412 F.3d 745 (7th Cir. 2005), 04-2335, Fidelity Nat. Title Ins. Co. of New York v. Intercounty Nat. Title Ins. Co.
|Citation:||412 F.3d 745|
|Party Name:||FIDELITY NATIONAL TITLE INSURANCE COMPANY OF NEW YORK, Plaintiff-Appellant, v. INTERCOUNTY NATIONAL TITLE INSURANCE COMPANY, et al., Defendants-Appellees.|
|Case Date:||June 17, 2005|
|Court:||United States Courts of Appeals, Court of Appeals for the Seventh Circuit|
Argued April 11, 2005.
[Copyrighted Material Omitted]
Albert E. Fowerbaugh, Jr., Lord Bissell & Brook, Chicago, IL, James S. Schreier (argued), Christensen, Miller, Fink, Jacobs, Glaser, Weil, & Shapiro, Los Angeles, CA, for Plaintiff-Appellant.
Myron M. Cherry, Cherry & Associates, Gerard D. Kelly (argued), Sidley Austin Brown & Wood, Richard L. Reinish, Seyfarth & Shaw, Daniel C. Meenan, Jr. (argued), Feiwell & Meenan, Dennis A. Berkson, Berkson & Associates, Chicago, IL, for Defendants-Appellees.
Before POSNER, RIPPLE, and SYKES, Circuit Judges.
POSNER, Circuit Judge
The plaintiff in this complicated commercial case, which is in the federal courts under the diversity jurisdiction, lost a jury
trial and appeals, complaining about three pretrial rulings, all procedural.
In a typical house purchase, involving a mortgage and title insurance, the mortgage lender places the money for the loan in an escrow account administered by an escrow agent and insured by a title insurance company. A title insurance company named Intercounty National Title Insurance Company (INTIC) reinsured escrow accounts with the plaintiff, Fidelity. As a result of fraud by INTIC's owners and employees, $46 million disappeared from INTIC's insured escrow accounts and Fidelity ended up having to pay more than $36 million to persons and firms having claims to money in those accounts. Fidelity brought the present suit against INTIC, the principals of INTIC, and various entities and individuals connected with INTIC to recover as much as it could of that amount. Fidelity named as additional defendants another title insurance company, Stewart Title Guaranty Company (STG), together with firms and individuals affiliated with STG that we can ignore.
Fidelity alleged that between 1995 and 2000 INTIC's escrow agent, Intercounty Title Company ("New Intercounty"), which was controlled by INTIC's principals, had transferred millions of dollars stolen from the escrow accounts to another escrow agent controlled by INTIC's principals, "Old Intercounty," whose escrow accounts were reinsured by STG rather than by Fidelity. Although INTIC's principals looted the escrow accounts reinsured by STG (a predecessor of INTIC) as well as those reinsured by Fidelity, the diversion of funds from New Intercounty's escrow accounts, reinsured by Fidelity, to Old Intercounty's escrow accounts, reinsured by STG, had (Fidelity argued) unjustly enriched STG at the expense of Fidelity. Fidelity's theory was that STG hadn't had to make good the losses in Old Intercounty's escrow accounts because those accounts had been refilled with money looted from the escrow accounts reinsured by Fidelity. Thus, but for the diversion of funds, STG would have had more liability to the victims of the thefts and Fidelity less.
Even if STG was not a party to the fraud, if it received the proceeds of the fraud it could indeed be liable to Fidelity (in Fidelity's capacity as subrogee of the escrow account holders whose losses it had had to cover) under the doctrine of unjust enrichment. HPI Health Care Services, Inc. v. Mt. Vernon Hospital, Inc., 131 Ill.2d 145, 137 Ill.Dec. 19, 545 N.E.2d 672, 678-79 (1989); State Farm General Ins. Co. v. Stewart, 288 Ill.App.3d 678, 224 Ill.Dec. 310, 681 N.E.2d 625, 633-34 (1997); compare TRW Title Ins. Co. v. Security Union Title Ins. Co., 153 F.3d 822, 828-29 (7th Cir.1998). That was the theory--the only theory--on which the case against STG went to the jury. Although Fidelity had also charged STG with being a party to the fraud rather than just a beneficiary of it, the district court had dismissed the fraud charge before trial on the ground that Fidelity had failed to plead it with the particularity required by Fed.R.Civ.P. 9(b). We begin our analysis with that ruling.
What is required in the way of particularity in pleading fraud depends on the purpose of imposing such a heightened requirement of pleading--so at odds with the notice-pleading theory of the federal rules. The purpose is to minimize the extortionate impact that a baseless claim of fraud can have on a firm or an individual. In the typical commercial case there is a substantial interval between the filing of the complaint and the completion of enough pretrial discovery to enable the preparation and disposition of a motion by the defendant for summary judgment.
Throughout that period a claim of fraud will stand unrefuted, placing what may be undue pressure on the defendant to settle the case in order to lift the cloud on its reputation. The requirement that fraud be pleaded with particularity compels the plaintiff to provide enough detail to enable the defendant to riposte swiftly and effectively if the claim is groundless. It also forces the plaintiff to conduct a careful pretrial investigation and thus operates as a screen against spurious fraud claims. Ackerman v. Northwestern Mutual Life Ins. Co., 172 F.3d 467, 469-70 (7th Cir.1999); Uni*Quality, Inc. v. Infotronx, Inc., 974 F.2d 918, 924 (7th Cir.1992); United States ex rel. Williams v. Martin-Baker Aircraft Co., 389 F.3d 1251, 1256 (D.C.Cir.2004); United States ex rel. Harrison v. Westinghouse Savannah River Co., 352 F.3d 908, 921 (4th Cir.2003); 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1296, p. 31 (3d ed.2004).
Fidelity's 52-page complaint with its 177 numbered paragraphs is sprawling, confusing, redundant--in short a mess. And a district judge has the authority to dismiss a complaint because it is confusing, though only in a rare case would he be justified in dismissing it on this ground with prejudice, Lindell v. McCallum, 352 F.3d 1107, 1110 (7th Cir.2003); In re Westinghouse Securities Litigation, 90 F.3d 696, 703-04 (3d...
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