Hall CA-NV v. Old Republic ( 2021 )

Case: 20-10268 Document: 00515774605 Page: 1 Date Filed: 03/10/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
March 10, 2021
No. 20-10268
Lyle W. Cayce
Clerk
Hall CA-NV, L.L.C.,
Plaintiff—Appellant,
versus
Old Republic National Title Insurance Company,
Defendant—Appellee.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:18-CV-380
Before Clement, Ho, and Duncan, Circuit Judges.
James C. Ho, Circuit Judge:
Imagine a seller who typically offers two services, A and B. Now
imagine that this seller tells a particular buyer that he is interested in selling
him only service A—and not service B. The buyer agrees to these terms. But
later, when it turns out that the buyer would have benefited from purchasing
service B, the buyer turns around and claims that in purchasing service A, he
actually purchased service B as well. The buyer then sues the seller for
refusing to provide him with service B.
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You might think that it takes real chutzpah to bring that suit (and this
appeal). And you would be right. Yet that is precisely what this suit presents.
Plaintiff Hall CA-NV, LLC (Hall) purchased title insurance from
Defendant Old Republic National Title Insurance Company (Old Republic).
The parties contracted using standard title insurance policy forms designed
by the American Land Title Association (ALTA).
During that contracting process, Hall agreed to the removal of
Covered Risk 11(a), the standard protection against losses from mechanic’s
liens arising out of work begun on or before the policy date. Hall even
expressly agreed to a separate, much more limited mechanic’s lien provision.
Yet Hall now asserts that other contractual provisions—namely, Covered
Risks 2 and 10—do just the work that Covered Risk 11(a) would have done.
Old Republic understandably resists Hall’s post hoc attempt to
shoehorn Covered Risk 11(a) into another provision of the contract. It points
out that Hall’s interpretation of Covered Risks 2 and 10 would render
Covered Risk 11(a) surplusage—and the parties’ decision to remove and
replace Covered Risk 11(a) meaningless.
Curiously, Hall’s reply brief does not even deign to respond. What’s
more, at oral argument, Hall’s counsel was unable to identify a single scenario
that would trigger coverage under Covered Risk 11(a) that would not also
trigger coverage under its overbroad reading of Covered Risks 2 and 10.
Needless to say, these are not the hallmarks of a worthy interpretive
theory or persuasive appellate strategy. And it suggests that this is nothing
more than a case of buyer’s remorse. We affirm.
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I.
Hall was one of the major funders behind a recent renovation of the
(in)famous Cal-Neva Lodge & Casino, a resort straddling the California-
Nevada border near Lake Tahoe. 1
Before Hall agreed to finance the project, the owner of the property,
New Cal-Neva Lodge, LLC (New Cal-Neva), had a general contractor,
PENTA Building Group (Penta), conduct some preliminary work.
Accordingly, Hall had Penta agree in writing to subordinate any lien that
Penta might ever assert in favor of Hall. Only then did Hall agree to fund the
project. Hall initially authorized up to $29 million in debt financing in
exchange for a mortgage on the property.
At the same time, Hall obtained both California and Nevada title
insurance policies from Old Republic. In so doing, Hall agreed to remove the
standard ALTA forms’ Covered Risk 11(a). That provision typically protects
the insured against any “loss or damage . . . sustained or incurred . . . by
reason of . . . [t]he lack of priority of the lien of the Insured Mortgage . . . over
any statutory lien for services, labor, or material arising
from construction of an improvement or work related to the Land when the
improvement or work is . . . contracted for or commenced on or before Date
of Policy.”
The project continued, but the loan became out of balance in the wake
of significant change orders. Hall eventually stopped advancing funds after
1
The Cal-Neva Lodge—once owned by Frank Sinatra, Dean Martin, and
(allegedly) Chicago mob boss Sam Giancana, among others—has long been the subject of
controversy. The rumors have involved everything from Prohibition-era tunnels to arson.
See, e.g., Katie Dowd, Mobsters, Marilyn and Sinatra: The legendary Cal Neva Lodge is
preparing for guests again, SFGate (Oct. 18, 2019), https://www.sfgate.com/sfhistory/
article/history-larry-ellison-Cal-Neva-Lodge-14496588.php.
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New Cal-Neva failed to obtain additional equity. However, Penta continued
its work for some months thereafter.
Finding itself unpaid, Penta filed and began foreclosing on mechanic’s
liens, claiming in California and Nevada state courts that its liens had priority
because they related back to Penta’s initial work (performed before Hall
provided funding for the project). Old Republic hired Kolesar & Leatham,
P.C. (K&L) to defend both Hall and another lender, Ladera, jointly against
the Penta claims—rather than provide separate counsel. The cases were
removed to federal bankruptcy court, where the parties eventually settled.
Old Republic agreed that it would not invoke Hall’s settlement to deny any
claim for indemnity, and the property sold in 2018 for $38 million. When all
was said and done, Hall was left with a loss of approximately $4.9 million.
Hall then filed various contract, statutory, and common-law claims
against Old Republic in federal district court for failing to indemnify Hall
under its title insurance policies.
The district court concluded that, although the “unpaid Penta pre-
policy-date work” is a “defect” under Covered Risk 2 and an
“encumbrance” under Covered Risk 10, coverage is precluded by Exclusions
3(a) and 3(d), which bar claims “for liens and work performed after the policy
date.” The court found that Hall had “not raised a genuine dispute of
material fact that [Penta’s] liens were for unpaid work before the policy
date,” and accordingly granted Old Republic’s motion for summary
judgment and denied Hall’s motion for partial summary judgment. Hall
appeals.
II.
“A district court ‘shall grant summary judgment if the movant shows
that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.’” Hassen v. Ruston La. Hosp. Co.,
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932 F.3d 353, 355 (5th Cir. 2019) (quoting Fed. R. Civ. P. 56(a)). “We
review a grant of summary judgment de novo, applying the same standard as
the district court. But we view the evidence and draw all justifiable inferences
in favor of the nonmovant.” Id. (citations omitted).
According to Hall, the district court erred in granting Old Republic’s
motion for summary judgment on Hall’s contract claims because Exclusions
3(a) and 3(d) do not relieve Old Republic of its duty to cover the Penta lien
losses. But as Old Republic correctly notes, the threshold question is whether
the policies’ insuring clauses cover the claimed losses in the first place.
Hall contends that the Penta lien losses are insured under Covered
Risks 2 and 10. Those provisions state that Old Republic “insures as of Date
of Policy” against losses “sustained or incurred . . . by reason of . . . [a]ny
defect in or lien or encumbrance on the Title” or “[t]he lack of priority of
the lien of the Insured Mortgage upon the Title over any other lien or
encumbrance.”
Specifically, Hall argues that, because the Penta liens “relate back” to
the preliminary work Penta conducted prior to the Hall mortgage, the liens
actually existed (at least in some qualifying, inchoate form) at the time the
policies went into effect—“as of Date of Policy.” See, e.g., Cal. Civ.
Code § 8450 (providing that, under certain conditions, a mechanic’s lien
“has priority over a lien, mortgage, deed of trust, or other encumbrance on
the work of improvement or the real property on which the work of
improvement is situated”); J.E. Dunn Nw., Inc. v. Corus Constr. Venture,
LLC, 249 P.3d 501, 504 & n.2 (Nev. 2011) (explaining that “all mechanics’
liens relate back to the date overall construction commenced” and “ha[ve]
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priority over a deed of trust recorded after the commencement of
construction”). 2
However, any doubt about whether Covered Risks 2 and 10 could
possibly be read to cover the Penta lien losses at issue here is removed by the
fact that the parties also signed standard ALTA Form 32-06. In so doing, the
parties specifically contracted to eliminate one coverage provision of the
standard-form insurance policy—Covered Risk 11(a). As noted, that
provision usually protects the insured against any loss incurred as a result of
“[t]he lack of priority of the lien of the Insured Mortgage . . . over any
statutory lien for services, labor, or material arising from construction of an
improvement or work related to the Land when the improvement or work is . . .
contracted for or commenced on or before Date of Policy.”
In other words, the parties took a standard-form ALTA contract and
used a standard-form addendum to specifically remove the provision that
would have unquestionably provided Hall coverage in this exact scenario.
This fact alone should doom Hall’s claim that the remaining provisions of the
insurance policies somehow cover the Penta lien losses. As Old Republic
points out, reading Covered Risks 2 and 10 to cover a loss specifically covered
by the (removed) Covered Risk 11(a) would render Covered Risk 11(a) in the
2
It is far from clear that the Penta liens existed “as of Date of Policy” under
California and Nevada law. See, e.g., Picerne Constr. Corp. v. Castellino Villas, 199 Cal. Rptr.
3d 257, 263 (Ct. App. 2016) (“In order to have a valid mechanic’s lien, a claimant must
record a claim of lien within a prescribed period of time . . . . Once recorded, a claim of
mechanic’s lien constitutes a direct lien on the improvement and the real property.”)
(emphases added) (citations omitted); Nev. Rev. Stat. § 108.226 (“To perfect a lien,
a lien claimant must record a notice of lien in the office of the county recorder of the county
where the property . . . is located.”). At a minimum, it is dubious that a mechanic’s lien
(even an inchoate one) could have existed before Penta (a) continued to work on the project
and (b) was left unpaid for that work. This was not a situation where, “as of Date of
Policy,” there was “an inchoate lien where the only remaining act was the filing of the
lien.”
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standard-form ALTA contract surplusage. This would contravene both
California and Nevada contract principles. See Cal. Civ. Code § 1641(“The whole of a contract is to be taken together, so as to give effect to every
part, if reasonably practicable, each clause helping to interpret the other.”);
Musser v. Bank of Am., 964 P.2d 51, 54 (Nev. 1998) (“[C]ontracts should be
construed so as to avoid rendering portions of them superfluous.”). See also
Fed. Ins. Co. v. Coast Converters, Inc., 339 P.3d 1281, 1285 (Nev. 2014) (“This
court will not . . . increase an obligation to the insured where such was
intentionally and unambiguously limited by the parties.”) (quotations
omitted). 3
Oddly, Hall does not even respond to this surplusage argument in its
reply. And at oral argument, Hall all but conceded that Covered Risk 11(a) is
superfluous, protesting only that “just because the parties chose to eliminate
a more specific grant of coverage d[oes] not eliminate those broader
provisions of coverage.”
3
The district court interpreted the insurance contract under Texas law, on the
ground that Old Republic “failed . . . to meet its burden to prove a conflict” between Texas
law on the one hand, and California and Nevada law on the other. But the insurance policies
at issue have an express choice-of-law provision that dictates that “the court . . . shall apply
the law of the jurisdiction where the Land is located . . . to interpret and enforce the terms
of this policy.” And absent extraordinary circumstances, “Texas will enforce a choice-of-
law clause.” Western-Southern Life Assurance Co. v. Kaleh, 879 F.3d 653, 658 (5th Cir.
2018). Accordingly, we apply California and Nevada contract law in determining whether
Hall is entitled to indemnification under the terms of the policies. See id. (explaining that
in a diversity action, we look to the “forum state” for the “choice-of-law principles
necessary ‘to determine which substantive law will apply’”) (citation omitted).
In any event, Texas applies the same contract principles we apply in this case. See
In re Pirani, 824 F.3d 483, 494 (5th Cir. 2016) (explaining that “[w]hen contractual
provisions arguably conflict, Texas courts employ canons of construction as tools to
harmonize them,” including “the rules that . . . specific provisions control over general
provisions . . . and . . . the interpretation of an agreement should not render any material
terms meaningless”).
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In effect, Hall’s argument amounts to this: The standard contract
employs a “belt-and-suspenders” approach to insuring the type of
mechanic’s lien losses at issue here. So it should not matter if parties decide
to ditch the belt (Covered Risk 11(a)), so long as they keep the suspenders
(Covered Risks 2 and 10).
We cannot accept that argument. We are reluctant to say that the
parties’ alteration of a standard-form contract is meaningless. And we are
especially loath to do so here, where the parties’ alteration doesn’t just
“delete[]” Covered Risk 11(a)—it replaces the provision with substantially
narrower coverage. The 32-06 endorsements here replaced the standard
mechanic’s lien coverage with more limited coverage, specifically cautioning
that the policies “do[] not insure against loss or damage . . . by reason of any
Mechanic’s Lien arising from services, labor, material, or equipment . . . not
designated for payment in the documents supporting a Construction Loan
Advance disbursed . . . on or before Date of Coverage.” (Emphases added.)
In other words, Old Republic did what Hall argues it should have done—it
“issue[d] a [(qualified)] mechanic’s lien exception to the Policies.” 4
Finally, even assuming arguendo that the 32-06 endorsements and the
Covered Risks conflict or result in an ambiguity about whether the Penta lien
losses are covered, it is the more general provisions that suggest that there
may be coverage (under Hall’s theory), while the more specific provisions
instruct that there is no such coverage. And of course it is a basic principle
of contract interpretation, recognized in California and Nevada law alike, that
the specific controls the general. See Boghos v. Certain Underwriters at Lloyd’s
of London, 115 P.3d 68, 73 (Cal. 2005) (explaining that when two contract
4
Hall does not allege that the Penta liens arose from “services, labor, material, or
equipment . . . designated for payment in the documents supporting a Construction Loan
Advance disbursed . . . on or before Date of Coverage.”
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provisions are “truly inconsistent,” “more specific contractual provisions
control over more general ones”); Shelton v. Shelton, 78 P.3d 507, 510 (Nev.
2003) (explaining that when a contract is ambiguous, “a specific provision
will qualify the meaning of a general provision”).
In sum, the insuring clauses do not cover Hall’s Penta lien losses. We
therefore need not review the district court’s conclusions regarding
Exclusions 3(a) and 3(d) to affirm the judgment.
III.
We likewise affirm the district court’s grant of Old Republic’s motion
for summary judgment on Hall’s bad-faith and Texas Insurance Code claims.
As Hall is not entitled to indemnification for the Penta lien losses, Hall cannot
show that Old Republic acted in bad faith in denying its claim. And as Hall
alleges no other harm apart from the Penta lien losses, Hall cannot
demonstrate that Old Republic caused it any harm in violating the Texas
Insurance Code—assuming arguendo that the Texas Insurance Code applies,
and that Old Republic ran afoul of its provisions. See Certain Underwriters at
Lloyd’s of London v. Lowen Valley View, L.L.C., 892 F.3d 167, 172 (5th Cir.
2018) (“[Defendant’s] counterclaims under the Texas Insurance Code are
based on unpaid coverage benefits rather than some other, independent
injury. Accordingly, [its] statutory claims fall with its breach of contract
claim.”); USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 500 (Tex.
2018) (“An insured cannot recover any damages based on an insurer’s
statutory violation unless the insured establishes a right to receive benefits
under the policy or an injury independent of a right to benefits.”).
IV.
Finally, we affirm the district court’s grant of Old Republic’s motion
for summary judgment on Hall’s independent-counsel (or duty-to-defend)
claim. Hall contends that the district court erred in holding that it failed to
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present evidence of harm resulting from Old Republic’s failure to provide
Hall and Ladera with separate counsel. In so doing, Hall points to vague
testimony from its corporate representative that Hall spent “[m]aybe a
couple hundred thousand dollars[,] tops, something like that” “[d]oing
things” that K&L would have done but for its dual obligations to Hall and
Ladera. But the only concrete shortcoming Hall alleges on appeal is K&L’s
decision to leave the room during one mandatory mediated settlement
meeting. Hall does not explain what actual conflict existed, or why K&L
recused itself in that instance. That is insufficient under both California and
Nevada law. See Fed. Ins. Co. v. MBL, Inc., 160 Cal. Rptr. 3d 910, 920 (Ct.
App. 2013) (explaining that “not every conflict of interest entitles an insured
to insurer-paid independent counsel” because a “conflict of interest must be
‘significant, not merely theoretical, actual, not merely potential’”) (citation
omitted); State Farm Mut. Auto. Ins. Co. v. Hansen, 357 P.3d 338, 343 (Nev.
2015) (“Courts must inquire, on a case-by-case basis, whether there is an
actual conflict of interest . . . . [D]ual-representation is appropriate as long as
there is ‘no actual conflict.’”) (citation omitted).
***
Hall agreed to remove one standard-form contract provision—one
that would have insured against the precise misfortune it ultimately
suffered—and replace it with a much narrower one. We will not stretch the
remaining contract provisions to resurrect the more generous coverage. We
affirm.
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