Lawyers Title Ins. Corp. v. CAE-Link Corp., Civ. A. No. MJG-92-3249.

• Decision Date: 18 February 1994
• Docket Number: Civ. A. No. MJG-92-3249.
• Citation: 878 F. Supp. 767
• Parties: LAWYERS TITLE INSURANCE CORP., Plaintiff, v. CAE-LINK CORPORATION, Defendant.
• Court: U.S. District Court — District of Maryland

878 F. Supp. 767

LAWYERS TITLE INSURANCE CORP., Plaintiff, v. CAE-LINK CORPORATION, Defendant.

Civ. A. No. MJG-92-3249.

United States District Court, D. Maryland, Northern Division.

February 18, 1994.

Griffin Vann Canada, Jr., Rockville, MD, for plaintiff.

David H. Bamberger, Washington, DC, for defendant.

MEMORANDUM OF DECISION

GARBIS, District Judge.

The Court has before it Counter-Plaintiff CAE-Link's Motion for Partial Summary Judgment and Lawyers Title Insurance Corporation's Cross Motion for Summary Judgment. The Court has held a hearing on this matter and has had the benefit of the arguments of counsel and supplemental briefs.

I. SUMMARY JUDGMENT STANDARD

Rule 56 of the Federal Rules of Civil Procedure provides that a motion for summary judgment shall be granted only if the pleadings and supporting documents "show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In this case, neither party suggests the existence of a genuine issue of material fact. Hence, summary judgment is appropriate "to prevent `factually unsupported claims and defenses' from proceeding to trial." Felty v. Graves-Humphreys Co., 818 F.2d 1126, 1128 (4th Cir.1987) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986)).

II. FACTUAL BACKGROUND

This controversy involves land located in the Montgomery Industrial Park subdivision ("the Subdivision") in Montgomery County, Maryland. Through a "Declaration of Covenants and Restrictions" dated October 10, 1956, certain covenants, conditions, and restrictions were placed on the Subdivision. Among these were covenants prohibiting the dumping or storage of waste material and refuse (¶ 6); the discharge of untreated sewage or industrial waste (¶ 8(d)); and, the emission of objectionable odors outside the lot lines (¶ 8(f)).

On July 8, 1980, the Washington Suburban Sanitary Commission ("WSSC") acquired title to a parcel of land in the Subdivision, which is referred to herein as "Site II." At this time, the Singer Company¹ ("Singer") leased a separate parcel in the Subdivision ("the Property") from a third party and operated a facility on it.

Shortly after its July 1980 acquisition of Site II, WSSC erected and operated a sewage treatment facility on the parcel. In November of 1980, WSSC brought a declaratory judgment action in Montgomery County Circuit Court, styled Washington Suburban Sanitary Comm'n v. Frankel, Law No. 56245, which sought a declaration that WSSC would have no liability for constructing and operating its facility on Site II.

In March of 1981, Singer acquired ownership of the Property by deed from the lessor third party. On March 16, 1981, Lawyers Title Insurance Corp. ("LTIC") issued a policy of title insurance (the "Policy") in the amount of $10,300,000 for the Property, identifying Singer as the named insured and providing, inter alia, that "this policy insures that the Restrictive Covenants are enforceable by the insured." (Policy Sched. B, ¶ 5, Compl. ex. 2.) Specifically, under the Policy, LTIC offered protection to Singer and

those who succeed to the interest of Singer by operation of law as distinguished from purchase including, but not limited to, heirs, distributees, devisees, survivors, personal representatives, next of kin, or corporate or fiduciary successors.

(Policy ¶ 1(a), Compl. ex. 2.)

Another provision in the Policy further addressed the consequences of a change in the holder of title to the Property:

The Coverage of this policy shall continue in force as of Date of Policy in favor of an insured so long as such insured retains an estate or interest in the land, or holds an indebtedness secured by a purchase money mortgage given by a purchaser from such insured, or so long as such insured shall have liability by reason of covenants of warranty made by such insured in any transfer or conveyance of such estate or interest; provided, however, this policy shall not continue in force in favor of any purchaser from such insured of either said estate or interest or the indebtedness secured by a purchase money mortgage given to such insured.

(Policy ¶ 2, Compl. ex. 2.)

After Singer purchased the Property, it intervened in the Washington Suburban Sanitary Comm'n v. Frankel declaratory judgment action.

In 1984, the Court of Special Appeals of Maryland held in the declaratory judgment action that restrictive covenants are compensable property interests under the Takings Clause of the Fifth Amendment. Washington Suburban Sanitary Comm'n v. Frankel, 57 Md.App. 419, 470 A.2d 813 (1984), vacated on other grounds, 302 Md. 301, 487 A.2d 651 (1985). This ruling effectively denied WSSC's claim for declaratory relief. Singer and other property owners within the subdivision then pursued counterclaims under both an inverse condemnation theory and a nuisance theory. As noted below, the litigation continued through all times relevant to the instant case.²

In 1987, Singer was the subject of a corporate takeover and began a process of reorganization. The following is a summary of the events in the reorganization which are pertinent to the issues presented herein.

1. Singer, since 1981, was the owner of the Property.

2. On December 22, 1987, Link Tactical Military Simulation Corporation ("Link Corp.") was incorporated as a wholly-owned subsidiary of Singer.

3. Prior to April 25, 1988, Singer owned the Property and Link Corp. owned 589,933 shares of Singer stock.

4. On April 25, 1988, Link Corp. transferred the 589,933 shares of Singer stock to Singer and Singer transferred the Property³ to Link Corp. by special warranty deed.

5. Sometime after April 25, 1988, Singer sold all of the stock in Link Corp. to CAE Industries Limited of Canada ("CAE") and CAE merged Link Corp. with its newly incorporated wholly-owned subsidiary, CAE-Link Corporation ("CAE-Link").

6. Since then, the Property has been owned by CAE-Link.

In 1992, the Maryland Court of Special Appeals issued another decision in the WSSC litigation. That court held that CAE-Link lacked standing to sue WSSC on an inverse condemnation claim because Singer did not own the Property at the time WSSC acquired Site II. CAE-Link Corp. v. Washington Suburban Sanitary Comm'n, 90 Md. App. 604, 602 A.2d 239, 249 (1992). With respect to CAE-Link's nuisance claim against WSSC, the intermediate appellate court remanded the case for a new trial. Id. 602 A.2d at 246. The Maryland Court of Appeals, in a decision filed April 8, 1993, affirmed the Court of Special Appeals's remand of the nuisance claim. Washington Suburban Sanitary Comm'n v. CAE-Link Corp., 330 Md. 115, 622 A.2d 745 (1993). The Court of Appeals, however, denied CAE-Link's petition for a writ of certiorari as to questions related to the inverse condemnation claim.

After the Court of Appeals denied certiorari as to the inverse condemnation claim, counsel for CAE-Link filed a demand on LTIC for: (i) the diminution in the value of the Property as a result of the condemnation by WSSC of the Restrictive Covenants; (ii) interest on that amount; and (iii) attorneys' fees incurred in Washington Suburban Sanitary Comm'n v. Frankel and related litigation. LTIC refused to indemnify CAE-Link for these losses.

III. DISCUSSION

The question presented is whether or not the title insurance policy on the Property which Singer purchased on March 16, 1981, insures CAE-Link. Paragraph 1(a) of the Policy provides that "insureds" include only Singer and those who succeeded Singer's interest "by operation of law as distinguished from purchase." It is the position of LTIC that the policy lapsed on April 25, 1988, when ownership to the Property was transferred from Singer to Link Corp. in exchange for stock in Singer.⁴ Of course, CAE-Link takes the opposite view.

While there is no precedent directly on point, two decisions cited by the parties provide some guidance to the meaning of the term "by operation of law" in the present context. Both involve title insurance contract provisions substantially identical to the one at issue here.

In Pioneer Nat'l Title Ins. Co. v. Child, Inc., 401 A.2d 68, 71 (Del.1979),⁵ the duPonts owned the subject property and wished to donate it to charity to obtain a tax deduction. On July 6, 1972, the duPonts transferred the property to the 1066 Foundation⁶ ("1066") and title insurance was issued by Pioneer to 1066. Unfortunately, it proved impossible to qualify 1066 as a tax-exempt corporation. Therefore, on December 29, 1972, the Property was conveyed from 1066 back to the duPonts. Then, prior to the end of 1972, the duPonts transferred the property to Child, Inc.⁷ In 1975, Child, Inc. contracted to sell the property and sustained a loss because of a title defect. Child, Inc. sought to recover this loss from Pioneer under the policy issued to 1066.

The Delaware court held that Child, Inc. was not an insured under the policy because it had not obtained title to the policy "by operation of law." The Supreme Court of Delaware stated that

"operation of law" is a generic term or phrase commonly used to express the manner in which rights (and/or liabilities) attach to a person by the "mere application to the particular transaction of the established rules of law, without the act or cooperation" of that person. Black's Law Dictionary (4 ed).

* * * * * *

In "practical working and effect," the term indicates the manner in which a person acquires rights without any act of his own. Merdzinski v. Modderman, Mich.Sup.Ct., 263 Mich. 173, 248 N.W. 586 (1933). And the "operation" or impact of the law upon the particular transaction, without more, is to be contrasted with events caused by the voluntary action of the parties. In the latter case, the result is not caused by operation of law.

Id. at 70-71 (footnote omitted).

The Delaware Supreme Court concluded that all of the transactions which effected the transfer of title from...