Fifth Third Mortg. Co. v. Chi. Title Ins. Co.

• Decision Date: 30 August 2012
• Docket Number: No. 11–3795.,11–3795.
• Citation: 692 F.3d 507
• Parties: FIFTH THIRD MORTGAGE COMPANY, Plaintiff–Appellee, v. CHICAGO TITLE INSURANCE COMPANY, Defendant–Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

692 F.3d 507

FIFTH THIRD MORTGAGE COMPANY, Plaintiff–Appellee,

v.CHICAGO TITLE INSURANCE COMPANY, Defendant–Appellant.

No. 11–3795.

United States Court of Appeals,Sixth Circuit.

Argued: July 17, 2012.

Decided and Filed: Aug. 30, 2012.

ARGUED:Robert J. Fogarty, Hahn, Loeser & Parks LLP, Cleveland, Ohio, for Appellant. John C. Greiner, Graydon, Head & Ritchey LLP, Cincinnati, Ohio, for Appellee. ON BRIEF:Robert J. Fogarty, Derek E. Diaz, Justin M. Croniser, Hahn, Loeser & Parks LLP, Cleveland, Ohio, for Appellant. John C. Greiner, Kara A. Czanik, Graydon, Head & Ritchey LLP, Cincinnati, Ohio, for Appellee.

Before: SILER and KETHLEDGE, Circuit Judges; MURPHY, District Judge.^*

OPINION

KETHLEDGE, Circuit Judge.

When a party comes to us with nine grounds for reversing the district court, that usually means there are none. Here, Chicago Title Insurance Company challenges on nine grounds the district court's grant of summary judgment to Fifth Third Mortgage on claims that Chicago Title was required to defend and indemnify Fifth Third in a dispute over property in Ohio. We reject Chicago Title's arguments and affirm.

I.

In 2007, Fifth Third loaned Anthony Buford $406,000 in exchange for a mortgage on property that Buford purportedly owned. The property was located at 7694 Plantation Drive in Mason, Ohio. To insure against the risks that Buford did not actually have title to the property or that other creditors had interests in the property that would trump the mortgage, Fifth Third obtained a title-insurance policy from Direct Title Resources. Direct Title was an issuing agent for Chicago Title.

Direct Title was also a fraudulent agent. Jolie Neal, Direct Title's sole “member,” was the actual title owner of the Plantation property. She used that single property as collateral to obtain multiple loans from different lenders. She also conspired with Anthony Buford, who obtained more loans by pretending to be the owner of the Plantation property—which he too used as collateral.

In December 2008, one of Jolie Neal's creditors foreclosed on the Plantation property in state court. Fifth Third learned of the foreclosure suit and intervened to protect its mortgage interest in the property. In the process, Fifth Third discovered that Buford was not, in fact, the record title owner of the property. Fifth Third also learned that other creditors held liens on the property and that their liens were superior to Fifth Third's mortgage.

Fifth Third's title policy covered any “loss or damage ... incurred by” Fifth Third “by reason of” a title defect and “[t]he lack of priority of the lien of the Insured Mortgage upon the Title over any other lien or encumbrance.” Citing the policy, Fifth Third asked Chicago Title to defend Fifth Third's interest in the Plantation property in the foreclosure action. Fifth Third also asked Chicago Title to compensate Fifth Third for losses resulting from the title defect and the inferiority of its mortgage. Chicago Title refused to defend or indemnify Fifth Third. Fifth Third then filed this lawsuit against Chicago Title.

Three months later, before discovery had begun, Fifth Third moved for summary judgment. Chicago Title filed an affidavit under Rule 56(d), stating that it needed more time to conduct discovery before responding to the motion for summary judgment. Among other things, Chicago Title said that it needed discovery on the question whether “Fifth Third failed to follow objectively reasonable and prudent underwriting standards” in processing Buford's loan application. Chicago Title also said that it needed discovery to determine whether Direct Title had authority to issue the title-insurance policy on Chicago Title's behalf. The district court held that discovery would be pointless, however, because Chicago Title's defenses to the suit were clearly meritless.

This appeal followed.

II.

We review the district court's denial of Chicago Title's Rule 56(d) motion for an abuse of discretion. CenTra, Inc. v. Estrin, 538 F.3d 402, 419–20 (6th Cir.2008). Whether the district court should have granted Chicago Title's motion depends on whether “ ‘further discovery would [ ] have changed the legal and factual deficiencies' ” in Chicago Title's case. Id. at 420 (citation omitted).

Chicago Title asserts that it might have prevailed on a number of defenses if given time to take discovery on them. First, Chicago Title argues that the policy is unenforceable because its issuing agent, Direct Title, lacked both actual and apparent authority to issue the policy on Chicago Title's behalf. See generally Meyer v. Klensch, 114 Ohio App. 4, 175 N.E.2d 870, 871 (1961). There is no dispute that Direct Title lacked actual authority to issue the policy, because a Direct Title “member” had an interest in the Plantation property and because Direct Title issued the policy as part of a fraudulent conspiracy. Chicago Title says that Direct Title also lacked apparent authority because Chicago Title did not “h[old] [ ] out” Direct Title “to possess” the authority to issue the policy. Randall v. Alan L. Rankin Ins., Inc., 38 Ohio App.3d 87, 526 N.E.2d 97, 100 (1987). So Chicago Title says that it was entitled to discovery on that issue.

Chicago Title's apparent-authority theory is meritless. An agent has apparent authority to bind a principal if the principal has “ ‘by [its] voluntary act placed [the] agent in such a situation that a person of ordinary prudence ... is justified in assuming that such agent is authorized to perform on behalf of his principal’ ” the act in question. Master Consol. Corp. v. BancOhio Nat'l Bank, 61 Ohio St.3d 570, 575 N.E.2d 817, 822 (1991) (citation omitted). Chicago Title surely did that here: It entered an issuing-agent agreement with Direct Title that authorized Direct Title to issue title-insurance policies on Chicago Title's behalf. That was sufficient to make Fifth Third's belief in Direct Title's authority reasonable and thus to bind Chicago Title by the policy Direct Title issued. Cf. Milnes v. Anson B. Smith & Co., No. 5310, 1980 WL 354165, at *2 (Ohio Ct.App. July 31, 1980).

Chicago Title responds that it might discover evidence that Fifth Third knew about Direct Title's fraudulent scheme. But that theory is so improbable—why, after all, would Fifth Third lend money if it knew it would never get the money back—that Chicago Title specifically alleged in its pleadings below that Fifth Third was unaware of the scheme. The district court did not need to permit discovery regarding such a baseless argument. See generally Blough v. Holland Realty, Inc., 574 F.3d 1084, 1091 (9th Cir.2009) (no obligation to grant discovery for information where there is “no plausible basis to believe that the information sought exists”); Serdarevic v. Advanced Med. Optics, Inc., 532 F.3d 1352, 1364 (Fed.Cir.2008).

Chicago Title next argues that Fifth Third's losses were Fifth Third's own fault. Specifically, the policy only provides coverage for losses that arise “by reason of” a title defect or encumbrance. Chicago Title reads this requirement to mean that the defect or encumbrance must be the sole proximate cause of the loss. And had Fifth Third reviewed Buford's loan application more thoroughly, Chicago Title says, Fifth Third would have rejected it and avoided the loss that resulted when another creditor foreclosed on the property and asserted a superior interest. Thus, Chicago Title says that Fifth Third's allegedly shoddy underwriting of Buford's loan was the proximate cause of Fifth Third's loss.

The problem with this argument is that the insurance policy says nothing about Fifth Third's underwriting obligations. Chicago Title insured against a risk that Buford's title in the Plantation property would be defective. That risk materialized, and Fifth Third's inability to foreclose on the property caused Fifth Third a loss. By the policy's plain terms, that means that Chicago Title was required to pay benefits to Fifth Third. Nothing in the policy makes that obligation conditional upon the quality of Fifth Third's underwriting with respect to the Buford loan. Chicago Title insured against a risk of title defects, not a risk of default. Its argument has no support whatever under the policy's terms.

Chicago Title reads the policy differently. The policy excludes from coverage:

[L]oss or damage, costs, attorneys' fees, or expenses that arise by reason of ... [d]efects, liens, encumbrances, adverse claims, or other matters (a) created, suffered, assumed, or agreed to by the Insured Claimant; [or] (b) not Known to the Company, not recorded in the Public Records at Date of Policy, but Known to the Insured Claimant and not disclosed in writing to the company by the Insured Claimant prior to the date the Insured Claimant became an insured under this policy[.]

Chicago Title says that Fifth Third's alleged underwriting failure is an “other matter” that Fifth Third “created,” and that Fifth Third therefore cannot recover for the resulting loss. But Chicago Title reads “other matters” too broadly. “[O]ther matters” is a “general” phrase that follows “specific terms”—“defects, liens, encumbrances, [and] adverse claims[.]” Albrecht v. Marinas Int'l Consol., L.P., No. 25246, 2010 WL 4866289, at *3 (Ohio Ct.App. Nov. 24, 2010) (citation omitted). Under the interpretive canon of ejusdem generis—and as written English is commonly understood as well—the exclusion therefore forecloses coverage if Fifth Third created a title defect, encumbrance, adverse claim, or something similar. See generally id. Fifth Third's alleged underwriting failure is not similar to a title defect or encumbrance.

Fourth, Chicago Title argues that discovery concerning Fifth Third's underwriting standards might show that Fifth Third violated the covenant of good faith and fair dealing. Where an insurance policy “is silent ... with respect to a particular matter,” Chicago Title notes, “the parties ... are required to use good faith to fill...