ponzi scheme eventually collapsed when he ran out of money.
Involuntary bankruptcy proceedings commenced against him on November 9, 2012.
According to the complaint, 171 claims were filed against Brown, totaling $13,529,421.
The amended complaint further alleges that

Brown died on August 31, 2013. [Plaintiff] filed a claim as
an unsecured creditor for $947,759 that related to three loans
he made to Brown as a part of the Ponzi scheme. . . .
[Plaintiff] did not know that he had become a victim of the
Ponzi scheme until the bankruptcy proceedings. He did not
know about Brown’s unauthorized withdrawals from the
Allianz annuities until February 2015 during discovery
proceedings in a lawsuit. Consequently, he filed no
bankruptcy claim regarding the Allianz annuities[.]

On July 15, 2015, plaintiff filed a complaint against the bank and Allianz. He
voluntarily nonsuited that case, and then refiled the current action against the bank alone
on August 24, 2017. On May 29, 2018, plaintiff filed a “motion to exclude references to
prior conduct,” in which he stated that he

moves the Court to exclude any direct or indirect reference by
the [bank] of John or Elizabeth Fuller’s ownership or
operation of a gaming device or the failure of either of them
to report income or receipts from it on a federal, state or local
tax return or other type of report.

Plaintiff stated that “[t]he ownership and operation of a gaming device is a Class B
misdemeanor”; “[t]he failure to report the money received from users of a gaming device
and to pay sales tax on it is arguably a Class E felony”; and “[t]he failure to report
income on a federal tax return is a felony.” Plaintiff argued that his violation of state and
federal criminal statutes may not be used against him “in a civil case that has no
similarity to those acts.” The trial court entered an order deferring its ruling “given the
uncertainty of the relief requested” and held that “Plaintiff may renew his request when
defendant makes a specific offer of evidence or as otherwise appropriate.”

Following discovery, the bank moved for summary judgment. In a thorough 33-
page order, the trial court granted the bank summary judgment on all claims. The trial
court applied the unclean hands doctrine to bar plaintiff’s action, holding that his “prior
conduct is indeed connected to this litigation, and the relief he seeks, i.e. the return of his
ill-gotten gains, is inseparably connected with his own prior fraud.” In the interest of
judicial economy and efficiency, the court ruled alternatively upon all of the remaining
4
issues. Regarding plaintiff’s UCC claims for breach of fiduciary duty under Tenn. Code
Ann. § 47-3-307(b) and conversion under § 47-3-420(a), the trial court held that the
three-year statute of limitations at § 47-3-118(g) applies, it began to run in 2008 when the
checks at issue were negotiated, and plaintiff’s action initially filed in 2015 was not
timely. Regarding the Uniform Fiduciary Act (UFA) claim under Tenn. Code Ann. § 35-
2-104, the trial court held it required two elements: “(1) that a negotiable instrument was
‘payable or endorsed to a fiduciary as such’ AND (2) that the endorsee had knowledge of
the breach of fiduciary duty or had such knowledge of such facts that its action in taking
the instrument amounts to bad faith.” (Emphasis in original). The court held that the
undisputed material facts established that plaintiff could demonstrate neither of these
elements. The trial court made a similar finding regarding the closely-related UFA claim
under Tenn. Code Ann. § 35-2-107. Regarding the UFA claim under Tenn. Code Ann. §
35-2-109, the trial court held that statute to have been impliedly repealed by the
enactment of Tenn. Code Ann. § 47-3-307, as held by this Court in C-Wood Lumber Co.
v. Wayne Cnty. Bank, 233 S.W.3d 263, 278 (Tenn. Ct. App. 2007). The trial court also
followed the holding in C-Wood that that “the UCC effectively displaced any common-
law claims that [plaintiff] may have been asserting.” Id. Plaintiff’s unjust enrichment
claim was dismissed because he could not prove that he had conferred a benefit upon the
bank, an element of such a claim. The trial court held that Tennessee law does not
provide for a claim of aiding and abetting a breach of contract. The court further held
that the Tennessee Consumer Protection Act, Tenn. Code Ann. § 47-18-104(b)(27), “does
not provide a cause of action for aiding and abetting a TCPA violation.” The trial court
rejected plaintiff’s claim for aiding and abetting fraud based on its ruling that the bank
established that it “had no knowledge of Brown’s conduct prior to his bankruptcy and
further established that [the bank] did not provide substantial assistance to Brown.”
Finally, the court ruled that plaintiff did not establish any compensatory damages in this
case because the transactions involving him and the bank resulted in a net positive to
plaintiff in the amount of $192,146.54. Plaintiff timely filed a notice of appeal.

II.

The issues on appeal are quoted from plaintiff’s brief as follows:

The issues are whether the trial court erred in granting the
motion of [the bank] for summary judgment by holding that:

1. The knowledge of [the bank] about the existence of a Ponzi
scheme perpetrated by its customer, Brown, is a question of
fact that can be decided on a motion for summary judgment.

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 2. The question of whether [the bank] gave substantial
assistance to Brown in maintaining the Ponzi scheme is one
that can be decided on a motion for summary judgment.

3. Tenn. Code. Ann. 47-18-104(b)(27), a part of Tennessee’s
Consumer Protection Act, precludes the bringing of this case
by a person other than the Attorney General of Tennessee.

4. Tennessee law does not permit the maintenance of an
action for aid and assistance to a breach of contract.

5. The following questions can be decided on summary
judgment pursuant to Tennessee’s Uniform Fiduciary Act: (a)
whether [the bank] knew that Brown was a fiduciary with
respect to [plaintiff], (b) whether it knew that Brown was
committing a breach of his obligations to [plaintiff], or (c)
whether it had knowledge of such facts that its actions in
depositing checks to Brown’s account that were payable to
[plaintiff] amounts to bad faith.

6. [Plaintiff’s] claims under Tennessee’s Uniform
Commercial Code are barred by a statute of limitations.

7. [The bank] has not been unjustly enriched.

8. [Plaintiff’s] ownership and operation of gambling devices
and failure to report income from them on tax returns
precludes his seeking relief in this litigation.

(Emphasis in original omitted.)

III.

In the recent case of TWB Architects, Inc. v. Braxton, LLC, 578 S.W.3d 879
(Tenn. 2019), the Supreme Court set forth the following guidance on our standard of
review of summary judgment:

A trial court should grant summary judgment when “the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that
6
the moving party is entitled to a judgment as a matter of law.”
Tenn. R. Civ. P. 56.04. In reviewing a trial court’s ruling on
a motion for summary judgment, we make a fresh
determination about whether the requirements of Rule 56
have been met. Rye v. Women’s Care Ctr. of Memphis, 477
S.W.3d 235, 250 (Tenn. 2015). Our review of the trial
court’s ruling is de novo, with no presumption of correctness.
On review, we accept the evidence presented by . . . the
nonmoving party as true; allow all reasonable inferences in its
favor; and resolve any doubts about the existence of a
genuine issue of material fact in favor of [the nonmoving
party].

In Rye, we stated our holding as follows:

[W]hen the moving party does not bear the
burden of proof at trial, the moving party may
satisfy its burden of production either (1) by
affirmatively negating an essential element of
the nonmoving party’s claim or (2) by
demonstrating that the nonmoving party’s
evidence at the summary judgment stage is
insufficient to establish the nonmoving party’s
claim or defense.

Rye, 477 S.W.3d at 264.

In Rye, we intended to “correct course, overrule Hannan [v.
Alltel Publ’g Co., 270 S.W.3d 1 (Tenn. 2008)], and fully
embrace the standards articulated in the Celotex trilogy.” Id.
Hannan’s summary judgment standard that “a moving party
who [does not bear the burden of proof at trial] must either
(1) affirmatively negate an essential element of the
nonmoving party’s claim; or (2) show that the nonmoving
party cannot prove an essential element of the claim at trial”
had proven to be unworkable. Hannan, 270 S.W.3d at 8–9
(emphasis added).

We intended for the summary judgment standard adopted in
Rye to apply to all parties, no matter which party filed the
motion for summary judgment.
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 * * *

[I]f the moving party bears the burden of proof on the
challenged claim at trial, that party must produce at the
summary judgment stage evidence that, if uncontroverted at
trial, would entitle it to a directed verdict. Celotex Corp. v.
Catrett, 477 U.S. 317, 331, 106 S.Ct. 2548, 91 L.Ed.2d 265
(1986) (Brennan, J., dissenting) (citations omitted). The
burden then shifts to the nonmoving party to produce
evidence showing that there is a genuine issue of fact for trial.
Id. On the other hand, when the nonmoving party has the
burden of proof at trial, the burden shifting is the same as that
set forth by this Court in Rye—the moving party may either
negate an essential element of the nonmoving party’s claim or
show that the nonmoving party does not have sufficient
evidence to prove an essential element of its claim. Id.
(citations omitted).

* * *

The emphasis under the Rye standard is the evidence at the
summary judgment stage. Whether the nonmoving party is a
plaintiff or a defendant—and whether or not the nonmoving
party bears the burden of proof at trial on the challenged
claim or defense—at the summary judgment stage, “[t]he
nonmoving party must demonstrate the existence of specific
facts in the record which could lead a rational trier of fact to
find in favor of the nonmoving party.” Rye at 265. This is
the standard Tennessee courts must apply when ruling on
summary judgment motions regardless of which party bears
the burden of proof at trial.

TWB Architects, 578 S.W.3d at 887-89 (emphasis and brackets in original; internal
citations omitted).

IV.

A. Unclean Hands Doctrine

As this Court has recently observed,
8
 The doctrine of unclean hands is a maxim of equity that
allows a court “to decline to grant relief to parties who have
willfully engaged in unconscionable, inequitable, immoral, or
illegal acts with regard to the subject matter of their claims.”
In re Estate of Boote, 265 S.W.3d 402, 417 (Tenn. Ct. App.
2007) (footnote omitted). A court of equity cannot be used to
aid a party in “profiting from [his or] her own misconduct.”
Emmit v. Emmit, 174 S.W.3d 248, 253 (Tenn. Ct. App.
2005). But this defense has limitations: “it must be confined
to the particular matter in litigation and the conduct
complained of must have injured the party making the
complaint.” Edmisten v. Edmisten, No. M2001–00081–
COA–R3–CV, 2003 WL 21077990, at *7 (Tenn. Ct. App.
May 13, 2003); see Nolen v. Witherspoon, 187 S.W.2d 14,
16 (Tenn. 1945); Coleman Mgmt., Inc. v. Meyer, 304 S.W.3d
340, 352–53 (Tenn. Ct. App. 2009).

Williams v. Hirsch, No. M2016-00503-COA-R3-CV, 2018 WL 2383612, at *7 (Tenn.
Ct. App., filed May 25, 2018) (brackets in original). In In re Estate of Boote, we noted
that “[a]ny willful act regarding a litigated matter which would be condemned and
pronounced as wrongful by fairminded persons is sufficient to trigger the doctrine of
unclean hands.” 265 S.W.3d 402, 417 n.26. “The application of the doctrine of unclean
hands is within the chancery court’s discretion, and we review the court’s decision under
the abuse of discretion standard.” Spirit Broadband, LLC v. Armes, No. M2015-00559-
COA-R3-CV, 2017 WL 384248, at *5 (Tenn. Ct. App., filed Jan. 27, 2017) (quoting
Coleman Mgmt., Inc. v. Meyer, 304 S.W.3d 340, 348 (Tenn. Ct. App. 2009)).

The facts pertinent to the inquiry of whether the trial court abused its discretion in
applying the unclean hands doctrine are undisputed. They are established almost entirely
by plaintiff’s own deposition testimony, which we have quoted above. The trial court
found as follows:

[The bank] established that Plaintiff kept upwards of one
million dollars in cash in safes to avoid paying income tax.
He accumulated this cash from poker machines in his store.
When the IRS audited [plaintiff], he did not disclose the
money in his safe. Plaintiff took this cash in brown paper
bags to Brown in exchange for Allianz annuities and
promissory notes. Plaintiff took a $750,000 capital loss on
these promissory notes on his 2012 income tax return.
9
 Plaintiff cancelled his annuities and when Allianz refunded
the annuity checks, Brown deposited them into his [Brown’s
Tax Service] account then cut other checks to Plaintiff.

* * *

Plaintiff did not dispute these facts. Plaintiff just argues his
prior deeds are not connected with this litigation. This Court
disagrees.

Chapter 14 of Title 39 is entitled “Money Laundering
Offenses.”

T.C.A. § 39-14-903(a)(1) provides:

It is an offense to knowingly use, conspire to
use or attempt to use conduct or attempt to
conduct a financial transaction or make other
disposition with the intent to conceal or disguise
the nature, location, source, ownership or
control of the criminally derived proceeds.

What the Court determines is that, in actuality, Plaintiff was
using Brown to money launder his ill-gotten gains. This
Court is cognizant that it is not trying a criminal case against
Plaintiff for money laundering. This Court is further aware
that in ruling on this motion it must view the evidence in the
light most favorable to Plaintiff. However, Plaintiff did not
dispute these facts. Nor did Plaintiff submit an affidavit
providing any other explanation for his conduct.

On appeal, plaintiff does not challenge any of the trial court’s factual findings, but
continues to argue that his unlawful conduct is too attenuated and distant to relate to his
action against the bank.

As the Supreme Court stated over a century ago,

The principle is general, and is one of the maxims of the
court, that he who comes into a court of equity, asking its
interposition in his behalf, must come with clean hands; and if
it appears from the case made by him or by his adversary that
10
 he has himself been guilty of unconscionable, inequitable, or
immoral conduct in and about the same matters whereof he
complains of his adversary, or if his claim to relief grows out
of or depends upon or is inseparably connected with his own
prior fraud, he will be repelled at the threshold of the court.

C.F. Simmons Med. Co. v. Mansfield Drug Co., 23 S.W. 165, 168 (Tenn. 1893)
(emphasis added); accord Spirit Broadband, 2017 WL 384248 at *6. In this case,
plaintiff’s own testimony draws a straight line from the money he unlawfully gained by
his illegal video poker machines, hid from the IRS in acts of tax fraud, and tried to
“launder” through Brown via cash deliveries in brown paper bags, to the funds he is
trying to recover from the bank, based on its transactions with Brown. Under these
circumstances, we cannot say that the trial court abused its discretion in applying the
unclean hands doctrine to reject plaintiff’s claims. In Southern Coal & Coke Co. v.
Beech Grove Mining Co., 381 S.W.2d 299, 303 (Tenn. Ct. App. 1963), this Court made
the following apt observation:

Conscience does not defile itself in sanctioning the
enforcement of a just and clean cause of action, even though
attempts may have been made to improperly influence its
favor; but when it actively interposes its aid to secure the
fruits of unfair and unscrupulous dealings, it becomes a party
to the scheme and encourages the practice of devious ways
that corrupt the place of its habitat.

The trial court correctly noted that its finding of unclean hands is dispositive and
fatal to plaintiff’s claims. See C.F. Simmons Med. Co., 23 S.W. at 168; (claimant with
unclean hands “will be repelled at the threshold of the court”); Segal v. United American
Bank, No. W2004-02347-COA-R3-CV, 2005 WL 3543332, at *5 (Tenn. Ct. App., filed
Dec. 28, 2005); Alexander v. JB Partners, 380 S.W.3d 772, 776 (Tenn. Ct. App. 2011)
(“Once found to exist, the doctrine of unclean hands repels the unclean plaintiff at the
steps of the Courthouse”). However, the trial court also fully addressed and disposed of
all of plaintiff’s claims and issues in the alternative, in the interest of judicial economy
and efficiency. We will do the same.

B. Uniform Commercial Code Claims

Plaintiff brought claims under the UCC for breach of fiduciary duty and for
conversion. Tenn. Code Ann. § 47-3-307 provides, in pertinent part, as follows:

11
 (b) If (i) an instrument is taken from a fiduciary for payment
or collection or for value, (ii) the taker has knowledge of the
fiduciary status of the fiduciary, and (iii) the represented
person makes a claim to the instrument or its proceeds on the
basis that the transaction of the fiduciary is a breach of
fiduciary duty, the following rules apply:

(1) Notice of breach of fiduciary duty by the fiduciary is
notice of the claim of the represented person.

(2) In the case of an instrument payable to the represented
person or the fiduciary as such, the taker has notice of the
breach of fiduciary duty if the instrument is (i) taken in
payment of or as security for a debt known by the taker to be
the personal debt of the fiduciary, (ii) taken in a transaction
known by the taker to be for the personal benefit of the
fiduciary, or (iii) deposited to an account other than an
account of the fiduciary, as such, or an account of the
represented person.

Regarding plaintiff’s conversion claim, Tenn. Code Ann. § 47-3-420 states:

(a) The law applicable to conversion of personal property
applies to instruments. An instrument is also converted if it is
taken by transfer, other than a negotiation, from a person not
entitled to enforce the instrument or a bank makes or obtains
payment with respect to the instrument for a person not
entitled to enforce the instrument or receive payment. An
action for conversion of an instrument may not be brought by
(i) the issuer or acceptor of the instrument or (ii) a payee or
endorsee who did not receive delivery of the instrument either
directly or through delivery to an agent or a copayee.

* * *

(c) A representative, including a depositary bank, who has in
good faith dealt with an instrument or its proceeds on behalf
of one who was not the person entitled to enforce the
instrument is not liable in conversion to that person beyond
the amount of any proceeds that it has not paid out.

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The applicable statute of limitations in found at Tenn. Code Ann. § 47-3-118(g), stating:

Unless governed by other law regarding claims for indemnity
or contribution, an action (i) for conversion of an instrument,
for money had and received, or like action based on
conversion, (ii) for breach of warranty, or (iii) to enforce an
obligation, duty, or right arising under this chapter and not
governed by this section must be commenced within three (3)
years after the cause of action accrues.

In C-Wood Lumber Co., this Court held as follows:

The statute of limitations in Tenn. Code Ann. § 47–3–118(g)
begins to run when the fiduciary or corporate employee
negotiates each check. The Tennessee Supreme Court, noting
that “[n]egotiable instruments are intended to facilitate the
rapid flow of commerce by providing certainty and finality in
commercial transactions,” has explicitly declined to apply the
discovery rule to actions involving the conversion of
negotiable instruments. Pero’s Steak & Spaghetti House v.
Lee, 90 S.W.3d 614, 623–24 (Tenn. 2002).

233 S.W.3d at 283 (internal citations omitted). In this case, the five checks at issue were
negotiated by Brown in 2008. Plaintiff initially brought an action against the bank in
2015. Plaintiff acknowledges the holdings in C-Wood and Pero’s Steak & Spaghetti
House, but argues that the Supreme Court recognized an exemption to its holding when a
plaintiff can establish fraudulent concealment. Pero’s Steak & Spaghetti House, 90
S.W.3d at 624 (“Absent fraudulent concealment, three years should be more than ample
time for a plaintiff to discover a conversion claim.”). The High Court in Pero’s
examined the fraudulent concealment claim and affirmed the trial court’s grant of
summary judgment, stating:

In Shadrick v. Coker, 963 S.W.2d 726 (Tenn.1998), this
Court explained that to establish fraudulent concealment, a
plaintiff must prove the following: (1) that the defendant took
affirmative action to conceal the cause of action or remained
silent and failed to disclose material facts despite a duty to do
so; (2) that the plaintiff could not have discovered the cause
of action despite exercising reasonable care and diligence; (3)
that the defendant had knowledge of the facts giving rise to
the cause of action; and (4) that the defendant concealed
13
 material facts from the plaintiff by withholding information
or making use of some device to mislead the plaintiff, or by
failing to disclose information when he or she had a duty to
do so. Id. at 735–36.

* * *

. . . the plaintiffs have failed to establish a genuine issue of
material fact as to fraudulent concealment. Even assuming a
genuine issue of material fact exists as to the other required
elements, our review of the voluminous record reveals that no
genuine issue of material fact exists as to First Tennessee
having “had knowledge of the facts giving rise to the cause of
action.” The plaintiffs’ assertion that, for purposes of
fraudulent concealment, First Tennessee should be charged
with such knowledge because it had a duty to inquire as to the
maker’s intent with respect to the special deposits is without
merit. Fraudulent concealment requires proof of actual
knowledge. See Ray v. Scheibert, 484 S.W.2d 63, 72 (Tenn.
Ct .App.) (cert. denied 1972) (cited with approval [in] Benton
v. Snyder, 825 S.W.2d 409, 414 (Tenn.1992)); Whaley v.
Catlett, 103 Tenn. 347, 356, 53 S.W. 131, 134 (1899)
(“Certainly, we would not be justified in assuming fraud in
order to prevent the running of the statute of limitations.”).
This record contains no proof indicating that First Tennessee
had actual knowledge that Lee was mishandling the plaintiffs’
checks. Instead, the facts indicate that First Tennessee was
negligent in following its own procedures, and as a result,
lacked knowledge of the facts giving rise to the cause of
action.

Id. at 625. A similar situation is presented here. In the present case, plaintiff has
presented no evidence suggesting that the bank had actual knowledge of Brown’s
mishandling of the checks from Allianz to plaintiff. Moreover, in plaintiff’s response to
the bank’s motion for summary judgment, he stated that he “does not presently possess
proof of all of these elements [of a fraudulent concealment claim] but may have it at
trial.” The Supreme Court, in Rye and CWB Architects, has made it abundantly clear
that although a party should be given fair opportunity and time to discover and provide
evidence supporting a claim, saying “I might be able to get some proof before trial” does
not shield one from a properly-supported summary judgment motion. We affirm the

14
judgment of the trial court that plaintiff’s UCC claims were barred by the statute of
limitations.

C. Uniform Fiduciary Act Claims

Plaintiff brought a claim under Tenn. Code Ann. § 35-2-104, which provides as
follows:

If any negotiable instrument payable or endorsed to a
fiduciary as such is endorsed by the fiduciary, or if any
negotiable instrument payable or endorsed to the principal is
endorsed by a fiduciary empowered to endorse such
instrument on behalf of the principal, the endorsee is not
bound to inquire whether the fiduciary is committing a breach
of the fiduciary’s obligation as fiduciary in endorsing or
delivering the instrument, and is not chargeable with notice
that the fiduciary is committing a breach of the obligation as
fiduciary unless the endorsee takes the instrument with actual
knowledge of such breach or with knowledge of such facts
that the action in taking the instrument amounts to bad faith.
If, however, such instrument is transferred by the fiduciary in
payment of or as security for a personal debt of the fiduciary
to the actual knowledge of the creditor, or is transferred in
any transaction known by the transferee to be for the personal
benefit of the fiduciary, the creditor or other transferee is
liable to the principal if the fiduciary in fact commits a breach
of the obligation as fiduciary in transferring the instrument.

(Emphasis added). Based on the italicized portion quoted above, the trial court held that,
assuming arguendo that the bank is an “endorsee,” it was not required to inquire whether
Brown was breaching a fiduciary duty to plaintiff in negotiating the checks with forged
endorsements. The court also cited and relied upon our opinion in Copper Cellar Corp.
v. Miller, No. 03A01-9607-CV-00239, 1997 WL 206798, at *6 (Tenn. Ct. App., filed
Apr. 29, 1997), wherein we interpreted the statute at issue as follows:

We acknowledge that the cashier’s check in this case
constitutes a negotiable instrument that was payable to
Taylor, Copper Cellar’s fiduciary. However, T.C.A. § 35-2-
104 only applies to negotiable instruments “payable or
endorsed to a fiduciary as such.” Id. (emphasis added). The
cashier’s check at issue here was made payable simply to
15
 “Taylor and Associates.” It contained no reference to
Taylor’s or Taylor and Associates’ status as a fiduciary of
Copper Cellar. Thus, T.C.A. § 35-2-104 is not applicable to
the facts of this case, and Copper Cellar’s claim under that
provision is without merit.

The trial court correctly held that the checks at issue here similarly did not refer to Brown
as a fiduciary. As in Copper Cellar, Tenn. Code Ann. § 35-2-104 is inapplicable to the
facts in the present case.

Tenn. Code Ann. § 35-2-107 states, in pertinent part, as follows:

If a deposit is made in a bank or savings institution to the
credit of a fiduciary as such, the bank or savings institution is
authorized to pay the amount of the deposit or any part
thereof upon the check of the fiduciary, signed with the name
in which such deposit is entered, without being liable to the
principal, unless the bank or savings institution pays the
check with actual knowledge that the fiduciary is committing
a breach of the fiduciary’s obligation as fiduciary in drawing
the check or with knowledge of such facts that its action in
paying the check amounts to bad faith.

For plaintiff to state a cause of action under this statute, he must demonstrate that (1) a
deposit was made with the bank to the credit of “a fiduciary as such” and (2) the bank (a)
had actual knowledge that Brown was breaching his fiduciary obligation in drawing the
checks or (b) had knowledge of such facts that the bank’s action in paying the checks
amounted to bad faith. As the trial court found, the bank “established that none of the
checks at issue were payable or endorsed to a fiduciary ‘as such.’ ”

There is no evidence in the record establishing that the bank had actual knowledge
that Brown was plaintiff’s fiduciary. Brown deposited the money from the checks into
his Brown’s Tax Service account. Assuming arguendo that an account in the name of a
“tax service” places the bank on notice of a fiduciary relationship, we proceed to examine
what the undisputed facts show regarding the bank’s knowledge and whether it could
possibly be found to have been acting in bad faith. These concepts were examined at
length by the federal district court in McLemore v. Regions Bank, 2010 WL 1010092
(M.D. Tenn., filed Mar. 18, 2010), affirmed on other grounds, McLemore v. Regions

16
Bank, 682 Fed.3d 414 (6th Cir. 2012).1 The McLemore court quoted this Court’s
explanation of the UFA’s purpose in C-Wood, wherein we stated:

The UFA was designed to facilitate banking transactions by
relieving depositary banks of the responsibility of assuring
that an authorized fiduciary used entrusted funds for proper
purposes. It is based on the assumption that a fiduciary will
properly apply funds entrusted to him or her, and it places the
burden on the principal to employ honest fiduciaries. It also
specifically rejects the idea that negligence on the part of a
third person dealing with a fiduciary is sufficient to shift the
risk of fiduciary misconduct from the principal to the third
party.

2010 WL 1010092, at *5 (quoting C-Wood, 233 S.W.3d at 274) (internal citations
omitted in original). McLemore further states as follows:

a bank is liable to a principal for a fiduciary’s illegal
withdrawal or transfer of funds if, and only if, the bank had
“actual knowledge” that the fiduciary was breaching his or
her fiduciary duty or had “knowledge of such facts that its
action . . . amounts to bad faith.” Tenn. Code Ann. §§ 35–2–
107, 35–2–109. Anything less is insufficient to support
liability.

The UFA does not define “bad faith,” although it does define
“good faith”: “A thing is done ‘in good faith,’ within the
meaning of this chapter, when it is in fact done honestly,
whether it is done negligently or not.” Id. § 35–2–102(b).
The obvious implication is that a bad-faith act is done
dishonestly.

Only a handful of Tennessee courts have addressed the
meaning of “bad faith.” In McConnico v. Third National
Bank, 499 S.W.2d 874 (Tenn. 1973), the court, although
primarily discussing “bad faith” under the Uniform
Commercial Code, equated bad faith with dishonesty. Id. at
881–82 (discussing Tenn. Code Ann. § 35–2–109, which was
1
The district court’s decision interpreting Tennessee’s version of the UFA, Tenn. Code Ann. §
35-2-107, as regards the concepts of a bank’s knowledge of violation of a fiduciary duty and bad faith,
was not appealed to the Sixth Circuit. McLemore, 682 Fed.3d at 424-25.
17
then numbered section 35–210, and holding that “there is no
showing of such conduct as would evidence dishonesty and
consequently such bad faith under the [UCC] statute”); see
also C–Wood Lumber, 233 S.W.3d at 284 (noting that, under
the UFA, a plaintiff must “prove [ ] that the bank was acting
dishonestly”).

* * *

In applying the UFA, courts in other jurisdictions have
consistently held that a bank acts in bad faith if “the facts and
circumstances [surrounding the fiduciary’s breach] are so
cogent and obvious that to remain passive would amount to
deliberate desire to evade knowledge because of a belief or
fear that inquiry would disclose a defect in the transaction.”
In other words, whether a bank has acted in bad faith turns on
whether it knew facts that were sufficiently suggestive of the
fiduciary depositor’s breach of duty.

This requires more than a showing that the bank was
negligent. C–Wood Lumber, 233 S.W.3d at 274; see also
O’Neal v. Southwest Mo. Bank (In re Broadview Lumber
Co.), 118 F.3d 1246, 1251 (8th Cir.1997) (“ ‘Bad faith’
requires something more than mere negligence and can be
found where the [bank] disregards circumstances that are
suggestive of a breach and are sufficiently obvious such that
it is in bad faith to remain passive.”) (applying Missouri law).
As the Supreme Court of Pennsylvania has explained,
negligence does not negate a bank’s good faith:

Even a failure to inquire under suspicious
circumstances will not negate “good faith,”
unless the failure to do so is due to a deliberate
desire to evade knowledge because of a belief
or fear that inquiry would disclose a vice or
defect in the transaction. Conversely, if a bank
has knowledge that a fiduciary intends to
appropriate trust funds to his own use, and that
to release funds to him will aid a breach of trust,
then the bank will be held to have acted in “bad
faith.”
18
 Robinson Protective Alarm Co. v. Bolger & Picker, 512 Pa.
116, 516 A.2d 299, 304 (Pa. 1986) (citations omitted), quoted
in In re Mushroom Transp. Co., 382 F.3d 325, 344 (3d
Cir.2004).

Thus, to show that the defendant had “knowledge of such
facts that its action . . . amounts to bad faith,” Tenn. Code
Ann. §§ 35–2–107, 35–2–109, the plaintiffs must show that
the circumstances surrounding Stokes’ and 1Point’s
transactions so clearly suggested a breach of fiduciary duty
that Regions’ failure to investigate was a conscious effort to
avoid knowledge of Stokes’ wrongdoing. The plaintiffs
cannot merely show that the defendant was negligent in not
discovering Stokes’ fraud or not undertaking reasonable
efforts to monitor its depositors.

McLemore, 2010 WL 1010092, at *5-7 (internal citations and footnotes omitted; brackets
in original).

In the present case, the evidence that sheds light on the question of what the bank
knew, and when it knew it, is contained in excerpts from the depositions of several bank
officers, including its president, former vice president and Bank Secrecy Act officer,
former loan officer, and former manager at the branch Brown did his banking. Also in
the record is the unsworn declaration of the bank’s CFO and senior vice president.2
There is nothing in this testimony that suggests any employee of the bank had knowledge
that Brown was committing a breach of his fiduciary duty in depositing the checks to his
business account. There is nothing in the record that suggests the bank was aware of
Brown’s forgeries of plaintiff’s signature, or that it had any reason to suspect them. The
bank employees testified that they did not suspect Brown of any wrongdoing, nor did
they have any reason to, until, at the earliest, shortly before the bankruptcy proceedings
began against Brown. This time frame is some three to four years after the checks to
plaintiff were deposited. Plaintiff himself testified as follows:

Q: Do you know people in the community – has anybody
ever told you that the bank did something wrong in this whole
situation?

2
Plaintiff proffered the testimony of Jerrold D. Farinash, the bankruptcy trustee in the
involuntary bankruptcy cases of Brown, his wife, and Brown’s Tax Service. The trial court ruled that
Farinash’s testimony “is inadmissible both as a lay witness and as an expert witness,” and plaintiff has not
appealed that ruling.
19
 A: In the community, no.

Q: No one has ever told you that the bank did anything
wrong.

A: Well, yeah, I’ve heard it -- I know they done something
wrong, because they took the checks without my signature.

Q: Okay. Well, besides that, has the bank done anything
wrong, other than receive forged checks?

A: In my opinion, no. That’s my opinion.

In short, the evidence in the record fully supports the trial court’s conclusion that
“plaintiff has set forth no facts that demonstrate a genuine issue that [the bank] had
knowledge of any breach of Brown’s fiduciary duty or had knowledge of such facts that
its actions in depositing the checks amounted to bad faith.” Consequently, we affirm the
trial court’s grant of summary judgment on plaintiff’s claim based on Tenn. Code Ann. §
35-2-107. We also affirm the trial court’s ruling that Tenn. Code Ann. § 35-2-109 has
been repealed by implication by the UCC provision found at Tenn. Code Ann. § 47-3-
307, as recognized by this Court in C-Wood, 233 S.W.3d at 278 (“Because Tenn. Code
Ann. § 47–3–307 and Tenn. Code Ann. § 35–2–109 cannot be construed harmoniously,
Tenn. Code Ann. § 47–3–307 prevails and governs all transactions occurring after its
effective date”).

D. Other Claims

Plaintiff also brought claims for negligence, aiding and abetting Brown’s breach of
fiduciary duty, aiding and abetting breach of contract, aiding and abetting fraud, aiding
and abetting Brown’s alleged violation of the Tennessee Consumer Protection Act, and
unjust enrichment. The C-Wood opinion provides the following guidance for addressing
claims based on theories other than the UCC:

The drafters of the UCC set out to preserve and, where
necessary, clarify and conform the law merchant with modern
commercial practice. The Code does not purport to codify the
entire body of law affecting the rights and obligations of
parties to commercial transactions. Thus, unless “displaced”
by particular provisions of the UCC, other principles of law
and equity that are consistent with the UCC remain valid.
20
Even though the UCC does not supplant all the law applicable
to commercial transactions, it is still the primary source of the
commercial law rules for the areas it governs because it
represents the considered choices of its drafters and of the
Tennessee General Assembly about the appropriate policies
to be furthered in the transactions it covers. . . . [W]hile
generally applicable principles of law and equity can be used
to supplement the UCC, they may not be used to supplant the
UCC’s provisions or the purposes or policies these provisions
reflect.

Courts determining whether common-law or other non-UCC
claims and remedies have been displaced by the UCC have
emphasized the policies favoring certainty and uniformity.
Thus, the prevailing view now is that when the UCC provides
a comprehensive remedy for the parties to a transaction,
common-law and other non-Code claims and remedies should
be barred.

Articles 3 and 4 of the UCC embody a delicately balanced
statutory scheme governing the endorsement, negotiation,
collection, and payment of checks. They provide discrete
loss-allocation rules uniquely applicable to banks. While this
scheme is not comprehensive, it is nearly so. Therefore,
courts dealing with “hard cases” should be hesitant to
recognize common-law or non-U.C.C. claims or to employ
common-law or non-UCC remedies in the mistaken belief
that they are dealing with one of the rare transactions not
covered by the UCC.

The weight of the case law comes down against permitting
common-law actions to displace the UCC’s provisions
regarding transactions governed by Articles 3 and 4.
Accordingly, a large number of courts have refused to
recognize common-law or non-UCC claims in general, and
specifically common-law or non-UCC negligence claims or
conversion claims, arising from transactions governed by
Articles 3 or 4. The transactions at issue in this case fall
squarely within the scope of Articles 3 and 4. Therefore, C–

21
 Wood’s claims against the bank and the scope of the remedies
available to C–Wood are governed solely by the UCC.

C-Wood, 233 S.W.3d at 280-82 (internal citations and footnotes omitted). Under these
principles espoused in C-Wood, we affirm the trial court’s holding that plaintiff’s non-
UCC claims are unavailable in this action based on “the endorsement, negotiation,
collection, and payment of checks.” Id. at 281.

Regarding plaintiff’s claim for aiding and abetting breach of contract, we affirm
the trial court’s holding that Tennessee law does not recognize such a claim. Plaintiff
cites only one Tennessee case in his argument to the contrary. This case is designated as
a memorandum opinion that has “no precedential value . . . and shall not be cited or relied
on for any reason in any unrelated case.” Court of Appeals Rule 10.

E. Compensatory Damages

The trial court held that plaintiff did not demonstrate any compensatory damages
in this case, stating as follows:

Defendant established that (1) the checks at issue, which were
deposited into Brown accounts at [the bank], totaled
$292,853.46, and (2) the checks Plaintiff admitted to
receiving, which were drawn on the BTS account at [the
bank], totaled $485,000. Thus Defendant established that
[the] banking transactions did not cause [plaintiff] to lose any
money. Rather he received $192,146.54 more from [the
bank] than he deposited. The Court determines Defendant has
negated an essential element of Plaintiff’s claims, that is
Plaintiff was not damaged.

Plaintiff does not dispute [the pertinent statements of
undisputed material fact]. Plaintiff merely asserts that [the
bank] is liable to him for all the damages he suffered as a
result of Brown’s Ponzi scheme arguing [the bank] facilitated
the Ponzi scheme. Plaintiff cites no authority for this
position. The Court concludes Defendant’s motion for
summary judgment on grounds that Plaintiff has not
demonstrated any damages is well-taken.

22
This analysis is pertinent to the extent of showing that under the particular facts presented
here, the specific transactions involving plaintiff and the bank resulted in a net gain to
plaintiff, not a loss. However, this fact, standing alone, would likely not support a grant
of summary judgment, if plaintiff had been able to present facts establishing a genuine
issue of material fact to support one of his viable claims. In other words, if plaintiff had
been able to point to facts raising a genuine issue regarding whether the bank had
“knowledge of such facts that its action in paying the check[s] amount[ed] to bad faith,”
Tenn. Code Ann. § 35-2-107, he may have been able to proceed in attempting to persuade
a trier of fact that the bank had such knowledge as would render it potentially liable. But
as our analysis above makes clear, plaintiff did not present any such evidence here, and
thus, summary judgment was correctly granted.

V.

The judgment of the trial court is affirmed. Costs on appeal are assessed to the
appellant, John R. Fuller. The case is remanded to the trial court for collection of costs
assessed below.

_______________________________
CHARLES D. SUSANO, JR., JUDGE

23