Centurion Props. III, LLC v. Chi. Title Ins. Co.

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Supreme Court Cieri<
IN THE SUPREME COURT OF THE STATE OF WASHINGTON
CERTIFICATION FROM THE UNITED )
STATES COURT OF APPEALS FOR THE )
NINTH CIRCUIT ) No. 91932-1
IN )
) En Bane
CENTURION PROPERTIES Ill, LLC; SMI )
GROUP XIV, LLC, )
) Filed JUL. 1 4 2016
Plaintiffs-Appellants, )
)
v. )
)
CHICAGO TITLE INSURANCE )
COMPANY, a Nebraska company, )
)
Defendant-Appellee. )
)
WIGGINS, J,-The United States Court of Appeals for the Ninth Circuit certified
the following question to this court: "Does a title company owe a duty of care to third
parties in the recording of legal instruments?" We answer the certified question no and
hold that title companies do not owe a duty of care to third parties in the recording of
legal instruments. Such a duty is contrary to Washington's policy and precedent, and
other duty of care considerations.
Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1
FACTS
This certified question arises from a civil action for money damages filed in the
United States District Court for the Eastern District of Washington. Plaintiffs Centurion
Properties Ill LLC (CP Ill) and SMI Group XIV LLC (collectively Plaintiffs) assert that
defendant Chicago Title Insurance Company negligently breached its duty of care and
caused damages when it recorded unauthorized liens on CP Ill's property.
Michael Henry, the sole member of SMI, joined with Thomas Hazelrigg to form
CP Ill. They formed CP Ill in order to purchase property and commercial buildings in
Richland, Washington. They further agreed that 90 percent of CP Ill would be owned
by individuals and entities controlled by Hazelrigg and 10 percent would be owned by
SMI. Aaron Hazelrigg, through nonparty Centurion Management Ill LLC, was the
managing member of CP Ill.
To purchase the property, CP Ill obtained a $70.8 million loan from General
Electric Capital Corporation (GECC). The loan was secured by a deed of trust on the
property naming GECC as the beneficiary. The deed of trust and two other
instruments-the CP Ill operating agreement and the GECC loan agreement-
prohibited the placement of any liens or encumbrances on the property without
GECC's approval. Any unauthorized lien or encumbrance would constitute an event
of default.
Defendant Chicago Title served as escrow agent, closing agent, and title
insurer for the purchase of the property at issue. Chicago Title recorded the GECC
deed of trust and is named trustee for GECC's senior lien. Chicago Title, as trustee,
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Centurion Props. 1/1, LLC v. Chicago Title Ins. Co., No. 91932-1
also received and reviewed copies of the CP Ill operating agreement and the GECC
loan agreement as part of the transaction.
Following the sale, four liens were placed on the property without GECC's
approval. The four unauthorized liens were recorded by Chicago Title: two separate
deeds of trust granted by CP Ill in favor of Centrum Financial Services Inc.; a deed of
trust granted by CP Ill to Trident Investments Inc.; and a memorandum of agreement
between CP Ill and Trident. Two additional liens are not at issue in this case.
Each of these liens was a facially valid instrument: the instruments bore the
correct legal description, and they were all signed and notarized through Centurion
Management by either Aaron Hazelrigg or Thomas Hazelrigg as director of CP
Management on behalf of CP 111. 1 Chicago Title initially recorded Centrum Financial's
deed of trust in conjunction with issuing a commitment for title insurance. The
remaining three recordings were done as accommodations.
Later, GECC obtained a title report and learned of the four (prohibited) liens
that Chicago Title recorded. GECC notified CP Ill that the junior liens were events of
default and accelerated the entire unpaid balance of the loan, imposing a default rate
of interest. Though CP Ill attempted to refinance the loan, no lender would refinance
it while the prohibited liens remained on CP Ill's title. GECC moved forward with its
foreclosure, forcing CP Ill to file for bankruptcy2
1 Plaintiffs allege that even though these liens were purportedly entered into by Centurion
Management on behalf of CP Ill, they were not authorized liens. They further assert that
Chicago Title was under a duty to look behind the instruments to determine whether the
signatures were, in fact, valid.
2 During this time, Henry, as the sole member of SMI, took control of CP Ill from the
Hazel riggs. He is now the sole owner of both companies.
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Plaintiffs filed a civil action against the Hazelriggs, Centrum Financial, and
others, alleging that the named defendants misappropriated funds from CP Ill,
improperly transferred ownership of CP Ill, and secretly placed liens on CP Ill's
property. These claims sought to (1) enjoin foreclosure of the allegedly unauthorized
liens and (2) quiet title by voiding the instruments that created them. Plaintiffs later
added a sole complaint against Chicago Title; this complaint asserted that Chicago
Title was negligent in recording the prohibited liens and that the resulting defaults
caused CP Ill to incur more than $7.5 million in damages, including $3 million in
default interest. The claims against all other parties settled, leaving only the
negligence claim against Chicago Title. The district court dismissed this claim on
summary judgment, finding that Chicago Title did not owe Plaintiffs a duty of care.
Centurion Props. Ill, LLC v. Chi. Title Ins. Co., No. CV-12-5130-RMP, 2013 WL
3350836 (E.D. Wash. July 3, 2013) (court order). Plaintiffs appealed, and the Ninth
Circuit certified its question to this court. Centurion Props. Ill, LLC v. Chi. Title Ins. Co.,
793 F. 3d 1087 (9th Cir. 2015). We accepted review pursuant to RCW 2.60.020.
ANALYSIS
We are asked whether a title insurance company owes a duty of care to third
parties in the recording of legal instruments. A duty of care is '"an obligation, to which
the law will give recognition and effect, to conform to a particular standard of conduct
toward another."' Affil. FM Ins. Co. v. LTK Consulting Servs., Inc., 170 Wn.2d 442,
449, 243 P.3d 521 (2010) (internal quotation marks omitted) (quoting Transamerica
Title Ins. Co. v. Johnson, 103 Wn.2d 409, 413, 693 P.2d 697 (1985). The duty of care
question implicates three main issues-the existence of a duty, the measure of that
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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1
duty, and the scope of that duty. /d. (quoting DAN B. DOBBS, THE LAW OF TORTS§ 226,
at 578 (2000)). "In a negligence action, in determining whether a duty is owed to the
plaintiff, a court must not only decide who owes the duty, but also to whom the duty is
owed, and what is the nature of the duty owed." Keller v. City of Spokane, 146 Wn.2d
237, 243, 44 P.3d 845 (2002). The existence of a duty and the scope of that duty are
questions of law, and both are determined by considering the factors listed below.
We consider logic, common sense, justice, policy, and precedent, as applied to
the facts of the case, when determining whether a defendant owes a duty in tort. Affil.
FM Ins. Co., 170 Wn.2d at 449. We have long applied these factors when defining
"duty," and they can be traced back for more than 100 years. 3 We apply these factors
here. We first examine precedent and analyze whether our decisions or the decisions
of neighboring jurisdictions support finding a duty here. We next consider whether
Washington's policy of protecting the rights of property owners through the title
recording system is advanced or frustrated by imposing a legal duty of care. Finally,
we consider logic, common sense, and justice. These considerations lead us to
conclude that a title insurance company does not owe a duty of care to third parties in
the recording of legal instruments.
I. Standard of review
Certified questions from a federal court are questions of law that we review de
novo. Gray v. Sutte/1 &Assocs., 181 Wn.2d 329, 337, 334 P.3d 14 (2014). We consider
3 The original language from 1 Thomas Atkins Street, The Foundations of Legal Liability 100,
110 (1906) is quoted time and again from Affiliated FM Insurance Co., 170 Wn.2d at 449, to
Snyder v. Medical Service Corp. of Eastern Washington, 145 Wn.2d 233, 243, 35 P.3d 1158(2001 ), to Hartley v. State, 103 Wn.2d 768, 779, 698 P.2d 77 (1985), to King v. City of Seattle,
84 Wn.2d 239, 250, 525 P.2d 228 (1974).
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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1
the legal issues not in the abstract but rather based on the certified record provided
by the federal court. /d. (citing RCW 2.60.030(2)). Our ruling is not advisory-pursuant
to RCW 2.60.020, our ruling in answer to the certified question resolves actual issues
pending in the federal proceeding and will be legal precedent in all future
controversies involving the same legal question. /d.
II. Precedent
We first consider precedent. Whether a title insurance company owes a duty of
care to third parties in the recording of legal instruments is a question of first
impression for this court. However, our precedent firmly supports the conclusion that
the answer to this certified question is no.
Our analysis begins by considering the duties owed by title insurance
companies in prior cases. We next consider other circumstances that have led us to
recognize a professional duty of care. Washington law treats professional duties as
discrete duties owed to clients-absent a special relationship, we have extended a
professional duty of care to third parties only (1) when the third party is an intended
beneficiary, (2) when the third party justifiably relied on a professional's
representations under a theory of negligent misrepresentation, or (3) when a
professional is best able to mitigate the risk of a physical injury. See, e.g., Stewart
Title Guar. Co. v. Sterling Sav. Bank, 178 Wn.2d 561, 567, 311 P.3d 1 (2013) (no duty
to nonclient absent intent to benefit nonclient); ESCA Corp. v. KPMG Peat Marwick,
135 Wn.2d 820, 832, 959 P.2d 651 (1998) (negligent misrepresentation); Affil. FM Ins.
Co., 170 Wn.2d at 545 (engineer owed a duty of care to third parties who may be
harmed by engineer's negligence). Because Plaintiffs do not assert a theory of
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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1
negligent misrepresentation, our analysis considers our rule limiting duties to third
parties who are intended beneficiaries and the rationale extending a duty to
professionals able to mitigate the risk of physical injury. We conclude by considering
the approaches of Arizona and California, the only other states to consider the duty
owed by a title insurance company to a third party when recording legal instruments.
A. Title insurance companies do not owe a general duty to clients to search for
and disclose potential title defects when issuing preliminary commitments
Title insurance companies may perform several services for their own benefit
or for their client's benefit. Consistent with chapter 48.29 RCW ("Title Insurers"), our
analysis of the duty owed by title insurance companies to their clients follows the
nature of the service at issue.
Though we have not considered the duty owed by a title insurance company to
nonclient third parties, we thoroughly analyzed and explored the duty of a title insurer
to its clients-namely to its insureds-in Barstad v. Stewart Title Guaranty Co., 145
Wn.2d 528, 541, 39 P.3d 984 (2002). We specifically considered a title insurance
company's duty to search for and/or to disclose title defects to its clients when issuing
a preliminary commitment. We held that title insurance companies do not owe their
clients a duty to search for and/or to disclose title defects when preparing a
"preliminary title commitment" pursuant to the plain language of RCW 48.29.01 0(3)(c).
/d. at 530. To reach this conclusion, we considered the meaning of chapter 48.29
RCW, the legislative purpose of that statutory scheme, and standard industry practice,
and we conducted a comparative analysis of other states in the Ninth Circuit. /d. at
535-42.
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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1
Barstad considered the general duties imposed on title insurance companies
by chapter 48.29 RCW. /d. at 535. There, the insureds asserted that title insurers owe
a duty of care when preparing abstracts of title and argued that a preliminary title
commitment serves the same purpose as an abstract of title, giving rise to the same
duty of care. /d. We rejected this argument. /d.
We began by examining the definitions of the services performed-and
resultant duties owed-by title insurers. /d. We observed that an abstract of title is
"a written representation, provided pursuant to contract, whether written
or oral, intended to be relied upon by the person who has contracted for
the receipt of such representation, listing all recorded conveyances,
instruments, or documents which, under the laws of the state of
Washington, impart constructive notice with respect to the chain of title
to the real property described. An abstract of title is not a title policy as
defined in this subsection."
/d. at 535 n.8 (quoting former RCW 48.29.01 0(3)(b) (1997) 4 ). Due to the contractual
and reliance principles associated with an abstract, we noted that we have long
recognized the potential duties associated with an abstract of title. /d. at 539 n.14.
We contrasted this service with the statutory definition of a "preliminary
commitment" at RCW 48.29.01 0(3)(c):
'"Preliminary report,' 'commitment,' or 'binder' means reports furnished
in connection with an application for title insurance and are offers to issue
a title policy subject to the stated exceptions in the reports, the conditions
and stipulations of the report and the issued policy, and such other
matters as may be incorporated by reference. The reports are not
abstracts of title, nor are any of the rights, duties, or responsibilities
applicable to the preparation and issuance of an abstract of title
applicable to the issuance of any report. Any such report shall not be
construed as, nor constitute, a representation as to the condition of the
title to real property, but shall constitute a statement of terms and
4Minor wording changes were made in 2005 but do not alter the meaning. LAWS OF 2005,
ch. 223, § 14.
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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1
conditions upon which the issuer is willing to issue its title policy, if such
offer is accepted."
/d. at 535 n.8 (quoting former RCW 48.29.01 0(3)( c) 5). We observed that a preliminary
commitment is "merely an offer to issue the title insurance subject to the stated
conditions." /d. at 536 (citing former RCW 48.29.010(3)(c)). This research is
performed specifically for the title insurance company's benefit and not for the benefit
of the insured. /d. at 540.
We also considered industry practice, legislative intent, and the approach of
other jurisdictions, as well as the insured's argument that title insurance companies
owe a fiduciary duty to disclose title defects. /d. at 542-44. Every one of these
considerations led to the conclusion that title insurance companies have no general
duty to disclose potential or known title defects when they are not preparing an
abstract of title because these services are not prepared for or intended to be relied
on by a person other than the insurer. /d. at 530.
Our holding in Barstad follows a long line of cases in which we have rejected
attempts to impose a duty on title insurance companies to search for and disclose title
defects. See, e.g., Transamerica Title Ins. Co. v. Johnson, 103 Wn.2d 409, 413-14,
693 P.2d 697 (1985) (no reliance by third party on title insurer's preliminary
commitment); Klickman v. Title Guar. Co. of Lewis County, 105 Wn.2d 526, 528, 716
P.2d 840 (1986) (no liability because no title defect); Lombardo v. Pierson, 121 Wn.2d
5 Minor wording changes were made in 2005, including the following changes to the final
sentence of subsection (3)(c): "Any such The report shall not be construed as, nor constitute,
is not a representation as to the condition of the title to real property, but shall constitute is a
statement of terms and conditions upon which the issuer is willing to issue a its title policy, if
stiGA the offer is accepted." LAWS OF 2005, ch. 223, § 14. The changes do not affect our
analysis.
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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1
577, 581-83, 852 P.2d 308 (1993) (same). These cases strongly suggest that title
insurers do not owe a duty of care to third parties when merely recording legal
instruments.
Title companies may record documents with the county recorder's office in
conjunction with the issuance of a title commitment or policy, or as a separate
accommodation recording at the request of the customer. Here, Chicago Title
recorded Centrum Financial's deed of trust in conjunction with issuing a commitment
for title insurance and later completed three such accommodation recordings. No
party requested an abstract of title, and none of these recordings was done at the
request of Plaintiffs.
Chicago Title did not have a duty to identify or disclose title defects to its client,
Centrum Financial, in preparing a commitment for title insurance; such a duty is owed
only in preparing an abstract of title. Accord Barstad, 145 Wn.2d at 536; former RCW
48.29.010(3)(b), (3)(c). Further, Washington's title insurance and recording statutes
do not impose liability for the negligent recording of titles. See generally ch. 48.29
RCW; ch. 65.08 RCW. Because our title insurer liability precedent does not support
finding a duty to identify and disclose title defects to its own clients, it cannot support
extending this duty of care to nonclient third parties when recording a legal instrument,
particularly when that legal instrument is facially valid, as it is here. 6
6 Plaintiffs cite Hu Hyun Kim v. Lee for the proposition that title companies owe a duty of
reasonable care when fulfilling professional when fulfilling professional obligations and giving
professional advice to their clients. 145 Wn.2d 79, 91, 31 P.3d 665 (2001) (title company
negligent in rendering an expert opinion when it failed to discover and disclose an existing,
recorded, and perfected lien on the client's property). We are unpersuaded by Kim on these
facts in view of our decision two years later in Barstad, 145 Wn.2d 528, where we held that
title insurance companies do not have a duty of care when preparing commitment reports
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B. Our other title insurance company cases do not inform our analysis of this
issue
Plaintiffs' citations to other cases holding that title insurance companies owe
duties in tort are not well taken.
Plaintiffs cite Denaxas v. Sandstone Court of Bellevue, LLC, 148 Wn.2d 654,
663, 63 P.3d 125 (2003) for the proposition that title insurance companies have a duty
to exercise reasonable care in carrying out their instructions. However, Denaxas
actually held that "the Title Company did not have a duty to point out the discrepancy
between the legal description in the Agreement and that in the closing documents."
/d. To the extent Denaxas discussed a duty to follow instructions, we held that an
"'escrow agent's duties and limitations are defined . . . by his instructions."' /d.
(alteration in original) (quoting Nat'/ Bank of Wash. v. Equity Investors, 81 Wn.2d 886,
910, 506 P.2d 20 (1973)). This point arises strictly out of the specific characteristics
governing escrow holders-characteristics that are undisputedly not at issue in this
case as Chicago Title did not perform any escrow services. See Nat'/ Bank of Wash.,
81 Wn.2d at 910.
Plaintiffs also rely on Walker v. Transamerica Title Insurance Co., 65 Wn. App.
399, 828 P.2d 621 (1992). But Walker addresses only proximate cause; the court did
not address duty because Transamerica Title conceded duty for the purpose of its
summary judgment motion. /d. at 402. Further, Walker involved the recording of a
under RCW 48.29.010. Kim addresses neither chapter 48.29 RCW nor liability in regard to
commitments. Furthermore, there being no contract here between Chicago Title and CP Ill,
Kim cannot inform our analysis of the certified question before us.
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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1
facially invalid lien that did not contain a description of the property at issue. /d. at 401.
Walker does not inform our duty analysis.
C. Absent a substantial risk to public safety or property damage, professionals
do not owe a duty to third parties when the transaction at issue is not intended
to benefit the third party
The duty of a title insurance company to third parties is a question of first
impression to this court. Therefore, we turn to analogous considerations of a
professional's duty to third-party nonclients for guidance. Using a modified version of
California's multifactor test,? we recently considered whether attorneys owe nonclient
third parties a duty of care in Sterling Savings Bank, 178 Wn.2d 561. Because our
multifactor test is derived from the California test applied in Seeley v. Seymour, 190
Cal. App. 3d 844, 237 Cal. Rptr. 282 (1987) (see infra Section II .D) and because the
issue of a lawyer's duty to a nonclient is similar to the duty of a title insurer to a
nonclient, our analysis in Sterling is instructive to our analysis here.
In Sterling, we applied a multifactor test designed to determine when an
attorney rnay be liable for malpractice to a nonclient third party. These factors are:
"1. The extent to which the transaction was intended to benefit the
plaintiff [that is, the third party suing the attorney];
"2. The foreseeability of harm to the plaintiff;
"3. The degree of certainty that the plaintiff suffered injury;
"4. The closeness of the connection between the defendant's .
conduct and the injury;
7 We first adopted the multifactortest in Trask v. Butler, 123 Wn.2d 835, 872 P.2d 1080 (1993).
In Trask, we considered California's multifactor test and the Illinois "third party beneficiary''
test in deciding whether an attorney owes a duty to a nonclient. /d. at 840. After discussing
both tests, the court combined the two and created Washington's modified multifactor test.
/d. at 841-43.
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"5. The policy of preventing future harm; and
"6. The extent to which the profession would be unduly burdened by
a finding of liability."
178 Wn.2d at 565-66 (first alteration in original) (quoting Trask v. Butler, 123 Wn.2d
835, 843, 872 P.2d 1080 (1994)). Quoting Trask, we explained that the first factor is
the '"primary inquiry"' in determining liability to third parties. /d. (quoting Trask, 123
Wn.2d at 842). We further explained that "'under the modified multifactor balancing
test, the threshold question is whether the plaintiff is an intended beneficiary of the
transaction to which the advice pertained'" and held that "'no further inquiry need be
made unless such an intent exists."' /d. (quoting Trask, 123 Wn.2d at 843). Ultimately,
we found no duty because the transaction at issue was not intended to benefit the
third party. /d. at 570.
These factors do not support finding a duty in this case. Neither Chicago Title's
preliminary commitment and recording nor its subsequent accommodation recordings
for the benefit of its client, Centrum Financial, were intended to benefit CP Ill. Indeed,
the opposite is true-any recording of Centrum Financial's interest in the property
would burden CP Ill. Under the multifactor test, this threshold inquiry is dispositive of
Plaintiffs' claim.
Plaintiffs do not argue that the transaction between Centrum Financial and
Chicago Title was intended to benefit them. Instead, they seem to assert two separate
arguments in support of liability. First, they argue that Chicago Title assumed a duty
of care arising out of the foreseeability of the injury to CP Ill when it agreed to issue a
commitment to Centrum Financial and to record its instruments. Second, they assert
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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1
that Washington law recognizes tort duties by title insurance companies. Our
precedent requires rejection of both arguments.
Plaintiffs' first argument is that liability to CP Ill arises out of Centrum Financial's
instruction to Chicago Title. From this instruction, Plaintiffs argue that Chicago Title
owed them a duty of care "given the obvious and known risks to the landowner." Pis.'
Reply Br. at 7. This assertion assumes that a duty to CP Ill could be inferred from the
contractual agreement between Centrum Financial and Chicago Title, an argument
we reject. See infra Section IV. a. This argument for a duty also appears to be entirely
predicated on the foreseeability of the harm. However, foreseeability of harm is only
one of six factors necessary to determine whether a duty exists. Sterling, 178 Wn.2d
at 566. Further, we do not consider the foreseeability of harm when a transaction is
not intended to benefit the third-party plaintiff. /d. Thus, foreseeability of harm, alone,
is insufficient to support imposing a duty.
Plaintiffs also assert that title insurance companies are professional institutions
charged with the public trust; therefore, they owe a duty of reasonable care to third
parties in the exercise of their professional responsibilities. Recognizing that title
insurance companies may owe a duty of reasonable care to their clients in certain
scenarios not before us today, we hold that the duty considerations do not support
extending the duties owed by title insurance companies to encompass liability to third
parties in the recording of legal instruments.
Plaintiffs rely heavily on a recent decision establishing a professional duty of
care toward third parties under a theory of general negligence. See Affil. FM Ins. Co.,
170 Wn.2d at 453-54. Plaintiffs read Affiliated FM Insurance Co. too broadly: the policy
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considerations, precedent, logic, justice, and common sense underlying that decision
are not present here.
In Affiliated FM Insurance Co., we considered a certified question from the
Ninth Circuit. The question asked whether a party who has a contractual right to
operate commercially and extensively on property owned by a nonparty may sue an
engineering consulting firm in tort for damage to that property when the party and the
engineers are not in privity of contract. /d. at 447. The dispute arose from a fire aboard
a train on Seattle's monorail system. /d. at 445. Though the city of Seattle owned the
property that was physically damaged by the fire, Seattle Monorail Service operated
the monorail and suffered significant economic damages as a result of the fire. /d.
Seattle Monorail Services argued that the fire was the result of an engineer's negligent
design and sued, arguing that the engineers were under a duty to Seattle Monorail
Services to exercise reasonable care, despite the lack of contractual privity. /d. at 446.
We found that a duty existed. /d. at 453-54. In doing so, we balanced the risk
to the physical safety of persons and property arising out of an engineer's work against
the usefulness of private ordering (e.g., preference for contractual remedies) and
against the economic burden a duty would place on engineers. See id. at 451-54.
These policy considerations supported the court's analysis that a duty exists where
"the interest in safety is significant" and the engineers occupy a position of control
such that their training, education, and experience place them in the best position to
prevent harms caused by their work. /d. at 453. We also considered precedent, both
here and nationally, finding that the "engineers' common law duty of care has long
been acknowledged in Washington. /d. at 454.
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These considerations do not weigh in favor of a duty here. There is no
significant interest in public safety at issue and no concerns for physical safety. We
therefore reject Plaintiffs' attempts to borrow our professional duty analysis from
inapposite contexts.
D. Other jurisdictions do not provide persuasive authority on this issue
As the Ninth Circuit recognized in its certification order, only two cases have
considered whether title insurance companies owe a duty of care to third parties: the
Arizona Court of Appeals in Luce v. State Title Agency, Inc., 190 Ariz. 500, 950 P.2d
159 (1997) and the California Court of Appeals in Seeley, 190 Cal. App. 3d 844 (1987).
These decisions reach opposite conclusions, in part because the decisions are based
on different legal theories and different facts. Due to the difference in legal theories
and facts, these cases provide limited persuasive reasoning for our consideration in
this case.
On facts nearly identical to this case, the Arizona Court of Appeals considered
whether a title agency owed a professional duty of care to protect a third party from
foreseeable harm when it gratuitously recorded a deed of trust on behalf of a lender.
See Luce, 190 Ariz. at 502. In Luce, a general partner signed a deed of trust to a
lender without the approval of his limited partners, despite the fact that the partnership
agreement required him to have their approval. /d. at 501. The lender asked State
Title Agency to insure the policy and to record the deed of trust. /d. State Title issued
a preliminary title report, provided a lender's policy of title insurance, and gratuitously
recorded the deed. /d. State Title acknowledged that it read the partnership agreement
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during this process, and the court inferred that State Title had actual knowledge of the
agreement's limitations on the general partner's authority. !d.
The limited partners sued, asserting that State Title owed a duty based on either
its review of the partnership agreement or its gratuitous recording of the deed of trust.
!d. at 501-02. The trial court granted summary judgment in favor of State Title, id. at
501, and the Court of Appeals affirmed. !d. at 504. The Court of Appeals first held that
there was no professional duty arising out of the foreseeable harm because State Title
had no contractual relationship with anyone, no special relationship (or indeed, any
relationship at all) with the injured plaintiff, and no ability to control the behavior of the
general partner. !d. at 502-03.s
The facts presented to the Arizona Court of Appeals are virtually identical to
those in the case before us and reinforce our conclusion here. Further, as discussed
supra Section ll.c of this opinion, Washington recognizes that foreseeability of harm
is one of six factors the court considers in deciding whether a duty is owed to a
nonclient. Though Arizona applied a different legal analysis and did not explicitly
consider the intent to benefit, the application of the "intent to benefit" factor would have
resulted in the same conclusion. Their conclusion that no duty exists on analogous
facts supports our decision here.
In Seeley, the California Court of Appeals reached the opposite conclusion on
significantly different facts. See 190 Cal. App. 3d 844. In Seeley, a buyer attempted
8The Arizona Court of Appeals also considered whether State Title owed a duty of care under
Restatement (Second) of Torts § 324A (Am. Law lnst. 1965) and concluded that the section
was inapplicable.
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to buy property owned by Seeley. /d. at 850. Seeley was not interested in selling but
indicated that he would consider a long term lease of the property. /d. at 851. The
parties negotiated the terms of the lease at length but did not come to an agreement.
/d.
Following further negotiations, the buyer unilaterally prepared a "'Memorandum
of Agreement"' that set forth the terms of a 60-year lease between himself and Seeley.
/d. The buyer signed the agreement and had his signature notarized; he never
presented the agreement to Seeley. /d. Instead, the buyer took the agreement to a
title insurance company. /d. The buyer was a regular customer of the title insurance
company, which agreed to file the unsigned agreement for recording. /d. The title
insurance company filed the agreement in a stack of documents insured by their
company, and the recorder recorded the invalid, unsigned encumbrance on Seeley's
property. /d. Seeley knew nothing of this agreement. /d.
The encumbrance affected Seeley's ability to sell his title. /d. at 852. He then
sued the county recording office for negligent recording; he later amended his
complaint and sued the title insurance company for negligence. /d.
The California Court of Appeals considered whether a title insurance company,
not acting as escrow, may be held liable "for the negligent recordation of a
nonrecordable document." /d. at 860. In holding that the title company here was liable,
the court considered six factors:
"(1) the extent to which the transaction was intended to affect the plaintiff;
(2) the foreseeability of harm to the plaintiff; (3) the degree of certainty
that the plaintiff suffered injury; (4) the closeness of the connection
between the defendant's conduct and the injury suffered; (5) the moral
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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1
blame attached to the defendant's conduct; and (6) the policy of
preventing future harm."
!d. at 861 (quoting Earp v. Nobmann, 122 Cal. App. 3d 270, 290, 175 Cal. Rptr. 767(1981 )). As discussed earlier, these factors are comparable to Washington's
multifactor test in Sterling and support our adoption of that test here. Compare Seeley,
190 Cal. App. 3d at 861, with Sterling, 178 Wn.2d at 566.
But there are critical differences between Seeley and this case that limit its
persuasive value here. Seeley first considered whether the transaction was intended
to affect a third-party plaintiff. 190 Cal. App.3d at 861. The transaction was intended
to undermine Seeley's interest in the property. !d. at 861. Conversely, the recordation
in the instant case was intended to secure Centrum Financial's procured lien; there
was no intent to benefit or harm CP 111. 9
Further, the instrument at issue in Seeley was facially invalid. 10 Thus-unlike
our case-the title insurance company in Seeley did not have to review any other
documents to know that the document was not recordable. The title insurer in Seeley
also submitted the facially invalid instrument to a special "'stopped clock"' station. /d.
at 861 n.7. The county recorder automatically recorded all instruments dropped at that
station pursuant to a contract with the title insurer that required the title insurer to
review all documents for recording compliance prior to filing; the title insurer in Seeley
violated its contract with the recording office by submitting the invalid instrument with
other, compliant instruments at this station. /d.
9 In Washington, the factor to be considered is whether the transaction was intended to benefit
the third party. Sterling, 178 Wn.2d at 566 (emphasis added).
10 The Arizona Court of Appeals also distinguished the case on this ground. Luce, 190 Ariz.
at 503 (citing Seeley, 190 Cal. App. 3d at 861 ).
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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1
These facts played a significant role in the Seeley court's evaluation of factors
two, four, five, and six. /d. at 861. The court held that these facts made the harm
foreseeable and that the title insurance company's actions gave the invalid instrument
a presumption of validity-establishing both a close connection between the act and
the harm, and rendering the title insurer's conduct worthy of moral blame. /d. at 861-
62. The title insurance company's violation of the recording statutes as well as its
contract with the county recording office also presented a danger to title stability in the
future, satisfying California's sixth factor. /d. at 862.
These considerations are not present here, where a title insurer presented
facially valid instruments to a county recording office. We discuss the arguments
against burdening title insurance companies to look behind facially valid instruments
before recording throughout this memorandum; in sum, placing this burden on title
insurance companies frustrates Washington's strong public policy of protecting
property owners through the recording process. These factual differences are
substantial; Seeley's facts and conclusions are inappositen
In sum, our precedent supports our conclusion that title insurance companies
have a duty of care in only limited situations outside of a contractual relationship and
no duty to third parties in the recording of legal instruments. Plaintiff's argument that
a duty is created merely because the harm is foreseeable is inconsistent with our
11 We recognize the slight variations between the Seeley factors and the Sterling factors.
Compare Seeley, 190 Cal. App.3d at 861, with Sterling, 178 Wn.2d at 566. Due to the
significant factual differences, we do not address the differences in the factors. We also note
that the Seeley court expressly denied that it was recognizing a "tort of 'negligent slander of
title"' or that liability arose "solely from the recordation of the document." 190 Cal. App. 3d at862 n.8.
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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1
jurisprudence; their remaining citations to our case law and to other jurisdictional
approaches are not instructive to our analysis. Our review of our precedent suggests
that the answer to the certified question is no.
Ill. Public policy does not support extending a duty on title companies recording
legal instruments to search for and disclose potential title defects
We next consider public policy. "The concept of duty is a reflection of all those
considerations of public policy which lead the law to conclude that a 'plaintiff's interests
are entitled to legal protection."' Taylorv. Stevens County, 111 Wn.2d 159, 168, 759
P.2d 447 (1988) (quoting W. PAGE KEETON, ET AL., PROSSER AND KEETON ON THE LAW
OF TORTS § 53, at 357 (5th ed. 1984 )). We balance the interests at stake to determine
whether a title insurance company owes a duty to search for and disclose potential
title defects when recording legal instruments. Accord Affil. FM Ins. Co., 170 Wn.2d at
450.
Plaintiffs encourage us to find a duty, arguing that the Washington state courts
and legislature have long recognized the important public policy of protecting the
rights of property owners. We agree that this is an important policy of this State, but
Plaintiffs are incorrect to suggest that extending a duty of care to title insurance
companies would further this public policy. Washington has a comprehensive title
insurance scheme, see generally ch. 48.29 RCW, and extensive recording
requirements, see generally ch. 65.08 RCW. The purpose of the recording acts is to
ensure stability and certainty of title to real property. See Ellingsen v. Franklin County,
117 Wn.2d 24, 28-29, 810 P.2d 910 (1991 ). These recording requirements further this
purpose by holding recorded interests superior to unrecorded interests. See RCW
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65.08.070. Thus, these statutory schemes further Washington's policy of protecting
property rights by encouraging parties to record their interests.
We evaluate whether finding a duty of care from title insurance companies to
third parties in the recording of legal instruments fulfills or frustrates these public
policies. Washington's statutory schemes do not contemplate liability to third parties
for the negligent recording of titles. See generally ch. 65.08 RCW. In lieu of a statutory
remedy, Washington protects the valid interests of property owners from improper
recording through the torts of slander of title and tortious interference with a contract. 12
Rorvig v. Douglas, 123 Wn.2d 854, 873 P.2d 492 (1994) (slander of title); Calbom v.
Knudtzon, 65 Wn.2d 157, 396 P.2d 148 (1964) (tortious interference). These torts,
discussed below, are not within the scope of this opinion. 13
"Slander of title is defined as: (1) false words; (2) maliciously published; (3) with
reference to some pending sale or purchase of property; (4) which go to defeat
plaintiff's title; and (5) result in plaintiff's pecuniary loss." Rorvig, 123 Wn.2d at 859.
Tortious interference with a contract requires (1) the existence of a valid contractual
relationship or business expectancy, (2) knowledge of the relationship or expectancy
on the part of the interferer, (3) intentional interference inducing or causing a breach
or termination of the relationship or expectancy, and (4) resultant damage to the party
whose relationship or expectancy has been disrupted. Ca/bom, 65 Wn.2d at 162-63.
12 Washington residents may also secure their property rights through equitable actions to
quiet title. See, e.g., Kobza v. Tripp, 105 Wn. App. 90, 93, 18 P.3d 621 (2001 ).
13 CP Ill does not argue that its proposed duty arises out of a special relationship, such as a
fiduciary duty, between itself and Chicago Title. Nor do they argue that Chicago Title acted
maliciously or in bad faith. Plaintiffs assert only that Chicago Title owes them a duty under
general negligence principles. In rejecting Plaintiffs' argument, our decision does not suggest
that title insurance companies are not liable for their intentional torts.
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Neither of these torts is satisfied by simple negligence. Tortious interference
with a contract requires intentional conduct, and slander of title requires malicious
conduct. The reason for this rule is clear: if simple negligence were the rule, a party
claiming an erroneous but good faith interest in real property would not be entitled to
litigate his claim and have an adjudication without fear of being penalized in damages.
See, e.g., Ward v. Mid-West & Gulf Co., 1923 OK 972, 97 Okla. 252, 223 P. 170; see
a/so RESTATEMENT (SECOND) OF TORTS § 773 (AM. LAW INST. 1979) (recognizing
privilege to assert claim in good faith). These heightened requirements further the
policy of protecting the rights of property owners by encouraging property owners to
assert valid property rights while protecting property owners from unlawful claims.
Thus, we agree with Chicago Title that recognizing liability for the "negligent recording"
of a facially valid instrument would have a chilling effect on recording documents and
undermine the goals of RCW 65.08.070. Policy supports our answer of no; to hold
otherwise would frustrate Washington's policy of protecting property rights through the
title recording process.
IV. Considerations of common sense, logic, and justice provide further support
Our conclusion that title insurance companies do not owe third parties a duty
of care when recording legal instruments is consistent with Washington's policies and
precedent. The remaining considerations of common sense, logic, and justice only
reinforce this conclusion.
A. Logic and common sense weigh against finding a duty of care
Logic and common sense require us to reject Plaintiffs' argument that Chicago
Title's duty of care to CP Ill arises out of Centrum Financial's instruction to Chicago
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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1
Title directing it to record the leasehold deed of trust only if they are committed to
providing title insurance. That instruction reads in full:
You may record the Leasehold [deed of trust]. provided you are
irrevocably committed to insure the enclosed Mortgage, on a
mortgagee's extended basis with coverage of $10,000,000.00, as a valid
SECOND lien against the leasehold property which is the subject of the
commitment for title insurance issued under the referenced file number,
subject only to the matters set forth therein.
2 Appellant's Excerpts of R. at 58.
This instruction plainly directs Chicago Title to issue an insurance policy on the
mortgage and to record if it is committed to issue that insurance policy. Chicago Title
did so: it issued a commitment, insured the lien as valid, and recorded it. Under
Barstad, Chicago Title did not owe a duty to Centrum Financial (its actual client) in
issuing the title commitment because the commitment was for Chicago Title's benefit.
145 Wn.2d at 541. If the lien was not valid, Centrum Financial may have had a claim
under its insurance policy. But it is impossible to understand how this action and
agreement between Centrum Financial and Chicago Title created a duty to CP Ill
when CP Ill could not possibly have relied on the commitment or the insurance policy.
See ESCA Corp., 135 Wn.2d at 832 (accountant did not owe a duty of care to bank
absent justifiable reliance on accountant's draft report in making loan).
As a matter of logic and common sense, CP Ill is not entitled to something for
not11ing; not having entered into a contract with Chicago Title relating to future
recordings, CP Ill is not entitled to the benefit of Centrum Financial's bargain with
Chicago Title. Nor are they entitled to have Chicago Title review operating agreements
and presumably lengthy loan agreements without a contract for-and paying for-that
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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1
benefit. These factors reinforce our conclusion that title insurance companies do not
owe third parties a duty of care when recording legal instruments.
B. Justice does not support finding a duty to search for and disclose potential
title defects to third-party nonclients
Finally, considerations of justice do not support finding a duty of care for the
recording of these legal instruments. This factor supports placing liability on the party
best able to mitigate or control the anticipated harm. Cf. Affil. FM Ins. Co., 170 Wn.2d
at 453-54 (responsibility on party best able to mitigate the risks; balancing engineer's
ability to design a project safely against an "innocent party who never had the
opportunity to negotiate the risk of harm"); see also Zabka v. Bank of Am. Corp., 131
Wn. App. 167, 173, 127 P.3d 722 (2005) (bank owed no duty of care to plaintiffs who
could have easily taken steps to avoid fraud by bank's customer). Here, the manager
of CP Ill had signed the documents filed by Chicago Title. When facially valid
instruments are at issue, justice supports placing liability on the parties to those
instruments.
Plaintiffs urge us to hold that justice requires title insurance companies to look
behind the signatures on the document and police the parties' agreements against
conflicting corporate documents or loan agreements. This is not a just result, and
placing this burden on title insurance companies increases their costs, slows the
recording process, and frustrates public policy, with no appreciable benefit. Here, the
existence of the invalid liens was the result of an (arguably invalid) agreement
between CP Ill and Centrum Financial. These liens, which were signed and notarized
by CP Ill's manager, placed CP Ill in default and caused damages. These actions
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Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1
placed CP Ill in default regardless of any action taken by Chicago Title. We decline to
impose these damages on Chicago Title. 14
After considering each of the duty factors, we hold that title insurance
companies do not owe third parties a duty of care when recording legal instruments.
CONCLUSION
In light of the foregoing, we answer the certified question as follows:
Question: Does a title company owe a duty of care to third parties in the
recording of legal instruments?
Answer: No.
14 Plaintiffs' argument that Chicago Title "knew" it was recording invalid liens is unavailing.
Chicago Title conceded, for the purposes of its summary judgment motion arguing that it did
not owe Plaintiffs a duty, that it could be charged with knowledge of the GECC loan
agreement's prohibition on secondary liens because it had access to that information but did
not check it. Washington recognizes that both actual and constructive notice provides a party
with knowledge of another person's real property interest. E.g., Miebach v. Colasurdo, 102
Wn.2d 170, 175-76, 685 P.2d 1074 (1984). Requiring title insurance companies to look behind
every facially valid instrument because they have documents in their possession that may
undermine that instrument frustrates public policy, increases costs, and asks title insurance
companies to police legal instruments entered into by the independent parties.
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WE CONCUR.
27