IDC Props. v. Chi. Title Ins. Co.

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IDC PROPERTIES, INC., Plaintiff, v. CHICAGO TITLE INSURANCE COMPANY, Defendant.

C. A. No. 09-632-JJM-PAS

United States District Court, D. Rhode Island

March 29, 2024

MEMORANDUM, FINDINGS OF FACT, CONCLUSION OF LAW, AND ORDER

John J. McConnell, Jr. Chief United States District Judge

Beautiful Goat Island in Newport, Rhode Island is at the center of this decades-long litigation^[1] where both state and federal courts have weighed in on various disputes. The Court held a bench trial, including expert testimony and a viewing of the West and South Units on Goat Island along with comparable properties in Newport, to assist the Court with calculating damages. Plaintiff IDC Properties, Inc. and Defendant Chicago Title Insurance Company filed post-trial briefs. As stubborn as its namesake location, this case has reached its final disposition.

I. FINDINGS OF FACT

The Court makes the following findings of fact:

1. Globe Manufacturing Co. (“Globe”) recorded the formative documents and was the original declarant of the master condominium known as the Goat Island South Condominium (“GIS Condominium”) located on Goat Island in Newport, Rhode Island. IDC Props., Inc. v. Chicago Title Ins. Co., 42 F.4th 1, 2 (1st Cir. 2022) (“IDC First Circuit”).

2. Globe recorded the GIS Condominium's First Amended and Restated Declaration of Condominium on March 3, 1988 (“FAR Declaration”). Id. at 2.

3. It was not until October 19, 1994, that IDC became the successor declarant of the GIS Condominium. Id. at 4.

4. The FAR Declaration described the GIS Condominium as consisting of five existing “Master Units,” with the right to create a sixth over a portion of land identified as the “Reserved Area.” Id. at 2. Three of the five Master Units had existing residential buildings within them, which were each subjected to independent condominium declarations (“Sub-Condominium Master Units”) creating Sub-Condominiums therein. Id.

5. Under the FAR Declaration, each Master Unit was made up of the airspace above and all buildings and improvements then or thereafter located on the land, while the land underlying each Master Unit was designated as a Master Limited Common Element reserved for the exclusive use of the owners of the Master Unit located above. Ex. 4. “Master Units” are defined under the FAR Declaration as “a physical portion of the [GIS Condominium] designated for separate ownership or occupancy or designated as a Sub-Condominium.” Id. 6. At the time it became the successor declarant to the GIS Condominium, IDC acquired, among other things, fee simple title to two existing Master Units known as Development Unit No. 1 (“West Unit”) and the Individual Unit (“South Unit”). Ex. 63 at 16-17.

7. The West Unit is an approximately 36,397 square foot unimproved oceanfront parcel. Id. at 16. It has no paved access road and an electrical easement.

8. The South Unit is an approximately 38,388 square foot unimproved oceanfront parcel. Id. at 17. A Coast Guard foghorn an electric utility easement, and a paved turnaround for the Goat Island access road were located on the parcel. Ex. N. Under the FAR Declaration, the turnaround was a permanent easement for the individual unit owners of the other residential buildings. Ex. 4.

9. IDC also acquired a number of unsold units in each of the three Sub-Condominium Master Units, becoming the owner of a majority of the units in each of the three Sub-Condominiums.

10. In accordance with the voting provisions and procedures of the FAR Declaration, as the majority owner of each Sub-Condominium, IDC had the right to control how the singular vote of each of the three Sub-Condominium Master Units was cast. Ex. 1.

11. According to the voting provisions of the FAR Declaration, IDC's majority ownership of the Sub-Condominium Master Units, along with its outright ownership of the South and West Units, provided it with the ability to obtain unanimous consent of the five existing Master Units for the purposes of adopting amendments to the condominium documents. Id.

12. Lastly, IDC also acquired all development and special declarant rights (collectively, “Development Rights”) in and to the GIS Condominium as stated in the FAR Declaration. Ex. 4.

13. The FAR Declaration reserved to IDC the right, as the owner of the South Unit and the West Unit, to construct buildings therein in perpetuity. Id.

IDC's Policy

14. Chicago Title issued title insurance owner's policy CTIC No. 946190133 to IDC in the amount of ten million dollars (“Policy”) on October 21, 1994. Ex. 10.

15. The Policy insured in fee simple all of IDC's “rights, title, and interest” in the South Unit, the West Unit, the Development Rights, and the Sub-Condominium units, as created by the declaration of the GIS Condominium, as amended to the date of the Policy. Id.

16. The Policy contained typical insurance coverage provisions requiring that an insured shall notify the insurer “promptly in writing” of any litigation, any claim adverse to the insured title or interest, or if the title becomes unmarketable, Condition 3; and for apportionment of losses if the title insured is for a multi-parcel land., Condition 8. Id.

Chicago Title's Knowledge of the Unit Owner's Adverse Claim

17. As early as the closing at which the Policy was issued in 1994 Chicago Title was aware there was a problem with the extension of the Development Rights. Trial Tr. 42:12-21, May 26, 2023.

18. However, Jeffrey Meyer, Esq., the state manager of Rhode Island for Chicago Title, did not recognize that Chicago Title had insured IDC's Development Rights as extended by the Third Amendment. Trial Tr. 42:22-43:12, May 26, 2023.

19. In 1997, IDC began planning for construction on the North Unit and sought additional title insurance to cover its multi-million-dollar investment. In 1997, IDC also sought to buy additional coverage from Chicago Title. IDC First Circuit, 42 F.4th at 4.

20. Citing its awareness of threatened litigation, Chicago Title refused to issue additional title insurance coverage for the North Unit. Ex. 29. Chicago Title did not acknowledge that the threat of litigation had any bearing on interests insured under the Policy because Mr. Meyer did not believe that Chicago Title had insured the Development Rights as they existed under the Third Amendment.

21. Chicago Title knew about the underlying claims and the related threat of litigation as early as December 1997, when it wrote to IDC's counsel acknowledging same. Id.', Trial Tr. 48:3-51:4, May 26, 2023.

22. Contemporaneous with Chicago Title's denial of additional insurance coverage, IDC attempted to negotiate a settlement with representatives of the Sub-Condominiums. The parties entered into a tolling agreement . to continue those discussions. Ex. UU.

23. Settlement attempts failed. Trial Tr. 72:19-73:20, May 24, 2023,' Ex. 34.

24. Following their decision to terminate all settlement discussions, the three Sub-Condominium Associations sued in Newport Superior Court against IDC and others claiming that the voting provisions proscribed by the FAR Declaration were illegal, that the Third, Fourth, and Fifth Amendments were invalid, and that IDC's Development Rights had therefore expired on December 31, 1994 (“America Litigation”). Ex. NNN.

25. IDC retained its own counsel and did not seek representation from Chicago Title. Trial Tr. 32:16-18, May 26, 2023.

26. On October 15, 1999, the Sub-Condominium Associations filed a lis pendens in the Newport land evidence records. Ex. 20. Along with providing record notice of the subject lawsuit, the lis pendens stated that IDC was “the present declarant and record owner of the North Development Unit, West Development Unit, and South Development Unit.” Id.

27. Chicago Title had a copy of the lis pendens in its possession contemporaneous with the filing of it. Trial Tr. 49:13'51:5; 56'-7'25, May 26, 2023. Moreover, in December 1999, Chicago Title began listing the October 15, 1999 lis pendens filed by the Sub-Condominium Associations in the America Litigation as a standard policy exception to all its Goat Island related title policies. Trial Tr. 56:7'57:12, May 26> 2023.

28. IDC's counsel also communicated the existence and substance of the litigation to Chicago Title in communications related to the lis pendens. Ex. 32.

29. Despite having contemporaneous knowledge of the Superior Court complaint, the lis pendens, and the Association's position on the reargument before the Rhode Island Supreme Court, Chicago Title took no other action to defend IDC or directly involve itself in either settlement or litigation. Trial Tr. 53:20-23; 55:13-56:2, May 26, 2023. IDC had not made a formal written claim to Chicago Title.

30. Even after the issuance of America Condominium Association, Inc. v. IDC, Inc., 844 A.2d 117, 130 (R.I. 2004) (“America I”), where the Court ruled that the voting procedures contained in the FAR Declaration and employed in the amendments that had extended the period within which Development Rights could be exercised (including the Third Amendment) were illegal, Chicago Title took no action to defend IDC or assist in any way. IDC had not made a formal written claim to Chicago Title.

31. When presented with a draft amicus brief and draft motion to reconsider by IDC's counsel (Attorney Mark Russo), Chicago Title shared the same with counsel representing the Sub-Condominium Associations and, afterward, refused to authorize the filing of such on Chicago Title's behalf. Trial Tr. 63:14-64:16, May 26, 2023. Chicago Title had never given permission to file an amicus brief in its name.

32. On April 8, 2005, the Rhode Island Supreme Court rendered its decision on re-argument, America Condominium Association Inc. v. IDC, Inc., 870 A.2d 434 (R.I. 2005)...