Kansa Reinsurance Co., Ltd. v. Congressional Mortg. Corp. of Texas
| Decision Date | 24 May 1994 |
| Docket Number | No. 93-1109,93-1109 |
| Citation | 20 F.3d 1362 |
| Parties | KANSA REINSURANCE COMPANY, LTD., Plaintiff-Counter Defendant-Appellant, v. CONGRESSIONAL MORTGAGE CORPORATION OF TEXAS, et al., Defendants. UNITED POSTAL SAVINGS & LOAN ASSN., Defendant-Cross Plaintiff Appellant, v. STEWART TITLE COMPANY and Stewart Title Guaranty Company, Defendants-Counter-Plaintiffs-Cross-Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Elizabeth E. Mack, Raymond E. LaDriere, II, Locke, Purnell, Rain, Harrell, P.C., Dallas, TX, for United Postal Sav. & Loan Assn.
William L. Kirkman, Elizabeth F. Rogers, Bourland & Kirkman, Fort Worth, TX, for KANSA.
John Pierce Griffin, Robert Davis Hemphill, Jr., Nichols, Jackson, Kirk & Dillard, Dallas, TX, for appellees.
Appeals from the United States District Court for the Northern District of Texas.
Before POLITZ, Chief Judge, KING and GARWOOD, Circuit Judges.
Appellants Kansa Reinsurance Company, Ltd. ("Kansa") and United Postal Savings & Loan Association ("United Postal") appeal from the district court's summary adjudication of their claims against defendants Stewart Title Company and Stewart Title Guaranty Company (together referred to as "Stewart"). Finding no error, we affirm.
In early 1983, a developer known as Tectonic Realty and its affiliate, Prestonwood Green of Dallas, Inc. (together referred to as the "developer"), converted a Dallas apartment complex into the Prestonwood Green Condominiums, marketing the units to individuals for investment purposes. The developer arranged for Congressional Mortgage Corporation of Texas ("Congressional"), one of the defendants below, 1 to provide financing for the purchase price of the individual units. The terms of the agreement were that Congressional would loan up to 90% of the purchase price of the condominiums, which would be paid directly to the developer. Apparently, however, the developer and the condominium buyers collaterally agreed to an inflated or falsified purchase price and further agreed to share the loan proceeds received by the developer through an illegal kick-back to the buyers. Additionally, the developer, despite representations to the contrary, collected no cash down payments from the unit buyers. Instead, the buyers apparently gave notes for the 10% down payments required by the mortgage company. Eighty-six units were sold according to this scheme, fifteen of which are the subject of the case presented. In each case, the buyer promptly defaulted upon his or her loan from Congressional.
As part of the closing transaction, Congressional contacted Home Guaranty Insurance Company ("HGIC"), a mortgage loan insurer, in order to acquire insurance on the loans. 2 In order to procure the insurance, Congressional sent HGIC copies of its loan files on the prospective borrowers and other information relating to the purchase. HGIC did no independent investigation of the borrowers, as it claims is customary in the industry for "review writers," such as itself. Relying upon the documents sent by Congressional, HGIC issued commitments of mortgage insurance to Congressional for the purchases at issue.
The unit purchases were closed by Stewart. Many of the investors purchased multiple units which were closed in simultaneous closings. As part of its closing instructions, Congressional directed Stewart to provide, inter alia, executed HUD-1 settlement statement forms summarizing the closing transaction. Congressional did not instruct Stewart to verify the payments of earnest money deposits, which were equal to 10% of the purchase price. Nor did it require that Stewart ensure execution of the escrow agreement. Instead, Congressional provided Stewart with executed Contracts of Sale (the "contracts") and signed Federal National Mortgage Association Affidavits of Purchaser and Vendor (the "FNMA affidavits") showing that the earnest money deposits equal to ten percent of the purchase price had been paid directly to the seller. These documents also specifically recited that no secondary financing had been obtained on the properties and contained an agreement that:
If this loan exceeds 80% of the appraised value of the purchase price of the property ... no lien or charge upon such property has been given or executed or has been contracted or agreed to be so given or executed by the Property Purchaser to any person, including Property Vendor, except for (1) liens disclosed in [the financial terms portion of the affidavit], or (2) liens or charges which will be discharged from the proceeds of subject mortgage.
As noted above, Congressional had agreed to finance 90% of the purchase price, and so this provision was applicable. As part of the closing instructions, Stewart was directed to notarize the FNMA vendor/purchaser affidavits and return them to Congressional.
At closing, Stewart's escrow agent, Marilyn Baker ("Baker"), finalized the HUD-1 statements, which HGIC and United Postal claim showed that the earnest money deposits had been paid at settlement. 3 Baker followed the closing instructions given by Congressional, including notarizing the FNMA affidavits and issuing checks to HGIC for the mortgage insurance premiums, and returned the documents to Congressional for final review before disbursement of the funds, as she was directed to do. Upon receipt of the documents, Congressional then made the final distribution of funds, executed the final certificates of insurance, and, according to HGIC, submitted the executed certificates and FNMA affidavits to HGIC.
Prior to closing, the purchasers apparently executed promissory notes in favor of the developer or its subsidiary which operated as second liens. These notes represented the 10% earnest money/downpayments which had never been paid. At various times outside of the closings, Baker was presented with these second lien deeds of trust. Baker testified at her deposition that the sales representatives and borrowers who presented the documents for notarization were also involved with other condominiums in the area which she did not close. Baker notarized the documents, and they were subsequently recorded in March of 1984, several months after the closings (the "second liens").
Shortly after the closings, on December 21, 1983, United Postal purchased sixty-eight of the mortgages from Congressional and succeeded to the mortgage insurance provided by HGIC covering those loans. Subsequently, the buyers mass-defaulted on their first payments due under the mortgages, and United Postal made claims upon HGIC under the policies.
HGIC filed suit in the United States District Court for the Northern District of Texas in January of 1986 against Congressional, United Postal, and Stewart, alleging fraud, negligence, negligent misrepresentation, and breach of fiduciary duty based upon the December 1983 closings. HGIC tendered the premiums it had received and sought recission of the mortgage insurance policies issued to Congressional and assigned to United Postal. Alternatively, HGIC sought compensatory damages from Stewart to the extent HGIC was liable on the policies.
Almost five years later, on October 23, 1990, United Postal filed a cross-claim against Stewart asserting the same causes of action as had HGIC with the addition of a breach of contract claim. United Postal contended that it first learned of the second liens and corresponding lack of down payments during the May 8, 1990, deposition of Baker. United Postal also claimed that Stewart represented at closing that the purchasers had made a ten percent cash downpayment despite knowledge of the second liens and that United Postal would never have purchased the mortgages had it known about the problems.
Stewart moved to dismiss United Postal's cross-claims as time-barred and for summary judgment on HGIC's claims. By order entered March 14, 1991, the trial court dismissed United Postal's cross-claims as being barred by limitations (the "March 14 Dismissal"). On June 4, 1992, the court below entered an interlocutory summary judgment in favor of Stewart on HGIC's claims (the "June 4 Order"). In doing so, the court concluded that (i) HGIC's negligent misrepresentation claim was subject to a two-year statute of limitations which had passed prior to its commencement of this action, and (ii) its summary judgment evidence respecting its fraud claim failed to create a triable issue of fact since there was no evidence that Stewart had knowledge of the false representations or that it made any misrepresentations with an intent to deceive.
HGIC and United Postal settled their claims against one another as reflected in the January 5, 1993, agreed order, and the district court entered a final judgment on the same day. United Postal and HGIC took separate appeals from the rendition of judgment against them disposing of their claims against Stewart.
In dismissing United Postal's cross-claim, the district court determined that (i) the pleading did not "relate back" to the filing of United Postal's original answer and (ii) United Postal's claims accrued at the latest by March 15, 1984, and consequently, the applicable statutes of limitations had run before it filed its cross-claim in October of 1990. United Postal challenges each of these findings on appeal.
In reviewing the district court's dismissal of United Postal's cross-claim, we accept all factual allegations made in the pleading as true and ask whether, under the circumstances asserted, the allegations state a claim sufficient to avoid dismissal. See, e.g., United States v. Gaubert, 499 U.S. 315, 327, 111 S.Ct. 1267, 1276, 113 L.Ed.2d 335 (1991); Berkovitz v. United States, 486 U.S. 531, 540, 108 S.Ct. 1954, 1960-61, 100 L.Ed.2d 531 (1988). "[W]e may uphold ... [a Rule 12(b)(6) dism...
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