Badger Mining Corp. v. First Am. Title Ins. Co.
| Decision Date | 14 April 2020 |
| Docket Number | 19-cv-840-wmc |
| Parties | BADGER MINING CORPORATION, Plaintiff, v. FIRST AMERICAN TITLE INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Western District of Wisconsin |
Deborah Carol Meiners, Ronald Robert Ragatz, DeWitt LLP, Madison, WI, for Plaintiff.
Christopher Raymond Grote, Jenna K. Johnson, Mark S. Enslin, Kathryn E. Wendt, Ballard Spahr LLP, Minneapolis, MN, for Defendant.
In this insurance dispute, plaintiff Badger Mining Corporation ("Badger") alleges that defendant First American Title Insurance Company ("First American") breached its policy by failing to provide a defense to an underlying lawsuit challenging Badger's title to property. Plaintiff also asserts a bad faith claim against defendant. Before the court are the parties’ cross motions for summary judgment. (Dkt. ##45, 48.) For the reasons that follow, the court will grant in part and deny in part both parties’ motions as to the breach of contract claim, finding that defendant had a duty to defend at least some of the claims in the underlying action. The court will also deny plaintiff's motion as to its bad faith claim and reserve on both parties’ motions as to damages, which will require further exploration at trial.1
Plaintiff Badger is a Wisconsin corporation, with its principal place of business in Berlin, Wisconsin, engaged in the business of mining and selling sand, among other things. Defendant First Amendment is a Nebraska corporation, with its principal place of business in Santa Ana, California, engaged in the business of underwriting and issuing title insurance.
On April 13, 2015, Badger purchased certain assets from Northern Frac Proppants II, LLC ("NFP II"), including real estate located in Alma Center, Jackson County, Wisconsin, commonly known as "Goose Landing." The Goose Landing real estate was conveyed to Badger by warranty deed. At the time of that purchase, there was already an operating mine on the property, primarily for sand suitable for hydraulic fracturing ("frac sand").
In connection with its purchase of the Goose Landing real estate, Badger sought and acquired title insurance from First American, issued as Owners Policy of Title Insurance No. 5011400-85421, on April 16, 2015. (Compl., Ex. A (dkt. #1-1) ("the Policy").) In relevant part, the Policy provides that:
(Policy 2-3 (bolding removed).)3
In addition to defining the scope of coverage, the Policy also defines express exclusions from coverage under the Policy, for which First American "will not pay loss or damage, costs, attorneys’ fees, or expenses," including the following that are material to the parties’ dispute if "aris[ing] by reason of:"
(Id. )
With respect to providing a duty to defend, the Policy also states:
(Id. )
On August 22, 2017, several persons and entities commenced an action in Trempealeau County Circuit Court against Badger and other defendants. See 2011 NF Holdings, LLC f/k/a NF Holdings, LLC v. Northern Frac Proppants II, LLC , No. 2017-CV-126 (Trempealeau Cnty., Wis. Cir. Ct.). The underlying plaintiffs included Northern Frac Proppants, LLC ("NFP"), which was, allegedly at least, legally separate and apart from NFP II -- the entity that purported to sell the Goose Landing real estate and other assets to Badger. According to the complaint, NFP was formed on December 20, 2012. The underlying defendants include Badger, NFP II, Jeffries Alston, who was CEO of NFP and NFP II, as well as the latter's President.
Although confusing and somewhat contradictory, the underlying complaint alleged that NFP had acquired "interests" in the Goose Landing real estate and associated assets in 2013, and later that year, Jeffries Alston converted those assets of NFP and made them part of NFP II. More specifically, the underlying complaint alleged that on October 30, 2013, Alston prepared an Assignment Agreement assigning all of NFP's rights, titles and interest in Goose Landing assets to NFP II. Alston signed the agreement as President of both NFP and NFP II. While the dates are also confusing, the underlying complaint further alleges that on November 12, 2013, NFP II made an offer to purchase "Goose Landing" from its then owners, James and Andrea Hoffman, and that on December 20, 2013, NFP II finalized that acquisition.
Nevertheless, the underlying plaintiffs alleged that Goose Landing real estate and its other assets were "rightfully owned by NFP," and NFP II and its members defrauded the underlying plaintiffs in acquiring those assets. (Pl.’s PFOFs (dkt. #40) ¶ 25 .) The underlying plaintiffs did not allege that Badger had any involvement in the assignment or transfer of interests in Goose Landing from NFP to NFP II in 2013. Instead, they alleged that Badger first explored acquiring Goose Landing in 2014, entered into an exclusive option to purchase all of NFP II's assets, including Goose Landing on March 13, 2015, for $150 million, and ultimately closed on that purchase on April 13, 2015, for $85 million.
The underlying complaint contains a total of seventeen causes of action, at least half of which allege that the transfer of NFP's assets, including the Goose Landing interests, to NFP II in 2013 was fraudulent and seeking "avoidance of the transfers," "an attachment of the interests transferred," and/or entering a judgment declaring the conveyances to be void; it also alleged a "defect in the Title caused by ... fraud" or failure of the true owner "to have authorized a transfer." (Pl.’s PFOFs (dkt. #50) ¶¶ 28-33 .) Relatedly, in Count Fifteen, the underlying plaintiffs assert a claim for unjust enrichment based on Badger having acquired property that the underlying plaintiffs allege is rightfully theirs; in Count Seven, the underlying plaintiffs assert a claim of conversion based on these same facts; and in Count Seventeen, the underlying plaintiffs seek a constructive trust, including the property held by Badger. (Id. ¶ 35.)4
The underlying complaint further asserts that NFP II then "sold the new company to Badger Mining Corporation for a ‘pawn shop’ price—a price negotiated because Badger knew it was buying ‘fenced’ goods." (Def.’s PFOFs (dkt. #47) ¶ 13 .) As part of this assertion, defendant sets forth in great detail additional allegations in the underlying complaint about Badger's conduct with respect to the transfer of the Goose Landing real estate from NFP II to Badger, although the court need not recount all of these underlying allegations for purposes of deciding the contract issue before it. Of particular relevance, however, the underlying plaintiffs alleged that "Badger knew -- as a result of its [due] diligence -- that virtually all of assets that Alston claimed he wanted [to sell] them under NFP II were actually titled to and owned by NFP"; that despite this knowledge, "Badger was committed to acquiring the assets due to their intrinsic value, which dwarfed the purchase price of $150 million under the No-Shop Agreement"; and that as part of the negotiation, Badger "insisted in the NFP II/Badger APA that the parties set aside $8.5 million of the purchase price in escrow to indemnify North Cliff/Badger from the lawsuits that both parties knew would be forthcoming." (Underlying Compl. (dkt. #1-2) ¶¶ 244, 247, 267.)
In addition to the causes of action described above that focused on the transfer of NFP's assets to NFP II in 2013, the underlying complaint also asserts a fraudulent transfer based on NFP II's sale to Badger cause of action (Count Five), a conspiracy claim against all defendants (Count Twelve), a disgorgement...
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...defense rule does not apply in the context of title insurance. See, e.g., Badger Mining Corp. v. First American Title Insurance Co., 534 F.Supp.3d 1011 (W.D. Wis. 2021) (applying Wisconsin law); Cherry Hills Farm Court, LLC v. First American Title Insurance Co., 428 F.Supp.3d 516 (D. Colo. ......