Reflections v. First American

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NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24 IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE REFLECTIONS TOWNHOMES, an Arizona ) limited liability company, ) ) Plaintiff/Appellant, ) ) v. ) ) FIRST AMERICAN TITLE INSURANCE ) COMPANY, a California ) corporation; and FIRST AMERICAN ) TITLE AGENCY, INC., an Arizona ) corporation, ) ) Defendants/Appellees. ) ) 1 CA-CV 09-0183 DIVISION ONE FILED: 02/092010 PHILIP G. URRY,CLERK BY: GH DEPARTMENT C MEMORANDUM DECISION (Not for Publication Rule 28, Arizona Rules of Civil Appellate Procedure) Appeal from the Superior Court in Yuma County Cause No. S1400 CV0200700674 The Honorable Mark W. Reeves, Judge AFFIRMED David Alan Dick and Associates By David Alan Dick Michael J. Brune Attorneys for Plaintiff/Appellant Chandler Gust Rosenfeld, PLC By Timothy W. Barton Matthew D. Bedwell Attorneys for Defendants/Appellees Phoenix B R O W N, Judge ¶1 Reflections Townhomes, LLC, ( Reflections ) appeals the superior court s grant of summary judgment in favor of First American Title Insurance Company ( Insurance Company ) Reflections breach of contract and negligence claims. on Because there are no genuine issues of material facts regarding these claims, we affirm. FACTS AND PROCEDURAL BACKGROUND 1 ¶2 Reflections is a manager-managed limited liability company which was formed for the purpose of developing certain real property located in Yuma County (the property ). At the time of the events giving rise to this litigation, Kent Conlon was the manager of Reflections and Daniel J. Dinwiddie was a member. 2 Conlon and the other members of Reflections, the Robinsons, conveyed the property to Reflections in 2005. ¶3 Dinwiddie allegedly filed a fraudulent amendment to Reflections Articles of Organization Conlin 3 managers of Reflections. as listing In himself September and 2006, 1 We view the facts in the light most favorable to Reflections as the party against whom summary judgment was entered. Angus Med. Co. v. Digital Equip. Corp., 173 Ariz. 159, 162, 840 P.2d 1024, 1027 (App. 1992). 2 The complaint alleges Dinwiddie and/or his family trust, of which Dinwiddie is a trustee, was a member of Reflections. 3 In the original Articles name is spelled Conlin. of 2 Organization, Conlon s last Dinwiddie entered into a contract agreeing to sell the property to Cactus West Developers, LLC ( Cactus West ) for $3,762,900. Dinwiddie signed the contract as manager/member of Reflections. First American Title Insurance Agency, Inc. ( Escrow Agency ) handled the escrow and Insurance insurance policy to Cactus West. Company issued a title The closing took place the following month but Reflections true members were not notified of the purported sale. the purported sale. Dinwiddie received over $1,200,000 from The remaining $2,500,000 was held by Escrow Agency. 4 ¶4 After Reflections discovered the purported sale, Reflections and Cactus West negotiated an agreement in which Reflections agreed to sell the property to Cactus West for the $2,500,000 in escrow and an assignment of Cactus West s rights and claims. ¶5 sent On a American January letter to Title 19, First Insurance 2007, Reflections, American Agency Title Inc. through Company. claiming counsel, Aka the First sale to Cactus West was fraudulent. Reflections demanded release of the $2,500,000 and held in escrow the 4 $1,200,000 distributed to On October 18, 2006, Dinwiddie directed Escrow Agency to issue a check in the amount of $2,500,000 to Conlon. On November 11, Escrow Agency issued a stop payment on the $2,500,000 check. Thereafter, Escrow Agency stated it would hold the funds and wait for authorization from the managing members of Reflections on how to disburse. 3 Dinwiddie. The $2,500,000 was distributed to Reflections in February 2007. ¶6 On June 8, 2007, Reflections, in its own right and as assignee of Cactus West s rights, filed a complaint against Dinwiddie, Escrow Agency, and Insurance Company, 5 among others. The claims pertinent to Insurance Company were breach of contract for failure of title and negligence for failing to conduct a reasonable investigation of the property title. ¶7 Insurance Company filed a motion for summary judgment arguing there was no challenge to the title of the property held by Cactus West and that neither Reflections nor Cactus West filed a policy. notice of Regarding claim the as required negligence by the claim, title insurance Insurance Company argued the relevant statute did not provide a private right of action and Cactus West suffered no damages. After oral argument, the court issued an order granting the motion for summary judgment, reasoning as follows: [Insurance Company] did deliver a good and marketable [t]itle to Cactus West. No proper claim was ever made against title or proof of loss with regard to the marketability of title . . . 5 Insurance Company, Inc. Company was named 4 as First American Title [Insurance Company] fulfilled its obligations in simply delivering a good and marketable title. Had title defects existed that led to the issuance of such policy, then [Insurance Company] would have been responsible for such defects pursuant to the terms of the policy. To be clear, the Court s findings and holdings pertain to [Insurance Company] and do not extend to or are binding against [Escrow Agency]. ¶8 The court entered judgment dismissing the two claims against Insurance Company. have jurisdiction Reflections timely appealed. pursuant to Arizona Revised We Statutes ( A.R.S. ) section 12-2101(B) (2003). DISCUSSION A. ¶9 Breach of Contract A court properly grants summary judgment when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Procedure 56(c)(1). Arizona Rule of Civil On appeal, we determine de novo whether genuine issues of material fact exist and whether the superior court erred in applying the law. Prince v. City of Apache Junction, 185 Ariz. 43, 45, 912 P.2d 47, 49 (App. 1996). We will affirm a grant of summary judgment if the superior court was correct for any reason. City of Tempe v. Outdoor Sys., Inc., 201 Ariz. 106, 111, ¶ 14, 32 P.3d 31, 36 (App. 2001). The interpretation of an insurance contract is a question of law we review de novo. First American 5 Title Ins. Co. v. Action Acquisitions, LLC, 218 Ariz. 394, 397, ¶ 8, 187 P.3d 1107, 1110 (2008). ¶10 In an action for breach of contract, the plaintiff bears the burden of proving the breach of contract and resulting damages. Chartone, Inc. v. Bernini, 207 Ariz. 162, 170, ¶ 30, 83 P.3d 1103, 1111 (App. 2004). The contract at issue here is the title insurance policy between Insurance Company and Cactus West. ¶11 Reflections Insurance Cactus Company West. argues delivered Reflections, the a court good through erred and in finding marketable Conlon, that title signed to a deed conveying the property to Cactus West in January 2007. The deed, however, was not delivered to Cactus West until May 2007, after Cactus West executed the assignment of rights. It is undisputed Cactus West currently holds marketable title to the property. Thus, Insurance Company argues there is no defect upon which a claim can be made under the policy. ¶12 The only claim against Cactus West s We agree. title to the property was apparently by Reflections prior to January 2007, although this is not clearly established by the record. Yet, Reflections ultimately agreed to sell the property to Cactus West. There is no evidence showing any other claim was made against Cactus West s title. Reflections argues it did not ratify or authorize Dinwiddie s purported sale of the property. 6 Instead, Reflections contends there were two transactions; the fraudulent Dinwiddie Reflections to sale Cactus in West October in 2006 2007. and the Reflections, sale by however, submitted no evidence showing Cactus West obtained a new title insurance policy for the 2007 sale. Therefore, Insurance Company did what it was required to under the contract insure marketable title to the property. Ariz. at insurance 398, ¶ policy 11, is 187 an P.3d See Action Acquisitions, 218 at agreement 1111 by (explaining the insurer to a title insure against losses caused by claims against the insured s title to real property). ¶13 Nevertheless, Reflections appears to argue that title was unmarketable at the time of the Dinwiddie sale and remained unmarketable until May 2007 when Reflections delivered the deed conveying the property to Cactus West. Thus, we must determine whether there is any genuine issue of material fact regarding Insurance Company s liability for the allegedly unmarketable title between October 2006 and May 2007. ¶14 To establish a claim on an insurance policy, a claimant must prove the happening of an event covered by the policy and that notice was given to the insurer pursuant to the terms of the agreement. Pacific Indemn. Co. v. Kohlhase, 9 Ariz. App. 595, 597, 455 P.2d 277, 279 (1969). issue provides: 7 The policy at The insured shall notify the Company promptly in writing (i) in case of any litigation as set forth in Section 4(a) below, (ii) in case knowledge shall come to an insured hereunder of any claim of title or interest which is adverse to the title to the estate or interest, as insured, and which might cause loss or damage for which the Company may be liable by virtue of this policy, or (iii) if title to the estate or interest, as insured, is rejected as unmarketable. Additionally, the policy requires proof of loss or damage and for such proof to be signed, sworn and submitted within 90 days after the damage. insured ascertains the facts giving rise to the If an insurer is prejudiced by the failure to file prompt notice or the required proof of loss, the insurer has no liability under the policy. Reflections contends the January 19, 2007, letter sufficiently complies with the policy s notice of claim requirement. 6 ¶15 not We disagree for several reasons. First, the letter was sent on behalf of Reflections, Cactus West, which was the insured under the policy. Reflections asserts the letter was made as an assignee of Cactus West; however, the letter does not state Reflections was making 6 Reflections also argues a second letter sent on January 22 was a proper notice because it specified title insurance claims. The January 22 letter merely makes a request for the $2,500,000 and threatens to report First American Title to the State of Arizona, citing A.R.S. § 20-1581 (2002) as authority. Section 20-1581 addresses the revocation of licenses of title insurance agents. There is no genuine issue of material fact that this letter does not comply with the policy s notice requirements. 8 a claim as an assignee of Cactus West. 7 Moreover, the assignment of rights was not effective at the time the letter was written. In its opening brief, Reflections contends the assignment of rights was effective on or before January 19, 2007, while in its reply effective brief on or Reflections before contends January 7, the assignment was 2007. However, the assignment was signed on May 31, 2007 and states Assignment made, effective on signing below. Further, the record reveals negotiations between Reflections and Cactus West regarding the assignment were still ongoing as of May 3, 2007. Thus, the assignment was not effective in January as Reflections alleges. ¶16 Further, even if Reflections properly asserted rights as assignee of Cactus West, the letter does not constitute a sufficient notice of claim. The letter does not mention the title insurance policy or even indicate a claim was being made on the policy. Additionally, the letter does not contain the policy number, nor is Because the letter it sworn failed to 7 as required comply by with the policy. the policy The letter stated that Cactus West had retained counsel and requested that the funds be turned over to Reflections as part of a separate settlement Reflections Townhomes LLC has reached with Cactus West. The letter also explained that Reflections agreed to sell the property to Cactus West in exchange for a sum of money and the assignment of Cactus West s rights against Insurance Company. Finally, the letter stated: On behalf of Reflections Townhomes LLC we demand that you restore the funds improperly paid to Mr. Dinwiddie[.] There is no claim made on behalf of Cactus West. 9 requirements, the court did not err in determining there was no valid claim or proof of loss against the policy. Accordingly, summary judgment was proper on Reflections breach of contract claim. B. ¶17 Negligence To establish a claim for negligence, a plaintiff must prove that a defendant has a duty to conform to a particular standard of care, the defendant breached that duty, a causal connection exists between the defendant s plaintiff s injury, and actual damages. breach whether a duty exists as a matter of law. elements are usually the Gipson v. Kasey, 214 Ariz. 141, 143, ¶ 9, 150 P.3d 228, 230 (2007). remaining and factual A court decides Id. issues Although the for the jury, summary judgment may be granted if no reasonable juror could conclude the defendant breached the standard of care or that plaintiff s damages were proximately caused by the defendant s conduct. Id. at ¶ 9 n.1. ¶18 Reflections negligent by failing contends to conduct that a Insurance reasonable title pursuant to A.R.S. § 20-1567 (2002). Company was examination of Section 20-1567(A) provides: No policy or contract of title insurance shall be written . . . until the title insurer has caused to be conducted a reasonable examination of the title and has caused to be made a determination of 10 insurability of title in accordance with sound underwriting practices for title insurers. According would to have Reflections, revealed (1) a reasonable the amendment examination to the of title articles of organization was forged, (2) Dinwiddie s fraudulent actions, (3) that the property could not be sold without authorization from Reflections, (4) that Reflections members never authorized the sale, and (5) Conlon s signature was missing and/or invalid. Assuming for purposes of this decision that Insurance Company had a duty to Reflections, summary judgment was proper because there was no breach of such duty. 8 ¶19 A title insurer searches public records to identify title defects or encumbrances. Action Acquisitions, LLC, 218 Ariz. at 398, ¶ 11, 187 P.3d at 1111; see also, Moore v. Title Insurance Co. of Minn., 148 Ariz. 408, 411-12, 714 P.2d 1303, 1306-07 (App. 1985). Reflections does Company failed to search public records. not argue Insurance Further, none of the alleged defects are matters of public record. For instance, the misspelling of Conlon s name in the fraudulent amendment to the articles of organization would not necessarily be a red flag 8 Based on our conclusion, we need not address Insurance Company s arguments that the relevant statute did not provide a private right of action and Cactus West suffered no damages. See City of Tempe, 201 Ariz. at 111, ¶ 14, 32 P.3d at 36 (appellate court may affirm a grant of summary judgment if it is correct for any reason). 11 to Insurance Company because Conlon s name was also misspelled in the original articles of organization. According to the record in this case, Conlon conveyed an interest in the property to the Robinsons, and then Conlon and the Robinsons conveyed the property to Reflections. Dinwiddie, as a purported manager of Reflections, the conveyed property to Cactus West. Additionally, the title insurance policy was issued on October 19, 2006, recorded. the same day the deed signed by Dinwiddie was Thus, the Dinwiddie deed (and the lack of Conlon s signature thereon) would not have been in the public record when Insurance Company conducted its title search. Similarly, the lack of authorization from Reflections true members would not have been in the public record when Insurance Company did its title search. Finally, none of the alleged defects pertain to the title of the property. 9 Specifically, the issue of whether 9 To the extent Reflections appears to argue Insurance Company is guilty of negligence per se for violating a statute enacted for the protection and safety of the public, we disagree. Good v. City of Glendale, 150 Ariz. 218, 221, 722 P.2d 386, 389 (App. 1986). Reflections contends that Insurance Company s actions violate A.R.S. § 20-1567. As discussed above, Reflections submitted no issue of material fact that Insurance Company failed to examine the title. Further, none of the statutes Reflections cites under Title 29 impose a duty on a title insurance company for the actions alleged herein. See A.R.S. § 29-653 (discussing limited liability company property); A.R.S. § 29-654(C) (stating an act by a manager or member of a limited liability company that does not carry on business in a usual way does not bind the company); and A.R.S. § 29-657 (imposing liability for false statements in articles of organization). 12 the sale should have closed without proof of Dinwiddie s authority is an issue that pertains to the Escrow Agency, and not the Insurance Company, as the Insurance Company only insured for risks relating to whether Reflections had good and marketable title. ¶20 Reflections negligence claim against Insurance Company also fails under the express terms of the policy. The policy excludes from coverage claims which are not shown by public record persons in and those possession ascertainable of the by making property. inquiry The policy of also contains the following limitation of liability clause: Any claim of loss or damage, whether or not based on negligence, and which arises out of the status of the title to the estate or interest covered hereby or by any action asserting such claim, shall be restricted to this policy. Thus, any claim against Insurance Company, including negligence, is limited to the policy. Inc., 219 Ariz. 200, See 1800 Ocotillo, LLC v. WLB Group, 202-04, ¶¶ 7-21, 196 P.3d 222, 224-26 (2008) (upholding a limitation of liability clause in a contract between an engineering firm and a construction concluding it was not contrary to public policy). developer, As discussed above, Reflections has no valid claim under the policy. ¶21 Finally, we reject Reflections argument that Insurance Company breached its fiduciary duties, because such 13 argument is premised upon Insurance Company acting as an escrow agent, not a title insurance company. C. ¶22 on Attorneys Fees Insurance Company requests an award of attorneys fees appeal pursuant to A.R.S. § 12-341.01 (2003). In our discretion, we award Insurance Company its reasonable attorneys fees and costs upon compliance with Arizona Rule of Civil Appellate Procedure 21. CONCLUSION ¶23 For the foregoing reasons, we affirm the superior court s grant of summary judgment in favor of Insurance Company. /s/ _________________________________ MICHAEL J. BROWN, Judge CONCURRING: /s/ ______________________________ PATRICK IRVINE, Presiding Judge /s/ ______________________________ DONN KESSLER, Judge 14

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