Lawyers Title Insurance v. United American Bank
| Citation | 21 F.Supp.2d 785 |
| Decision Date | 19 August 1998 |
| Docket Number | No. 94-2871-TUA.,No. 94-2870-TUA.,94-2870-TUA.,94-2871-TUA. |
| Parties | LAWYERS TITLE INSURANCE CORPORATION, Plaintiff, v. UNITED AMERICAN BANK OF MEMPHIS, Defendant. FIRST AMERICAN TITLE INSURANCE COMPANY, Plaintiff, v. UNITED AMERICAN BANK OF MEMPHIS, Defendant. |
| Court | U.S. District Court — Western District of Tennessee |
Oscar C. Carr, III, Glankler Brown Gilliland Chase Robinson & Raines, Memphis, TN, for Lawyers Title Insurance Corporation.
Rebecca P. Tuttle, Steven C. Brammer, Farris Mathews Branan & Hellen, Memphis, TN, William E. Norcross, Norcross Law Firm, Cordova, TN, for United American Bank of Memphis.
John C. Speer, Stephen W. Ragland, Baker Donelson Bearman & Caldwell, Memphis, TN, for First American Title Insurance Company.
ORDER ON DEFENDANT'S MOTION TO DISMISS AND PLAINTIFFS' MOTIONS FOR PARTIAL SUMMARY JUDGMENT
Lawyers Title Insurance Corporation ("Lawyers Title") and First American Title Insurance Company ("First American") filed this action against United American Bank of Memphis ("UAB") alleging that UAB's wrongful actions caused various mortgage lenders, all of whom were insured by plaintiffs, to suffer significant financial losses. Plaintiffs, both directly and as subrogees of their insureds, seek compensatory and punitive damages as well as equitable relief under Tennessee law. Presently before the court are the defendant's motion to dismiss and the plaintiffs' motions for partial summary judgment.
When considering a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6), all factual allegations of the plaintiff are to be believed and the claims must not be dismissed unless it appears that the plaintiff can prove no set of facts pursuant to his or her allegations which would entitle the plaintiff to relief. Windsor v. The Tennessean, 719 F.2d 155, 158 (6th Cir.1983), cert. denied, 469 U.S. 826, 105 S.Ct. 105, 83 L.Ed.2d 50 (1984); Chartrand v. Chrysler Corp., 785 F.Supp. 666, 669 (E.D.Mich.1992).
The moving party is entitled to summary judgment where no genuine issue of material fact exists and the party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). When considering a motion for summary judgment, the court's function is not to weigh the evidence or judge its truth; rather, the court must determine whether a genuine issue is presented for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The substantive law governing the case will determine what issues of fact are material. Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir.1989).
A summary judgment movant "bears the burden of clearly and convincingly establishing the nonexistence of any genuine issue of material fact and the evidence as well as all inferences drawn therefrom must be read in a light most favorable to the party opposing the motion." Kochins v. Linden-Alimak, Inc., 799 F.2d 1128, 1133 (6th Cir.1986). Once met, the burden shifts to the nonmoving party to set forth specific facts showing a genuine issue of triable fact. Fed. R.Civ.P. 56(e). To meet this burden, the non-movant must present sufficient countervailing evidence such that a jury could return a verdict favorable to the non-moving party. Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505.
When relying on an affirmative defense, a defendant who is faced with a summary judgment motion has the same burden as a plaintiff against whom a defendant seeks summary judgment. That burden requires that the non-moving party with the burden of proof on the issue in question produce sufficient evidence upon which a jury could return a verdict favorable to the nonmoving party. Id.
The claims presented in this case arise out of the actions of former Tennessee real estate attorney William Dunlap Cannon, III ("Cannon"). In connection with his real estate practice, Cannon maintained a bank account at UAB, styled "Dunlap Cannon, III, Real Estate Escrow Account II," in which he deposited funds received from various clients and mortgage lenders. These funds were to be held in trust until closing when Cannon was to disburse those funds in order to pay off existing mortgages on the lands being purchased.
Despite the escrow status of the account, Cannon proceeded to misappropriate the funds over the course of several years, using his clients' monies to pay various personal expenses. As a result of Cannon's illegal activities, the UAB escrow account was frequently overdrawn. UAB would call Cannon, often daily, to inform him that the account contained insufficient funds to cover checks he had written. UAB would allow Cannon to write new checks for which they issued accelerated or "super" immediate credit — same day credit rather than immediate credit on the next business day — thereby enabling him to cover the outstanding checks. Essentially, Cannon engaged in a check kiting scheme where he would cover insufficiencies at UAB with checks from accounts at other banks which also contained insufficient funds. Because UAB issued credit before the funds were collected, Cannon was able to float large uncollected balances.
Even with this practice, however, the account remained overdrawn on a consistent basis. In March of 1991, UAB set up a $150,000 credit line, guaranteed by Cannon's father, William Dunlap Cannon II, to be advanced as overdrafts were created in the account. Within two weeks of the issuance of this credit line, the entire $150,000 had been advanced. Despite many reports documenting the continued overdrafts in Cannon's account, the extra work required to monitor his account, and numerous threats to stop accepting uncollected checks and issuing accelerated credit, UAB considered Cannon to be a good customer who both generated large monthly fees for the bank and had outstanding personal loans. As a result, UAB continued these accommodations with respect to the escrow account.
Eventually, however, Cannon's elaborate scheme of misappropriation and check kiting unraveled. On February 3, 1994, UAB informed Cannon that it would no longer pay overdrafts or give him accelerated credit on check deposits, that it would not transfer funds between his checking accounts, and that checks drawn on his UAB accounts would only be paid if the accounts contained sufficient collected funds. Cannon's business subsequently fell apart on February 15, 1994, and shortly thereafter, UAB closed all of Cannon's accounts. Around that time, Cannon voluntarily suspended his license to practice law in the State of Tennessee; he ultimately was disbarred by order of the Supreme Court of Tennessee effective August 1, 1994. Cannon filed a voluntary Chapter 7 Bankruptcy petition on February 25, 1994. On June 2, 1995, Cannon pleaded guilty to charges of embezzlement, mail fraud, wire fraud, and bank fraud.
Prior to the collapse of his practice, Cannon was an "approved attorney" for both Lawyers Title and First American. Because of Cannon's approved attorney status, Lawyers Title and First American issued title commitments, title insurance policies, and closing protection letters to various mortgage lenders and purchasers for Cannon's real estate closings based on Cannon's certification that he had paid the existing mortgages. When Cannon's check kiting scheme failed, numerous purchasers and mortgage lenders who were dealing with Cannon lost the funds that they had entrusted to him; as a result, Lawyers Title and First American were required to indemnify their insureds based on the title insurance commitments, policies, and closing protection letters each had issued in connection with the closings. It is these losses that they seek to recover from UAB.
Lawyers Title and First American each filed this action against UAB on October 26, 1994. Given the similarity of the allegations, issues, and facts in the two cases, this court consolidated the actions by order on February 3, 1995.1 The plaintiffs seek to recover from UAB the monies paid pursuant to the closing protection letters and title insurance policies under various theories. Essentially, their arguments rest on the assertion that UAB had actual knowledge that Cannon was misappropriating funds from the escrow account and that UAB aided Cannon in his misappropriation. Lawyers Title and First American assert that UAB engaged in such conduct in order to continue receiving the monthly transaction fees generated by Cannon's account, which were among the largest at the bank, and because Cannon had large outstanding loans at UAB that the bank wanted to recover. Furthermore, the plaintiffs assert that Cannon received this special treatment because he was married to Derenda Cannon, niece of William B. Tanner who was then owner of all the voting stock in the holding company which owns UAB.
Specifically, the plaintiffs have alleged claims of aiding and abetting; violation of § 47-3-304 of the Tennessee Code Annotated; unjust enrichment and restitution; constructive trust; and money had and received. Additionally, Lawyers Title asserts a claim for the late return of certain checks in violation of § 47-4-302 of the Tennessee Code Annotated.
UAB filed a motion to dismiss the plaintiffs' complaints on November 29, 1995. UAB asserts that the aiding and abetting claim should be dismissed because UAB owed no duty to the plaintiffs. UAB also asserts that the plaintiffs' claim for punitive damages should be dismissed because, as subrogees, they lack standing to assert such a claim. The defendant moves to dismiss the claims based on Tenn.Code Ann. § 47-3-304 because Cannon was not a fiduciary vis-á-vis UAB, or, in the alternative, because UAB was not a "purchaser" of checks payable to third parties....
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