First Am. Title Ins. Co. v. Barron

540 P.3d 623

FIRST AMERICAN TITLE INSURANCE COMPANY and Kirsten Parkin, Appellants,

v.Dana BARRON, et al., Appellees.¹

No. 20220047-CA

Court of Appeals of Utah.

Filed September 21, 2023

Rehearing Denied January 11, 2024

David W. Tufts, J. Tayler Fox, Salt Lake City, and Douglas W. Henkin, Attorneys for Appellants

Steven W. Call, Salt Lake City, Jonathan A. Dibble, Z. Ryan Pahnke, R. Troy Mollerup, and Carol Ann Funk, Attorneys for Appellees

Judge Ryan D. Tenney authored this Opinion, in which Judges Gregory K. Orme and John D. Luthy concurred.

Opinion

TENNEY, Judge:

¶1 First American Title Insurance Company and its employee Kirsten Parkin (collectively, First American) were sued for allegedly participating in a fraudulent real estate scheme. The district court denied First American's motion to compel arbitration. For the reasons set forth below, we reverse that decision.²

BACKGROUND

The Purchase Agreements and Title Insurance

¶2 Sometime between early October and early November 2018, Rockwell Debt Free Properties, Inc. (Rockwell) purchased a "parcel of land and a commercial building" (the Property) located in Westminster, Colorado, from William and Shirley Newman. From November 2018 through the beginning of 2019, Rockwell entered into separate real estate purchase and sale agreements (PSAs) with 14 different individuals, trustees, and companies (collectively, Purchasers). Each PSA provided for the purchase of a "fractional interest[ ]" in the Property. Purchasers bought interests of varying percentages in the Property for a combined total purchase price of $5,484,856.46.

¶3 The PSAs each contained the following arbitration clause:

9. Arbitration. Any dispute between the parties will be submitted to binding arbitration according to the Commercial Rules of the American Arbitration Association, but need not be filed with that organization. Except for actions relating to the payment of money for services rendered, an action under this Agreement must be filed within 90 days of the date of closing pursuant to this Agreement. Arbitration will be conducted in Colorado, before a single arbitrator. ... If the amount in controversy exceeds $25,000, the arbitrator's decision will include a statement specifying in reasonable detail the basis for and computation of the award, if any.

¶4 First American acted as the title insurer and escrow agent for each of these transactions. Indeed, the PSAs themselves contained a clause that specifically required Purchasers to use First American as the escrow agent for the transactions, stating that the "balance of the purchase price shall be wired, or otherwise transferred, to First American Title Company within twenty-four hours of closing." First American issued final settlement statements for each transaction, and each final settlement statement identified the settlement date, the disbursement date, and the consideration amount.

¶5 The Title Insurance Policy (the Insurance Policy) that First American issued to each of the Purchasers through endorsements contained an arbitration clause of its own. It read:

14. ARBITRATION ...

Either [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").... All arbitrable matters when the Amount of Insurance is $2,000,000 or less shall be arbitrated at the option of either [First American] or the Insured. All arbitrable matters when the Amount of Insurance is in excess of $2,000,000 shall be arbitrated only when agreed to by both the Company and the Insured. Arbitration pursuant to this policy and under the Rules shall be binding upon the parties.

¶6 The Insurance Policy also contained a section titled "Definition of Terms," under which "Amount of Insurance" was defined as "[t]he amount stated in Schedule A, as may be increased or decreased by endorsement to this policy." The "Amount of Insurance" listed in Schedule A of the Insurance Policy was $3,535,000.

Purchasers’ Complaint and First American's Motion to Compel Arbitration

¶7 In June 2021, Purchasers filed a complaint against First American in Utah state court.³ Purchasers alleged that First American actively participated with Rockwell and others in a fraudulent scheme to misrepresent the value of the Property and improperly induce Purchasers into signing the PSAs. Purchasers pleaded 14 claims against First American, including claims for intentional misrepresentation, fraud, fraud in the inducement, breach of contract, civil conspiracy, and negligent misrepresentation.

¶8 In August 2021, First American filed a motion to compel arbitration. First American argued that the PSAs and the Insurance Policy were both governed by Colorado law. It also argued that Colorado law "strongly favors arbitration" and has a "presumption in favor of arbitration" that should be applied to these agreements.

¶9 First American then argued that it was entitled to invoke the arbitration clauses from the PSAs and the Insurance Policy. With respect to the PSAs, First American argued that although it was a non-signatory to those agreements, it was "entitled to enforce the PSA arbitration clause because Colorado law allows non-signatories to compel arbitration when, inter alia , (i) the nonsignatory is an agent of a signatory, (ii) the non-signatory is a third-party beneficiary, or (iii) estoppel applies." First American argued that it could invoke the PSAs’ arbitration clause under each of these doctrines.

¶10 With respect to the Insurance Policy, First American argued that it could "compel [Purchasers] to individually arbitrate their claims because the Amount of Insurance at issue [was] less than $2,000,000 for each [purchaser]." While First American acknowledged that the "Amount of Insurance" in the Insurance Policy was identified as $3,535,000, it claimed that the endorsements issued to each Purchaser amended the Insurance Policy to only insure Purchasers for a fractional share of that amount, thus bringing the Amount of Insurance for each Purchaser below the $2,000,000 threshold.

¶11 Purchasers opposed First American's motion to compel arbitration. In Purchasers’ view, Utah law "applie[d] because the interpretation of a contract is procedural in nature." But even so, Purchasers argued that "the law in Colorado [was] the same." And in Purchasers’ view, Colorado's presumption in favor of arbitration did not apply in these circumstances and ambiguities in the arbitration clause meant that the clause should actually be construed against First American. Purchasers also argued that First American was not a signatory to the PSAs and had not established that it had any right under any legal doctrine to enforce the arbitration clause that was contained in the PSAs. Finally, Purchasers argued that the arbitration clause from the Insurance Policy was inapplicable because the Amount of Insurance "exceed[ed] the $2,000,000 ceiling for compelling arbitration."

¶12 After hearing oral arguments, the district court denied First American's motion to compel arbitration. With respect to the initial choice of law question, the district court concluded that "the analysis [was] the same under Utah and Colorado law, [and] each would reach the same result." It thus saw no need to definitively answer that question.

¶13 Turning to the substantive arguments, the district court agreed with Purchasers on all fronts. With respect to the PSAs, the court concluded that First American was not a party to the PSAs and that First American had not established that it had any right as a non-party to invoke the PSAs’ arbitration clause. In addition, the court found it "unpersuasive" that First American would "seek to cite and rely on the arbitration clause in the PSAs" when its own contractual agreement with Purchasers—i.e., the Insurance Policy—"contain[ed] [its] own arbitration terms." With respect to the arbitration clause from the Insurance Policy, the court concluded that the applicable Amount of Insurance exceeded $2,000,000 and that First American therefore could not compel Purchasers to arbitrate.

¶14 First American timely appealed.

ISSUE AND STANDARD OF REVIEW

¶15 First American challenges the district court's denial of its motion to compel arbitration. "Whether a trial court correctly decided a motion to compel arbitration is a question of law which we review for correctness, according no deference to the district judge." MacDonald Redhawk Invs. v. Ridges at Redhawk, LLC , 2006 UT App 491, ¶ 2, 153 P.3d 787 (quotation simplified). "Whether a claim falls under an arbitration clause is a matter of contractual interpretation, which is reviewed for correctness." HITORQ, LLC v. TCC Veterinary Services, Inc. , 2021 UT 69, ¶ 20, 502 P.3d 281 (quotation simplified).

ANALYSIS

¶16 First American argues that it was entitled to compel arbitration under the arbitration clause from the PSAs as well as the arbitration clause from the Insurance Policy, and it advances several arguments on each front. As set forth below, we conclude that First American can compel arbitration as a third-party beneficiary of the PSAs. Because of this, we need not address First American's other arguments.⁴

I. Choice of Law

¶17 We first briefly address the choice of law question that was raised below and which ultimately informs some of our analysis. First American argues that Colorado law governs the question of whether it can invoke the arbitration clause from the PSAs, while Purchasers suggest that the question should be decided under Utah law. We agree with First American.

¶18 "When determining which state's laws apply to a dispute between two contracting parties, the law of the forum state governs the choice of law analysis." Volonte v. Domo, Inc. , 2023 UT App 25, ¶ 73, 528 P.3d 327 (quotation simplified). And when "determining which state's laws will apply to a dispute, Utah courts first look to whether there was an effective choice of law by the parties....