LJW Land, LLC v. Old Republic Nat'l Title Ins. Co., DOCKET NO. 3:15-CV-00190-FDW

CourtUnited States District Courts. 4th Circuit. Western District of North Carolina
Writing for the CourtFrank D. Whitney Chief United States District Judge
Decision Date12 August 2016
Docket NumberDOCKET NO. 3:15-CV-00190-FDW

LJW LAND, LLC, Plaintiff,

DOCKET NO. 3:15-CV-00190-FDW


August 12, 2016


THIS MATTER is before the Court on Defendant's Motion for Summary Judgment. (Doc. No. 11). Plaintiff filed an Opposition. (Doc. No. 14). Defendant filed a Reply. (Doc. No. 15). The Court heard oral argument from the Parties on the motion.


Plaintiff, LJW Land, LLC, ("LJW" or "Plaintiff") the insured mortgagee, brought an action against its title insurer, Defendant, Old Republic National Title Insurance Company, ("ORT") alleging breach of a duty to defend against a claim brought by the second mortgage holder, Ardley Land, LLC, ("Ardley") to Quiet Title and declare the Insured's First Mortgage extinguished. Defendant moved for Summary Judgment. Plaintiff opposes and asserts that there exists a genuine issue of material fact as to whether the Title Insurance Policy exclusion for adverse claims were created, suffered, assumed or agreed by the Insured Claimant.

This lawsuit arises from a title insurance policy coverage dispute - specifically whether ORT had a duty to defend Plaintiff against a count, titled "Quiet Title", asserted against LJW by Ardley in Mecklenburg County Civil Action Number 14-CVS-3654 (the "Ardley Lawsuit").

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The claims asserted in the Ardley Lawsuit were premised on allegations that LJW conspired to eliminate Ardley's interests in certain real property, committed unfair and deceptive trade practices, and allowed itself to be dominated by its principal to the point that LJW no longer existed as a separate corporate entity. As a remedy for LJW's actions, Ardley sought (among other relief) to have the Mecklenburg County Superior Court declare that a certain deed of trust for the benefit of LJW (and for which ORT had issued a policy of title insurance) be extinguished, canceled of record or made subordinate to the interests of Ardley in the subject property.

LJW requested that ORT provide it with a defense to the Quiet Title count and this request was denied on the grounds that the claims in the Ardley lawsuit were excluded from coverage pursuant to the terms of the title insurance policy.

The issue before this Court is whether this denial was proper. The answer is found in an application of North Carolina's rules of construction for insurance policies which provides that an insurer's duty to defend is determined through a side by side comparison of the complaint at issue to the relevant policy. Significantly, for purposes of this comparison, the allegations in the complaint at issue are taken as true. See Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield, LLC, 364 N.C. 1, 692 S.E.2d 605 (2010).

Applying the controlling law and required rules of construction to the comparison of the title insurance policy at issue in this case to the [amended] complaint in the Ardley Lawsuit, the claims against LJW in the Ardley Lawsuit are within the provisions of the title insurance policy's Exclusion 3(a), are not covered matters, and there was not a duty to defend same. As such, ORT is entitled to summary judgment in its favor as a matter of law.

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The LJW Deed of Trust and The Policy

On August 29, 2012, a deed of trust for the benefit of LJW was recorded in Book 27612, Page 695 of the Mecklenburg County Register of Deed (the "LJW Deed of Trust"). The LJW Deed of Trust secured a loan to an entity related to LJW, Reverdy Development, LLC, for the purchase (and development) of certain property from Ardley. In connection with the granting of this deed of trust to LJW, ORT issued a lender's title insurance policy number LX-09706119 (the "Policy") to LJW. (Doc. 1, Compl. ¶ 3-4 and Ex. A; Doc 3. ¶3 and Ex. A)

The Waters Related Parties

LJW was created in 2007, its stated purpose being to "engage in the purchase and selling of real estate . . ." The manager of LJW is William W. Waters ("Bill Waters"). The sole member of LJW is Waters Construction Company, Inc. ("Waters Construction"). (Doc. 12, Ex. 5: Interrog. No. 8 and Ex. 5(a))

Waters Construction, in turn, was created in 1965 by Bill Waters, who served as the chair of its board of directors, president, majority shareholder and eventually sole shareholder. In 2006, all shares of Waters Construction were transferred to William W. Waters, II ("Wes Waters"), son of Bill Waters. Wes Waters became the sole shareholder, director and president of Waters Construction. (Doc. 12, Ex.5: Interrog. No. 9 and Ex. 5(c): Waters Construction Corp. Docs.)

Reverdy Development, LLC ("Reverdy") was created in February 2010 for the purpose of engaging in "the business of real estate development and sales . . ." The sole member of Reverdy was and is Waters Construction. Wes Waters has been the manager of Reverdy since its creation. (Doc. 12, Ex. 5: Interrog. No. 7 and Ex. 5(b): Reverdy corporate docs)

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The Ardley Lawsuit

On March 3, 2014 Ardley filed the Ardley Lawsuit in Mecklenburg County, North Carolina Superior Court against Reverdy, LJW, Bill Waters and Wes Waters (the "Waters Defendants") ("the Ardley Lawsuit"). Ardley asserted various claims against the Waters Defendants arising out of alleged wrongful actions on the part of same, in connection with a real estate deal involving a residential subdivision in Mint Hill, North Carolina. The claims asserted against LJW in the Ardley Lawsuit included: "Control/Mere Instrumentality/Alter Ego"; "Conspiracy", "Unfair and Deceptive Trade Practices". (Doc. 3, Ex. B - Ardley Compl.; Doc 5, ¶ 4)

On July 1, 2014, Ardley filed a Motion to Amend the above-referenced Complaint, and on September 19, 2014, Ardley filed its Amended Complaint which included the same claims against LJW identified above, added Waters Construction as a defendant, and added an additional claim titled "Quiet Title" in which Ardley sought to have the LJW Deed of Trust declared to be extinguished and canceled of record as a remedy for the alleged actions of LJW (the "Ardley Amended Complaint"). (Hereafter, references to the "Waters Defendants" includes Waters Construction. (Doc. 3, Ex. C: Ardley Amend. Compl.; Doc. 12, Ex 4: certified copy Ardley Amend. Compl.)

The allegations which are pertinent to the subject matter of this action are as follows:

92. The allegations of paragraphs 1-91 are re-pleaded and incorporated herein by reference.

93. The LJW Land Deed of Trust represents an interest of record in the Property which, as the purported first lien on the Property, is adverse to Ardley's interest in the Property under the Ardley Deed of Trust.

94. At all times referred to herein, Reverdy (in whose name title to the Property is held), LJW Land (in whose name the LJW Deed of Trust is held) and Waters Construction (in whose name

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the membership interest in Reverdy and LJW are held) were created, controlled, dominated, operated and used as the mere instrumentalities or alter egos of Bill Waters and/or Wes Waters, and by reason thereof these corporate and company entities should be disregarded and the corporation and companies, on the one hand, and the shareholders and investors (namely Bill Waters and Wes Waters) on the other hand, should be treated as one and the same.

95. Because Reverdy, LJW Land and Waters Construction are mere instrumentalities and alter egos of Bill Waters and/or Wes Waters, the transfer of title under the Deed and the transfer of a purported first lien under the LJW Deed of Trust had the same effect as if both of those interests had been transferred to the same person(s), namely Bill Waters and/or Wes Waters; and by reason thereof the Property interests purportedly created under the LJW Deed of Trust were extinguished when they merged into fee simple title held by Bill Waters and/or Wes Waters.

96. Pursuant to N.C.G.S. §41-10, Ardley is entitled to and hereby seeks an order quieting title to the Property and declaring that the LJW Deed of Trust has been extinguished, that it be canceled of record, and that the Ardley Deed of Trust constitutes a first lien on the Property.

(the "Quiet Title Claim") (Doc. 3, Ex. C and Doc. 12, Ex. 4: Ardley Amend. Compl. ¶92-96)

The Title Insurance Claim

On July 16, 2014, LJW, through counsel, requested that ORT defend it against the Quiet Title claim it anticipated would be asserted in the Ardley Amended Complaint. On July 28, 2014, ORT responded to LJW, setting forth its determination that, pursuant to Exclusion 3(a) of the Policy, ORT did not have an obligation to provide a defense or indemnification for the claims asserted in the Ardley Lawsuit. ORT declined to defend the Quiet Title action and declined coverage on the basis of the Section 3(a) Exclusion in the policy which excludes "any defect, lien, encumbrances or adverse claim created, suffered, assumed or agreed to by the insured claimant". Following the filing of the Ardley Amended Complaint, LJW requested that ORT reconsider

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its request for a defense; ORT's position on the applicability of Exclusion 3(a) remained unchanged. (Doc. 12, Ex. 2(d), 2(e), 2(f) and 2(g))

Settlement of the Ardley Lawsuit

Ultimately, the Waters Defendants, including LJW, entered into a settlement agreement with Ardley which resolved all claims in the Ardley Lawsuit and, in addition, settled another dispute, unrelated to the Property. As part of the settlement, LJW was assigned the $250,000 Reverdy Note, Reverdy Deed of Trust and the Option Contract. LJW contends it paid $250,000 for these assignments. (Doc. 1: Compl. ¶11; Doc. 12, Ex. 5: Interrog. No. 12) Further, all of the Waters Defendants were released from the claims asserted by Ardley and all claims against them were dismissed with prejudice. (Doc. 12, Ex. 5(d))


On April 2, 2015, Plaintiff commenced this lawsuit, originally in Mecklenburg County Superior Court, asserting a claim for breach of contract. Specifically, LJW asserted...

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