Gateway Bank v. Ticor Title

Filed 11/25/09 Gateway Bank v. Ticor Title CA1/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FIRST APPELLATE DISTRICT

DIVISION TWO

INTRODUCTION

Plaintiff Gateway Bank, FSB (Gateway) appeals from judgments of the Alameda County Superior Court, following the courts grant of summary judgments in favor of defendants Ticor Title Company of California (Ticor) and Chicago Title Insurance Company (Chicago Title).

Gateway contends that the court erred in determining that Ticor owed Gateway no duty in connection with an escrow opened by CHL Mortgage Group, Inc. (CHL), a mortgage broker/lender who created fraudulent loan packages and forged loan documents for loans that Gateway either funded or purchased. Gateway contends that triable issues of fact exist as to whether Gateway was a party to the escrow.

As to defendant Chicago Title, Gateway contends that the court erred (1) in ruling that the fraud of CHL rendered the standard ALTA title insurance policies issued by defendant Chicago Title for the loans void ab initio, entitling Chicago Title to rescind the policies, and precluding coverage of Gateway as a successor in interest or assignee of CHL, and (2) in ruling that the forged notes did not create any indebtedness within the meaning of the policies, thus precluding Gateway from showing that it was the owner of an indebtedness secured by the insured mortgage.

We shall affirm the judgments in favor of Ticor and Chicago Title.

FACTUAL AND PROCEDURAL BACKGROUND

A. Ticor Escrows

Gateway both originates mortgage loans and acquires mortgage loans for purposes of resale. Ticor is an escrow company that handles purchase transactions, refinances and other aspects of the escrow business. CHL acted as a mortgage broker and originator of mortgage loans for resale. This litigation arises out of a complex mortgage fraud scheme perpetrated by the now-bankrupt CHL.

In February 2004, Gateway entered into a written Master Mortgage Loan Purchase Agreement (Master Agreement) with CHL, wherein Gateway would act as a warehouse lender, purchasing loans made by CHL that were in turn to be sold to take-out investors in the secondary mortgage market. Gateway would warehouse the loans by providing the funding for the loan transaction and by holding the loan until such time as the take-out investor purchased the loan from Gateway.[1] Ticor was not a party to the Master Agreement.

In the CHL-Gateway Master Agreement, Gateway expressly required standard ALTA title policies because of the policys coverage of successor insureds free of rights and defenses the insurer might have against the originating lender. The Master Agreement required CHL to submit to Gateway for approval Mortgage Loan Documents for a mortgage file. The Master Agreement required the mortgage file for a transaction to include escrow documents, but did not specify a particular escrow holder. CHL was responsible for the selection of Ticor as the escrow holder for the transactions at issue. Gateway would not approve a loan transaction without standard general and special escrow instructions.

In the summer of 2004, CHL entered into several loan transactions pursuant to the Master Agreement. Eleven of those loan transactions, totaling $5,502,860, are the subject of this action. The 11 transactions involved the purported refinancing of home loans that CHL had previously extended to the same borrowers. CHL was acting as both the new lender (or broker) and the previous lender of record whose interest was being extinguished by the refinancing. Thus, CHL was the recipient of the final payoff of the previous loan at the close of each of the escrowed transactions. Gateway required CHL to furnish it loan packages which included a copy of the escrow instructions, as well as a loan application, a borrower financial statement, an estimated HUD-1 settlement statement, the first page of a preliminary title report, an appraisal, a note, a deed of trust, an assignment of deed of trust, the loan approval from the take-out investor, a credit report and related loan documents.

It was contemplated that CHL would use the funds provided by Gateway to make its own real and valid refinancing loans to genuine residential borrowers, secured by their real property. However, CHL did not make such loans. Rather, it fabricated phony loans and committed insurance fraud. CHL opened loan escrows for the phony loans with Ticor. It identified itself as the lender, submitted phony loan documents which it had fabricated, and forged the borrowers signatures on the escrow instructions, the notes and deeds of trust, as well as other loan documents. Gateway wired the funds directly into the CHL loan escrows, which CHL purported to use to make the phony refinancing loans. At the loan closings, the escrow agents released the moneys as payoffs to CHL, which did not refinance the named borrowers existing loans, but simply pocketed the money.

Ticor knew Gateway was the source of funds used to close the escrows. Gateway wire transferred the funds to Ticor to close the loan transactions at issue through 11 wire transfers of funds. Each Incoming Wire-Advice of Credit identified the originating party as Gateway Bank, FSB, and also identified the exact amount to be funded, the name of the purported borrower and the escrow number to be credited by the wire transfer.

The general and special closing instructions were supplied by CHL to Ticor. Gateway did not provide Ticor with any general or special escrow instructions, written or oral, in any of the 11 escrows. The lenders instructions provided to Ticor by CHL did not refer to Gateway or to the Master Agreement. However, the escrow instructions for each loan required the provision of Hazard Insurance to include the loss payee as CHL Mortgage Group Inc., its successors and/or assigns.

CHLs escrow instructions specified what Ticor was required to do to close each loan, including to disburse the loan proceeds to CHL. Each of CHLs closing escrow instructions to Ticor instructed: Do not close or fund this loan unless All conditions in these closing instructions and any supplemental closing instructions have been satisfied. . . . You must follow these instructions exactly. Among the instructions that Ticor Acknowledged and Agreed to fulfill and be bound by were the following: Each Borrower must sign all documents exactly as his or her name appears on the blank line provided for his or her signature. All signatures must be witnessed if required or customary. All signature acknowledgements must be executed by a person authorized to take acknowledgements in the state of closing. The specific closing instructions provided, Borrower must sign and date these closing instructions.

Ticor did not verify the identity of borrowers for any of the 11 transactions. In reviewing the grant of summary judgment, we must accept as true evidence that Ticor failed to assure that the borrower signed all documents, including the promissory note and deed of trust, and failed to assure that the borrowers signature was properly witnessed. Ticor allowed documents to be signed outside of escrow, knew or should have known that the signatures were forged, knew or should have known that the signatures had been backdated, knew or should have known that Ticor had received multiple wire transfers for funding the same loan, and knew or should have known the inconsistencies in payoffs would not result in Gateways being in a first lien position.[2]

One of the wire transfers from Gateway that was mistakenly sent to the wrong escrow number was returned, not to Gateway, but to CHL at the direction of Ticor escrow officer Cindy Olesen, because the closing escrow instructions provided by CHL required Ticor to return the funds to CHL in the event an escrow did not close.

B. Chicago Title ALTA Policies

Ticor issued ALTA insurance policies on behalf of Chicago Title for the 11 loans.[3] For each deed of trust, CHL instructed Ticor to obtain an ALTA title policy naming CHL as the named insured. The policies were issued based on CHLs instructions and representations as to the authenticity of the notes, trust deeds, payoff demands, and closing instructions. The information provided by CHL to the escrows for each of the deeds of trust was material to Chicago Titles decision to issue title insurance policies to CHL. As stated before, CHL concealed that the borrowers on the deeds of trust had not authorized the purchases and/or refinances attributed to them and CHL falsely represented the validity and authenticity of the signatures of borrowers with respect to the Gateway deeds of trust.

In the fall of 2004, CHLs offices were seized by the FBI in the course of a mortgage fraud investigation. CHL filed for bankruptcy protection in 2005.[4]

C. Summary Judgment

On February 4, 2005, Gateway filed its first amended complaint against Ticor and others, seeking reimbursement of its losses and alleging, among other things, causes of action for negligence, fraud, negligent misrepresentation, and unfair competition. Gateway sued Chicago Title on April 11, 2005 as a Doe party, and filed a second amended complaint on May 6, 2005, asserting breach of contract, conspiracy, and unfair competition claims against Chicago Title.

On August 19, 2005, after filing of the instant lawsuit by Gateway, Chicago Title served formal notices of rescission for each of the deeds of trust upon the CHL bankruptcy trustee and returned all premiums paid for each policy.[5] On August 19, 2005, Chicago Title served Gateway with a copy of each notice of rescission concerning a Gateway deed of trust. On August 23, 2005, Chicago Title denied Gateways claims under the title insurance policies.

Chicago Title filed a cross-complaint for declaratory relief against Gateway.

Gateway demurred to Chicago Titles first amended cross-complaint on the ground that Insurance Code section 650 bars an insurance carrier from rescinding once a claimant has filed suit to enforce a policy. The trial court overruled the demurrer.

Ticor, Chicago Title, and Gateway each filed motions for summary judgment.

On February 19, 2008, the trial court granted Chicago Titles motion for summary judgment, and denied Gateways competing motion as moot. The trial court based its decision on two independent grounds: First, the policies were void ab initio, having been obtained by the fraud of the insured. The policies were not intended to insure against invalidity of title caused by the insureds own fraud and coverage did not extend to the insured (CHL) or to the assignee of such insured (Gateway). Second, the court concluded that Gateway lacked an insurable interest because there was no existing indebtedness between the named borrower and the lender (CHL). The forged notes created no indebtedness within the meaning of the policies and Gateway could not show it was the owner of an indebtedness secured by the insured mortgage, i.e. an insured under the policy.

At the time it granted summary judgment for Chicago Title, the court also ruled upon various objections by Ticor, codefendant Cindy Olesen, and Chicago Title to evidence submitted by Gateway in opposition to defendants summary judgment motions.

On March 13, 2008, the trial court filed its amended order granting Ticor summary judgment on Gateways action.[6] In granting summary judgment in favor of Ticor, the court concluded that Ticor did not owe Gateway a duty of care, as the undisputed material facts demonstrated that Gateway was not a party to the escrow. The court also concluded summary judgment on this basis was consistent with analysis of the duty factors set out in Biakanja v. Irving (1958) 49 Cal.2d 647, 650 (Biakanja), in light of the Supreme Courts ruling in Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 711-716 (Summit). Consequently, the cause of action for negligence failed. The court further found no triable issue of fact on the cause of action for breach of third party beneficiary contract as there was nothing in the contracts to indicate the parties intended to benefit Gateway. With respect to causes of action for fraud and negligent misrepresentation, it was undisputed that Ticor made no promises to Gateway. The cause of action for unfair competition (Bus. & Prof. Code,  17200) foundered on the absence of a duty of care to Gateway, and the conspiracy claim failed, absent a triable issue as to any underlying wrongful conduct by Ticor with respect to Gateway.

Judgment was entered in favor of Chicago Title on April 14, 2008. Judgment was entered in favor of Ticor and codefendant Cindy Olesen on April 7, 2008. These timely appeals followed.[7]

I. Standard of Review

 Because this case comes before us after the trial court granted a motion for summary judgment, we take the facts from the record that was before the trial court when it ruled on that motion. [Citation.]  We review the trial courts decision de novo, considering all the evidence set forth in the moving and opposing papers except that to which objections were made and sustained.  [Citation.]  (Lonicki v. SutterHealthCenter (2008) 43 Cal.4th 201, 206.) In addition, we  liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.  [Citation.] (Hughes v. Pair (2009) 46 Cal.4th 1035, 1039.)

We review the trial courts evidentiary rulings on summary judgment for abuse of discretion. [Citations.] (DiCola v. White Brothers Performance Products, Inc. (2008) 158 Cal.App.4th 666, 679.) The burden is upon Gateway to establish such an abuse, which we will find only if the trial courts order exceeds the bounds of reason. [Citation.] (Ibid.)

II. Ticor

A. Duty

Gateway maintains that there exist triable issues of material fact as to whether Ticor owed it a duty of care and asserts it was a party to the escrow. Gateway argues that it did not need to be named in the escrow instructions to be deemed a party to the escrow and that Ticors acceptance of the money Gateway wired into the escrows created a duty of care and a fiduciary relationship with Gateway. We disagree.

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 [that third party] for ultimate transmittal to the other person upon the happening of an event or the performance of certain specified conditions. [Citations.] (Markowitz v. Fidelity Nat. Title Co. (2006) 142 Cal.App.4th 508, 526 (Markowitz), citing, among others, Fin. Code,  17003, subd. (a); Civ. Code,  1057; Summit, supra, 27 Cal.4th at pp. 711-714.)

On the facts presented, it is clear that escrows existed, and that Gateway had an interest in each of the 11 escrows. It deposited money into the escrows established by CHL. That [Gateway] had an interest in the escrow, however, does not mean that [it] was a party to the escrow, or to the escrow instructions on which [it] relies. (Markowitz, supra, 142 Cal.App.4th at p. 526.) Nor does the existence of an escrow answer the question whether Ticor had a duty to Gateway.

In Summit, supra, 27 Cal.4th 705, the California Supreme Court outlined the scope of an escrow holders fiduciary duties: An escrow holder is an agent and fiduciary of the parties to the escrow. [Citations.] The agency created by the escrow is limitedlimited to the obligation of the escrow holder to carry out the instructions of each of the parties to the escrow. [Citations.] If the escrow holder fails to carry out the instruction it has contracted to perform, the injured party has a cause of action for breach of contract. [Citation.]

In delimiting the scope of an escrow holders fiduciary duties, then, we start from the principle that [a]n escrow holder must comply strictly with the instructions of the parties. [Citations.] [Citation.] On the other hand, an escrow holder has no general duty to police the affairs of its depositors; rather, an escrow holders obligations are limited to faithful compliance with [the depositors] instructions. [Citations.] Absent clear evidence of fraud, an escrow holders obligations are limited to compliance with the parties instructions. [Citations.] (Summit, supra, 27 Cal.4th at p. 711; accord, Markowitz, supra, 142 Cal.App.4th at p. 526.)[8]

In Summit, pursuant to the escrow instructions in a refinance transaction, the escrow holder paid off a note to the original lender, Talbert, rather than to Summit, the company to whom the note had been assigned by Talbert. Summit sued the escrow company for negligence, contending that in the refinance transaction, the escrow company should have paid it rather than Talbert, because the escrow company knew Talbert had assigned its rights in the note and deed of trust to Summit. Neither the assignor, Talbert, nor the assignee, Summit, was party to the escrow. (Summit, supra, 27 Cal.4that p. 708.)The Supreme Court held that despite its knowledge of the assignment, the escrow holder did not owe a duty of care to a nonparty to the escrow based on an assignment to that nonparty by another nonparty. (Id. at pp. 707-708.) The court rejected Summits attempt to fashion a general duty owed by the escrow agent to honor contracts made by creditors of the principal absent an agency relationship with the creditor. (Id. at p. 714.) The court acknowledged that the escrow agents receipt of notice of an assignment could be deemed the equivalent of a new instruction regarding the party to be paid where the assignment was made by a party to the escrow entitled to give instructions to the escrow holder. (Id. at p. 714 & fn. 5.) The Supreme Court firmly rejected the holding of Kirby v. Palos Verdes Escrow Co. (1986) 183 Cal.App.3d 57, that transactions by strangers to an escrow can supersede and amend the instructions given by the parties to the escrow. (Summit, supra, 27 Cal.4th at p. 714.)[9]

Gateway argues that Summitis distinguishable because Gateway was a party to the escrow. It also contends Summitis inapplicable because Gateway received its interest through CHL, a party to the escrow, and Summitwas limited to circumstances where a stranger to the escrow assigned an interest in the funds to another stranger. Here, of course, there was no assignment of funds in the escrows by CHL to Gateway. It is undisputed that according to the escrow instructions provided by CHL, upon closing, CHL was to receive all funds deposited in the escrows and any monies from escrows that for any reason could not be closed. Gateways interest was as a successor to CHLs security interest in the deeds of trust.

Having concluded that the escrow company owed no fiduciary duty to Summit as a nonparty, the Supreme Court next considered Summits claim that a duty might be posited on Civil Code section 1714, subdivision (a),[10] on the grounds that all persons are liable for injuries caused by their negligent conduct. (Summit, supra, 27 Cal.4that p. 715.) The court first recognized the threshold question in an action for negligence is whether the defendant owed the plaintiff a duty to use care [citation], and the [r]ecognition of a duty to manage business affairs so as to prevent purely economic loss to third parties in their financial transactions is the exception, not the rule, in negligence law (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 58). (Summit, at p. 715.)

The Summit court proceeded to apply the six-factor test of Biakanja, supra, 49 Cal.2d 647, 650, to determine whether the escrow holder would be held liable to a third person not in privity. (Summit, supra, 27 Cal.4that p. 715.)  The determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendants conduct and the injury suffered, the moral blame attached to the defendants conduct, and the policy of preventing future harm. [Citations.]  (Summit,at p. 715, quoting Biakanja, at p. 650.) Applying the factors, the Supreme Court found no reason to depart from the general rule that the escrow holder incurs no liability for following the escrow instructions or for failing to do something not required by the terms of the escrow. (Summit, at pp. 715-716.)[11]

Commenting on the effect of Summit, supra, 27 Cal.4th705, a leading treatise on real estate observes, [U]nder California law, it is now clear that an escrow holder owes no duty to a non-party to the escrow when it faithfully follows instructions of a party to the escrow to distribute funds possibly subject to some claim by the non-party. (3 Miller & Starr, Cal. Real Estate (2009 Supp.)  6:31, p. 14.)

Miller and Starr advise that Summit, supra, 27 Cal.4th 705, should be contrasted with Money Store Investment Corp. v. Southern Cal. Bank (2002) 98 Cal.App.4th 722 (Money Store). (3 Miller & Starr, Cal. Real Estate (2009 Supp.)  6:31, p. 14.)In Money Store, the lender agreed to provide loan funds to the escrow holder bank to facilitate the sale of a business. Under the escrow instructions supplied by the buyer and seller parties to the escrow, the escrow holder was authorized to comply with the lenders instructions. The lender transmitted closing instructions to the escrow holder, indicating the amount it would wire to the escrow holder upon demand and compliance with the lenders instructions. The instructions contained directions as to the disbursal of the money and indicated that any deviation from the instructions without the lenders express authorization would be at the escrow holders risk. The escrow holder acknowledged receipt and acceptance of the instructions. (Money Store, at p. 726.) The escrow holder failed to comply with the closing instructions received from the lender, but instead complied with addendum instructions received from the buyer and seller without first obtaining the lenders express authorization. The court held that a contractual arrangement could arise when the lender agrees conditionally to provide loan funds and the escrow holder acknowledges acceptance of the conditions through receipt and acceptance of the lender closing instructions. (Id. at pp. 728-729.) Money Store distinguished Summiton the grounds that the lender in Money Store had a direct contractual relationship with the escrow holder. (Money Store, at p. 731.) The contract specified what the escrow holder was to do and the instructions from the buyer and seller authorized the escrow holder to comply with those directives. The lenders instructions were consistent with the buyer and sellers original instructions, yet the escrow holder complied with the addendum without providing the lender an opportunity to object. Applying the six-part test used in Summit for determining whether a general duty was owed, the Money Store court concluded the escrow holders actions, as alleged, were morally blameworthy and that it was foreseeable the funds would be distributed contrary to the lenders instructions. There was a close connection between the escrow holders action and the harm suffered. (Ibid.)

Markowitz, supra, 142Cal.App.4th 508, relied upon Summitin affirming a nonsuit of an owners action against a title company that acted as a sub-escrow, based on the title companys failure to record a reconveyance of a deed of trust on the owners real property securing a promissory note held by two other defendants. (Markowitz,at pp. 512, 521.) The appellate court found that, under the factual circumstances alleged, the owner could not establish that the title company owed any duty to him. (Ibid.)

In 1998, Donald and Debra Markowitz purchased a residence from the Kachlons, who received a promissory note for $53,000, secured by a second deed of trust on the residence. The promissory note was partially satisfied over the next few years. Following a dispute between the Markowitzes and the Kachlons as to the amount still owing on the promissory note, they reached a written agreement that the note was reduced by $41,000. In July 2002, City National Bank agreed to extend a $200,000 line of credit to Donald Markowitz, to be secured by a new second deed of trust on the residence. The bank required that the $53,000 promissory note be repaid in full and the Kachlon deed of trust reconveyed. The bank retained the title company (Fidelity) to provide a policy of title insurance and to act as a sub-escrow to hold and exchange money and documents between Donald and the Kachlons. The Kachlons were sent a request for demand on the banks letterhead requesting that they complete and sign the original of the beneficiarys demand and send the same to Fidelity, together with the original note and deed of trust, and a request for reconveyance of the deed of trust, signed by the owners of the note. (Markowitz, supra, 142 Cal.App.4th at pp. 512-513.) Mr. Kachlon delivered the beneficiarys demand for the sum of $12,000, the request for reconveyance, the original promissory note, and the original Kachlon deed of trust to Fidelity and received from Fidelity a check for $12,000, payable to the Kachlons. The bank instructed Fidelity to deliver to it the ALTA title insurance policy showing a liability of $200,000, covering the Markowitzes property. The bank also stated Fidelity was authorized to record on July 24, 2002, showing the banks deed in the second trust deed position. (Id. at pp. 513-514.) Fidelity thereafter failed to ensure that a reconveyance was recorded, and did not inform Donald Markowitz that a reconveyance had not been recorded. Nonetheless, a new deed of trust in favor of the Bank was recorded, and the line of credit transaction concluded. (Id. at p. 514.) In 2003, Fidelity began a statutory procedure for clearing title, sending written notice to the Kachlons that their deed of trust had not been removed, and advising them that unless they objected, Fidelity was going to record a release of the obligation. The Kachlons reported to Fidelity that the promissory note had not been paid in full and they initiated a foreclosure proceeding, causing a notice of default to be recorded. The trustee dismissed the proceeding after seeing documents evidencing full satisfaction of the obligation. After another unsuccessful try, the Kachlons succeeded in substituting a trustee who caused a notice of default to be recorded claiming that $56,899.91 was due under the promissory note. (Id. at pp. 514-515.)

The Markowitzes sued the Kachlons, the successor trustee, the bank and Fidelity. As to Fidelity, the complaint alleged, among other things, that the bank had agreed to act as escrow and had arranged for Fidelity, its title company, to act as sub-escrow and that Fidelity had agreed to assume the duties of an escrow holder. It further alleged that a fiduciary relationship was formed between Donald and Fidelity, which Fidelity breached by failing to properly ensure that the deed of trust was reconveyed and removed as a lien on the property and by failing to communicate to Donald that the deed of trust had not been reconveyed. The complaint also contained a cause of action for negligence, alleging that by assuming the duties of an escrow holder, Fidelity owed Donald a duty to exercise ordinary care, which it breached. (Markowitz, supra, 142 Cal.App.4th at pp. 515-516.)

In affirming the nonsuit based upon the facts presented in Donalds opening statement, the appellate court concluded that Fidelity did not breach any fiduciary duty owed to Donald, or otherwise owe a duty of care which it negligently performed. (Markowitz, supra, 142Cal.App.4th at p. 521.) The appellate court reasoned that an escrow existed, with Fidelity functioning as a sub-escrow holder, that Donald had an interest in the escrow, but that he was not a party to the escrow or to the escrow instructions. He did not submit any instructions to Fidelity, written or oral, and he had little or no contact with Fidelity. His contact was with the Bank. (Id. at p. 526.) Donald countered that the bank had instructed Fidelity to record a new deed of trust in favor of the bank only when the banks deed of trust would be recorded in the second position, necessarily requiring removal of the Kachlon deed of trust. (Ibid.) According to Markowitz, [t]he defect in Donalds argument [was] that he was not a party to the escrow instructions on which he relies. Fidelitys duties arising out of those instructions were defined, and limited, by the terms of those instructions. Donald points only to the written instructions given to Fidelity by the Bank; he does not allege that he gave Fidelity any written or oral instructions regarding carrying out the escrow. (Id. at p. 527.) The court explained that the duty arising from the instruction authorizing recordation of the Banks deed of trust showing . . . in the second trust deed position was owed to the Bank, not to Donald. (Ibid.) That Fidelity apparently breached its duties owing to the bank, did not trigger a duty to Donald. (Id. at p. 529.) Nor was Donald a third party beneficiary of the escrow instructions as the language of the instructions did not expressly evince the intent to benefit him, but rather, was aimed at protecting the bank from the existence of defects in title and unknown encumbrances. (Id. at p. 527.) Rather, Donald was an incidental beneficiary of the banks instruction. (Id. at pp. 527-528.)

Because Donald was not a party to the escrow and did not submit escrow instructions to Fidelity, Fidelity was not acting as his agent with respect to the transaction. There were no instructions submitted by him, or to which he was a signatory, with which Fidelity was obligated to comply, or which it was obligated to carry out with reasonable care in the exercise of ordinary skill and diligence. (Markowitz, supra, 142 Cal.App.4th at p. 528.)

In the trial court below, Gateway argued that the court should not follow Markowitz, supra, 142 Cal.App.4th 508. On appeal, Gateway argues that Markowitz is distinguishable and that factors missing in that case exist here. Gateway had contact with Ticor on each of the 11 loans through the wire transfers (identifying the escrows, the amounts funded to each, the purported borrowers and Gateway as the originating party) and provided money directly to Ticor to fund the loans. Gateway asserts that these factors made it a party to the escrows under Financial Code section 17003. Markowitz appears to us to be on point in critical respects.

Gateway bases its claim to be a party to the escrow on the definition of an escrow contained in section 17003 of the Financial Code, upon its having funded the escrows, and upon Ticors admission that it knew Gateway was the source of funds used by CHL to close the transactions. As Markowitz and Summitrecognize, the fact that an escrow exists and that the plaintiff has an interest in an escrow does not suffice to transform the plaintiff into a party to the escrow to whom duties are owed by the escrow holder. (Markovitz, supra, 142Cal.App.4th at p. 526; see Summit, supra, 27 Cal.4th at pp. 711-716.) Nor does the breach of a duty owed to a party to the escrow that impacts or injures one with an interest in the escrow suffice to transform that non-party into a party. (Markovitz, at p. 529.)

Gateway also equates the incoming wire-advices to Ticor with escrow instructions from Gateway to Ticor. It is undisputed that the purpose of the escrows at issue was to facilitate loans from CHL to borrowers. Gateway was not a party to those transactions.

Gateway cites Wasmann v. Seidenberg (1988) 202 Cal.App.3d 752 (Wasmann), in support of its claim that its deposit of funds with Ticor and Ticors acceptance of those funds created a duty of care and a fiduciary relationship. In Wasmann, following successful settlement negotiations in a dissolution proceeding, the husbands attorney sent an executed grant deed to the wifes attorney, along with specific instructions that the deed was not to be recorded until payment of an agreed-upon sum by the wife to the husband. (Id. at pp. 754-755.) The wife obtained the deed and recorded it without payment. The appellate court held that the attorneys acceptance of the grant deed, entrusted to him during settlement negotiations, gave rise to a fiduciarys duties as an escrow holder requiring the attorney to comply strictly with the escrow instructions. (Id. at pp. 755-756.) Wasmann held that the attorney took on the duties of an escrow holder to the parties to the escrowwhen he accepted the deed and the accompanying instructions on how and when the document was to be recorded. In contrast, Gateway gave no instructions to Ticor, and Ticor complied with CHLs instructions directing funds to be paid to CHL upon close of escrow. Wasmann does not describe an escrow holders duty to a non-party such as Gateway that did not provide escrow instructions to the escrow holder.

Nor does Pasternak v. Boutris (2002) 99 Cal.App.4th 907, advance Gateways claim to being a party to the escrow. There, the receiver for an escrow company sued to recover from a nonprofit mutual benefit corporation (EAFC) indemnification for losses caused by the fraudulent misappropriation of funds by the escrow companys president. The escrow companys president had colluded with the owner of PCO, a company arranging for loans by individuals, theoretically being used to buy qualified life insurance policies from terminally ill persons in exchange for viatical settlements. The pivotal issue on the indemnity claim was whether [the officers] misappropriations of lender funds involved a loss (or losses) covered by EAFC, because the funds were taken from escrows as defined by [Financial Code] section 17003. (Id. at p. 918.) The court held escrows had been created by the transactions in which individual lenders delivered money to the escrow company to be held for the purpose of transferring their money to PCO upon PCOs deposit with the escrow company of specified documents relating to the purported viatical settlements. (Id. at p. 919.) Lender agreements, deposit receipts and instructions and escrow agreements also were deposited into each escrow. (Id. at p. 917.) The appellate court rejected the argument that no escrows had been created because the viatical settlements were a sham and PCO had no legitimate purpose in setting up the escrows, as it never intended to transfer anything of value. (Id. at p. 919.) According to the court, the lenders genuinely intended to transfer their monies, deposited with the escrow company for that purpose, to PCO to enable the viatical settlements and pay the lenders interest. (Ibid.) The court also held that Financial Code section 17003 does not require a completed delivery from escrow in order for there to be an escrow. Rather, the existence of an escrow, as defined, requires only that the transaction contemplate such delivery. The delivery that must occur is the initial deposit. (Ibid.) Consequently, the escrows from which the officer misappropriated funds constituted escrows within the meaning of the statute and warranted indemnity by EAFC. (Id. at p. 921.) The case did not involve, nor did the court address, any issue regarding who was a party to the escrow. Pasternak does not suggest that a third party, such as Gateway, becomes a party to the escrow simply by transmitting funds to or on behalf of a party, such as CHL.

It is undisputed that none of the general or specific escrow instructions came from Gateway. The escrow instructions supplied by CHL did not mention Gateway, nor did they suggest that Ticor was required to take instruction from Gateway in connection with any of these transactions. As the lender (or broker) that originated the loans in its own name, it was CHL, and only CHL, that instructed Ticor as to each of the escrows; any impact that the transactions had on Gateway was  collateral to the primary purpose of the escrow  and so outside the scope of the escrow holders duty of care. (Summit, supra, 27 Cal.4th at p. 715.)

Nor do the wire-advices of credit equate to escrow instructions from Gateway in this case. Escrow instructions provide conditions relating to the escrow transaction. (See Norris v. San Mateo County Title Co. (1951) 37 Cal.2d 269, 273 [standard form of escrow instructions provide for the exchange of money and a deed upon stipulated conditions]; 3 Miller & Starr, Cal. Real Estate, supra,  616, p. 37 [Escrow instructions contain conditions. When the parties deposit their money and documents with an escrow agent, they give instructions to hold the items deposited until certain conditions occur, and to deliver them to the other party when the conditions have been satisfied].)

Unlike the lenders instructions in Money Store, supra, 98 Cal.App.4th 722,CHL had not authorized the escrow holder to accept instructions from Gateway or any other entity. The wire transfers contained no closing instructions or other instructions to the escrow holder directing disbursals of the funds on satisfaction of certain conditions. Indeed, the wire transfers here contained no actual conditions relating to the transaction to be satisfied before close of the escrow. They simply identified the escrows into which funds were being deposited and the amounts to each. To accept Gateways contention that the wire-advices at issue here constituted escrow instructions has the potential to transform every lender or funder of a transaction into a party to the escrow and every wire-transfer of fundsor any communication with the escrow holderinto escrow instructions.[12]

An additional and independent basis for rejecting the claim that the wire-advices were escrow instructions to Ticor is the courts sustaining of objections to the declaration of Gateway executive Michael Kenny, wherein Kenny stated that Gateway Bank . . . provided Ticor directly with written instructions in the form of an Incoming Wire-Advice of Credit for each of the eleven loans at issue. Gateway did not challenge that ruling in its appellants opening brief, although it cited to the excluded Kenny evidence. The first time Gateway argues that the court abused its discretion in excluding Gateways evidence is in its appellants reply brief. There, Gateway states that it implicitly argued that the lower court committed error in failing to properly consider this evidence. We do not agree that reliance in an opening brief upon evidence to which the trial court has sustained objections suffices to challenge the courts rulings sustaining the objections. In failing to challenge in its opening brief the courts exclusion of the Kenny declaration regarding the incoming wire-advices, appellant has waived any error in the courts evidentiary ruling. (Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2009)  9:78-9:78.3, pp. 9-25 to 9-26.)

For similar reasons, Gateway has waived its challenge to the courts sustaining of Ticors objections to portions of the deposition testimony of Rose Henninger. Gateway relies upon this testimony as material evidence that Gateway was a party to the escrow. In its opening brief, Gateway quotes from Henningers testimony and then states only: Astonishingly, the lower court deemed Ticors testimony to be not material evidence that Gateway was a party to the escrows. . . .  To the contrary, Ms. Henningers candid acknowledgements are party admissions that Ticor recognized that Gateway was a party to the escrow transactions. This statement, absent any authority or further discussion, is inadequate to raise a challenge to the courts evidentiary ruling. (Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs, supra,  9:78-9:78.3, pp. 9-25 to 9-26.)

In any event, Gateway has not carried its burden of demonstrating the court abused its discretion in sustaining the objection to Henningers testimony. Henninger, a Ticor accounting managerdesignated by Ticor as its person most knowledgeable on topics including the handling of funds transferred to Ticor in connection with escrows during the relevant time periods, including receipt and disbursement of funds, bookkeeping records, and company policies and procedurestestified in her deposition that she would interpret the incoming wire transfer she was shown as indicating that money was being wired to Ticor from Gateway as a lender and that we would just interpret Gateway to be a party in this transaction. However, before she so testified, Henninger also testified that she would [n]ot necessarily interpret the wire transfer as Gateway intending to lend money secured by the real property thats part of the escrow, because in accounting we wouldnt interpret who the lender is by looking at an incoming wire advice. Were just referencing for escrow where the funds came from, but we wouldnt be able to try to determine who the lender is. Henninger further testified that looking at an incoming wire advice, that doesnt guarantee that who is sending the money is necessarily a lender in this transaction. At least for us not to make that determination, no, we would not.

In her declaration below, which expands upon and clarifies her deposition testimony, Henninger declared that escrow officers were responsible for processing escrow transactions, that she did not become familiar with the details of any individual escrow transactions, and that she did not consider herself qualified to serve as an escrow officer or escrow assistant. She further averred that she was never called upon to investigate or to determine the identity of any party to an escrow transaction. The role of the accounting department was limited to processing incoming and outgoing wires at the direction of Ticors escrow officers. Regarding the excerpts of her deposition wherein she reviewed the incoming wire-advice exhibit and stated her interpretation that Gateway was a party involved in the transaction, Henninger clarified that the deposition excerpts were misleading. Neither at the time I supervised the accounting department nor at the time of my deposition was I in any position to say with knowledge who was or was not a party to any particular escrow transaction. I understood the question at my deposition to ask for my speculation and that is precisely what I provided in the excerpted testimony. I did not then or now have any knowledge as to what role, if any, Gateway Bank FSB played in any escrow transaction closed by Ticor. (Italics added.)

The court admitted Henningers declaration over Gateways objections and sustained objections to that part of Henningers deposition testimony relied upon by Gateway on the ground that it was not material evidence that Gateway was a party to the escrows. The court reasoned that that Henninger was not involved in the formation of the contracts, so there is no foundation for her conclusory testimony. It found that Henningers testimony did not directly contradict her deposition testimony and observed that Henninger was permitted to explain her deposition answers. (See Scalf v. D.B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1524-1525.) The trial court did not abuse its discretion in sustaining the objections to Henningers deposition testimony.

Gateway contends that regardless whether it was a party to the escrow, the duty analysis of Biakanja, supra, 49 Cal.2d 647, 650, applied by the Supreme Court in Summit, supra, 27 Cal.4th at page 715, would in this case result in imposition of a duty of care by Ticor toward Gateway. Ticor contends that we are bound by Summits analysis of the six factors to conclude that the escrow holder has no duty toward a nonparty. Ticor also points out that Markowitz, supra, 142 Cal.App.4th 508, did not use the six-factor duty analysis, but relied upon the holding of Summit to conclude no duty was owed by the escrow holder to the nonparty plaintiff in the circumstances. Having concluded that the material undisputed facts establish that Gateway was not a party to the escrow, the Supreme Courts Summitanalysis appears to us to be controlling. However, in an abundance of caution, we note the six-factor duty analysis is consistent with our refusal to impose a duty upon Ticor with respect to Gateway.

As we have related, Summitfirst reiterated the general rule that a  duty to manage business affairs to prevent purely economic loss to third parties in their financial transactions is the exception, not the rule, in negligence law. [Citation.] (Summit, supra, 27 Cal.4th at p. 715.) We agree with the trial court here that application of the six-factor Biakanja test provides no reason to depart from the general rule. First, the escrow transactions were not intended to affect or benefit Gateway. The escrows were opened to facilitate loans from CHL to borrowers, and the impact the transactions may have had on Gateway was collateral to the primary purpose of the escrows. Second, it is certain that Gateway suffered financial injury. However, the third factor, the foreseeability of harm to Gateway, does not support imposition of a duty. The trial court reasoned that foreseeability of harm was not strong because warehouse lenders can condition the provision of funds upon obtaining sufficient documentation of the validity of the underlying consumer loan. Whatever the merit of this proposition, we believe the foreseeability of harm was not strong as Ticor could not have foreseen that CHL would engage in such massive fraud, anymore than the escrow holder in Summit could have foreseen that the original lender-assignor would not release the funds to the new lender-assignee. Although Ticor knew that Gateway was the supplier of funds for the transaction, and arguably should have foreseen that failure to confirm the identities of the borrowers could injure Gateway, the  foreseeability of financial injury to third persons is not alone sufficient to impose liability for negligent conduct. [Citation.] (Summit, supra, 27 Cal.4th at p. 716, fn. 7.) Fourth, we agree with the trial court that there is minimal moral blame attached to Ticors conduct. The relationship between Ticor and Gateway was not one that would create an obligation to protect the interests of nonparties such as Gateway. Fifth, the connection between Ticors conduct and the resulting harm to Gateway is not close. Gateways damage arose from its relationship with CHL, not Ticor. Ticor did not control that relationship. Moreover, it was CHL, not Gateway, that provided the escrow instructions that were allegedly breached. Sixth, the policy of preventing future harm does not support imposition of a duty upon the escrow holder to protect nonparties to the escrow from financial harm, at the cost of potentially subjecting an escrow holder to conflicting obligations [and] undermin[ing] a valuable business procedure. (Summit, supra, 27 Cal.4th at p. 716.)[13]

B. Third Party Beneficiary

Gateway maintains that even if it was not a party to the escrow, it was entitled to recover as a third party beneficiary. Gateway contends the trial court ignored disputed issues of material fact when concluding that the contracts contained nothing to indicate the parties intended to benefit Gateway and that Ticors knowledge that Gateway would benefit from the transactions was insufficient to show that Gateway was an intended beneficiary. We agree with the trial courts assessment.

As the Supreme Court explained in Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524: A third party beneficiary may enforce a contract made for its benefit. (Civ. Code,  1559[[14]].) However, [a] putative third partys rights under a contract are predicated upon the contracting parties intent to benefit it. (Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 436 . . . .) Ascertaining this intent is a question of ordinary contract interpretation. (Ibid.) Thus, [t]he circumstance that a literal contract interpretation would result in a benefit to the third party is not enough to entitle that party to demand enforcement. [Citation.] (See also Markowitz, supra, 142 Cal.App.4th at p. 527.)

Under long standing contract law, a contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful. (Civ. Code,  1636.) Although the intention of the parties is to be ascertained from the writing alone, if possible (id.,  1639), [a] contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates (id.,  1647). However broad may be the terms of a contract, it extends only to those things . . . which it appears that the parties intended to contract. (Id.,  1648.) (Hess v. Ford Motor Co., supra, 27 Cal.4th at p. 524; accord, Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th 1004, 1022-1023; Markowitz, supra, 142 Cal.App.4th at p. 527.)

 Generally, it is a question of fact whether a particular third person is an intended beneficiary of a contract. (Prouty[ v. Gores Technology Group (2004)] 121 Cal.App.4th [1225,] 1233.) But if the issue is presented to the court on the basis of undisputed facts and uncontroverted evidence and only a question of the application of the law to those facts need be answered, appellate review is de novo. [Citations.] (Spinks v. Equity Residential Briarwood Apartments, supra, 171 Cal.App.4th at p. 1025.)

It is undisputed the escrow instructions upon which Gateway relies, do not mention Gateway. CHL did not identify Gateway on any of its loan or escrow documents. Gateway did not provide any escrow instructions to Ticor. There is no evidence that CHL ever communicated to Ticor any purported intention to benefit Gateway. All of the escrow instructions directed Ticor to disburse the escrow funds to CHL on closing.

Gateway marshals the following evidence to support its claim: The Master Agreement between CHL and Gateway contemplated the use of escrows and Gateways approval of the escrow agreements; Ticors internal bulletins state that the new lender and future assignee lender rely on the accuracy of the escrow documents (italics added); the escrow instructions submitted by CHL require Ticor to provide hazard insurance to include the loss payee as CHL MORTGAGE GROUP INC., ITS SUCCESSORS AND/OR ASSIGNS; and ALTA policies required by the escrow instructions insure successor lenders. This evidence is not sufficient to establish a triable issue of material fact that the parties to the escrow intended to benefit Gateway by that contract.

The Master Agreement is a separate contract between CHL and Gateway without Ticors involvement. That has no bearing on Ticors intent to benefit Gateway in connection with the escrow agreement it entered with CHL.[15] The Ticor internal bulletins are not part of the agreement between Ticor and CHL and no intent to benefit Gateway may be inferred from those bulletins. Nor is the reference in the escrow instructions to successors and/or assigns of CHL sufficient to raise a material question whether the parties intended to benefit Gateway by the escrow. That single reference appears in the escrow agreement provision requiring the borrower to obtain a hazard insurance policy identifying CHL and its successors and/or assigns as the loss payee/mortgagee. The clause does not identify Gateway or any agreement between CHL and Gateway. Moreover, at most, any benefit would be limited to some interest in a hazard insurance policy, rather than an interest in Ticors performance of its escrow obligations. As a matter of law, that single reference was insufficient to make Gateway a third party beneficiary of the escrow agreement.

Gateway cites Prouty v. Gores Technology Group, supra, 121 Cal.App.4th at pages 1232-1233, for the proposition that a person may qualify as a third party beneficiary to a contract, even when not expressly named therein. Specifically, the Prouty court stated:  It is not necessary that the beneficiary be named and identified as an individual; a third party may enforce a contract if he can show he is a member of a class for whose benefit it was made. . . . [] The test for determining whether a contract was made for the benefit of a third person is whether an intent to benefit a third person appears from the terms of the contract. [Citation.] If the terms of the contract necessarily require the promisor to confer a benefit on a third person, then the contract, and hence the parties thereto, contemplate a benefit to the third person. The parties are presumed to intend the consequences of a performance of the contract. [Citation.] [] This rule is codified: A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it. (Civ. Code,  1559.) The word expressly, by judicial interpretation, has now come to mean merely the negative of incidentally.  (Gilbert Financial Corp. v. Steelform Contracting Co. (1978) 82 Cal.App.3d 65, 70.) Also, the contract need not be exclusively for the benefit of the third party. He does not need to be the sole or the primary beneficiary. [Citation.] (Prouty v. Gores Technology Group, at pp. 1232-1233; accord, Spinks v. Equity Residential Briarwood Apartments, supra, 171 Cal.App.4th 1004, 1022-1023.)

Relying upon the provisions of the Master Agreement requiring Gateways prior approval of the escrow instructions, Gateway argues that CHL intended to benefit Gateway and that CHL did not have to communicate to Ticor CHLs intention to benefit Gateway. Gateway further states that it was sufficient that Ticor knew Gateway was the funding source of the loans. Gateway is only half right. It is true that [w]hile intent is pivotal, there is no requirement that both of the contracting parties must intend to benefit the third party . . . . [Citation.] Rather, it is sufficient that the promisor [here Ticor] must have understood that the promisee [here CHL] had such intent. [Citations.]) (Spinks v. Equity Residential Briarwood Apartments, supra,171 Cal.App.4th at p. 1023, italics added.)

In this case, the facts relied upon by Gateway are insufficient to raise a triable issue of fact that the escrow instructions were intended to benefit Gateway and that Ticor understood that CHL intended to benefit Gateway.

Under the intent test, it is not enough that the third party would incidentally have benefited from performance. (Souza v. Westlands Water Dist. [(2006)] 135 Cal.App.4th [879,] 891.) The circumstance that a literal contract interpretation would result in a benefit to the third party is not enough to entitle that party to demand enforcement. The contracting parties must have intended to confer a benefit on the third party. [Citation.] The effect of the section is to exclude enforcement