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Dare Investments, LLC. v. Chicago Title Insurance Company

2011 WL 2600594 (U.S. Dist. Ct. D. N.J. 2011) (Unpublished)

TITLE INSURANCE; LENDERS — Where a lender cannot show that it reasonably relied on any alleged misrepresentations and omissions in a title commitment, the title company is entitled to summary judgment as to the lender’s common law fraud and negligence claims.

A title insurance policy was issued to a lender. It insured the validity of a mortgage that served as collateral for a loan. The policy insured against, among many things, “unmarketability of the title” to and “the invalidity or unenforceability of the mortgage.” Additionally, under the policy, the title insurance company would pay attorney costs for defending title or the lien of the mortgage. The policy excluded coverage from “defects, liens, encumbrances, adverse claims, or other matters … created, suffered, assumed, or agreed to by the insured claimant” if not known to the insurance company or recorded in public records as of the policy date, but known to the title policy holder and not disclosed in writing to the title insurance company prior to the policy date.

The mortgage became subject to many adverse claims after the issuance of the policy. The lender sought indemnification under the title policy for unmarketability of title to the mortgage and for the costs associated with defending against the third party claims. The title insurance company denied coverage based on the policy’s exclusions. The denial included the title insurance company’s assertion that the third party claims were based on rulings of which the lender had prior knowledge. The lender sued the title insurance company for common law fraud, reformation, breach of contract, negligence, bad faith, consumer fraud under the New Jersey Consumer Fraud Act (CFA), civil conspiracy, as well as civil aiding and abetting under, and violations of, the federal RICO and New Jersey RICO statutes.

The Court held that the title insurance company was entitled to summary judgment against the lender’s common law fraud and negligence claims because the lender could not show that it reasonably relied on any alleged misrepresentations and omissions. The record showed that lender’s attorneys investigated the validity and enforceability of the mortgage and all the prior litigation. Therefore, “it had to know” about a prior injunction affecting the mortgage and how that affected the status of the mortgage. Therefore the lender could not say that it had reasonable relied on any representations made by the title insurance company. The Court held likewise as to the lender’s negligent misrepresentation claim. A party asserting a claim for negligent misrepresentation must establish its reasonable reliance on the alleged misrepresentation. Here, the lender could not have reasonably relied on the alleged misrepresentation by the title insurance company as to the validity or enforceability of the mortgage because its own attorneys investigated the same matter and were fully aware of prior litigation. Therefore the Court dismissed the common law fraud and negligence claims.

Next, the Court held that the title insurance company was entitled to summary judgment on the lender’s reformation claim because the lender could not show that the title insurance company had misrepresented the alleged value of the mortgage. According to the Court, the lender’s reformation claim was “truly disingenuous” because the security agreement specifically set out the value of the mortgage. On that basis, the reformation claim was dismissed.

The lender’s claims under the CFA also failed because there was no evidence in the record to show that the insurance company had violated the Act. The CFA is violated by “[t]he act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing concealment, suppression or omission of any material fact with intent that others rely upon such concealment, suppression, or omission, in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in face been misled, deceived, or damaged thereby… .”

Here, the Court found no CFA violation. In fact, it pointed out that the record contradicted the lender’s allegations. Thus, the CFA claims were also dismissed.

The title insurance company also obtained summary judgment on the RICO claims because the lender failed to prove a RICO enterprise and any predicate acts. Under federal RICO, an association-in-fact enterprise is defined as a group of persons associated together for a common purpose of engaging in a course of conduct. To establish such an enterprise, a party has to show that: (1) the enterprise is an on-going organization (formal or informal); (2) the members of the enterprise function as a continuing unit with established duties; and (3) the enterprise is separate and apart from the matter of activity in which it engages. Under New Jersey RICO, the party must show that the enterprise is: (1) distinct from the incident constituting the activity; and (2) has an organization consisting of those kinds of interactions that become necessary when a group, to accomplish its goals, divides among its members the tasks that are necessary to achieve a common purpose. Nowhere in the lender’s complaint did it allege any sort of structure or organization separate and apart from the alleged scam. Therefore, it failed to plead a RICO enterprise. It also did not plead the predicate acts of mail and wire fraud in its complaint. For those reasons, the lender’s Federal and New Jersey RICO claims were dismissed.

On the other hand, the Court ruled that the title insurance company was not entitled to summary judgment against the lender’s claim for breach of contract. The title insurance company claimed that it had not breached the terms of the title policy because the lender’s claim for coverage was barred by the exclusionary provisions. The Court found that the intent of the exclusionary provisions in the title policy was ambiguous and therefore it needed to make a factual determination on this issue. Furthermore, the lender’s reasonable expectation was unclear under the title policy.

Lastly, the title insurance company was entitled to summary judgment on the bad faith claim because the lender failed to establish that the title insurance company had no reasonable basis to deny coverage.

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