U.S. Bank Nat'l Ass'n ND v. Elender Escrow, Inc.
| Decision Date | 21 November 2011 |
| Docket Number | CASE NO. 4:11CV00123 JMM |
| Parties | U.S. BANK NATIONAL ASSOCIATION ND PLAINTIFF v. ELENDER ESCROW, INC., ET AL. DEFENDANTS |
| Court | U.S. District Court — Eastern District of Arkansas |
Pending before the Court are Motions to Dismiss filed by Defendant PrimeLending, Defendants Commonwealth Land Title Company ("Commonwealth") and Lawyers Title of Nevada ("Lawyers Title")1 , Defendant Shelley Hickson ("Hickson"), Defendant Amy Tueckes ("Tueckes"), Defendant Stewart Title Guaranty Company ("Stewart Title"), Defendants CommerceWest Bank National Association ("CommerceWest") and Judy Pollock ("Pollock"), and Defendant Jeffery Brown ("Brown").2
For the reasons stated below, PrimeLending's (#78), Stewart Title's (#111), Brown's, (#157), Hickson's (#89), and Commonwealth's and Lawyers Title's (#87) Motions to Dismiss filed pursuant to Rule 12(b)(7) based upon Plaintiff's failure to name Mark and Carla Gibbs ("the Gibbs") as a necessary party in violation of Federal Civil Rule of Procedure 19(a) are denied.
Brown's (#157), Hickson's (#89), Tueckes's (#96), and CommerceWest's and Pollock's (#120) Motions to Dismiss filed pursuant to Rule 12(b)(2) for lack of jurisdiction are granted and Plaintiff's First Amended Complaint against these Defendants is dismissed.
PrimeLending's (#78) and Commonwealth's and Lawyers Title's (#87) Motions to Dismiss filed pursuant to Rule 12(b)(6) are granted and Plaintiff's First Amended Complaint against these Defendants is dismissed.
Defendant Stewart Title's (#111) Motion to Dismiss is denied in part and granted in part. Plaintiff's negligence per se claim stated in the 15th Cause of Action and the negligence claim stated in the 23rd Cause of Action against Stewart Title are dismissed. Plaintiff's claims against Stewart Title of reformation, promissory estoppel, and negligence as stated in the 16th Cause of Action remain.
1 Allegations
In January of 2009, Morgan Stanley contacted the Gibbs with an offer to refinance their home.3 The Gibbs agreed to refinance their home with Morgan Stanley, but were re-directed by Morgan Stanley to Brown, a PrimeLending employee.
Brown completed and submitted a loan application package to Plaintiff for consideration regarding the Gibbs's refinance of their Morgan Stanley Loan. As a pre-condition of approval, Plaintiff required title insurance. PrimeLending and Brown notified Plaintiff that they hadselected Elender Escrow4 to be the closing agent and title insurance agent for the refinancing. As the closing agent, Elender Escrow agreed to comply with the terms contained in Plaintiff's Real Property Third Party Closing Instructions ("Closing Instructions"). Dana Wombles, an employee and agent of Elender Escrow, signed the Closing Instruction.
In June of 2009, separate Defendant Netco, Inc., ("Netco")5 or Elender, or both, issued a Commitment for Title Insurance and an Insured Closing Protection Letter ("ICPL") which were underwritten by Stewart Title.
Plaintiff alleges that Arkansas Code Annotated § 23-103-405 which provides for indemnification to a person against loss of closing funds because of the closing agent's, title insurer's employee's, or title insurance agency's theft or misappropriation of closing funds is applicable to this case.
Pursuant to a Broker Agreement, PrimeLending represented and warranted that the loan application package contained true and valid information and that it would indemnify and hold Plaintiff harmless from fraud, misrepresentation and any breaches of the Broker Agreement.
In August of 2009, Netco or Elender, or both, issued a second ICPL for the benefit of Plaintiff and the Gibbs for the refinancing loan which was underwritten by Stewart Title. Later that same month at closing, the Gibbs executed a promissory note payable to Plaintiff for $1,200,000.00 ("US Bank Note") and a mortgage in favor of Plaintiff ("US Bank Mortgage") tosecure the note. Plaintiff wired loan funds in the amount of $1,195,652.55 from Minnesota to Elender Escrow's CommerceWest escrow trust account in California.
Funds from Plaintiff's loan and from the Gibbs's private accounts located in Arkansas were deposited in Elender Escrow's account and were to be used by Elender Escrow to pay the Morgan Stanley Note and release the Morgan Stanley Mortgage. Instead it is alleged that Russell Biszantz took the money for his own use.
On August 28, 2009, Plaintiff's mortgage on the Gibbs's home was recorded. Elender Escrow's failure to pay off the existing Morgan Stanley Note resulted in Plaintiff's mortgage being in second position to the Morgan Stanley Mortgage.
Plaintiff submitted a claim to Stewart Title for title insurance policy benefits and indemnification under the ICPL on the basis, among others, that Plaintiff's lien on the Gibbs's home was not in first position.
During the time period when the Gibbs were refinancing, Hickson was employed by Lawyers Title and Tueckes was employed by Commonwealth. Elender Services received business referrals from Hickson and Tueckes. Settlement services, including escrow services, were referred by Elender Services to Elender Escrow. Elender Services or Elender Escrow, or both, would then pay a kickback fee to a limited liability company formed and owned by Hickson and Tueckes. The funds held by this limited liability company were then disbursed to Hickson, Tueckes, Brown, and others participating in the scheme ("Kickback Conspiracy").
Plaintiff contends that Elender Services and Elender Escrow are alter egos and that Defendant Biszantz, who owned these organizations, was the alter ego of both. In support of their claims, Plaintiff refer to its exhibits K and L, declarations of Wombles and Mark Russell.
Mark Russell declared that during the relevant time period, he owned 50% of Elender Services which engaged in the business of marketing, advertisement, and sales of escrow services conducted by Elender Escrow. He states that (1) it was after the discovery of Biszantz's conduct in absconding with escrow monies that he relinquished control of Elender Services to Biszantz; (2) Elender Escrow was owned by Biszantz; (3) Elender Escrow engaged in the business of settlement, escrow, and closing services; and (4) while these two companies shared office space, they maintained separate employees, files, and records.
Plaintiff alleges a second scheme was formed by Elender, Biszantz, and Netco in which Netco agreed to authorize Elender to issue commitments for title insurance, ICPLs, and title insurance which were underwritten by Stewart Title. Netco agreed to represent that Elender was authorized to conduct closing agent services and that Elender was a valid closing agent. In exchange, Netco would receive a commission from Elender Services or Elender Escrow ("Title Conspiracy"). On September 5, 2008, the State of California revoked the authority of Elender Escrow to act as an escrow agent.
After Elender Escrow's license was revoked, Elender Escrow, Biszantz, CommerceWest and Pollock, a CommerceWest employee, entered into an agreement to allow Elender Escrow to continue operating escrow trust accounts. CommerceWest and Pollock benefitted from allowing Elender Escrow to operate a trust account ("Trust Account Conspiracy").
To compensate for the lost license, separate Defendant Corinthian Title Company ("Corinthian Title"), Elender Escrow, Biszantz, and Bryan Kelly, a Corinthian Title employee, developed a scheme which enabled Elender Escrow to continue to operate. Corinthian Title and Kelly agreed to represent that Elender Escrow was operating under Corinthian Title's escrowagent license. Corinthian Title received some form of benefit from Elender Escrow in return for its participation in the scheme ("License Conspiracy").
Plaintiff alleges these conspiracies ultimately allowed Elender to serve as the escrow agent in the Gibbs's refinancing process which led to the theft by Biszantz and resulted in damages to Plaintiff.
II. Procedural History
On October 16, 2009, Plaintiff filed suit against Defendants Elender Escrow, Elender Services, Biszantz, Russell, Wombles, and Does 1 to 10 in the United States District Court for the Central District of California, Southern Division. Plaintiff's claims against Elender, Russell, Wombles, and Biszantz included intentional misrepresentation, negligent misrepresentation, negligence, breach of contract, breach of implied covenant of good faith and fair dealing, breach of fiduciary duty, constructive fraud, unjust enrichment, conversion, and violation of California Penal Code § 496(c). Plaintiff sought $1,195,652.55 in compensatory damage, treble damages under California Penal Code § 496(c), and punitive and exemplary damages.6 Plaintiff later negotiated settlements with Russell and Wombles.
In April of 2010, the Gibbs filed a complaint in the Eastern District of Arkansas, Western Division, regarding the refinancing of their home. On June 24, 2010, the Gibbs filed their Second Amended Complaint ("Gibbs lawsuit") naming Primelending, Stewart Title, Elender Services, Elender Escrow, Netco, Inc., Hickson, Lawyers Title, Tueckes, Corinthian Title,Commonwealth, Russell, Biszantz, Brown, Netco Title, Inc, and Stephanie Dry as Defendants. The Gibbs based jurisdiction on a federal question pursuant 28 U.S.C. § 1331 and brought claims of (1) violations of 12 U.S.C. § 2607(a)7 ; (2) fraud; (3) negligence; (4) negligent training, retention and supervision; (5) civil conspiracy; (6) acting in concert; and (7) breach of fiduciary duty.
On October 25, 2010, Plaintiff's case in California was "inactivated statistically." On December 2, 2010, this Court in the Gibbs lawsuit certified a question of law to the Arkansas Supreme Court regarding the use of the conspiracy theory of in personam jurisdiction.
On December 8, 2010, Plaintiff moved to reopen the case to amend its complaint and transfer the lawsuit to Arkansas pursuant to 28 U.S.C. § 1406(a) and § 1404. On January 24, 2011...
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