Johnson v. U.S. Title Agency, Inc.

Decision Date18 May 2017
Docket NumberNo. 103665,103665
Citation91 N.E.3d 76,2017 Ohio 2852
Parties Richard G. JOHNSON, Esq., Plaintiff–Appellant v. U.S. TITLE AGENCY, INC., et al., Defendants–Appellees
CourtOhio Court of Appeals

91 N.E.3d 76
2017 Ohio 2852

Richard G. JOHNSON, Esq., Plaintiff–Appellant
v.
U.S. TITLE AGENCY, INC., et al., Defendants–Appellees

No. 103665

Court of Appeals of Ohio, Eighth District, Cuyahoga County.

RELEASED AND JOURNALIZED: May 18, 2017


Robert D. Kehoe, Lauren N. Orrico, Tatyana Pishnyak, Kehoe & Associates L.L.C., 900 Baker Building, 1940 East Sixth Street, Cleveland, Ohio 44114, ATTORNEYS FOR APPELLANT

Debra J. Horn, Meyers, Roman, Friedberg & Lewis, 28601 Chagrin Boulevard, Suite 500, Beachwood, Ohio 44122, for U.S. Title Agency, Inc.

Alexander E. Goetsch, Sikora Law L.L.C., 8532 Mentor Avenue, Mentor, Ohio 44060, for Chicago Title Insurance Company

BEFORE: Laster Mays, J., Keough, A.J., and Boyle, J.

JOURNAL ENTRY AND OPINION

ANITA LASTER MAYS, J.:

{¶ 1} Plaintiff-appellant Richard G. Johnson, Esq. ("Johnson") appeals the trial court's grant of summary judgment on behalf of defendants-appellees, U.S. Title Agency, Inc. ("US Title") and Chicago Title Insurance Company ("Chicago Title") on several grounds, arising from the closing of a home renovation construction loan. After a thorough review of the record, the matter is reversed and remanded.

I. BACKGROUND AND FACTS

{¶ 2} In 2008, Johnson hired Berns Custom Homes ("Berns") as the general contractor ("Contractor") to renovate his recently purchased home in Bentleyville, Ohio ("Property"). Johnson obtained a $815,581 construction loan (the "Loan") from KeyBank National Association ("KeyBank") to satisfy the existing mortgage and finance the renovations.

{¶ 3} Johnson, an attorney specializing in legal malpractice issues, retained counsel Mark Wachter ("Wachter") to assist him with negotiating the Loan. A key factor in the negotiations was to ensure that

91 N.E.3d 79

the project proceeded to completion and that contractual and insurance protections were sufficient to accomplish this goal.

{¶ 4} At Wachter's recommendation, the parties agreed that US Title would serve as the closing agent, escrow agent, and title agent for Chicago Title who would issue the title policies. KeyBank provided written closing instructions to US Title for the transaction, entitled "Construction-to-Permanent Closing Instructions" ("Closing Instructions"). Wachter allegedly issued verbal closing instructions to US Title ("Johnson Closing Instructions"), asking for the same protections against mechanics liens that KeyBank received, and for compliance with KeyBank's Closing Instructions.

{¶ 5} Closing took place at the offices of US Title, who was charged with, among other responsibilities, adhering to the Closing Instructions or absorbing liability for their failure to do so. Documents executed at the closing included the construction loan agreement and rider dated May 27, 2010 (collectively "Loan Agreement"), and the mortgage agreement that included a construction rider ("Mortgage"). The Mortgage, executed by Johnson and KeyBank, and recorded by US Title, included a construction rider, and a provision that no lien whatsoever could take priority over the Mortgage.

{¶ 6} Following the printed provisions, the Loan Agreement contains a signature block signed by Johnson and the date May 27, 2010. The next page contains a contractor's consent clause (the "Consent Clause") with a signature block for Berns and the date of May 27, 2010 inserted, followed by a signature page executed by a KeyBank director, on behalf of KeyBank.

{¶ 7} The Consent Clause provides that the Contractor "hereby subordinates its lien on the Property, now existing or hereafter arising, to the lien of the Security Documents." The sum of $477,723.00 is also set forth, representing the amount of the construction contract between Johnson and Berns. The signature portion below the subordinate clause contained typewritten language:

May 27, 2010

CONTRACTOR

Berns Custom Homes, Inc.

By: ________________________

Name: Justin Berns

Authorized Signatory

{¶ 8} US Title concedes in its appellate brief that, "when signed," the Consent Clause, "provides for the Contractor to contractually subordinate his rights to any liens the Contractor may file on the property, now or in the future, in favor of the Mortgage such that the Mortgage would still remain in first position." Though the May 27, 2010 date is inserted below the clause, and the name of the authorized signatory for Berns is typed underneath the signature line, US Title states that it did not have Berns sign because Berns was not a party to the Loan, and it was not required by the Closing Instructions.

{¶ 9} On June 14, 2010, US Title provided Johnson with a copy of the HUD–1 settlement statement setting forth the charges and allocations for the transaction. The HUD–1 reflects Johnson's payment for Closing Protection Coverage ("CP Coverage"). On July 15, 2010, US Title provided Johnson's counsel with a copy of the owner's policy of title insurance ("Owner's Policy") issued by Chicago Title for the Loan and Mortgage. Also on that date, US Title states it provided KeyBank with a copy of the lender's policy of title insurance ("Lender's Policy") issued by Chicago Title.

91 N.E.3d 80

{¶ 10} As required by Ohio law,1 Johnson was offered CP Coverage via a closing protection letter form ("CP Letter") from US Title that Johnson signed indicating acceptance. According to the language of the CP Letter, the CP Coverage indemnified Johnson for any loss resulting from listed conditions, including the closing agent's "[f]ailure to comply with any applicable written closing instructions, when agreed to by the Licensed Agent [US Title]." No exclusions are listed in the CP Letter. The parties agree that Johnson paid for and was entitled to the CP Coverage, but did not receive a copy of the CP Coverage.

{¶ 11} During September 2010 to October 2010, a dispute arose between Berns and Johnson. Johnson terminated Berns. Berns and four subcontractors filed mechanic's liens for $297,191. The matter proceeded to mandatory mediation and, later, to arbitration.2

{¶ 12} US Title notified KeyBank of the liens on December 29, 2010. KeyBank dishonored Johnson's draw request as a result. Subsequently, Johnson discovered that: (1) the Lender's Policy had not been issued to KeyBank until after KeyBank was provided with notice of the liens, an assertion disputed by US Title, (2) the CP Coverage policy that Johnson purchased had not been provided to Johnson, (3) the Consent Clause containing the Contractor's consent to subrogation to the Mortgage of all liens had not been executed by the Contractor; (4) neither the Owner's Policy nor the Lender's Policy contained a future advance endorsement or exclusion protecting against priority of mechanics liens, and (5) the use of an open end form of mortgage instead of the Mortgage used in this transaction would have assured priority for future advances.

{¶ 13} On several dates between December 31, 2010 and January 17, 2011, Johnson and his counsel corresponded with US Title and Chicago Title requesting removal of the liens pursuant to the CP Coverage and the title insurance under the Owner's Policy, and asserting Johnson's third-party beneficiary status under KeyBank's Lender's Policy. Johnson also requested that the Owner's Policy be corrected to remove the lien exceptions, and that appellees satisfy the mechanics liens claim. Johnson asserted that appellees' failure to comply with the Closing Instructions caused the current issues. Appellees did not respond to the claim requests. The liens remained and KeyBank refused to release further draws.

{¶ 14} Johnson filed suit against US Title and Chicago Title. The complaint asserts six counts:

I. US Title—breach of contract against US Title including the failure to insure for mortgage priority, violating the Closing Instructions, failing to have the contractor sign the Construction Loan, refusal to honor the title policies.

II. Chicago Title—breach of contract against Chicago Title including the failure of Chicago Title's agent, US Title, to properly handle the closing; and denial of claims under the owner's policy, closing protection coverage, and as a third-
91 N.E.3d 81
party beneficiary of KeyBank's Lender's Policy.

III. Chicago Title and US Title—specific performance and injunctive relief requiring that appellees extinguish the liens, provide for subordination of the liens or issue title insurance insuring over any after-filed liens.

IV. US Title—alleging US Title was negligent in performing professional services by failing to issue the proper title insurance policies, filing closing documents without properly examining them for compliance with the requirement that the Mortgage must maintain priority over subsequent liens.

V. US Title—breach of fiduciary duty to Johnson, including the failure to correctly conduct the closing to effect the intention of the parties that the Mortgage maintain priority at all time, and to record and/or issue the proper documents.

VI. Chicago Title and US Title—breach of duty of good faith and fair dealing by failing to remedy the problems caused by the breaches set forth in Counts I through V.

{¶ 15} Private mediation between the parties was unsuccessful. The court ordered plaintiff's...

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3 cases
  • Johnson v. U.S. Title Agency
    • United States
    • Ohio Court of Appeals
    • August 13, 2020
    ...V. Johnson filed his third appeal, arguing that the trial court erred in granting summary judgment to appellees. Johnson v. U.S. Title Agency, Inc., 2017-Ohio-2852, 91 N.E.3d 76, ¶ 1 (8th Dist.). This court found that there were genuine issues of material fact on all counts and, in May 2017......
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    ...Id ., citing Huff v. FirstEnergy Corp. , 130 Ohio St.3d 196, 2011-Ohio-5083, 957 N.E.2d 3, ¶ 12, citing Johnson v. U.S. Title Agency, Inc. , 2017-Ohio-2852, 91 N.E.3d 76, ¶ 59 (8th Dist.).{¶44} Although the Revocable Trust, out of necessity, has consumed the lion's share of our discussion t......
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    ...contract; (2) performance by the plaintiff; (3) a breach by the defendant; (4) damages; and (5) consideration. Johnson v. U.S. Title Agency, Inc., 2017-Ohio-2852, 91 N.E.3d 76, 94 (internal citation omitted). Plaintiff claims that Defendants breached the contract by failing "to pay the requ......

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