MCLP Asset Co. v. Stewart Title Guar. Co.

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MCLP Asset Company, Inc., Plaintiff, v. Stewart Title Guaranty Company, Defendant.

CIVIL No. 21-1318 (GMM)

United States District Court, D. Puerto Rico

April 24, 2024

OPINION AND ORDER

GINA R. MÉNDEZ-MIRÓ UNITED STATES DISTRICT JUDGE

Before the Court are MCLP Asset Company, Inc.'s (hereinafter “Plaintiff” or “MCLP”) Motion for Partial Summary Judgment and Memorandum of Law in Support Thereof (“Motion for Partial Summary Judgment”) and Stewart Title Guaranty Company's (hereinafter, “Defendant” or “Stewart”) Motion for Summary Judgment and Memorandum of Law in Support Thereof (“Motion for Summary Judgment”). (Docket Nos. 48; 50). For the following reasons, the Court GRANTS in part and DENIES in part Plaintiff's Motion for Partial Summary Judgment and GRANTS in part and DENIES in part Defendant's Motion for Summary Judgment.

I. FACTUAL AND PROCEDURAL BACKGROUND

On October 12, 2005, Jorge Luis Azize Ortiz (“Azize”) acquired a property (“Property”) through Purchase-Sale Deed number 1,564 (“Purchase-Sale Deed”) before Public Notary, Luis A. Archilla Diaz, Esq., (“Notary Archilla”) for $225,000.00. (Docket Nos. 48 at 5; 50 at 4). That same day, Azize executed and delivered a promissory note in the principal sum of $175,000 (the “Mortgage Note”) before Notary Archilla. (Docket Nos. 48 at 5-6; 47-2; 50 at 4). The debt evidenced by the Mortgage Note was accompanied by the First Mortgage Deed Number 1,565, dated October 12, 2005 (the “Mortgage Deed”) before Notary Archilla. (Docket Nos. 48 at 5-6; 47-3; 50 at 4). On October 12, 2005, Stewart also issued mortgage insurance policy no. M99948472663 insuring the mortgage encumbering the Property subject to the Mortgage Deed. (Docket Nos. 47-6; 48 at 6; 51-6).

On November 3, 2005, the Purchase-Sale Deed and the Mortgage Deed were filed at the Registry of Property of Puerto Rico, Fajardo Section, at entries 1111 and 1112, respectively, of volume 277 of the Book of Daily Entries of the referenced section of the Property Registry (“Filing Entries”). (Docket Nos. 51 at ¶ 17; 63 at 1112). On December 5, 2006, the Registrar of the Property of Puerto Rico, Fajardo Section I, notified Notary Archilla that there were errors on the deeds, which impaired their recording, and those defects were never corrected. (Docket Nos. 48 at 6; 50 at 4). On February 5, 2007, the uncorrected Filing Entries expired. (Docket No. 50 at 4).

On July 4, 2016, Azize filed for Chapter 11 Bankruptcy at Case No. 16-05338 (MCF) (the “Bankruptcy Case”).

(Docket Nos. 47-12; 48 at 6; 50 at 4; 51-8). On August 4, 2016, Azize's original creditor, Banco Popular de Puerto Rico (“BPPR”), filed a Proof of Claim (“POC”) in the Bankruptcy Case claiming a “secured” credit in the amount of $171,004.87 for the mortgage loan. (Docket Nos. 47-10; 50 at 4; 51-9). On November 28, 2016, BPPR sent a claim letter informing Stewart that the Filing Entries had never been recorded at the Property Registry and requesting $175,000 under the Policy. (Docket Nos. 47-9; 50 at 4-5; 51-1). On December 13, 2017, BPPR filed its third amended POC in the Bankruptcy Case in which its claim was classified as “unsecured” in the total amount of $171,004.87. (Docket Nos. 50 at 5; 51-11; 63 at 14). Then, on December 15, 2017, Azize filed a Motion Submitting Amendment and/or Supplement to Debtor's Plan or Reorganization that reclassified the POC as a “general unsecured claim” with an estimated recovery of 4.5%. (Docket Nos. 50 at 5; 51-12; 63 at 15).

On February 6, 2018, Stewart e-mailed BPPR stating that it would attempt to record the mortgage on the Property Registry and/or minimize the Insured's loss but still reserve its right to ultimately deny coverage. (Docket Nos. 50 at 5; 51-13; 63 at 15). On March 8, 2018, Azize's reorganization plan in the Bankruptcy Case was confirmed. (Docket Nos. 47-11; 48 at 6; 50 at 5). Therein, the POC was classified as a “general unsecured claim.” (Docket Nos. 47-10; 50 at 5; 51-11; 62 at 15).

On April 17, 2018, the POC that was filed in the Bankruptcy Case by BPPR was transferred to DLJ Mortgage Capital, Inc. (“DLJ”). (Docket Nos. 48 at 6; 50 at 5; 51-15). On the same date, Azize filed an application for a Final Decree informing that payment on the POC was made on April 3, 2018. (Docket Nos. 47 ¶ 16; 48 at 6; 62 ¶ 16). The requested final decree in the Bankruptcy Case was entered on July 12, 2018, effectively discharging Azize's obligations. (Docket Nos. 47-13; 48 at 6; 50 at 5; 51-16).

On July 3, 2020, BPPR e-mailed Stewart on behalf of Legacy Mortgage Asset Trust 2019-GS5 (“Legacy”) requesting payment under the Policy and approval to tender the original note to the mortgagor. (Docket No. 50 at 5). Stewart responded on September 10, 2020, stating that if the claim fell under the Policy, Stewart's liability would be limited to the Policy's terms. (Docket Nos. 50 at 5-6; 51 ¶ 31). On March 11, 2021, DLJ's counsel sent a letter to Stewart demanding payment under the Policy. (Docket Nos. 50 at 6; 51 ¶ 33). Stewart responded on May 21, 2021, indicating a willingness to settle the claim for the actual loss suffered by the insured. (Docket Nos. 47-18; 50 at 6; 51 ¶ 34).

On June 8, 2021, the original Complaint in these proceedings was filed. (Docket No. 1). On February 4, 2022, DLJ filed a Motion for Substitution of Plaintiff and Request for Leave File Amended Complaint, which the Court granted on February 24, 2022. (Docket Nos. 18; 21). On March 16, 2022, DLJ, on behalf of Legacy, filed the Amended Complaint. (Docket No. 22). The Amended Complaint alleges, among other things, claims of declaratory judgment, breach of contract, and bad faith denial of insurance coverage. (Id.) On November 2, 2022, DLJ, on behalf of Legacy, filed a Motion for Substitution of Plaintiff Pursuant to Fed.R.Civ.P. 25 requesting that the Court substitute Legacy for MCLP. (Docket No. 39). The Court granted this request on January 9, 2023. (Docket No. 41).

On September 27, 2023, MCLP filed its Motion for Partial Summary Judgment and Memorandum of Law in Support Thereof, specifically requesting that the Court grant it declaratory judgments on whether MCLP is insured under the Policy; whether the Policy covers the claimed events; and whether Stewart breached the terms of the Policy by refusing to pay the claimed amounts. (Docket Nos. 47; 48). MCLP also requests that the Court order Stewart to pay MCLP the unpaid principal indebtedness under Schedule A of the Policy, i.e. $175,000. (Id.) On September 29, 2023, Stewart filed its own Motion for Summary Judgement and Memorandum of Law in Support Thereof seeking summary dismissal of the Amended Complaint. (Docket Nos. 50; 51). Stewart argued that MCLP does not have a valid claim against Stewart given that Plaintiff lacks evidence demonstrating that it holds the mortgage note; in the alternative, Stewart asserted, MCLP failed to timely cure the defects of the Mortgage Deed, and failed to provide the required proof of its actual loss to qualify for recovery under the Policy, thereby disqualifying MCLP from having a valid claim against Stewart. (Id.)

II. LEGAL STANDARD

A. Fed.R.Civ.P. 56

Federal Rule of Civil Procedure Rule 56 governs motions for summary judgment. See Fed.R.Civ.P. 56. “Summary judgment is appropriate when ‘the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.'” Rojas-Buscaglia v. Taburno-Vasarhelyi, Civil No. 13-1766 (FAB), 2015 WL 4093208, at *1 (D.P.R. June 26, 2015) (citing Fed.R.Civ.P. 56(c)). “An issue is genuine if ‘it may reasonably be resolved in favor of either party' at trial,. . .and material if it ‘possess[es] the capacity to sway the outcome of the litigation under the applicable law.'” Burke Rozzetti v. Ford Motor Company, 439 F.Supp.3d 13, 18 (D.P.R. 2020) (quoting Iverson v. City of Boston, 452 F.3d 94, 98 (1st Cir. 2006)).

“The party moving for summary judgment has the initial burden of “demonstrat[ing] the absence of a genuine issue of material fact” with definite and competent evidence.” Condado 3 CFL, LLC v. Reyes Trinidad, 312 F.Supp.3d 255, 258 (D.P.R. 2018) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). “Summary judgment is appropriate when ‘the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.'” Cintron v. Hosp. Comunitario El Buen Samaritano, Inc., 597 F.Supp.3d 515, 526-27 (D.P.R. 2022) (citing Fed. R. Civ. P. 56(c)). “Once the moving party has properly supported [its] motion for summary judgment, the burden shifts to the nonmoving party, with respect to each issue on which [it] has the burden of proof, to demonstrate that a trier of fact reasonably could find in [its] favor.” Santiago-Ramos v. Centennial P.R. Wireless Corp., 217 F.3d 46, 52 (1st Cir. 2000) (quoting DeNovellis v. Shalala, 124 F.3d 298, 306 (1st Cir. 1997)).

In reviewing a summary judgement motion, a Court must view the evidence and draw all reasonable inferences in the light most favorable to the non-moving party. See Cintron, 597 F.Supp.3d at 527; Shafmaster v United States, 707 F.3d. 130, 135 (1st Cir. 2013); Laboy-Salicrup v. P.R. Elec. Power Auth., 244 F.Supp.3d 266, 269 (D.P.R. 2017). However, the Court should not “‘draw unreasonable inferences or credit bald assertions, empty conclusions, rank conjecture, or vitriolic invective.'” Lopez-Hernandez v. Terumo Puerto Rico LLC, 64 F.4th 22, 28 (1st Cir. 2023) (quoting Caban Hernandez v. Philip Morris USA, Inc., 486 F.3d 1, 8 (1st Cir. 200...