Regions Bank v. Commonwealth Land Title Insurance Company, No. 1:2011cv23257 - Document 289 (S.D. Fla. 2013)

Court Description: ORDER denying 219 & 225 cross motions for summary judgment; denying 250 motion to strike. Signed by Judge Robert N. Scola, Jr. on 6/26/2013. (rss)

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Regions Bank v. Commonwealth Land Title Insurance Company Doc. 289 U N ITED STATES D ISTRICT COU RT SOU TH ERN D ISTRICT OF FLORID A Cas e N o . 11-2 3 2 57-Civ-SCOLA REGIONS BANK, Plaintiff, vs. COMMONWEALTH LAND TITLE INSURANCE CO., Defendant. _____________________________/ ORD ER D EN YIN G CROSS MOTION S FOR SU MMARY JU D GMEN T This is an insurance-coverage-dispute case. On J une 25, 20 13, the Court held a hearing on the parties’ cross m otions for sum m ary judgm ent. The parties, through their counsel, have both done an excellent job of m arshaling the evidence and presenting their argum ents. They have done such a good job, however, that they have created a bounty of genuine issues of m aterial fact. Given these factual disputes, sum m ary judgm ent is not warranted for either side. See Great Am . Assur. Co. v. Sanchuk, LLC, No. 10 -2568 , 20 12 WL 31120 0 4, at *7-8 (M.D. Fla. J uly 30 , 20 12) (finding that genuine issues of m aterial facts precluded sum m ary judgm ent on a reform ation claim ); accord Noack v. Blue Cross & Blue Shield of Fla., 859 So. 2d 60 8, 611 (Fla. 1st DCA 20 0 3). Backgro u n d 1 This case involves a plan to develop residential housing on a track of land in Fort Myers, Florida. The initial plan was for Prim e Enterprises, LLC to purchase the property, for approxim ately $ 36 m illion, with m oney loaned by Regions Bank. Regions Bank would receive a m ortgage on the property securing the loan. For som e reason, Prim e Enterprises, LLC was not able to close on the property by the designated date so Prim e Hom ebuilders, Inc. stepped in and loaned Prim e Enterprises, LLC the purchase m oney until the Regions Bank loan could be finalized, in order to prevent the deal from falling through. The developm ent of the land was initially lim ited to 432 residential units, pursuant to a 20 0 4 covenant that ran with the land. The developer of the property was Paul H. Freem an. Freem an had the right to add additional residential units, thereby increasing the total num ber of residential units that could be built on the land and sold. In 20 0 5, Freem an sold the right to build an additional 392 residential units on the land to Prim e Hom es, Inc. This sale was 1 The facts in this background are prim arily taken from the parties’ statem ent of uncontested facts presented in their J oint Pretrial Stipulation (ECF No. 283). Dockets.Justia.com m em orialized in a docum ent titled Purchase and Sale Contract for Density Units (“Density Agreem ent”). The Density Agreem ent was not recorded, by design, but it required that a Mem orandum reflecting its existence be recorded. The Density Agreem ent stated that the Mem orandum would serve as a lien against the Property, and that the lien would be prior to any m ortgage or other lien against the Property. On February 14, 20 0 6, Regions Bank’s Executive Credit Com m ittee approved an acquisition, developm ent and construction loan for $ 36,30 0 ,0 0 0 to Prim e Enterprises, LLC. This loan was to be secured by, am ong other things, a m ortgage on the property and a collateral assignm ent to Regions Bank of the Density Agreem ent. On February 21, 20 0 6, Regions issued a com m itm ent letter on the proposed $ 36.3 m illion loan to the attention of Larry Abbo, who is a principal of the Prim e Entities. On March 16, 20 0 6, Prim e Enterprises, LLC delivered to Prim e Hom ebuilders, Inc. two prom issory notes totaling $ 36,30 0 ,0 0 0 , secured by a m ortgage encum bering the Property. Steven B. Greenfield, who the policy-issuing agent for Com m onwealth and legal counsel for the Prime Entities and Abbo, recorded the Prim e Enterprises, LLC/ Prim e Hom ebuilders, Inc. Mortgage on March 17, 20 0 6. Com m onwealth issued a title insurance policy, effective March 17, 20 0 6, to Prim e Hom ebuilders, Inc. as the nam ed insured. On March 30 , 20 0 6, Prim e Hom es at Portofino Vineyards, Ltd., one of the Prim e Entities, and Freem an executed a Mem orandum m em orializing the existence of the Density Agreem ent (as contem plated by the Density Agreem ent). That Mem orandum was recorded by Greenfield on March 31, 20 0 6. Also on March 30 , 20 0 6, Prim e Hom es at Portofino Vineyards, Ltd. and Prim e Hom ebuilders, Inc. executed an agreem ent to subordinate the m ortgage held by Prim e Hom ebuilders, Inc. to the lien created by the Density Agreem ent Mem orandum . That Subordination Agreem ent was recorded by Greenfield on April 6, 20 0 6. On that sam e day, March 30 , 20 0 6, Regions closed on the $ 36.3 m illion loan. Prim e Hom ebuilders, Inc. assigned the Mortgage and the two prom issory notes to Regions Bank. Greenfield recorded this assignm ent on April 12, 20 0 6. Also on March 30 , 20 0 6, Prim e Hom es at Portofino Vineyards, Ltd. assigned its interest in the Density Agreem ent (i.e., Prim e’s right to utilize Freem an’s extra density) to Regions Bank. In J uly 20 0 8, at the request of Steven Goldm an, Esq., then counsel to Regions Bank, Greenfield issued Endorsem ent 5 to the title insurance policy, with an effective date of April 28, 20 0 6. Endorsem ent 5 reads that the following docum ents were subordinate to Regions Bank’s m ortgage: (1) the Density Agreem ent Mem orandum , (2) the Subordination Agreem ent, and (3) the Consent and Recognition Agreem ent (an agreem ent between Prim e Enterprises, LLC, Prim e Hom es at Portofino Vineyards, Ltd., Regions Bank, and Freem an that basically recognized the existence of Density Agreem ent). Unfortunately, the project was not successful and in 20 10 Regions Bank notified Com m onwealth of its intent to foreclose on the property. That foreclosure action, which is pending in Florida state court, has pitted Regions Bank against Freem an in a dispute over whose interest is superior. Regions Bank asked Com m onwealth to defend and indem nify it, pursuant to the title insurance policy, since Freem an was claim ing a superior interest in the property. Com m onwealth refused. According to Com m onwealth, it was always understood, and was the intent of the parties, that Freem an’s lien would be superior to Regions Bank’s m ortgage. Regions Bank counters that it never agreed to Freem an’s lien being superior and clearly purchased title insurance to cover its first-priority m ortgage. Regions Bank filed this suit alleging that Com m onwealth breached its insurance contract by failing to defend and indem nify Regions Bank in the state-court, foreclosure action. Regions Bank also seeks a declaratory judgm ent that Com m onwealth has a duty to defend and indem nify it against Freem an’s claim s. Com m onwealth has countersued, seeking to reform Endorsem ent 5. According to Com m onwealth, based upon the parties agreem ent Endorsem ent 5 should have read that the title insurance policy does not insure against loss or dam age by reason of Freem an’s interest. Com m onwealth explains that it was a scrivener’s error that Endorsem ent 5 actually reads the opposite of that agreem ent. Com m onwealth also seeks a declaratory judgm ent that insurance coverage for Freem an’s claim s is excluded under term s of the title insurance policy. Both parties have filed m otions for sum m ary judgm ent. Because there are genuine issues of m aterial fact, sum m ary judgm ents m ust be denied. LEGAL S TAN D ARD S Under Federal Rule of Civil Procedure 56, “sum m ary judgm ent is appropriate where there ‘is no genuine issue as to any m aterial fact’ and the m oving party is ‘entitled to a judgm ent as a m atter of law.’” Alabam a v. N orth Carolina, 130 S. Ct. 2295, 230 8 (20 10 ) (quoting Fed. R. Civ. P. 56(a)). The Court m ust view the evidence in the light m ost favorable to the nonm oving party, and sum m ary judgm ent is inappropriate where a genuine issue m aterial fact rem ains. Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59 (1970 ). “An issue of fact is ‘m aterial’ if, under the applicable substantive law, it m ight affect the outcom e of the case.” Hickson Corp. v. N. Crossarm Co., 357 F.3d 1256, 1259-60 (11th Cir.20 0 4). “An issue of fact is ‘genuine’ if the record taken as a whole could lead a rational trier of fact to find for the nonm oving party.” Id. at 1260 . A court m ay not weigh conflicting evidence to resolve disputed factual issues; if a genuine dispute is found, sum m ary judgm ent m ust be denied. Skop v. City of Atlanta, Ga., 485 F.3d 1130 , 1140 (11th Cir. 20 0 7). A N ALYSIS As evidenced by the parties’ lengthy sum m ary-judgm ent briefing and m eticulously cited statem ents of facts, genuine issues of m aterial fact abound at every turn. Still, a few m inor points of law can be addressed through this Order that will provide som e guidance to the parties in preparing for trial. 1. Should Com m onwealth’s Reform ation Claim Be Addressed Before The Question of Com m onwealth’s Duty to Defend? Regions Bank argues that, as a m atter law, the question of whether Com m onwealth owes a duty to defend should be determ ined before Com m onwealth’s reform ation claim is addressed. Com m onwealth disagrees. While the parties have cited to contradictory case law, no controlling precedent has been presented to the Court. The Court believes the better practice is to decide the reform ation claim first, before delving into the coverage determ ination. Recently, the Fifth Circuit Court of Appeals addressed this precise issue. In Technical Autom ation Services, Corp. v. Liberty Surplus Insurance, Corp., 673 F.3d 399, 40 9 (5th Cir. 20 12) the court held that where there was a genuine issue about a m aterial fact as to whether an insurance policy endorsem ent should be reform ed based upon a m utual m istake, a trial court m ust consider the reform ation claim before considering the insurer’s duty to defend. This rationale m akes sense. A reform ation claim is predicated upon the parties’ m utual m istake. BrandsMart U.S.A. of W . Palm Beach, Inc. v. DR Lakes, Inc., 90 1 So. 2d 10 0 4, 10 0 5 (Fla. 5th DCA 20 0 5). A reform ation claim in no way seeks to interpret or change the agreem ent of the parties; the goal of a reform ation is to correct (i.e., reform ) a contract “so that it accurately reflects the true term s of the agreem ent actually reached.” Goodall v. W hispering W oods Ctr., L.L.C., 990 So. 2d 695, 699 (Fla. 4th DCA 20 0 8). It appears that Florida courts have followed this order in the past. See, e.g., Boston Old Colony Ins. Co. v. Popple, 30 5 So. 2d 877, 878 (Fla. 1st DCA 1974) (addressing reform ation question before coverage question). It naturally follows that in order to accurately decide a party’s obligations under a contract a court should begin by analyzing the parties’ actual agreem ent, as reform ed, so as to not be m isled by a m utual m istake. Given the facts of this case, specifically the language of Endorsem ent 5 (which Com m onwealth seeks to reform ), it would be a waste of resources to have the Court decide the coverage question, then go back and entertain the reform ation claim because if the reform ation claim is successful, the Court would again be faced with re-evaluating coverage under the reform ed contract. For these reasons, the reform ation claim will be addressed prior to the determ ination of Com m onwealth’s duty to defend. 2. What Evidence Will Be Adm issible For Com m onwealth To Establish Its Reform ation Claim ? Com m onwealth’s reform ation claim is a hotly contested factual question. Com m onwealth cites to a body of evidence to support its assertions that Regions Bank was aware that Freem an’s lien would be superior, and knowingly accepted an inferior m ortgage lien as a strategic business decision. (Com m onwealth Mot. Sum m . J . 1-19, ECF No. 255.) Regions Bank counters with evidence of its own, dem onstrating that Regions Bank did not accede to the superiority of Freem an’s lien, and that it negotiated, and paid for a title policy that insured its loan as a first m ortgage. (Regions Bank Mot. Sum m . J . 3-8 , 18-31, ECF No. 219.) Regions Bank argues that parol evidence is not adm issible to establish a reform ation claim . But that is not the law. See Providence Square Ass’n, Inc. v. Biancardi, 50 7 So. 2d 1366, 1371 (Fla. 1987) (“In a reform ation action . . . parol evidence is adm issible for the purpose of dem onstrating that the true intent of the parties was som ething other than that expressed in the written instrum ent.”). Accordingly, this Court will consider parol evidence in evaluating the reform ation claim . 3. Which Set Of Pleadings Will Inform The Court’s Analysis as To Whether Com m onwealth Has a Duty To Defend Regions Bank In The Foreclosure Action? Under Florida law, an insurance com pany’s duty to defend is determ ined, as a m atter of law, through a com parison of the insurance policy and the allegations in the operative pleading against the insured. See Trailer Bridge, Inc. v. Ill. N at. Ins. Co., 657 F.3d 1135, 1141-42 (11th Cir. 20 11). In this case, the reform ation claim (with its accom panying disputed facts) m ust be resolved before the Court can address the duty-to-defend question. The parties’ disagree on which set of pleadings will inform the Court’s duty-to-defend evaluation. Regions Bank argues that Freem an’s initial pleadings and claim s give rise to coverage, and that once the duty to defend arises it continues throughout the case. (Regions Mot. Sum m . J . 25, ECF No. 241.) Com m onwealth asserts that coverage is determ ined from evaluating only the m ost recent pleading – which in this case appears to be Freem an’s Am ended Answer, Affirm ative Defenses and Second Am ended Counterclaim / Crossclaim , filed on Novem ber 8, 20 11. Under Florida law, “[o]nce the insurer’s duty to defend arises, it continues throughout the case unless it is m ade to appear by the pleadings that the claim s giving rise to coverage have been elim inated from the suit.” Baron Oil Co. v. Nationw ide Mut. Fire Ins. Co., 470 So. 2d 810 , 815 (Fla. 1st DCA 1985). But, “where an am ended com plaint alleges facts that clearly bring the entire cause of action within a policy exclusion, and the am ended com plaint contains no additional counts or causes of action which show coverage, the allegations in the am ended com plaint control and the insurer’s duty to defend com es to an end.” Id. Accordingly, following the determ ination of the reform ation claim , if necessary, the Court will look to Freem an’s operative pleading to evaluate Com m onwealth’s duty to defend. 4. Does The Statute Of Lim itations Bar Com m onwealth’s Reform ation Claim ? Regions Bank raises the five-year statute of lim itations as an affirm ative defense to Com m onwealth’s reform ation claim . According to Regions Bank, the clock began to run on the reform ation claim when the title insurance policy was initially issued in August 20 0 6 (thus the statute of lim itations expired in August 20 11). This argum ent fails because the written instrum ent that Com m onwealth’s reform ation claim is seeking to reform is a policy endorsem ent (Endorsem ent 5) that was not issued until 20 0 8 . Thus the statute of lim itations had not run when Com m onwealth brought its claim in October 20 12. The parties rem aining affirm ative defenses have either been resolved through this Order, or are tangled up within the web of disputed factual issues that will be resolved at trial. CON CLU SION The parties’ declaratory judgm ent claim s – seeking a determ ination as to whether title insurance coverage exists to require Com m onwealth to defend and indem nify Regions Bank in the underlying state court, foreclosure action – m ust await resolution of Com m onwealth’s claim for reform ation of Endorsem ent 5. The Court will hear evidence on the reform ation claim at the upcom ing bench trial. After the reform ation question has been decided, the Court will issue its ruling on the coverage question, which will be determ ined as a m atter of law. Because of the num erous genuine issues of m aterial facts in this m atter, and for the reasons explained above, it is ORD ERED that the parties’ cross m otions for sum m ary judgm ent (ECF Nos. 219 & 225) are D EN IED . Relatedly, Regions Bank’s Motion to Strike Com m onwealth’s Reply to Regions Bank’s Response to Com m onwealth’s Statem ent of Material Facts (ECF No. 250 ) is D EN IED . D ON E an d ORD ERED in cham bers at Miam i, Florida on J une 26, 20 13. _____________________________ ROBERT N . SCOLA, JR. U N ITED STATES D ISTRICT J U D GE

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