Negligence Claim Preempted by Tennessee UCC

Where a claim for negligence against a bank fell within the parameters of the UCC, the common law negligence claim was preempted and summary judgment for defendants was affirmed.

In Mark IV Enterprises, Inc. v. Bank of America, N.A., No. M2017-00965-COA-R3-CV (Tenn. Ct. App. June 26, 2018), plaintiff sued defendant bank for aiding and abetting fraud and conversion, as well as for common law negligence. Plaintiff’s bookkeeper had embezzled money from plaintiff by taking checks written to plaintiff’s vendors and depositing them into her own personal account at defendant bank. Plaintiff alleged that defendant was negligent because the checks were not payable to the bookkeeper, many were not endorsed, and defendant bank had failed to safeguard against such issues when checks were deposited through its ATMs.

The trial court dismissed the conversion and fraud claims on a motion to dismiss, and granted summary judgment to the bank on the negligence claim based on its finding that the bank did not owe plaintiff a duty. The Court of Appeals affirmed, but on different grounds.

Regarding the claims for aiding and abetting conversion and fraud, the Court noted that “[f]ailure to act or mere presence during the commission of a tort is insufficient for tort accomplice liability.” (internal citation omitted). Here, plaintiff complained that defendant “ignor[ed] the misconduct” of the bookkeeper and turned “a blind eye.” The Court held that the allegations “set forth vague instances of inaction or failures to act on the part of the Bank that are insufficient to state a claim for aiding and abetting under Tennessee law,” and dismissal of these claims was thus affirmed.

When analyzing the negligence claim, the Court pointed out that the trial court had granted summary judgment due to a finding of no duty, but that it was affirming on different grounds. The case here was centered around checks, and “Article 3 of the UCC governs ‘Negotiable Instruments,’ and Article 4 governs ‘Bank Deposits and Collections.’” The Court of Appeals held that the allegations of the complaint fell within the purview of the UCC, and that the “common law negligence claim was preempted by the remedies afforded in the UCC for losses associated with the negotiation of checks.” Summary judgment was affirmed.