Mazel v. Las Cruces Abstract & Title Co. (In re Lamey)

In re: BRYAN A. LAMEY, Debtor.

EDWARD MAZEL, Chapter 7 Trustee, and UNITED REAL ESTATE LAS CRUCES, LLC, Plaintiffs, v. LAS CRUCES ABSTRACT AND TITLE COMPANY, FIDELITY NATIONAL TITLE INSURANCE COMPANY, and TCNM, LLC, Defendants.

Case No. 14-13729 ta7

Adv. No. 18-01057-t

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW MEXICO

July 17, 2020

OPINION

The Court denied plaintiff United Real Estate Las Cruces, LLC's ("URELC's") motion for summary judgment on its breach of contract claim, instead opining that summary judgment in favor of defendant Fidelity National Title Insurance Company ("Fidelity") might be warranted. The Court solicited additional briefing on the issue. Now before the Court is Fidelity's motion for summary judgment on URELC's breach of contract claim.¹ The Court concludes that Fidelity's motion should be granted.

I. UNDISPUTED MATERIAL FACTS

The Court incorporates by reference its Omnibus Findings of Fact for All Pending Motions for Summary Judgment, filed March 20, 2020, doc. 159. Capitalized and abbreviated terms not otherwise defined are taken from the Omnibus Findings.

URELC's claim is based on the fact that the KZRV Mortgage—an encumbrance on the Property URELC bought—was disclosed in a title commitment Fidelity issued, was not released at closing, but was not listed as a title exception in the Owner's Policy. The facts surrounding the non-release of the KZRV Mortgage are well known to the parties.

The Owner's Policy is a standard form, conforming to New Mexico law. See NMSA § 59A-30-5; NM Code R. § 13.14.18.13; NM Form 1. It is quite similar to the standard title insurance policy form used throughout the United States.

In July 2015, URELC made a claim under the Owner's Policy, alleging Fidelity's "fail[ure] to find and/or disclose to URELC that the property URELC was financing through LANB had a mortgage on it by KZRV." Fidelity denied the claim:

While your letter . . . claims that URELC was not aware of the KZRV Mortgage prior to its purchase of the Property, the KZRV Mortgage was disclosed . . . in . . . the Commitment for Title Insurance issued to URELC effective August 30, 2012[.] . . . Further, Robert Maese Sr., a member of URELC, not only knew about the KZRV Mortgage, but also agreed to obtain the release of the KZRV Mortgage; his failure to do so directly caused the KZRV Mortgage to remain of record. Because URELC had knowledge of the KZRV Mortgage and Robert Maese Sr., whose conduct is imputable to URELC as a member of URELC, agreed to obtain a release of the KZRV Mortgage and failed to do so, Exclusion 3(a) excludes the KZRV Mortgage from coverage under URELC's Owner Policy.²

In August 2016, Lamey asked Fidelity to reconsider the denial, arguing that Maese Sr. did not represent URELC in the transaction and that Lamey, URELC's only manager, was not aware of the KZRV Mortgage. Fidelity rejected the reconsideration request:

Maese, Sr. was a member of URELC at the time the Property was purchased, knew of the existence of the KZRV Mortgage and its unreleased status, and represented he would obtain its release after the purchase of the Property but failed to do so. As an active member of URELC at the time of the purchase, Maese Sr.'s knowledge of the foregoing matters is imputed to URELC. Neither Maese, Sr.'s alleged lack of authority to transact URELC's business or your alleged lack of knowledge of the KZRV Mortgage (despite its being disclosed on the Commitment) negate this imputation. Because URELC is imputed with knowledge of the unreleased KZRV Mortgage at the time of the transaction, [Fidelity] affirms its prior denial of coverage under Exclusion 3(a).

URELC asserts that Fidelity's denial of coverage breached the Owner's Policy and claims damages due to

Fidelity's . . . failure to act diligently to remove the KZRV Mortgage clouding the title. Although Fidelity ultimately settled the KZRV litigation with LANB, it took roughly eighteen months to do, while in the meantime it subjected its other insured to foreclosure, and loss of the equity in the building, and liability for costs, fees, and interest associated with the foreclosure. . . . During this time, URELC was effectively precluded from selling, leasing, or utilizing this asset. The sum of the lost equity in the amount of $223,580.58 and the deficiency judgment of $448,919.42 plus interest at 16% per annum represent, in part, the economic damages suffered by Plaintiffs as a result of Fidelity's failure to provide URELC coverage under the Owner's Policy.

The damages URELC claims do not include attorney fees for defending the KZRV foreclosure action, and URELC has no fee bills that would support a claim for attorney fees.

II. DISCUSSION

A. Summary Judgment Standards.

Summary judgment is appropriate where "there is no genuine dispute as to any material fact" thereby entitling the moving party to judgment as a matter of law. Fed. R. Civ. P. 56(a). "A dispute is genuine when the evidence is such that a reasonable jury could return a verdict for thenonmoving party," and a fact is material when it "might affect the outcome of the suit under the governing substantive law." Bird v. West Valley City, 832 F.3d 1188, 1199 (10th Cir. 2016) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, (1986)). In ruling on a motion for summary judgment, the Court is required to "view the facts and draw reasonable inferences in the light most favorable to the party opposing the . . . motion." Scott v. Harris, 550 U.S. 372, 378 (2007).

At the summary judgment stage, "the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249. However, "there is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249-50.

B. Fidelity Properly Denied URELC's Claim.

1. There is No Genuine Dispute that Maese Sr. Was URELC's Agent. A key question is whether Maese Sr. was URELC's agent in its dealings with Fidelity (and its agent LCAT). If Maese Sr. was, then his knowledge of the KZRV Mortgage is imputed to URELC and his actions relating to the mortgage bound URELC. The imputed knowledge and binding actions would mean that Fidelity was within its rights to deny URELC's claim because it was based on a lien "suffered, assumed or agreed to by the Insured Claimant."

The following facts in the record support a finding that Maese Sr. was URELC's agent in the loan and purchase transaction at issue:

• Before URELC was formed, Lamey, Maese Sr. and Maese Jr. were all involved in negotiating with American RV World's creditors, trying to obtain discounted payoffs or otherwise restructure the business;

• Each brought a strength to the contemplated new enterprise: Maese Sr. had 35 years of experience in the RV business; Maese Jr. also had significant experienced in the RV business and was an excellent salesman; and Lamey had money and also had expertise in accounting and business finance; • Lamey and the Maeses worked together to create the restructured RV businesses they envisioned;

• Lamey (51%), Maese Sr. (24.5%), and Maese Jr. (24.5%) were the only members of UREH, which wholly owned URELC;

• Lamey's plan was to appoint Maese Jr. president of the Albuquerque and Las Cruces operating entities, despite the fact that the operating agreement said that only Lamey had authority to act for the entities;

• Maese Sr. had the relationship with LANB;

• While Maese Sr. had many years of experience in the RV business, Lamey had no experience;

• Lamey admits that Maese Sr. (and perhaps Maese Jr.) negotiated the loan terms with LANB;

• When LANB sent LCAT a title commitment order form, it specified that Maese Sr. was the designated contact for URELC;

• Maese Sr. guaranteed the LANB loan;

• LCAT never talked to Lamey or Maese Jr.;

• Lamey, Maese Sr. and his wife, and Maese Jr. and his wife all attended the closing in Albuquerque. There is no evidence that Lamey was surprised by the settlement statement, the closing documents, or any other aspect of the closing;

• Lamey knew LCAT had dealt with somebody acting on URELC's behalf, and he knew it wasn't him;

• The mortgage payoff figures in the closing statement (prepared by LCAT) must have come from Maese Sr; and Maese Sr., rather than Lamey, worked on getting the Owners Policy for URELC; and

• After the closing the Maeses and Lamey continued to work together for a period of time to try and save the RV businesses. For example, the decision to close the Albuquerque location was a joint decision.

Because all the evidence in the record points to Maese Sr.'s agency, the Court asked URELC to provide any evidence it had that Maese Sr. was not URELC's agent. URELC did not provide any such evidence. Instead, it continues to rely on its operating agreement, which states that only Lamey has authority to bind URELC. As previously held, this is not enough to prevent Maese Sr. from being URELC's agent. Rather, agency may be evidenced by a writing, see Fletcher Cyclopedia of the Law of Corporations, § 437.20; by the spoken words or conduct of the principal, see Unlimited Equip. Lines, Inc. v. Graphic Arts Centre, Inc., 889 S.W.2d 926, 936 (Mo. App. 1994); or "inferred from attending circumstances," see Romero v. Mervyn's, 784 P.2d 992, 997 (N.M. 1989); State Fin. Co. v. Hershel Cal. Fruit Prods. Co., 47 P.2d 821, 823 (Cal. App. 1935)("The extent of an agent's authority, and the ratification of an unauthorized act, may be proved by circumstantial evidence"); Bayless v. Christie, Manson & Woods Intern., Inc., 2 F.3d 347, 352 n. 6 (10th Cir. 1993) ("an agency relationship arises, regardless of the parties' intent, when two parties agree that one is to act for another, or the conduct of the parties is such that it demonstrates [that] one [is] to act for the other")...