M&F Bank v. First Am. Title Ins. Co.

• Decision Date: 15 November 2013
• Docket Number: 1111525 and 1111568.
• Citation: M & F Bank v. First Am. Title Ins. Co., 144 So.3d 222 (Ala. 2013)
• Parties: M & F BANK v. FIRST AMERICAN TITLE INSURANCE COMPANY. First American Title Insurance Company v. M & F Bank.
• Court: Alabama Supreme Court

144 So.3d 222

M & F BANK

v.FIRST AMERICAN TITLE INSURANCE COMPANY.

First American Title Insurance Company

v.M & F Bank.

1111525 and 1111568.

Supreme Court of Alabama.

Aug. 16, 2013.

Rehearing Denied in case no. 1111525 Nov. 15, 2013.

Burt W. Newsome of Newsome Law, LLC, Birmingham, for appellant/cross-appellee M & F Bank.

Jesse P. Evans III and Michael B. Odom of Haskell Slaughter Young & Rediker, LLC, Birmingham, for appellee/cross-appellant First American Title Insurance Company.

David C. Skinner, Birmingham, for amicus curiae Alabama Consumer Finance Association, in support of the appellant M & F Bank.

STUART, Justice.

In case no. 1111525, M & F Bank (“M & F”) appeals the summary judgment entered by the Jefferson Circuit Court in favor of First American Title Insurance Company (“FATIC”) on negligence, breach-of-contract, and bad-faith-failure-to-pay claims M & F asserted against FATIC related to a title-insurance policy (“the title policy”) FATIC issued M & F in connection with a mortgage loan made by M & F to a developer of property in Auburn. In case no. 1111568, FATIC appeals the summary judgment entered in favor of M & F on FATIC's counterclaims asserting abuse of process, conspiracy, breach of contract, and negligence. We affirm both judgments.

I.

This action was initiated in the Jefferson Circuit Court on October 29, 2008; however, related proceedings were subsequently conducted in the Lee Circuit Court and the United States Bankruptcy Court for the Northern District of Alabama. The parties have previously sought relief in this Court on multiple occasions as well. In Ex parte M & F Bank, 58 So.3d 111 (Ala.2010), we denied a petition for the writ of mandamus filed by M & F seeking the reversal of a discovery order and summarized the genesis of the dispute and the procedural history up to that time:

“On December 19, 2006, a plat for a subdivision referred to as Old Towne Station was recorded in the office of the Judge of Probate of Lee County. The plat showed lots numbered 1 through 94; it did not show a lot 95.¹ On December 28, 2006, The Shoppes at Old Towne Station, LLC (‘the debtor’), executed a note in favor of M & F evidencing an indebtedness of $2,855,000; the note purportedly was secured by a mortgage on ‘lot 95’ of Old Towne Station. On January 24, 2007, First American, through its agent, Blue Title, LLC, issued a title-insurance policy (‘the policy’) to M & F insuring M & F's purported interest as mortgagee in lot 95.

“The debtor subsequently defaulted on the loan. As a result of the ‘title work’ performed in preparation for a foreclosure on the mortgage, M & F discovered that lot 95 was not included on the recorded plat. On October 29, 2008, M & F notified First American that it was making a claim under its title-insurance policy. On November 19, 2008, M & F—represented by attorney Burt Newsome—filed an action against Blue Title and First American in the Jefferson Circuit Court, alleging breach of contract.² On April 27, 2009, M & F amended its complaint to include claims of negligence and bad faith against First American.

“After being served with process in the action filed by M & F, First American hired attorney Mark Davis to file an action in the name of M & F seeking a reformation of the mortgage held by M & F and insured by First American; Davis filed the action in the Lee Circuit Court on March 20, 2009, naming as defendants the debtor and certain purported lienholders. First American purported to take this action in accordance with what it contends were stipulations in the policy it had issued to M & F.

“On March 13, 2009, the debtor filed a petition in the United States Bankruptcy Court for the Northern District of Alabama (‘the bankruptcy court’) declaring bankruptcy under Chapter 7 of the United States Bankruptcy Code. The debtor hired attorney Steven Altman to represent it in the bankruptcy proceedings. The bankruptcy court appointed André Toffel, an attorney, as bankruptcy trustee. In turn, Toffel hired attorney Stephen Porterfield to represent the trustee's interests in the bankruptcy proceedings. First American subsequently hired attorney Rick Johanson to initiate an adversary proceeding in the bankruptcy court in the name of M & F against the debtor, the trustee, and other parties seeking reformation of the mortgage deed; Johanson filed a complaint in the bankruptcy court for this purpose on July 8, 2009. On July 27, 2009, Porterfield filed on behalf of Toffel, as trustee, an application with the bankruptcy court to sell the property that is the subject of the M & F mortgage free and clear of all liens. In effect, Toffel sought to render the mortgage to M & F of no effect.

“Toffel subsequently filed an answer in the adversary proceeding initiated by Johanson on behalf of M & F; Toffel asserted affirmative defenses, including that he was what is known as an ‘ideal bona fide purchaser’ under 11 U.S.C. § 544(a) and in that capacity would be able to take the property at issue free of any mortgage interest held by M & F.

“In addition, Toffel and Johanson filed competing motions for a summary judgment in the adversary proceeding in which they debated whether Toffel was an ‘ideal bona fide purchaser’ under 11 U.S.C. § 544(a) and as such would be able to take the property free of M & F's mortgage.

“First American asserts in its answer to this Court:

“ ‘In an extraordinary twist of events, M & F's counsel, Mr. Newsome, actually had communications with Toffel and Porterfield regarding research he had done for them and critiquing the brief Porterfield was preparing in support of their motion for summary judgment against [M & F,] Mr. Newsome's client.... Mr. Newsome was actually doing research and assisting his client's adversary who was attempting to have [M & F] determined to be an unsecured creditor.’

“First American also asserts that, in the course of preparing submissions for the bankruptcy court on behalf of M & F, Newsome had conversations with the debtor's attorney, Altman, concerning Toffel's filings with the bankruptcy court.

“M & F contends that Newsome engaged in the aforesaid communications because a resolution of M & F's action against First American ‘would have to involve both the debtor's attorney and the Chapter 7 Trustee.’ M & F claims that Newsome ‘had negotiations looking to compromise the outstanding controversies with the debtor's attorney [Altman], the Chapter 7 Trustee [Toffel,] and the attorney for the Chapter 7 Trustee [Porterfield].’ M & F also insists that it ‘shares common interests' with Altman, Toffel, and Porterfield because it asserts in the Jefferson Circuit Court action that the M & F mortgage on the property is void, and the debtor and Toffel contended in the bankruptcy court that the mortgage is void.

“On December 10, 2009, the bankruptcy court entered a summary judgment in favor of M & F and against Toffel with respect to the affirmative defenses asserted by Toffel in the adversary proceeding, including the defense that Toffel was an ‘ideal bona fide purchaser’ under 11 U.S.C. § 544(a). In so doing, the bankruptcy court declined to conclude that the M & F mortgage was invalid.

______________________________

FN“ ¹According to an affidavit from Chris Eckroate, the project engineer for the Old Towne Station subdivision development, and as conceded by M & F's attorney in a hearing on the motion below, a lot apparently was labeled ‘Lot 95’ on the plat after it was recorded.

FN“ ²Blue Title has since been dismissed from this action.”

58 So.3d at 113–15 (footnotes 3 and 4 omitted). Following our decision in Ex parte M & F, the trial court continued to preside over repeated discovery disputes and a continually increasing level of rancor between the attorneys. Twice more, we denied petitions for the writ of mandamus filed by M & F, as well as a petition for permission to file an interlocutory appeal pursuant to Rule 5, Ala. R.App. P.

On February 28, 2011, the trial court granted FATIC's motion to file newly acquiredcounterclaims pursuant to Rule 13(e), Ala. R. Civ. P. Those counterclaims included separate claims of abuse of process in both the instant action and the bankruptcy proceedings, claims alleging conspiracy, breach of contract, and negligence, and a request for attorney fees and expenses under the Alabama Litigation Accountability Act (“ALAA”), § 12–19–270 et seq., Ala.Code 1975. These claims are largely based on FATIC's argument that M & F improperly acted in concert with the debtor in an attempt to have the mortgage secured by lot 95 declared void so that FATIC would be required to pay out money damages under the title-insurance policy instead of merely curing the defect that existed in the mortgage.¹ M & F thereafter filed an answer and moved to dismiss some of FATIC's counterclaims. On May 18, 2011, the trial court granted that motion with respect to FATIC's claim alleging abuse of process in the bankruptcy proceedings and also stated that it would consider the ALAA claim as a request for attorney fees and expenses to be heard at the conclusion of the case.

On June 30, 2011, the trial court held a hearing on motions filed by both M & F and FATIC seeking a summary judgment on the claims asserted by M & F. On August 25, 2011, the trial court denied M & F's summary-judgment motion and granted FATIC's summary-judgment motion, holding that the terms of the title-insurance policy issued to M & F by FATIC (1) limited M & F's recovery to only breach of contract and excluded negligence claims and (2) authorized FATIC to cure any defects in the mortgage before paying damages under the policy. The trial court further held that FATIC had in fact cured any defects by recording additional documents with the Lee County Probate Office. Accordingly, the trial court entered a summary judgment in favor of FATIC on M & F's negligence, breach-of-contract, and bad-faith claims. The trial court also denied M & F's ensuing motions to reconsider and to c...