Bancoklahoma Mortgage Corp. v. Capital Title Co., 97-5186

• Decision Date: 18 October 1999
• Docket Number: No. 97-5186,97-5186
• Citation: 194 F.3d 1089
• Parties: (10th Cir. 1999) BANCOKLAHOMA MORTGAGE CORP. Plaintiff-Appellant, v. CAPITAL TITLE COMPANY, INC.; INVESTORS TITLE COMPANY; OLD REPUBLIC TITLE COMPANY OF ST. LOUIS; U.S. TITLE GUARANTY COMPANY, INC.; PETER M. SHAW; and U.S. TITLE GUARANTY COMPANY OF ST. CHARLES, INC., Defendants-Appellees, JOSEPH A. IADEVITO; THERESA M. JANSON; LENDERS MORTGAGE SERVICES, INC.; PROFESSIONAL BUILDERS CLOSING SERVICE, INC., Defendants
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1089

194 F.3d 1089 (10th Cir. 1999)

BANCOKLAHOMA MORTGAGE CORP. Plaintiff-Appellant, v. CAPITAL TITLE COMPANY, INC.; INVESTORS TITLE COMPANY; OLD REPUBLIC TITLE COMPANY OF ST. LOUIS; U.S. TITLE GUARANTY COMPANY, INC.; PETER M. SHAW; and U.S. TITLE GUARANTY COMPANY OF ST. CHARLES, INC., Defendants-Appellees, JOSEPH A. IADEVITO; THERESA M. JANSON; LENDERS MORTGAGE SERVICES, INC.; PROFESSIONAL BUILDERS CLOSING SERVICE, INC., Defendants.

No. 97-5186

UNITED STATES COURT OF APPEALS, TENTH CIRCUIT

October 18, 1999

Appeal from the United States District Court for the Northern District of Oklahoma (D.C. No. 94-C-847-H) [Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] R. Thomas Seymour, of R. Thomas Seymour Attorneys, Tulsa, Oklahoma (C. Robert Burton IV, F. Randolph Lynn, of R. Thomas Seymour Attorneys, Tulsa, Oklahoma; Frederic Dorwart, J. Michael Medina, of Law Offices of Frederic Dorwart, Tulsa, Oklahoma, with him on the brief) for Plaintiff-Appellant.

John Henry Rule, of Gable, Gotwals, Mock, Schwabe, Kihle, Gaberino, Tulsa, Oklahoma (L. K. Smith, Paul J. Cleary, Scott R. Rowland, of Boone, Smith, Davis, Hurst & Dickman, Tulsa, Oklahoma; Robert J. Bartz, Joe M. Fears, of Barber & Bartz, Tulsa, Oklahoma; Jeffrey J. Kalinowski, Hal Goldsmith, of Peper, Martin, Jensen, Maichel & Hetlage, St. Louis, Missouri, with him on the brief) for Defendants-Appellees.

Before BRORBY and MURPHY, Circuit Judges, and MARTEN, District Judge^*.

Background

MARTEN, District Judge.

Bancoklahoma Mortgage Corp. ("BOMC") is an Oklahoma corporation that purchases residential mortgage loans and resells them on the secondary market while retaining certain loan servicing rights. Lenders Mortgage Services, Inc. ("LMS") was a Missouri corporation that originated residential mortgage loans, primarily in the St. Louis, Missouri area, for sale to mortgage loan companies and other upstream investors, including BOMC. Joseph Iadevito was LMS's chief executive officer, director, and majority shareholder. Professional Builder's Closing Services, Inc. ("PBCS") was a Missouri corporation whose business included preparing loan closing documents and conducting real estate loan closings for LMS. Theresa Janson, Iadevito's wife, was the president and sole shareholder of PBCS. Capital Title Company, Inc., Investors Title Company, Old Republic Title Company of St. Louis, U.S. Title Guaranty Company, Inc., and U.S. Title Guaranty Company of St. Charles, Inc. are five of the various title companies that provided services on LMS loans purchased by BOMC. The title companies are licensed by the state of Missouri and are engaged in the business of providing title insurance and related services. Peter Shaw, one of the named defendants, is the principal owner of Capital Title Company, Inc. Unless specific reference is necessary, all defendants will be referred to collectively as "the Title Companies."¹

In April 1993, BOMC entered into an agreement to purchase home mortgage loans from LMS. The purchase agreement, which BOMC drafted, provided that LMS would originate, close and deliver residential mortgages to BOMC. It did not mention the use of Title Companies to close loans or handle funds. It did, however, require LMS to include a final title policy insuring BOMC's first lien interest in its final loan documentation to BOMC. The agreement prohibited LMS from delegating any of its duties without BOMC's prior written consent. The Title Companies took no part in establishing LMS and BOMC's relationship.

Between May 1993 and March 1994, BOMC purchased approximately 700 loans from LMS, totaling $60-70 million. Of those, 347 were "refinance" loans, i.e., homeowners were refinancing their existing home loans.² LMS ceased doing business in March 1994 when forced into involuntary bankruptcy. BOMC then discovered that the prior mortgages on 42 of the 347 refinance loans had not been paid, leaving the homeowners with two mortgages--their prior mortgage and BOMC's. BOMC paid off the prior mortgages on those 42 loans at a cost of approximately $5.2 million, and took an assignment of the homeowners' claims.

On the refinance loans at issue, LMS closed and dispersed the funds.³ BOMC would wire the funds for a loan to LMS's general operating account before closing occurred and before it received any closing documents from LMS.

The Title Companies followed a standard procedure in providing title insurance. First, LMS ordered title insurance. Second, borrowers completed "closing affidavits" or "lien affidavits," which asked a series of questions regarding the borrowers' backgrounds.⁴ Third, the title company examined the title to the property being refinanced to discover any liens on the property and to issue a title commitment to LMS, obligating the title company to issue a final title policy if the first mortgage on the property was paid.⁵ Fourth, after LMS closed the loan, it sent documents to the title company to be filed to establish a first lien. Finally, if the first mortgage on the property was paid, the title company issued a final title policy in the name of the investor purchasing the loan.

BOMC relies largely on the closing documents it received on the refinance loans at issue, specifically the HUD-1 forms, to make its case. When the transactions at issue took place, the Real Estate Settlement Procedures Act (RESPA) [12 U.S.C. 2601-2617 (1989 & Supp. 1999)], required the completion of a HUD-1 form for every settlement "involving a federally-related mortgage loan" 24 C.F.R. 3500.8(a) (1993).⁶ HUD-1 forms provide a detailed account of the disbursements of money borrowers are to receive. The largest disbursement typically is the payoff of the prior mortgage on the property.

RESPA requires that "settlement agents" prepare HUD-1 forms. 24 C.F.R. pt. 3500 app. A (1999). At the time these transactions took place, 24 C.F.R. 3500.2(a)(15) (1993) defined a "settlement agent" as "the person conducting or handling the settlement. If no other person is designated by the lender or other parties to the settlement, the lender shall be considered to be the settlement agent." "Settlement Agent" is no longer a defined term under 24 C.F.R. 3500.2; rather, the regulation speaks of "settlement (or "closing" or "escrow") services." Id. 3500.2(b) (1999). The HUD-1 forms on the 42 loans at issue represented that the title company named had acted as settlement agent and either had disbursed or would disburse BOMC's money to pay off all items shown, including the prior mortgage. In fact, LMS served as settlement agent and closed all of the loans at issue. The Title Companies did not prepare the HUD-1 forms.

In addition to its targeting of the HUD-1 forms, BOMC raises concerns about the closing instructions and first lien letters relating to the loans at issue. Written closing instructions advise a closer about the various documents borrowers are required to sign. The closing instructions on the loans at issue generically showed a title company as the closer on both the purchase loans and refinance loans. LMS or PBCS prepared the first lien letters, making them appear as though they came from the Title Companies. The letters indicated the Title Companies had closed and disbursed BOMC's loans and that BOMC had a valid first lien. Every first lien letter BOMC received on the refinance loans was blank. In other words, the letters had not been signed by the Title Companies because they had not closed or disbursed the loans.⁷

None of the Title Companies prepared or delivered to BOMC any closing documents for the loans at issue, nor did they close or disburse loan proceeds in connection with the loans. PBCS prepared the closing documents⁸ that LMS used on the loans it sold to BOMC. The Title Companies' only role with regard to the loans at issue was limited to providing title insurance commitments to LMS and recording documents.

As noted above, it was only after LMS's involuntary bankruptcy in March 1994 that BOMC discovered the prior mortgages on certain refinance loans had not been paid. BOMC had no prior communication with the Title Companies about loans LMS originated.

On August 31, 1994 Iadevito pled guilty to violating 18 U.S.C. 1344, financial institution fraud. At his sentencing, Iadevito admitted that he caused LMS to implement a scheme to defraud BOMC and two other financial institutions. Iadevito's scheme to defraud used HUD-1 forms that falsely represented that the Title Companies had served as settlement agent for loans BOMC bought from LMS. Iadevito pled guilty to misappropriating $4.7 million of BOMC's money.

BOMC sued the defendants in the United States District Court for the Northern District of Oklahoma alleging fraud, breach of fiduciary duty, Civil RICO and RICO Conspiracy for both its direct claims and for its homeowner-assigned claims.⁹ The district court ultimately granted summary judgment to the defendants on all of BOMC's direct and homeowner-assigned claims. BOMC appeals. We affirm.

DISCUSSION

I. Standard of Review

We review a district court's decision on summary judgment de novo. Dye v. United States, 121 F.3d 1399, 1403 (10th Cir. 1997). "We apply the same standard under Fed.R.Civ.P. 56(c) used by the district court: we determine whether any genuine issue of material fact was in dispute, and, if not, whether the moving party was entitled to judgment as a matter of law." Id. at 1403-04.

"The moving party has the initial burden to show 'that there is an absence of evidence to support the nonmoving party's case.'" Bacchus Industr., Inc. v. Arvin Industr., Inc., 939 F.2d 887, 891 (10th Cir. 1991) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S. Ct. 2548, 2554, 91 L. Ed. 2d 265 (1986)). Once the moving party has met its burden, the burden then shifts to the nonmoving party, who must offer evidence of specific facts that is sufficient to raise a "genuine issue of...