MacDonald v. Old Republic Nat'l Title Ins. Co.

882 F.Supp.2d 236

Richard G. MacDONALD, Plaintiff,

v.OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY, Michael Gould, Michael Burke, Law Office of Gould and Burke, PLLC, Defendants.

Civil Action No. 11–12075–WGY.

United States District Court, D. Massachusetts.

July 31, 2012.

Philip B. Posner, Attorney at Law, Wakefield, MA, for Plaintiff.

Krista L. Hawley, Thomas M. Looney, Bartlett Hackett Feinberg P.C., Boston, MA, for Defendants.

MEMORANDUM AND ORDER

YOUNG, District Judge.

I. BACKGROUND

Richard G. MacDonald (“MacDonald”) brings this action against Old Republic National Title Insurance Company (“Old Republic”) and Old Republic's agents, now terminated, attorneys Michael Gould, Michael Burke, and the Law Office of Gould and Burke, PLLC (collectively, the “Law Firm”). In his complaint, MacDonald alleges breach of contract (Count I), unfair and deceptive practices in violation of Massachusetts General Laws, chapters 93A and 176D (Count II), statutory and common law professional negligence (Count III), and negligent supervision (Count IV).

Old Republic moved to dismiss Counts II, III, and IV of the complaint under Federal Rule of Civil Procedure 12(b)(6). Old Republic Nat'l Title Ins. Co.'s Mot. Dismiss Counts II–IV Compl., ECF No. 7; Mem. Supp. Mot. Old Republic Nat'l Title Ins. Co. Mot. Dismiss Counts II–IV Compl. (“Old Republic Mem.”), ECF No. 8. MacDonald opposed the motion on January 9, 2012. Opp'n Def.'s Mot. Dismiss & Mot. Transfer Venue, ECF No. 12; Mem. Law Opp'n Defs.' Mot. Dismiss Mot. Transfer (“MacDonald Mem.”), ECF No. 13.

A hearing was held on January 24, 2012, and this Court denied Old Republic's motion to dismiss Counts II and IV, and took Count III under advisement. The Court subsequently denied Old Republic's motion to transfer. Order, ECF No. 16.

A. Standard of Review

Under the Federal Rules of Civil Procedure, a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). To survive a Rule 12(b)(6) motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A mere recital of the legal elements supported only by conclusory statements is not sufficient to state a cause of action. Id. at 555–57, 127 S.Ct. 1955.

B. Alleged Facts

On or about July 11, 2007, MacDonald delivered $135,000 to Scott Farah (“Farah”) for “unit mortgage loans” arranged by Farah or his companies, Financial Resources Mortgage, Inc. and CL and M, Inc. (collectively, “FRM/CLM”). Compl. ¶¶ 10–11, ECF No. 1–1. As security for the loan, MacDonald was granted a first mortgage purporting to encumber three condominium units of a condominium complex in Chichester, New Hampshire (the “Condominiums”). Id. ¶ 13. To insure the validity, enforceability, and priority of the purported mortgages, MacDonald purchased and received three title insurance policies issued by Old Republic (the “Loan Policies”), through its agent, the Law Firm. Id. ¶ 25.

In November 2009, MacDonald became aware that he had been the victim of a Ponzi Scheme perpetrated by Farah and FRM/CLM. Id. ¶ 19. MacDonald claims that the Condominium was “fictitious” and “never existed” because the proper documentation to create a condominium had not been filed.¹Id. ¶¶ 20, 22. MacDonald alleges that as the Condominiums are not legitimate, the titles are unmarketable, which is a covered risk under the policy.²Id. ¶¶ 34–35. Subsequent to discovering the unmarketable title, MacDonald demanded that Old Republic make payment under the title insurance policies. Id. ¶ 37. Thus far, Old Republic has refused to make payment to MacDonald on each title insurance policy. Id. ¶ 39.

II. ANALYSIS

In Count III, MacDonald claims that Old Republic, through its agents, failed to conduct a competent search of title and is liable under New Hampshire Revised Statutes Section 416–A:6 (the “New Hampshire statute”), which establishes the determination of insurability required for title insurers, and is also liable under the common law for professional negligence. Compl. ¶¶ 143–45. Old Republic argues that MacDonald has failed to state a claim because the New Hampshire statute does not provide a private cause of action and because both negligence claims are barred by the economic loss doctrine. Old Republic Mem. 9–12.

This case presents two issues: (1) whether MacDonald has a private cause of action under the statute or the common law; and (2) whether the economic loss doctrine applies to MacDonald's negligence claim.

A. New Hampshire Revised Statutes Section 416–A:6

Old Republic characterizes the issue here as whether the New Hampshire statute creates a private cause of action. This Court agrees with the parties that there are no reported New Hampshire cases interpreting the statute or addressing whether it creates a private cause of action. Old Republic Mem. 9; MacDonald Mem. 7. The provision in question is one section of the Title Insurance Code that regulates the title insurance industry in New Hampshire. N.H.Rev.Stat. Ann. § 416–A:1, et seq. “No company shall underwrite or issue a policy of title insurance ... unless authorized by the provisions of [N.H.Rev.Stat. § 416–A] to transact such business.” Id. § 416–A:3. Section 6 of the Title Insurance Code requires that title insurers determine insurability before providing title insurance. Id.§ 416–A:6.

No policy or contract of title insurance shall be written unless and until the title insurance company has caused to be conducted a reasonable examination of the title and has caused to be made a determination of insurability of title in accordance with sound underwriting practices for title insurance companies. Evidence thereof shall be preserved and retained in the files of the title insurance company or its agent or its approved attorney for a period of not less than 20 years after the policy or contract of title insurance has been issued....

Id. Because New Hampshire courts have yet to determine whether this provision provides a right of action, this Court looks first to the New Hampshire courts for guidance on when a cause of action may be implied.

In Marquay v. Eno, 139 N.H. 708, 662 A.2d 272 (1995), the New Hampshire Supreme Court examined its jurisprudence on “the relationship between statutory duties and civil liability.” Id. at 713–14, 662 A.2d 272. As the court noted, New Hampshire case law is not exactly consistent on the topic, but in general it ought to distinguish between cases with statutorily expressed or implied causes of action, and negligence per se.Id. at 713, 662 A.2d 272. The court admonished that the doctrine of negligence per se plays no role in the creation of common law causes of action. Id. at 713–14, 662 A.2d 272. Where a cause of action exists at common law, however, the standard of conduct may be defined by a statute rather than the usual reasonable person standard. Id. at 714, 662 A.2d 272. Of course, a plaintiff may bring an action without a common law duty if the statute creates, either expressly or impliedly, a private cause of action. Id. This Court will first examine the New Hampshire statute for such a private remedy.

There is little doubt but that the statute provides a standard of conduct for title insurers, but its express terms do not mention a private remedy.³ The Court next looks to the statute's legislative history to determine whether the legislature intended the statute to include a private cause of action. See id. at 715, 662 A.2d 272 (noting that “where the legislature has intended civil liability flow from the violation of a statute, it has often so provided”).

The Court is hindered in this analysis by the sparse legislative history available for the New Hampshire Title Insurance Code (the “Code”). The New Hampshire Journals of the Senate and House do provide some limited information, but none that speaks directly to the private cause of action. See e.g., N.H. Journal of the House, Session of 1971 Vol. I 479–80. Section 416–A:6 does appear to be one of a very few sections to the original bill code that were amended. Id. The New Hampshire House amended the length of time that title insurers, their agents, or attorneys must retain proof of their title examination—changing the minimum time to retain proof from fifteen to twenty years. Id. at 480. This amendment tells us that the drafters considered the provision important, but not what remedies they contemplated or intended.

Perhaps the only evidence of the legislature's intent is the one sentence description of the bill provided as the House Committee Report. The Code “[g]ives the Insurance Commissioner power to regulate title insurance companies, who are just beginning to sell title insurance in New Hampshire.” Id. at 479. This exhortation that the Commissioner shall regulate title insurers could be interpreted as implying that executive regulation precludes private remedies. Then again, perhaps not. Without more conclusive information about legislative intent, this Court hesitates to imply a cause of action in the statute. Finding no implied cause of action, the Court turns instead to a discussion of whether negligence per se can adopt the statutory standard of conduct.

1. MacDonald's Claim Requires a Common Law Duty

Although the New Hampshire Supreme Court stated in 1972 that “[i]t is well established law in [New Hampshire] that a causal violation of a statutory standard of conduct constitutes legal fault in the same manner as does the causal violation of a common-law standard of due care, that is, causal negligence,” Moulton v. Groveton Papers Co., 112 N.H. 50, 52, 289 A.2d 68 (1972) (citations omitted), this generous formulation of private remedies in statutes seems not to have stood the test of time. Compare id., with Stillwater Condo. Ass'n v. Town of Salem, 140 N.H. 505, 506–07, 668 A.2d 38...