Ecurity Serv. Fed. Credit Union v. First Am. Mortg. Funding, LLC

• Decision Date: 21 March 2012
• Docket Number: Civil Action No. 08–cv–00955–WYD–CBS.
• Parties: SECURITY SERVICE FEDERAL CREDIT UNION, Plaintiff, v. FIRST AMERICAN MORTGAGE FUNDING, LLC, et al., Defendants. First American Mortgage Funding, LLC, Third–Party Plaintiff, v. Stewart Title Of California, Inc., et al., Third–Party Defendants. First American Mortgage Funding, LLC, et al., Cross-claim Plaintiffs, v. Kenneth E. North, et al., Cross-claim Defendants. First American Mortgage Funding, LLC, et al., Counterclaim Plaintiffs, v. Security Service Federal Credit Union, Counterclaim Defendant.
• Court: U.S. District Court — District of Colorado

861 F.Supp.2d 1256

SECURITY SERVICE FEDERAL CREDIT UNION, Plaintiff,
v.
FIRST AMERICAN MORTGAGE FUNDING, LLC, et al., Defendants.
First American Mortgage Funding, LLC, Third–Party Plaintiff,
v.
Stewart Title Of California, Inc., et al., Third–Party Defendants.
First American Mortgage Funding, LLC, et al., Cross-claim Plaintiffs,
v.
Kenneth E. North, et al., Cross-claim Defendants.
First American Mortgage Funding, LLC, et al., Counterclaim Plaintiffs,
v.
Security Service Federal Credit Union, Counterclaim Defendant.

Civil Action No. 08–cv–00955–WYD–CBS.

United States District Court,
D. Colorado.

March 21, 2012.

[861 F.Supp.2d 1260]

Austin D. Garner, Henry Alan Cirillo, Rachel M. Dollar, Sean Michael Beehler, Smith Dollar, PC, Santa Rosa, CA, for Plaintiff/Counterclaim Defendant.

Alan David Sweetbaum, Hilary A. Anderson, Joshua David McMahon, Tammy M. Alcock, Sweetbaum Sands Anderson, P.C., David H. Goldberg, Greenberg Traurig, LLP, Denver, CO, Markus Dale Self, Green & Hall, APC, Santa Ana, CA, for Defendant/Third–Party Defendants.

Stuart Harris Pack, Stuart H. Pack, Law Office, Denver, CO, for Defendant.

Jeffrey Jordan, Denver, CO, pro se.

Shaun Jordan, Denver, CO, pro se.

Gilger Homes, LLC, Draper, UT, pro se.

Kirk Gilger, Draper, UT, pro se.

First American Mortgage Funding, LLC, Denver, CO, pro se.

William Douglas Depuy, Construction Financial Services, LLC, Denver, CO, for

[861 F.Supp.2d 1261]

Defendant/Third–Party Plaintiff/Counterclaim Plaintiffs.

Timothy J. Vanagas, Timothy J. Vanagas, Attorney at Law, Portland, OR, for Third–Party Defendants.

Sharlene P. Bentley, North Salt Lake City, UT, pro se.

Gerald Carleo, Pueblo, CO, pro se.

Sharon Carleo, Pueblo, CO, pro se.

Robin Freestone an Individual, Colfax, WI, pro se.

Charles Hess, Woodville, WI, pro se.

Louis Sassali, Rockford, IL, pro se.

Deborah Sassali, Rockford, IL, pro se.

Jeffrey Jordan, Denver, CO, pro se.

ORDER
WILEY Y. DANIEL, Chief Judge.

This matter is before the Court on the following three motions: (1) Defendant Orange Coast Title Company of Southern California's (OCT) Motion for Hearing/Conference re Choice of Law [ECF No. 690], filed August 12, 2011; (2) Defendant Stewart Title of California, Inc.'s (STC) Motion for Determination of Applicable Law [ECF No. 691], filed August 15, 2011; and (3) Defendant Lawyers Title Company's (LTC) Motion for Determination of Law on Choice of Law [ECF No. 692], filed August 17, 2011. In their motions, OCT, STC, and LTC, collectively the “Closing Agents,” all contend that California law, not Colorado law, should be applied to the claims alleged against them in Plaintiff Security Service Federal Credit Union's (SSFCU) Fourth Amended Complaint, [ECF No. 687] filed July 18, 2011, and to the privileges that SSFCU has invoked during discovery in this case. SSFCU filed its Consolidated Response, [ECF No. 699], on September 16, 2011 and the Closing Agents filed their corresponding replies on October 7, 2011, [ECF Nos. 708, 709, 710].

I. Background

By way of background, SSFCU is the successor in interest to New Horizons Community Credit Union (New Horizons), a now-defunct Colorado credit union. OCT, STC, and LTC are all California title companies that conduct escrow for real property transactions in the state of California. New Horizons entered into a funding service agreement with First American Mortgage, Inc. (FAM) whereby FAM on behalf of New Horizons would perform a number of services related to construction loans that New Horizons would fund. FAM in turn, contracted with the Closing Agents to perform escrow services related to the closings of the construction loans on various properties located in California.

The claims against the Closing Agents arise out of the Closing Agents' handling of the escrow transactions relating to the construction loans, initially funded by New Horizons. New Horizons made the loans to finance the purchase of real property in California and secured repayment of these loans with deeds of trust on the properties. The deeds of trust were recorded under California law and each instrument also provides that it is governed in accordance with California law. These loans were ultimately discovered to be part of a straw borrower scheme, alleged to have been perpetrated by a separate party in this matter. Consequently, the borrowers never repaid any money in connection with their respective loans and the loans went into default. SSFCU eventually utilized California's non-judicial foreclosure framework under Cal. Civil Code § 2924 et seq. and purchased all the borrowers' properties related to the New Horizons loans using full credit bids.

In its Fourth Amended Complaint, [ECF No. 687], SSFCU has asserted claims for breach of contract, negligence, negligent misrepresentation, breach of fiduciary

[861 F.Supp.2d 1262]

duty, and various other tort claims against the Closing Agents in connection with alleged breach of escrow instructions related to the loan closings for the California properties. Fourth Amended Complaint at ¶ 153–85 [ECF No. 687], filed July 18, 2011. During discovery, Defendants OCT and STC filed motions to compel documents withheld by SSFCU pursuant to Colorado's Compliance Review Committee Privilege, Colo.Rev.Stat. Ann. § 11–71–101 through 103 (West 2011). See Defendant OCT's Motion to Compel Documents, [ECF No. 630], filed May 6, 2011 and Defendant STC's Motion to Compel Plaintiff to Produce Documents Withheld Under Privilege, [ECF No. 637], filed May 6, 2011. This Colorado privilege protects documents prepared for or created by a compliance review committee from discovery in a civil action. § 11–71–103(2). There is no corresponding privilege that exists in California. These motions were referred by memorandum [ECF No. 638] to United States Magistrate Judge Craig B. Shaffer.

In their motions to compel, OCT and STC both asserted that California law, rather than Colorado law, should apply to the underlying substantive claims and that California also supplies the applicable law of privilege. See e.g. OCT's Motion to Compel Documents [ECF No. 630] at 22. In light of the choice of law issue raised in the motion to compel, U.S. Magistrate Judge Shaffer ordered the Defendants to file motions addressing choice of law and stayed discovery while these motions were pending, except as to STC. Minute Entry for Telephonic Status Conference, [ECF No. 683], filed July 6, 2011. The Closing Agents subsequently filed the choice of law motions at issue in this order.

II. Judicial Estoppel

As a preliminary matter, SSFCU argues the Closing Agents should be estopped from invoking California law because they relied on Colorado law in prior motions filed over the course of the last two years. Specifically, SSFCU notes that the Closing Agents asserted Colorado's Economic Loss Rule as a defense to SSFCU's then-Third Amended Complaint and to Third Party Defendant FAM's claim for negligence. See STC's Motion to Dismiss Third–Party Plaintiff's Claims, [ECF No. 183], filed July 27, 2009; OCT's Motion to Dismiss Third Party Claims, [ECF No. 181], filed July 27, 2011; LTC's Motion to Strike or in the Alternative to Sever and Bifurcate Third Party Claims, [ECF No. 182], filed July 27, 2011. Colorado's Economic Loss Rule prevents a party who suffers only economic loss from the breach of a contractual duty from asserting a tort claim for such a breach, absent an independent duty of care under tort law. See Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1264 (Colo.2000). Although the Closing Agents raised this argument in their motions referenced above, I dismissed the negligence claims pursuant to Rule 12(b)(6) because these claims were devoid of factual allegations. Order at 4, [ECF No. 320], filed March 30, 2010, 2010 WL 1268077. I explicitly declined to address the Economic Loss Rule argument at that time, given the posture of the case. Id.

SSFCU also notes that STC in particular, relied on Colorado law when it filed four separate Designation of Non–Parties at Fault documents, asserting that thirteen non-parties were either wholly or partially at fault for the damages complained of by SSFCU. See STC's Designations of Non–Parties at Fault, [ECF Nos. 467, 473, 486, 574]. These designations were based on a Colorado statute permitting a party to allocate its liability and damages to others that it can establish are also liable. SeeC.R.S. § 13–21–111.5(3)(a, b). As SSFCU notes, this litigation has now been pending for over two years. Having relied on Colorado

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law throughout the earlier stages of this litigation to obtain dismissal of certain claims and reduce or apportion their liability, SSFCU contends the Closing Agents are now judicially estopped from now applying California law to their claims.

a. The Doctrine of Judicial Estoppel

The doctrine of judicial estoppel prevents a party from prevailing in one phase of a case by relying a particular argument and then taking a contradictory position to prevail in another phase of the case. New Hampshire v. Maine, 532 U.S. 742, 748, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001) (noting the purpose of judicial estoppel is “to protect the integrity of the judicial process”); see also Johnson v. Lindon City Corp. 405 F.3d 1065, 1069 (10th Cir.2005) (announcing that the Tenth Circuit has adopted doctrine of judicial estoppel). While a court may invoke judicial estoppel at its discretion, there are three primary factors I must consider. Eastman v. Union Pacific Railroad Company, 493 F.3d 1151, 1156 (10th Cir.2007). First, I must look at whether a party's later position is “clearly inconsistent” with its earlier position. Id. at 1156 (citing New Hampshire, 532 U.S. at 750, 121 S.Ct. 1808). Second, I will inquire “whether the suspect party succeeded in persuading a court to accept that party's former position” such that “judicial acceptance of an inconsistent position would create the perception that either the first or second court was misled.” Id. Finally, I will look at whether...