Fid. Nat'l Title Ins. Co. v. Worthington

• Decision Date: 29 January 2015
• Docket Number: No. 20130799–CA.,20130799–CA.
• Citation: 2015 UT App 19,344 P.3d 156
• Parties: FIDELITY NATIONAL TITLE INSURANCE COMPANY, Plaintiff and Appellant, v. Kenton WORTHINGTON, Defendant and Appellee.
• Court: Utah Court of Appeals

344 P.3d 156

2015 UT App 19

FIDELITY NATIONAL TITLE INSURANCE COMPANY, Plaintiff and Appellant

v.Kenton WORTHINGTON, Defendant and Appellee.

No. 20130799–CA.

Court of Appeals of Utah.

Jan. 29, 2015.

Bryce D. Panzer, Brett N. Anderson, Salt Lake City, and Scott R. Taylor, for Appellant.

Michael D. Mayfield, Salt Lake City, and Caroline L. Hermeling, for Appellee.

Judge JOHN A. PEARCE authored this Opinion, in which Judge MICHELE M. CHRISTIANSEN and Senior Judge RUSSELL W. BENCH concurred.¹

Opinion

PEARCE, Judge:

¶ 1 A homeowner sought the assistance of his sister and her husband in refinancing his house. The three worked with a title company partly owned by the sister to secure a loan from a bank. After the refinancing loan closed, a mechanic's lien was recorded upon the house. The title company's underwriter paid out to the bank to satisfy the lien and then sued the homeowner, his sister, his sister's husband, and the sister's title company. For a variety of reasons, including bankruptcies and the dissolution of the title company, the only parties left standing in the litigation are the homeowner and the underwriter. The underwriter alleged that the homeowner committed fraud and participated in his sister's breach of fiduciary duty. The question before us is whether the district court erred in dismissing the underwriter's complaint against the homeowner. Because the underwriter did not plead any false representation made by the homeowner and did not plead any duty to disclose owed by the homeowner, we conclude that the fraud claim against him was improperly pleaded and therefore properly dismissed. Because the underwriter did not allege that the homeowner took any specific action to further his sister's alleged breach of fiduciary duty, we conclude that the district court did not err by dismissing the breach of fiduciary duty claim.

BACKGROUND

¶ 2 Kenton Worthington—the homeowner—purchased a half-finished house (the Property) from a construction company with the understanding that the construction company would complete it. To finance the purchase, Worthington granted a first trust deed to a lender for $1,100,000 and a second trust deed to the construction company for $585,000. Worthington later sought to refinance these obligations and obtain additional capital to finish construction. To this end, Worthington's brother-in-law (Brother–in–Law), a mortgage broker, helped him obtain a refinancing loan from a second bank (the Bank). The loan was for $2,596,000 and was characterized as a refinance of existing obligations rather than as a construction loan. Priority Title Insurance Agency, a company partly owned by Worthington's sister (Sister), handled the closing of the refinancing loan. Priority Title was an agent of its underwriter, Fidelity National Title Insurance Company (Fidelity).

¶ 3 According to Fidelity's complaint, the refinancing loan's closing was conditioned upon, “among other things, obtaining assurance that [the Bank] would have a first priority lien on the Property, that there would be no other liens of record on the title, and that there was no subordinate financing.” When the loan closed, Priority Title disbursed funds to pay off the trust deeds held by the first lender and the construction company. Both of those entities reconveyed their trust deeds. Priority Title also issued a lender's title-insurance policy in favor of the Bank in the amount of $2,596,000. The policy provided coverage to the Bank against potential mechanic's liens claiming priority over the Bank's trust deed.

¶ 4 Worthington and the construction company were unable to agree on the balance still owing for construction. Two months after the refinancing loan closed, their dispute boiled over into litigation. The construction company filed a Notice of Lien against the Property, asserting a $600,000 mechanic's lien. Because construction on the Property had commenced before the initial sale to Worthington, the construction company asserted that its lien had priority over the refinancing loan. The Bank was joined to the litigation and tendered its claim to Fidelity under the title-insurance policy. Fidelity settled that case by paying the construction company approximately $490,000.

¶ 5 Fidelity then filed suit against Worthington, Sister, Brother–in–Law, and Priority Title (collectively, the Defendants). Fidelity's complaint identified two claims for relief that are pertinent to this appeal: (1) one titled “Fraud, Intentional Misrepresentation, and Civil Conspiracy” and (2) one for “Breach of Fiduciary Duty.” Sister, Brother–in–Law, and Priority Title are no longer in the case and are not parties to this appeal.

¶ 6 Worthington moved to dismiss Fidelity's claims against him, arguing that they were barred by the economic loss doctrine and that the claims should be dismissed for failing to state a claim upon which relief could be granted. See Utah R. Civ. P. 12(b)(6). In particular, Worthington argued that the fraud claim failed because Fidelity did not plead “the circumstances constituting fraud ... with particularity.” See id. R. 9(b). The district court agreed with Worthington and dismissed the claims against him with prejudice. The court also determined that the claims were “based solely and inextricably on alleged contractual duties” and were therefore the type of “tort claims barred by the economic loss rule, because the claimed duties [were] not independent of the contract.”² The court further stated that it could not “find that ... Mr. Worthington owed any legal duties to [Fidelity].” The court incorporated by reference “all of the case law authorities and remaining grounds set forth in [Worthington's] Memoranda in support and reply, which serve as the basis of the Court's decision.” Fidelity appeals.

ISSUE AND STANDARD OF REVIEW

¶ 7 Fidelity argues that the district court erred when it dismissed Fidelity's complaint against Worthington. The court dismissed Fidelity's complaint after it determined that Fidelity failed to state claims upon which relief could be granted, see Utah R. Civ. P. 12(b)(6), and that the economic loss rule barred Fidelity's claims. For the purposes of a rule 12(b)(6) dismissal, we accept the complaint's factual allegations as true. Snow v. Chartway Fed. Credit Union, 2013 UT App 175, ¶ 2 n. 2, 306 P.3d 868. As a result, an appeal from a rule 12(b)(6) dismissal presents only questions of law, and we review the district court's ruling for correctness. Simmons Media Group, LLC v. Waykar, LLC, 2014 UT App 145, ¶ 8, 335 P.3d 885.

ANALYSIS

I. Fraud–Based Claims

¶ 8 Fidelity's first claim for relief is a mélange of fraud-based causes of action under the title “Fraud, Intentional Misrepresentation, and Civil Conspiracy.” Rule 12(b)(6) of the Utah Rules of Civil Procedure permits the dismissal of complaints that fail to state claims upon which relief can be granted. In the context of fraud-based causes of action, rule 9(b) provides that the circumstances constituting fraud must be pleaded with particularity in order to state a claim. Utah R. Civ. P. 9(b).

¶ 9 Fidelity pleaded that each of the Defendants knew that a mechanic's lien could be filed against the Property and knew that Fidelity would not underwrite an insurance policy for a property subject to a possible mechanic's lien. Fidelity claimed that “[e]ach of the Defendants failed to disclose, or require the disclosure of the [potential lien] to Fidelity for the purpose of inducing Fidelity to issue the lender's policy of title insurance to [the Bank].” Fidelity also alleged that “Priority Title and [Sister] had a specific duty to disclose to Fidelity all facts and information [relevant] to the issuance of the lender's policy of title insurance, and intentionally failed to do so.” Although the complaint lumped fraud, intentional misrepresentation, and civil conspiracy together, we will consider fraud and intentional misrepresentation together and civil conspiracy separately.

A. Fraud

¶ 10 A claim of fraud requires the plaintiff to allege:

(1) that a representation was made (2) concerning a presently existing material fact (3) which was false and (4) which the representor either (a) knew to be false or (b) made recklessly, knowing that there was insufficient knowledge upon which to base such a representation, (5) for the purpose of inducing the other party to act upon it and (6) that the other party, acting reasonably and in ignorance of its falsity, (7) did in fact rely upon it (8) and was thereby induced to act (9) to that party's injury and damage.

Webster v. JP Morgan Chase Bank, NA, 2012 UT App 321, ¶ 16, 290 P.3d 930 (citation and internal quotation marks omitted); see also Armed Forces Ins. Exch. v. Harrison, 2003 UT 14, ¶ 16, 70 P.3d 35 (reiterating that, in the context of a motion for summary judgment, conclusory allegations of those elements, unsupported by relevant surrounding facts, are insufficient).

¶ 11 Here, Fidelity's complaint fails to allege the elements of a fraud claim with the particularity our rules require. See Utah R. Civ. P. 9(b) ( “In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.”). Rule 9(b)'s specificity requirement modifies the general rule that requires only a “short and plain” statement of the claim demonstrating entitlement to relief and a demand for judgment identifying the relief sought. See id. R. 8(a). A number of reasons have been advanced to justify the more stringent pleading requirement. Commentators have explained that rules analogous to our rule 9(b) exist to discourage “lightly made claims charging the commission of acts that involve some degree of moral turpitude.” See5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1296 (3d ed.). Others have suggested that the rule stems from the common law's historical reluctance to reopen transactions. John P. Villano Inc. v. CBS, Inc., 176 F.R.D. 130, 131 (S.D.N.Y.1997) (citing William M....