Johnston v. Flying S Title & Escrow, Inc.

545 P.3d 679

2024 MT 39

Gilbert R. JOHNSTON and Judith A. Johnston, husband and wife; Stephen R. Gibbs; Scott Shone; Donald S. Smith and Brenda J. Smith, husband and wife as trustees of the Donald S. Smith and Brenda J. Smith AB Living Trust; Rachelle Amber McCracken; Michael Alien McCracken; Sean Justin Smith; Gerald B. Woodahl and Susan A. Woodahl, husband and wife; Jeffrey M. Hollenback; Jim S. Ferguson; Eric W. Smart and Stephanie Nicole Smart, husband and wife; Nancy Cordial; EDS Investments, LLC, an Arizona limited liability company; News Development, LLC a Montana limited liability company; and JCO Properties, LLC, a Montana limited liability company, Plaintiffs and Appellants,

v.FLYING S TITLE & ESCROW, INC., f/k/a First American Title Company, Defendant and Appellee.

DA 22-0486

Supreme Court of Montana.

Submitted on Briefs: June 7, 2023

Decided: February 27, 2024

Rehearing Denied: April 9, 2024

APPEAL FROM: District Court of the Fourth Judicial District, In and For the County of Missoula, Cause No. DV-14-570, Honorable Jason Marks, Presiding Judge

For Appellants: David B. Cotner, Kyle C. Ryan, Brian T. Geer, Cotner Ryan Law, PLLC, Missoula, Montana

For Appellee: Michael S. Dockery, Jeffrey M. Roth, Jeffrey R. Kuchel, Crowley Fleck PLLP, Missoula, Montana

Justice Jim Rice delivered the Opinion of the Court.

¶1 Appellants Gilbert and Judith Johnston el al. (collectively "Appellants") appeal the order of the Fourth Judicial District Court, Missoula County, granting summary judgment to Appellee Flying S Title and Escrow, Inc., (Flying S)¹ in the litigation they commenced regarding the failed Gleneagle subdivision. We affirm and consider the following issue:

Did the District Court err by holding that Flying S is not contractually liable to Appellants for title insurance on the disputed properties?

FACTUAL AND PROCEDURAL BACKGROUND

¶2 The Gleneagle at Grantland subdivision (Gleneagle), as originally platted, consisted of 94 lots² on approximately 73 acres in Mis- soula County, north of Missoula. Missoula County approved Gleneagle in 1985, but in 1989 acquired it by tax deed. In 1997, Ken Knie and Mark Denton, Gleneagle’s developers, sued Missoula County to reclaim the subdivision from the County. That litigation resulted in a 1999 settlement agreement (the Settlement Agreement), which allowed the developers to reacquire the subdivision. The developers agreed to reconfigure 67 lots in the subdivision into 25 larger parcels. For that purpose, Knie was required to install necessary infrastructure and to record an amended plat to reflect the lot consolidation, which would create the new parcels and allow them to be conveyed.³ Ultimately, the necessary infrastructure was not installed, and the amended plat was never recorded.

¶3 The Appellants, with and as part of a larger group of entities and individuals (collectively "Buyers"), subsequently purchased land within the subdivision. At closing, the Buyers received warranty deeds stating they had, purchased lots, which warranty deeds were recorded. However, according to affidavits filed by Appellants in litigation with Missoula County, their intention in purchasing the lots was ultimately to obtain or purchase the proposed parcels. They alleged that they were made to believe, by Knie, that the lots they would purchase would be re-platted and consolidated into the desired parcels, and that the funds generated by the lot sales were necessary to finance the process of developing infrastructure and re-platting the subdivision. The Buyers thus undertook purchase of the lots.

¶4 Each transaction was facilitated by a form sales agreement, titled "Offer to Purchase," although signed by the developers as Sellers. These documents, ostensibly between the Sellers and Buyers, listed the property to be purchased by its existing lot description, with an "AKA" reference to the proposed reconfigured parcel. For example, lead Plaintiffs Gilbert and Judith Johnston’s "Offer to Purchase" document provided for their joint purchase of "Lots 56 & 57 of GlenEagle at Grantland," and thereunder stated "AKA Parcel 10."⁴ The document stated that Sellers would "furnish title insurance." Flying S, as agent of First American Title Insurance, issued a "Lot Commitment" in July 2006 to each buyer, offering title insurance underwritten by First American for the lots described in their agreement. The Johnstons’ Lot Commitment described the property to be purchased as "Lots 56 and 57 of Gleneagle at Grantland Addition, a platted subdivision in Missoula County, Montana, according to the official recorded plat thereof." In contrast to the "Offer to Purchase" documents, the Lot Commitments offering title insurance to Appellants did not make reference to the proposed parcels.

¶5 Throughout the purchase process, the Appellants—the only Buyers who remain in this litigation—were represented by attorney Gerald Steinbrenner. Steinbrenner requested Flying S to provide Appellants, in addition to the Lot Commitments, "pro forma" documents that would reflect the title insurance that could be issued for the contemplated parcels. Though contrary to its business practices, Flying S obliged and configured a document in the form of a commitment, which it entitled "Pro-Forma," and a document configured as a title insurance policy, likewise entitled "Pro-Forma," to each Appellant. The Pro-Forma commitment form reiterated the "Policy Amount" and "Premium Amount" that were listed on each Appellant’s actual Lot Commitment, but because the parcels did not exist, the legal descriptions of the property within each Pro. Forma commitment form were not completed. The Johnstons’ Pro Forma document, for in- stance, described the property as "Parcel ___ of Retracement Certificate of Survey No. ___, being Lots 56 and 57, a platted subdivision in Missoula County, Montana, according to the official recorded plat thereof." Each Pro-Forma commitment form provided that, among the "requirements [that] must be met," "[d]ocuments satisfactory to us creating the interest in the land and/or the mortgage to be insured must be signed, delivered and recorded," including "a copy of the recorded retracement survey." Appellants were instructed therein that they also needed to obtain "a commitment to insure setting forth these requirements" from Flying S. The commitment form further specified that "[i]f the Requirements shown in this Commitment have not been met within six months after the Commitment Date, our obligation under this Commitment will end." Similarly, the Pro Forma policy form provided with the Pro Forma commitment form provided the following disclaimer:

NOTICE: This is a Pro Forma Policy furnished to or on behalf of the party to be insured. It neither reflects the present status of title, nor is it intended to be a commitment to insure. The inclusion of endorsements as part of the Pro Forma Policy in no way evidences the willingness of the Company to provide any affirmative coverage shown therein.

There are requirements which must be met before the final Policy can be issued in the same form as this Pro Forma Policy. A commitment to insure setting forth these requirements should be obtained from the Company.

(Emphasis added.)

¶6 In August through September 2006, the Appellants individually closed on their purchase of the properties. They signed a document issued by Flying S, titled "Closing Escrow Instructions Purchase," stating that they, as Buyers, "agree to purchase the hereinafter property as described in Schedule A of [the Lot Commitment]" issued to them for the purchase of the lots. Each Appellant was issued, a warranty deed that described and granted their purchased properties only in terms of lots, Johnstons’ warranty deed described their property as "Lots 56 and 57 of Gleneagle at Grantland Addition." Flying S accepted premiums from Appellants, ranging between $277 and $447 for each transaction, according to the amount stated in the Lot Commitments and reiterated in the Pro Forma commitment form, for a total amount of premiums received from all Appellants of $2,636.

¶7 Affidavits submitted by Appellants during the ensuing litigation against Missoula County demonstrated that, at the time of closing, Appellants were then aware they were purchasing lots, but that they believed their interest would transition to ownership of parcels upon completion of the subdivision revision process, a project the developers would fund with the proceeds of their purchases of lots. Steinbrenner sent two letters to each Appellant, one before and one after closing, which discussed the proposed process of transitioning from lots to tracts, and using almost identical language in both letters: "The title company has indicated that we can obtain title insurance which will identify the number of the future tract, as opposed to the presently identified lots and easements." (Emphasis added.) No tract or parcel numbers were identified in the Pro Forma commitment forms, or ever identified, because the necessary infrastructure was not completed and no amended plat creating the desired parcels was ever recorded.

¶8 In 2013, developer Knie filed for Chapter 7 Bankruptcy. In December 2013, many Buyers, including Appellants, sued Missoula County, alleging, inter alia, that Missoula County’s failure to ensure the subdivision’s infrastructure was constructed as required had rendered their properties worthless, rendering the County liable for losses stemming from their purchases of the lots.⁵ In that litigation, the district court granted summary judgment in favor of the Buyers, reasoning that the County’s failure to secure an infrastructure development guarantee from Knie constituted a violation of the Montana Subdivision and Platting Act. In August 2017, the Buyers and the County settled. In exchange for a payment of $2,265,000, the Buyers, including Appellants, transferred their ownership interest in the lots to the County, via individual warranty deeds for each of...