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

In re: BRYAN A. LAMEY, Debtor.

EDWARD ALEXANDER 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.

No. 14-13729 ta7

Adv. No. 18-01057-t

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW MEXICO

Filed: April 3, 2020

April 2, 2020

OPINION

Defendant Fidelity National Title Insurance Company has moved for summary judgment that the chapter 7 trustee lacks standing to bring the six claims he asserted against it. Fidelity argues that because the debtor had no standing to bring the claims, the trustee likewise has no right to bring them. The Trustee agrees that he cannot bring the claims unless the debtor could but argues that the debtor had the right to assert the claims. The Court concludes that the debtor lacked standing to bring the claims, so will enter a partial summary judgment against the Trustee on them.

I. FACTS

The Court incorporates by reference the Omnibus Findings of Fact for All Pending Motion for Summary Judgment, entered March 20, 2020, doc. 159.

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 the nonmoving party," and a fact is material when it "might affect the outcome of the suit under the governing substantive law." Bird v. W. 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).

B. Count 1: Breach of Contract.

The Trustee sued Fidelity for breach of contract on the title policy at issue. The title policy was between Fidelity and URELC. The Debtor Bryan Lamey was neither a party to nor an insured under the policy. As a general proposition, "[o]ne who is not a party to a contract cannot sue to enforce it." Casias v. Continental Cas. Co, 125 N.M. 297, 300 (Ct. App. 1998). Rather, a breach of contract claim must be brought by the real party in interest, i.e., the contracting party. Fed. R. Civ. Pro. 17(a)(1); Fed. R. Bankr. Pro. 7017. Stated differently, strangers to a contract are not real parties in interest and lack standing to enforce it. See Marchman v. NCNB Texas Nat. Bank, 120 N.M. 74, 81 (S. Ct. 1995) (the corporation was the real party in interest to enforce a contract it entered into; plaintiff shareholder lacked standing to do so); see generally Deutsche Bank Nat. Trust Co. v. Johnston, 369 P.3d 1046, 1050 (N.M. 2016) (standing requires injury in fact, causation, and redressability), citing Davis v. Fed. Election Comm'n, 554 U.S. 724, 733 (2008).

An exception to the general rule is that "[a] third party may be a beneficiary of such contract, and as a beneficiary may have an enforceable right against a party to a contract." Fleet Mortg. Corp. v. Schuster, 112 N.M. 48, 49 (S. Ct. 1991). The Trustee argues that Lamey was a third-party beneficiary of the title policy and therefore had a right to sue Fidelity for breach. If so, the Trustee could bring the claim as an estate asset. See generally 11 U.S.C. § 541(a)(1) ("all legal or equitable interests of the debtor in property as of the commencement of a bankruptcy case" become property of the bankruptcy estate).

To demonstrate third-party beneficiary status, a plaintiff must show that he was not merely an incidental beneficiary of the contract but an intended beneficiary. McKinney v. Davis, 84 N.M. 352, 353 (S. Ct. 1972) (emphasis added); see also German Alliance Ins. Co. v. Home Water Supply Co., 226 U.S. 220, 230 (1912) ("Before a stranger can avail himself of the exceptional privilege of suing for a breach of an agreement, to which he is not a party, he must, at least, show that it was intended for his direct benefit."). In New Mexico,

A third party who is not a promisee and who gave no consideration has an enforceable right by reason of a contract made by two others (1) if he is a creditor of the promisee or of some other person and the contract calls for a performance by the promisor in satisfaction of the obligation; or (2) if the promised performance will be of pecuniary benefit to him and the contract is so expressed as to give the promisor reason to know that such benefit is contemplated by the promisee as one of the motivating causes of his making the contract. A third party may be included within both of these provisions at once, but need not be. One who is included within neither of them has no right, even though performance will incidentally benefit him.

Permian Basin Inv. Corp. v. Lloyd, 63 N.M. 1, 7 (S. Ct. 1957), quoting Corbin on Contracts, Vol. 4, § 776 at 18-19. The first of Corbin's alternatives does not apply here. Therefore, for Lamey to be a third-party beneficiary of the title policy, the Trustee must show that the policy was of "pecuniary benefit" to Lamey and that the policy is so expressed as to give Fidelity reason to know that benefitting Lamey was one of the reasons URELC bought the policy. Id.; see also Valdez v.Cillessen & Son, Inc., 105 N.M. 575, 581 (S. Ct. 1987) (intent to benefit the third party must appear either from the contract itself or from evidence that the third party was the intended beneficiary); Casias v. Continental, 125 N.M. at 300 (the person claiming to be the third-party beneficiary of a contract has the burden of showing that the parties to a contract intended to benefit him).

Unless a contract is ambiguous, a beneficiary's status is determined by the terms of the contract itself.¹ Permian Basin, 63 N.M. at 7; McKinney, 84 N.M. at 35-54. Here, the title policy is unambiguous. It nowhere states or implies that Lamey was intended to directly benefit from the policy. For example, under the heading "COVERED RISKS" the policy provides:

SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B, AND THE CONDITIONS, FIDELITY NATIONAL TITLE INSURANCE COMPANY, a California corporation (the "Company") insures as of the Date of Policy and to the extent stated in Covered Risks 9 and 10, after Date of Policy, against loss or damage, not exceeding the Amount of Insurance, sustained or incurred by the insured by reason of [ten enumerated risks].

(emphasis added). The policy expressly limits coverage to URELC as "the insured." No other term directly or impliedly states that Lamey would benefit. Had the policy listed Lamey as an additional insured, the case would be altered. It did not. By the policy's terms, Lamey is not a third party beneficiary, nor has the Trustee produced extrinsic evidence that he was. Instead, the Trustee argues that Lamey had a "huge financial stake in the contract" because he personally guaranteed the bank loan. A mere interest in a contract, however large, does not transform an incidental beneficiary into an intended one. Rather, there must be evidence, from the contract or fromextrinsic sources, that URELC intended Lamey to benefit directly from the title policy and told Fidelity of that intent. No such evidence exists.

As an incidental beneficiary, Lamey (and now the Trustee) cannot sue for breach of the policy. Woody Inv., LLC v. Sovereign Eagle, LLC, 362 P.3d 107, 116 (N.M. App. 2015) ("[a]s incidental beneficiaries, Plaintiffs are not entitled to recover under the contract."); Fleet Mortgage Corp., v. Schuster, 112 N.M. 48, 50 (S. Ct. 1991) ("As an incidental beneficiary, she had no right to recover from the accord"); Permian Basin Inv. Corp., 63 N.M. at 7-8 (same).

In any event, there is no need for Lamey to enforce the title policy because URELC has sued to enforce it. To the extent Lamey suffered compensable harm by Fidelity's breach of contract, he would be made whole by any recovery to which URELC is entitled.²

Having no evidence from which a reasonable fact finder could conclude that Lamey was an intended beneficiary of the title policy, Fidelity is entitled to summary judgment that the Trustee lacks standing to bring the breach of contract claim.

C. Count 2: Constructive Fraud.³

In New Mexico, the tort of constructive fraud:

is a breach of legal or equitable duty which, irrespective of the moral guilt of the fraud feasor, the law declares fraudulent because of its tendency to deceive others, to violate public or private confidence, or to injure public interests. Neither actual dishonesty of purpose nor intent to deceive is an essential element of constructive fraud.

Scudder v. Hart, 110 P.2d 536, 539 (N.M. 1941) (emphasis in original); see also Barber's Super Markets, Inc. v. Stryker, 84 N.M. 181, 186 (Ct. App. 1972) (citing Scudder); Archuleta v. Kopp, 90 N.M. 273, 276 (Ct. App. 1977) (quoting Barber's Super Markets).

Constructive fraud cases hinge on a duty of disclosure. See, e.g., Smith v. Moore, 2018 WL 6583367, at *1 (N.M. App.) (unpublished) (duty to disclose alleged defect in a house purchased by plaintiff); Kipnis v. Jusbasche, 388 P.3d 654, 655-56 (N.M. 2016) (alleged duty to disclose nolo plea to business partners); Jones v. Auge, 344 P.3d 989, 1000-01 (N.M. App. 2014) (failure to disclose bonuses paid to himself); R.A. Peck, Inc. v. Liberty Federal Sav. Bank, 108 N.M. 84, 87 (Ct. App. 1988) (duty to disclose availability of loan funds to contractor relying on same); Rogers v. Stacy, 63 N.M. 317, 320 (S. Ct. 1957) (one business partner had a duty to disclose material transactions to his other partner) Archuleta v. Kopp, 90 N.M. at 276 (duty to disclose defective fireplace to a blind buyer).⁴

The Trustee argues that LCAT had a duty to disclose to Lamey that LCAT was not going to require a release of the KZRV mortgage before closing the...