Lawyers Title Ins. v. New Freedom Mortg.
| Decision Date | 01 March 2007 |
| Docket Number | No. A06A2266.,A06A2266. |
| Citation | 645 S.E.2d 536,285 Ga. App. 22 |
| Parties | LAWYERS TITLE INSURANCE CORPORATION v. NEW FREEDOM MORTGAGE CORPORATION. |
| Court | Georgia Court of Appeals |
Kenneth L. Millwood, Jeffrey L. Mapen, Nelson, Mullins, Riley & Scarborough, Atlanta, for appellant.
Thomas M. Barton, Aaron P. Tady, Smith, Gambrell & Russell, L.L.P., Atlanta, for appellee.
A Fulton County jury found in favor of New Freedom Mortgage Corporation on its contractual indemnification claim against Lawyers Title Insurance Corporation. Lawyers Title appeals, contending that a new trial is necessary because the trial court gave erroneous jury instructions on misrepresentation and concealment, causation, and confidential relationships. Lawyers Title further contends that the trial court erroneously granted in part New Freedom's motion in limine preventing Lawyers Title from introducing certain causation evidence. Because the jury instruction on misrepresentation and concealment was legally erroneous and harmful, we conclude that Lawyers Title is entitled to a new trial.
The record reflects that New Freedom is a residential mortgage lender, while Lawyers Title is in the business of issuing title insurance policies to residential home buyers and lenders. In an effort to induce New Freedom to purchase title insurance, Lawyers Title issued to New Freedom an indemnification agreement known in the insurance industry as a "closing protection letter" ("CPL").
Under the CPL, Lawyers Title agreed to indemnify New Freedom under certain circumstances for actual losses New Freedom incurred in connection with residential real estate closings conducted by an agent authorized to issue title insurance on behalf of Lawyers Title (an "issuing agent"). Among other things, the CPL provided that Lawyers Title would reimburse New Freedom when its actual loss "arises out of" (1) the issuing agent's failure to follow New Freedom's written closing instructions relating to the collection and payment of funds due to New Freedom, or (2) the issuing agent's "[f]raud or dishonesty ... in handling [New Freedom's] funds or documents in connection with such closings."
The instant dispute over the terms of the CPL relates to a residential mortgage closing that occurred on July 14, 2000 in which New Freedom made a $216,000 loan to Shelton Goode secured by real property located in Atlanta. In connection with the closing, Lawyers Title issued a lender's title insurance policy to New Freedom. The issuing agent for the title insurance policy and closing attorney for the transaction was Michael Brochstein and his law firm, Brochstein, Bantley & Babcock. The parties agree that the CPL was in effect and binding at the time of the closing, and that Brochstein's client was New Freedom under Georgia real estate law.
The HUD-1 settlement statement transmitted to New Freedom as part of the closing reflected that the residential property had been appraised at $240,000 and that the buyer Goode was contributing $25,640.06 of his personal funds toward the purchase. However, construed in favor of the verdict, the evidence adduced at trial reflects that the sale of the property was a sham transaction involving a straw purchaser and an inflated property appraisal. In the months after the sale, no payments were made on the loan, resulting in the foreclosure and sale of the property for significantly less than the appraised value. In total, New Freedom incurred losses in the amount of $54,922.30. After the parties were unable to resolve their dispute over coverage, New Freedom commenced the present action against Lawyers Title seeking reimbursement for its losses under the CPL.
The central issue at trial was whether Brochstein participated in the mortgage fraud scam perpetrated against New Freedom, such that his conduct as an issuing agent for Lawyers Title entitled New Freedom to indemnification under the CPL. In this regard, New Freedom presented evidence that Brochstein disregarded the written closing instructions provided to him by New Freedom and acted fraudulently and dishonestly in handling New Freedom's funds and documents in connection with the closing. Accordingly, New Freedom argued that its losses were reimbursable under the CPL because they arose both out of Brochstein's failure to follow New Freedom's closing instructions and his fraud and dishonesty.
In rebuttal, Lawyers Title relied on the testimony of Brochstein, who denied that he knew about or participated in the mortgage fraud scam or that he had failed to follow the closing instructions as written. The trial court also permitted Lawyers Title to argue and present evidence that New Freedom's sole negligence caused New Freedom's loss, but ruled that Lawyers Title could not argue or introduce evidence that the loss was caused in part by the contributory negligence of New Freedom or other third parties. This was based on the trial court's ruling that, pursuant to the terms of the CPL and Georgia indemnity law, New Freedom only had to show a slight causal connection between New Freedom's loss and Brochstein's alleged fraud, dishonesty, or failure to follow the written closing instructions in order to obtain full reimbursement.
At the conclusion of the trial, the trial court charged the jury with numerous separate instructions, including instructions reflecting its rulings on the causation issue, as well as instructions pertaining to fiduciary duty and misrepresentation and concealment. Lawyers Title objected to these charges after the trial court gave them. The jury subsequently returned a verdict in favor of New Freedom.
1. Lawyers Title argues that the trial court's instruction on misrepresentation and concealment was improper. In order for a trial court's jury instruction to constitute reversible error, the party challenging the instruction must establish that the instruction was both legally erroneous and harmful. See Buford-Clairmont Co. v. RadioShack Corp., 275 Ga.App. 802, 806(4), 622 S.E.2d 14 (2005). In determining whether this burden has been met, this Court looks at the jury charge as a whole "to decide whether the law given in the disputed charge was adequately explained by other portions of the trial court's instruction." Golden Peanut Co. v. Bass, 249 Ga.App. 224, 227(1), 547 S.E.2d 637 (2001).
With these principles in mind, we turn to the trial court's charge on misrepresentation and concealment. At New Freedom's request, the trial court charged the jury:
I'm now going to charge you on misrepresentation and concealment.
Misrepresentation of a material fact, if acted on by the opposite party, constitutes legal fraud, whether misrepresentation was intentional or not.
If there is a willful misrepresentation of a material fact which was made to induce another to act and causes that person to act and the person is injured, then the person who was injured has the right of action. Mere concealment of a fact, unless it is done to deceive and mislead, will not support an action.
In all cases of deceit, knowledge of the falsehood constitutes an essential element. However, fraudulent or reckless misrepresentation of facts as true which the party may not know to be false, if intended to deceive, is equivalent to knowledge of a falsehood.
(Emphasis supplied.)
Lawyers Title contends that the trial court's instruction provided an inaccurate statement of the law under the circumstances of this case and misled and confused the jury, since the charge stated that fraud could be established without proof of fraudulent intent. We agree.
The emphasized portion of the charge is drawn from a pattern jury instruction and accurately states an abstract principle of Georgia law, given that Georgia recognizes the concept of constructive fraud. See Suggested Pattern Jury Instructions, Vol. I: § 26.040 (4th ed. 2004). See OCGA § 23-2-52; Johnson Realty v. Hand, 189 Ga.App. 706, 711(7), 377 S.E.2d 176 (1988). Constructive fraud, in contrast to actual fraud, does not require a finding of an intent to deceive. See Johnson Realty, 189 Ga.App. at 711(7), 377 S.E.2d 176; Alford v. Oliver, 169 Ga.App. 865, 866-867(2), 315 S.E.2d 299 (1984).
However, in light of the language of the CPL, the concept of constructive fraud was not applicable in this case. The CPL indemnified New Freedom against the issuing agent's "[f]raud or dishonesty," and we read this language to require a showing of an intent to deceive. See Ga. Real Estate Comm. v. James, 152 Ga.App. 193, 196, 262 S.E.2d 531 (1979) (); Hurt & Quin, Inc. v. St. Malyon, 85 Ga.App. 164, 171(2), 68 S.E.2d 213 (1951) () (citation and punctuation omitted). Indeed, New Freedom does not dispute on appeal this interpretation of the contractual language. Accordingly, we conclude that the emphasized portion of the trial court's charge—by stating that a finding of intent was not necessary to establish fraud—was not tailored to the law and evidence applicable here.
Nevertheless, New Freedom argues that considering the trial court's charge as a whole, the jury was correctly instructed. In this regard, New Freedom emphasizes that the second and third paragraphs of the trial court's misrepresentation and concealment charge were correct statements of the law applicable in this case. New Freedom also points to another portion of a separate charge on "fraud and deceit" in which the trial court properly instructed the jury that "A person commits fraud when that person makes a misrepresentation that is intended to deceive and does deceive" and that the elements of fraud include an "intent to deceive" and an "intention to induce the plaintiff to act or refrain from acting in reliance on the false ... representation." Lastly, New Freedom calls attention to the...
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