Kahama Vi, LLC v. HJH, LLC

• Decision Date: 06 December 2016
• Docket Number: Case No: 8:11-cv-2029-T-30TBM
• Parties: KAHAMA VI, LLC, Plaintiff, v. HJH, LLC, et al. Defendants.
• Court: U.S. District Court — Middle District of Florida

KAHAMA VI, LLC, Plaintiff, v. HJH, LLC, et al. Defendants.

Case No: 8:11-cv-2029-T-30TBM

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA TAMPA DIVISION

December 6, 2016

ORDER

This lawsuit involves a title insurance policy covering a parcel of foreclosed beachfront property in New Smyrna Beach, Volusia County, Florida. It began in 2011 when Plaintiff Kahama sought to recover unpaid proceeds from a note secured by the property. (Dkt. 1). But in 2013 Kahama's state-court foreclosure action on the property stalled, in part because the county asserted an ownership interest in the property. That claim led to another state-court case, a quite-title action, and this case expanded to include Old Republic National Title Insurance Company as Defendant and claims against it for fraudulent misrepresentation and breach of contract. (Dkt. 150).

After years of litigation and several motions to dismiss and motions for summary judgment, the case again winnowed. Now only two claims remain, both against Old Republic, both under Count XII of the third-amended complaint for breach of contract. (Dkt. 150). In the first, Kahama alleges that Old Republic breached the title-insurance policy by failing to conduct a reasonable title search. More specifically, this claim alleges that Old Republic breached by failing to identify the ownership interest—on the east, beach-side 150 feet of the property—that the county asserted in the underlying quiet-title action. In the second claim, Kahama alleges that Old Republic breached the insurance policy for failing to diligently prosecute that action.

As that action progressed in state court, the parties moved for summary judgment in this Court on all claims in Count XII. (Dkts. 454, 459). The Court denied Kahama's motion and granted summary judgment in favor of Old Republic on all claims but the two that remain. A ruling on these two claims, the Court concluded, would require a resolution of the then-unresolved quiet-title action, which was then on appeal to Florida's Fifth District Court of Appeal. (Dkt. 486, pp. 16, 19). The Court abated this case pending that appeal. (Dkt. 490).

By June 2016, Kahama had foreclosed on the property, the Fifth District had issued its appellate opinion, and an amended final judgment incorporating the Fifth District's opinion had been entered in the quiet-title action. This case was re-opened, and Old Republic renewed its motion for summary judgment on what remained of Count XII.

That motion (Dkt. 546) and Kahama's response (Dkt. 570) are now before the Court. The Court has carefully considered these filings, the record, the law, and the points raised by counsel at oral argument. As explained in more detail below, the Court concludes that the appeal in the quiet-title action fully restored the property's title—which includes Kahama's interest as lien-holder—to precisely what was described in the property deed and in the title-insurance policy issued by Old Republic. In other words, Old Republic, representing Kahama's interests, prevailed in the quiet-title action. As a matter of law,Kahama cannot establish that Old Republic did not prosecute the action diligently. Similarly, having prevailed, Kahama cannot establish a loss compensable under the policy. Any loss Kahama may suffer will have resulted from land-use regulatory changes, not title defects. Old Republic's motion for summary judgment will be granted.

Background

The Court provided a factual background of this case in its previous summary judgment order. See Kahama VI, LLC v. HJH, LLC, et al., No. 8:11-cv-2029-T-30TBM (M.D. Fla. Dec. 29, 2014) (CM-ECF Dkt. 486); see also id. (CM-ECF Dkt. 135). Some of those facts, and some additional facts, are worth recounting here.

In 2010, Kahama acquired the mortgage, notes, and guarantees to beachfront property in Volusia County, Florida, from a predecessor mortgagee. The property at issue—which had an eastern boundary at the mean high-water line of the Atlantic Ocean and extended west approximately 300 feet—had initially been purchased in 2004 by real-estate developer HJH, LLC for the purpose of constructing residential units. Based on local land-use regulations then in effect, specifically those governing property density calculations, HJH envisaged the construction of a multi-floor and multi-unit residential space. As part of HJH's purchase, Old Republic provided an owner's and lender's title-insurance policy on the property, a policy Kahama later acquired.

The policy stated that the insured property, recorded in Volusia County, was owned in fee simple, and the policy insured against "loss or damage" by reason of the following:

1. Title to the interest being vested in some person or entity other than the insured;

2. Any defect in or lien or encumbrance on the title; 3. Unmarketability of the title;

4. Lack of a right of access to and from the land; and

5. The invalidity or priority of the mortgage lien.

(Lender's Policy, Dkt. 546-1, p. 2). If any party were to assert a title claim adverse to the insured, the policy required Old Republic to defend the claim "without unreasonable delay." And if Old Republic initiated an action to establish title, it would be required to do so "diligently." (Id. at 3).

The policy also contained exclusions that are now relevant. Specifically, the policy did not insure losses caused by the following:

Any law, ordinance or governmental regulation (including but not limited to building and zoning laws, ordinances, or regulations) restricting, regulating, prohibiting or relating to [] the occupancy, use, or enjoyment of the land.

. . . .

Defects, liens, encumbrances, adverse claims or other matters:

(a) created, suffered, assumed or agreed to by the insured claimant;

(b) not known to [Old Republic], not recorded in the public records at Date of Policy, but known to the insured claimant. . . ; [or]

(c) resulting in no loss or damage to the insured claimant.

(Id.).

In 2004, around the time HJH purchased the property, HJH held a permit from the city to build an eight-story, 14-unit condominium. But by 2008, construction had not yet begun, and the project was further stymied by two events. The first was a 2007 amendment to the city's land-use regulations—specifically, a change to the way beachfront property must be measured when calculating the number of residential units into which a propertymay be subdivided, a calculation known as "unit yield" or "property density." Before that amendment, beachfront property could be measured for unit yield to the water line, and that measurement yielded HJH the 14 units submitted in its 2004 permit. After the amendment, property was required to be measured from certain setback lines, and HJH's property, with this new measurement, yielded only 10 units. HJH's proposed residential project no longer complied with the law.

The second event was the city's claim, in 2008, that the county, not HJH, held title to the east 150 feet of the property for the benefit of the public as a beach. The county's title, the city claimed, could be traced to a recorded 1917 plat that purported to create property lines consistent with an 1889 beach dedication.¹ For these reasons, the city denied HJH's construction permits.

HJH notified Old Republic of the adverse title claim and requested that the insurer defend HJH against the claim as provided for in the policy. Old Republic agreed and filed a quiet-title action against the city and the county. Kahama later acquired the mortgage and, with it, protection under the policy as a successor lender. Old Republic, in other words, was from that point litigating to establish title on not only HJH's behalf, but on Kahama's as well.

The trial court's conclusions were mixed: it held that HJH (and, by extension, Kahama as lienholder) owned the property in question—all 100-by-300 feet of it, from themean high-water line on the east to 300 feet inland on the west—in fee simple, but also that a dedicated public beach, per the 1917 plat, extended 150 feet westward of the water line, past the sand dunes that provide a natural boundary for the beach, and halfway into HJH's property.

The Fifth District Court of Appeal reversed this latter holding. See HJH, L.L.C. v. Volusia Cnty., 170 So. 3d 100, 101 (Fla. 5th DCA 2015). It concluded that the trial court misread earlier precedent interpreting the beach dedication contained in the 1917 plat. That dedicated beach, the court concluded, extended from the ocean but only to the eastern foot of the sand dunes, roughly half the size of what the trial court had concluded.

The Fifth District made two more findings that, while not central to its holding on the size of the dedication, are relevant to the motion now before this Court. The first concerned HJH's ownership interest. The Court found that Florida's Marketable Record Title to Real Property Act, Fla. Stat. §§ 712.01-712.11, conferred fee simple ownership to HJH, regardless of any earlier plats, because HJH was able to trace its title to a transaction recorded more than 30 years earlier and purporting to convey a fee simple estate.² In short,the Court found that, by operation of this law, HJH retained the exact ownership interest it had acquired when it purchased the property.

The second finding involved the public's access to and use of the beach. Relying on Florida appellate-court precedent, the Court found that the public in this part of Florida, by virtue of its perennial and uninterrupted access to and use of the sandy portion of the beach, had acquired a customary right to that access and use, a right with which neither HJH nor any subsequent owner could interfere. See id. at 101-02 (citing Trepanier v. Cnty. of Volusia, 965 So. 2d 276, 286 (Fla. 5th DCA 2007)). Importantly, the Court found, as it previously had, that formal dedications, like those in the 1889 and 1917 plats the county relied upon, did not create the customary right—they merely reinforced it. See id. at 103 ("The trial court...