Wells Fargo Bank, N.A. v. Old Republic Title Insurance

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-1087
WELLS FARGO BANK, N.A.,
Plaintiff - Appellant,
v.
OLD REPUBLIC TITLE INSURANCE COMPANY,
Defendant - Appellee.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Claude M. Hilton, Senior
District Judge. (1:09-cv-00297-CMH-TRJ)
Argued: January 27, 2011 Decided: March 1, 2011
Before WILKINSON, MOTZ, and DUNCAN, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: August J. Matteis, Jr., GILBERT, LLP, Washington, D.C.,
for Appellant. F. Douglas Ross, II, ODIN, FELDMAN & PITTLEMAN,
PC, Fairfax, Virginia, for Appellee. ON BRIEF: William E.
Copley, GILBERT, LLP, Washington, D.C., for Appellant.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
In this diversity action, Wells Fargo Bank, N.A. seeks to
recover from Old Republic Title Insurance Company the value of
seventeen worthless mortgages it purchased from Financial
Mortgage, Inc. (“FMI”) in the secondary mortgage market. Wells
Fargo contends that (1) TitlePro, Inc. acted as Old Republic’s
agent when it fraudulently closed the real estate transactions
underlying Wells Fargo’s mortgages and (2) Old Republic
contractually agreed to indemnify Wells Fargo for its losses.
The district court granted summary judgment to Old Republic. We
affirm.
I.
Wells Fargo is a national banking association that
purchases roughly 500,000 mortgage-secured loans every year.
This lawsuit grows out of a fraudulent scheme perpetrated by FMI
and its owner, Vijay Taneja, on Wells Fargo. 1 FMI was in the
business of originating mortgages. It drew on warehouse lines
of credit offered by several financial institutions. After the
warehouse lenders advanced funds to FMI for a mortgage loan, FMI
then resold the mortgages to secondary investors, used the
1
On November 13, 2008, Taneja pled guilty to one count of
conspiracy to commit money laundering in violation of federal
law and received a sentence of 84 months imprisonment, to be
followed by three-years of supervised release.
2
proceeds to pay back the warehouse lenders, and thereby
replenished its lines of credit.
Beginning May 2004, Wells Fargo entered into a Loan
Purchase Agreement with FMI, agreeing to purchase from FMI
numerous residential mortgage loans secured by a note and deed
of trust on real property. The investments Wells Fargo
purchased from FMI failed at their inception, because FMI,
through Taneja, misrepresented to Wells Fargo that the mortgages
were recorded in Virginia’s public records system and provided
Wells Fargo with first and exclusive priority over all other
creditors. Wells Fargo eventually discovered the bitter
reality. Contrary to the requirements in Wells Fargo’s Loan
Purchase Agreement with FMI, the mortgages sold to Wells Fargo
were not recorded nor free from the prior liens. This
deficiency left Wells Fargo in an unsecured and/or subordinate
position on these loans.
To cover the losses arising from the seventeen loans at
issue here, Wells Fargo brought this action against the title
insurer on these loans, Old Republic. Wells Fargo seeks to hold
Old Republic responsible, not for Old Republic’s own misdeeds,
but for the fraudulent settlement activities of one of Old
Republic’s title agents.
3
That title agent, TitlePro, is a title company owned and
operated by Kamran Kahn. As relevant here, the Agency Agreement
between Old Republic and TitlePro provides:
1. APPOINTMENT OF AGENT
Insurer [Old Republic] appoints Agent [TitlePro] a
policy issuing agent for Insurer for the purpose of
signing, countersigning and issuing commitments,
binders, title reports, certificates, guarantees,
title insurance policies, endorsements, and other
agreements under which Insurer assumes liability for
the condition of title . . .
2. AGENT’S DUTIES
Agent shall:
. . .
C. Timely transmit to the appropriate public office
and cause the recording of all documents necessary to
insure the interest, estate or title described in the
policy, and to timely issue appropriate Title
Insurance Forms.
. . .
F. Keep safely in a federally insured trust account
separate from Agent’s operating accounts all funds
received by Agent in connection with transactions
where Insurer’s Title Insurance Forms are issued, and
disburse said funds only for the purposes for which
the same were entrusted, and reconcile all such
accounts not less frequently than monthly.
The Agency Agreement also recognizes that, on some
occasions, TitlePro might serve as a settlement agent. When
TitlePro performed these services, the Agency Agreement
expressly prohibits TitlePro from acting as an agent of Old
Republic:
12. ESCROWS AND OTHER BUSINESS OF AGENT
A. The relationship created by this Agreement does
not extend to (1) any escrow, closing or settlement
business . . . conducted by Agent and/or Agent’s
Principals, employees or Subcontractors . . . or (3)
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to any other activity of Agent . . . that does not
involve the Insurer’s assumption of liability for the
condition of title.
B. Agent agrees not to receive or receipt for any
fund, including escrow funds, in the name of Insurer
but, rather, shall receive and receipt for funds,
including escrow funds, for its own account.
For the transactions at issue here, TitlePro and FMI worked
in tandem to defraud warehouse lenders, ultimately resulting in
losses to Wells Fargo. After FMI secured a buyer of land or a
refinancing opportunity, it sent the necessary mortgage
documents to TitlePro, the appointed settlement agent. TitlePro
then used the loan documents to create the appearance of loan
closings, including completing a HUD-1 Settlement Statement
detailing the actual settlement costs for each settlement
activity. This consequently allowed TitlePro to obtain funds
from FMI’s warehouse lenders (which did not include Wells
Fargo). After obtaining the funds, TitlePro violated its
settlement instructions, failing to use those funds to clear
title or pay off pre-existing deeds of trust, and instead
transferred the funds to FMI. For many transactions, FMI also
created multiple unrecorded “first” mortgages on each property
by having borrowers sign multiple sets of “original” loan
documents at closing.
After FMI fabricated the notes, it sold these unrecorded
“first” mortgages to several secondary investors, including
Wells Fargo. In each of the seventeen transactions, FMI failed
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(1) to disclose the existence of other “first” mortgage’s with
prior liens to purchasers of these mortgages and (2) to record
the mortgages it subsequently sold. Wells Fargo dealt with FMI
exclusively, sending payment for the notes directly to FMI’s
accounts. It did not interact with TitlePro or Old Republic in
any way.
In the first transaction, Taneja refinanced his Summit
Drive home for $2,950,000, borrowing funds from FMI. The HUD-1
listed TitlePro as the settlement agent and required TitlePro to
pay off the prior deed of trust in favor of BB&T Bank. After
retrieving funds from a warehouse lender, TitlePro applied them
to release the prior deed of trust from record. It also
properly recorded the deed of trust in favor of FMI. After the
closing, Taneja fabricated numerous other $2,950,000 notes and
deeds of trust, selling one to Wells Fargo. TitlePro possessed
only the original documents in its files, not the other
falsified instruments. No deed of trust on the Summit Drive
property secured the note purchased by Wells Fargo because the
deed of trust in the public records secured a note with an
interest rate of 6.25%, not Wells Fargo’s note with an interest
rate of 6.375%. Taneja admitted to perpetrating this fraud on
his own, without the assistance of TitlePro.
The next transaction involved a refinance of a property on
Poland Road. The owners obtained two loans from FMI in the
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amount of $613,600 and $115,050. The HUD-1 required the first
loan to pay off two prior deeds of trust in favor of Bank of
America. TitlePro did in fact pay off those deeds of trust,
releasing their hold on the property. The HUD-1 also required
TitlePro to disburse the second loan to the borrowers. TitlePro
did so and recorded the deeds of trust securing both notes. Old
Republic issued a Commitment letter for this property, which
required a Credit Line Deed of Trust securing $4,345,000 to be
paid off and released of record. Because the borrowers did not
borrow enough money, and not because of TitlePro’s mishandling
of the funds, this condition remained unsatisfied, and the
insurance policy never issued. Taneja, through FMI, fabricated
duplicated mortgage notes for these loans and sold them to Wells
Fargo.
The next fourteen transactions followed a different scheme. 2
In each of these transactions, TitlePro filled out a HUD-1
settlement statement and received loan proceeds from the
2
These transactions involved fourteen properties with one
note each: 15903 Carroll Ave., 20251 Mohegan Dr., 2524 Hilda’s
Way, 13997 Sawteeth Way, 2247 Christy Pl., 3375 Oakham Mount
Dr., 14763 Winding Loop, 12547 Armada Pl., 9671 Janet Rose Ct.,
3446 Caledonia Circle, 2827 Wakewater Way, 17588 Victoria Falls
Dr., 7918 Edinburgh Dr., and 15009 Lutz Ct. Wells Fargo did not
come forward with a Commitment for one transaction, 3375 Oakham
Mount Dr. The lack of a Commitment on this property would
affect Old Republic’s contractual liability to Wells Fargo, but
we need not reach this issue because of our equally applicable
reasons for disposing of this claim.
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warehouse lender. The HUD-1 Settlement Statements required
TitlePro to use these funds to pay off the prior deeds of trust
on the properties. For all these transactions, TitlePro failed
to pay the prior deeds of trust and release them of record.
TitlePro also failed to record the new deeds of trust in favor
of FMI that “secured” the notes eventually sold to Wells Fargo.
Because Old Republic’s Commitment letters required the prior
deeds to be “paid and released of record” as a condition of
issuing the title insurance policies, Old Republic did not issue
policies on these transactions.
For some of these transactions, Old Republic also issued a
standard-form closing protection letter (“CPL”), agreeing to
reimburse FMI and its successors for losses arising out of an
issuing agent’s misconduct in closing a transaction, including:
1. Failure of the 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 by said interest in land or the validity,
enforceability and priority of the lien of said
mortgage on said interest for land, including the
obtaining of documents the disbursement of funds
necessary to establish such status of title or lien.
2. Fraud or dishonesty of the issuing Agent or
Approved Attorney in handling your funds or documents
in connection with such closings . . .
Wells Fargo now possesses the seventeen worthless notes in its
residential mortgage portfolio, all of which are presently in
default.
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II.
On March 18, 2009, Wells Fargo filed this action against
Old Republic, alleging six claims: (1) breach of contract; (2)
a business conspiracy in violation of § 18.2-499 of the Virginia
Code; (3) common law civil conspiracy; (4) fraud; (5) violations
of Virginia’s Wet Settlement Act, Va. Code Ann. § 6.1-2.13; and
(6) negligence. For all but the breach of contract claims,
Wells Fargo alleged that TitlePro acted as Old Republic’s agent
when it closed the disputed transactions.
Properly applying Virginia law, the district court granted
summary judgment to Old Republic. First, it rejected Wells
Fargo’s contention that Virginia’s Consumer Real Estate
Settlement Protection Act (“CRESPA”) made Old Republic liable,
reasoning that CRESPA does no more than authorize non-attorneys,
including title agents, who meet specific statutory conditions
to serve as settlement agents, Va. Code Ann. § 55-525.19 (2011).
Second, the district court held that TitlePro did not have
actual agency authority because the Agency Agreement explicitly
prohibited TitlePro from acting as a settlement agent on Old
Republic’s behalf. Third, in accord with Virginia law, the
district court rejected Wells Fargo’s theory of apparent
authority, reasoning that Wells Fargo did not reasonably rely on
Old Republic’s conduct or statements allegedly cloaking TitlePro
with apparent authority to act as a settlement agent on Old
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Republic’s behalf. For these reasons, the district court also
granted summary judgment to Old Republic on the conspiracy, Wet
Settlement Act, and fraud claims. Finally, the court rejected
the breach of contract claim, reasoning that Old Republic could
assert the same defenses against Wells Fargo as it could against
the assignor of the contract, FMI, and one such defense -- fraud
-- shielded it from contractual liability. 3 Thus, the district
court granted summary judgment to Old Republic on all claims.
III.
Wells Fargo noted a timely appeal. On appeal, Wells Fargo
argues that (1) an assertedly “ambiguous” agency agreement and
Old Republic’s course of conduct raise genuine issues of
material fact as to the scope of TitlePro’s agency; (2) the
district court misinterpreted CRESPA; (3) TitlePro furthered the
conspiracy by issuing title insurance instruments, as authorized
by Old Republic, thus making the latter liable in conspiracy;
(4) a provision in Old Republic’s title insurance policy
absolved Wells Fargo (an innocent purchaser for value) of any
fraud-based defenses Old Republic may have against FMI. We
3
The district court also ruled that the negligence claim
failed because, in negligence claims, the common law duty
protecting person or property does not extend to Wells Fargo’s
acquisition of worthless notes. Wells Fargo does not challenge
this holding on appeal.
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review a grant of summary judgment de novo, examining the facts
in the light most favorable to the nonmoving party. See
Anderson v. Russell, 247 F.3d 125, 129 (4th Cir. 2001).
After having the benefit of oral argument and carefully
reviewing the briefs, record, and controlling legal authorities,
we conclude that the district court's analysis was correct. We
note that at oral argument before us, Wells Fargo vigorously
contended that Section 2 of the Agency Agreement conflicts with
Section 12, thus rendering the agreement ambiguous. Wells
Fargo, however, is mistaken.
The two provisions of the Agency Agreement do not conflict,
but rather serve separate, but complementary ends. On one hand,
Section 2 requires TitlePro to record documents “necessary to
insure the interest,” not every document necessary to close the
transaction. The primary purpose of this settlement-like duty
is to “minimize the risk of loss under the title insurance
policies,” not create a general agency relationship capturing
all the agent’s settlement activities. Fidelity Nat’l Title
Ins. Co. v. Mussman, 930 N.E.2d 1160, 1168 (Ind. Ct. App. 2010).
On the other hand, in Section 12, Old Republic unequivocally
withholds consent for TitlePro to act as an agent when TitlePro
performs “any escrow, closing or settlement” services (emphasis
added). Courts throughout the country, including those
interpreting Virginia law, agree that such an express limitation
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on agency duties controls. See, e.g., First Am. Title Ins. Co.
v. First Alliance Title, Inc., 718 F. Supp. 2d 669 (E.D. Va.
2010); see also Bluehaven Funding, LLC v. First Am. Title Ins.
Co., 594 F.3d 1055 (8th Cir. 2010); Northeast Credit Union v.
Chicago Title Ins. Co., No. 09-cv-71-PB, 2010 WL 4851075 (D.N.H.
Nov. 23, 2010); Proctor v. Metro. Money Store Corp., 579 F.
Supp. 2d 724 (D. Md. 2008); Fidelity Nat’l Title Ins. Co., 930
N.E.2d 1160; Business Bank of St. Louis v. Old Republic Nat’l
Title Ins. Co., 322 S.W.3d 548 (Mo. Ct. App. 2010).
Accordingly, we affirm on the basis of the district court's
well reasoned opinion. See Wells Fargo Bank, N.A. v. Old
Republic Nat’l Title Ins. Co., No. 1:09-cv-00297-CMH-TRJ (E.D.
Va. Dec. 17, 2009).
AFFIRMED
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