Commonwealth Land Title Insurance Company v. Kci Technologies, Inc. ( 2018 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
COMMONWEALTH LAND TITLE
INSURANCE COMPANY,
Plaintiff,
Case No. 1:17-cv-01070 (TNM)
v.
KCI TECHNOLOGIES, INC. et al.,
Defendants.
MEMORANDUM OPINION
Plaintiff Commonwealth Land Title Insurance Company (“Commonwealth”), a title
insurance company, seeks judgment against defendants KCI Technologies, Inc. (“KCI”) and
Wiles Mensch Corp. (“WMC”), both of which conducted surveys of a particular plot of land in
Washington, D.C. under service contracts with land developer Infrastructure Capital Group, LLC
or its affiliate ICG 16th Street Associates, LLC (collectively “ICG” or “Insured”).
Commonwealth alleges that, because both surveyors were negligent in conducting the land
surveys upon which it relied in issuing title insurance policies to ICG, the Defendants are liable
for the payout it made under ICG’s title claim seeking reimbursement for additional costs
incurred as a result of the inaccurate surveys. The Defendants have filed separate motions to
dismiss for failure to state a claim. As jurisdiction and venue is proper in this Court,1 and upon
consideration of the pleadings, relevant law, related legal memoranda in opposition and in
support, and the entire record therein, I find that the statute of limitations has run on the
1
See 28 U.S.C. §§ 1332, 1391. This matter was removed from D.C. Superior Court pursuant to
28 U.S.C. §§ 1441, 1446.
Plaintiff’s claims. Accordingly, the Defendants’ motions will be granted, and the Complaint will
be dismissed with prejudice.
I. BACKGROUND
At issue in this case are four different land surveys conducted on the same plot of land
between 2006 and 2014; two of which were conducted by KCI and two of which were conducted
by WMC. In 2006, ICG purchased the land lot at 900 16th Street NW, Washington, D.C. for the
purpose of constructing a new commercial office building. Compl. ¶¶ 4-7. ICG hired KCI to
conduct and produce a land title survey. Id. ¶ 8; see also id. Ex. A (“KCI Professional Services
Agreement” dated June 22, 2006).2 KCI’s 2006 survey did not identify any encroachment on the
land, and contained a “Surveyor’s Certification” that stated the survey was made in accordance
with the “Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys.” Id.
Ex. B (“KCI 2006 Survey” signed April 10, 2007). Commonwealth alleges that it relied upon
this survey to issue a title insurance policy to ICG (“2007 Title Policy”). Id. ¶ 13.
In December 2012, ICG hired WMC to conduct a Boundary, Topographic and Utility
Survey (“WMC 2012 Survey”) which identified a party wall that encroached on the property by
two to three inches. Id. ¶¶ 15-16. In May 2013, WMC re-conducted the same survey (“WMC
2013 Survey”) and stated to ICG that the encroachment was four inches. Id. ¶ 19. ICG
2
KCI challenges the Plaintiff’s standing based on the fact that its original contract was with
Infrastructure Capital Group, LLC, an entity not named in this matter. The Plaintiff has declared
that Infrastructure Capital Group, LLC and ICG 16th Street Associates, LLC are related entities,
and that the former assigned all rights and claims arising from its agreement with KCI to the
Plaintiff. See Mem. of P. & A. in Opp. to KCI’s Mot. to Dismiss (“Opp. to KCI Mot. to
Dismiss”) 4, ECF No. 14; id. Ex. 1 ¶¶ 2-3. For purposes of these motions to dismiss, where I
accept as true all well-pled factual allegations, I treat the Plaintiff as the assignee of all rights and
claims arising from Infrastructure Capital Group, LLC’s contract with KCI.
2
subsequently again commissioned KCI to conduct an ALTA/ACSM Land Title Survey, which
was issued in February 2014 (“KCI 2014 Survey”) and identified no encroachment. See id. ¶ 21;
Compl. ¶¶ 77-79. The survey included a certification similar to the one made in the KCI 2006
survey. See id. ¶ 22; see also id. Ex. H. Commonwealth alleges that it relied upon the KCI 2014
Survey to issue a title insurance policy to ICG (“2014 Title Policy”). Id. ¶ 24.
On March 24, 2014, the architectural and construction company hired by ICG reported to
ICG that the encroachment was actually 12 inches. Id. ¶ 27. In order to construct the building as
intended, ICG decided to demolish the encroachment, incurring $2,666,379 in demolition costs
and payment of a partial delay penalty to the building’s main tenant. Id. ¶¶ 28, 36. On
September 17, 2014 and November 17, 2014, ICG tendered claims on the 2007 and 2014 title
policies, respectively, to Commonwealth, which accepted coverage and made a loss payment to
ICG under the 2007 policy. Id. ¶¶ 31, 33-35; Mem. of P. & A. in Opp. to WMC’s Mot. to
Dismiss (“Opp. to WMC Mot. to Dismiss”) 2 n.1, ECF No. 13. Commonwealth claims that it
incurred $1,042,025.31 due to the loss payment made to ICG and expenses. Id. ¶ 35.
On March 23, 2017, Commonwealth brought suit against KCI and WMC, alleging seven
causes of action. Certified Copy of Transfer Order and Docket Sheet (“Superior Court Docket
Sheet”), ECF No. 10. Of the seven counts, one count is against WMC and six counts are against
KCI. Compl. 7-12. As against WMC, Commonwealth alleges that, as the assignee of ICG’s
rights and claims, it is subrogated to all claims that ICG had against WMC (Count One). Id. ¶
38. Commonwealth seeks to recover ICG’s costs of $2,666,379 for WMC’s breach of contract
for failing to take notice of a 12 inch encroachment. Id. ¶ 41.
As against KCI, Commonwealth alleges that KCI’s 2006 survey, in failing to notice a 12
inch encroachment on the property, was conducted negligently (Count Two) and negligently
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represented the true state of the property (Count Three). Id. ¶¶ 43-55. Commonwealth seeks
judgment against KCI for $1,042,025.31, the amount incurred by Commonwealth as a result of
its insuring and paying out a title claim to ICG. Id. Commonwealth also alleges these same
claims as pertaining to KCI’s 2014 survey (Counts Five and Six) and seeks the same judgment.
Id. ¶¶ 60-74. Last, Commonwealth alleges that it is subrogated to all claims that ICG has against
KCI by virtue of ICG’s assignment of its rights and claims to Commonwealth. Id. ¶¶ 57, 76. It
makes breach of contract claims against KCI with respect to the 2006 and 2014 surveys (Counts
Four and Seven, respectively). Id. ¶¶ 56-59, 75-80.
KCI timely removed this matter to this Court; Not. of Removal, ECF No. 1; and both
KCI and WMC have filed motions to dismiss for failure to state a claim upon which relief can be
granted. Def. KCI Technologies, Inc.’s Mot. to Dismiss (“KCI Mot. to Dismiss”), ECF No. 7;
Def. Wiles Mensch Corp.’s Mot. to Dismiss (“WMC Mot. to Dismiss”), ECF No. 5; see also
Def. KCI Technologies, Inc.’s Supp./Revised Mot. to Dismiss (“KCI Supp. Mot. to Dismiss”),
ECF No. 19.3
II. LEGAL STANDARD
A party may move to dismiss a complaint on the ground that it “fail[s] to state a claim
upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). A complaint must contain sufficient
factual allegations that, if true, “state a claim to relief that is plausible on its face.” Bell Atl.
3
While KCI’s supplemental motion to dismiss was filed without leave of Court, I find that the
Plaintiff was not prejudiced by its filing and accordingly will consider KCI’s arguments. In its
supplemental motion, KCI raises a statute of limitations defense which applies across all of
Commonwealth’s claims, i.e., as against both WMC and KCI. See KCI Supp. Mot. to Dismiss
¶¶ 6-7. Commonwealth previously responded to this argument in its opposition to WMC’s
motion to dismiss and did so again in its opposition to KCI’s supplemental motion to dismiss.
See Opp. to WMC Mot. to Dismiss 5-9; Mem. of P. & A. in Opp. to KCI’s Supp./Revised Mot.
to Dismiss (“Opp. to KCI Supp. Mot. to Dismiss”), ECF No. 20.
4
Corp. v. Twombly, 550 U.S. 544, 570 (2007). In evaluating a motion to dismiss pursuant to Rule
12(b)(6), the Court must construe the complaint in the light most favorable to the plaintiff and
accept as true all reasonable factual inferences drawn from well-pled factual allegations. See In
re United Mine Workers of Am. Emp. Benefit Plans Litig., 854 F. Supp. 914, 915 (D.D.C. 1994).
In addition, “[i]n determining whether a complaint fails to state a claim, [the court] may consider
only the facts alleged in the complaint, any documents either attached to or incorporated in the
complaint and matters of which [the court] may take judicial notice.” Hurd v. District of
Columbia Gov’t, 864 F.3d 671, 678 (D.C. Cir. 2017) (quoting EEOC v. St. Francis Xavier
Parochial Sch., 117 F.3d 621, 624 (D.C. Cir. 1997)).
III. ANALYSIS
KCI and WMC each argue that Commonwealth’s causes of action are time-barred under
D.C. law by the three-year statute of limitations, and the Plaintiff does not dispute that this is the
applicable statute of limitations. WMC Mot. to Dismiss. 8; Opp. to WMC Mot. to Dismiss 5;
KCI’s Reply to Pl.’s Opp. to Mot. to Dismiss 2, ECF No. 18; KCI Supp. Mot. to Dismiss ¶ 6;
Opp. to KCI Supp. Mot. to Dismiss 4; see also D.C. Code Ann. § 12-301(7)-(8). Because I find
that Commonwealth did not bring suit until after the statute of limitations had run, and that
D.C.’s “discovery rule” is inapplicable to the circumstances as alleged, Commonwealth’s claims
are time-barred.
5
A. The Statute of Limitations Has Run
The statute of limitations begins to run “from the time the right to maintain the action
accrues.” D.C. Code Ann. § 12-301.4 Generally, an action accrues when an injury occurs.
Shehyn v. D.C., 392 A.2d 1008, 1013 (D.C. 1978). Here, all of Commonwealth’s claims—both
in contract and in tort—focus on the alleged deficient performance of four land surveys: the KCI
2006 Survey, the WMC 2012 Survey, the WMC 2013 Survey, and the KCI 2014 Survey. In
each of these cases, the alleged injury occurred when the surveying entity tendered survey
reports that failed to notice a 12 inch encroachment on the property. See Compl. ¶¶ 40-41, 45,
70. The statute of limitations, then, began to run upon the tendering of the survey results. This
means the statute of limitations started running for the KCI 2006 Survey on July 12, 2006. See
id. ¶ 9. For the WMC 2012 Survey, the statute of limitations began running on December 2,
2012. See id. ¶ 15. For the WMC 2013 Survey, the clock started to tick on May 2, 2013. See id.
¶ 19. Last, the KCI 2014 Survey was delivered on February 20, 2014, marking the start of the
period during which suit related to that survey should have been brought. See id. ¶ 21. The
Plaintiff’s complaint was not filed until March 23, 2017, which is beyond the three-year period
triggered by each survey—and in all but the last case, well beyond the three-year period. See
Superior Court Docket Sheet. Consequently, all claims pertaining to the negligent performance
of these surveys are time-barred.
4
Because this case is before me based on the Court’s diversity jurisdiction, I must apply D.C.
law as authoritatively construed by the D.C. Court of Appeals. Novak v. Capital Mgmt. and Dev.
Corp., 452 F.3d 902, 907 (D.C. Cir. 2006) (“[T]he Erie doctrine also applies to the District of
Columbia.”).
6
B. The Discovery Rule Does Not Apply In This Case
The Plaintiff, however, urges application of the “discovery rule,” which the D.C. Court of
Appeals has applied in certain instances where an injury “was not readily apparent and indeed
might not become apparent for several years after the incident causing injury had occurred.”
Ehrenhaft v. Malcolm Price, Inc., 483 A.2d 1192, 1201 (D.C. 1984) (using the nomenclature
“discovery exception”). When applied, the discovery rule effectively tolls the statute of
limitations to “when the plaintiff knows or through the exercise of due diligence should have
known of the injury.” Burns v. Bell, 409 A.2d 614, 617 (D.C. 1979).
Application of the discovery rule, however, is not universal. Though the rule applies in
actions involving medical malpractice and legal malpractice, where sophisticated professionals
may take advantage of lay clients without the clients ever being aware of the wrong; see id.;
Weisberg v. Williams, Connolly and Califano, 390 A.2d 992, 996 (D.C. 1978); Ehrenhaft, 483
A.2d 1201 n.15; the D.C. Court of Appeals has refused to validate broad application of the rule
in other contexts, instead opting for consideration on a “case by case basis.” Id. at 1204 (citing
Poffenberger v. Risser, 431 A.2d 677, 681 (Md. 1981) (Rodowsky, J., concurring)). In
conducting case-specific analyses, the D.C. Court of Appeals has applied the exception in at least
one instance involving the design and construction of a home; Ehrenhaft, 483 A.2d at 1202; but
refused to do so in another case involving a commercial construction dispute. Capitol Place I
Assocs. L.P. et al., v. George Hyman Constr. Co., 673 A.2d 194, 200 (D.C. 1996). In Capitol
Place, the court “[a]ssumed without deciding that the discovery rule may be applicable in the
context of commercial construction disputes,” but found that the facts before it did not warrant
application of the rule. Id. at 200. Here, I similarly assume without deciding that the discovery
rule may be applicable to the alleged negligent survey of land in a commercial real estate
7
transaction, and find that the facts do not justify application of the rule to toll the running of the
statute of limitations on Commonwealth’s claims.
In Ehrenhaft, the D.C. Court of Appeals looked to “the policy judgments that gave rise to
the discovery rule in the first place” and concluded that because the plaintiff was a lay person,
the deficiency in design or construction was latent, the equities favored protecting the plaintiff as
weighed against the potential prejudice to the defendant, and judicial economy would be served,
the rule should apply. Capitol Place, 673 A.2d at 199; Ehrenhaft, 483 A.2d at 1202-04; see also
Woodruff v. McConkey, 524 A.2d 722, 727 (D.C. 1987) (describing the test as having four
factors). In Capitol Place, the court assessed that the plaintiff was a sophisticated owner, the
“early signs of defect were abundant,” the record “cries out with knowledge on the part of the
[plaintiff] that a cause of action against the [defendant] was viable,” and the defendant admitted
that it knew of some of the problems. 673 A.2d at 200. It therefore concluded that the discovery
rule did not apply. Id.
The facts at bar are more akin to Capitol Place than Ehrenhaft. As to the first factor, the
“justifiable reliance by consumers on the professional skills of those hired to perform the work,”
Woodruff, 524 A.2d at 737, the Plaintiff is in a similar posture to the plaintiff in Capitol Place,
which consisted of principals in a commercial property development and management firm. See
673 A.2d at 196. ICG is a sophisticated player whose business is in the development of
commercial properties. See Opp. to WMC Mot. to Dismiss 7. Although the Plaintiff avers that
ICG was not a sophisticated entity insofar as it was not capable of conducting professional land
surveys, Commonwealth’s interpretation is too narrowly defined. The facts as pled show that
ICG purchased the property with the intent to construct a new commercial office building on the
site and that the 2007 Title Policy provided $9 million in insurance. Compl. ¶¶ 5-7, id. Ex. C.
8
Clearly, this was not a lay homeowner seeking to build or renovate his own residence; this was a
seasoned real estate developer seeking to build and profit commercially. The same is true of
Commonwealth: rather than being a private citizen who may occasionally, or rarely, engage in
these types of transactions, Commonwealth is in the business of regularly providing title
insurance in connection with real estate transactions. The Plaintiff has not cited any authoritative
case law in which the discovery rule tolled the statute of limitations for a plaintiff engaged in
professional practice rather than being a lay person, and the apparent and notable lack of case
law on this point militates against extending the rule to the circumstances of this case.
The second factor, the latency of the deficiency, does not save the Plaintiff’s claims. See
Woodruff, 524 A.2d at 737. Commonwealth admits that the amounts incurred for which it seeks
redress pertain only to the 2007 policy that it issued to ICG; Opp. to WMC Mot. to Dismiss 2 n.1
(“Plaintiff informs the parties that the loss payments were made pursuant to the 2007 policy and
not the 2014 policy.”). Consequently, the relevant survey for which damages can be awarded is
the KCI 2006 Survey. Assuming that the deficiency—the allegedly negligent performance of the
survey—was latent, the Plaintiff was put on notice of the defect when the later surveys indicated
that the KCI 2006 Survey was erroneous. For the KCI 2006 Survey, this means that its defect
was revealed when the WMC 2012 Survey identified that there was, in fact, an encroachment on
the property. Thus, even assuming that the deficiency was latent, this would not bring the
Plaintiff’s complaint within the statute of limitations.
The third factor, the balance of the Plaintiff’s interests against the prejudice to the
Defendants, also weighs in favor of the Defendants. See Woodruff, 524 A.2d at 727.
Commonwealth alleges that ICG and it and were not aware of the 12 inch encroachment until
March 2014, 2014 and September 17, 2014, respectively, and that the decision to demolish the
9
encroachment was made in March and April of 2014. Compl. ¶¶ 29, 46-47. But all of these
dates were sufficiently within the statute of limitations that began running before—or by latest—
May 2, 2013, when the WMC 2013 Survey was delivered to ICG. See id. ¶ 19. For the Plaintiff
to have waited until 2017—over a decade after KCI’s original survey—to bring suit undermines
the principles of finality and fairness underlying the purpose of statutes of limitations and
prejudices the Defendants. See Farris v. Compton, 652 A.2d 49, 58 (D.C. 1994) (“Statutes of
limitations are responsive not only to evidentiary concerns, . . . but also to considerations of
‘repose,’ i.e., ‘the potential defendant’s interest in security against stale claims’).5
The last factor, judicial economy, does not much favor either party, but may lean towards
the Defendants. See Woodruff, 524 A.2d at 728 (“This factor militates [in the defendant’s favor]
because of the court’s preference to adjudicate more timely complaints.”).6 In taking all factors
into consideration as a whole, and because the Plaintiff is “a ‘sophisticated owner’ who had
received early warning of the defects of which [it] belatedly complained,” the discovery rule is
inapplicable to Commonwealth’s claims, even if it may properly apply in other commercial
property contexts. See Jacobsen v. Block, 744 A.2d 1028, 1031 (D.C. 2000) (citing Capitol
Place, 673 A.2d at 200).
5
See also Developments in the Law Statute of Limitations, 63 Harv. L. Rev. 1177, 1185 (1950)
(“The primary consideration underlying [statutes of limitation] is undoubtedly one of fairness to
the defendant. There comes a time when [it] ought to be secure in [its] reasonable expectation
that the slate has been wiped clean of ancient obligations, and [it] ought not to be called on to
resist a claim when ‘evidence has been lost, memories have faded, and witnesses have
disappeared.’”).
6
Cf. Capitol Place, 673 A.2d at 200 (citation omitted) (“The discovery rule does not [] permit a
plaintiff who has information regarding a defendant’s negligence, and who knows that she has
been significantly injured, to defer institution of suit and wait and see whether additional injuries
come to light.”).
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C. Even If the Discovery Rule Applied, Commonwealth’s Claims Regarding the
KCI 2006 Survey are Time-Barred
Even if the discovery rule applied, Commonwealth would not be able to recover against
KCI as its claims regarding the KCI 2006 Survey are time-barred. As previously stated, the
discovery rule tolls the ticking of the statute of limitations to “when the plaintiff knows or
through the exercise of due diligence should have known of the injury.” Burns v. Bell, 409 A.2d
614, 617 (D.C. 1979). Commonwealth was on notice of the alleged negligence of the KCI 2006
Survey by the time the WMC 2012 Survey was delivered in December 2012 (identifying a two to
three inch encroachment), and in any event certainly by the time the WMC 2013 Survey was
delivered in May 2013 (identifying a four inch encroachment). This means that, under the
discovery rule, Commonwealth had until May 2016 at the very latest to bring suit relating to the
KCI 2006 Survey.
Although Commonwealth argues that it was the specific revelation of a 12 inch
encroachment in March and September 2014 that led to the damages in this case, Opp. to KCI
Supp. Mot. to Dismiss 2, this argument is unpersuasive. The facts pled show that ICG knew, via
the WMC 2012 and 2013 surveys, that there was indeed an encroachment on the property that
the KCI 2006 survey failed to identify. Compl. ¶¶ 15, 19. The WMC 2013 survey in particular,
which increased the size of the encroachment from two or three inches to four inches, indicated
that prior surveys were unreliable in identifying and measuring the magnitude of the
encroachment. This is sufficient to provide inquiry notice of the injury alleged in this case. See
Drake v. McNair, 993 A.2d 607, 617 (D.C. 2010) (“The critical question in assessing the
existence . . . of injury notice is whether the plaintiff exercised reasonable diligence under the
circumstances in acting or failing to act on whatever information was available to him.”); see
11
also Kubicki on behalf of Kubicki v. Medtronic, Inc., No. 12-cv-734, 2018 WL 707428 at *16
(D.D.C. Feb. 5, 2018) (“Put another way: In every case, the plaintiff has a duty to investigate
matters affecting her affairs with reasonable diligence under all of the circumstances.”). The
circumstances here are again akin to those in Capitol Place. In Capitol Place, the plaintiff was
consistently made aware, over the course of several years, of issues with the building’s
construction. 673 A.2d at 196. Shortly after construction, there were indications of water
infiltration; and on at least three other instances over the next four years, the plaintiff received
reports of water leakage. Id. The court ruled that these instances should have prompted the
plaintiff to act sooner, and not wait until after the plaintiff “underst[oo]d the full range of
problems.” Id. at 200. Similarly, here, the Plaintiff was on notice by virtue of the contradicting
and inconsistent surveys that it should act with reasonable diligence to investigate and take
action on the encroachment issue. Its failure to do so, even assuming, arguendo, that the
discovery rule applies, would doom its claims pertaining to the KCI 2006 Survey.7
D. In the Absence of the Discovery Rule, Commonwealth’s Claims are Time-Barred
or Fail to State a Claim
All of Commonwealth’s claims brought as ICG under subrogation (Counts One, Four,
Seven) must be dismissed because, in the absence of the discovery rule’s tolling function, the
statute of limitations for these counts began running on July 12, 2006; December 2, 2012; and
7
As it pertains to Commonwealth’s subrogation claims (as ICG) against WMC, tolling the
statute of limitations until the discovery of the 12 inch encroachment would mean that the
complaint was filed with one day to spare within the statute of limitations period. Compare
Superior Court Docket Sheet (complaint filed March 23, 2017) with Compl. ¶ 46 (discovery of
the 12 inch encroachment by ICG on March 24, 2014). However, in light of my determination
that the discovery rule does not apply to Commonwealth, either in its own right or as subrogee to
ICG, Commonwealth’s claims against WMC cannot proceed. See supra Section III.A.
12