Community Bank v. Fidelity National Title Insurance Co.

Decision Date23 July 2021
Docket NumberCivil Action 19-512
PartiesCOMMUNITY BANK, Plaintiff, v. FIDELITY NATIONAL TITLE INSURANCE COMPANY, Defendant.
CourtU.S. District Court — Western District of Pennsylvania
MEMORANDUM OPINION

Nora Barry Fischer, Senior U.S. District Judge

I. INTRODUCTION

In this breach of contract case, Plaintiff, Community Bank, seeks a declaratory judgment and monetary damages from Defendant Fidelity National Title Insurance Company, under an insurance policy. Community Bank claims that the policy's provisions covering unmarketability of title and right of access were invoked when a contemplated subdivision plan never came to fruition, thereby causing the property to lose value. For its part, Fidelity claims that the policy's provisions do not cover Community Bank's losses. Presently before the Court are Fidelity's Motion for Summary Judgment (Docket No. 37), Community Bank's Response in Opposition (Docket No. 42), and Fidelity's Reply (Docket No. 43). After careful consideration of the parties' positions and for the following reasons Fidelity's Motion [37] is granted.

II. FACTUAL BACKGROUND [1]
A. Relevant Facts

This case originates from an October 23, 2007 purchase of a roughly 29.6-acre parcel of vacant land located on Gillcrest Drive, Jefferson Hills Borough, Allegheny County, Pennsylvania 15025. (Docket No. 37 ¶ 1; Docket No. 40 ¶ 1). Blackwood Pointe Associates, LLC, purchased that property from RCH Jefferson, L.P., for $2.2 million intending to develop and subdivide the land in accordance with an approved, unrecorded subdivision plan - Blackwood Acres Plan No. 1. (Id. at ¶¶ 1-3). To make the purchase, Blackwood (hereinafter referred to as the "Borrower") borrowed $2.1 million via a loan from Community Bank. (Id.). Immediately after the purchase, the Borrower recorded its deed, while Community Bank recorded a mortgage on the property and secured a $2.1 million title insurance policy with Fidelity National Title Insurance Company. (Id. at ¶¶3-5).

As contemplated at the time of the purchase, the parcel was intended to be part of Blackwood Acres Plan No. 1, a proposed subdivision plan by which the property would be "subdivided and developed into a multi-unit housing development containing a total of 110 units (comprised of four single-family units and 106 townhouse units)." (Docket No. 37 ¶¶ 10-11; Docket No. 40 ¶¶ 10-11). Reflecting the anticipated plan, the deed, the mortgage, and the insurance policy[2] identified the legal description of the property as:

Lot or piece of ground situate[d] in the Borough of Jefferson Hills, formerly Borough of Jefferson, County of Allegheny and Commonwealth of Pennsylvania, identified as the "Subdivided Area" in the Blackwood Acres Plan No. 1 . . .[3]

(Id. at ¶¶ 2, 7; see also Docket No. 1-2 at 3; Docket No. 1-3 at 12; Docket No. 1-4 at 7). Because Blackwood Acres Plan No. 1 was not yet recorded at the time of the sale, the legal description of the property also contained blanks to be filled in with the recording date and the plan book volume and page number for the plan. (See generally id). But, despite the parties' intentions, the development plan never materialized.

The Blackwood Acres Plan No. 1 was originally approved by the Borough of Jefferson Hills through a resolution in September 2006. (Docket No. 37 ¶¶ 12-16; Docket No. 40 ¶¶ 12-16). The plan was subject to numerous conditions that the Borrower had to satisfy within 90 days, including posting a security deposit with the Borough and securing an agreement with a developer. (Id.). Those conditions were not satisfied within the original 90-day period, and the plan was reapproved in May 2007, subject to the same conditions and 90-day timeframe. (Id. at ¶¶ 17-19). Just prior to the sale in October 2007, the Borough sent the Borrower a letter stating that "[a]s of the date of this letter, the conditions of approval have not been met and the approval of May 14th has expired" and readvised that "Borough officials cannot sign the mylars for this plan." (Id. at ¶20).

James McCune, Community Bank's counsel and serving as both the title agent and closing agent for the loan, was aware that the Borough's conditions remained unsatisfied prior to the closing. (Id. at ¶¶ 24, 27, 41-42 109). Additionally, Mr. McCune was aware that the plan was unrecorded because, when the Borrower applied for the loan from Community Bank to purchase the property, it attached a copy of the unsigned, unrecorded Blackwood Acres Plan No. 1 to the loan application. (Id. at ¶¶ 31-35). Nonetheless, Mr. McCune prepared the title commitment for Community Bank, recorded the deed and mortgage, and issued the policy after overseeing the closing in October 2007. (Id. at ¶¶ 26-27, 31-35, 60). Community Bank's representatives, including Mr. McCune, approved the transaction notwithstanding the unsatisfied conditions and unrecorded plan while acknowledging that there was "a risk that it could not be developed or was not going to be developed," that the Borough "wouldn't release the subdivision plan or allow it to be recorded," and that the Borough was "not going to let [the unsatisfied conditions of the plan] go indefinitely." (Id.).

Well after the second 90-day period was up, in December 2007, the Borough granted another approval of the Blackwood Acres Plan No. 1, this time for a 180-day period that extended into June 2008. (Id. at ¶ 66). That approval was subject to the same conditions as the prior two. (Id. at ¶ 67). By March 2008, the Borrower had satisfied none of the Borough's conditions, as it had neither paid the Borough a security deposit nor executed an agreement with its chosen developer, and the Borrower advised Community Bank that the conditions were unlikely to ever be met. (Id. at ¶¶ 50, 69-70, 73). Moreover, no payments had been made to Community Bank under the loan agreement, so Community Bank decided to foreclose on the mortgage. (Id. at ¶¶ 71, 76).

While the foreclosure action was pending, Community Bank proceeded in two ways. First, it had the Borrower assent to the conditions of the Blackwood Acres Plan No. 1 on its behalf in order to receive another 180-day extension from the Borough to run through December 2008. (Id. at ¶¶ 78-79). Second, Community Bank had the property appraised, with the hypothetical subdivision plan included, for $1.7 million. (Id. at ¶¶ 72-75, 100). Despite the 180-day extension, the Borough's conditions were not satisfied. (Id. at ¶ 80). And, in December 2008, when Community Bank requested yet another extension, Borough Council rejected the request given frustration about the number of times the approval had been extended. (Id. at ¶¶ 82-83). As a result, Blackwood Acres Plan No. 1 was never recorded, and the development plan was abandoned. (Id. at ¶ 87).

In February 2009, Community Bank obtained a default judgment in its foreclosure action and a Sherriff s deed to the property in October 2009 following sale. (Id. at ¶¶ 76, 88). Community Bank had the property reappraised, this time without the benefit of the hypothetical subdivision plan, for $400, 000. (Id. at ¶¶ 99-100). In addition to the property and in an attempt to recoup some of its losses, Community Bank recovered a $200, 000 deposit from the Borrower's developer and attempted to sue the Borrower's personal guarantor, but he did not have any assets to levy. (Id. at ¶¶ 89-91). After attempting to sell the parcel as a whole, in February 2015, Community Bank proposed a new subdivision plan, titled the Community Bank - 1KB Plan No. 1. (Id. at ¶¶ 92-97). On August 8, 2016, the Borough approved Community Bank's plan, and it was recorded on August 19, 2016. (Id.). Ultimately on April 11, 2019, with the new subdivision plan in place, Community Bank agreed to sell the property to another developer for $300, 000. (Id. at ¶ 101; see also Docket No. 37-8 at 8).

On October 12, 2016, Community Bank submitted a claim to Fidelity under its policy, "seeking reimbursement for [alleged] actual monetary damages sustained or incurred by reason of the unmarketability and inaccessibility of the Property from and after recordation of the Sheriffs Deed in October 2009 until approval and recordation of the Community Bank Plan in August 2016, as well as the [alleged] diminution in value of the Property due to such defects." (Id. at ¶ 102). Fidelity denied the claim on August 2, 2017. (Id. at ¶ 107). In its denial, Fidelity opined that the unfulfilled subdivision plan neither rendered the property inaccessible nor its title unmarketable, and even if it did, Community Bank "failed to provide timely notice of the claimed defects pursuant to the Notice provisions in the Policy" and "[f]urther, because [Fidelity] did not approve payment of the expenses incurred by [Community Bank] in addressing the claimed title defects in advance, nor did it approve [Community Bank's] voluntary resolution of the claim, [Community Bank] is not entitled to any loss or other payment under the Policy." (Docket No. 37-4 at 18). Further, Fidelity explained that the policy did not cover diminution of value. (Id. at 19-20).

B. Review of Pertinent Policy Provisions

The insurance policy between Community Bank and Fidelity listed eight covered risks:

SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B AND THE CONDITIONS AND STIPULATIONS, FIDELITY NATIONAL TITLE INSURANCE COMPANY, a California corporation, herein called the Company, Insures, as of Date of Policy shown in Schedule A, against loss[4] or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the Insured by reason of:

1. Title to the estate or interest described in Schedule A being vested other than stated herein;
2. Any defect in or lien or encumbrance on the title;
3. Unmarketability
...

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