52 F.3d 1575 (11th Cir. 1995), 93-4436, Lawyers Title Ins. Corp. v. JDC (America) Corp.

Docket Nº:93-4436.
Citation:52 F.3d 1575
Party Name:LAWYERS TITLE INSURANCE CORP., Plaintiff-Appellee, v. JDC (AMERICA) CORP., Defendant-Appellant.
Case Date:May 31, 1995
Court:United States Courts of Appeals, Court of Appeals for the Eleventh Circuit
 
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52 F.3d 1575 (11th Cir. 1995)

LAWYERS TITLE INSURANCE CORP., Plaintiff-Appellee,

v.

JDC (AMERICA) CORP., Defendant-Appellant.

No. 93-4436.

United States Court of Appeals, Eleventh Circuit

May 31, 1995

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        Hugo L. Black, Jr., Kelly Black Black Byrne & Beasley, P.A., Miami, FL, for appellant.

        Stuart H. Singer, Kirkpatrick & Lockhart, Ronald M. Rosengarten, Greenberg Traurig Hoffman, Lipoff Rosen & Quintel, P.A., Miami, FL, John E. McDonald, Jr., Lawyers Title Ins. Corp., Richmond, VA, D. Daniel Barr, Peter Glatz Rush, Bell, Boyd & Lloyd, Chicago, IL, for appellee.

        Appeal from the United States District Court for the Southern District of Florida.

        Before TJOFLAT, Chief Judge, COX, Circuit Judge, and YOUNG [*], Senior Circuit Judge.

        TJOFLAT, Chief Judge:

        This diversity case involves a dispute between Lawyers Title Insurance Corporation ("Lawyers Title") and JDC (America) Corporation ("JDC"). Lawyers Title issued two title policies insuring mortgages held by JDC as mortgagee. JDC sought to foreclose on the two mortgages in state court; one of the defendants filed a motion and several affirmative defenses that, in JDC's opinion, triggered Lawyers Title's duty to defend under the two title policies. Lawyers Title disagreed and filed this suit seeking a declaration that it had no duty to defend. The district court concluded that Lawyers Title had no duty to represent JDC in the foreclosure action and, therefore, granted summary judgment in favor of Lawyers Title. Because we also conclude that none of the defenses asserted in the foreclosure action are covered by either of the two policies, we affirm.

       I.

A.

        Lawyers Title furnished the two title policies at issue in this case as a result of an agreement between JDC and Brickell Station Towers, Inc. ("BST") to develop a parcel of real property near downtown Miami, Florida. AmeriFirst Florida Trust Company ("AmeriFirst") held fee simple title to the property as trustee pursuant to a warranty deed executed under an unrecorded trust agreement. The unrecorded trust agreement to which the warranty deed referred named BST as the sole beneficiary with the right to direct AmeriFirst's disposition of the property. In November 1984, JDC and BST signed an agreement to develop the property. JDC agreed to finance the first of two phases of development by borrowing funds from The Saitama Bank, Ltd. ("Saitama") and Mitsui Trust & Banking Co., Ltd. ("Mitsui"), two Japanese lenders, and reloaning the money to BST. The parties contemplated that a third lender, Citicorp Real Estate, Inc. ("Citicorp"), would furnish a "take-out loan" paying

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off JDC's short-term construction loan when construction of the first phase of the development was completed. In exchange for JDC's arranging the financing of the first phase of development, BST agreed to give JDC twenty-five percent of BST's beneficial interest in the AmeriFirst land trust and appointed JDC as the general contractor for the first and second phases of development. JDC and BST also agreed to form a joint venture to implement their development agreement.

        The parties formed their joint venture as planned on January 17, 1985. BST assigned its beneficial interest in the AmeriFirst land trust to the joint venture and took a seventy-five percent interest in the joint venture; JDC took the remaining twenty-five percent interest. The joint venture agreement provided that the parties were to exercise equal control over the joint venture's development activities, but gave BST specific authority to sign, on behalf of the joint venture, the loan documents necessary to finance the first phase of development.

        The day after the parties formed their joint venture, BST, on behalf of the joint venture, executed two promissory notes in favor of JDC. The total principal value of the two notes was $38,000,000. 1 Both notes were to become due in full on July 18, 1988, but each note provided that, if it were assigned to Citicorp, the take-out lender, its maturity date would be sixty days from the date of the assignment. In conjunction with the execution of each note, AmeriFirst and BST, on behalf of the joint venture, executed a mortgage and security agreement that: (1) established a mortgage on the trust's property as security for each note; and (2) created a security interest in all fixtures and personalty located on the property as security for each note. 2 Although each mortgage acknowledged that AmeriFirst was the fee simple owner of the mortgaged property, each mortgage referred to both AmeriFirst and BST collectively as the "Mortgagor." JDC assigned the mortgages, security interests, and notes to Saitama the day JDC received them. 3 The mortgages were filed in Dade County on January 24, 1985, and, pursuant to its previous commitments to insure the mortgages, Lawyers Title issued two title policies to JDC.

        The development of the property did not proceed as planned. After making at least forty-five loan disbursements for construction, Saitama reassigned the mortgages, security agreements, and notes to JDC in exchange for payment of JDC's loans in a document dated July 18, 1988. 4 On September 30, 1988, JDC filed a four-count complaint in the Circuit Court for Dade County against AmeriFirst, the joint venture, and BST as a general partner (with JDC) of the joint venture [hereinafter the "Foreclosure Action"]. JDC's complaint alleged that the joint venture and AmeriFirst had defaulted on the notes and sought to foreclose on the mortgages and security interests in fixtures and personalty. Counts I and III of the complaint sought to foreclose on the mortgages; Counts II and IV sought to foreclose on the security interests. On October 11, 1988, BST, on behalf of the joint venture, filed a self-styled "Motion to Quash Mortgage and Memorandum of Law in Support Thereof" [hereinafter the "Motion to Quash"]. BST argued in its Motion to Quash that JDC's status as a general partner of the joint venture prevented JDC from foreclosing. 5

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5] In its combined answer and affirmative defenses, filed on December 21, 1988, BST made similar claims based on the same premise: that JDC's status as a general partner prevented it from foreclosing. 6 BST later filed a counterclaim that contained claims for, among other things, usury, breach of contract, racketeering, breach of fiduciary duty, and fraud. JDC does not argue that any of these claims implicate the title policies. Unlike BST, AmeriFirst did not actively seek to defeat the foreclosure action; it eventually filed an answer admitting that it owned the property as a trustee and that it had executed the mortgage documents, but denying for lack of knowledge all other paragraphs of JDC's complaint. AmeriFirst did not assert any affirmative defenses.

        On November 4, 1988, JDC notified Lawyers Title by letter of BST's Motion to Quash, stating that "[BST] is seeking to have the two mortgages declared invalid and unenforceable because JDC is the lender/insured mortgagee and is likewise a general partner in [the] Joint Venture...." Lawyers Title responded by retaining a law firm to defend JDC and notified JDC by letter that it had done so. In this letter, Lawyers Title reserved its rights to deny coverage under the title policies.

        A dispute quickly ensued over the law firm Lawyers Title had chosen to represent JDC. 7 The parties exchanged numerous letters and met on several occasions in efforts to resolve their dispute, but these efforts were unsuccessful. In early 1989, the parties' impasse expanded to include a disagreement over the scope of defense that Lawyers Title was obligated to provide. Lawyers Title contended that, because many of the issues in the Foreclosure Action were separable from the issues raised in the "covered" claims, the cost of defense was readily apportionable and Lawyers Title should only have to provide a defense for the covered claims. JDC countered that Lawyers Title was obligated under Florida law to pay for the entire Foreclosure Action.

        Meanwhile, JDC chose to file a separate lawsuit in the Circuit Court for Dade County against BST and its stockholders concerning breaches of the joint venture agreement [hereinafter the "Partnership Action"]. JDC filed the Partnership Action on March 2, 1989 and the case was assigned to the same trial judge assigned to the Foreclosure Action. Soon thereafter, JDC filed a motion to consolidate the Foreclosure Action and the Partnership Action into a single proceeding. The trial judge denied JDC's motion to consolidate, but then granted JDC's motion for

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leave to amend its complaint in the Foreclosure Action. On September 9, 1989, JDC filed an amended complaint that contained: (1) the original four foreclosure claims; (2) all of the claims from its complaint in the Partnership Action; and (3) one new claim related to the partnership dispute. BST filed an amended answer in response to JDC's amended complaint. In this amended answer, BST added two new affirmative defenses to the fifteen it had previously asserted. BST contended in its seventeenth affirmative defense that the mortgages should be quashed because Florida law prohibits a joint venturer from acquiring a lien against a partner's assets and attempting to foreclose on that lien. 8

        JDC and Lawyers Title never resolved their dispute. As we discuss more fully below, on May 24, 1989, Lawyers Title brought this action seeking a declaration that it had no duty to defend JDC in the Foreclosure Action. Meanwhile, JDC notified Lawyers Title in late 1989 that, although the possibility that BST's defenses would prevent JDC from foreclosing on the mortgages was small, the potential loss was great because both promissory notes were nonrecourse notes....

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