DiTucci v. Ashby

ROSA DiTUCCI, et al., Plaintiffs, v. CHRISTOPHER ASHBY, et al., Defendants.

Case No. 2:19-cv-277-TC-JCB

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH CENTRAL DIVISION

March 1, 2021

ORDER AND MEMORANDUM DECISION

Citing the Federal Arbitration Act (FAA), 9 U.S.C § 1-14, Defendants First American Title Insurance Company ("First American") and Kirsten Parkin, an escrow agent at First American (collectively, FA Defendants), have filed a motion to compel arbitration of the claims Plaintiffs assert against them in the Third Amended Complaint. They primarily base their motion on the arbitration clause in the title insurance policy First American issued in connection with each Plaintiff's purchase of an interest in real property in Carmel, Indiana. But they also rely on an arbitration clause contained in each Plaintiff's agreement to purchase the interest from the real property owner. Plaintiffs respond that the arbitration agreements are not enforceable, but even if they were, the claims do not fall within the scope of the arbitration clauses.

For the reasons set forth below, the court finds that First American may compel arbitration under the title insurance policy, that Ms. Parkin, as a non-signatory, may not, and that neither of the FA Defendants may compel arbitration under the purchase agreements.

FACTS AND PROCEDURAL BACKGROUND

This case began after each Plaintiff purchased a Tenant-In-Common (TIC) interest in a real estate development project located in Carmel, Indiana (Carmel Property). Defendant Rockwell Indianapolis LLC (Rockwell) sold those interests, and each sale was memorialized in a Purchase and Sale Agreement (PSA).

Before Plaintiffs purchased their TIC interests, First American had issued a standard Owner's Policy of Title Insurance for the Carmel Property (Policy) to Rockwell. (See Policy, ECF No. 188-1.) As each Plaintiff purchased its interest in the development, First American added the Plaintiff as a "named Insured" through an individual endorsement amending the Policy. According to each endorsement, the Plaintiff's coverage was equal to its proportionate share of ownership interest set forth in its PSA. Ms. Parkin, as the escrow agent and employee of First American, handled the transactions.

When the development project failed, Plaintiffs filed suit against numerous defendants in an effort to recover their investments. On June 15, 2020, fourteen months after Plaintiffs filed their initial complaint, they filed a Third Amended Complaint, in which they added First American and Ms. Parkin as defendants. In that complaint, Plaintiffs allege five claims against the FA Defendants: Negligence, Breach of Fiduciary Duty, Unjust Enrichment, Civil Conspiracy, and Aiding and Abetting State Securities Fraud.

Plaintiffs' claims arise out of the FA Defendants' handling of the escrow account in which the Plaintiffs' purchase money was placed. According to Plaintiffs, they

were promised that invested money would be held in escrow by First American Title Insurance Company ("FATCO") and disbursements would be made only for the purchase of land and for incremental completion of the event center. Instead, Kirstin Parkin and FATCO immediately disbursed all invested funds to their co-conspirators who then simply spent the money and performed no construction.

(Third Am. Compl. ¶ 2, ECF No. 173.) More specifically, Plaintiffs allege that:

Parkin understood that invested funds for construction TICs were to be held by FATCO and not disbursed until an appropriate level of construction was completed. Parkin and FATCO ignored these fiduciary obligations and disbursed funds whenever instructed to do so by [the Rockwell Defendants or Defendant William Bowser.]

In addition, Parkin and FATCO facilitated the deception of Plaintiffs:

1) by representing to Plaintiffs that invested funds would be held safely in escrow and not fully disbursed until construction was completed;

2) closing on the sale of TIC interests before the subject property was owned by the seller Rockwell;

3) lying to Plaintiffs and telling them that they did not receive deeds to the property immediately after closing because the deeds had been "lost in the mail" or "misfiled;"

4) sending the deeds after closing to Rockwell and not timely recording them to assist in the deception that the purchases were somehow 1031 compliant;

5) withholding legally required documents from Plaintiffs at closing including legally mandated Indiana real estate disclosure forms (Indiana State Disclosure Form "ISDF").

Parkin and FATCO's misconduct was done at the direction of Rockwell for the purpose of furthering the Defendants' conspiracy to defraud Plaintiffs.

(Id. ¶ 14.)

In reply to the complaint, the FA Defendants move the court to compel Plaintiffs to resolve their claims through arbitration. In support of their motion, the FA Defendants cite to two arbitration clauses—one in the Policy and the other in each PSA—that they say are enforceable against Plaintiffs.

The Policy's Arbitration Clause

According to the FA Defendants, Plaintiffs are bound by the terms of the Policy because each Plaintiff's endorsement added the Plaintiff as a "named Insured" and formed an insurance contract between First American and the Plaintiff. The Policy contains the following arbitrationclause:

14. ARBITRATION

Either the Company [First American] or the Insured may demand that the claim or controversy shall be submitted to arbitration pursuant to the Title Insurance Arbitration Rules of the American Land Title Association ("Rules"). Except as provided in the Rules, there shall be no joinder or consolidation with claims or controversies of other persons. Arbitrable matters may include, but are not limited to, any controversy or claim between the Company and the Insured arising out of or relating to this policy, any service in connection with its issuance or the breach of a policy provision, or to any other controversy or claim arising out of the transaction giving rise to this policy. All arbitrable matters when the Amount of Insurance is $2,000,000 or less shall be arbitrated at the option of either the Company or the Insured. ...

(Policy ¶ 14.) The Policy defines "Amount of Insurance" as "[t]he amount stated in Schedule A [$6,260,000], as may be increased or decreased by endorsement to this policy[.]" (Id. ¶ 1(a), Schedule A.)

Each Plaintiff's endorsement amended the Policy and provided that the Plaintiff would be insured in an amount equal to that Plaintiff's TIC purchase price. (See Exs. B-J Mot. to Compel Arbitration, ECF Nos. 186-4 to 186-12, collectively "Plaintiffs' Endorsements.") The Plaintiffs' Endorsements state that they are attached to "Policy No. 910243," are "issued as part of the policy," and are "subject to all of the terms and provisions of the policy[.]" (E.g., Rosa DiTucci Mar. 29, 2019 Endorsement, ECF No. 186-4.)

Each Plaintiff's TIC purchase price and percentage interest is listed in the FA Defendants' "Percentage Chart" (attached as Appendix 1 to their motion) (ECF No. 186-2). For instance, Plaintiff Rosa DiTucci purchased a 12.45% interest in the TIC, and First American issued an endorsement adding her as an Insured under the Policy and providing an Amount of Insurance equal to Ms. DiTucci's $779,370.00 investment. (See Percentage Chart; Rosa DiTucci PSA at 1, ECF No. 186-13; DiTucci Endorsement.) The insurance coverage for each of her Co-Plaintiffs, calculated the same way, is less than $2 million. (See Percentage Chart; DiTucci Co-Pls.' PSAs and Endorsements, ECF Nos. 186-5 to 186-12, 186-14 to 186-21.)

The PSAs briefly mention title insurance and an endorsement but do not contain the Policy's arbitration clause:

4. Title Insurance. At settlement, Seller [Rockwell] agrees to pay for an endorsement to the standard-coverage owner's policy of title insurance insuring Buyer in the amount of the Purchase Price. In addition, any supplementary title insurance coverage shall be at Buyer's expense.

(E.g., DiTucci PSA § 4.) The Policy was not attached to the PSAs (and of course the endorsements were not attached because they were issued after closing).

Plaintiffs assert they were not given a copy of the Policy until after they filed suit. In support, they offer Ms. DiTucci's declaration, a post-transaction letter from Ms. Parkin to Ms. DiTucci, and a set of post-transaction e-mails between representatives of Plaintiff Blush Property and Ms. Parkin.

Ms. DiTucci declares that before she filed this lawsuit, she "never saw, reviewed, or received the Title Commitment ... and never saw, reviewed, or received the Policy[.]" (Decl. of Rosa DiTucci ¶¶ 3-4, ECF No. 192-1.) She also submits a March 29, 2019 letter from Ms. Parkin and First American which enclosed her endorsement and warranty deed. (Ex. 2 to Pl.'s Opp'n Mem., ECF No. 192-2.) But Ms. DiTucci says, she "did not receive this letter until after [she] had retained counsel, learned that the deed had not been recorded, and requested the missing deed and Title Policy from Parkin and FATCO." (DiTucci Decl. ¶ 6.) According to First American, the documents were delayed because they "had been 'lost in the mail.'" (Id.)

The emails, dated March 31, 2019, and April 7, 2019, were written by representatives of Plaintiff Blush Property LLC (Linda Camp-Merklin and Bryan Merklin¹) to Ms. Parkin. Therepresentatives told Ms. Parkin they were missing copies of the Title Commitment and other documents (what those documents are is not clear because the email language is vague and the attachments are illegible). (See Ex. 3 to Pls.' Opp'n Mem., ECF No. 192-3.) Blush Property never received those documents.

Finally, Ms. DiTucci says she asked "all of [her] co-plaintiffs if any of them saw, reviewed, or received the Policy prior to filing this lawsuit. Of the Plaintiffs who responded, none of them saw, reviewed, or received it." (DiTucci Decl. ¶ 5.) She does not identify who responded to her inquiry. More importantly, the information she offers in Paragraph 5 is...