Shamrock Bank of Fla. v. First Am. Title Ins. Co.

SHAMROCK BANK OF FLORIDA, as assignee of MERIDIAN BANK, Plaintiff-Counterclaim Defendant, v. FIRST AMERICAN TITLE INS. CO., Defendant-Counterclaim Plaintiff.

Case No. 13-cv-92-DRH-PMF

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ILLINOIS

Signed: March 28, 2014

MEMORANDUN & ORDER

HERNDON, Chief Judge:

I. INTRODUCTION

Shamrock Bank of Florida (Shamrock), as assignee of Meridian Bank (Meridian), brings its complaint against First American Title Ins. Co. (First American) for breach of contract. First American countersues for a declaratory judgment. The following motions are now before the Court:

Shamrock moves for summary judgment on Count I of its First Amended Complaint and on First American's Counterclaim for Declaratory Judgment (Doc. 26), for summary judgment on First American's affirmative defenses (Doc. 30), to strike portions of First American's undisputed facts as set forth in its memorandum in support of motion for summary judgment pursuant to F.R.C.P. 56(c)(2) (Doc. 39), and to supplement the summary judgment record (Doc. 43). First American moves for summary judgment (Doc. 27), and to strike portions of Shamrock's facts pursuant to F.R.C.P. 56(c)(2) (Doc. 41).

For the reasons stated below, Court finds as follows:

As for Shamrock, the Court grants in part its motion for summary judgment on Count I of its First Amended Complaint and on First American's Counterclaim for Declaratory Judgment (Doc. 26), grants its motion for summary judgment on First American's affirmative defenses (Doc. 30), grants its motion to supplement the summary judgment record (Doc. 43), and denies its motion to strike portions of First American's undisputed facts (Doc. 39).

As for First American, the Court denies its motion for summary judgment (Doc. 27) and grants in part its motion to strike portions of Shamrock's facts (Doc. 41).

II. UNDISPUTED FACTS¹

a. The Simmons Convey the Property to Great River

This dispute begins with a real estate transaction entered into on January 22, 2007, between John and Jayne Simmons (the Simmons), as Trustees of the River House Trust dated August 21, 2003, and Great River Enterprises Limited Partnership No. 1 (Great River). Lloyd Tomer (Tomer) was Great River's principal shareholder (Doc. 29-1, Tomer Sept. 15, 2011, Depo., p. 15 ). Tomer's attorney, Raymond Stillwell (Stillwell) represented Great River in the transaction (Doc. 28-2, Tomer Jan. 20, 2011 Depo., p. 18). The Simmons conveyed the real estate located at 12 Danforth, Alton, Illinois (the Property), commonly referred to as the Olin Mansion, to Great River. In exchange for the conveyance, Great River agreed to deliver to the Simmons 1,000,000 shares of YTB International, Inc. (YTB) (collectively, the Real Estate Agreement) (Doc. 28-1, § 2).

Paragraph 3.1 of the Real Estate Agreement, titled, "Possibility of Reverter," provides that the Property would revert back to the Simmons on December 31, 2011, unless certain conditions were met as to YTB stock. The Real Estate Agreement provided that, "the Reversion Date will be accelerated automatically upon the occurrence of . . . the Purchaser's waste of the Property" (Id. at pp. 3-4). A trustee's deed dated January 24, 2007, documents the conveyance (Trustee's Deed) (Doc. 29-4). The Trustee's Deed notes, "[t]he Property is subject to a possibility of reverter, the specific terms and conditions of which are set forth in Section 3.1 of [the Real Estate Agreement] . . . which terms and conditions are hereby incorporated" (Id. at p. 3). The Trustee's Deed was recorded in the Madison County Recorder's Office on February 12, 2007 (Id. at p. 9).

b. Great River Loan, Participation Agreement, and Title Policy

In late 2007, Tomer decided to take a loan against the Property to make some improvements. Tomer states he spoke with Brad Rench (Rench), president and CEO of Meridian, regarding the loan. Tomer states Rench was the only Meridian personnel he spoke with regarding the loan (Doc. 29-5, Tomer Jan. 20, 2011, Depo., pp. 7-10).

According to Robert Carney (Carney), in November 2007, the vice president in charge of lending for Shamrock, Clay Winfield (Winfield) a member of the Board of Directors at Meridian, Shamrock, and YTB, approached Carney about Shamrock entering into a participation agreement with Meridian, whereby Shamrock would purchase an interest in the Great River Loan (Participation Agreement) (Doc. 28-7, Carney Depo. pp. 9-17).

The parties dispute how the Great River Loan and the Participation Agreement came to fruition. The extent these disputes are material remains to be seen. However, in the Court's opinion, the following is undisputed:

Through the loan underwriting process, Meridian ordered a title commitment from First American. First American issued a title commitment; dated November 30, 2007, file no. 1753426 (Title Commitment), to Meridian. The Title Commitment did not identify the Trustee's Deed or the "Possibility of Reverter" as an exception (Doc. 29-7).

On December 6, 2007, Meridian and Great River executed a promissory note, titled, "Universal Note," in which Meridian agreed to loan Great River $1,300,000.00 based on a line of credit. Great River agreed to pay Meridian on demand, or if no demand was made, then, "monthly payments of accrued interest calculated on the amount of credit outstanding beginning 01-06-2008 and principal due on 12-06-2008" (Great River Loan) (Doc. 29-9). Also on December 6, 2007, Great River executed several documents incidental to the Universal Note: Agreement to Provide Insurance, Disbursement Authorization, Guaranty (James Tomer), Guaranty (Christine Tomer), Commercial Security Agreement and Collateral Receipt (collectively, Loan Documents) (Doc. 29-10). All Loan Documents are between Great River and Meridian. Great River also executed a mortgage on the Property in favor of Meridian securing the Universal Note for the $1,300,000.00 line of credit on December 6, 2007. The lien the Insured Mortgage created was subject to existing encumbrances on the Property, i.e., the "Possibility of Reverter" (Insured Mortgage) (Doc. 29-11).

As for the Participation Agreement between Meridian and Shamrock, a copy was forwarded by Meridian to Shamrock after Meridian entered the Universal Note withGreat River (Doc. 29-12).² Shamrock's Directors Loan Committee approved the Participation Agreement on December 10, 2007 (Doc. 28-14). Winfield abstained (Id.). Pursuant to the Participation Agreement, Meridian, as the originating lender and seller, agreed to sell Shamrock, the participating lender and purchaser, a share in the Great River Loan for $1,250,000.00 with a variable interest rate of 7.5%. Meridian agreed to pay Shamrock, on a pro rata basis, 96.15% of the money it received from Great River and to bear all costs of servicing and administering the Great River Loan. The Participation Agreement states Shamrock agreed to purchase participation in the Great River Loan "without recourse to" Meridian. It further states a, "First Mortgage on [the Property] and assignment of [YTB] stock for 2,000,000 shares" secured the Great River Loan (Id.).

When Great River made a request for money, Meridian would notify Shamrock to Forward Meridian money to Meridian's account in proportion to Shamrock's pro rata share of the Participation Agreement. Meridian would disburse the full amount requested directly to Great River. Great River owned Meridian $1,300,000.00 pursuant to the Universal Note (Doc. 29-8, Rench Depo., pp. 14, 48). The full amount allowed under the Universal Note was advanced to Great River (Doc. 28-20).

On December 11, 2007, for a premium of $1,300.00 (Doc. 29-13, Rekart Depo., p. 54), First American issued a loan policy of title insurance, policy no. 1753426, to Meridian, its successors and assigns, in the amount of $1,300,000.00 for the Property (Title Policy) (Doc. 29-14). The Title Policy provides coverage "against loss or damage,not exceeding the Amount of Insurance, sustained or incurred by the Insured by reason of: Title being vested other than as stated in Schedule A." Schedule A does not reference the "Possibility of Reverter" (Id.).

c. Meridian Fails

On October 10, 2008, the Department of Financial and Professional Regulation of the Illinois Division of Banking closed Meridian. The FDIC was named the receiver and charged with winding up Meridian's business affairs (Receiver) (Doc. 29-15, Campagna Aff.). On December 17, 2008, the FDIC, as the owner and holder of Meridian's interest in the Great River Loan and Title Policy due to its status as the Receiver, sent First American a letter providing it notice of a potential claim. The FDIC stated First American failed to note an exception for the "Reversionary Interest," and thus caused the FDIC to have a junior lien on the Property. Therefore, it submitted its claim to First American, "to be made whole on the subject $1,300,000 [Great River Loan] under Meridian's lender's policy." The FDIC further notified First American that the Simmons were at that time considering enforcing the "Reversionary Provision" (See Doc. 29-15).

On February 13, 2009, the FDIC entered into a loan sale agreement with FH Partners, LLC (FDIC LSA). The FDIC assigned Meridian's interest in the Great River Loan³ to FH Partners, LLC (FH Partners) (See id. at pp. 7-46).⁴ The FDIC recorded an Assignment of Loans and Liens with the Madison County Recorder of Deeds (Doc. 29-16, Butler Aff., Ex. A, p. 6).

After the FDIC learned of the "Possibility of Reverter," Tomer's attorney, Stillwell, contacted Shamrock and advised: 1. Great River was about to go into default on the Great River Loan, and 2. Great River's title to the Property was subject to the "Possibility of Reverter."⁵ On August 25, 2009, Shamrock, through its attorney James Vogel (Vogel), sent First American notice of a claim of title or potential claim of title adverse to the Insured Mortgage as referred to in the Title Policy (Doc. 29-17). Vogel also stated Shamrock might purchase ...