Wells Fargo Bank, N.A. v. Old Republic Title Insurance Company, No. 1:2009cv00297 - Document 68 (E.D. Va. 2009)
Court Description: MEMORANDUM OPINION Re: Cross Motions for Summary Judgment. Signed by District Judge Claude M. Hilton on 12/17/09. (pmil)
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IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA L Alexandria Division (n\ OKI 7 WELLS FARGO BANK, zJ N.A., CLERK, U.S. DISTRICT COURT ALEXANDRIA, VIRGINIA Plaintiff, Civil Action No.# v. OLD REPUBLIC NATIONAL INSURANCE 01:09-cv-297 TITLE COMPANY, Defendant. MEMORANDUM OPINION This matter comes before the Court on the parties' cross- motions for Summary Judgment. Plaintiff Wells Fargo Bank, N.A. is a national banking association chartered in Sioux Falls, South Dakota with its principal place of business in San Francisco, California. Defendant Old Republic National Title Insurance Company is a Minnesota corporation with its principal place of business in Minneapolis, Minnesota. FMI was a Virginia corporation that originated mortgages. This Court has jurisdiction over Old Republic pursuant to Fed. R. Civ. Code Ann. § P. 4{k)(l)(a) 8.01-328.1, and Virginia's long-arm statute, as all of Well Va. Fargo's claims arise out of conduct that occurred within the Commonwealth of Virginia. Also, 1332 this because Court has jurisdiction pursuant to 28 U.S.C. the matter in controversy exceeds $75,000 and § Plaintiff Wells Fargo and Defendant Old Republic are citizens of different states. FMI was owned, ("Taneja"). controlled and operated by Vijay Taneja According to its business plan, FMI originated home mortgages and then sold them to investors in the secondary mortgage market. In order to originate the a warehouse line of credit with various Under the typical warehouse lender advanced funds to FMI then sell sold, financial lender agreement, for a mortgage the loan to secondary investors. the warehouse line of loans, FMI maintained institutions. the warehouse loan, and FMI would Once the loan was credit was replenished with the loan sale proceeds. In 2004, FMI entered into a Loan Purchase Agreement with Wells Fargo Funding, Inc. ("WFFI") by which WFFI became one of the secondary market investors who purchased mortgage loans originated by FMI. The loans involved in this case were sold to WFFI pursuant to its Loan Purchase Agreement with FMI. The transactions giving rise to those loans were real estate refinancings and sales for which TitlePro, Khan, served as the settlement agent. and its agent Kamran In January 2007, TitlePro entered into an Agency Agreement whereby it became a policy issuing agent of Old Republic National Title Insurance Company ("Old Republic"). That Agency Agreement expressly stated that TitlePro did not have any authority to act as Old Republic's -2- agent for anything other than being a title agent. Agreement The Agency- stated: "Insurer appoints Agent a policy issuing agent for insurer for the purpose of signing, countersigning and issuing commitments, binders, title reports, certificates, guarantees, title insurance policies, endorsements, and other agreements under which Insurer assumes liability for the condition of title. . ." In addition, the Agency Agreements expressly provide that TitlePro was not an agent of Old Republic when it served as a settlement agent: "ESCROWS AND OTHER BUSINESS OF AGENT A. The relationship created by this Agreement does not extend to (1) any escrow, closing or settlement business (hereinafter referred to as "Escrow Business") conducted by Agent and/or Agent's Principal's, Subcontractors; (2) title reports, employees or opinions or certificates issued in the name of Agent or (3) to any other activity of Agent and/or Agent's Principals, employees or Subcontractors that does not involve the for the B. condition of Agent agrees not the Insurer's assumption of liability title. to receive nor receipt for any fund, including escrow funds, in the name of Insurer but, rather, shall receive and receipt for funds, including escrow funds, for its own account. Agent further agrees to maintain adequate records, as may be required by Insurer, as to any escrow and closing funds being handled by Agent in transactions in which Insurer's Title Insurance Forms are issued, and to keep all such funds properly segregated in trust or escrow account in a federally insured institution, or as otherwise required by state law." Wells Fargo did not have any communications with Old Republic before discovering the fraud. to purchase The funds that WFFI used the notes were not paid to TitlePro, into FMI's accounts. but were paid Old Republic did not receive any monies -3- from TitlePro based on TitlePro's services as a settlement agent. Taneja has been prosecuted for his role in these fraudulent transactions in this Court. No. 1:08CR00428-001 (E.D. See United States v. Va. 2008). Taneia. On November 13, Case 2008, Taneja signed a statement of facts along with his plea agreement in which he admitted that he alone executed a scheme to defraud Wells Fargo. He admitted that he carried out this scheme by- creating multiple unrecorded "first" FMI mortgages on the same piece of property that he owned or that was owned by others, without disclosing to Wells Fargo "first" mortgages and mortgages, Wells (ii) the existence of the other the failure to record any of the in violation of Fargo. (i) the terms of FMI's Taneja explained that he accomplished this in part by having legitimate FMI borrowers, closing, agreement with sign multiple sets of realizing that the multiple "original" "original" scheme at the time of loan documents, without loan documents that they signed were being used fraudulently for multiple loan sales. Wells Fargo's claims properties and seventeen properties involve notes relating to sixteen (17) is Summit Drive. notes. The first of these In this transaction, refinancing his home for $2,950,000. (16) Taneja was Pursuant to the HUD-l, a prior Deed of Trust in favor of BB&T Bank was to be paid off. TitlePro used the refinance loan proceeds Deed of Trust, and as a result, to pay off that prior that Deed of Trust was released -4- of record. TitlePro also cause the refinance Deed of Trust to be recorded among the land records. borrower, After the closing, Taneja, the signed numerous other $2,950,000 notes and deeds of trust and sold them to other secondary market including WFFI. None of those other notes or deeds of trust were in TitlePro's file. was a copy of investors, The only Deed of Trust in TitlePro's file the recorded Deed of Trust, TitlePro's fild matched the terms of and the only note in the recorded Deed of Trust. The note purchased by WFFI was not secured by the recorded Deed of Trust because the recorded Deed of Trust indicated that it secured a note which had an interest rate of and Deed of 6.375%. but the note Trust purchased by WFFI had an interest rate of Taneja has admitted that he defrauded Wells Fargo with respect to his Summit Drive property, own, 6.25%, not as a part of and that he did so on his any conspiracy with TitlePro. The next disputed transaction involves 25872 Poland Road. The was also a refinance transaction where the Maharajas obtained two loans from FMI; one for $613,600 and one Pursuant to the HUD-1 Settlement Statement for $115,050. for the $613,600 loan, TitlePro was to pay off two prior deeds of trust in favor of Bank of America. TitlePro did pay off those deeds of trust and they were released. The HUD-1 also indicated that TitlePro was to disburse over $365,000 to the Maharajas, and TitlePro did so. TitlePro also caused the deeds of trust securing the two notes to -5- be recorded. The Commitment transaction required, that TitlePro issued for this as a condition for issuing a title policy, that a Credit Line Deed of Trust securing $4,345,000 be paid and released of record. of This Deed of Trust was not paid off as part the Maharaja's refinance, closing funds, but because the borrowers were not borrowing enough money to pay off of not because TitlePro mishandled the this Deed of Trust. issuing a policy was not satisfied, impropriety on behalf of TitlePro. property was market The but An express condition it was not due to any impropriety with this that Taneja had again sold other notes to secondary investors. The next disputed transaction involves 15903 This was a refinance where TitlePro received the from the warehouse lender, to pay off loan proceeds and pursuant to the HUD-1 Statement, was property. The title Commitment transaction required, Carroll Avenue. two prior deeds of trust Settlement against the issued by TitlePro for this as a condition of issuing a title policy, that the two prior deeds of trust be paid and released of record and that the borrower's Deed of Trust be recorded. conditions These for the issuance of a policy were not satisfied because the two prior Deeds of Trust were not paid off and released of record, and the borrower's Deed of Trust was not recorded. 20251 Mohegan Drive is the next disputed transaction. -6- This was a refinance transaction where TitlePro received the loan proceeds was from the warehouse to pay off lender, the prior Deed of Fargo contends that TitlePro transaction. a policy, and pursuant to the HUD-l, Trust on the property. issued a Commitment That Commitment required, Wells for this as a condition of issuing that a prior Deed of Trust be paid and released of record and that the Borrower's Deed of Trust be recorded. The conditions for the issuance of a policy were not satisfied because the prior Deed of Trust was not paid and released of record and the borrower's Deed of Trust was not recorded. The next property involved in this dispute Way. is 2524 Hilda's This was a sale where TitlePro received the loan proceeds from the warehouse lender and, pursuant to the HUD-1, off two prior deeds of Wells Fargo contends that TitlePro trust. issued a Commitment for this transaction. required, as a condition of the policy, of Trust be paid and released of record, Deed of Trust be recorded. was to pay That Commitment that the two prior Deeds and that The conditions the borrower's for issuing a policy were not satisfied because the borrower's Deed of Trust was not recorded, of and the prior Deeds of Trust was not paid and released record. The next property involved in this dispute is 13997 Sawteeth Way. This was a sale where TitlePro received the from the warehouse lender, loan proceeds and pursuant to the HUD-1, -7- was to pay off two prior deeds of trust. required, TitlePro issued a Commitment that as a condition of issuing a policy, that the seller's Deed to the buyer and the buyer's Deed of Trust be recorded. Neither of these conditions for issuing a policy were satisfied. 2247 Christy Place is the next property. This was a refinance where TitlePro received the loan proceeds from the warehouse lender and, prior deeds of trust. pursuant to the HUD-1, was to pay off two Wells Fargo contends that TitlePro issued a Commitment for this transaction. a condition of issuing a policy, That Commitment required, that the two prior Deeds of Trust be paid and released of record, Deed of Trust be recorded. as and that the borrower's The conditions for issuing a policy were not satisfied because the two prior Deeds of Trust were not paid off and released of record and the borrower's Deed of Trust was not recorded. The next property is 3375 Oakham Mount Drive. refinance, This was a but Well Fargo's loan files did not contain a Commitment and Wells Fargo does not contend that TitlePro issued a Commitment for this transaction. 14763 Winding Loop is the next property. This was a refinance where TitlePro received the loan proceeds from the warehouse lender and, pursuant to the HUD-1, prior Deed of Trust. Wells Fargo's loan file included a partial Commitment which required, was to pay off a as a condition of issuing a policy, -8- that the prior Deed of Trust be paid and released of record. This condition of issuing a policy was not satisfied because the prior Deed of Trust was not paid and released of record. The next property involved in this dispute is Place. 12547 Armada TitlePro issued a Commitment for this transaction which required, as a condition of issuing a policy, of Trust be paid and released of record. that a prior Deed The condition for issuing a policy was not satisfied because the prior Deed of Trust was not paid and released of record. 9671 Janet Rose Court is the next property involved. This was a refinance where TitlePro received the loan proceeds from the warehouse lender and, prior Deed of Trust. paid off, pursuant to the HUD-1, was to pay off a Although the prior Deed of Trust was not Wells Fargo's loan file did not contain a Commitment, and Wells Fargo does not content that TitlePro issued a commitment for this transaction. Next is 344 6 Caledonia Circle. for this refinance which required, policy, record. TitlePro issued a Commitment as a condition for issuing a that a prior Deed of Trust be paid and released of This condition for issuing a policy was not satisfied because the Deed of Trust was not paid and released of record. 2827 Wakewater Way is the next property involved. a refinance where TitlePro received the loan proceeds warehouse lender, and pursuant to the HUD-1, -9- was This was from the to pay off a prior Deed of Trust. paid off, Although the prior Deed of Trust was not Wells Fargo's loan file did not contain a Commitment and Wells Fargo does not contend that TitlePro issued a commitment for this transaction. The next property involved in this dispute is 17588 Victoria Falls Drive. This was a refinance where TitlePro received the loan proceeds from the warehouse lender, 1, was to pay off a prior Deed of Trust. and pursuant to the HUDAlthough Wells Fargo's file did not include a Commitment for the transaction, Wells Fargo contends that TitlePro did issue a Commitment. Even if the Commitment was issued, as a that Commitment would require, condition of issuing a policy, that two prior Deeds of Trust be paid and released of record and that the new Deed of Trust be recorded. These conditions of issuing a policy were not satisfied because the prior deeds of trust were not released, and the new Deed of Trust was not recorded. 7918 Edinburgh Drive is the next property involved in this dispute. proceeds This was a refinance where TitlePro received the loan from the warehouse lender, and pursuant to the HUD-1, was to pay off a prior Deed of Trust. TitlePro issued a Commitment for this transaction that required, issuing a policy, as a condition of that the prior Deed of Trust be paid and released or record. The condition of issuing a policy was not satisfied because the prior Deed of Trust was not release of -10- record. The next property involved is 15009 Lutz Court. This was a refinance where TitlePro received the loan proceeds from the warehouse lender and, pursuant to the HUD-1, prior Deed of Trust. TitlePro issued a Commitment for this transaction that required, was to pay off a as a condition of issuing a policy, that the prior Deed of Trust be paid and released of record. The condition of issuing a policy was not satisfied because the prior Deed of Trust was not Wells released of record. Fargo claims that Defendant Old Republic appointed TitlePro and Khan as its settlement agents in Virginia. Plaintiff further alleges that throughout 2007 and 2008, Khan conspired with Taneja to conduct a series of fraudulent loan transactions that created millions of dollars of worthless mortgage notes that Taneja sold in the secondary market including notes that Wells Fargo purchased. It is undisputed that Taneja originated loans for real estate purchases and refinances. Khan created HUD-1 settlement statements that misrepresented that the proceeds from those loans would be applied to pay off prior liens on the properties at issue. Instead, Khan sent the escrow proceeds to Taneja, used the money for his own purposes. Khan also notarized the forged signatures of borrowers on deeds promissory notes. who of trust and on Wells Fargo claims that as a result of Khan's -11- actions, Wells Fargo purchased seventeen unsecured and worthless. (17) Taneja is currently serving a seven year sentence after pleading guilty to his apparently has notes that are crimes. Khan fled the country. Plaintiff Wells Fargo is seeking partial summary judgment with regard to twelve (12) of the seventeen It contends that Defendant Old Republic (17) loans at issue. is responsible for the frauds and statutory violations committed by Khan and TitlePro. Plaintiff claims that Defendant is liable under four theories. First, Virginia's Consumer Real Estate Protection Act which makes title insurers liable for the actions of their insurance agents. Second, Plaintiff claims that Khan used the actual authority that Old Republic granted to him to further his fraudulent activities by "cloaking the sham transactions in a veil of legitimacy." Plaintiff claims that it would not have purchased the notes at issue if Khan had not represented that title insurance had been purchased. Third, Plaintiff alleges that Khan was acting within the scope of his apparent authority when he carried out these fraudulent transactions since Defendant had made representations to the public that implied that one of Defendant's agents would handle settlement activities. Fourth, Defendant negligently or recklessly made Khan its -12- agent. This claim is based on the "numerous red flags" Republic purportedly ignored when it hired Khan. claims that had Defendant been more careful, not have that Old Plaintiff its injuries would occurred. Defendant Old Republic moves the court for summary judgment on all counts of the Complaint. Defendant claims that the undisputed material facts show that Khan and TitlePro was not Defendant's settlement agent and, arguments as such, many of Plaintiff's fail. Further, Defendant claims that since it made no representations to Plaintiff before the disputed transactions, and Plaintiff makes no direct claim of reliance on any action of Defendant that any claim of apparent authority must also fail. Defendant argues that the Consumer Real Estate Protection Act does not apply to settlement activities, so any misdeeds that TitlePro and Khan undertook as a settlement agent do not apply to that statute. Finally, Defendant claims that it did not act negligently in hiring Khan. Now, both parties Pursuant to Rule 56(c), filed motions for summary judgment. this Court must grant summary judgment if the moving party demonstrates "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." motion for summary judgment, Fed.R.Civ.P. 56(c). In reviewing a this Court views the facts in a -13- light most favorable Liberty Lobby. to Inc., the non-moving party. 477 U.S. 242, 255 (1986). Once a motion for summary judgment supported, the opposing party then has a genuine dispute as Elec. Ltd. Indus. 586-87 Co., (1986). to any material v. is properly made and the fact Zenith Radio The mere existence of Anderson v. burden of does Corp.. showing that exist. 475 U.S. Matsushita 574, some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; there be no genuine at 248. "Rule issue of material 56 (e) requires the pleadings and by 'depositions, answers file,' issue designate [its] requirement fact. Anderson, is that 477 U.S. the nonmoving party to go beyond own affidavits, to interrogatories, 'specific for trial.'" the facts or by the and admissions on showing that there Celotex Corp. v. Catrett. Plaintiff's case is a genuine 477 U.S. 317, 324 (1986) . The lynchpin of TitlePro and Khan as settlement agents of Defendant. bases this agency argument on its Real Estate Settlement argues that accountable activities. is based on construing interpretation of the Consumer Protection Act CRESPA requires that title for their title agents' Plaintiff's Plaintiff ("CRESPA"). insurers will be held settlement and escrow argument attempts to use broaden the express agency relationship that -14- Plaintiff CRESPA to existed between TitlePro and Defendant Old Republic. This argument fails. CRESPA does not mandate that a title agent becomes a settlement agent by virtue of selling, soliciting or negotiating insurance. CRESPA merely authorizes licensed Virginia attorneys, insurance companies and agents, institutions real estate brokers and financial (or a subsidiary or affiliate thereof), Settlement Agents and provide "escrow, services" title to serve as closing or settlement if they register with their respective licensing authority and meet other conditions of their regulatory agencies. See Va. Code §§ 6.1-2.19 through 2.29. TitlePro and Khan were Defendant's title insurance agents. The agency agreement between TitlePro and Khan expressly provides that TitlePro did not have the authority to act as a settlement agent on behalf of Old Republic. Any closing services that TitlePro and its agents performed was carried out for TitlePro itself. Plaintiff argues that the closing protection letters evince an agency relationship for closing purposes. argument ignores the This fact that the use of a closing protection letter confirms that the settlement agent is not an agent of the title company because a closing protection letter is issued precisely because a title insurer is not liable for the actions of its title insurance agent. Plaintiff also attempts to argue a claim against Defendant under a theory of apparent authority. -15- This argument also fails. Plaintiff does not offer any evidence that Plaintiff had anycontact with Defendant or otherwise relied on any representation made by Defendant. apparent Virginia law holds that a claim based on agency must be based on the actions of the alleged principal, Defendant, not on the actions of the alleged agent, TitlePro. See, Kern v. 682, 685 e.g.. (1983). Further, Barksdale Furniture Corp.. 224 Va. one who deals with an agent does so at his own peril and has the obligation of ascertaining the agent's authority. party must Id. In order to establish apparent authority, show that a it reasonably relied on the principal's conduct or statements which created the apparent authority. Nolde Bros, v. Chalkley. 184 Va. 553, 567 (1945). Plaintiff has failed to show reliance on any action or statement of Defendant which could have created any apparent authority for TitlePro to act as a settlement agent because Plaintiff did not have any communication with Defendant before the transactions at issue. Further, Plaintiff has admitted that it did not undertake any investigation of TitlePro. Plaintiff's conspiracy counts are based on the theory that TitlePro was Defendant's settlement agent. not Defendant settlement agent, Since TitlePro was this argument also fails. Plaintiff's negligence claim also fails. shown no common law duty of reasonable care Plaintiff has that is owed by either a settlement agent or a title agent to a secondary market -16- purchaser. In Virginia, it no breach or violation of safety of 789, 793 (1967). legal duty to take losses because it Bartlett v. care there Trust, but the notes were worthless. Rather, that Inc.. 207 involve harm to Plaintiff the notes were not. loss is can be no it believed were This type of there for the Roberts Recapping, its property. acquired notes lien Deeds of another, "where Plaintiff's claim does not a person or damage to first a established that the person or property of actionable negligence." Va. is suffered secured by As a result, is not protected by a common law duty that would support a claim for negligence. Plaintiff also brings claims for breach of contract based on title commitments and closing protection letters which were issued to FMI, the original transactions. These breach of contract claims were assigned to Plaintiff from FMI and, as lender in these disputed such, Plaintiff takes these contracts subject to all the claims that could be raised against the assignor even if value, v. bona fide, Williams. Baqby. Inc. "the assignee has taken the assignment for and without notice of 108 Va. v. 542, 549-50 Pierce Arrow. the equities...." (1908); LLC. III. see also Pollard & 258 Va. 524, ("[A]n assignee of a contract obtains his rights assignor and, acquires the thus, xstands in the shoes' same rights and original party to the liabilities contract."). -17- Seldon 528 (1999) from the of the assignor and as if he had been an FMI was a central actor in the fraudulent acetifies surrounding these disputed transactions. The scheme that FMI engaged in was to misappropriate money that was intended by Plaintiff to pay off the prior deeds of trust. This fraudulent activity would certainly bar FMI from bringing a claim against Defendant for breach of contract and likewise bars Plaintiff, as the assignee of FMI, from bringing the same claim against Defendant. Plaintiff's Wet Settlement Act claim also fails. Settlement Act applies to settlement agents. The Wet The duties enforced by the statute, such as the duties to record new deeds and disburse funds, are imposed upon settlement agents. §§ 6.1-2.13 and 2.15. TitlePro was not See Va. Code an agent of Old Republic when TitlePro served as a settlement agent. Thus, Old Republic is not liable for any violation of the Wet Settlement Act that TitlePro committed. For these reasons should be denied, Plaintiff's Motion for Summary Judgment Defendant's Motion for Summary Judgment granted and this case dismissed. An appropriate order shall issue. /s/ Claude M. Hilton United States District Judge Alexandria, Virginia -18- December /'f , 2009 -19-
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