The United States Court of Appeals for the Tenth Circuit recently held that a title agent was responsible for the entirety of a title insurance company’s loss after the agent removed an exception from a policy without the company’s consent.  See Fid. Nat'l Title Ins. Co. v. Pitkin Cty. Title, Inc., 2019 WL 315328 (10th Cir. Jan. 23, 2019).  Fidelity National Title Insurance Company (“Fidelity”) underwrote title insurance policies issued by Pitkin County Title, Inc. (“Pitkin”) pursuant to an agency agreement between the parties.  Under this agreement, Pitkin was prohibited from exposing Fidelity to any additional risks without Fidelity’s prior written approval.  Although the policy forms Fidelity provided to Pitkin excluded coverage for “[e]asements, or claims of easements, not shown by the public records,” Pitkin deleted that exception in a policy.  The insured owners under that policy later brought a claim based on an unrecorded easement on their property.  After Fidelity offered partial coverage, the owners sued.  Fidelity then brought a third-party action against Pitkin, claiming both negligence and breach of the agency agreement.  Fidelity later agreed to dismiss the negligence claim and moved for summary judgment on its breach of contract claim.  The trial court granted Fidelity’s motion, holding that Pitkin breached the agency agreement and was responsible for the entirety of Fidelity’s loss.

On appeal, the Tenth Circuit affirmed.  Under the agency agreement, Pitkin was responsible for only the first $5,000 of any loss incurred by Fidelity as a result of any problems arising from policies issued by Pitkin, but was responsible for the entire loss for any matter arising from Pitkin’s “negligent, willful or reckless conduct[.]”  Pitkin argued that Fidelity’s voluntary dismissal of its negligence claim precluded the trial court from finding that it had engaged in negligent, willful or reckless conduct under the agency agreement, as well as that the economic loss doctrine barred any finding of negligence under the contract, and that Fidelity was only entitled to $5,000.  The Court disagreed.  First, it found that the economic loss rule operates to bar tort claims, and Pitkin’s argument that it should be applied to express contractual provision would be “a dubious application” of the rule.  Second, the Court found that the agency agreement expressly defined “negligent, willful or reckless conduct” as “[f]ailure . . . to comply with the terms and conditions of this Agreement or with the manuals, underwriting bulletins and/or instructions given to [Pitkin] by [Fidelity].”  Thus, because Pitkin’s action fell into this definition, Pitkin was liable for Fidelity’s entire loss regardless of whether Fidelity voluntarily dismissed its negligence claim.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

New York’s Second Department Appellate Division recently held that the purchasers of a property were bona fide purchasers for value despite the filing of a notice of pendency on the property because of the death of the prior owner.  See Caldara v. Monti, 165 A.D.3d 1219 (2d Dept. 2018).  Plaintiff brought an action against the decedent in 2015 in which he sought specific performance of a real estate contract.  He also filed a notice of pendency against the property.  Unbeknownst to him, however, the decedent died in 2014.  Later in 2015, the executrix of the decedent’s estate sold the property to the defendants.  Upon learning of the decedent’s death and the sale, plaintiff brought this action against the defendants and filed a new notice of pendency.  The defendants moved to dismiss, and the trial court granted the motion.

On appeal, the Second Department affirmed.  It found that the 2015 action and the notice of pendency were legal nullities because the decedent had died before they were filed.  Therefore, the defendants “were bona fide purchasers for value of the subject property since neither the prior action nor the 2015 notice of pendency provided [them] with ‘knowledge of facts that would lead a reasonably prudent purchaser to make inquiry.’”  Accordingly, the action was properly dismissed.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

The United States Court of Appeals for the Eleventh Circuit recently reversed a lower court and held that a Florida statute cured an improperly-witnessed deed and prevented the IRS from foreclosing on the property.  See Saccullo v. United States of Am., 2019 WL 168217 (11th Cir. Jan. 11, 2019).  In 1998, the owner of a property executed a deed conveying the property to a trust for the benefit of his son.  However, the deed was only witnessed by one individual, not the two required by Fla. Stat. § 689.01.  The father died in 2005, and the IRS assessed an estate tax of $1.4 million.  In 2015, it filed a tax lien against the property claiming that it was part of the father’s estate.  The son then filed this action, claiming that the lien could not cover the property because the property was not owned by his father at the time of his death in 2005.  The government responded that the 1998 deed was not properly witnessed and therefore ineffective.  The government moved for summary judgment and the District Court granted the motion.

On appeal, the Court reversed.  Under Fla. Stat. § 95.231, a deed that does not meet the requirements of Fla. Stat. § 689.01 is nonetheless considered valid five years after its recording.  The government argued that this statute does not apply automatically and required “some form of formal adjudication” before it cured a deed and that, even if it did apply automatically, it would be a statute of limitations that does not bind the United States under Supreme Court precedent.  See United States v. Summerlin, 310 U.S. 414 (1940) (“It is well settled that the United States is not bound by state statutes of limitation or subject to the defense of laches in enforcing its rights.”).  The Court rejected these claims.  First, “although the Florida Supreme Court hasn’t squarely addressed the specific question before us, the clear weight of Florida authority favors” the interpretation that Fla. Stat. § 95.231 applies automatically five years after a deed is recorded and does not require any adjudication.  Second, the Court found that Summerlin does not apply here.  Fla. Stat. § 95.231 cured the deed in question in 2003, five years after it was recorded and two years before the father died.  At that point, the property was validly transferred from the father to the trust.  Thus, there was no statute of limitations issue because the United States’ claim against the estate never accrued.  At the time of his death, he no longer owned the property.  “In short, the Summerlin principle can’t create rights that do not otherwise exist.”  Accordingly, the Court reversed the District Court and found Fla. Stat. § 95.231 cured the deed in question.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

New Jersey’s Appellate Division recently reversed a lower court and held that an evidentiary hearing was necessary to determine whether the statute of limitations should be tolled in a case in which plaintiffs allege that defendant defrauded them out of title to a property over 20 years earlier.  See Benipal v. Tri-State Petro, Inc., et al., A-0894-17T3 (N.J. Super. Ct. App. Div. Jan. 4, 2019).  In 1994, plaintiffs and defendant agreed to jointly purchase a property on which they would operate a gas station.  Although the parties agreed that the title would be in the name of a jointly-owned entity, defendant titled the property in the name of a company he owned with his family.  Defendant and his family operated the gas station, but “led plaintiffs to believe” the joint entity owned it.  In 2016, plaintiffs allegedly discovered that the joint entity did not own the property.  Defendant asked them for time to “make things right” and acknowledged in an email that the property should have been purchased in the name of the joint entity.  Nonetheless, nothing was done and plaintiffs brought this action in 2017 seeking quiet title and alleging fraud.  Defendant moved to dismiss, arguing that the statutes of limitations on the claims had run.  In opposition, plaintiffs argued that the limitations period should be tolled until 2016, when they discovered the issue.  The trial court granted defendant’s motion, holding that under the recording statute, a recorded deed put all interested parties on constructive notice that the joint entity did not own the property and, therefore, that the limitations period should not be tolled.

On appeal, the Court reversed the decision.  It found that the recording statute cited by the trial court only states that “[a]ny recorded document affecting the title to real property is, from the time of recording, notice to all subsequent purchasers, mortgagees and judgment creditors of the execution of the document recorded and its contents,” but that the statute is silent as to current owners of the property like plaintiffs, and thus has questionable applicability here.  See N.J.S.A. 46:26A-12(a) (emphasis added).  Additionally, the Court found that discovery was needed as to plaintiffs’ failure to discover the true owner of the property for over 20 years, but that “[d]espite plaintiffs’ obvious complacency over the years, it is not clear on the record before us that even a prudent investor would have uncovered concealment of the property’s true ownership.”  Thus, the matter was remanded to the trial court for an evidentiary hearing.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

New Jersey’s Appellate Division recently held that the 2011 amendment to the Construction Lien Law (the “CLL”) regarding the proper signatory to a construction lien claim does not apply retroactively and that the amendment could not be used by a claimant to validate claims it filed in 2008.  See Diamond Beach, LLC v. Mar. Assocs., Inc., 2018 WL 6729724 (N.J. Super. Ct. App. Div. Dec. 24, 2018).  In the case, the defendant—a subcontractor on a condominium development—filed a construction lien claim in 2008 regarding work it had done on the development and for which it was not paid.  The claim form was signed by an individual who identified himself as an accounting and information systems manager.  Other parties later challenged the claim, arguing that a claim is only valid under the CLL if it is signed by a “duly authorized officer.”  N.J.S.A. 2A:44A-6.  After a plenary hearing, the trial court determined that the 2008 signatory was not a duly authorized officer because there was no evidence that he was given “some sort of designation as a corporate officer,” and the court discharged the lien.  Defendant then filed a motion to vacate the order, arguing for the first time that a 2011 amendment to the CLL—in which the “duly authorized officer” requirement was effectively replaced by a requirement that the signatory be a secretary/officer/manager/agent of the claimant—applied retroactively and validated the manager’s signature on the claim at issue.  The trial court disagreed and denied the motion.

On appeal, the Court affirmed the decision and held that the amendment did not apply retroactively because there was no evidence that the Legislature intended it as such.  After reviewing the legislative history, the Court held that “[t]here is no basis to conclude that the Legislature eliminated the phrase ‘duly authorized officer’ to cure defects, inadvertence, or error in the CLL or in its administration; or did so to explain the intent of that part of the CLL; or to clarify, rather than change, the signatory requirement. Instead, it deleted ‘duly authorized officer’ from the text, and created new requirements for signing corporate construction lien claims.”  Additionally, the Court found that the trial court did not err in determining that the 2008 signatory was not a duly authorized agent under the CLL.  “The Board of Directors did not identify [the signatory] in any resolution, by-law provision, or other written document as a corporate officer, or otherwise. [Defendant] did not memorialize in writing that it authorized [the signatory] to execute lien claims. . . . Additionally, [the signatory] is not listed as an officer in corporate meeting minutes, filing forms, consents of shareholders in lieu of meetings, [the signatory’s] personnel file, or any other corporate documentation.”  Accordingly, the Court affirmed that the lien should have been discharged.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.