JP Morgan Chase Bank, N.A. v. First American Title Insurance

725 F. Supp. 2d 619

• Court: District Court, E.D. Michigan
• Decided: August 5, 2010
• Docket: Case 09-14891, 09-14915
• Status: Published

Opinion

OPINION AND ORDER GRANTING FIRST AMERICAN TITLE INSURANCE COMPANY’S MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS

MARIANNE O. BATTANI, District Judge.

I. INTRODUCTION

Before the Court are First American Title Insurance Company’s (“First American”) Motion for Partial Judgment on the Pleadings, (doc. 16), and the Federal Deposit Insurance Corporation / Receiver’s (“FDIC”) Motion to Intervene, (doc. 25). As stated on the record at hearing held on June 9, 2010, the Court GRANTS the FDIC’s Motion to Intervene. In First American’s Motion for Partial Judgment on the Pleadings, it asks for judgment in its favor on Counts 1 and 2 of its complaint against Chase. For the reasons that follow, the Court GRANTS First American’s motion.

II. STATEMENT OF FACTS

First American is in the business of underwriting policies of title insurance for property owners and mortgage lenders. Patriot Title Agency LLC (“Patriot Title”) was an agent authorized to issue title policies underwritten by First American. In 2008 it became apparent to First American that Patriot Title, via its principal officer Randy Saylor, was involved in various fraudulent real estate and mortgage loan transactions. One of these fraudulent transactions involved the property that is the subject of the present dispute — an 11,-000 square foot home located in Grosse lie Township, Michigan (the “Property”).

In September of 2007, Saylor and other coconspirators sought to fraudulently obtain a mortgage loan involving the Property from Washington Mutual Bank (“WaMu”) on behalf of an individual named Ha Truong. The application falsely stated that Truong had an income of $250,000 per month. WaMu subsequently approved the loan application in the principal amount of $4.5 Million. In connection with this transaction, Saylor, acting on behalf of Patriot Title and, by extension, First American, issued a title insurance policy (“the Title Policy”) in the principal amount of $4.5 Million to WaMu. The parties agree that the terms of the Title Poli cy are contained within the ATLA Loan Policy 06-17-06 document.

As a result of the various fraudulent acts perpetrated by Saylor, WaMu did not obtain an effective mortgage lien on the Property. Truong subsequently failed to make his loan payments. In order to remedy the apparent title defects, First American acquired title and possession of the Property in 2008. Thereafter, federal regulators closed WaMu and the insured mortgage was assigned to J.P. Morgan Chase Bank (“Chase”). First American subsequently sought to convey the Property to Chase in order to extinguish any possible claims that could be brought under the Title Policy. Chase refused to accept the Property, maintaining that it was entitled to monetary damages.

On December 16, 2009, First American filed suit in the Wayne County Circuit Court seeking a declaration that it had fulfilled its obligations under the Title Policy, and redress for Chase’s alleged breach of contract. Chase, in turn, filed an action in this Court the next day against First American for breach of contract, fraud, and misrepresentation. Chase also sought declaratory relief as to First American’s obligations under the Title Policy. Chase removed First American’s state court action to this Court, and the two actions were consolidated.

III. STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(c) allows a party to move for a judgment on the pleadings after the pleadings are closed, but early enough not to delay trial. In reviewing such a motion, “all well-pleaded material allegations of the pleadings of the opposing party must be taken as true, and the motion may be granted only if the moving party is nevertheless clearly entitled to judgment.” JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577, 581 (6th Cir.2007) (citation omitted). Accordingly, “[a] Rule 12(c) motion is granted when no material issue of fact exists and the party making the motion is entitled to judgment as a matter of law.” Id. (quotation omitted).

IV. ANALYSIS

This case turns on whether First American can satisfy its obligations under the Title Policy by conveying title to the Property to Chase. As an initial matter, the Title Policy never explicitly indicates that First American can satisfy its obligations by conveying title to Chase. The Title Policy does, however, contain a limitation of liability provision that states:

If [First American] establishes the Title, or removes the alleged defect, lien, or encumbrance ..., all as insured, in a reasonably diligent manner by any method ... it shall have fully performed its obligations with respect to that matter and shall not be liable for any loss or damage caused to the Insured.

Accordingly, if conveying title to the Property to Chase either “establishes the Title, or removes the alleged defect hen or encumbrance,” then by conveying the title to the Property to Chase, First American can fully satisfy its obligations under the Title Policy.

Chase argues that this Court should follow Citicorp Sav. of Ill. v. Stewart Title Guar. Co. (“Citicorp”), 840 F.2d 526 (7th Cir.1988), which addressed a very similar title policy and held that the title insurer could not satisfy its obligations by tendering the deed to the property. First American argues, however, that Citicorp was wrongly decided and that this Court should follow First Fed. Sav. and Loan Assoc. v. Transamerica Title Ins. Co. (“First Federal”), 19 F.3d 528 (10th Cir.1994).

In Citicorp, the Seventh Circuit Court of Appeals concluded that a title insurer could not satisfy its obligations by tender ing title to the lender. 840 F.2d at 531. In that case, Charles Robinson financed the purchase of a piece of property through the execution of a mortgage on the property. Id. at 527-28. The mortgage was assigned to Citicorp and a title insurance policy was issued. Id. at 528. Citicorp subsequently learned that Robinson had been adjudicated incompetent 26 years before the purchase of the property, which rendered the mortgage voidable by Robinson’s guardian. Id. at 528-29. Accordingly, the court found that Citicorp was entitled to damages because it had relied upon the title policy’s “guarantee that the lien is valid” in extending credit to Robinson. Id. at 529-30.

The court then determined that the title insurer could not cure this defect by tendering the property title to Citicorp. Id. at 531. In arriving at this conclusion, the court first noted that the title policy never stated that the'insurer could tender the property’s deed in lieu of damages. Id. at 530. The court also observed that the policy’s “Determination and Payment of Loss” provision was drafted solely in monetary terms, which implied that “damages are not payable in real estate[.]” Id. Furthermore, the loss to Citicorp was fixed when Citicorp extended credit to Robinson, and it was inappropriate for Citicorp, as opposed to the title insurer, to “bear any risk of market value decline in the property after that time.” Id. Based on this, the court concluded “that the parties could not have intended tender of the real estate to be an acceptable substitute for damages.” Id.

The Citicorp court then turned to determine whether tendering the deed “established the lien of the insured mortgage, as insured,” as the title policy called for in its limitation of liability provision. Id. The court first noted that the “insured mortgage” was defined in the title policy as Citicorp’s mortgage on Robinson’s interest in the property. Furthermore, the lien was unenforceable by Citicorp at the mortgage’s inception and “no action by Stewart Title could have established the mortgage lien as insured.” Id. at 531. The court went on,

It is one thing to say that the policy allows [the title insurer] to correct defects in a lien’s priority. It is quite another to contend that [the title insurer] may ‘correct’ a voidable mortgage, which the mortgagee would never have entered had it been informed of the voidability, by tendering a deed to the property years later. Tender does not remove the fact that no money would have changed hands but for [the title insurer’s] mistake.

Id. According to the court, the title insurer could have drafted the policy to permit tender of the deed to cure such a defect, but it did not. Id. Therefore, the court granted judgment to Citicorp for the amount of money that Citicorp had tendered to Robinson in the mortgage transaction. Id.

A dissent to the Citicorp decision concluded that the title insurer had established the lien of the insured mortgage, as was required of it by the title policy’s limitation of liability provision, by tendering the deed to Citicorp. Id. at 534. According to the dissent, the title insurer “ensured that Citicorp retained the legal right it was entitled to under a legally enforceable mortgage (i.e., the right to foreclose).” Id.

In First Federal, the Tenth Circuit criticized the reasoning of Citicorp because it “ignores the nature of title insurance.” 19 F.3d at 530. The court described the nature of title insurance as follows:

Title insurance is merely a contract to indemnify the insured for any losses incurred as a result of later found defects in title. Title insurance does not insure the value of the subject property; it insures only that the title to such property is unencumbered by unknown liens, easements, and the like which might affect the property’s value. In other words, a title insurance policy is not analogous to a warranty of title found in a deed which is breached, if at all, at the time it is made.

Id. The Court went on to conclude that the title insurer satisfied the plain meaning of the title policy’s limitation of liability provision by having the Property’s title transferred to the insured, which “establish[ed] the title.” Id. at 531.

As an initial matter, the Court agrees with First Federal’s conclusion that Citicorp mistakenly treated title insurance as a guarantee of title. See Gibraltar Sav. v. Commomvealth Land Title Ins. Co., 905 F.2d 1203, 1205 (8th Cir.1990) (“ ‘A title policy is a contract of indemnity, not of guaranty,’ and provides reimbursement for actual loss only. A title insurance policy provides for indemnity ‘only to the extent that [the insured’s] security is impaired and to the extent of the resulting loss that it sustains.’ ”) (quoting Diversified Mortgage Investors v. U.S. Life Ins. Co., 544 F.2d 571, 574 n. 2 (2d Cir.1976)); Mid-South Title Ins. Corp. v. Resolution Trust Corp., 840 F.Supp. 522, 527 (W.D.Tenn.1993) (citing Falmouth Nat. Bank v. Ticor Title Ins. Co., 920 F.2d 1058, 1062 (1st Cir.1990)); see also Focus Inv. Assocs., Inc. v. American Title Ins. Co., 992 F.2d 1231, 1236-37 (1st Cir.1993). Accordingly, to the extent that Citicorp relied upon treating the title insurance policy as a guaranty, and not as a contract of indemnity, the decision was not well-founded.

Regarding whether tendering the title satisfies the Title Policy’s limitation of liability provision, the Court again finds First Federal persuasive. In this case, title never properly vested — and, thus, Chase did not obtain its lien interest in the Property — because the purchase of the Property by Truong was a sham. In such a situation, the Court finds that tendering full title to the Property to the Insured “establishes the Title” under the Title Policy’s Limitation of Liability Provision.

Chase argues that “Title” must be established in accordance with the definition of the term “Title” in the Title Policy; the Title Policy defines Title as vesting in Truong, with Chase possessing a mortgage lien on the Property. The Court does not find, however, that in a situation such as this — where the purchase of the property was a sham and the purported purchaser has failed to satisfy their mortgage payment obligations — that the Limitation of Liability provision of the Title Policy requires that the title be vested in Truong with a mortgage interest to Chase. As such, the Court finds that by tendering the title to the Property to Chase, First American established the title; thereby fully performing its obligations under the Title Policy.

V. CONCLUSION

Accordingly, Plaintiffs Motion for Partial Judgment on the Pleadings is GRANTED.

IT IS SO ORDERED.

ORDER GRANTING IN PART AND DENYING IN PART J.P. MORGAN CHASE BANK, N.A’S MOTION FOR RECONSIDERATION OF OPINION AND ORDER GRANTING FIRST AMERICAN TITLE COMPANY’S MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS; OR IN THE ALTERNATIVE, TO CERTIFY THE OPINION AND ORDER FOR INTERLOCUTORY APPEAL AND FOR A STAY OF PROCEEDINGS

Before the Court is J.P. Morgan Chase Bank N.A.’s (Chase) request for reconsideration of the Court’s July 8, 2010, Order, in which the Court granted partial judgment on the pleadings to First American Title insurance Company (First American). In the alternative Chase seeks immediate certification for appeal and a stay of the proceedings. For the reasons that follow, the Court grants in part and denies in part the motion.

I. RECONSIDERATION

Pursuant to E.D. Mich. LR 7.1(g)(3), to obtain the requested relief, the movant must demonstrate: (1) the Court and the parties have been misled by a palpable defect, and (2) the correction of that defect will result in a different disposition of the case. A “palpable defect” is an error which is obvious, clear, unmistakable, manifest or plain. Fleck v. Titan Tire Corp., 177 F.Supp.2d 605, 624 (E.D.Mich.2001); Marketing Displays, Inc. v. Traffix Devices, Inc., 971 F.Supp. 262, 278 (E.D.Mich.1997) (citation omitted).

After a thorough review of the motion, the Court finds that Chase has failed to carry its burden of proving a palpable defect requiring correction. Specifically, Chase has presented the same arguments advanced in responding to First American’s Motion for Partial Judgment on the Pleadings. Chase merely disagrees with the Court’s resolution of the issues. This is not a basis for granting reconsideration.

Neither this order nor the order granting partial judgment on the pleadings constitutes a final and immediately appealable order, because neither conclusively disposes of all issues as to all parties. See Griffin v. Reznick, 609 F.Supp.2d 695, 709 (W.D.Mich.2008). Therefore, Plaintiff asks the Court to grant certification for interlocutory appeal in the alternative.

II. CERTIFICATION FOR INTERLOCUTORY APPEAL

At the outset, the Court observes that interlocutory appeals in the federal system generally are disfavored. Firestone Tire & Rubber Co. v. Risjord, 449 U.S. 368, 101 S.Ct. 669, 66 L.Ed.2d 571 (1981). “Routine resort to § 1292(b) requests would hardly comport with Congress’ design to reserve interlocutory review for ‘exceptional’ cases while generally retaining for the federal courts a firm final judgment rule.” Caterpillar v. Lewis, 519 U.S. 61, 74, 117 S.Ct. 467, 136 L.Ed.2d 437 (1996). Accordingly, a party seeking an interlocutory appeal has the burden of showing exceptional circumstances exist warranting an interlocutory appeal. W. Tenn. Chapter of Assoc. Builders & Contractors, Inc. v. City of Memphis (In re City of Memphis), 293 F.3d 345, 350 (6th Cir.2002); Vitols v. Citizens Banking Co., 984 F.2d 168,170 (6th Cir.1993).

Here, the Court agrees with Chase that this is an “exceptional” case, appropriate for interlocutory review. In reaching this conclusion, the Court finds that Chase has satisfied the three criteria articulated in In re City of Memphis, 293 F.3d at 350. First, the issue must involve a controlling issue of law; second, there must be grounds for a substantial difference of opinion as to the outcome of the issue; and third, an immediate appeal may materially advance the ultimate termination of litigation. Id.; 28 U.S.S. § 1292(b).

Here, the controlling issue is whether First American, a title insurer, can satisfy its obligations to the lender, Chase, by conveying title to the property to Chase or whether Chase is entitled to damages. This issue is one of first impression in the Sixth Circuit, and there has been a difference of opinion as to the outcome of the issue as reflected by the Seventh Circuit decision, Citicorp Sav. of Ill. v. Stewart Title Guar. Co. (“Citicorp"), 840 F.2d 526 (7th Cir.1988), and the Tenth Circuit decision, First Fed. Sav. and Loan Assoc. v. Transamenca Title Ins. Co. (“First Federal”), 19 F.3d 528 (10th Cir.1994).

Finally, certification will permit outcome-determinative legal issues to be resolved before the parties and the Court expend valuable resources on further litigation. See Simon v. Brentwood Tavern, LLC (In re Brentwood Golf Club, LLC), 329 B.R. 239, 242 (E.D.Mich.2005). Notably, in this case if First American tenders title to Chase to satisfy its contractual obligations, Chase will lose its claim for damages. Accordingly, the Court finds that certification for appeal is warranted in this case.

In the event that its request for certification for interlocutory appeal is granted, Chase asks the Court to stay all proceedings in this matter pending resolution of the application for leave to appeal. Under 28 U.S.C. § 1292(b), a stay is not automatic; the “district judge or the Court of Appeals or a judge thereof’ must order a stay.

Upon review of all the relevant considerations, the Court stays all proceedings in the matter pending a decision by the Sixth Circuit as to whether it will hear an interlocutory appeal, and if it accepts the appeal, pending resolution of that appeal. Chase shall update the Court within ten days of the resolution of the interlocutory appeal request.

III. CONCLUSION

Accordingly, the Court GRANTS in part and DENIES in part the motion. Chase’s request for reconsideration is DENIED; its request for certification of interlocutory appeal and stay is GRANTED.