MGIC Indem. Corp. v. Moore

• Decision Date: 27 December 1991
• Docket Number: Nos. 89-55709,90-56012,s. 89-55709
• Citation: 951 F.2d 361
• Parties: NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel. MGIC INDEMNITY CORPORATION, Plaintiff-Appellant, v. Curtis Donald MOORE, Defendant, and Gerald Thompson; Pennington Appraisal Services; Capital Accumulation Systems; John D. Butterfield; Larry D. Mikelson; Karen L. Simpson; Walter Arrington, Defendants-Appellees, and John R. Pennington; Cas Financial Services Inc., Defendants-Third-party-Plaintiffs-Appellees, and Sko-Fed Mortgage Corporation, Third-party-Defendant-Appellee. MGIC INDEMNITY CORPORATION, Plaintiff-Appellant, v. Curtis Donald Moore; Cas Financial Services, Inc.; John D. Butterfield; Larry D. Mikelson; Capital Accumulation Systems; Karen L. Simpson, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 361

951 F.2d 361

NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.

MGIC INDEMNITY CORPORATION, Plaintiff-Appellant, v. Curtis Donald MOORE, Defendant, and Gerald Thompson; Pennington Appraisal Services; Capital

Accumulation Systems; John D. Butterfield; Larry

D. Mikelson; Karen L. Simpson; Walter

Arrington, Defendants-Appellees,

and

John R. Pennington; Cas Financial Services Inc.,

Defendants-Third-party-Plaintiffs-Appellees,

and

Sko-Fed Mortgage Corporation, Third-party-Defendant-Appellee.

MGIC INDEMNITY CORPORATION, Plaintiff-Appellant, v. Curtis Donald Moore; Cas Financial Services, Inc.; John D.

Butterfield; Larry D. Mikelson; Capital

Accumulation Systems; Karen L. Simpson,

Defendants-Appellants.

Nos. 89-55709, 90-56012.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 7, 1991.

Decided Dec. 27, 1991.

Before SNEED, BEEZER and TROTT, Circuit Judges.

MEMORANDUM ^*

This California mortgage guaranty insurance case addresses the implications of a fraudulent insurance application on the relationship between the insured/lender, who was not the defrauding party, and the insurer. MGIC Indemnity Corporation (MGIC) appeals a judgment dismissing on the merits its action in No. 89-55709. ¹ It also appeals the district court's award of costs in No. 90-56012. We have jurisdiction. We affirm the district court's judgment and award, except that we remand to the district court the limited question whether Gerald E. Thompson has any liability to MGIC.

I

Larry D. Mikelson and John D. Butterfield were the owners and principal executives of Capital Accumulation Systems and CAS Financial Services, Inc. (collectively CAS), a business enterprise that packaged second trust deed loans secured by real estate in California. CAS obtained for Sko-Fed Mortgage Corporation a $5,000,000 second trust deed purchase commitment from First Federal Savings and Loan. Sko-Fed assigned the commitment to CAS. CAS delivered completed loan packages, including mortgage guaranty insurance from MGIC, to Sko-Fed, which then funded the loans, retained the servicing and sold the loans to First Federal.

MGIC issued an Equity Loan Insurance Master Policy to CAS on November 11, 1981. The policy and its related Users Guide set forth the procedures CAS had to follow to secure insurance for individual loans. Karen L. Simpson, who was employed by CAS, ensured that loan packages complied with MGIC's requirements.

Thompson, dba One Stop Financing, in concert with purported borrower Curtis D. Moore, presented CAS with the fraudulent loan package undergirding this case. Mikelson first met Thompson approximately one month before the Moore loan funded. Mikelson outlined general loan availability parameters and indicated CAS would pay a finder's fee for any loans Thompson submitted that were ultimately funded. About a week later Thompson submitted the fraudulent loan package. Simpson processed the loan package for CAS, including sending a verification of employment to Moore's employer and requesting certain additional documentation from Thompson. MGIC eventually committed to provide $198,700 of second trust deed insurance coverage on the loan.

Sko-Fed made a claim against MGIC under the policy as CAS's assignee following Moore's one-payment default. MGIC paid Sko-Fed $254,754.49. It is unclear whether MGIC made this payment pursuant to contractual obligation or out of a concern for preserving its business relationship with Sko-Fed. MGIC then brought this action seeking $181,105.89, its net loss after disposing of the real estate security. Whether Thompson and Moore committed fraud is not at issue.

Unless the circumstances require separate identification, we refer only to defendant CAS because no other defendants are liable if CAS is not liable.

II

MGIC seeks to hold CAS liable under Cal.Ins.Code § 357 (West 1972) (responsibility for representations). ² CAS submitted to MGIC in its whole extent information provided to CAS by Thompson. CAS thus has no responsiblity for the truth of the information, unless Thompson was CAS's agent, whose duty it was to give the information. MGIC asserts the district court erred when it specifically found that Thompson was not CAS's agent. ³

"The existence of agency is a question of fact for the trial court." Burr v. Capital Reserve Corp., 71 Cal.2d 983, 458 P.2d 185, 193, 80 Cal.Rptr. 345 (1969). The law presumes that a party acts for himself, and the party asserting an agency relationship bears the burden of proving the agency. K. King & G. Shuler Corp. v. King, 259 Cal.App.2d 383, 66 Cal.Rptr. 330, 336-37 (1968), disapproved on other grounds, Liodas v. Sahadi, 19 Cal.3d 278, 562 P.2d 316, 323, 137 Cal.Rptr. 635 (1977). A mere conflict in evidence does not justify overturning the trial court's determination. When the facts can be viewed in only one way, however, a factual question becomes a question of law. United States v. McConney, 728 F.2d 1195, 1200-01 (9th Cir.) (en banc), cert. denied, 469 U.S. 824 (1984).

In Burr, the defendant equipment manufacturer dealt with brokers who matched equipment lessees with manufacturers who sought to lease equipment. The manufacturer paid the brokers a commission for their services. The manufacturer had no prior dealings with the plaintiff lessee. The California Supreme Court held that this evidence supported the trial court's finding that there was no actual or ostensible agency, even though the brokers were entitled to commissions. Burr, 458 P.2d at 193-94.

Thompson did business as "One-Stop Loan and Mortgage." He matched lenders with mortgagors for a commission. Burr rejected the notion that receipt of a commission conclusively establishes an agency relationship. The similarities between the CAS-Thompson relationship and the one in Burr make the issue of Thompson's agency a factual question, not a question of law. Compare Burr, 458 P.2d at 193 (factual question) with Metropolitan Life Ins. Co. v. State Bd. of Educ., 32 Cal.2d 649, 652 P.2d 426, 431, 186 Cal.Rptr. 578 (1982) (legal question). We uphold the district court's finding of no agency relationship because the record does not indicate that it is clearly erroneous. United States v. Silverman, 861 F.2d 571, 576-77 (9th Cir.1988). Because Thompson was not CAS's agent, CAS has no liability to MGIC under section 357.

III

Because Thompson was not CAS's agent, his fraud cannot be attributed to CAS. Whether CAS committed fraud is primarily a factual determination subject to the clearly erroneous standard of review. See Northwest Acceptance Corp. v. Lynnwood Equip., 841 F.2d 918, 922 (9th Cir.1988). We pay special deference to a trial court's credibility findings. Anderson v. City of Bessemer City, 470 U.S. 564, 573-75 (1985). The district court found utterly no evidence of conspiracy among the various defendants, and specifically found credible Mikelson's testimony that incompetence, not fraud, explained CAS's disastrous underwriting results. We see no error that would cause us to disturb those findings.

MGIC next argues that CAS is liable for negligent misrepresentation. ⁴ The elements of negligent misrepresentation ⁵ are set forth concisely in Fox v. Pollack, 181 Cal.App.3d 954, 226 Cal.Rptr. 532, 536-37 (1986). For MGIC to succeed on this theory CAS must have made material misrepresentations to MGIC without any reasonable grounds for believing them to be true. Fox, 226 Cal.Rptr. at 537. ⁶

The district court specifically found that "CAS had reasonable grounds to believe that the loan and insurance applications contained accurate information." ER 500 at 3 (Finding of Fact 17). CAS received no negative signals while performing the verifications required by MGIC's manuals. The appraiser was ostensibly reputable, and Mikelson did not know that the subject property had a third encumbrance until after default. We uphold Finding of Fact 17 because the record does not indicate that it is clearly erroneous. Silverman, 861 F.2d at 576-77. Because CAS had reasonable grounds, MGIC's negligent misrepresentation claim fails.

IV

MGIC also argues that CAS breached its affirmative investigative duty to ensure the accuracy of the information in the insurance application. This amounts to a claim of breach of contract. The duty that MGIC would have this court impose has three potential sources: contract, law, or usage of trade.

We review facts used to interpret contracts under the clearly erroneous standard; we review principles of contract interpretation de novo. L.K. Comstock & Co. v. United Eng'rs & Constructors, 880 F.2d 219, 221 (9th Cir.1989). California construes insurance contracts in favor of coverage and resolves any reasonable doubts about the meaning of contract terms against the insurer. Crane v. State Farm Fire & Casualty Co., 5 Cal.3d 112, 485 P.2d 1129, 1130, 95 Cal.Rptr. 513 (1971). "It is not permissible to impute an unusual meaning to language used in [an insurance contract.]" Certain Underwriters at Lloyds v. Engs Motor Truck Co., 135 Cal.App.3d 831, 185 Cal.Rptr. 613, 614 (1982).

In the insuring agreement between MGIC and CAS, MGIC agreed to pay losses sustained by reason of default on insured loans. MGIC made this promise "in reliance upon the statements made in the Application submitted by the Insured." ER 339-85 at 2 (Equity Loan Insurance Master Policy). The policy does not state that CAS attests to the truth of all information submitted. MGIC offers no reference as to where in its Users Guide it imposed on CAS the duty to attest to the truth of all information submitted. Our de novo review of the contract reveals no affirmative investigative duty that CAS did not perform. ⁷

We explained supra Part II why Cal.Ins.Code § 357 does not impose liability on CAS. Most of the other statutes...