Murray v. Fid. & Deposit Co. of Md.
| Decision Date | 16 August 2013 |
| Docket Number | CASE NO.1:10CV1367 |
| Parties | NANCY MURRAY, Plaintiff, v. THE FIDELITY AND DEPOSIT COMPANY OF MARYLAND Defendant. |
| Court | U.S. District Court — Northern District of Ohio |
OPINION AND ORDER
This matter comes before the Court upon the Cross-Motions for Summary Judgment filed by Plaintiff and Defendant regarding the scope of Defendant's potential liability under a surety bond. For the following reasons, the Court GRANTS Defendant's Motion for Summary Judgment (ECF DKT # 36) and DENIES Plaintiff's Motion for Summary Judgment (ECF DKT # 37).
On October 31, 2012, the parties filed cross-motions for summary judgment on the issue of the scope or limit of Defendant's liability, if any, under a surety bond. The surety bond, No. LPM3012608 00, involves three parties: (1) the principal debtor, Sunset Mortgage ("Sunset"); (2) the corporate surety, the Fidelity and Deposit Company of Maryland ("F&D"); and (3) the obligee, the Ohio Superintendent of Financial Institutions. (ECF DKT # 36-2). The surety bond is intended to benefit a third-party buyer, in this case a Sunset customer, for any injury caused by a Sunset violation of O.R.C. § 1322.01 to 1322.12.
The surety bond became effective on May 1, 2002, with an original expiration date of April 30, 2003. The stated penal sum on the bond was $170,000. Each year, at the end of April, "continuation certificates" were signed, purporting to extend the coverage of Bond No. LPM3012608 00 for another year. This continued through the last certificate, signed on April 28, 2006, which sought to extend the coverage of Bond No. LPM3012608 00 through May 1, 2007, with a stated penal sum of $150,000. (ECF DKT # 36-3). Each continuation certificate was accompanied with a new premium payment. Id. During the period between May 2002 and May 2007, a number of "Riders" were signed increasing or decreasing the penal sum of Bond No. LPM3012608 00. See, e.g., ECF DKT # 36-5. The penal sum varied from $170,000 at the start, to a high of $420,000 in April 2006, and then down to $150,000 in February 2007 until the expiration of the bond. The reason for this variance is unclear, but Ohio law requires mortgage brokers such as Sunset to have a bond at all times that is at least $50,000 plus $10,000 for each new branch.
Because the context of the language used in the relevant documents is important, the Court must reference the entire documents, particularly the surety bond (ECF DKT # 36-2), the final continuation certificate (ECF DKT # 36-3), and the final rider (ECF DKT # 36-5). Some aspects of these documents, however, are important to highlight. While the surety bond itself is numbered LPM3012608 00, the continuation certificates change the very last digit. For example, the final certificate is numbered No. LPM3012608 03. Each continuation certificate, however, specifically references Bond No. LPM3012608 00 and states that the parties "do hereby continue said bond in force for the further term of one year." In addition, they state:
PROVIDED, however, that said bond, as continued hereby, shall be subject to all its terms and conditions, except as herein modified,and that the liability of the said Fidelity and Deposit Company of Maryland under said bond and any and all continuations thereof shall in no event exceed in the aggregate the above named penalty, and that this certificate shall not be valid unless signed by said Principal.
(ECF DKT # 36-3) (emphasis added). Similarly, each rider states that it is "[t]o be attached to and form a part of Bond No. LPM3012608 00." The riders also state that the "liability of the Surety under the attached bond and the attached bond as mended by this rider shall not be cumulative." (ECF DKT # 36-5) (emphasis added).
Plaintiff argues that the bond(s) are cumulative in nature; and because of that, Defendant is potentially liable for up to $1,424,970.43. Defendant, on the other hand, argues that the bond is continuous in nature; and that since the bond expired when the penal sum was $150,000, its potential liability is limited to that penal sum.
A motion for summary judgment should be granted if the pleadings, depositions, documents, electronically stored information, answers to interrogatories, written admissions, affidavits, transcripts of evidence, and written stipulations of fact, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). These same rules apply when the parties have filed cross-motions for summary judgment. Westfield Ins. Co. v. Tech Dry Inc., 336 F. 3d 503, 506 (6th Cir. 2003). For purposes of the instant motions, there are no genuine issues of material fact, and the conclusions drawn are based on these undisputed facts and the law.
The main question presented by the parties is whether the surety bond is cumulative or continuous in nature. If the bond is continuous, then the surety's liability under it, regardless ofhow long the bond goes on, is limited to the stated penal sum and may not be aggregated from year-to-year. If the bond is cumulative, then the surety's liability may be aggregated from year-to-year, and Plaintiff could recover up to the penal sum for each registration period under the bond and its continuations.
Plaintiff argues that the bond is cumulative because (1) all bonds under Ohio Mortgage Brokers Act ("OMBA"), O.R.C. § 1322.05 are supposed to be cumulative; (2) the bond has the "hallmarks" of a cumulative bond; and (3) the continuation certificates are for separate periods of time and list different bond numbers. Defendant, on the other hand, argues that the bond is continuous because (1) the plain, unambiguous language of the documents in question say it is continuous, and (2) the OMBA does not require bonds to be cumulative.
There is little relevant case law on this issue, and none of it is controlling. Because of this, the Court must first determine how to interpret the bond and related documents. Then, if necessary, the Court must determine whether the OMBA requires bonds to be cumulative, as Plaintiff argues. The bond, the continuation certificates, and the riders must then be read in light of the statute, if necessary, to determine whether it is continuous or cumulative. Based on a review of these documents, it is clear that F&D's liability under Bond No. LPM3012608 00 and all its continuation certificates is continuous, and must not exceed the penal sum of $150,000 found on the last rider.
In order to establish the scope of liability, if any, the Court must determine how to interpret a surety bond. Defendant, citing to numerous cases, argues that the interpretation of a surety bond must be focused on the "four corners" of the bond. Plaintiff looks to O.R.C. §1322.05 in interpreting its scope of liability.
Defendant cites to St. Paul Fire & Marine Ins. Co. v. Indus. Comm'n of Ohio, among others, where the Court held that its analysis of a bond "must encompass the 'four corners' of the document." 30 Ohio St. 3d 17, 20 (1987) (emphasis added). Defendant has not shown that the analysis must be limited to the "four corners" of the bond. In fact, one of the cases cited by Defendant even states that "[a] bond is a contract and, in the absence of some controlling statute, is to be construed according to the fair import of the language used." Dean v. Seco Elec. Co., 35 Ohio St. 3d 203, 205 (1988) (emphasis added) (quoting Cusack v. McGrain 136 Ohio St. 27 (1939)).
The surety bond is governed by O.R.C. § 1322.05, which is "a remedial statute and is 'designed in part to protect mortgage borrowers from wrongful conduct by mortgage brokers.'" Guth v. Allied Home Mortg. Capital Corp., 2008-Ohio-3386, at ¶41 (Ohio Ct. App. July 7, 2008). "Remedial laws and all proceedings under them shall be liberally construed in order to promote their object." O.R.C. § 1.11. As Plaintiff has correctly pointed out, the surety bond in question must be construed not just within its "four corners," but also by referencing the OMBA and liberally construing it to achieve its purpose.
Plaintiff believes that all surety bonds under O.R.C. § 1322.05 must be cumulative, while Defendant argues otherwise. Numerous cases from other jurisdictions regarding whether surety bonds are cumulative or continuous have been referenced by both parties. Because these cases are based on dissimilar facts and statutes, they are unhelpful and will not be addressed. Each party did, however, find at least one case from within Ohio, regarding surety bonds and thequestion of whether they are continuous or cumulative. Defendant looks to Rankin v. US Fid. & Guar. Co., an Ohio Supreme Court case from 1912. Since this was decided many decades before the adoption of O.R.C. § 1322.05, its usefulness to the Court's analysis is limited. Plaintiff points to a Lorain County Court of Common Pleas decision, Hill v. Moneytree of Ohio, Inc., which held that all surety bonds under O.R.C. § 1322.05 are cumulative in nature. Lorain C.P. No. 06-CV-148815 (Jan. 11, 2012). That holding, however, is not controlling. Nor does the Court find Hill persuasive. Thus, the Court must look at O.R.C. § 1322.05 itself, as well as the Ohio Administrative Code for guidance.
Nothing in the plain language of O.R.C. § 1322.05 suggests that all bonds under it must be cumulative. In fact, O.R.C. § 1322.05(A)(1) expressly declares that "the aggregate liability of the corporate surety for any and all breaches of the conditions of the bond shall not exceed the penal sum of the bond." Moreover, nowhere does the statute expressly limit bonds to one year periods. "Where the language is plain and admits of no more than one meaning, the duty of interpretation does not arise."...
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