Albright v. Attorney's Title Ins. Fund

• Decision Date: 25 June 2007
• Docket Number: No. 2:03CV00517.,2:03CV00517.
• Parties: Mark D. ALBRIGHT, et al., Plaintiffs, v. ATTORNEY'S TITLE INSURANCE FUND, et al., Defendants.
• Court: U.S. District Court — District of Utah

504 F.Supp.2d 1187

Mark D. ALBRIGHT, et al., Plaintiffs, v. ATTORNEY'S TITLE INSURANCE FUND, et al., Defendants.

No. 2:03CV00517.

United States District Court, D. Utah, Central Division.

June 25, 2007.

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Daniel W. Jackson, George M. Haley, Jay D. Gurmankin, Richard D. Flint, Chris R. Hogle, Holme Roberts & Owen, Salt Lake City, UT, for Plaintiffs.

Chris R. Hogle, Stewart 0. Peay, James Delos Gardner, Snell & Wilmer, Gregory J. Sanders, Stephen Dayn Kelson, Kipp & Christian, Salt Lake City, UT, for Defendants.

MEMORANDUM OPINION AND ORDER

BENSON, District Judge.

Defendants Attorneys' Title Insurance Fund, a business trust, and Attorneys' Title Insurance Fund, Inc. (collectively "the Florida Fund") have filed a motion for partial summary judgment asking this Court to eliminate plaintiffs' claims based on theories of racketeering ("RICO"), civil conspiracy, and alter-ego. Having considered the parties' arguments and the relevant law, the Court now issues the following memorandum opinion and order.

I. BACKGROUND

The plaintiffs in these consolidated cases are among a group of individuals who lost money in fraudulent investments and real estate transactions orchestrated by individuals who were agents of Attorneys' Title Guarantee Fund ("ATGF") in Utah. Originally, this lawsuit was filed against fifty-five different defendants and contained forty-four different claims. The number of claims currently stands at eighteen, and plaintiffs have settled with, dismissed, or decided not to pursue claims against all but two defendants-the Florida Fund (the majority owner of ATGF) and Cohen Fox, P.A., a Florida law firm. In its motion for partial summary judgment, the Florida Fund seeks to eliminate only plaintiffs' claims based on RICO, conspiracy, and alter-ego. This motion does not seek dismissal of the plaintiffs' twelve remaining claims against the Florida Fund, which are based on fraud, conversion, breach of fiduciary duty, insurance code violations, negligence, breach of insurance contracts, promissory estoppel, accounting and constructive trust, imputation, and fraudulent concealment. (See Second. Am. Compl. at x-xi.)

Because this case is before the Court on a motion for partial summary judgment, the Court examines the evidence in the light most favorable to the non-moving party. The factual allegations set forth here do not constitute findings by the Court.

The Florida Fund and ATGF

The Florida Fund is a title insurance underwriter that has been in business in Florida since 1947. It also does business in Georgia, Illinois, Minnesota, Maryland, North Carolina, South Carolina, Indiana, North Dakota, Alabama, Arkansas, Michigan, and Puerto Rico. (Defs.' Mem. in Supp. S.J. at 7.) The Florida Fund is a bar-related title insurance company, which means that it issues title insurance policies through licensed attorneys who supplement their law practices with title insurance services. The Florida Fund also is a reinsurer for bar-related and non-bar related title insurance companies throughout the country, including ATGF in Utah. (Id.)

ATGF was a established as a title insurance company in Colorado in 1960. Since that time, ATGF has expanded into Utah and Minnesota. Like the Florida Fund, ATGF is a bar-related title insurance company that issues title insurance policies through its lawyer agents. In 1989, the Florida Fund entered into a reinsurance contract with ATGF. (Pls.' Ex. 10, Reinsurance Treaty.) Pursuant to the Reinsurance Treaty in force at all times relevant to this dispute, ATGF's primary retention was $100,000 per policy and the Florida Fund was obligated to pay all amounts above $100,000, to a maximum of $7,000,000, for each valid claim against an ATGF title insurance policy. The Reinsurance Treaty also provides that the Florida Fund is not obligated to reinsure losses of ATGF's policyholders resulting from agent fraud. (Pls.' Ex. 10, Reinsurance Treaty § 3.2.)

The Florida Fund and ATGF operated as independent entities until 1996 when the Florida Fund bought stock in ATGF. (Defs.' Mem. in Supp. S.J. at 5.) Since 1996, the Florida Fund and ATGF have engaged in a number of stock transactions, which today leave the Florida Fund owning approximately eighty-two percent of ATGF stock. (Id. at 8.)

Consistent with its majority ownership interest, the Florida Fund controls a majority of the seats on the ATGF board of directors. Seven of the thirteen seats on the ATGF board belong to the Florida Fund. At all times relevant to this case, Charles Kovaleski, President of the Florida Fund, has simultaneously served as chairman of ATGF's board. As chairman of ATGF's board, Kovaleski had general authority over the business affairs of ATGF subject to control by the board. (Pls.' Opp'n. to S.J. at 49.) At all times relevant to this case, Brian Coleman was ATGF's Executive Vice President, and the highest ranking ATGF officer in Utah. (Pls.' Ex. 55, Harrison Dep. ¶ 6.) In that capacity, Coleman supervised and directed the activities of ATGF agents in Utah. (Id.)

ATGF received premiums from the issuance of ATGF title insurance policies, but did not receive any money as a result of the closing or escrow functions performed by agents or their employees. (Defs.' Ex. 4, Coleman Dep. at 303-04, 337-38; Defs.' Ex. 1, Jones Decl. ¶ 7.) Similarly, the Florida Fund received a portion of the insurance premiums from ATGF as provided in the Reinsurance Treaty, but did not receive any money from ATGF related to closing or escrow services performed by ATGF agents or their employees. (Defs.' Ex. 1, Jones Decl. ¶ 7.)

The Florida Fund and ATGF have separate offices, employees, and business operations. (Defs.' Ex. 3, Zschau Dep. at 83-91; Defs.' Ex. 4, Coleman Dep. at 253; Defs.' Ex. 5, Ritchey Dep. at 77-80.)

The Frauds In General

Between 1999 and 2001, the time relevant to this litigation, ATGF had approximately seventy-five to ninety agents operating in Utah. (Defs.' Ex. 4, Coleman Dep. at 97.) Included among those agents were Bryan Robinson, Clay Harrison and Dale McAllister.¹ Like many other ATGF agents, in addition to issuing title insurance policies, these three agents also performed closing and escrow functions for real estate transactions, including purchase-sale transactions and refinancing transactions. However, unlike other ATGF agents, Robinson, Harrison and McAllister were, under the guise of legitimate real estate transactions, systematically and regularly misappropriating money from unwitting victims through various fraudulent real estate schemes.

The ninety-four plaintiffs in this case are individuals who lost money as a result of approximately fifty-eight separate fraudulent real estate transactions. Although each of the fraudulent real estate deals took a slightly different form and was perpetrated often by different individuals,² for the purpose of simplicity, the frauds can generally be separated into two categories: (1) placement agreements, and (2) mortgage stacking and/or equity/escrow theft. (Second Am. Compl. at 46-189; Defs.' Ex. 2, Liability Analysis at 35.)

The vast majority of the plaintiffs either sold or refinanced homes and then invested part of the proceeds in so-called "placement agreements." (Defs.' Ex. 2, Liability Analysis at 37-39.) Pursuant to the placement agreements, plaintiffs' money was supposed to be held in an escrow or trust account for a period of time, often two or three years and sometimes indefinitely. (Defs.' Mem. in Supp. S.J. at 9.) The plaintiffs were to receive high interest rates and were told they could redeem the full principal balance at any time during the period of the placement. (Id.) In addition, victims were often told their entire mortgages, amortized over thirty years, would be paid off within two years. However rather than holding plaintiffs' money in an escrow or trust account, the agents stole plaintiffs' money.

A much smaller group of plaintiffs lost their money through the more conventional title agent fraud of mortgage stacking. In these cases, the agent would falsely represent encumbrances on a piece of real property to induce a new lender to loan money secured by that property or the agent would fail to pay off a senior encumbrance when a new loan was secured by a parcel of real property. (Id.; see also Defs.' Mem. in Supp. S.J. at 10.)

Some of the victims of these frauds had title insurance through ATGF and were paid under their insurance policies. (Mem. Objecting to Order Granting Mot. to Compel at 4-5.) However, many fraud victims, particularly those who lost money through placement agreements, did not have title insurance claims of any kind.³ In fact, of the fifty-eight transactions involved in this case, forty eight of them involve plaintiffs who were sellers or refinancers who would not have been expected to be covered by title insurance, while it is typically only purchased by buyers and lenders. (Tr. of S.J. Oral Argument at 14 (providing that "with very few exceptions" these plaintiffs "not only do not have title insurance from ATGF, but they have no possible basis for claiming the existence of title coverage that would benefit them").)

Originally, the plaintiffs sued fifty-five different defendants, including ATGF and many of the actual perpetrators of the frauds. As a result of settlements, default judgments, and a variety of other reasons,⁴ plaintiffs now are pursuing only two: the Florida Fund and the law firm of Cohen Fox. (Mem. Objecting to Order Granting Mot. to Compel at 5.) While plaintiffs have not alleged that the Florida Fund directly induced the fraudulent real estate investments or received the actual money that was stolen through the fraudulent transactions, plaintiffs claim that the Florida Fund is directly liable for their losses under theories of racketeering, civil conspiracy and alter-ego.

Plaintiffs concede, however, that in order to hold the...