Case Number: BC484058    Hearing Date: August 12, 2014    Dept: 34

(1) Motion by North American Title Insurance Company for summary judgment, or in the alternative summary adjudication;

(2) Motion by North American Title Company for summary judgment, or in the alternative summary adjudication

Moving Party: (1) Defendant and cross-complainant North American Title Insurance Company (“NATIC”); (2) Defendant and cross-complainant North American Title Company (“NATC”)

Resp. Party: Plaintiffs Roland Covey and Equity Trust Company Custodian FBO Robert Renko IRA (“plaintiffs”); Defendants and cross-defendants Rennis R. Wilkerson Jr. and Wilkerson Appraisal Service (“Wilkerson”); joinder by defendant Union Home Loan Inc., Stephen Goldfield, Emily Goldfield, and Daniel Goldfield

NATIC’s request for summary adjudication of plaintiffs’ eighteenth cause of action is GRANTED. NATIC’s motion is otherwise DENIED.

NATC’s motion for summary judgment / adjudication is DENIED.

NATIC, NATC, and Wilkerson’s Requests for Judicial Notice are DENIED. These items are in the record of this action and judicial notice of their existence is not necessary. The Court declines to take judicial notice of the truth of the matters asserted in these documents. (See Weil & Brown, Cal. Prac. Guide: Civ. Pro. Before Trial (The Rutter Group 2008), ¶ 7:15.1 [citing, e.g., Day v. Sharp (1975) 50 Cal.App.3d 904, 914); Saltarelli & Steponovich v. Douglas (1995) 40 Cal.App.4th 1, 5; Magnolia Square Homeowners Assn. v. Safeco Ins. Co. (1990) 221 Cal.App.3d 1049, 1056-1057].)

Plaintiff’s Objections to Declaration of Robert Acio filed in support of NATIC’s Motion for Summary Judgment:

Objection
2 OVERRULED
3 SUSTAINED
4 OVERRULED
5 OVERRULED
6 SUSTAINED
7 SUSTAINED
8 SUSTAINED

Plaintiff’s Objections to Declaration of Pamela del Paine filed in support of NATIC’s Motion for Summary Judgment:

Objection
1 OVERRULED
2 OVERRULED
3 SUSTAINED
4 SUSTAINED
5 SUSTAINED
6 SUSTAINED

Plaintiff’s Objections to Declaration of Robert Acio filed in support of NATC’s Motion for Summary Judgment:

Objection
1 OVERRULED
2 OVERRULED
3 SUSTAINED
4 OVERRULED
5 OVERRULED
6 OVERRULED
7 OVERRULED
8 OVERRULED
9 SUSTAINED
10 SUSTAINED

Plaintiff’s Objections to Declaration of Pamela del Paine filed in support of NATIC’s Motion for Summary Judgment:

Objection
1 OVERRULED
2 OVERRULED
3 SUSTAINED
4 SUSTAINED
5 SUSTAINED
6 SUSTAINED

NATC’s Objections to Declaration of Charles Hansen:

Objection
1 OVERRULED
2 OVERRULED
3 OVERRULED
4 OVERRULED
5 OVERRULED
6 OVERRULED
7 OVERRULED
8 OVERRULED
9 OVERRULED
10 OVERRULED
11 OVERRULED
12 OVERRULED
13 OVERRULED
14 OVERRULED
15 OVERRULED
16 OVERRULED
17 OVERRULED
18 OVERRULED
19 OVERRULED
20 OVERRULED
21 OVERRULED
22 OVERRULED
23 OVERRULED

PRELIMINARY COMMENTS:

On May 1, 2014, the Court granted Wilkerson’s request to continue the hearing on the Motions for Summary Judgment to allow him to take further discovery. Therefore, in ruling on these motions, the Court has considered the amended oppositions, filed on July 29, 2014, and not the original oppositions.

In the Court’s Trial Orders (available in Dept. 34 and on-line at http://www.lasuperiorcourt.org/courtroominformation/ui/resultpopup.aspx?value=LAM/34.), the Court advised the parties:

“On motions for which there are numerous exhibits and/or citations to case authorities (e.g., motions for summary judgment and anti-SLAPP motions) the court would appreciate a courtesy copy of the pleadings and exhibits on a CD-ROM or flash drive. The CD or flash drive should have the relevant pleadings, with the case authority and exhibits hyper-linked to the references within the document itself. Thus, in the memorandum of points and authorities, the case citation would be hyperlinked to the case itself (as is currently done on LEXIS or WESTLAW). Similarly, if the party is citing to a specific exhibit in a Statement of Undisputed Facts or MPA, the citation would be hyperlinked, so the Court can click on the hyperlink and the relevant page and line of the exhibit will be immediately accessible.” (See Dept. 34 Trial Orders, § VI.)

Unfortunately, none of the parties have complied with the Court’s request.

The Court notes that Plaintiffs filed two pleadings on July 29, 2014 captioned “Evidentiary Objections to Declarations of Robert Acio, Pamela del Paine and Michael Dewberry filed in support of NATC’s Motion for Summary Judgment” and ; one “Evidentiary Objections to Declarations of Robert Acio, Pamela del Paine and Michael Dewberry filed in support of NATIC’s Motion for Summary Judgment.” However, neither pleading contained objections to a declaration of Michael Dewberry.

NATIC is correct that plaintiffs can no longer assert their seventeenth or nineteenth causes of action because the Court previously sustained NATIC’s demurrer to these claims without leave to amend. Plaintiffs’ inclusion of these causes of action in their FAC was improper. Therefore, only the fifteenth, sixteenth, and eighteenth causes of action are asserted against NATIC.

BACKGROUND:

Plaintiffs commenced this action on 5/3/12 against several defendants, alleging 19 causes of action. Plaintiffs claim defendants Union Home Loan, Inc., and defendants Daniel, Stephen, and Gary Goldfield brokered a purported loan in the amount of $795,000, which was funded by plaintiff to a purported borrower. (FAC ¶ 1.) The loan was to be secured by a valid and enforceable Deed of Trust recorded against a real property. (Ibid.) NATC and the Union defendants were escrow agents and NATIC was plaintiffs’ title insurer for the loan. (Ibid.) Wilkerson prepared an appraisal report for the property which allegedly contained inaccuracies. (Ibid.) Plaintiffs allege that the defendants are liable for the principle sum of $795,000 because the loan was made to an imposter borrower and plaintiffs did not receive a valid and enforceable first priority Deed of Trust against the property. (Ibid.)

Plaintiffs allege that an investigation conducted by NATIC disclosed that the broker defendants had actual knowledge of evidence of fraud by the purported borrower. (FAC ¶ 4.) Plaintiffs further allege that NATIC knew or should have known that the broker defendants were acting in a capacity adverse to plaintiffs with respect to the loan and therefore would be unlikely to communicate their knowledge of the suspicious loan to plaintiffs. (Id., ¶ 11.) Plaintiffs allege that, before the deed of trust was recorded, NATIC and NATC knew or should have known that the deed would not be valid and enforceable because of a forged signature. (Id., ¶ 62.) The broker defendants failed to disclose to NATIC a credit report, and this has allowed NATIC to claim in bad faith that plaintiffs have no coverage under a Loan Policy of Title Insurance. (Id., ¶¶ 46, 61.)

Plaintiffs claim that a purpose of the complaint is to obtain a judgment against NATIC for breach of the Loan Policy of Title Insurance and for breach of the duty of good faith and fair dealing. (Id., ¶ 12.) Plaintiffs allege the Policy insured plaintiffs for loss or damages caused by a defect or invalidity on the Title caused by fraud or forgery. (Id., ¶ 73.) Plaintiffs submitted a proof of claim to NATIC after the broker defendants received a forgery report. (Id., ¶¶ 74-75.) Plaintiffs claim that NATIC was required to accept or deny the proof of claim within 40 calendar days, but NATIC has failed to do so. (Id., ¶ 75.)

Plaintiffs allege that NATC acted as escrow agent and was not to record the deed of trust unless it was recorded as a valid and enforceable first priority deed on the property and unless NATC was able to obtain an insurance policy providing undisputed coverage against loss or damage if the deed was not a first priority deed. (FAC ¶¶ 51, 54-56.) Plaintiffs also allege that NATC was obligated to disclose all material matters which may affect plaintiffs’ decision to make the purported loan. (Id., ¶ 52.) Plaintiffs allege that NATC failed to disclose that the deed of trust would not be valid and enforceable as a first priority deed because it was not executed by Ms. Ann D. Bloxsom (the purported borrower), and the deed of trust was not executed by Bloxsom but by the imposter borrower. (Id., ¶ 63.) Plaintiffs allege that NATC failed to act in strict compliance with the escrow instructions because the recordation of the deed did not create a valid and enforceable first priority deed and because the Union defendants failed to disclose a credit report which should have alerted NATIC to fraud, thus allowing NATIC to claim in bad faith that plaintiffs had no insurance coverage. (Id., ¶ 66.)

On 6/4/12, NATIC filed a cross-complaint against plaintiffs, Wilkerson, and other cross-defendants alleging causes of action for: (1) declaratory relief; (2) rescission; and (3) declaratory relief of entitlement to indemnity. After the Court sustained demurrers to the cross-complaint, NATIC filed a first amended cross-complaint (“FACC”) alleging the same three causes of action. NATIC has filed a second amended cross-complaint.

On 7/26/12, the Court sustained NATIC’s demurrer to the seventeenth and nineteenth causes of action in plaintiffs’ complaint, without leave to amend.

On 12/6/13, the Court granted plaintiffs’ motion for leave to file a first amended complaint (“FAC”). The FAC adds causes of action (20 and 21) for negligence and negligent misrepresentation against Wilkerson. Plaintiffs allege that Wilkerson had a duty to prepare a true and accurate appraisal report of the property, but that Wilkerson failed to inspect the interior of the house and included photographs that did not depict the interior of the house. (See FAC ¶¶ 10, 48.)

On 5/1/14, the Court continued the hearing on NATIC’s motion for summary judgment at Wilkerson’s request to allow him to take further discovery.

ANALYSIS:

NATIC’s Motion for Summary Judgment

NATIC moves for summary judgment, or in the alternative summary adjudication of the following issues: (1) the insurance claim giving rise to this action is excluded from coverage under the Policy, thus precluding the fifteenth cause of action for breach of insurance contract; (2) the sixteenth cause of action for breach of the duty of good faith and fair dealing fails because there was no breach of the insurance contract and NATIC did not act unreasonably in responding to plaintiffs’ claim; (3) the eighteenth cause of action for rescission of the escrow agreement fails because there was no escrow contract between plaintiffs and NATIC; (4) NATIC is not estopped to assert a defense to plaintiffs’ claim by virtue of a prior, canceled order relating to a proposed loan that was never consummated because the facts show that there was nothing suspicious about the prior order and NATIC was not put on notice of any attempted fraud that should have been disclosed to plaintiff; and (5) NATIC is entitled to summary adjudication of its cross-claim against plaintiffs for rescission of the title policy because in procuring the Policy plaintiffs concealed material information relevant to the covered risk, and NATIC would not have issued the policy had this information been disclosed.

Plaintiffs’ Fifteenth Cause of Action

Plaintiffs’ fifteenth cause of action is for breach of contract. In this cause of action, plaintiffs allege that NATIC breached its duties and obligations under the insurance policy by failing to conduct a fair and thorough investigation of the claims, failing to pay policy benefits when due, failing to perfect plaintiffs’ title within a reasonable time, and wrongfully failing to accept plaintiffs’ claims for policy benefits. (See FAC ¶ 171.) NATIC argues that this cause of action fails because the plaintiffs’ insurance claim is excluded from coverage under express exclusions in the insurance policy.

Union, on behalf of plaintiffs, ordered a lender’s policy of title insurance underwritten by NATIC from NATC. (DMF/PMF 27.) The policy was issued on 7/29/11. (Ibid.) The policy provided that, subject to exclusions and exceptions, NATIC would insure against losses or damages incurred by reason of defects in the title, including those caused by fraud or forgery. (DMF/PMF 37.) The policy contains the following exclusions:

Defects, liens, encumbrances, adverse claims, or other matters
(a) created, suffered, assumed, or agreed to by the Insured Claimant; [or]
(b) not Known to the Company, not recorded in the Public Records at Date of Policy, but Known to the Insured Claimant and not disclosed in writing to the Company by the Insured Claimant prior to the date the Insured Claimant became an Insured under this policy …

(See DMF 37.) The term “Known” is defined under the policy as: “Actual knowledge, not constructive knowledge or notice that may be imputed to an Insured by reason of the Public Records or any other records that impart constructive notice of matters affecting the Title.” (DMF 38.)

The subject loan was to be secured by a deed of trust against the property; however, on 9/6/11, the LAPD provided a report to Union that the subject trust deed was forged. (DMF/PMF 33-34.) On 9/7/11, Union, on behalf of plaintiffs, submitted a proof of claim to NATIC under the policy based on the alleged forgery. (DMF/PMF 35.) NATIC advised plaintiffs by letters dated 3/16/12 and 4/19/12 that it had determined that the loan documents were forged, that plaintiffs had actual knowledge of the risk of forgery and/or were bound by Union’s knowledge of forgery, and plaintiffs’ claims were excluded from coverage under exclusions 3(a) and 3(b). (DMF 39.)

It is undisputed that plaintiff Covey is a real estate broker who invests in “hard money” loans and estimates and has funded numerous loans secured by real property. (DMF/PMF 2-3.) Covey and plaintiff Renko are friends who have jointly funded approximately 12 loans secured by real property. (DMF/PMF 4.) The subject loan was referred to Covey by Dan Goldfield, a loan officer with Union. (DMF/PMF 7-9.)

On 7/22/11, Dan Goldfield transmitted to Covey (who transmitted to Renko) certain “investment data” regarding the loan, which included Bloxsom’s credit report, purported loan application, and the appraisal report on the property. (DMF/PMF 10.) Covey and Renko looked at the credit report to determine whether Bloxsom had “superb credit.” (DMF/PMF 11.) It is undisputed that the credit report included the following statement, in capital letters near the center of the first page:

ID SECURITY ALERT: FRAUDULENT APPLICATIONS MAY BE SUBMITTED IN MY NAME OR MY IDENTITY MAY HAVE BEEN USED WITHOUT MY CONSENT TO FRAUDULENTLY OBTAIN GOODS OR SERVICES. DO NOT EXTEND CREDIT WITHOUT FIRST VERIFYING THE IDENTITY OF THE APPLICANT. THIS SECURITY ALERT WILL BE MAINTAINED FOR 90 DAYS BEGINNING 05-03-11.

(DMF/PMF 12.) The report also stated, on the first page and in all capital letters: “HIGH PROBABILITY SSN BELONGS TO ANOTHER.” (DMF/PMF 13.) Despite the fact that they both admit looking at the credit report, Covey and Renko claim they did not notice these capitalized warnings which were printed above and on the same page as the credit score. (DMF/PMF 14.) There was also a discrepancy between the Union promotional flyer provided to Covey and the appraisal report provided to Covey as to the number of bathrooms at the property. (DMF/PMF 15-16.) Covey contacted Goldfield regarding the number of bathrooms and Renko drove out to view the property and comparable properties listed on the appraisal report. (DMF/PMF 17-18.) It is undisputed that Covey and Renko did not provide copies of the credit report, the loan application, or the appraisal report to NATIC prior to the issuance of the policy. (DMF/PMF 19, 28.)

NATIC argues that this evidence shows that plaintiffs had “actual knowledge” of possible fraud and failed to disclose this to NATIC. NATIC does not have direct evidence that plaintiffs actually read the fraud warnings; instead, all that is shown is that plaintiffs looked at the report in order to determine Bloxsom’s credit score and whether she had a lot of balances. (See PMF 11.) The fact that plaintiffs received and looked at the reports may be enough to establish knowledge. “[A] lender is not entitled to ignore information that comes to him from outside the recorded chain of title, to the extent such information puts him on notice of information that reasonably brings into question the state of title reflected in the recorded chain of title.” (Triple A Management Co., Inc. v. Frisone (1999) 69 Cal.App.4th 520, 531 [italics in original]. See also Alfaro v. Community Housing Imp. System & Planning Assoc. Inc. (2009) 171 Cal.App.4th 1356, 1390.)

NATIC also argues that plaintiffs had knowledge of the warnings because the knowledge of Union is imputed onto them. A principal is deemed to have notice of that which an agent has notice. (See Civ. Code, § 2332; Vernon v. Title Guarantee & Trust Co. (1935) 7 Cal.App.2d 171, 173-174.) It is undisputed that Union ordered the insurance policy on behalf of plaintiffs. (See DMF/PMF 27.) Dan Goldfield admitted that one of the most significant things he reviews in order to avoid fraud is the credit report. (DMF/PMF 21.) Goldfield read the credit report and took note of the fraud alert; he also noticed that there was a discrepancy between the social security numbers in the loan application and credit report. (DMF 22-23.) Goldfield declared that he thereafter followed up on this to determine if it was really Bloxsom seeking the loan. (PMF 22-23.) Plaintiffs allege in their FAC that Union had actual knowledge of clear evidence of fraud prior to the close of the loan transaction. (DMF/PMF 24-25.) Neither the plaintiffs nor Union advised NATIC of the suspicious circumstances regarding the loan prior to the issuance of the policy. (DMF/PMF 29.)

NATIC fails to establish that exclusion 3(a) applies because NATIC’s evidence does not establish that plaintiffs “created, suffered, assumed, or agreed to” any defect. (See Def. Exh. 11 [Exclusion 3(a)].) The language of exclusion 3(a) has been found to be ambiguous such that it should be interpreted against the insurer. (See Safeco Title Ins. Co. v. Moskopoulos (1981) 116 Cal.App.3d 365, 667.) This Court interprets this exclusion to only apply where the plaintiffs actively and intentionally created, suffered, assumed, or agreed to the defect. (See ibid. [interpretation of “create” that is most favorable to the insured is “conscious, deliberate causation” on the part of the insured]; Hansen v. Western Title Ins. Co. (1963) 220 Cal.App.2d 531, 536 [the term “suffered” should be interpreted to signify “consent with ‘intention that what is done is to be done’”]; American Sav. and Loan Assoc. v. Lawyers Title Ins. Co. (6th Cir. 1986) 793 F.2d 780, 784 [“assume” and “agreed to” require knowledge of the specific defect and “impl[y] some degree of intent”].) The purported defect here was the fraud and forgery as to the loan. At most, the evidence shows that plaintiffs chose to ignore evidence of a risk of fraud; it does not establish that plaintiffs created the forgery or assumed or agreed to it.

Exclusion 3(b) requires that the defect be unknown to NATIC, but known to plaintiffs and not disclosed. (See Def. Exh. 11 [Exclusion 3(b)].) The evidence does not establish that plaintiffs knew that a forgery had been committed; instead, it suggests that plaintiffs knew or should have known information that would have made the loan suspicious. Therefore, NATIC’s argument is that exclusion 3(b) precludes plaintiffs’ claims because plaintiffs knew that the loan was suspicious and failed to inform NATIC of this fact.

Plaintiffs and Wilkerson argue that exclusion 3(b) does not apply because plaintiffs were not required to provide the credit report to NATIC. Plaintiffs provide an expert declaration by Charles A. Hansen wherein Hansen declares that credit reports are customarily used to determine a borrower’s creditworthiness and not to determine the ownership of or title to the security or whether the deed of trust has been forged. (See Pl. Exh. I, ¶¶ 15-16.) Hansen declares that the appraisal report is used to determine the value of the property and not for the purpose of identifying the owner of the property or determining whether the signature on the deed of trust was forged. (Id., ¶¶ 17-18.) Hansen declares that credit reports and appraisal reports are not customarily sought or used by title insurers to determine the validity of title or possible forgery. (Id., ¶ 19.) Wilkerson provides evidence that NATIC did not require prospective insureds to provide copies of the credit or appraisal report. (See WMF 29; WAMF 10-12.) Dan Goldfield declares that when he opened the order for the policy nobody at NATC asked him any questions in connection with his request for a policy, and that he would have provided the reports had anyone asked. (Pl. Exh. J, ¶ 8. See also PAMF 11-14.) At this deposition, Robert Acio, the NATC title officer who worked with Goldfield, testified that he does not recall having ever received a credit report before issuing a policy and that, had he learned the subject information, he would have merely consulted his management and underwriting counsel and followed their instructions. (See DMF/WMF 30.) Acio agreed that he may not refuse to proceed with the policy simply because there is a fraud alert on the credit report. (See Wilk. Exh. C, p. 129.) Acio also testified that there was no standard policy or practice that he would follow to verify an applicant’s identity. (Wilk. Exh. C, p. 128.) Wilkerson presents evidence that NATIC does not have any formal underwriting guidelines, policies, or procedures. (WAMF 7-9. See also PAMF 7.) This evidence is sufficient to raise a triable issue of fact as to whether plaintiffs were required to disclose the information in the credit report or appraisal report to NATIC.

Plaintiffs and Wilkerson also present evidence that NATIC otherwise knew or should have known that the loan was suspicious. Exclusion 3(b) only applies where the facts are not known to NATIC. (See Def. Exh. 11 [Exclusion 3(b)].) There is evidence that there was a prior transaction in 2009 involving the subject property, Bloxsom, the purported fraudster Lamont Faust, and escrow at NATC which NATIC later determined was fraudulent. (See PAMF 21; WAMF 13.) The file for this 2009 transaction included a document containing the purported signature of Bloxsom and a preliminary deed of trust signed by Bloxsom. (PAMF 22.) The 2009 transaction was eventually canceled, but the evidence suggests that the file could have been easily obtained by NATIC while processing plaintiffs’ request for a policy, but NATIC failed to do so. (See PAMF 23, 26a-c; WAMF 15-18.) There is evidence that, had the 2009 transaction file been compared with the documents related to the subject loan, it could have been determined that Bloxsom’s purported signatures did not match. (See PAMF 23; WAMF 14.) This evidence is sufficient to raise a triable issue of fact as to whether NATIC had or should have had knowledge as to facts which rendered the loan suspicious. This evidence also raises a triable issue of fact as to the fourth issue for which NATIC seeks summary adjudication (i.e., that NATIC is not estopped from asserting a defense because of the 2009 transaction).

NATIC’s request for summary adjudication of plaintiffs’ fifteenth cause of action is DENIED.

Plaintiff’s Sixteenth Cause of Action

Defendant argues that this cause of action fails because there was a genuine dispute as to coverage under the policy. “While an insurance company has no obligation under the implied covenant of good faith and fair dealing to pay every claim its insured makes, the insurer cannot deny the claim ‘without fully investigating the grounds for its denial.'” (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 720 [quoting Frommoethelydo v. Fire Ins. Exchange (1986) 42 Cal.3d 208, 215].) “By the same token, denial of a claim on a basis unfounded in the facts known to the insurer, or contradicted by those facts, may be deemed unreasonable.” (Wilson, 42 Cal.4th at p. 721.)

The “genuine dispute” doctrine applies only to the sixteenth cause of action, and not the breach of contract claim. (See Wilson, 42 Cal.4th at p. 723 [“an insurer denying or delaying the payment of policy benefits due to the existence of a genuine dispute with its insured as to the existence of coverage liability or the amount of the insured’s coverage claim is not liable in bad faith even though it might be liable for breach of contract.” (internal quotations omitted)].) This is because “an insurer’s denial of or delay in paying benefits gives rise to tort damages only if the insured shows the denial or delay was unreasonable.” (Ibid.) “The genuine dispute rule does not relieve an insurer from its obligation to thoroughly and fairly investigate, process and evaluate the insured’s claim.” (Ibid.)

“The genuine issue rule in the context of bad faith claims allows a [trial] court to grant summary judgment when it is undisputed or indisputable that the basis for the insurer’s denial of benefits was reasonable-for example, where even under the plaintiff’s version of the facts there is a genuine issue as to the insurer’s liability under California law. [Citation.] … On the other hand, an insurer is not entitled to judgment as a matter of law where, viewing the facts in the light most favorable to the plaintiff, a jury could conclude that the insurer acted unreasonably.”

(Id. at p. 724 [quoting Amadeo v. Principal Mut. Life Ins. Co. (9th Cir.2002) 290 F.3d 1152, 1161-1162].)

The facts and evidence discussed above raise triable issues of fact as to whether NATIC acted reasonably in denying plaintiffs’ claims. For example, the evidence that NATIC does not ordinarily request copies of credit or appraisal reports could support plaintiffs’ and Wilkerson’s argument that NATIC’s purported reason for denying the claim (i.e., plaintiffs’ failure to disclose the facts in the reports) is merely bad faith post-claim underwriting. Such an argument could also be supported by evidence that NATIC does not have formal underwriting policies or procedures. Acio’s testimony that the policy would not necessarily have been refused had the warnings been disclosed could also undermine NATIC’s argument that the denial of the claim was reasonable.

NATIC’s request for summary adjudication of plaintiffs’ sixteenth cause of action is DENIED.

Plaintiff’s Eighteenth Cause of Action

In the eighteenth cause of action, plaintiff seeks to rescind the escrow entered into between plaintiff and NATC. (See FAC ¶¶ 199-202.) In support of its motion as to this cause of action, NATIC points to the fact that plaintiffs have not alleged that they entered into an escrow agreement with NATIC or that NATIC performed escrow services in connection with the loan. (See DMF 42.) In response, plaintiffs merely point to the fact that NATIC is part of the North American Title Group, which also owns NATC. (PMF 42; PAMF 1.) Plaintiff provides no facts or authority which establishes that a claim for rescission may be asserted against an entity merely because it belongs to the same group as the escrow entity. There is no evidence which shows that NATIC was bound by any escrow agreement or was otherwise directly involved in the escrow.

NATIC’s request for summary adjudication of plaintiffs’ eighteenth cause of action is GRANTED.

NATIC’s second cause of action

In NATIC’s second cause of action in its second amended cross-complaint, NATIC seeks to rescind the insurance policy because plaintiffs and Union failed to disclose material information regarding the risk of forgery. (See SACC ¶ 28; Ins. Code, §§ 330-332.) NATIC supports this argument with the same facts raised as to plaintiffs’ fifteenth and sixteenth causes of action. (See Def. Sep. Stat., p. 2.) For reasons discussed above, there are triable issues of fact as to whether the facts in the credit report and appraisal report were material and whether plaintiffs should have disclosed them.

NATIC’s request for summary adjudication of its second cause of action is DENIED.

NATC’s Motion for Summary Judgment

NATC moves for summary judgment, or in the alternative summary adjudication of the following issues: (1) the tenth cause of action fails because NATC performed no escrow services for plaintiff and did not owe duties of escrow to plaintiff, NATC had no knowledge that plaintiffs’ deed of trust was not a valid and enforceable first priority deed of trust, and NATC complied with the escrow instructions; (2) the eleventh cause of action fails for the same reasons as the tenth cause of action; (3) the twelfth cause of action fails for the same reasons as the tenth cause of action; (4) the thirteenth cause of action fails for the same reasons as the tenth cause of action; and (5) the fourteenth cause of action fails for the same reasons as the tenth cause of action.

1. Performance of Escrow Services

NATC first argues that plaintiffs’ claims fail because NATC’s role was limited to title functions and NATC performed no escrow services. NATC points to language from a leading treatise on real property law:

Before escrow can close, the buyer usually wishes to obtain title insurance and instructs the escrow holder to obtain title insurance that insures the title in a specified condition. The underwritten title company then causes a title search to be performed so that it knows the condition of the title that will be insured. The underwritten title company prepares a preliminary report based on which it obligates itself to issue a title insurance policy on behalf of the title insurer.

(3 Miller & Starr, Cal. Real Est. (3d ed. 2010) § 6:2 [footnotes omitted].) “The title search, issuance of title insurance, and handling of the escrow are separate functions.” (Ibid.)

The duties and responsibilities of each of these parties are separate. Even when all three functions are performed by the same entity, liability and responsibilities are based on the particular function performed. The escrow agent is not responsible for making a title search, or for reporting or disclosing the condition of the title, or for the contents of the insurance policy other than to assure that it complies with the buyer’s instructions. Similarly, a title insurer is not responsible for assuring that the conditions of the escrow have been satisfied; therefore, the title insurer is not liable for the escrow negligence of a controlled escrow company or an underwritten title company.

(Ibid. [footnotes omitted].)

At most, this language suggests that the party that solely performs title functions should not be liable for escrow duties. It does not establish that the title company will never perform escrow functions. Indeed, the treatise acknowledges that “escrow functions can be performed by the underwritten title company … or even the title insurance company.” (Miller & Starr, supra, § 6:2.) Therefore, what is important is not whether NATC performed title functions, but whether it also performed any escrow functions.

An escrow may be defined as any transaction in which one person, for the purpose of effecting a sale, transfer or encumbrance of real or personal property to another person, delivers any written instrument, money, evidence of title or other thing of value to a third party, the escrow holder or depository, to be held by him for ultimate transmittal to the other person upon the happening of an event or the performance of certain specified conditions.

(Markowitz v. Fidelity Nat. Title Co. (2006) 142 Cal.App.4th 508, 526 [emphasis added].) Under the Financial Code, an “escrow” is defined as:

[A]ny transaction in which one person, for the purpose of effecting the sale, transfer, encumbering, or leasing of real or personal property to another person, delivers any written instrument, money, evidence of title to real or personal property, or other thing of value to a third person to be held by that third person until the happening of a specified event or the performance of a prescribed condition, when it is then to be delivered by that third person to a grantee, grantor, promisee, promisor, obligee, obligor, bailee, bailor, or any agent or employee of any of the latter.

(Fin. Code, § 17003(a).)

It is undisputed that no funds were deposited with NATC or disbursed by NATC in connection with the Bloxsom loan. (See DMF/PMF 10.) On 6/20/11, Goldfield, on behalf of Union, opened an order with NATC and requested a preliminary title report in connection with the proposed loan. (DMF/PMF 11.) In response to the request, NATC conducted a title search on the property and issued a preliminary title report. (DMF/PMF 12.) The preliminary title report set forth an offer to issue an insurance policy, which was accepted by Union on 7/27/11. (DMF 13-14.) On 7/27/11 Union forwarded the deed of trust to NATC with instructions to record it upon the performance of certain conditions. (See DMF 14-15.) On 7/29/11, NATC recorded the deed of trust and issued an insurance policy. (DMF 16.)

Plaintiffs argue that NATC was an escrow agent because NATC held the deed of trust for ultimate recordation upon the performance of certain conditions. NATC argues that recordation of the deed does not qualify as “delivery” for the purposes of an escrow. However, NATC fails to provide authority to support this argument. The cases cited by NATC are inapposite because they did not involve issues of whether the holding of a deed of trust for later recordation qualified as an escrow. (See Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705; Fisk v. His Creditors (1859) 12 Cal. 281; Davis v. Pacific Improv. Co. (1897) 118 Cal. 45. See also In re Marriage of Cornejo (1996) 13 Cal.4th 381 [“‘It is axiomatic that cases are not authority for propositions not considered’”].) Therefore, NATC fails to establish that it did not perform any escrow functions.

Plaintiffs allege that NATC breached its escrow duties to plaintiffs because it failed to disclose that the recordation of the deed of trust did not create an enforceable first priority deed of trust on the property, and the deed of trust was not recorded in compliance with the escrow instructions because it was not a valid and enforceable first priority deed of trust on the property. (See, e.g., FAC ¶¶ 139, 146, 151, 156, 161.) Plaintiffs also allege that NATC failed to obtain a title insurance policy which provided undisputable coverage if the deed of trust was not a valid and enforceable first priority deed of trust. (Id., ¶ 163.)

2. Knowledge That the Deed of Trust Was Not a Valid and Enforceable First Priority Deed

NATC argues it did not breach its duties because it had no knowledge that the Bloxsom deed of trust was a forgery prior to the loan transaction. It is undisputed that an order was opened in 2009 in connection with a proposed loan to Ann Bloxsom secured against the same property as in this action. (See DMF25.) In connection with this order, NATC issued a preliminary title report, but was not provided with the borrower’s social security number. (See DMF 26.) The order was canceled on 12/9/09. (DMF 27.)

The 2009 transaction involved the property, Ann Bloxsom, and purported fraudster Lamont Foust. (PAMF 21; WAMF 13.) The file for the 2009 transaction included a document containing Bloxsom’s purported signature and a preliminary report which identified a 2005 deed of trust signed by Bloxsom. (PAMF 22; WAMF 14.) There is evidence which suggests that NATC could have quickly discovered the 2009 transaction and compared the signatures on the documents to determine that they did not match. (PAMF 23, 26; WAMF 15-17, 25-26.) NATC failed to do this. (See PAMF 25; WAMF 18, 27.)

This evidence is sufficient to raise a triable issue of fact as to whether NATC should have known and disclosed facts to plaintiffs regarding possible fraud in the deed of trust.

3. Compliance with Escrow Instructions

Goldfield transmitted instructions to NATC via a letter dated 7/27/11. (See DMF 14;
PAMF 27.) The letter stated, in relevant part:

You are hereby instructed to record the enclosed Deed of Trust, provided you can insure title vested in the name of our Trustor(s), the Deed of Trust recorded only as a First Trust Deed with only Trust Deed approved by attachment to record, as contained in your Preliminary Report dated July 15, 2011, provided all requirements are met for the issuance of an ALTA Standard Lender Policy 2006 in the amount of $795,000.00.

You are hereby directed to inform us of any material changes in the title since the date of your report.

(See Def. Exh. 7.)

NATC argues that this letter unambiguously only instructs NATC to record the deed when it can insure title. Plaintiffs argue that the letter instructs NATC to insure title, record the deed of trust as a first trust deed, and ensure that all of the requirements are met for the policy. “When faced with a dispute over the meaning of a contractual provision, the court must first determine whether the provision is ambiguous, i.e., whether, on its face, the language of the provision is capable of different, yet reasonable interpretations.” (Falkowski v. Imation Corp. (2005) 132 Cal.App.4th 499, 505.) If the court finds that the provision is ambiguous, the court must then determine which of the plausible meanings was intended by the parties. (Ibid.) It is up to the court to determine the intent of the parties from the language of the contract when no extrinsic evidence of intent is presented. (Id. at 506.) The court may also take into account all other facts, circumstances, and conditions surrounding the execution of the contract. (Ibid.)

The Court finds that the language of this letter is ambiguous, and that it is plausible that it was intended by the parties that the deed of trust only be recorded when NATC could insure title, that it would only be recorded as a first trust deed, and that NATC was to determine that all requirements were met for the issuance of the policy. The letter does not merely state that NATC is to insure title; instead, it includes the phrases “Deed of Trust recorded only as a First Trust Deed” and “provided all requirements are met for the issuance of” the policy. This language suggests that the deed of trust was only to be recorded if title was insured, the deed of trust was recorded only as a first trust deed, and all requirements were met for issuance of the policy. Plaintiff provides a declaration from Goldfield wherein he declares that the instructions required NATC to only record the deed of trust if it would be recorded as a first priority deed of trust and if a policy of title insurance would be issued which insured the plaintiffs’ deed of trust in a first priority position. (See Pl. Exh. J, ¶ 7.)

NATC fails to provide evidence which shows that it only recorded the deed of trust as a first priority deed. As for whether NATC insured the deed after all requirements were met, the evidence raises triable issues of fact. The preliminary title report included a printed copy of the title policy with its exceptions and exclusions. (See DMF 13.) Plaintiffs present evidence that NATC does not have written instructions as to circumstances in which it can issue a title policy. (PAMF 7.) Acio did not ask Union questions regarding the request for title insurance. (See Goldfield Decl., ¶ 8; PAMF 12 [note that plaintiffs cite to pages 81 and 83 of the Acio declaration, but fail to provide these pages].) NATC does not typically ask for a copy of the credit report or other documents other than the lender’s instructions, and NATC did not request a copy of the credit report. (PAMF 14-15.) NATC also did not independently seek a copy of the credit report. (See PAMF 16-16d.) This evidence, as well as the evidence discussed above regarding NATC’s possible knowledge of indicia of fraud, suggests that NATC did not sufficiently determine that the requirements were met for the insurance policy because it failed to ascertain whether any defects would fall within exclusions.

NATC’s Motion for Summary Adjudication as to causes of action 11, 12 and 13 are all based on the same facts as its Motion for Summary Adjudication as to cause of action 10

The Court finds that there are triable issues of fact as to the reasons asserted in support of NATC’s request for summary adjudication of the tenth through fourteenth causes of action.

NATC’s motion is DENIED.