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Idaho Federal Court Grants Defendant Title Insurance Company’s Motion to Decertify Class in Light of Individualized Nature of Proof Involved in Determining Appropriate Title Insurance Rates Banner Image

Idaho Federal Court Grants Defendant Title Insurance Company’s Motion to Decertify Class in Light of Individualized Nature of Proof Involved in Determining Appropriate Title Insurance Rates

Month: December 2017

Idaho Federal Court Grants Defendant Title Insurance Company’s Motion to Decertify Class in Light of Individualized Nature of Proof Involved in Determining Appropriate Title Insurance Rates

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In a class action filed by plaintiff against defendant title insurance company alleging that she was overcharged for title insurance when she refinanced her home, the United States District Court for the District of Idaho recently granted defendant’s motion to decertify the class, holding, among other things, that proof of liability as to each class member is too highly individualized.  See Lewis v. First Am. Ins. Co., 2017 WL 3269381 (D. Idaho 2017).  In the case, the Court initially granted class certification for residential customers in the State of Idaho.  Thus, it held that defendant’s liability was contingent upon violations of the Idaho Rate Manual, which states that a discount “reissue rate” must be applied when a title policy is issued within two years of a previous title insurance policy on the same property by the same owner.  Specifically, the discount should have been given when either (1) “[t]he prior policy or a copy thereof is presented to the issuing company and shall be retained in the issuing company’s file,” or (2) “in the absence thereof, reasonable proof of [prior] insurance is provided to the [issuing] company.”  Plaintiff, who had the burden of completing class notice and performing the necessary associated tasks pursuant to the Court order, then sought discovery from defendant and the independent policy-issuing agents in order to identify class members.  Defendant produced the documents it had in its possession, but plaintiff had difficulties obtaining similar documents from the independent agents.  Plaintiff then submitted a partial proposed list of class members, which was limited to those policies issued directly through defendant and did not identify individuals who purchased a policy through the independent agents.  Defendant filed a motion to decertify the class, which the magistrate judge denied.  After further discovery, defendant filed renewed objections to the magistrate judge’s order denying its motion to decertify, and the Court held that the motion to decertify should have been granted.

The Court first stated that the standard for class decertification is the same as class certification – i.e., the Court must be satisfied that the Rule 23(a) prerequisites are met (numerosity, commonality, typicality and adequate representation).  Additionally, the proposed class must satisfy at least one of the three requirements listed in Rule 23(b); here, plaintiff sought class certification for an unjust enrichment claim under Rule 23(b)(3), alleging predominance.

In granting defendant’s motion, the Court found the 2012 order granting class certification to be clearly erroneous for three reasons: (1) it incorrectly presumes that decertification is contingent upon a finding that direct proof of a policy is required to establish eligibility for the reissue rate; (2) it ignores the individual nature of proof required to adjudicate liability; and (3) it ignores additional evidence in the record that demonstrates this case is not manageable as a class action.  Specifically, the record reflects that defendant’s examiners applied different approaches to the “reasonable proof inquiry,” leaving the Court with “a highly individualized approach to liability” such that questions of law or fact common to class members no longer predominate over questions affecting only individual members.  The Court further referenced the fact that plaintiff’s proposed class list yielded a 91% error rate, which is “overwhelming evidence in support of the Court finding that the fact-specific inquiry into class membership, like that of proving liability, is not manageable on a class-wide basis.”  Finally, the Court noted that many other courts in other similar reissue rate cases have rejected class certification or decertified class actions given the individualized nature of the proof involved in determining appropriate title insurance rates.  “The only pervasive pattern Plaintiffs convincingly establish is [defendant’s] practice of allowing title agents to assess the borrower’s entitlement to and apply the appropriate discount rate in each of its real estate transactions . . . the trial courts and fact finders must examine each transaction to determine whether the individual was entitled to, but did not receive, the reissue rate.  This type of individualized approach is not the appropriate subject of a class action lawsuit.” (internal citations omitted).

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

New York’s First Department Reverses Trial Court’s Denial of Summary Judgment in Foreclosure Despite Errors in Affidavits

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The First Department of New York’s Appellate Division recently held that a trial court should have granted a lender summary judgment in an action.  See Bank of Am., Nat. Ass’n v. Brannon, 63 N.Y.S.3d 352 (N.Y. App. Div. 2017).  In the case, the defendant-borrower defaulted on her loan in 2007, and plaintiff commenced a foreclosure action.  In 2008, the trial court granted plaintiff’s motion for summary judgment and in 2009, plaintiff assigned the mortgage to IFS Properties, LLC (“IFS”).  In 2014, the property still had not been sold, and plaintiff filed a motion to vacate the prior summary judgment order because (i) the affidavits submitted with the original motion may not have been correctly notarized and (ii) plaintiff’s new counsel could not comply with Administrative Order 431/11, which required counsel to confirm the accuracy of plaintiff’s prior affidavit of merit with the affiant.  Plaintiff simultaneously filed a new motion for summary judgment based upon a new affidavit of merit from IFS’s managing member, which counsel confirmed was accurate.  The trial court vacated the order but denied the new summary judgment motion, holding that the original affidavits “were not mistakes, omissions or mere irregularities that could be cured by a new affidavit.”  Plaintiff filed two more motions for summary judgment, both of which were denied.  In denying the third motion, the trial court “stat[ed] that it did not believe that plaintiff understood that an action initiated on the basis of a false affidavit suffers from a fatal defect, which cannot be overcome with a subsequent affidavit.”  The trial court also held that the new affidavit was further defective because it did not indicate the state and county of notarization.  On appeal, the First Department reversed.

First, the Court held that the errors in the original affidavits were not fatal to the action as a whole, but only to that particular motion.  Thus, the filing of a new affidavit of merit in compliance with Administrative Order 431/11 cured the issue.  Second, the Court found that the failure to include the state and county of notarization can be disregarded because “the court can disregard a defect in the Uniform Certificate of Acknowledgment unless a defendant has demonstrated that a substantial right of hers has been prejudiced,” which was not the case here.  Finally, the Court found that the new affidavit of merit was not deficient even though the affiant was unfamiliar with the original lender’s files.  “[I]n seeking to enforce a loan, an assignee of an original lender or intermediary predecessor may use an original loan file prepared by its assignor, when it relies upon those records in the regular course of its business. . . . [The affiant here] indicated that he was personally familiar with the recordkeeping systems of IFS and plaintiff and the loan servicer it used, that the records he relied on were made in the regular course of business and that he personally reviewed them on January 31, 2015.”  Thus, summary judgment should have been granted.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

New York’s First Department Holds Mortgagee’s Interest in Property Was Not Rendered Null and Void Where Mortgagors Had Acquired Property by Fraudulent Means

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The First Department of New York’s Appellate Division recently held that a mortgagee’s interest in a property was not rendered null and void where the mortgagors had acquired the property by fraudulent means.  See Weiss v Phillips, 2017 WL 5575033 (N.Y. App. Div. Nov. 21, 2017).  In the case, defendant purchased two distressed properties and transferred one of the properties to a relative.  Defendant later sent a paralegal to obtain the relative’s signature on a blank deed to transfer the property back to the defendant; instead, the paralegal inserted his mother’s name as the grantee.  The mother then deeded the property to herself and the paralegal.  On or about the same date, plaintiff lent $500,000 to the paralegal and his mother, and they executed a note and mortgage on the property.  Subsequently, defendant learned of the fraudulent transfer and sued the paralegal and his mother.  He eventually settled, with the paralegal and his mother agreeing to transfer title on the property back to the defendant.  Around this time, defendant learned that the loan was in default and plaintiff intended to foreclose on the property.  Defendant thus executed a Consolidated Extension Mortgage Agreement Note (“CEMA”) with plaintiff through which defendant acknowledged the loan and mortgage and agreed to waive all defenses and counterclaims in exchange for a one-year extension of the loan.  After the year passed, plaintiff commenced this action and filed a motion for summary judgment seeking to foreclose.  In the action, plaintiff provided a copy of the CEMA and the mortgage but did not provide a copy of the promissory note.  The trial court granted the motion and, on appeal, the First Department affirmed.

First, the Court held that plaintiff’s failure to produce the note did not prevent him from establishing a prima facie case for foreclosure.  In this situation, the complaint’s allegations were based on the mortgage and CEMA in which defendant ratified and affirmed all the terms of the note and mortgage and specifically warranted there were no deductions, counterclaims, defenses, and/or setoffs to any obligations under the note, as well as on defendant’s deposition testimony in which he did not challenge the note’s existence.  Thus, plaintiff did not need to produce the note.  The Court further held that the deed here was the result of a fraudulent inducement, and not a forgery, which made it only voidable rather than void.  Further contrary to defendant’s arguments, the Court held that plaintiff was a bona fide encumbrancer due to the CEMA’s provision that defendant acknowledged and ratified plaintiff’s rights under the note.  Thus, the mortgage obligation could not be avoided by defendant’s myriad defenses.  Finally, the Court held the CEMA was not unconscionable.  Defendant executed it with the advice of counsel, in part because of counsel’s advice that plaintiff would have had an equitable subrogation claim because the proceeds from its loan were used to discharge a prior lien on which defendant was liable. As such, summary judgment was appropriate.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

Wisconsin Federal Court Holds That Creditor Who Inadvertently Included Extra Space in Debtor’s Name in UCC Financing Statement Was Unsecured

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The United States District Court for the Western District of Wisconsin recently held that a creditor did not perfect its security interest in the debtor’s property because the creditor inadvertently included a space in the debtor’s name in its UCC financing statement.  See United States Sec. & Exch. Comm’n v. ISC, Inc., 2017 WL 3736796 (W.D. Wis. 2017).  In the case, the creditor filed a UCC financing statement with the Wisconsin Department of Financial Institutions (“DFI”) regarding an interest it had in certain assets of the debtor, ISC, Inc.  However, the creditor accidentally included a space between “Inc” and the period, naming the debtor as “ISC, Inc .”  After the debtor encountered financial issues, a receiver was appointed to distribute the debtor’s assets.  In doing so, the receiver searched the DFI records for any financing statements containing “ISC, Inc.” and the creditor’s financing statement did not appear.  Accordingly, the creditor was deemed an unsecured creditor who could only be paid 66% of its $169,437.72 claim under the receiver’s plan.  The creditor filed an objection, arguing that it properly perfected its security interest and, as a secured creditor, was entitled to 100% of its claim under the plan.

The Court denied the creditor’s request.  Under Wisconsin’s UCC, a financing statement is effective even if it contains minor mistakes, so long as the mistakes do not render it “seriously misleading.”  Wis. Stat. Ann. § 409.506.  “[A] financing statement that fails sufficiently to provide the name of the debtor . . . is seriously misleading.”  Id.  Although the statute provides a safe harbor for an incorrect name “if a searcher can nonetheless find it in the ordinary course of a search,” the searcher here did not find the creditor’s financing statement in his search.  While the Court acknowledged that it had sympathy for the creditor and that receiver would have located the financing statement if he simply had searched “ISC,” that was not the standard under the UCC and the creditor was deemed unsecured.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

Twice Bitten, Thrice Shy: A Cautionary Tale for Repeat Litigants Seeking a Reduction in Alimony

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A recent Appellate Division opinion warns alimony payors who repeatedly seek a reduction in their alimony obligation not to wear out their welcome in the courthouse.  In Sowa v. Sowa, the court found an obligor’s third motion requesting a decrease in his support payments to improperly seek “reconsideration of a reconsideration” and denied the motion, awarding counsel fees to the supported spouse.

In this case, the defendant appealed from a November 2016 Order denying his motion for reconsideration of a May 2016 Order, which denied his request to modify his alimony and child support obligations.  The parties in Sowa had been divorced since November 2013, when they entered into a Marital Settlement Agreement (MSA).  At the time of the divorce, the defendant had been unemployed.  Presumably relying upon his pre-divorce income, the MSA provided for alimony and child support but afforded the defendant the opportunity to seek a reduction in his obligation if he was still unemployed six months after the entry of the divorce.

The defendant filed his first motion to terminate alimony and modify child support in December 2014.  It was denied in January 2015, when the family court judge found that the defendant had not exhausted his job search in good faith before applying for a reduction.  The defendant filed a motion for reconsideration, which was denied in March 2015.

In August 2015, the defendant filed another motion to terminate alimony and modify child support, as well as suspend his life insurance and college tuition obligations based upon his unemployment.  Later that month, the defendant obtained employment.  He wrote to the court to apprise the judge of his new job, but did not formally amend his motion.  Moreover, the Case Information Statement (CIS) filed with his motion failed to append substantiating documentation, including tax returns and paystubs.

In February 2016, the family court denied the defendant’s motion.  In doing so, the court noted that the MSA acknowledged and addressed the defendant’s unemployment and also admonished the defendant for failing to file a complete CIS.   The court ordered the parties to attend a post-judgment early settlement panel (ESP) and denied all other requested relief.  Following the unsuccessful ESP, the court scheduled a plenary hearing in a May 2016 Order.  The plaintiff objected to the scheduling of a plenary hearing, arguing that all relief sought in the motion was denied and there was nothing pending before the court.  The family court ultimately rescinded the May 2016 Order, finding that because the defendant had failed to make a prima facie case of changed circumstances, he was not entitled to a plenary hearing.  In so holding, the court incorporated its written statement of reasons from the February 2016 Order.

In June 2016, the defendant filed a motion for reconsideration. The plaintiff cross-moved for counsel fees.  The family court denied the defendant’s motion, stating that because the June 2016 motion sought the same relief under the same facts as the January 2015 motion, the June 2016 motion was essentially an improper motion for “reconsideration of a reconsideration.”  The court also awarded counsel fees to the plaintiff due to the defendant’s “bad faith.”

On appeal, the Appellate Division affirmed the November 2016 Order, except that it remanded on the counsel fee issue for further fact-finding.  In so holding,  the appellate court cited to the heightened standard for motions for reconsideration, finding that reconsideration is not appropriate merely because a litigant is unhappy with the original outcome.  The court found this motion to be a “reconsideration of a reconsideration” because it set forth the same facts as the January 2015 motion.  Evidently, adding requested relief related to his life insurance and college tuition obligations was not enough to sufficiently revamp the motion to avoid it being deemed to be duplicative.  Had the defendant formally amended his motion to account for his new employment and salary, there may have been a different outcome.  Moreover, had the defendant filed a complete CIS with updated financial information, perhaps the court would have perceived sufficient differences between the two motions to avoid considering them to be one and the same.  Accordingly, a prudent litigant filing a second or third motion for modification must take care to base the motion on new facts, a new change in circumstances, or substantially change the relief sought so it does not look like the same motion being re-filed again and again.  I take this opinion to mean that circumstances must meaningfully change between the filing of the subsequent motions to warrant returning to court.

With respect to the denial of a plenary hearing, the appellate court found that there was no substantial change in circumstances between the time of divorce and the motion(s) to establish a prima facie case for the reduction application.  Ironically, had the defendant formally amended his motion with information regarding his new employment, he may have demonstrated a change in circumstances to warrant further inquiry on the issue, and ultimately obtain a reduction.  The court further found that a plenary hearing is unnecessary where the court is familiar with the parties through extensive motion practice.  Again, filing repeated motions on the same issue created further hurdles for the defendant to obtain his sought-after relief.

On a final note, it is important to highlight that the language of the MSA in Sowa, which was designed to protect the defendant, ultimately proved fatal to his application.  The MSA gave him the option to apply for a reduction in six months if he were still unemployed.  By acknowledging his unemployed status, the MSA made same the “baseline” by which to measure the defendant’s application.  The court construed this, perhaps wrongly, to mean that the defendant needed to show a change in circumstances from his unemployed circumstances at the time of the divorce in order to succeed on a modification application.  This interpretation, in my opinion, defies the logic of this language in the MSA and its intended purpose.  Nonetheless, litigants negotiating MSAs in similar scenarios should include very specific language about sustained unemployment and its effect on an obligor’s ability to apply for modification to avoid such a reading.

New Jersey Appellate Division Affirms That Lender Was Not Entitled to Priority for Its First-Recorded Mortgage When It Was Aware of Other Mortgage, Even if It Was Not Aware of Other Mortgagee’s Identity

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The New Jersey Appellate Division recently affirmed that a lender who records a mortgage with knowledge of another unrecorded mortgage is not entitled to priority over the subsequently-filed mortgage, even if the lender was not aware of the identity of the other mortgagee.  See Morgan Stanley Private Bank v. Earle, 2017 WL 5988070 (N.J. App. Div. Dec. 4, 2017).   In the case, the defendant lender obtained a $5,000,000 mortgage on the borrower’s property in 2008.  In 2011, it agreed to release its mortgage in exchange for a payment of $3,900,000 and another mortgage on the property in the amount of $1,100,000, “to be recorded after the refinancing of the first mortgage.”  Nonetheless, after receiving the payment, defendant recorded its mortgage before the plaintiff lender recorded its mortgage.  Plaintiff filed a foreclosure action and defendant opposed, arguing that its first-recorded mortgage had priority.  The trial court granted plaintiff’s motion for summary judgment.

On appeal, the Appellate Division affirmed the trial court’s decision.  Although defendant acknowledged that it would not be entitled to priority if it had actual knowledge of plaintiff’s lien, it argued that it was never aware of plaintiff’s identity and instead was only aware that some other lender was involved in the refinancing.  The Court rejected this argument, holding that there was no dispute that defendant knew a first mortgage existed and that defendant therefore was not entitled to priority.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

Court Rules that Gas Station Defendants are not Off the Hook for “Primary Restoration” Natural Resource Damages

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In a case before the United States District Court for the District of New Jersey, the New Jersey Department of Environmental Protection (“NJDEP”) seeks to recover natural resource damages (“NRD”) from a number of gas station defendants (the “Gas Station Defendants”) for the alleged discharge of Methyl Tertiary Butyl Ether (“MTBE”) into the groundwater at five gas station sites in northern and central New Jersey.   NJDEP v. Amerada Hess Corp., Docket No. 15-6468 (Nov. 1, 2017).  This past summer, the Gas Station Defendants sought leave to file a motion for partial summary judgment on the issue of whether the NJDEP could recover primary restoration natural resource damages.  Under the New Jersey Spill Compensation and Control Act (the “Spill Act”), primary restoration damages are available to the NJDEP for the implementation of a primary restoration plan that would restore the environment to pre-discharge conditions more quickly than would occur through a remediating party’s proposed remediation program.  The Gas Station Defendants contend, however, that such damages are only available where the NJDEP can establish that there is an “injury or threat to human health, flora or fauna” that provides a reasonable basis or justification for expedited restoration over and above the Gas Station Defendants’ planned remediation.   While the Gas Station Defendants argued that a heightened legal standard should apply to claims for recovery of primary restoration damages, the District Court refused to adopt this view and determined that the burden of proof proposed by the Gas Station Defendants was not found in the Spill Act.

The Gas Station Defendants argued that the NJDEP was not entitled to primary restoration damages because the NJDEP-approved remediation plans for the MTBE contamination, once completed, would restore the contaminated groundwater to pre-discharge concentrations through the process of natural attenuation, and therefore, damages for the costs of an “expedited remediation” are not warranted.  In fact, the Gas Station Defendants took the position that the NJDEP may recover primary restoration damages only where the groundwater contamination gives rise to “an injury or threat to human health, flora or fauna” and that the NJDEP had not presented evidence of any such injury.  The NJDEP argued to the contrary, that it was entitled to damages for any primary restoration plan that is “practicable,” which is a question of fact that cannot be resolved on summary judgment.  The District Court agreed with the NJDEP and found that the appropriate burden of proof for claims for primary restoration damages under the Spill Act is to establish by a preponderance of evidence that the primary restoration plan is “practicable,” meaning “reasonably capable of being done” or “feasible” in light of “site-specific realities.”

The District Court noted that this inquiry is highly fact-specific and should take into account the estimated length of time required to complete the restoration plan, the cost of the restoration plan, the extent to which the restoration plan is concrete, nonabstract and readily implementable rather than abstract or conceptual, the regulatory approvals required for the restoration plan from authorities other than the NJDEP, and any other legal obstacles or barriers to the implementation of the restoration plan.  The District Court went on to note that this factual inquiry should be accomplished through submission of fact and expert evidence and is generally not suitable for summary disposition.  As such, it remains to be seen whether the NJDEP will ultimately prevail on its claim for primary restoration damages.

For more information, please contact the author Jaan Haus at jhaus@riker.com or any attorney in our Environmental Practice Group.

Texas Appellate Court Affirms Grant of Summary Judgment for Title Agent, Holding It Was Not Liable to Third Party for Escrow Disbursement

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A Texas appellate court recently affirmed a lower court’s decision granting summary judgment and holding that a title agent and its individual employee were not liable to a nonparty to the escrow agreement for their disbursement of escrow funds, regardless of whether the nonparty contributed said funds.  See Muller v. Stewart Title Guar. Co., 525 S.W.3d 859 (Tex. App. 2017).   In the case, two entities (“Purchaser” and “Seller”) entered into an escrow agreement in preparation for the sale of a property.  Plaintiff, one of Purchaser’s three members, contributed $1,172,000 to the escrow account.  The parties eventually cancelled the sale, and Purchaser’s managing member sent a letter to the defendant title agent’s employee, asking that all escrow funds be sent to Purchaser’s business account.  Although the employee originally stated he could only return the funds to the accounts from which they originated (i.e., plaintiff’s account), he eventually agreed to disburse them to Purchaser’s account.  Plaintiff later sued both the title agent and the employee, for, among other things, breach of contract and breach of fiduciary duty for the purported wrongful disbursement of plaintiff’s funds.  After discovery, the trial court granted the defendants’ motion for summary judgment dismissing these claims.

On appeal, the appellate court affirmed.  First, the Court held that the trial court properly dismissed the breach of contract claim because plaintiff was not a party to or intended third-party beneficiary of the escrow agreement.  Although plaintiff contributed personal funds to the escrow account, the agreement itself was between Purchaser and Seller and could only be modified by the entities in writing.  Thus, the breach of contract claim should have been dismissed.  Second, the Court held that the trial court correctly dismissed the claims that defendants breached a fiduciary duty to plaintiff.  Again, because plaintiff was not a party to or third-party beneficiary of the escrow agreement, defendants did not owe him a duty and his claim should have been dismissed.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

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