First American Title Insurance Company v. Citizens Bank , 466 S.W.3d 776 ( 2015 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
November 20, 2014 Session
FIRST AMERICAN TITLE INSURANCE COMPANY
v. CITIZENS BANK
Appeal from the Chancery Court for Sevier County
No. 13-6-185 Telford E. Forgety, Jr., Chancellor
No. E2014-01105-COA-R3-CV-FILED-FEBRUARY 25, 2015
First American Title Insurance Company (“First American”) sued Citizens Bank seeking a
declaratory judgment holding that First American had no liability to Citizens Bank for two
specific transactions involving loan closings on real property located in Sevierville,
Tennessee. First American filed a motion for summary judgment. After a hearing, the
Chancery Court for Sevier County (“the Trial Court”) granted First American summary
judgment and dismissed Citizens Bank’s counterclaim. Citizens Bank appeals to this Court
raising issues regarding whether the Trial Court erred in finding that by assigning the
mortgages and deeds of trust Citizens Bank also had assigned the two closing protection
letters related to these specific transactions, and also that Citizens Bank’s counterclaim was
barred because Citizens Bank failed to give First American timely notice of the settlement
between Citizens Bank and the assignee of the mortgages.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
Case Remanded
D. M ICHAEL S WINEY, J., delivered the opinion of the Court, in which J OHN W. M CC LARTY
and T HOMAS R. F RIERSON, II, JJ., joined.
Arthur G. Seymour, Jr. and James E. Wagner, Knoxville, Tennessee, for the appellant,
Citizens Bank.
M. Edward Owens, Jr., Knoxville, Tennessee, for the appellee, First American Title
Insurance Company.
OPINION
Background
In 2005, in connection with two1 specific loan closing transactions involving
real property located in Sevierville, Tennessee, First American2 issued closing protection
letters (“CPLs”) to Citizens Bank. In pertinent part, the CPLs, which were addressed to
Citizens Bank, provide:
When title insurance of First American Title Insurance Company (the
“Company”) is specified for your protection in connection with closings of real
estate transactions in which you are to be the lender secured by a mortgage
(including any other security instrument) of an interest in land, the Company,
subject to the Conditions and Exclusions set forth below, hereby agrees to
reimburse you for actual loss incurred by you in connection with such closings
when conducted by said Issuing Agent (an agent authorized to issue title
insurance for the Company) or said Approved Attorney (an attorney upon
whose certification of title the Company issues title insurance) and when such
loss arises out of:
1. Failure of said Issuing Agent or Approved Attorney to comply with
your written closing instructions to the extent that they relate to (a) the
status of the title to said interest in land or the validity, enforceability
and priority of the lien of said mortgage on said interest in land,
including the obtaining of documents and the disbursement of funds
necessary to establish such status of title or lien, or (b) the obtaining of
any other document, specifically required by you, but not to the extent
that said instructions require a determination of the validity,
enforceability or effectiveness of such other document, or (c) the
collection and payment of funds due you, or
2. Fraud or dishonesty of said Issuing Agent or Approved Attorney in
handling your funds or documents in connection with such closings.
1
For purposes of this appeal there are no important differences between the two transactions at issue,
and specifically, the CPLs are, in pertinent part, identical. As such, we need not differentiate between the
two transactions and will discuss them in this Opinion collectively.
2
First American issued title insurance policies with regard to the loans.
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Your borrower in connection with a loan secured by a mortgage on a
one-to-four family dwelling shall be protected as if this letter were
addressed to your borrower.
Conditions and Exclusions
***
B. If the closing is to be conducted by said Issuing Agent or Approved
Attorney, a title insurance binder or commitment for the issuance of a policy
of title insurance of the Company must have been issued prior to such closing,
or this Company must be designated in writing (i) in your final closing
instructions or (ii) in a communication delivered to you by said Issuing Agent
or Approved Attorney, as the company from which title insurance is to be
received. The designation referred to in clause (i) of the proceeding sentence
shall be negated in the event said Issuing Agent or Approved Attorney advises
you in writing that he has selected a title insurer other than the Company.
C. When the Company shall have reimbursed you pursuant to this letter, it
shall be subrogated to all rights and remedies which you would have had
against any person or property had you not been so reimbursed. Liability of
the Company for such reimbursement shall be reduced to the extent that you
have knowingly and voluntarily impaired the value of such right of
subrogation.
D. Any liability of the Company for loss incurred by you in connection with
closings of real estate transactions by said Issuing Agent or Approved Attorney
shall be limited to the protection provided by this letter. However, this letter
shall not affect the protection afforded by a title insurance binder, commitment
or policy of the Company.
E. Claims shall be made promptly to the Company at its principal office at
One First American Way, Santa Ana, California 92701. When the failure to
give prompt notice shall prejudice the Company, then liability of the Company
hereunder shall be reduced to the extent of such prejudice.
The protection herein offered will continue until cancelled by written notice
from the Company.
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Citizens Bank assigned the loans to SunTrust. In connection with the
assignment of the loans, Citizens Bank and SunTrust entered into a Correspondent Loan
Purchase Agreement, which provides, in pertinent part:
This Correspondent Loan Purchase Agreement (together with all
exhibits hereto, the “Agreement”) is made and entered into effective as of May
6, 2005 (the “Effective Date”) by and between SunTrust Mortgage, Inc.
(“Purchaser”), a Virginia corporation with its principal office at 901 Semmes
Avenue, Richmond, Virginia 23224, and Citizens Bank (“Seller”), a Tennessee
corporation with its principal office at 1305 Broad Street, New Tazewell, TN
37825, with reference to the following facts:
A. Seller desires to sell to Purchaser on a servicing related basis certain
residential Mortgage Loans (as defined below) as set forth in the Manual (as
defined below), and Purchaser wishes to purchase such Mortgage Loans.
B. Purchaser and Seller desire to set forth in this Agreement the terms and
conditions under which Mortgage Loans will be sold by Seller to Purchaser.
In consideration of the mutual promises and covenants contained
herein, Purchaser and Seller agree as follows:
***
2.34. “Mortgage Loan” means any eligible residential real property secured
loan product as set forth in the Manual and meeting all the requirements of this
Agreement. The term Mortgage Loan encompasses all of Seller’s right, title
and interest in and to the Mortgage Loan, including, without limitation, the
servicing rights, all Escrows, the Note, the Mortgage, all applicable insurance
policies, and all other documentation and information collected by Seller in
connection with the Mortgage Loan.
After the loans were assigned to SunTrust, the borrowers defaulted, and SunTrust foreclosed
on the respective properties in 2007. The properties eventually were sold to third parties, but
SunTrust claimed losses.
In 2012, almost five years after the foreclosures and almost four years after the
properties had been sold to third parties, SunTrust sued Citizens Bank in federal district court
in Virginia seeking reimbursement for its alleged losses. Citizens Bank and SunTrust entered
into a settlement agreement resolving SunTrust’s claim against Citizens Bank with respect
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to the two mortgage loans involved in this suit. Not until March of 2013, after reaching the
settlement with SunTrust, did Citizens Bank notify First American of its purported claim
against First American under the title insurance policies and the CPLs for losses Citizens
Bank suffered in connection with its settlement with SunTrust.
First American filed the instant suit in June of 2013 seeking a declaration that
it had no liability to Citizens Bank with regard to these two specific transactions. Citizens
Bank counterclaimed alleging, in pertinent part:
That the [alleged] losses on [the loans at issue] were due to
misrepresentations, negligence, dishonesty and/or fraud by [First American’s
agent] and/or its owners, employers or agents. [First American’s agent]
engaged in a fraudulent scheme wherein borrowers were induced to obtain
mortgage loans in their names based on promises that they would not have to
make a down payment or mortgage payments for the property, would receive
cash at closing, and would share in the profit following a resale of the
property. As part of the conspiracy, materially false representations were made
to Citizens Bank, which, among other things, included false representations
related to the straw borrowers’ source of funds for down payments and
amounts recorded as “cash from borrower” on HUD-1 Settlement Statements
and loan applications, for the purpose of inducing Citizens Bank to disburse
the mortgage loan proceeds it had wired to and entrusted with [First
American’s agent].
First American filed a motion for summary judgment. After a hearing, the
Trial Court entered its order on May 20, 2014 granting First American summary judgment
and dismissing Citizens Bank’s counterclaim after finding and holding, inter alia, that the
CPLs could not be separated from the respective mortgage title insurance policies and,
therefore, the CPLs were assigned by Citizens Bank to SunTrust when Citizens Bank
assigned the mortgages, and further that Citizens Bank had failed to give First American
notice of the suit between SunTrust and Citizens Bank until after that suit had been settled,
denying First American the opportunity to assert any defense it may have had. Citizens Bank
appeals to this Court.
Discussion
Although not stated exactly as such, Citizens Bank raises two issues on appeal:
1) whether the Trial Court erred in finding and holding that when assigning the mortgages
and deeds of trust, Citizens Bank also had assigned the CPLs; and, 2) whether the Trial Court
erred in finding and holding that Citizens Bank’s counterclaim was barred because Citizens
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Bank had failed to give First American prompt notice of SunTrust’s claim against Citizens
Bank and of the settlement between Citizens Bank and SunTrust.
With regard to summary judgments, this Court explained in Estate of Boote v.
Roberts:
The trial court’s resolution of a motion for summary judgment is a
conclusion of law, which we review de novo on appeal, according no
deference to the trial court’s decision. Martin v. Norfolk S. Ry. Co., 271
S.W.3d 76, 84 (Tenn. 2008). Summary judgment is appropriate only when the
moving party can demonstrate that there is no genuine issue of material fact,
and that it is entitled to judgment as a matter of law. Tenn. R. Civ. P. 56.04;
see Hannan v. Alltel Publ’g Co., 270 S.W.3d 1, 5 (Tenn. 2008); Byrd v. Hall,
847 S.W.2d 208, 214 (Tenn. 1993).
This action was filed [after July 1, 2011]. Therefore, the trial court was
required to apply the summary-judgment standard set forth in Tennessee Code
Annotated § 20-16-101.3 That statute provides:
In motions for summary judgment in any civil action in
Tennessee, the moving party who does not bear the burden of
proof at trial shall prevail on its motion for summary judgment
if it:
(1) Submits affirmative evidence that
negates an essential element of the nonmoving
party’s claim; or
(2) Demonstrates to the court that the
nonmoving party’s evidence is insufficient to
establish an essential element of the nonmoving
party’s claim.
Tenn. Code Ann. § 20-16-101 (Supp. 2012).4
3
Section 20-16-101 is applicable to all cases filed on or after July 1, 2011.
4
Section 20-16-101 was enacted to abrogate the summary-judgment standard set forth in Hannan,
which permitted a trial court to grant summary judgment only if the moving party could either (1)
affirmatively negate an essential element of the nonmoving party’s claim or (2) show that the nonmoving
party cannot prove an essential element of the claim at trial. Hannan, 270 S.W.3d at 5. The statute is
(continued...)
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Estate of Boote v. Roberts, No. M2012-00865- COA-R3-CV, 2013 Tenn. App. LEXIS 222,
at **24-25 (Tenn. Ct. App. March 28, 2013), no appl. perm. appeal filed (footnotes in
original but renumbered).
We first consider whether the Trial Court erred in finding and holding that
when assigning the mortgages and deeds of trust, Citizens Bank also had assigned the CPLs.
With regard to this issue, the Trial Court found and held that the CPLs could not be separated
from the respective mortgage title insurance policies and, therefore, the CPLs were assigned
to SunTrust when Citizens Bank assigned the mortgages.
We disagree with the Trial Court that the CPLs could not be separated from the
respective mortgage title insurance policies. The CPLs were contracts separate and apart
from the title insurance policies. As such, the CPLs could be assigned when the mortgages
were assigned, but also could have been retained and not assigned when the mortgages were
assigned. Citizens Bank was free to assign the CPLs to SunTrust along with the mortgages,
and equally as free to contract that the CPLs were not assigned. Thus, we look to the actual
transaction between Citizens Bank and SunTrust to determine if the CPLs were assigned
along with the mortgages.
In order to determine whether the CPLs were assigned to SunTrust in
connection with the assignment of the mortgages, we need look only to the assignment
agreement between Citizens Bank and SunTrust. The Correspondent Loan Purchase
Agreement between Citizens Bank and SunTrust clearly provides that the assignment
transaction includes not only the note, the mortgage, and all applicable insurance policies,
but also “all other documentation and information collected by Seller in connection with the
Mortgage Loan.” The CPLs, without dispute, were other documents collected by Citizens
Bank in connection with the mortgage loans. As such, pursuant to the contract between
Citizens Bank and SunTrust, the CPLs were assigned by Citizens Bank to SunTrust when
Citizens Bank assigned the mortgages to SunTrust, and the CPLs never were assigned back
to Citizens Bank by SunTrust in their settlement or otherwise.
We agree with the Trial Court that there is no genuine disputed issue of
material fact with regard to whether the CPLs were assigned by Citizens Bank to SunTrust
when Citizens Bank assigned the mortgages to SunTrust, and First American is entitled to
judgment as a matter of law on the issue of whether First American was liable to Citizens
4
(...continued)
intended “to return the summary judgment burden-shifting analytical framework to that which existed prior
to Hannan, reinstating the ‘put up or shut up’ standard.” Coleman v. S. Tenn. Oil Inc., No. M2011-01329-
COA-R3-CV, 2012 Tenn. App. LEXIS 453, 2012 WL 2628617, at *5 n.3 (Tenn. Ct. App. July 5, 2012).
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Bank under the CPLs. We find no error in the Trial Court’s grant of summary judgment to
First American.
Our resolution of the first issue raised by Citizens Bank renders moot the
second issue raised. We affirm the Trial Court’s May 20, 2014 order.
Conclusion
The judgment of the Trial Court is affirmed, and this cause is remanded to the
Trial Court for collection of the costs below. The costs on appeal are assessed against the
appellant, Citizens Bank, and its surety.
_________________________________
D. MICHAEL SWINEY, JUDGE
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