Allison v. Ticor Title Ins. Co.

• Decision Date: 22 January 1993
• Docket Number: Nos. 91-1893,91-2025,s. 91-1893
• Citation: 979 F.2d 1187
• Parties: 37 Fed. R. Evid. Serv. 37 John D. ALLISON, Bayfield Electric Cooperative, Robert E. Cadwell, et al., Plaintiffs-Appellees, v. TICOR TITLE INSURANCE COMPANY, Defendant-Appellant. John D. ALLISON, Paul R. Phillips, Mary B. Phillips, et al., Plaintiffs-Appellants, v. TICOR TITLE INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1187

979 F.2d 1187

37 Fed. R. Evid. Serv. 37

John D. ALLISON, Bayfield Electric Cooperative, Robert E.

Cadwell, et al., Plaintiffs-Appellees, v. TICOR TITLE INSURANCE COMPANY, Defendant-Appellant.

John D. ALLISON, Paul R. Phillips, Mary B. Phillips, et al., Plaintiffs-Appellants, v. TICOR TITLE INSURANCE COMPANY, Defendant-Appellee.

Nos. 91-1893, 91-2025.

United States Court of Appeals Seventh Circuit.

Argued April 29, 1992.

Decided Nov. 12, 1992.

As Amended Nov. 19, 1992.

As Amended on Denial of Rehearing

Jan. 22, 1993.

John Cates, Lawton & Cates, Madison, Wis., Barry Levenstam, Michael T. Brody, Jerold S. Solovy, Diane I. Bonina, Jenner & Block, Chicago, Ill., Alan Kildow (argued), John Cotter, Larkin, Hoffman, Daly & Lindgren, Bloomington, Minn., for plaintiffs-appellants.

Joshua G. Vincent (argued), William J. Holloway, William G. Swindal, Hinshaw & Culbertson, Chicago, Ill., Thomas A. Lockyear, Bell, Metzner & Gierhart, Madison, Wis., for defendant-appellee.

James E. Doyle, Atty. Gen., Laura Sutherland, Asst. Atty. Gen., Office of the Atty. Gen., Wisconsin Dept. of Justice, Madison, Wis., amicus curiae.

Before CUMMINGS and COFFEY, Circuit Judges, and WOOD, Jr., Senior Circuit Judge.

HARLINGTON WOOD, Jr., Senior Circuit Judge.

This appeal arises from lawsuits filed by three different groups of plaintiffs against Ticor Title Insurance Company ("Ticor"). Jurisdiction in the district court was based on diversity. Defendant Ticor is a California corporation, and the plaintiffs are all residents of states other than California. Jurisdiction in this court exists as an appeal from final judgment as to all claims and all parties.

The plaintiffs in these three cases all held seventy-five year leases on units in a 200-unit condominium resort called Telemark Lodge located in Cable, Wisconsin. The unitholders' leasehold interests were insured by title policies issued by Ticor. Two groups of plaintiffs sued Ticor in a consolidated case to recover under their insurance policies after losing their leases in bankruptcy proceedings initiated by Telemark Land Company, the developer of Telemark Lodge. On July 16, 1990, this court held Ticor had wrongfully refused to defend the Allison and Bayfield plaintiffs against claims filed by the Telemark trustee concerning their titles during the Telemark bankruptcy. Allison v. Ticor Title Ins. Co., 907 F.2d 645, 650 (7th Cir.1990). This court held that Ticor was liable and remanded the case to the district court for further proceedings concerning damages. While that appeal was pending in this court, the Cadwell plaintiffs started an action against Ticor in district court. After a jury verdict in favor of the Cadwell unitholders, the district court held that the Cadwell plaintiffs were in the same position as the Allison and Bayfield plaintiffs. Because of our decision in Allison vacating and remanding the two cases, the district judge vacated the Cadwell judgment and consolidated all three cases for a trial on damages. The jury trial was held the first week of October in 1990. The jury returned a special verdict that the leases had a fair market value of $24,000 each in the fall of 1985. The district court reduced each plaintiffs' recovery by $1,250, the amount they each received for their interests from the bankruptcy court when the lodge was sold. Plaintiffs' request for prejudgment interest was denied after the district court concluded that title insurers were exempt from Wis.Stat. § 628.46. Ticor is appealing both the liability judgment in Cadwell and the damages award for all three cases while plaintiffs are cross appealing the denial of prejudgment interest.

We affirm the district court's denial of Ticor's motion for a directed verdict in the Cadwell liability trial and find that there was sufficient credible evidence to support a jury verdict in favor of the nonmoving party. We affirm the district court's denial of Ticor's motions for judgment notwithstanding verdict and a new trial in the Cadwell liability trial. We hold that the district court did not abuse its discretion in denying Ticor a new trial on damages. We do, however, reverse the district court's denial of prejudgment interest under Wis.Stat. § 628.46. We hold that title insurers are not exempt from this provision.

BACKGROUND FACTS

Telemark Land Company developed the condominium resort called Telemark Lodge in Cable, Wisconsin which is in northern Wisconsin near the Chequamegon National Forest. The resort included the lodge, restaurants, convention facilities, stores, swimming pools, ski areas, tennis courts, a health center, and a golf course. The lodge had 200 rooms, or efficiencies, as condominium units. The lodge cost approximately six million dollars to construct and was financed by selling to the unitholders seventy-five year leasehold interests in the condominium units and undivided one-half interests in the common areas of the lodge. Units sold for $27,000-$29,000 in 1972. Each unit was approximately 405 square feet. Ticor issued title insurance policies for an amount equal to the purchase price for each unit. Along with the lease came membership in the Telemark Lodge Owners Association ("TLOA") and the right to participate in a rental arrangement of the units. Lessees could occupy their units whenever they pleased and ask the lodge to rent the units when they were unoccupied. The TLOA entered into a management agreement with Telemark Land Company's affiliate Telemark Management Company to operate the lodge. In 1978, the rental system was abandoned and instead each unitholder leased his or her condominium to the TLOA. The unitholders thereby gave up their right to a particular unit and had to make reservations to stay in the lodge. The TLOA subleased the lodge and all of the units to Telemark Management Company which operated the resort like a hotel. Costs and revenues from room rentals were pooled and the net disbursed pro rata to the management company and the unitholders.

In 1981, Telemark Land Company and its affiliates, including Telemark Management Company, filed for bankruptcy. Attempts at reorganization failed and the bankruptcy was converted from a Chapter 11 reorganization to a Chapter 7 liquidation in 1984. A trustee was appointed who, after inspection of the lodge, filed an adversary complaint in September 1984 against approximately 350 defendants including each unitholder, mortgagee, and the TLOA. The complaint, referred to as Kaiser I, sought to terminate the leases alleging that the unitholders had defaulted on their lease obligations to repair and maintain the lodge. The evidence showed that the lodge had fallen into some disrepair. The Telemark trustee filed a second adversary complaint, referred to as Kaiser II, in April 1985. The Kaiser II complaint alleged that questions over the unitholders' compliance with their repair obligations created a "bona fide dispute" about the status of their leases. 11 U.S.C. § 363(f)(4) allows a bankruptcy trustee to sell property free of any interest in such property if "such interest is in bona fide dispute." The bankruptcy court must resolve the dispute and pay the lessees from the proceeds of the sale if their claims are valid.

The Kaiser II complaint sought approval to sell the lodge free of the leaseholds to Edward Hurley for three million dollars. The TLOA hired an attorney to represent the association in the bankruptcy proceedings. Approximately 75% of the unitholders signed forms sent to them by the TLOA which authorized the attorney to represent them individually. The TLOA also tried at various points in the litigation to purchase the lodge and other related Telemark assets leaving the unitholders' interests intact. At a TLOA meeting held on May 4, 1985, a resolution was passed by the members permitting the TLOA to make such an offer. One week before the trial of the Kaiser I and II complaints, a purchase and settlement agreement was signed by the trustee and the TLOA on June 6, 1985, (the "Purchase Agreement") which gave the TLOA four months to raise money for the purchase of the lodge. The Purchase Agreement further stated that if the TLOA failed to obtain financing, the TLOA would agree to any sale of the property if for more than three million dollars. The bankruptcy court approved this settlement in July 1985. After attempts to purchase the lodge and other assets failed, the trustee served a notice on September 17, 1985, which amended Kaiser II by adding the additional claim that the unitholders did not own or possess leasehold interests but were merely equity investors in the lodge and/or mortgage holders on the lodge. This notice stated that any defendant not objecting to the Purchase Agreement by September 27 would be deemed to have consented to a sale and be bound by the agreement. This deadline for objections was extended by the bankruptcy court's own notice to October 17, 1985, when a hearing was scheduled concerning the merits of the Kaiser II claims and any objections to the Purchase Agreement.

On October 2, eighteen unitholders notified Ticor of the equity investment claim and requested defense to this claim because the trustee was claiming the unitholders apparently had never obtained good title and were simply equity investors. This notice sufficiently raised the question of title and Ticor's obligation to defend for all the unitholders. On October 7, Ticor denied coverage and refused to defend any of its insureds. Ticor made it clear that it would neither defend nor indemnify any of the unitholders.

Following the hearing, the bankruptcy court authorized the sale of the lodge after determining that there was a bona fide dispute about whether the unitholders were lessees or equity investors. The bankruptcy court did not make any specific findings about the genuine dispute over the leases. The lodge was eventually sold free of the leases, and each unitholder received $1,250 for the units according to a...