TSF 53419 v. Fidelity Nat. Title Ins.
Filed 4/24/13 TSF 53419 v. Fidelity Nat. Title Ins. CA2/3
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE
DISTRICT
DIVISION THREE
TSF
53419, LLC,
Plaintiff and Appellant,
v.
FIDELITY
NATIONAL TITLE INSURANCE COMPANY,
Defendant and Respondent.
B232445
(Los Angeles
County
Super. Ct. No.
PC045484)
APPEAL
from a judgment of the Superior Court of
County,
Randy Rhodes, Judge. Affirmed.
Hacker
Law Group and Jeffrey A. Hacker for Plaintiff and Appellant.
Fidelity
National Law Group, Jordan Trachtenberg and Amy J. Cooper for Defendant and
Respondent.
_____________________
Plaintiff
and appellant TSF 53419, LLC (TSF) appeals an order granting the
and respondent Fidelity National Title Insurance Company (Fidelity).
entitled to collect monies due under a promissory note executed by Trimark
Pacfic-Valle Di Oro, LLC (Trimark). TSF
sued numerous parties, including Trimark and Fidelity, to recover the sum due
under the promissory note.
TSF’s
only cause of action against Fidelity is for
title insurer in the sale of nine condominiums by Trimark to various
individuals (Homeowners).
name="_ftnref2" title="">[2] TSF alleges that Fidelity negligently
transferred title to the condominium units to the Homeowners and funds to
Trimark without verifying that Trimark’s debt to TSF was fully paid and
obtaining reconveyances of the promissory note and related deed of trust from
TSF. We shall conclude that the trial
court correctly granted Fidelity’s motion for summary judgment because Fidelity
did not owe a duty of care to TSF.
1. Trimark’s
Purchase of the TSF Parcel
On
June 21, 2004, pursuant to a purchase and sale agreement (Purchase Agreement),
TSF sold vacant land in Santa Clarita (TSF Parcel) to Trimark Pacific Homes,
L.P. (Trimark L.P.). The purchase price
was $3.8 million. Trimark L.P. later
assigned all of its rights and obligations under the Purchase Agreement to
Trimark.
Trimark
L.P. and its affiliate Trimark financed the purchase of the TSF Parcel with a
$3.7 million loan from TSF memorialized by a promissory note (the Note) and
secured by a deed of trust (the Deed of Trust).
Trimark was the maker of the Note; TSF was the holder. The Note, dated April 15, 2005, provides that
Trimark shall pay TSF the principal balance of $3.7 million, plus 10 percent
annual interest, within four years, i.e. by April 14, 2009. Alternatively, under both the Note and the
Purchase Agreement, Trimark could pay off its debt to TSF by transferring eight
designated “finished†condominium units to TSF.
The Deed of
Trust, dated April 15, 2005 and recorded on April 19, 2005, granted TSF a lien
on the TSF Parcel. The legal description
of the TSF Parcel was set forth in Exhibit 1 to the Deed of Trust, which stated
the applicable metes and bounds of the land, without any reference to
condominium units.
2. Trimark’s
Purchase of the VDO Parcel
On
November 5, 2004, VDO 53419 LLC (VDO) sold a parcel of vacant land to Trimark
(VDO Parcel) that was adjacent to the TSF Parcel. TSF and VDO were affiliated entities in that
the members of each company were the same, but the percentages of ownership
were different.
3. The
Development of the Condominium Project
Trimark
purchased the TSF Parcel and VDO Parcel with the intention of creating a
condominium development on the contiguous properties. In May 2005, Trimark requested TSF to
subordinate the Note and Deed of Trust to a new acquisition and development
loan in the amount of $14,430,000 from Bank of the West (Bank). In August 2005, TSF recorded a modification
of deed of trust (Modification), whereby Trimark’s debt to TSF was subordinated
under a subordination agreement between TSF and Bank. The Modification did not change the due date
or payment obligations under the Note.
Exhibit A to the Modification set forth the same legal description of
the TSF Parcel as Exhibit 1 to the Deed of Trust.
In
September 2005, Trimark recorded the final subdivision map for Tract No. 53419
in the official records of Los Angeles County.
Tract No. 53419 was comprised of the TSF Parcel and VDO Parcel.
In
April 2007, Trimark requested TSF to subordinate the Note and Deed of Trust to
a new construction loan from Bank in the amount of $23,520,000. TSF agreed to the subordination. In April 2008, Trimark recorded condominium
plans subdividing Tract No. 53419 into 111 condominium units. The project would be known as the Valle Di
Oro subdivision. Ultimately, only 22 of
the 111 condominium units were built.
4. The
Homeowners Purchase Nine Condominiums
Between
June 2008 and September 2008, the Homeowners purchased nine condominium units
in the Valle Di Oro subdivision from Trimark.
According to David Knell, a professional land surveyor, all of the
Homeowners’ units were built on the VDO Parcel and none of them were built on
the TSF Parcel.
title="">[3] Fidelity concedes, however, that “some
portion of the common area for the project may have been located on the TSF
Parcel.â€
Fidelity
served as the escrow holder in each of the nine transactions. Its duties and obligations in each
transaction were memorialized by a document entitled, “Joint Purchase and Sale
Agreement Receipt for Deposit and Escrow Instructions.†TSF was not mentioned in these documents and
was not a party to the escrows. Indeed,
in sworn declarations, the Homeowners claim that at the time they purchased
their respective condominium units, they had never heard of TSF and had no
knowledge that TSF claimed any interest in their property.
On
September 23, 2008, TSF’s counsel sent a letter to Fidelity and Trimark
advising them not to transfer title to any condominiums to third parties
without TSF’s consent. This letter was
sent after eight of the nine condominiums were sold to the Homeowners. Trimark and Fidelity nonetheless completed
the sale of the ninth condominium.
Fidelity
prepared closing statements for each of the nine transactions. These statements described in detail the
money received and disbursed by Fidelity in its capacity as an escrow holder. In each transaction, after making certain payments
for taxes, homeowners’ association fees and the like, Fidelity disbursed the
funds held in escrow to Trimark and Bank.
None of the funds were disbursed to TSF.
Each statement also indicated that Fidelity received a payment for
serving as a title insurance company.
5. Notice
of Default on the Note
On
April 14, 2009, TSF served Trimark with a notice stating that Trimark had
defaulted on the Note. TSF claims that
as of September 2008, Trimark had defaulted under the Note for a variety of
reasons, including “failing to notify TSF of the closings on the Units [sold to
the Homeowners] or obtaining partial reconveyances for them.â€
6. Procedural
History in the Trial Court
On
May 21, 2009, TSF commenced this action in the trial court by filing a complaint. In December 2009, TSF filed its operative
first amended complaint (FAC).
The
FAC set forth four causes of action against Trimark and affiliated entities
(Trimark Defendants), including a claim for breach of the Note. It also stated a cause of action against
Homeowners for judicial foreclosure, as well as a cause of action for “alter
ego†against West Coast Housing Partners, LLC, Steven Kessler and the Trimark
Defendants.
The
only cause of action stated in the FAC against Fidelity was for negligence. The FAC alleged that Fidelity breached its
duty of care to TSF by transferring the nine condominium units from Trimark to
the Homeowners without first obtaining TSF’s consent, and without verifying
that no funds were owing to TSF or obtaining reconveyances from TSF.
On
or about June 11, 2010, Homeowners filed a motion for summary judgment. In their brief supporting the motion, the
Homeowners argued that there was no basis for TSF to foreclose on their
condominium units because the units were not encumbered by the Deed of Trust.
On
or about June 18, 2010, Fidelity filed a motion for summary judgment. In its motion, Fidelity argued that it had no
duty of care to TSF because TSF did not have an encumbrance on any of the
condominium units purchased by the Homeowners.
Fidelity also argued that it owed no duty to TSF because TSF was not a
party to the escrows opened in connection with the sale of condominium units to
the Homeowners.
On
August 25, 2010, the trial court issued an order granting the Homeowners’
motion for summary judgment. The court
found that the Deed of Trust “does not encumber the land upon which
[Homeowners’] condo units are located,†and thus TSF “does not have the right
to foreclose on the units.†On September
14, 2010, based on its order granting the Homeowners’ motion, the trial court
entered judgment in favor of Homeowners.
TSF filed a timely appeal of the judgment.
In the
meantime, the hearing on Fidelity’s motion for summary judgment was
postponed. On February 18, 2011, pursuant
to a stipulation between the parties, the trial court granted Fidelity’s motion
for summary judgment. TSF filed a timely
appeal.
7. TSF’s
Appeal of the Judgment in favor of the Homeowners
On
September 23, 2011, the Homeowners filed a motion to dismiss TSF’s appeal of
the September 14, 2010, judgment as moot.
The motion was supported by declarations indicating that TSF and Trimark
had entered into a settlement agreement, whereby TSF released all of its claims
against Trimark, including its claims based on the Note.
On
February 15, 2012, we issued an unpublished opinion granting the Homeowners’
motion to dismiss. In that opinion, we
determined that because the Deed of Trust was merely incident to the Note, it
was no longer enforceable under the settlement agreement. We thus concluded that the appeal was moot
because regardless of whether the trial court should have granted the
Homeowners’ motion for summary judgment, TSF could no longer maintain a
judicial foreclosure action against them.
8. Motion
to Dismiss in This Case
On
July 27, 2012, Fidelity filed a motion to dismiss this appeal on, among other
grounds, that the appeal was moot in light of the settlement agreement between
TSF and Trimark. We denied the motion on
September 10, 2012. We concluded that
this appeal was not moot because the settlement agreement had no impact on the
essential issue here, namely whether TSF can recover damages against Fidelity
for its alleged negligence in 2008.
TSF
contends that contrary to the trial court’s conclusion, it did have
encumbrances on the Homeowners’ condominium units. According to TSF, at least part of the common
area of the units is on the TSF Parcel.
TSF argues that because the Deed of Trust is an encumbrance on the TSF
Parcel, it is also an encumbrance on the Homeowners’ condominium units even
though the units are located on the VDO Parcel.
It also argues that it has a “blanket encumbrance†on Tract No. 53419,
which includes the VDO Parcel. Fidelity
contends that the trial court correctly determined that the Deed of Trust did
not encumber any of the Homeowners’ condominium units.
TSF
further argues that as an escrow holder and title insurer, Fidelity owed TSF a
duty of care. Fidelity contends it owed
no duty of care to TSF, even assuming the Deed of Trust encumbered the
condominium units.
title="">[6]
A
motion for summary judgment is properly granted when there are no triable
issues of material fact and the moving party is entitled to judgment as a
matter of law. (Code Civ. Proc., § 437c,
subd. (c).) We review an order granting
a motion for summary judgment de novo. (
Cal.App.4th 925, 931.) The first step in
our analysis is to identify the issues raised by the pleadings “ ‘since it is
these allegations to which the motion must respond.’ †(Ibid.)
The
FAC sets forth one cause of action for negligence against Fidelity. The first element of negligence is duty (
Cal.4th 465, 500), the existence of which is a purely legal question. (Id.
at p. 501.) Thus the “threshold question
in an action for negligence is whether the defendant owed the plaintiff a duty
to use care.†(Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co.
(2002) 27 Cal.4th 705, 715 (Summit).)
In
the trial court, Fidelity argued that it owed no duty of care to TSF on two
main grounds. First, it contended that
it owed no duty to TSF because TSF did not have encumbrances on the nine
condominium units sold to the Homeowners.
Second, it argued that Fidelity did not owe a duty as an escrow holder
to TSF because TSF was not a party to the escrows.
TSF
contends that we cannot consider Fidelity’s second argument because the trial
court did not consider it. We review,
however, whether the judgment was correct on any ground, not the trial court’s
reasoning. (Mayer v. C.W. Driver (2002) 98 Cal.App.4th 48, 64.) Further, the issue of duty is an issue of law
that has been fully briefed in this court.
We thus can and do consider Fidelity’s second argument.
TSF
also argues that it did not have the “ability to present evidence†to the trial
court on the issue of Fidelity’s duty.
motion for summary judgment. TSF could
have opposed the motion and presented any evidence it wished. Merely because TSF voluntarily stipulated to
the trial court granting Fidelity summary judgment does not mean it was
unfairly denied an opportunity to present evidence.
1. Fidelity
Did Not Owe a Duty of Care to TSF as an Escrow Holder
“An
escrow may be defined as any transaction in which one person, for the purpose
of effecting a sale, transfer or encumbrance of real or personal property to
another person, delivers any written instrument, money, evidence of title or
other thing of value to a third party, the escrow holder or depository, to be
held by him for ultimate transmittal to the other person upon the happening of
an event or the performance of certain specified conditions.†(Markowitz
v. Fidelity Nat. Title Co. (2006) 142 Cal.App.4th 508, 526 (
An
escrow holder is an agent and fiduciary of the parties who are exchanging
instruments and payments through an escrow.
(Summit, supra, 27 Cal.4th at p. 711; Claussen
v. First American Title Guaranty Co. (1986) 186 Cal.App.3d 429, 435.) It is obligated to strictly comply with the
instructions of the parties. (
58 Cal.2d 528, 531.) If an escrow holder
fails to do so, the injured party has a cause of action for breach of
contract. (Id. at p. 532.)
An
escrow holder, however, “ ‘has no general duty to police the affairs of its
depositors’; rather, an escrow holder’s obligations are ‘limited to faithful
compliance with [the depositors’] instructions.’ [Citations.]
Absent clear evidence of fraud, an escrow holder’s obligations are
limited to compliance with the parties’ instructions.†(Summit,
supra, 27 Cal.4th at p. 711.)
In
Summit, Dr. John Furnish was the
maker of a promissory note to Talbert. (
The note was secured by a deed of trust on Furnish’s real property. (Ibid.) At the same time the deed of trust was
recorded, another document was recorded which assigned the beneficial interest
in the note and deed of trust from Talbert to plaintiff Summit. (Id.
at p. 709.)
Subsequently,
Furnish obtained a new loan from Dundrel that was used in part to pay the
Talbert note. (Summit, supra, 27 Cal.4th
at p. 709.) Furnish and Dundrel employed
BHE to handle the refinancing transaction, and defendant CLTC “acted as an
escrow holder in connection with issuing the title insurance for the new deed
of trust securing the new note payable to Dundrel.†(Ibid.) Although CLTC prepared a preliminary title
report noting that the Talbert note and deed of trust had been assigned to
Summit, CLTC nonetheless paid Talbert from funds deposited by Dundrel in
accordance with the payoff demand and BHE’s instructions. Summit did not receive these funds from
Talbert. (Ibid.)
Summit
sued CLTC for negligence, contending that CLTC breached its duty of care to
Summit by making the payment due under the Talbert note to Talbert rather than
to Summit. (Summit, supra, 27 Cal.4th
at p. 710.) The California Supreme Court
held, however, that CLTC owed no duty of care to Summit. The court determined that even though CLTC
“was aware of the assignment from Talbert to Summit, there is no evidence CLTC
was aware of any collusion or fraud in the fund disbursement that would have
adversely affected any party to the escrow.â€
(Id. at p. 711.)
The
Supreme Court also approved the Court of Appeal’s application of the six-factor
Biakanja test to the facts and
circumstances of the case.
name="_ftnref8" title="">[8] (Summit,
supra, 27 Cal.4th at pp.
715-716.) Under that test, CLTC did not
owe a duty of care to Summit. (
subjecting an escrow holder to conflicting obligations, undermine a valuable
business procedure, and we therefore affirm the judgment of the Court of Appeal
[in favor of CLTC].†(
The
holding of Summit is on point
here. TSF was not a party to the escrows
opened in connection with the nine transactions involved in this case.
was aware of any collusion or fraud in the disbursement of funds. Under Summit,
Fidelity had no duty of care to TSF.
TSF
argues that Fidelity owed a duty of care because Fidelity had knowledge of
TSF’s express objection to Fidelity’s disbursement of escrow funds in
connection with the sale of the ninth condominium unit. A similar argument was rejected in
There, the escrow holder knew that the plaintiff, a third party, was
assigned the beneficial interest in a note and deed of trust. The court nonetheless held that the escrow
holder did not owe a duty of care to the plaintiff.
In
all material respects, Fidelity was in the same position as the escrow holder
in Summit. Like the escrow holder in
ostensible conflict between the escrow instructions of the parties to the
escrow on the one hand, and a claim by a third party, on the other. By faithfully following the instructions of
the parties to the escrow, Fidelity satisfied its obligations as an escrow
holder and cannot be liable to third parties, such as TSF, for doing so.
TSF
argues that under the six factors set forth in Biakanja, Fidelity owed a duty of care to TSF. The Summit
court, however, analyzed these same six factors in circumstances very similar
to this case, and concluded that the escrow holder did not owe a duty of care
to a third party. (Summit, supra, 27 Cal.4th
at pp. 715-716.) The same analysis
applies here. As an escrow holder,
Fidelity did not owe a duty of care to TSF.
2. Fidelity
Did Not Owe a Duty of Care to TSF as a Title Insurer
TSF
argues that Fidelity owed it a duty of care as a title insurer. “Title insurance is a contract by which the
title insurer agrees to indemnity its insured against losses caused by defects
in or encumbrances on the title not excepted from coverage. [Citation.]
An insured’s claim against his title insurer is under the policy, and an
insured has no separate claim against a title insurer based on negligence or
negligent misrepresentation.†(
(1999) 73 Cal.App.4th 668, 675-676.) “A
party who does not purchase title insurance may not rely on the title insurer
to protect his or her interests or to disclose all detrimental information
contained in the recorded files.†(
(1996) 46 Cal.App.4th 1181, 1193.)
In
the present case, TSF cited no evidence that it was Fidelity’s insured. The relevant title insurance policies are not
in the record. We thus assume that TSF
was a third party to the policies. TSF
has not cited any case law supporting its argument that a title insurer may be
liable to a third party under a negligence theory. We hold that under the circumstances of this
case, Fidelity did not owe TSF a duty of care as a title insurer.
TSF
argues that Fidelity owed it a duty of care under Civil Code section 2941,
subdivision (b)(6). Civil Code section
2941 governs the duties of various parties, such as trustees of deeds of trust
and mortgagees, upon the satisfaction of an obligation (e.g., promissory note)
secured by a deed of trust or mortgage.
(See Pintor v. Ong. (1989)
211 Cal.App.3d 837, 843.)
Subdivision (b)(6) of the statute provides: “In addition to any other remedy provided by
law, a title insurance company preparing or recording the release of the obligation shall be liable to any party for
damages, including attorney’s fees, which any person may sustain
the release, pursuant to paragraphs (3) and (4).†(Civ. Code, § 2941, subd. (b)(6), italics
added.) In this case, there is no
evidence that Fidelity prepared or recorded a release of the Note or any other
secured obligation. Accordingly,
Fidelity did not have a duty under Civil Code section 2941 to TSF.
We
conclude that the trial court correctly granted Fidelity summary judgment on
TSF’s sole cause of action for negligence because Fidelity did not owe TSF a
duty of care as either an escrow holder or title insurer.
3. We
Do Not Reach the Issue of Whether TSF Had Encumbrances on the Condominium Units Sold to Homeowners
Because
we conclude that the trial court correctly granted Fidelity’s motion for
summary judgment for the reasons stated ante,
we do not reach the issue of whether the trial court correctly determined that
TSF did not have encumbrances on the nine condominium units sold to Homeowners.
Treating the superior court’s
February 18, 2011, order granting Fidelity’s motion for summary judgment as a
judgment in favor of Fidelity and against TSF, we affirm. Fidelity is awarded
NOT
TO BE PUBLISHED IN THE OFFICIAL REPORTS
KITCHING,
J.
We concur:
KLEIN,
P. J.
CROSKEY,
J.
Edna Villalvazo, Guillermo Villalvazo, Anna S. East, Jeremy M. East, Jason R.
Fontes, Breanne A. Schmidt, Debra N. Black, Jason T. Black, Cynthia D. Kloe,
Suzanne Zelenak, Gary Sager, Shad G. Sager, Hallie Sager, Brandon M. Golphenee,
Ernie R. Golphenee, and Toni T. Golphenee.
