First Am. Title Ins. Co. v. Chesapeake Holdings GSG, LLC

633 F.Supp.3d 789

FIRST AMERICAN TITLE INSURANCE COMPANY,as subrogee of Parkway Storage Groupe, LLC, Plaintiff, v. CHESAPEAKE HOLDINGS GSG, LLC,¹ Defendant.

Civil Action No. 1:21-cv-1103

United States District Court, E.D. Virginia, Alexandria Division

Signed October 3, 2022

John Edward Rinaldi, Walsh Colucci Lubeley & Walsh PC, Prince William, VA, for Plaintiff.

Lawrence J. Gebhardt, Gebhardt & Smith LLP, Baltimore, MD, for Defendant.

MEMORANDUM OPINION

T. S. Ellis, III, United States District Judge

At issue in this diversity property dispute alleging breach of a covenant of special warranty under Virginia law is Defendant Chesapeake Holdings CSG, LLC's Motion to Dismiss or for Summary Judgment. Simply put, Plaintiff First American Title Insurance Company alleges that Defendant twice conveyed overlapping plots of land in Stafford County, Virginia to two different grantees through two separate deeds. Defendant first conveyed a portion of its land to RD Group/3, LLC ("RD Group") on December 7, 2015, by a special warranty deed (the "RD Group Deed"). Defendant next conveyed a portion of its land on May 12, 2017, to Parkway Storage Groupe, LLC ("Parkway") by a special warranty deed (the "Parkway Deed"). Plaintiff, as subrogee of Parkway, alleges that the Parkway Deed conveyed land that Defendant had already conveyed to RD Group by the RD Group Deed. Plaintiff alleges that as a result, Parkway suffered $114,527 in damages attributable to the necessity for Parkway to pay for the preparation and filing of a corrective deed. Plaintiff now seeks to recover that amount based on a breach of the covenant of special warranty contained in the Parkway Deed. Defendant raises a number of arguments in its Motion to Dismiss or for Summary Judgment, which the parties have now fully briefed and argued orally in a telephonic hearing on September 23, 2022. Accordingly, Defendant's motion is now ripe for disposition.

I.

Plaintiff First American Title Insurance Company is a Nebraska corporation with its principal place of business in California. Plaintiff is the indemnitor and subrogee of Parkway. Plaintiff now brings this action against Defendant Chesapeake Holdings CSG, LLC, a Delaware limited liability company whose sole member is Chesapeake Holdings RE, LLC, also a Delaware limited liability company, whose sole member is Manufacturers and Traders Trust Company, a New York corporation with its principal place of business in New York.

Defendant acquired property located in Stafford County, Virginia (the "Stafford County Property"), a portion of which Defendant first conveyed to RD Group via the RD Group Deed, and then Defendant conveyed a portion of the Stafford County Property to Parkway via the Parkway Deed.

The pertinent facts as alleged by Plaintiff in the Amended Complaint may be stated simply and chronologically as follows.

• In June 2013, Defendant became the fee simple owner of the Stafford County Property, which consisted of roughly 297 acres of land.²

• In December 2015, Defendant conveyed a portion of the Stafford County Property to RD Group via the RD Group Deed.

• In May 2017, Defendant conveyed a portion of the Stafford County Property to Parkway via the Parkway Deed, which contained a covenant of special warranty. Plaintiff alleges that the portion of property conveyed by the Parkway Deed (the "Parkway Property") was encompassed by the property Defendant had earlier conveyed to RD Group via the RD Group Deed.

• In November 2019, Parkway entered into a contract to sell the Parkway Property to a third party, Amazon.³

• In January 2020, Amazon notified Parkway that Amazon's title examination disclosed that RD Group was the fee simple owner of the Parkway Property pursuant to the 2015 RD Group Deed. Parkway notified Defendant of the title defect, and Defendant asked RD Group to sign a corrective deed.

• In February 2020, RD Group demanded payment in exchange for executing a corrective deed. Defendant refused to pay RD Group's demand. To avoid defaulting under its contract with Amazon, Parkway paid RD Group's demand for a payment for preparing a corrective deed, and thereafter RD Group executed and delivered a corrective deed releasing RD Group's claim to ownership of the Parkway Property.

• As a result of RD Group's demand for payment and Defendant's refusal to pay, Parkway suffered $114,527.00 in damages.

• Pursuant to a separate agreement between Plaintiff and Parkway, Plaintiff is the indemnitor and subrogee of Parkway.

Defendant contends that, as a threshold issue, Plaintiff has failed adequately to allege a breach of the covenant of special warranty under Virginia law. Thus, at issue now is Defendant's Motion to Dismiss or for Summary Judgment, which is Defendant's second threshold motion in this case. On June 22, 2022, an Order issued granting Defendant's first Motion to Dismiss with leave to Plaintiff to amend (the "June Order"). The June Order concluded that although Plaintiff had plausibly alleged that the Parkway Deed conveyed property that was encompassed by the RD Group Deed, Plaintiff had failed to allege that Defendant or any person claiming by, through, or under Defendant had made any claim or demand regarding the Parkway Property. But because Plaintiff represented at oral argument and in supplemental briefing that RD Group had made a claim of ownership with respect to the Parkway Property in early 2020, the Motion to Dismiss was granted with leave for Plaintiff to file an amended complaint that included the requisite allegation regarding the claim by RD Group and RD Group's demand for payment in exchange for preparing and filing a corrective deed. Plaintiff subsequently amended its complaint in this regard and Defendant, in response, has filed its current Motion to Dismiss or for Summary Judgment.

II.

Because Plaintiff alleges a breach of the covenant of special warranty, analysis of the parties' dispute properly begins with a brief description of the nature of this covenant in Virginia law. In this regard, Virginia law makes clear that the covenant of special warranty constitutes a promise that the grantor of the property will "warrant and defend such property . . . against the claims and demands of the grantor and all persons claiming or to claim by, through, or under him." Va. Code § 55.1-355. As the Fourth Circuit noted in construing a Maryland statute essentially identical to Virginia Code § 55.1-355, the covenant of special warranty "protects the grantee against any defect in title created by the grantor." Chicago Title Ins. Co. v. 100 Inv. Ltd. P'ship, 355 F.3d 759, 761 n.1 (4th Cir. 2004). Virginia law also makes clear that the covenant of special warranty is a limited covenant distinct from other statutory warranties in the Virginia Code.⁴ Importantly, the covenant of special warranty in Virginia does not protect against theoretical clouds on the grantee's title; it only protects against "claims and demands" of the grantor or his successors. Va. Code § 55.1-355.

Given that the covenant of special warranty in Virginia consists of a promise to warrant and defend the property against the claims of the grantor and all persons claiming by, through, or under the grantor, it is clear that Plaintiff, in the Amended Complaint, has alleged a plausible claim for a breach of the special warranty in the Parkway Deed. Specifically, the Amended Complaint alleges that Defendant, by Defendant's error, conveyed the same portion of property to Parkway as Defendant had previously conveyed to RD Group. Furthermore, the Amended Complaint alleges that Defendant refused to remedy the error when RD Group demanded compensation in return for executing a corrective deed disclaiming RD Group's ownership in the Parkway Property. These allegations adequately state a valid claim for a breach of the covenant of special warranty.

Defendant, in opposition to this conclusion, asserts five arguments in its Motion to Dismiss or for Summary Judgment.

(A) Defendant contends that its motion should be addressed as a motion for summary judgment because no material facts are in dispute;

(B) Defendant contends that Parkway, and hence Plaintiff as Parkway's subrogee, cannot recover against Defendant because Parkway is charged with full knowledge of the title defect for the property Parkway acquired from Defendant;

(C) Defendant contends that the Amended Complaint fails because no person, including Defendant or anybody claiming by, through, or under Defendant, has asserted a claim against the Parkway Property;

(D) Defendant contends that the RD Group Deed did not convey the same property as did the Parkway Deed, and even if the RD Group Deed did so, the reference in the RD Group Deed to the property conveyed by the Parkway Deed was patently erroneous and therefore must be ignored; and

(E) Defendant contends that Plaintiff has no right of subrogation due to various defenses that Defendant could assert against Parkway, Plaintiff's subrogor.

Each of Defendant's arguments is addressed below.

A.

Defendant first argues that its motion should be addressed as a motion for summary judgment. In support of this argument, Defendant has filed two affidavits and a statement of material facts not in dispute. Thus, Defendant contends there is no genuine dispute that the RD Group Deed and the Parkway Deed conveyed wholly separate plots of land because the RD Group Deed conveyed "Tax Map Parcel 38-14H," while the Parkway Deed conveyed "Tax Map Parcel 38-14F." Dkt. 16-7 at 15. In support, Defendant attached an affidavit of Carl H. Bivens, an attorney who represented RD Group in its acquisition of that property from Defendant (the "Bivens Affidavit"). The Bivens Affidavit states that RD Group "at all times understood and agreed that it acquired only that parcel of land known as Tax Map Parcel 38-14H." Dkt. 16-8 at 2. Defendant also submitted an affidavit of Richard A. Dubose, III, the attorney who represented Defendant in its transactions with RD Group and Parkway (the "Dubose...