Franklin v. Oklahoma City Abstract & Title Co., No. 76-2068

• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)
• Writing for the Court: Before HOLLOWAY, BARRETT and McKAY; McKAY
• Citation: 584 F.2d 964
• Parties: Carl M. FRANKLIN, William S. Hughes, Joseph R. Jones and Kenneth L. Traffetz, Trustees of Lincoln Mortgage Investors, a California Real Estate Investment Trust, Plaintiffs-Appellants, v. OKLAHOMA CITY ABSTRACT AND TITLE COMPANY, a corporation, Judd, Grayson, Cunningham & Assoc., Inc., a corporation, Successor in Interest to R. W. Thomas Surveying Company, a Corporation, Standard Title Insurance Company, a corporation, Leslie Judd, Jr., an Individual, Defendants-Appellees.
• Docket Number: No. 76-2068
• Decision Date: 11 October 1978

Page 964

584 F.2d 964 Carl M. FRANKLIN, William S. Hughes, Joseph R. Jones and
Kenneth L. Traffetz, Trustees of Lincoln Mortgage
Investors, a California Real Estate
Investment Trust, Plaintiffs-Appellants,
v.
OKLAHOMA CITY ABSTRACT AND TITLE COMPANY, a corporation,
Judd, Grayson, Cunningham & Assoc., Inc., a corporation,
Successor in Interest to R. W. Thomas Surveying Company, a
Corporation, Standard Title Insurance Company, a
corporation, Leslie Judd, Jr., an Individual, Defendants-Appellees. No. 76-2068. United States Court of Appeals,
Tenth Circuit. Argued and Submitted March 14, 1978.
Decided Oct. 11, 1978.

Page 965

Coleman Hayes, Oklahoma City, Okl., for plaintiffs-appellants.

Glen D. Huff, Oklahoma City, Okl. (with James D. Foliart, Oklahoma City, Okl., on brief) of Foliart, Mills & Niemeyer, Oklahoma City, Okl., for defendant-appellee Oklahoma City Abstract and Title Co.

Hugh A. Baysinger, Oklahoma City, Okl. (with John R. Couch and Gary W. Gardenhire, Oklahoma City, Okl., on brief) of Pierce, Couch, Hendrickson & Short, Oklahoma City, Okl., for defendants-appellees Judd, Grayson, Cunningham & Assoc., Inc. and Leslie Judd, Jr.

Barry D. Mock, Oklahoma City, Okl. (with Henry F. Featherly, Oklahoma City, Okl., on brief) of Lamun, Mock, Featherly, Baer & Timberlake, Oklahoma City, Okl., for appellee Standard Title Ins. Co.

Before HOLLOWAY, BARRETT and McKAY, Circuit Judges.

McKAY, Circuit Judge.

Plaintiffs are trustees of Lincoln Mortgage Investors (LMI), a California Real Estate Investment Trust. They brought this diversity suit against defendants Oklahoma City Abstract and Title Company (OCA), Judd, Grayson, Cunningham & Associates, a corporation, and Leslie Judd, Jr. (Surveyors), and Standard Title Insurance Company (Standard). Defendants separately moved to dismiss for failure to state a claim upon which relief can be granted. The trial court initially denied the motions, but when they were subsequently renewed the court treated them as motions for summary judgment and granted them. LMI now seeks a review of these final orders.

In early 1972, LMI agreed to make an interim construction loan of $700,000 to finance the construction of an apartment project in Oklahoma City. In return the borrower agreed to give LMI a first mortgage on the apartment complex to be constructed. Pursuant to this agreement, LMI engaged OCA to act as its closing agent. OCA was also commissioned to obtain a "loan survey" of the property and a title insurance policy guaranteeing to LMI a valid first mortgage on the construction project.

OCA employed the Surveyors to perform the "loan survey" and furnished them a legal description of the property in question. ¹ In addition, OCA procured from Standard a policy of title insurance guaranteeing the priority of LMI's mortgage.

The closing instruments were prepared and filed and construction was begun. On March 30th, however, OCA learned there was a mistake in the legal description contained in the recorded mortgage. What should have been the "Southeast Quarter (SE 1/4)" was inadvertently described as the "Southwest Quarter (SW 1/4)." This same mistake was made in the typed portion of

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the "loan survey" prepared by Surveyors. ² Although the error was promptly corrected, numerous laborers and materialmen were able to file lien claims before the revised mortgage document was recorded. When the construction company subsequently defaulted on its loan, LMI instituted mortgage foreclosure proceedings in Oklahoma state courts. A priority battle of course ensued, with the intervening lienors asserting the superiority of their liens to LMI's mortgage.

At the request of LMI, Standard assumed the defense of LMI's mortgage. Standard succeeded in barring a number of the rival claims prior to trial of the foreclosure action, but there remained lien claims totaling $110,000 whose priority would have to be litigated. Although Standard's policy of title insurance afforded ample coverage for these remaining claims, Standard concluded that LMI's mortgage could be successfully defended and decided to proceed to trial. However, LMI was anxious to settle the remaining lien claims and called upon Standard to contribute to such settlement. Standard refused to do so. When Standard insisted upon litigating the priority of the remaining lien claims, LMI settled the claims for $55,000 over Standard's objections. LMI alleges that Standard's actions amounted to a denial of coverage under the title policy. Standard contends otherwise.

Demand for reimbursement was made by LMI upon OCA, Standard, and Surveyors, but all declined to comply. This suit followed. In it LMI sought recovery against each of the defendants for the amount paid to settle the lien claims. Each of the trial court's three summary judgment orders will be reviewed separately.

Surveyors

LMI's complaint alleged that the erroneous legal description contained in its mortgage was attributable to the incorrect legal description included in the "loan survey" prepared by Surveyors. Surveyors responded by filing a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. In a supporting memorandum, Surveyors contended that the "only purpose of a 'loan survey' is to verify from visible monuments that there are no encroachments onto the property surveyed from adjoining property, or that the property surveyed has no encroachments onto any adjoining property." Record, vol. 1, at 47. Surveyors filed two affidavits reinforcing this narrow definition of "loan survey" and argued for dismissal on the ground that LMI's claims were based on an incorrect legal description, not on a defective encroachment certificate. LMI did not file any counteraffidavits. The court overruled Surveyors' motion without prejudice to its subsequent presentation at pretrial conference.

Surveyors' later pretrial motion to dismiss was sustained by a court order dated December 2, 1975. LMI then moved for a rehearing, but the court denied this motion and entered a final judgment on December 22, 1975. In its order, the court for the first time treated Surveyors' motion to dismiss as a motion for summary judgment. Relying upon information contained in Surveyors' affidavits, the court granted judgment for Surveyors as a matter of law.

LMI now complains that the transformation of the 12(b)(6) motion into one for summary judgment was accomplished in a manner that deprived LMI of an opportunity to demonstrate the existence of a genuine issue of material fact. In evaluating this complaint, we must consider the interplay of Rule 12(b) and Rule 56 of the Federal Rules of Civil Procedure.

Rule 12(b) provides that if, on a motion to dismiss for failure to state a claim,

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matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.

Rule 56(c) specifies that a motion for summary judgment "shall be served at least 10 days before the time fixed for the hearing." The rule also entitles the adverse...