Sheils Title Co. v. Commw. Land Title Ins
| Decision Date | 04 March 1999 |
| Docket Number | Nos. 98-1584,98-1585,s. 98-1584 |
| Citation | 1999 WL 488087,184 F.3d 10 |
| Parties | (1st Cir. 1999) SHEILS TITLE COMPANY, INC., Plaintiff, Appellee, v. COMMONWEALTH LAND TITLE INSURANCE CO., Defendant, Appellant. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO
Rafael Escalera-Rodrguez, with whom Thomas J. Code, Reichard & Escalera, Stuart H. Singer, Carlos M. Sires, Richard J. Brener and Kirkpatrick & Lockhart LLP were on brief, for Commonwealth Land Title Insurance Company.
Fernando L. Gallardo, with whom Woods & Woods, were on brief for Sheils Title Company, Inc.
Before Torruella, Chief Judge, Coffin and Cyr, Senior Circuit Judges.
The underlying dispute in this case arises out of an April 1, 1993 agency agreement entered into between Commonwealth Land Title Insurance Company ("Commonwealth") and Sheils Title Company, Inc. ("Sheils"). Under the agreement, Sheils was appointed a non-exclusive agent of Commonwealth, and was authorized to solicit and issue Commonwealth title insurance policies in Puerto Rico. By letter dated January 13, 1995, Commonwealth informed Sheils that the agency agreement would be terminated, effective ninety days from the date of the letter. On January 25, 1995, Sheils initiated this action in the United States District Court for the District of Puerto Rico alleging that Commonwealth's termination of the agreement violated P.R. Laws Ann. tit. 10, § 278a ("Law 75"). Commonwealth counterclaimed for recovery of payments it made as a result of Sheils's alleged negligence in the issuance of certain title insurance policies.
On August 23, 1997, a jury returned a verdict in favor of Sheils on both Sheils's Law 75 claim and Commonwealth's counterclaim. The district court entered judgment on September 5, 1997. On September 11, Commonwealth renewed its motion for judgment as a matter of law, and, in the alternative, only with respect to its counterclaim, for a new trial. Sheils also moved for a new trial solely on the issue of Law 75 damages. On March 13, 1998, the district court issued an Opinion and Order denying all of these post-verdict motions. Commonwealth and Sheils both appeal.
Commonwealth insures title to, and other interests in, real property in all fifty states and in Puerto Rico. On April 1, 1993, Commonwealth and Sheils entered into an agency agreement under which Sheils became a non-exclusive agent of Commmonwealth. The agreement authorized Sheils to solicit and issue Commonwealth title insurance policies in Puerto Rico. The majority of the policies issued by Commonwealth on the island were mortgagee policies, insuring the mortgage interest of the lender and its successors in interest. The purchasers of these mortgagee policies were institutional lenders.
Under the terms of the agency agreement, Sheils was authorized to issue policies under $1,000,000 without obtaining prior consent from Commonwealth. Sheils was also authorized to collect the premiums belonging to Commonwealth on its behalf. Although the policies were issued by Sheils as Commonwealth's agent, Commonwealth bore all the risk of liability under the policies.
Because Commonwealth bore all the risk of liability, the agency agreement contained several provisions restricting Sheils's discretion in issuing Commonwealth policies.1 One of these provisions prohibited Sheils from engaging in conflict of interest transactions without first obtaining written consent from Commonwealth.2 Another provision permitted Commonwealth to terminate the agency agreement upon ninety days notice in the event that losses resulting from policies "produced by" Sheils exceeded 25% of annual net premium dollars received from Sheils in a given year.3
Prior to termination of the agency agreement, Sheils conducted business with a number of Puerto Rico financial institutions, including Bankers Finance Mortgage Corporation ("Bankers Finance"). Sheils issued numerous Commonwealth mortgagee title insurance policies to Bankers Finance. At the time those policies were issued, Michael Sheils, the president and owner of Sheils Title, owned up to 9% of the stock of Bankers Finance. Michael Sheils never obtained written consent from Commonwealth to issue Commonwealth title insurance policies to Bankers Finance.
As an institutional lender, Bankers Finance routinely issued residential mortgage loans and purchased corresponding mortgagee title insurance policies. Each title insurance policy insured that the mortgage acquired by Bankers Finance as security for the loan was the first and primary lien on the property. Because the vast majority of Bankers Finance residential mortgage loans were made in the context of a refinancing of an existing mortgage loan, it was often necessary for the existing mortgage loan to be discharged in order for the Bankers Finance loan to attain first priority. The typical practice in the industry was to use the Bankers Finance loan proceeds to discharge the existing mortgage in order to attain first priority for the Bankers Finance mortgage interest.
Unfortunately, Bankers Finance did not follow the typical practice. Instead, Jose Alegria, the President of Bankers Finance, engaged in a fraudulent scheme whereby he falsely represented to Sheils that the Bankers Finance loan proceeds were being used to discharge the existing loans.4 In reliance on this representation, Sheils issued title insurance policies insuring that the Bankers Finance mortgage interest was the first and primary lien on various properties.
Once Bankers Finance acquired title insurance from Sheils, its mortgage interests became marketable. Bankers Finance sold several of its mortgage notes to Citibank. Upon acquisition, Citibank became the insured under the Sheils-issued title insurance policy. Eventually, Citibank discovered that the mortgage notes it had purchased from Bankers Finance did not have first priority status because the prior liens had not been discharged. Citibank promptly submitted claims to Sheils under the corresponding Commonwealth title insurance policies. All of the claims submitted by Citibank resulted from title insurance policies issued by Sheils.
In 1994, the losses suffered by Commonwealth as a result of claims made under Sheils-issued title insurance policies exceeded 250% of the net premium dollars received from Sheils -- ten times the percentage required to trigger Commonwealth's right to terminate the agency agreement under Paragraph 16(c)1, the excessive claims provision.5 Accordingly, by letter dated January 13, 1995, Commonwealth informed Sheils that the agency agreement would be terminated, effective ninety days after the date of the letter.6
At the close of evidence, Commonwealth moved for judgment as a matter of law on Sheils's Law 75 claim.7 In its motion, Commonwealth argued that it was entitled to judgment on the ground that Sheils failed to produce any evidence that the Commonwealth/Sheils relationship was protected by Law 75.
Law 75 was enacted to prevent suppliers from arbitrarily terminating dealers in Puerto Rico once these dealers had invested in the business to create and build a profitable market for the suppliers' products. See Newell Puerto Rico, Ltd. v. Rubbermaid Inc., 20 F.3d 15, 22 (1st Cir. 1994). The effect of Law 75 is not only to protect local distributors from arbitrary termination, but also to bind the supplier to the dealership agreement unless it can prove "just cause" for termination. See 10 L.P.R.A. § 278a.8 If a supplier cannot prove "just cause" for termination of a dealership agreement, the statute authorizes the court to compensate the dealer "for the hard-earned clientele unjustly appropriated by the supplier." Nike Int'l Ltd. v. Athletic Sales, Inc., 689 F. Supp. 1235, 1238 (D.P.R. 1988).9
Not all commercial relationships are protected by Law 75. Rather, before invoking the remedies provided by the statute, a court must first determine whether the commercial relationship at issue constitutes a "dealer's contract" within the meaning of § 278(b).10 In San Juan Mercantile Corp. v. Canadian Transp. Co., the Puerto Rico Supreme Court defined a Law 75 "dealer" as
one characterized by his endeavors to create a favorable market and to draw customers to a product or service by promoting and closing sales contracts . . . . Publicity, market coordination, merchandise deliveries, collections, the keeping of an inventory, and mainly the promotion and closing of sales contracts are, in general terms, the obligations of the dealer.
P.R. Offic. Trans. No. O-78-97, slip op. at 220-21, 108 D.P.R. 211, 215 (Dec. 28, 1978).
Ten years later, in Roberco, Inc. v. Oxford Indus., Inc., the Puerto Rico Supreme Court further clarified the definition of "dealer" by providing a non-exhaustive list of factors to be taken into consideration in determining whether an entity or person has achieved protected status under Law 75:
In order to determine if a 'dealership' is involved, several factors must be taken into consideration, among them, if the 'dealer' actively promotes the product and/or concludes contracts; if he keeps an inventory; if he has a say on price fixing; if he has discretion to fix the sale terms; if he has delivery and billing responsibilities and authority to extend credit; if he independently or jointly embarks on advertising campaigns; if he has assumed the risks and responsibilities for the activities undertaken; if he buys the product; and if he has facilities and offers product-related services to his clients. More could be added inasmuch as a complete list is not intended. 122 D.P.R. 115, at 131-32, P.R. Offic. Trans. No. RE-85-300, slip op. at 13 (June 30, 1988). The Roberco court also explained that "no single factor is conclusive by itself and none has more weight or importance...
To continue reading
Request your trial
- Strahin v. Sullivan
-
Bowers v. Baystate Technologies, Inc.
...on these factual issues where substantial evidence supports the jury verdict. Fed.R.Civ.P. 50(a)(1); Sheils Title Co., v. Commonwealth Land Title Ins. Co., 184 F.3d 10, 19 (1st Cir. 1999). A. Baystate contends that the Copyright Act preempts the prohibition of reverse engineering embodied i......
-
Acevedo Luis v. Zayas
...Mt. Healthy defense." Rodríguez-Marín v. Rivera-González, 438 F.3d 72, 82 (1st Cir. 2006) (citing Sheils Title Co. v. Commonwealth Land Title Ins. Co., 184 F.3d 10, 19 (1st Cir.1999)). The defendant's first post trial contention is that plaintiff has failed to establish a prima facie case t......
-
Astro-Med, Inc. v. Nihon Kohden America, Inc.
...namely, that the moving party was entitled to judgment.'" N. Laminate Sales, 403 F.3d at 26 (quoting Sheils Title Co. v. Commonwealth Land Title Ins. Co., 184 F.3d 10, 19 (1st Cir.1999)). An appellant's "hurdle is no lower on an appeal of a denial of a Rule 59 motion for a new trial." Trans......