Full opinion text
ORDER ON DEFENDANT’S MOTION TO DISMISS AND PLAINTIFFS’ MOTIONS FOR PARTIAL SUMMARY JUDGMENT TURNER, District Judge. 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. I. Standards of Review A. Motion to Dismiss 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). B. Motion for Summary Judgment 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(e). 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 non-moving 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. II. FACTUAL BACKGROUND 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. III. PROCEDURAL BACKGROUND 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. 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 ae-count 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 Deren-da 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. Additionally, UAB contends that the claims for unjust enrichment, constructive trust, restitution, and money had and received should be dismissed because UAB did not wrongfully retain money belonging to plaintiffs, was not in privity with the plaintiffs, and was properly owed all money received. Finally, UAB asserts that Lawyers Title’s claim for violation of Tenn. Code Ann. § 47-4-302 should be dismissed for lack of standing because, as a subrogee and assignee, Lawyers Title does not have standing to assert such a claim. On November 29, 1995, Lawyers Title and First American filed motions for partial summary judgment with respect to UAB’s liability to the plaintiffs, and with respect to UAB’s liability and resulting damages to Lawyers Title for violation of the midnight deadline under Tenn.Code Ann. § 47-4-302. In response, UAB contests the plaintiffs’ use of “undisputed facts,” and asserts that highly disputed factual issues exist that render summary judgment inappropriate, including whether the plaintiffs are entitled to subro-gation. Additionally, with respect to each of the plaintiffs claims, UAB reasserts the arguments contained in its motion to dismiss. IV. PRELIMINARY CONSIDERATIONS A. Plaintiffs ’ Right to Subrogation In its response to plaintiffs’ motions for partial summary judgment, UAB asserts that summary judgment is inappropriate in the instant action because issues of fact exist regarding the plaintiffs’ right to subrogation. Specifically, UAB asserts that a jury must determine whether the plaintiffs were sufficiently negligent so as to bar application of subrogation principles and the plaintiffs must establish that the equities are in their favor. In response, the plaintiffs argue that they are pursuing a claim for conventional subro-gation rather than equitable subrogation and, as a result, a balancing of the equities is not required. Furthermore, the plaintiffs assert that with respect to the intentional tort of aiding and abetting, any negligence on the plaintiffs’ part would not be a defense. In Castleman Constr. Co. v. Pennington, 222 Tenn. 82, 432 S.W.2d 669 (1968), the Supreme Court of Tennessee discussed the equitable nature of subrogation: “To entitle one to subrogation, his equity must be strong and his case clear, since it will not be enforced where the equities are equal, or the rights are not clear, or where it will preju-dme the legal or equitable rights of others.” Id. at 675 (quoting Couch on Insurance 2d, Subrogation § 61:21). Additionally, the court found the distinction between conventional and legal subrogation to be as to the source of the right, and stated that “regardless of the source of the right of subrogation, the right will only be enforced in favor of a meritorious claim and after a balancing of the equities.” Id. at 676. Therefore, the plaintiffs’ contention that an inquiry into the respective equities is unnecessary in the instant ease is incorrect; regardless of the source of the plaintiffs’ asserted subrogation rights, a balancing of the equities is required to determine whether the plaintiffs are in fact entitled to be subrogated to their insureds’ claims. Relevant to the equitable balancing is the degree of negligence, if any, of the party asserting a claim for subrogation. The Castleman court noted that a party’s culpable negligence may bar subrogation rights, although ordinary negligence, mistakes, and ignorance will not. Id. at 676 (citing 83 C.J.S. Subrogation § 6). Thus, “where the mistake is wholly caused by the want of that care and diligence in the transaction which should be used by every person of reasonable prudence, and the absence of which would be a violation of a legal duty, a court of equity will not interpose its relief.” Id. at 677 (quoting Dixon v. Morgan, 154 Tenn. 389, 285 S.W. 558 (1926)). However, “ordinary negligence alone will not be held as a complete bar to subrogation where in spite of such negligence the equities are still in favor of the subrogee.” Id. UAB points to several factors which, it contends, prevent the plaintiffs from being entitled to subrogation: the plaintiffs concede they had no minimum standards for approved attorneys and did no background check before granting that status; the plaintiffs concede that misappropriation by an approved attorney is a known risk; Cannon had numerous recorded judgments and tax liens filed against him; the plaintiffs’ increased business with Cannon in 1992 and 1993 should have put them on notice as to Cannon’s illegal activity;- three other title companies in Memphis either stopped doing business with Cannon or required him to use a special escrow account; and the plaintiffs knew that Cannon was a shareholder in Stewart Title Company which should have made the plaintiffs suspicious about the increase of business. UAB also avers that Lawyers Title had notice that Cannon might have been misappropriating funds through a call report by Robert Applebaum (“Appleb-aum”), a sales representative of Lawyers Title, documenting a conversation with Phil Kaminsky and Mike Hewgley in which Hew-gley voiced a suspicion that Cannon had intentionally not paid the mortgage for one of his closings and pocketed escrow funds. No follow-up investigation was conducted. In response to UAB’s assertions regarding knowledge of Cannon’s misappropriation, Lawyers Title and First American assert that the increase in business in 1992 and 1993 was not suspicious because it was due to lower interest rates and, at that time, the title companies each did business with new attorneys. The plaintiffs also point to the fact that UAB offers no evidence that Lawyers Title or First American knew that other title companies stopped doing business with Cannon or required him to use a special account; rather, UAB merely asserts that the plaintiffs were likely to know because of the interconnection between the title companies. Lawyers Title also disputes UAB’s reliance on Applebaum’s call report because there is no evidence that Applebaum shared that report with anyone, and furthermore, he retired in November of 1991, a year and a half after writing that report, and before the increased business with Cannon in 1992 and 1993. UAB’s assertions fail to establish that either Lawyers Title or First American had actual knowledge of Cannon’s misappropriation of funds. For example, the fact that the plaintiffs experienced an increase in business with Cannon in 1992 and 1993 in the face of lower interest rates does not give notice of improper conduct with respect to the escrow account. Additionally, there is no evidence that either plaintiff had knowledge of other title companies’ policies with respect to Cannon, or that those policies were instituted as a result of improper conduct by Cannon. Indeed, it seems apparent that neither plaintiff had actual knowledge of Cannon’s misappropriation. The plaintiffs each issued title insurance policies and closing protection letters in reliance on Cannon’s assertions that he was disbursing the money as required; his failure to handle the money appropriately would expose the plaintiffs to significant financial liabilities. Any actual knowledge of misappropriation would have most likely ended the relationship between the plaintiffs and Cannon. Thus, at most, UAB’s assertions raise the possibility that the plaintiffs were negligent in their dealing^ ■ with Cannon and risked liability to its insureds by failing to have minimum standards for its approved attorneys and failing to do a background check on Cannon despite the known risk of misappropriation by closing attorneys. This negligence in seeking out such information, however, is insufficient to bar, as a matter of law, the plaintiffs from being subrogated to the insureds’ claims against UAB. See Castleman, 432 S.W.2d at 676-77 (finding that title company was subrogated to insureds’ claim despite the company’s negligence in failing to discover defects in title); Shelby Mut. Ins. Co. v. Clark-Holmes, Inc., 57 Tenn.App. 42, 414 S.W.2d 650, 655 (1966) (granting relief to insurance company by way of subrogation despite agent’s negligence in failing to demand issuance and delivery of policy prior to accident at issue) (citing Dixon v. Morgan, 154 Tenn. 389, 285 S.W. 558 (1926)). Furthermore, any negligence on the part of the plaintiffs injured themselves and did not prejudice the bank. See Dixon, 154 Tenn. at 404-05, 285 S.W. 558 (‘All negligence, to be culpable, necessarily implies the failure to perform some duty .... It is not a failure of duty to one’s self, but to another, that constitutes culpable negligence.”). Compare Cas- tleman, 432 S.W.2d at 676-77 (finding the plaintiff entitled to subrogation despite negligence in failing to discover title defects) with Old Nat’l Bank v. Swearingen, 167 Tenn. 529, 72 S.W.2d 545, 548-49 (1934) (finding that bank acting as guardian for minor children was guilty of culpable negligence precluding subrogation where bank lent its wards’ money secured by property with defective title, which would have been disclosed by a casual inspection of the title) (distinguishing Dixon). Accordingly, even if found to be negligent based on UAB’s assertions, the plaintiffs were not sufficiently negligent to preclude them from subrogation as a matter of law. In light of the foregoing, it is necessary to determine whether the balance of equities lies in favor of the plaintiffs, entitling them to subrogation. See Castleman, 432 S.W.2d at 677 (“We do not say that ordinary negligence of the subrogee cannot be taken into consideration in ascertaining whether he be entitled to the equitable relief of subrogation. What we do say is that ordinary negligence alone will not be held as a complete bar to subrogation where in spite of such negligence, the equities are still in favor of the subrogee.”). Essentially, the plaintiffs’ basis for subrogation, as well as for their claims against UAB, is that UAB had knowledge that Cannon was misappropriating funds in breach of his fiduciary duty. If such knowledge is found to exist, the equities could be found to lie in the plaintiffs’ favor, despite the alleged negligence on their part. See Castleman, 432 S.W.2d at 678-79 (finding that despite the plaintiffs negligence, the defendant’s “want of care and diligence ... demands that the equity” would not prevent the plaintiff from being subrogated to the claims). If, however, UAB is found to be an innocent party with respect to Cannon’s misconduct, the balance of equities might weigh against the plaintiffs. See Bank of Fort Mill v. Lawyers Title Ins. Corp., 268 F.2d 313, 315 (4th Cir.1959) (“[I]t is the general view that a paid surety has fewer equities than an innocent bank, since the surety company is paid to assume the specific risk.”). Accordingly, a question of fact exists as to the balance of the equities, and the court cannot determine as a matter of law whether the plaintiffs are entitled to subrogation. B. Affidavits Submitted in Opposition to Motion for Summary Judgment In response to the plaintiffs’ motions for summary judgment, UAB submitted several affidavits, all of which essentially state that the affiants had no knowledge of Cannon’s misappropriation of funds from the escrow account. The plaintiffs contest consideration of these affidavits for the purposes of this motion, asserting that the affidavits contradict prior sworn testimony and therefore cannot be used to create an issue of fact for trial. “[I]t is ‘accepted precedent’ that after a motion for summary judgment has been filed, thereby testing the resisting party’s evidence, a factual issue may not be created by filing an affidavit contradicting earlier deposition testimony.” Davidson & Jones Dev. Co. v. Elmore Dev. Co., 921 F.2d 1343, 1352 (6th Cir.1991) (quoting Gagné v. Northwestern Nat’l Ins. Co., 881 F.2d 309, 315 (6th Cm.1989)). The affidavits submitted by UAB, however, do not squarely contradict the prior testimony of the affiants. Throughout the affiants’ deposition testimony, those individuals admitted that they experienced problems with the Cannon account due to his continuous overdrafts; nevertheless, they either maintained that they did not know of any misappropriation or did not testify regarding their knowledge of misappropriation. In fact, the depositions do not clearly reveal what the knowledge of each deposed person was. Thus, the affidavits do not contradict the depositions; the fact that they were filed for the purpose of opposing summary judgment bears on the overall credibility of those affidavits, but does not bar them from being considered. See Kelly v. BASF Corp., No. 95-1851, 1997 WL 137382, at *6 (6th Cir. Mar.25, 1997) (considering affidavits filed in response to a motion for summary judgment where there was “no substantial contradiction” with the prior deposition when “read as a whole”). The plaintiffs also argue that the affidavits should not be considered because they contradict UAB’s sworn answers to garnishments issued on Cannon’s escrow account in which UAB refused to garnish the account due to the account’s escrow status. This argument fails for two reasons. First, the affidavits all address the affiants’ knowledge of Cannon’s misappropriation rather than discussing the escrow status of the account and thus do not contradict the garnishment answers. Second, Thomas Lamb’s statement that the bank had no heightened duty with respect to the escrow account and had to “honor his disbursements as with any other demand deposit account,” (Aff. of Thomas L. Lamb, Jan. 16, 1996), and similar statements by Martin Grusin, (Grusin Aff. at 3), do not contradict the garnishment answers. Restricting third parties’ access to funds in an escrow account is significantly different from monitoring a fiduciary’s conduct with respect to checks drawn on an escrow account. Additionally, the plaintiffs contend that the personal statements of the affiants are insufficient to support UAB’s claim that it did not know of Cannon’s misappropriation and argue that “knowledge of UAB, as a corporate entity,” has been established. The court questions how the plaintiffs would expect UAB to have knowledge other than through the individuals who work for the bank; indeed, the only way for UAB to obtain such knowledge is through those individuals. Thus, these statements, made by executive officers and employees of UAB who dealt with Cannon and the account, bear on whether UAB had knowledge of the illegal activity with respect to account funds. Accordingly, the court finds the plaintiffs’ arguments to be without merit. The affidavits are appropriate for consideration in connection with the motion for summary judgment. V. DISCUSSION A. Aiding and Abetting Lawyers Title and First American allege that UAB is liable for aiding and abetting Cannon’s misconduct because UAB had actual knowledge that Cannon was misappropriating funds from the escrow account and UAB provided substantial assistance which enabled Cannon to do so. UAB responds that it owed no duty to the plaintiffs, and therefore seeks to dismiss the claim for aiding and abetting. Furthermore, UAB asserts that summary judgment is inappropriate because its actions were insufficient to constitute substantial assistance and because the claim is highly factual. Tennessee has adopted the Restatement of Torts § 876(b) theory of aiding and abetting, under which the plaintiff must show that “the defendant knew that his companions’ conduct constituted a breach of duty, and that he gave substantial assistance or encouragement to them in their acts.” Cecil v. Hardin, 575 S.W.2d 268, 272 (Tenn.1978) (citing Restatement of Torts § 876(b)). Liability in such cases is “distinct from that which imposes liability on the basis that the parties participated in a joint venture.” Id. Under this theory of aiding and abetting, “an individual who participates in an unlawful activity in concert with others is liable for any damages resulting from acts committed by his compatriots in the course of that activity.” Id. Contrary to UAB’s arguments, Tennessee law does not impose liability for aiding and abetting based on a duty between the defendant and plaintiff. Rather, the cause of action is much broader, imposing liability if “the defendant knew that his companions’ conduct constituted a breach of duty.” Hardin, 575 S.W.2d at 272. That is, under § 876(b), the defendant need not owe a duty to the plaintiff, but rather, must know that a third party owes a duty to the plaintiff. See GCM, Inc. v. Kentucky Central Life Ins. Co., 124 N.M. 186, 947 P.2d 143, 147-48 (1997) (recognizing tort liability for aiding and abetting a breach of fiduciary duty, discussing Restatement of Torts §§ 876 and 874, and stating that “[a]n injured party need not have a direct relationship with the third party against whom liability is sought as an aider and abettor. Rather the injured party must have a fiduciary relationship with the principal tortfeasor, and the third party must occupy the role of an accomplice in relation to the principal tortfeasor”); Becks v. Emery-Richardson, Inc., Nos. 86-6866, 87-1554, 1990 WL 303548, at *45 (S.D.Fla. Dec. 21, 1990) (finding that the defendants owed no fiduciary duty to the plaintiffs, but genuine issues of fact existed as to the defendants’ liability as an aider and abettor of other defendants’ breach of fiduciary duty to plaintiffs); see also Williams v. Bank Leumi Trust Co., No. 96-Civ-6695,1997 WL 289865, at *5 & n. 3 (S.D.N.Y. May 30, 1997) (considering a claim for aiding and abetting breach of fiduciary duty where court also found that alleged aider and abettor itself owed no fiduciary duty). Compare Restatement (Second) of Torts § 876(c) (1977) (discussing liability for substantially assisting another to accomplish a tortious act where the aider’s own conduct, “separately considered, constitutes a breach of duty to the third person”). Thus, in order to state a claim for aiding and abetting, the plaintiffs must allege underlying wrongful conduct by Cannon, of which UAB knew and substantially assisted. 1. Subrogated Claim of Aiding and Abetting There is no dispute that Cannon was a fiduciary with respect to the plaintiffs’ insureds and that Cannon breached his fiduciary duty by misappropriating their funds. This breach of fiduciary duty to the plaintiffs’ insureds would provide the basis for a subro-gated claim of aiding and abetting against UAB if UAB had knowledge of the breach and substantially assisted Cannon. The plaintiffs have alleged that UAB knew of Cannon’s misappropriation due to the frequent overdrafts in the account and checks written for Cannon’s personal expenditures. They also allege that the banks’ acts of issuing accelerated credit, allowing Cannon to cover overdrafts, and extending a line of credit to cover overdrafts substantially assisted Cannon in his misappropriation. In light of these allegations, the plaintiffs have sufficiently stated a claim for aiding and abetting under a subrogation theory to survive the defendant’s motion to dismiss that claim. The court will thus consider the plaintiffs’ motions for summary judgment with respect to the subrogated claim. a. Breach of Duty As noted above, it is undisputed that Cannon breached his fiduciary duty to the insured by misappropriating their escrow funds. b. Knowledge of Breach of Duty Tennessee courts have not yet ruled as to whether actual knowledge is required to establish aider and abettor liability under § 876. Other courts applying § 876, however, have required a showing that the aider and abettor had actual knowledge of the primary tortfeasor’s wrongdoing. See Stab-Tech Liquidating Trust v. Fenster, 981 F.Supp. 1325, 1339 (D.Colo.1997) (“[Liability for aiding and abetting a common law tort may only be imposed on those who knew that the tort was being committed and who understood in a general sense what their role was in conjunction with the tortious activity.... [Acting] negligently or recklessly is not sufficient to meet the mental state element of a claim for aiding and abetting a common law tort.”); Williams v. Bank Leumi Trust Co., No. 96-6695, 1997 WL 289865, at *5 (S.D.N.Y. May 30, 1997) (stating that “New York courts require actual knowledge of the primary wrong by the alleged aider and abettor” and that “constructive knowledge ... is insufficient to state a claim for aiding and abetting”) (citing Kolbeck v. LIT Am., Inc., 939 F.Supp. 240, 246 (S.D.N.Y.1996)); Future Group, II v. Nationsbank, 324 S.C. 89, 478 S.E.2d 45, 50 (1996) (rejecting a claim of aiding and abetting a breach of fiduciary duty because defendant’s lack of actual knowledge prevented knowing participation in the breach). “The gravamen of a claim of aiding and abetting a breach of fiduciary duty is the defendant’s ‘knowing participation’ in the fiduciary’s breach of trust; wrongful intent is not necessary as the fact finder is required only to ‘find that the [defendant] knew of the breach of duty and participated in it.’” Holmes v. Young, 885 P.2d 305, 309 (Colo.Ct. App.1994) (quoting S & K Sales Co. v. Nike, Inc., 816 F.2d 843, 848 (2d Cir.1987)) (alteration in original); see S & K Sales, 816 F.2d at 848 (finding that it was not error to refuse to instruct jury that wrongful intent is an essential element of the tort of participation in a breach of fiduciary duty (citing Restatement (Second) of Torts §§ 874, 876(b)); Ezzone v. Riccardi, 525 N.W.2d 388, 398 (Iowa 1994)) (distinguishing between conspiracy under § 876(a) which “must involve some mutual mental action coupled with an intent to commit the act that causes injury” and aiding and abetting under § 876(b), for which there must merely “be a wrong to the primary party, knowledge of the wrong on the part of the aider, and substantial assistance by the aider in the achievement of the primary violation”). The foregoing authority and the language of § 876(b) indicate that actual knowledge of the third party’s wrongful conduct is required to establish aider and abettor liability. The plaintiffs claim that UAB had actual knowledge that Cannon was misappropriating funds. Their allegations are based on the escrow status of the account and Cannon’s use of checks drawn on that account for personal expenditures, including payments on his personal loans to UAB, payments to J.C. Bradford & Co. for commodity trades, and a payment to Southern Methodist University for his daughter’s college tuition, as well as payments to his wife and various companies, some of which belonged to Cannon. Each of these' transactions, the plaintiffs assert, provided UAB with actual knowledge that Cannon was misappropriating funds in breach of his fiduciary duty. Plaintiffs rely heavily on a comment by David E. Browning, the loan officer assigned to Cannon’s account, that Cannon was “fooling around” within the account. Additionally, the plaintiffs point to repeated warnings given to Cannon and threats to take away his account privileges, documented in “call reports,” as evidence that UAB knew of Cannon’s misappropriation which was causing problems with the account. UAB contends that it had no knowledge that Cannon was diverting funds from the account, but rather only knew that despite frequent overdrafts, Cannon was always able to cover the shortages the next day. UAB claims that Cannon provided an explanation for the overdrafts to the effect that he often did not receive the funds until after closing, and that he just needed an extra day or so to cover them. Additionally, UAB refutes any knowledge based on Cannon’s withdrawals for personal expenses because if Cannon’s fees were deposited into that account, he could write checks to his benefit. (Browning dep., July 21, 1994, at 198; see also Grusin Aff. ¶4). The depositions taken in connection with this case are extensive, and a review of them indicates that UAB had knowledge of the continual overdraft problems with respect to Cannon’s account. UAB threatened to terminate the special accommodations being given to. Cannon more than once, and he was repeatedly told to change his practices with respect to the account. Furthermore, in light of the hand-written checks for personal expenditures, as opposed to the machine-generated checks drawn in connection with a closing, the checks and transfers of funds applied to Cannon’s loans at UAB, as well as the continual overdrafts, the plaintiffs have offered evidence which could show that UAB had actual knowledge of misappropriation. Nevertheless, UAB asserts that despite the overdraft problems, it did not know Cannon was misappropriating funds. In fact, reading Browning’s comment that Cannon was “fooling around” in the account, upon which the plaintiffs heavily rely, in context, it seems more likely that he was referring to overdrafts in the account rather than misappropriation of the funds by Cannon. (Browning dep., July 21, 1994, at 38-39). Furthermore, UAB, relying on a statement by its expert witness, Mr. Paul Carrubba, summed up its defense as follows: Hindsight is twenty twenty. You can sit back here and look at transactions that went to an account and say, well, golly, look at this, look at what happened here, ... somebody should have seen that stuff. But when you go through and you look at how these transactions are actually handled on a daily basis, you are not going to find any one person that is, for one thing, going to see all of those things. Unless you are specifically looking for something, those things that may seem apparent now are not so apparent as they are occurring, as things are happening. It just appears to me that what happened in this situation is that the bank has a customer, that, yes, they bent over backwards in some of the things that they did in allowing him to make his deposits on a daily basis, and it is a pain to keep up with a customer like that, but to say that the bank should have drawn inferences and this should have been red flags that this man is stealing money, I don’t agree with that. (UAB’s Resp. to Pis.’ Mot. for Summ. J. at 9 (quoting Carrubba dep. at 195-96)). While Cannon’s illegal activity is obvious now, it may not have been evident to the various individuals who, at different times, dealt with the account. Given Cannon’s explanation for the delays, UAB might not have known that Cannon was breaching his duty despite the frequent overdrafts and cheeks written for personal expenses. See Chambers v. First Trust & Sav. Bank, No. 030A1-9108-CH00293, 1992 WL 40191, at *3 (Tenn.Ct. App. Mar.4, 1992) (“A bank in which a fiduciary carries a trust account has no duty to administer the account or supervise its administration, but may pay checks regularly drawn on the account on the presumption that the fiduciary is acting honestly and properly administering the funds unless circumstances are such to put the bank on notice that the fiduciary is misappropriating or intends to misappropriate funds. What is sufficient to put the bank on notice depends on the particular facts and circumstances of each case.”); Tubbs v. United Central Bank, 451 N.W.2d 177,183 (Iowa 1990) (stating that a bank’s knowledge of a customer’s “illiquid” position for over a year “does not necessarily mean that [the bank] knew that fraud or other tortious acts were being committed”); Lawyers Title Ins. Corp. v. Frontier Title Co., No. 87-10872, 1989 WL 44186, at *5 (N.D.Ill. Apr.24, 1989) (finding a question of fact regarding bank’s knowledge of misappropriation where bank could assume that diverted funds belonged to the fiduciary and bank closed fiduciary’s accounts upon learning of the alleged misappropriation). Therefore, a genuine issue of fact exists as to whether UAB had actual knowledge of Cannon’s misappropriation. c. Substantial Assistance The plaintiffs assert that because Cannon would have not been able to engage in his misconduct without the special accommodations provided to him by UAB, UAB’s actions constituted substantial assistance to Cannon’s misappropriation. In particular, the plaintiffs assert that UAB’s practices of issuing super-immediate credit on checks deposited by Cannon, alerting him to overdrafts in the account, extending personal loans to Cannon to cover overdrafts in the account, extending such loans without following the bank’s standard procedures, and issuing a $150,000 line of credit to be advanced against overdrafts were essential factors that enabled Cannon to misappropriate millions of dollars from the escrow account over the course of several years and caused the plaintiffs’ losses. Additionally, the plaintiffs allege that UAB wrote to the Tennessee Board of Professional Responsibility on Cannon’s behalf, thereby affirmatively aiding in covering up his breach of fiduciary duty. The plaintiffs suggest that UAB was motivated to assist Cannon because UAB wanted to collect Cannon’s large outstanding loan, as well as the fees generated by his account. In determining whether the defendant’s conduct provided substantial assistance to the wrongdoer, “the nature of the act encouraged, the amount of assistance given by the defendant, his presence or absence at the time of the fact, his relation to the other and his state of mind are all considered.” Restatement (Second) of Torts § 876 comment on clause (b). Other courts faced with facts similar to those presented in the instant ease have found that, as a matter of law, a bank’s provision of flexible banking services and a line of credit are insufficient to constitute substantial assistance, even if those actions have the effect of enabling a fiduciary to misappropriate funds in breach of his or her duty. See Pereira v. United Jersey Bank, N.A., 201 B.R. 644, 671-72 (S.D.N.Y.1996) (dismissing plaintiffs’ claims for aiding and abetting where the defendant bank extended generous overdraft, permitted the customer to draw against uncollected funds, and extended personal credit to the wrongdoer, despite indications of check kiting, because providing services on flexible terms in order to generate fees was insufficient to establish substantial assistance); see also Glidden Co. v. Janderoa, 5 F.Supp.2d 541, 557 (W.D.Mich.1998) (rejecting a claim for aiding and abetting based on the bank’s financing of a management group’s undertaking despite the bank’s knowledge that the group was breaching its fiduciary duty and committing fraud, finding “no authority for holding a bank liable for financing a client’s business undertaking on the basis that the client might be engaged in fraud or breaches of fiduciary duty” and finding that “[a] bank cannot be held hable for aiding and abetting fraud or breach of fiduciary duty merely on the basis that it knew the party it was lending money to was not being forthright in its dealing with others”); Patton v. Simone, Nos. 90C-JA-29, 90C-JL-219, 1992 WL 183064, at *10-12 (Del.Super.Ct. June 25, 1992) (rejecting a claim that a bank aided and abetted a company that maintained an unsafe elevator which resulted in injury by loaning money to the company despite the bank’s knowledge of the condition, because “[the bank’s] interest was to keep- [its customer] which would mean he would be paying interest to the bank, the source of the bank’s income. Aider and abettor liability may not be imposed where the bank’s intention was for legitimate business reasons”). Despite the foregoing, the court finds that the plaintiffs have alleged conduct sufficient to raise a question of substantial assistance. Most importantly, the plaintiffs allege that UAB knowingly honored checks drawn on the escrow account in breach of Cannon’s fiduciary duty, and even accepted such checks in payment of Cannon’s personal loans to UAB. Furthermore, UAB would call Cannon, often daily, to warn of overdrafts in the escrow account. UAB allowed Cannon to make deposits to cover the overdrafts rather than returning the checks, and would provide him same day credit, enabling him to cover overdrafts in the account with worthless funds and hide his misappropriation. Additionally, the plaintiffs assert that UAB wrote to the Tennessee Board of Professional Responsibility on Cannon’s behalf to cover up his misconduct. These actions, together with the revolving line of credit to cover shortages in the escrow account, enabled Cannon to stay in business and perpetuate his scheme of fraud and misappropriation. UAB officers admitted that without these services to Cannon, his business would have shut down, and that prediction was borne out when UAB finally discontinued its flexible policies. Unlike Patton, in which the nature of the act encouraged was the continuation of a lawful business as opposed to a tort, see 1992 WL 183064, at *12, here the acts allegedly encouraged were fraud and misappropriation. Although UAB normally has no duty to monitor an escrow account, where it has notice that the fiduciary is breaching its duties with respect to the account, the bank cannot continue to provide assistance and willfully ignore the breach to its own benefit. See Restatement (Second) of Torts § 874 comment c (“A person who knowingly assists a fiduciary in committing a breach of trust is himself guilty of tortious conduct and is subject to liability for the harm thereby caused. (See § 876).”). To the extent that Pereira held, under rather similar facts, that similar conduct was insufficient to constitute substantial assistance, this court disagrees. The Pereira court found that as long as the bank was motivated by the lawful goal of generating fees rather than sharing the intent of the primary wrongdoer, the bank’s provision of flexible banking services was simply insufficient to constitute substantial assistance. 201 B.R. at 671-72 (citing Landy v. Federal Deposit Ins. Corp., 486 F.2d 139, 163 (3d Cir.1973)). Such an approach, however, allows a bank to knowingly profit from misappropriation. UAB’s policies and actions with respect to the escrow account enabled Cannon to perpetuate his scheme. If done with actual knowledge of Cannon’s breach of duty, a reasonable juror could determine that UAB substantially assisted Cannon’s misdeeds. See Crowthers McCall Pattern, Inc. v. Lewis, 129 B.R. 992, 999 (S.D.N.Y.1991) (finding that plaintiff stated a claim of aiding and abetting a breach of fiduciary duty where plaintiff alleged that directors’ approval and participation in leveraged buyout constituted a breach of fiduciary duty, the bank knew of the breach, and the bank “substantially assisted the directors in their wrongful conduct by providing bridge loans knowing that the proceeds were being used for the purchase of stock ... as a result of which [the plaintiff! received no fair consideration for its assumption of the bridge loan obligations”); Tubbs v. United Central Bank, N.A., 451 N.W.2d 177, 184 (Iowa 1990) (upholding district court’s determination that there was insufficient evidence of substantial assistance, but nevertheless stating that where a bank provided another bank with liquidity, extending to it millions of dollars in credit which enabled a bank officer to continue misappropriating bank money, “there was evidence from which the fact finder could conceivably have found substantial assistance by [the defendant]”); cf. Kelly v. Central Bank & Trust Co., 794 P.2d 1037, 1044 (Colo.Ct.App.1989) (distinguishing between “normal banking services” and commercially unreasonable handling of checks and finding that failure of bank to inquire about deposits into third parties’ accounts of checks endorsed by a corporate payee precluded summary judgment on bank’s reckless substantial assistance to fraudulent scheme under Colorado statute); Judson v. Peoples Bank & Trust Co., 25 N.J. 17, 134 A.2d 761, 767 (1957) (citing § 876(b) and finding that a bank participated in misconduct where the bank knew that corporate assets were being used for the personal advantage of the president and directors and still furnished funds which enabled them to defraud shareholders). Although not directly on point, Hartford Accident & Indemnity Co. v. Farmers National Bank, 24 Tenn.App. 699, 149 S.W.2d 473 (1940), which considered a bank’s role in a breach of fiduciary duty by cashing and accepting checks drawn on a trust account, supports the proposition that UAB’s conduct might constitute substantial assistance to Cannon. In Hartford, the court stated: [I]f the bank with such notice [of misappropriation] pays the fiduciary’s check and thus aids him in the accomplishment of his unlawful purpose it participates in his breach of trust and is liable for his misappropriations. .... For instance, allowing the fiduciary to deposit known trust funds to his individual account and then to disburse the funds for his own personal use by his individual checks to third persons has been held sufficient to charge the bank with participation in the breach of trust. Though this is not sufficient where the bank has no notice that such checks are given for non-trust purposes. The bank’s receipt of such trust monies in payment of the trustee’s own personal indebtedness to the bank, makes the bank a participator in the breach of trust. Id. at 476-77 (citations omitted). Thus, the court in Hartford held that the fiduciary and the bank “joined in treating this account as if it had been the personal account” of the fiduciary, and the bank was properly held liable for participating in breaches of trust by which misappropriations were accomplished. Id. at 477. Although it does not involve a claim for aiding and abetting under Restatement § 876(b), Hartford nevertheless indicates that knowingly honoring and accepting checks drawn in breach of fiduciary duty is sufficient to participate in that breach and, together with other conduct, may constitute substantial assistance. Cf. United States Fidelity & Guar. Co. v. Union Bank & Trust Co., 228 F. 448, 451 (6th Cir.1915) (“[I]f the bank, out of this [trust] fund, either satisfied its debt against the clerk personally, or affirmatively and intentionally aided him in wrongfully appropriating it to his own use, a liability therefor accrued in equity against the bank in favor of the beneficiaries.” (sub-rogation action seeking an accounting against the bank)). Accordingly, the court rejects the reasoning of Pereira that a bank’s honoring of checks drawn in breach of a fiduciary duty and flexible banking services, such as notifying the customer of overdrafts and allowing the customer to cover those overdrafts with accelerated credit on uncollected funds, is insufficient as a matter of law to constitute substantial assistance. Rather, such actions, if done with the knowledge that the funds were misappropriated, and which enabled the fiduciary to continue deceiving other individuals, could be considered sufficient to have aided and abetted the breach of fiduciary duty, fraud, and misappropriation. The alleged conduct, however, raises a question of fact as to whether UAB substantially assisted Cannon, precluding a grant of summary judgment in favor of the plaintiffs. 2. Direct Claim, of Aiding and Abetting The plaintiffs assert that they are also bringing an independent claim of aiding and abetting against UAB based on Cannon’s misrepresentations to Lawyers Title and First American. The plaintiffs claim they relied on Cannon’s false representations, inducing them to issue title insurance policies and closing protection letters that they otherwise would not have issued. If the plaintiffs reasonably relied to their detriment on Cannon’s misrepresentations and suffered damages as a result of their reliance, they would have a claim for fraud against Cannon separate from their subrogated claim. While the subrogated claim is based on the insureds’ claims against Cannon for misappropriation, the direct claim is based on the fact that but for Cannon’s false certifications to the plaintiffs, the plaintiffs would not have issued title insurance policies and closing protection letters that exposed them to liability. Cf. Safeco Title Ins. Co. v. Attorneys’ Title Servs., Inc., 460 So.2d 518, 520 (Fla.Dist.Ct.App.1984) (finding that a title insurance company has a direct claim against a negligent abstracter hired by the insured, where the abstracter knew or should have known the title company was relying on the abstract, even where the- title insurer has not reimbursed the insured for loss incurred due to the negligently prepared abstract). Although the plaintiffs have alleged wrongful conduct by Cannon, they have failed to allege that UAB had actual knowledge of that conduct. The plaintiffs allege that UAB knew of Cannon’s fiduciary relationship with the insureds and his misappropriation of their funds. That knowledge, however, does not indicate that UAB knew of Cannon’s relationship with Lawyers Title or First American, or that he was falsely certifying to them that he had paid off mortgages and properly handled clients’ funds. Although Cannon’s misappropriation of funds may have given UAB knowledge of the breach of fiduciary duty, it does not necessarily give knowledge of any fraud with respect to the plaintiffs. Because the basis of the plaintiffs’ claim is their reliance on these misrepresentations, UAB would have to have had knowledge of Cannon’s misrepresentations to the plaintiffs. Due to the plaintiffs’ failure to allege such knowledge, an essential element of their direct claim for aiding and abetting is lacking. Accordingly, the defendant’s motion to dismiss the claim of aiding and abetting is granted to the extent of the plaintiffs’ direct cause of action against UAB. B. Violation of Tenn.Code Ann. § 17-3-301 Lawyers Title and First American allege that UAB is liable under Tennessee’s Uniform Commercial Code (“UCC”) for cheeks drawn by Cannon on the escrow account in breach of his fiduciary duty. Specifically, the plaintiffs assert that because UAB had knowledge that Cannon was misappropriating funds from the account, under Tenn.Code Ann. § 47-3-304, UAB took those checks subject to the claims of the plaintiffs’ insureds. In support of this argument, the plaintiffs have alleged that UAB had knowledge that Cannon was a fiduciary because the account was labeled as an escrow account. Furthermore, on two occasions, UAB responded to papers regarding garnishment of the account, stating that as an escrow account, it was not subject to garnishment, thus recognizing that the funds were being held in trust for others. Additionally, the plaintiffs assert that because the checks were handwritten as opposed to machine-generated, and because they were payable to UAB or third parties for Cannon’s personal debts, the checks were suspicious on their face and put UAB on notice that they were drawn in breach of Cannon’s fiduciary duty. The plaintiffs further contend that UAB had notice with respect to each check because it either received it as the payee, or manually reviewed it as part of its standard operating procedure. The plaintiffs thus argue that UAB knew Cannon was misappropriating funds and that such knowledge prevents them from taking the checks as a holder in due course. Accordingly, they assert, UAB took the checks subject to those claims of which they had notice. In response, UAB asserts that § 47-3-304 is inapplicable as a matter of law because Cannon and UAB were not in a fiduciary relationship vis-á-vis each other and UAB had no heightened duty with respect to the account. Alternatively, UAB argues that it was not a purchaser of checks made payable to Cannon or third parties, and thus cannot be held liable under § 47-3-304 for those checks. Accordingly, UAB asserts that this claim should be dismissed. Under Tenn.Code Ann. § 47-3-305, a holder in due course takes an instrument “free from all claims to it on the part of any person and all defenses of any party except the enumerated ‘real defenses.’ ” McConnico v. Third, Nat’l Bank, 499 S.W.2d 874, 880 (Tenn.1973). Tenn.Code Ann. § 47-3-302 defines a holder in due course as a holder who took the instrument for value, in good faith, and without notice that it is overdue or has been dishonored, or of any defense against or claim to it on the part of any person. Under Tenn.Code Ann. § 47-3-304, [t]he purchaser has notice of a claim against the instrument when he has knowledge that a fiduciary has negotiated the instrument in payment of or as security for his own debt or in any transaction for his own benefit or otherwise in breach of duty. Knowledge of the following facts does not of itself give the purchaser notice of a defense or claim: ... that any person negotiating the instrument is or was a fiduciary .... Tenn.Code Ann. § 47-3-304(2), (4)(e). A “purchaser” is someone who takes by “purchase,” which includes taking by negotiation. Tenn.Code Ann. § 47-1-201(32), (33). “Negotiation” is defined as “the transfer of an instrument in such form that the transferee becomes a holder. If the instrument is payable to order it is negotiated by delivery with any necessary endorsement; if payable to bearer it is negotiated by delivery.” Tenn.Code Ann. § 47-3-202(1). Furthermore, a “holder” is a “person who is in possession of a document of title or an instrument or a certified investment security drawn, issued or endorsed to him or to his order or to bearer or in blank.” Tenn.Code Ann. § 47-1-201(20). Initially, UAB’s first argument— that it cannot be held liable because Cannon was not a fiduciary with respect to UAB— must fail based on the language of the statute. The statute merely provides that the person owe a fiduciary duty to someone, and that the defendant had knowledge of that duty. Nowhere does the statute require that the fiduciary relationship be between the defendant and the fiduciary. Indeed, the logical interpretation of § 47-3-304 is that it contemplates a fiduciary duty owed to a third party, of which the defendant knew; it is the defendant’s acceptance of an instrument, despite its knowledge of the duty that subjects it to the third party’s claim. See Soloff v. Dollahite, 779 S.W.2d 57, 59-60 (Tenn.Ct.App.1989) (considering whether bank had knowledge that fiduciary was negotiating cheek in violation of fiduciary duty and stating that “without knowledge that the fiduciary is committing a breach of his duty, the mere form of the transaction will not affect the transferee’s status as a holder in due course” (emphasis added)); see also McConnico, 499 S.W.2d at 886 (considering claims under § 47-3-304 and whether defendant bank had knowledge or notice “that a fiduciary was negotiating the instruments for his own benefit and in violation of his duty”). Although UAB may not have had any additional monitoring duties with respect to the account, Cannon owed a duty to the insureds. Furthermore, UAB’s arguments that the account was merely a general deposit rather than a fiduciary one are disingenuous in light of its own recognition of the account as an escrow account, both by allowing Cannon to style it that way, and by refusing to garnish the account on the basis that it was an escrow account. Thus, UAB’s own actions indicate that it considered Cannon to be a fiduciary with respect to those funds. Accordingly, UAB’s motion to dismiss the plaintiffs’ claim on this basis is denied. UAB’s second contention, however, that it is not liable for checks for which it was merely the drawee bank, is correct. In order to be held liable for the checks drawn in violation of Cannon’s duty pursuant to § 47-3-304, the defendant must have been a purchaser of the cheeks. Under Tennessee law, however, a drawee bank is not a purchaser of checks. In Figuers v. Fly, 137 Tenn. 358, 193 S.W. 117 (1916), the Supreme Court of Tennessee held that presentation of a check to a drawee bank for payment is not a “negotiation” of that check. Id. at 377,193 S.W. 117 (interpreting “negotiation” under the Negotiable Instruments Law); see Farmers’ & Merchants’ Bank v. Bank of Rutherford, 115 Tenn. 64, 71, 88 S.W. 939 (1905) (“The drawee is not a holder in due course_A holder means a payee or indor-see who is in possession, or the bearer.... The drawee, when he accepts the check, makes himself the guarantor thereof.”); see also Central Bank & Trust Co. v. General Fin. Corp., 297 F.2d 126, 128 (5th Cir.1961) (“The drawee of a check payable to another is neither a payee or indorsee. It is not a holder and hence is not a holder in due course.”) (applying the Negotiable Instruments Law); Security Sav. Bank v. First Nat’l Bank, 106 F.2d 542, 545 (6th Cir.1939) (“[U]nder the Negotiable Instruments Law, the drawee does not become a holder, nor do presentation and payment constitute negotiation. ... ”); First Nat’l Bank v. United States Nat’l Bank, 100 Or. 264, 197 P. 547, 555 (1921) (“[Presentment to the drawee for payment is not a negotiation of a check .... It is manifest that a drawee, who pays a check and then receives it as a cancelled voucher ... is not ‘a holder’-”). Therefore, UAB cannot be held liable under § 47-3-304 for those checks for which it was merely the drawee bank. Nevertheless, this does not provide the defendant with as broad a defense as it asserts. Although UAB claims that the above reasoning prevents them from being hable for any checks payable to third parties or to Cannon, UAB was not merely the drawee bank for some of those checks. Rather, with respect to many checks, it was the depositary bank as well. Accordingly, it is necessary to categorize the checks at issue in light of UAB’s status with respect to each of them. Upon review of the plaintiffs’ allegations, four categories of checks emerge: (1) checks drawn to transfer funds from the escrow account to Cannon’s personal account; (2) checks made payable to J.C. Bradford & Co. for commodity trades, which J.C. Bradford then deposited in its account at UAB; (3) checks drawn on the escrow account made payable to third parties, including Cannon’s wife, the Memphis Country Club, Southern Methodist University, and various businesses, some of which Cannon owned; and (4) checks drawn on the escrow account, made payable to UAB to cover payments on Cannon’s personal loans at the bank. With respect to the first type of checks— those written by Cannon to transfer funds from the escrow account to his personal account — and the second type — those checks made payable to J.C. Bradford, which J.C. Bradford in turn deposited in its account at UAB — UAB would be the depositary bank as well as the drawee bank. Accordingly, in such cases, UAB would have received the check by negotiation; those checks were made payable to order, and then endorsed either to UAB, or in blank. As a result, UAB is a purchaser of those checks, and is subject to liability under § 47-3-304. With respect to the third category, however, i.e., those checks written to third parties which