Cite as 2022 Ark. App. 440 ARKANSAS COURT OF APPEALS DIVISION I No. CV-20-310
FIRST NATIONAL BANK OF IZARD Opinion Delivered November 2, 2022 COUNTY APPELLANT APPEAL FROM THE IZARD COUNTY CIRCUIT COURT [NO. 33CV-18-69] V. HONORABLE HOLLY MEYER, JUDGE OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY AFFIRMED APPELLEE
PHILLIP T. WHITEAKER, Judge
The appellant, First National Bank of Izard County (the “Bank”), appeals an order
from the Circuit Court of Izard County granting summary judgment in favor of appellee,
Old Republic National Title Insurance Company (“Old Republic”) and dismissing with
prejudice the appellant’s complaint for declaratory judgment. We affirm the circuit court’s
order granting summary judgment to Old Republic.
I. Background Facts
The dispute between the Bank and Old Republic concerns two title insurance policies
issued by Old Republic to the Bank. To assist in understanding the nature of this dispute,
we set forth a summary of a complex business transaction between entities and individuals
who are not parties to this cause of action but are relevant to this appeal. John Hardy
(“Hardy”) and Helen and George Bartmess (collectively, “the Bartmesses”) were business partners in a limited-liability company called B&H Resources, LLC (“B&H”). When the
partnership dissolved in February of 2009, the Bartmesses sold their business interests to
Hardy (the “B&H Transaction”). Hardy obtained a $445,997 loan from the Bank to facilitate
the buyout. The Bartmesses owned real property located in Izard County, Arkansas,
including a 377-acre tract known as “Phillips Corner” (the “Phillips Corner Property”), and
this property, among several others, was transferred by the Bartmesses to Hardy as part of
the B&H Transaction. The B&H Transaction was prolonged and protracted. Eventually,
the Bartmesses and Hardy reached terms of agreement set forth in two documents that are
essential to this appeal: (1) an “LLC Membership Interest Purchase Agreement” (“the LLC
MIPA”) that set forth the terms and conditions relative to the B&H Transaction and (2) a
“Memorandum of LLC Membership Interest Purchase Agreement Affecting Real Estate and
Rights Therein” (“the Memorandum”). The LLC MIPA contained a provision that created
a reversionary interest in the Phillips Corner Property back to the Bartmesses in the event of
certain conditions of noncompliance. Because of confidentiality, the LLC MIPA was not to
be recorded in the Izard County land records. The Memorandum did not contain the above-
referenced reversionary interest, but it did reference the LLC MIPA, stating that it “affects
real estate and rights in real estate, the parties hereby enter into this memorandum and file
it within the mortgage and conveyance records in and for Izard County, Arkansas.” In
addition, legal descriptions of several pieces of real property, including the Phillips Corner
Property, were attached to the Memorandum, and the Memorandum further recited that
the Bartmesses agreed to convey to B&H the Phillips Corner Property.
2 To complete the B&H Transaction, the Bank agreed to loan money to Hardy. Danny
Moser (“Moser”), the Bank’s CEO at the time, was the loan officer for the B&H Transaction.
In this capacity, Moser undeniably received and was copied on most, if not all, of the
correspondence concerning the B&H Transaction between the Bartmesses and Hardy,
including the LLC MIPA and the Memorandum. Subsequently, the Bank made three loans.
It first loaned Hardy $445,997 secured by a mortgage on a 636-acre tract of property
conveyed by the Bartmesses to Hardy and B&H (this loan is not at issue in this appeal). The
Bank issued a second loan in the amount of $55,000 (“the 55k Loan”) secured by a mortgage
dated February 12, 2009, on the Phillips Corner Property. Almost five months later, on July
9, 2009, it made a third loan to Hardy of $155,000 (“the $155k Loan”) that was also secured
by a mortgage on the Phillips Corner Property.
In connection with each loan and mortgage, the Bank purchased title insurance
policies from Old Republic. Old Republic issued three separate title policies to the Bank
covering the mortgages and securing the $455,997 loan, the $55k Loan, and the $155k Loan
(the policies for the $55k and $155k loans are collectively referred to herein as “the Policies”).
The Policies insured that the Bank’s mortgage liens on the Phillips Corner Property were
superior to other claims.
Because of animus between the Bartmesses and Hardy, the Bank agreed to serve as a
host site for the closing of the B&H Transaction (“the Closing”). On February 12, 2009, the
Bartmesses and Hardy, along with their counsel, appeared at the Bank, signing all
agreements, notes, and mortgages, and completing all transfers of real estate necessary for
3 the B&H Transaction and the $55k Loan. Wilda Russell, a Bank employee, was present at
the Closing; served as the witness and notary; and took possession of the Closing documents
for recording. She mailed the Memorandum, along with other documents, including the
Bank’s mortgages and warranty deed for the Phillips Corner Property, to the Izard County
Circuit Clerk to be recorded in the public land records. In so doing, Ms. Russell attached a
note on the first document stating, “record in this order,” then she put a number on each
document to indicate the order. On February 23, 2009, the documents were recorded by
the county clerk. The clerk filed the Memorandum four minutes ahead of the Bank’s
mortgages that encumbered the Phillips Corner Property. Once filed, the clerk returned the
recorded documents back to Ms. Russell. She, however, did not check to see if they had been
recorded in the appropriate order.
On July 8, 2009, the Bank and Hardy closed on the $155k Loan. In connection with
this closing, Old Republic issued a title-commitment order on July 22, 2009. The order
indicated that the only prior lien was the $55k Loan secured by mortgage filed February 23,
2009, with no priority interest, notation, or exclusion relating to the Memorandum filed of
record on February 23, 2009.
In 2015, Hardy went into default on the loans, and the Bank commenced a
foreclosure action in the United States District Court against Hardy, B&H, and Helen
Bartmess (Helen).1 Helen filed an answer asserting a superior interest in all property in
1 At the time of the commencement of this proceeding, George Bartmess was deceased. 4 which the Bank held mortgages, including the Phillips Corner Property, by virtue of the
Memorandum. Furthermore, she declared that the Bank had actual notice of her preexisting
claim against the property as well as constructive notice of her claim at the time of the loan
transactions.
In response, the Bank filed a claim for coverage and defense with Old Republic under
the Policies. Old Republic refused to defend and denied the Bank coverage, citing the
Policies’ exclusions. Despite this refusal to defend, the Bank moved forward with the
foreclosure proceeding. Ultimately, the Bank reached a settlement with Helen, conceding
that her interest in the property—by virtue of the Memorandum and LLC MIPA—was
superior to its two mortgages on the same property, and it released its interest in the Phillips
Corner Property.
Subsequently, the Bank filed the underlying cause of action against Old Republic
alleging breach of the Policies because of its failure to provide coverage; its failure to defend
the Bank in the federal litigation; and its failure to pay the Bank’s damages suffered by the
loss of its security interest to the property in question. Old Republic counterclaimed, seeking
a declaration from the circuit court that its denial of coverage was proper under the express
exclusions of the Policies.
Both parties filed competing summary-judgment motions. In so doing, each party
agreed that no material issue of fact remained, and each party argued that it was entitled to
judgment as a matter of law. After conducting a hearing on the motions, the circuit court
entered summary judgment in favor of Old Republic. In its judgment, the court found that
5 no genuine issues of material fact were in dispute. The court further found the following
facts undisputed: (1) the Bank made two loans to Hardy secured by mortgages on the Phillips
Corner Property; (2) the Closing of the B&H Transaction, transfers of real estate, and
signing of agreements, notes, and mortgages were done at the Bank’s office; (3) Danny Moser,
the Bank’s CEO and the loan officer for the B&H Transaction, was aware of the B&H
Transaction negotiations in that he received and was copied on most, if not all,
correspondence prior to the Closing; (4) the Bank was in possession of all relevant
documentation, including the Memorandum and the LLC MIPA; (5) though in possession
of all relevant documents, Moser made the conscious decision not to read them; (6) a Bank
employee, Wilda Russell, was present at the Closing, served as a witness, and notarized the
documents; (7) Russell sent the Memorandum, mortgages, and warranty deed to the Izard
County Circuit Clerk for recording; (8) the Memorandum was filed four minutes ahead of
the Bank’s mortgages thus giving the Memorandum priority; (9) the recorded documentation
was sent back to the Bank; and (10) the Bank did not review the documents to ensure they
were recorded in the correct order. From these undisputed facts, the court found that an
exclusion to the Policies applied, granted summary judgment to Old Republic, denied the
Bank’s motion, and dismissed its complaint. Subsequently, the Bank filed a motion for new
trial, which was not ruled on by the circuit court; thus, it was deemed denied. The Bank filed
timely notices of appeal.
II. Standard of Review
6 The Bank appeals the circuit court’s order granting summary judgment. When a party
appeals a grant of summary judgment, we ordinarily examine the record to determine if
genuine issues of material fact exist. May v. Akers-Lang, 2012 Ark. 7, 386 S.W.3d 378. We do
so because summary judgment may be granted only when there are no genuine issues of
material fact to be litigated, and the moving party is entitled to judgment as a matter of law.
Cannady v. St. Vincent Infirmary Med. Ctr., 2012 Ark. 369, 423 S.W.3d 548. However, when
parties file cross-motions for summary judgment, our standard of review is different. When
parties file cross-motions for summary judgment, as was done in this case, they essentially
agree that there are no material facts remaining, and summary judgment is an appropriate
means of resolving the case. When the parties agree on the facts, we simply determine
whether the appellee was entitled to judgment as a matter of law. Hobbs v. Jones, 2012 Ark.
293, 412 S.W.3d 844.
In deciding issues of law, our standard of review is de novo. State v. Cassell, 2013 Ark.
221, at 4–5, 427 S.W.3d 663, 666 (citations omitted). “De novo review means that the entire
case is open for review.” Certain Underwriters at Lloyd’s, London v. Bass, 2015 Ark. 178, at 9,
461 S.W.3d 317, 323 (citations omitted). Herein, we are tasked with the interpretation of
contracts—the Policies. We interpret contracts under the following standard of review:
The first rule of interpretation of a contract is to give to the language employed the meaning that the parties intended. In construing any contract, we must consider the sense and meaning of the words used by the parties as they are taken and understood in their plain and ordinary meaning. The best construction is that which is made by viewing the subject of the contract, as the mass of mankind would view it, as it may be safely assumed that such was the aspect in which the parties themselves viewed it. It is also a well-settled rule in construing a contract that the
7 intention of the parties is to be gathered, not from particular words and phrases, but from the whole context of the agreement.
Alexander v. McEwen, 367 Ark. 241, 244, 239 S.W.3d 519, 522 (2006) (quoting Coleman v.
Regions Bank, 364 Ark. 59, 65, 216 S.W.3d 569, 574 (2005) (internal citations omitted).
III. Points on Appeal
On appeal, the Bank argues the following: (1) the circuit court erred by failing to
address or make findings regarding Old Republic’s constructive notice of the Memorandum;
(2) Old Republic failed to prove actual knowledge on the part of the Bank as to a defect in
title; therefore, the Policies apply; (3) the circuit court’s “best position” and “notice to inquire
further” analysis is not supported by case law; thus, it was erroneous; (4) the court’s
determination that Moser and the Bank had “actual notice” of the Memorandum was not
established by summary judgment and therefore constitutes a contested issue of fact; (5) the
circuit court failed to make any findings concerning the pleadings in the federal lawsuit with
regard to Old Republic’s duty to defend; and (6) attorney’s fees are not available to Old
Republic in this action.
IV. Discussion
Herein, the circuit court granted judgment to Old Republic based on competing
motions for summary judgment. Because Old Republic and the Bank both filed motions for
summary judgment, they essentially agreed that summary judgment is an appropriate means
of resolving this case. Our review is limited to whether the circuit court erred in its
conclusion of law that the coverage exclusion in the Policies was properly applied.
A. The Paragraph 3(a) Policy Exclusion
8 Both of the Policies contained identical exclusion provisions listed in paragraph 3(a).
The exclusionary provisions state:
The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damages, cost, attorneys’ fees or expenses which arise by reason of:
3. Defects, liens, encumbrances, adverse claims or other matters: (a) created, suffered, assumed, or agreed to by the Insured Claimant[.]
Old Republic denied the Bank coverage citing paragraph 3(a). In its motion for summary
judgment, Old Republic contended that the terms of the Memorandum and the LLC MIPA
were disclosed to the Bank, and these documents were in the possession of the Bank prior
to the Closing. It further contended that the Bank’s handling and recording of the
Memorandum, along with the insured’s mortgages, resulted in the Memorandum being
recorded ahead of the mortgages. Old Republic argued, on the basis of these undisputed
facts, that its decision to deny coverage under paragraph 3(a) was justified. The circuit court
agreed and held that Old Republic properly applied the paragraph 3(a) exclusion.
Specifically, the court declared that pursuant to Arkansas law the Bank “created, suffered,
assumed or agreed to” the defects in title.
Our court has previously reviewed this language “created, suffered, assumed, or
agreed to,” within the meaning of the exclusion of coverage under a title-insurance policy,
concluding that the word “suffered” is synonymous with “permit” and implies a power in
the insured to prohibit the act giving rise to the defect. Bourland v. Title Ins. Co. of Minn., 4
Ark. App. 68, 627 S.W.2d 567 (1982).
9 Having reviewed the paragraph 3(a) exclusion in the Policies and the relevant caselaw
interpreting the terms outlined in the exclusion, we find no error in the circuit court’s ruling.
We are not persuaded by the Bank’s argument that for the paragraph 3(a) exclusion to apply,
some willful intent on its part, as the insured, must be present. The Bank argues that Bourland
limits the exclusion to cases in which all of the following are true: (1) the insured party has
actual knowledge of the defect; (2) the knowledge is not possessed by the insurer; and (3) the
actual knowledge on the part of the insured is willfully withheld. We disagree.
Admittedly, we held in Bourland that the facts there did not support a denial of
coverage under the insurance policy exclusions because the appellant “had nothing to do
with the execution or recording of the deed and had no power to prohibit it.” Id. at 74, 627
S.W.2d at 571. Such is not the situation in this case.
It is undisputed that in the weeks prior to the Closing, the terms of the
Memorandum, the LLC MIPA, and the additional documents related to the partnership
dissolution and the real estate transactions were shared with the Bank. The Bank received a
fax dated January 26, 2009, containing a letter between counsel for Hardy and the
Bartmesses containing the following:
Finally, I have not done this yet, but I think for both of our clients’ interest, that we need to either record the LLC Buy-Sell Agreement, or else prepare a memorandum of the Agreement where we include the provisions from the agreement that affect the property.
Here, the Bank was involved in the B&H Transaction for months and was informed by letter
of the purpose of the Memorandum. Furthermore, a Bank employee was present for the
Closing, notarized the documents, and handled the recording of the Memorandum, deed,
10 and mortgages. Even after the documents were recorded, they were returned to the Bank.
Thus, the facts herein are unlike the facts in Bourland in that, here, the Bank had within it
the power to prohibit the Memorandum from having priority over its mortgages.
We are not persuaded that our decision in Bourland requires some willful intent on
the part of the insured. In addition, as will be discussed below, this is not a situation where
the circuit court held that the Bank’s knowledge alone supported Old Republic’s denial of
coverage; therefore, willful intent on the part of the Bank was not required for the paragraph
3(a) exclusion to apply.
Accordingly, we find no error in the circuit court’s finding that the undisputed facts
establish that the Bank could have prohibited and prevented the claim from arising;
therefore, pursuant to Arkansas law, the defect in title was “created, suffered, assumed, or
agreed to” by the Bank, and coverage was properly denied under paragraph 3(a) of the
Policies.
B. Actual and Constructive Knowledge
The Bank’s first, second, and fourth arguments all center on the issue of knowledge.
In fact, the Bank expended a substantial portion of its brief discussing the issue of knowledge;
more specifically, who did or did not have knowledge—either actual or constructive—of the
contents of the Memorandum, and what effect such knowledge, or lack thereof, should have
had on the circuit court’s ruling. We are not persuaded that these arguments are germane to
the issue presented on appeal.
11 The Policies contained two separate exclusions in paragraph 3: 3(a) and 3(b). As
previously discussed, paragraph 3(a) excludes “[d]efects, liens, encumbrances, adverse claims”
that were “created, suffered, assumed, or agreed to” by the insured. Paragraph 3(b) excludes
“[d]efects, liens, encumbrances, adverse claims . . . not Known to the Company, not recorded
in the Public Records at Date of Policy but known to the Insured Claimant.” Giving this
contractual language the meaning that the parties intended, we hold that knowledge, either
actual or constructive, is immaterial to the paragraph 3(a) exclusion; thus, it is unnecessary
for this court to discuss the merits of such.
C. “Best Position” and “Notice to Inquire Further”
The Bank argues that it was erroneous for the circuit court to put a duty on it to
ensure clear title because the burden of identifying defects in title belonged to Old Republic,
and furthermore, the Bank was entitled to rely on Old Republic’s “search, opinion, and
guarantee.” Specifically, the Bank contends that the circuit court’s “best position” analysis
and its statement that the Bank had a “notice to inquire further” were erroneous because it
was under no duty to identify possible defects in title. First, we note that the circuit court
did not engage in a “best position” analysis in its order; therefore, that argument is
disregarded on appeal. Second, the circuit court’s statement that the facts warranted the
Bank’s further inquiry into the terms of the Memorandum was not the court imposing a
duty on the Bank to identify potential defects in title; rather, the court was merely
establishing that the Bank could have prevented the claim from arising under the established
precedent in Bourland. For this reason, we find no merit to this argument.
12 D. Duty to Defend
The Bank argues that Old Republic had a duty to tender a defense in the federal
proceedings and, furthermore, that the circuit court erred by not making a finding
concerning the pleadings in the federal lawsuit. In response, Old Republic maintains that
the circuit court’s legal findings were based on precedent that where no policy coverage exists,
there is no duty to defend.
The circuit court held that “[o]n these facts, the 3(a) Exclusion was properly applied
by Old Republic, and [the Bank’s] claims made on both of the Policies for indemnity and
defense were properly denied.” The supreme court has held that the paragraph 3(a)
exclusion precludes an insurance company from paying for losses an insured inflicts on itself.
Mattson v. St. Paul Title Co. of the S., 277 Ark. 290, 641 S.W.2d 16 (1982). Because we find
no error in the circuit court’s holding that the Bank’s loss fell within the paragraph 3(a)
exclusion, it follows that Old Republic had no duty to defend the Bank. Therefore, the
circuit court did not err by failing to make a finding concerning the pleadings in the federal
case.
E. Attorney’s Fees
The Bank argues “out of caution” that the circuit court’s determination of Old
Republic’s right to attorney’s fees was not in compliance with the requirements of applying
for such fees and, furthermore, that fees are not available in this action.
In its final judgment, the circuit court stated that as the prevailing party, Old Republic
“is entitled to petition the Court for an award of reasonable attorney’s fees within fourteen
13 (14) days of the entry of this Judgment.” Consequently, no decision was made by the circuit
court on attorney’s fees. Because this court is limited to reviewing a ruling or an order of a
lower court, we are precluded from addressing the merits of this challenge on appeal. Ozark
Mountain Reg. Pub. Water Auth. v. Ark. Att’y Gen., 2020 Ark. App. 180, 598 S.W.3d 864.
V. Conclusion
We find that Old Republic is entitled to judgment as a matter of law; therefore, the
order granting summary judgment is affirmed.
Affirmed.
ABRAMSON and BROWN, JJ., agree.
Jeremy B. Lowrey, for appellant.
Dover Dixon Horne PLLC, by: Monte Estes, for appellee.