W. Capital Partners LLC v. First Am. Title Ins. Co.
| Decision Date | 19 March 2015 |
| Docket Number | Civil Action No. 14-cv-0454-WJM-KLM |
| Parties | WESTERN CAPITAL PARTNERS LLC, a Colorado Limited Liability Company, Plaintiff, v. FIRST AMERICAN TITLE INSURANCE COMPANY, a California Corporation, Defendant. |
| Court | U.S. District Court — District of Colorado |
Plaintiff Western Capital Partners, LLC brings this action against Defendant First American Title Insurance Company related to coverage under an insurance policy issued by Defendant. (ECF No. 67.) This matter is before the Court on Defendant's Early Motion for Partial Summary Judgment ("Motion"). (ECF No. 35.) For the reasons below, the Motion is denied.
The following relevant facts are undisputed, unless otherwise noted. On June 15, 2007, Plaintiff made a $13,065,000 loan ("the Loan") to three borrowers: Montana Specs, LLC, GoBuild, Inc., and Blue Sky Development, LLC ("the Borrowers"). (ECF No. 42 at 4.) As partial security for the Loan, Plaintiff received a commercial promissory note from the Borrowers and another entity, Monarch GoBuild Construction, LLC. (ECF No. 42-2.) Edra Blixseth owned Monarch Design, LLC, which in turn owned a 45% share of Monarch GoBuild Construction, LLC. (ECF No. 42 at 7.) Monarch GoBuildConstruction, LLC owned a piece of property referred to as Lot 176. (Id.) Before the Loan closed, Monarch GoBuild Construction, LLC executed a quitclaim deed of Lot 176 to one of the Borrowers, Montana Specs, LLC. (Id.) Blixseth thereafter retained no further interest in Lot 176. (Id.) As further security for the Loan, the Borrowers granted Plaintiff a mortgage ("the Mortgage") on Lot 176, and Blixseth executed a personal guaranty of the Loan. (Id. at 4.) On June 19, 2007, Plaintiff obtained a title insurance policy ("the Policy") from Defendant that covered Lot 176 and included a Creditors' Rights Endorsement ("the Endorsement"). (ECF No. 1-1.) Plaintiff assigned its interest in the Mortgage to a third party on January 24, 2008. (ECF No. 35 at 5.)
On March 26, 2009, Blixseth filed a voluntary Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of Montana, and her case was converted to a Chapter 7 proceeding on May 29, 2009. (ECF Nos. 42 at 8; 42-6 at 28.) The bankruptcy Trustee filed an Adversary Proceeding against Plaintiff requesting that "every transfer made for the benefit of [Plaintiff] be avoided" as constructively fraudulent under 11 U.S.C. § 548(a)(1)(B), including Blixseth's personal Loan guaranty and all transfers of property to Plaintiff in connection with the Loan. (ECF No. 42-8 at 25.) Among the relief sought by the Trustee was a judgment against Plaintiff related to the transfer of Lot 176 from Monarch GoBuild Construction, LLC to Montana Specs, LLC for the benefit of Plaintiff in securing the Loan. (ECF No. 42-6 at 62.)
On March 18, 2013, the bankruptcy court ultimately found that Blixseth's guaranty of the Loan was constructively fraudulent under 11 U.S.C. § 548. (Id. at 61.) The court found that Plaintiff had foreclosed on Lot 176 at some point following theissuance of the Mortgage, and sold the property for approximately $5.6 million. (Id. at 49.) The court further found that, had Blixseth retained her interest in Lot 176, she would have earned $1,258,949.27 through the property's sale, and accordingly entered judgment against Plaintiff in that amount. (Id.)
Prior to the issuance of the bankruptcy court's judgment, on June 14, 2012, Plaintiff notified Defendant of the Adversary Proceeding against it, the Trustee's challenge to Plaintiff's interest in Lot 176, and Plaintiff's belief that the Policy covered such claims. (ECF Nos. 35 at 5 & 35-5.) Defendant denied Plaintiff's claim. (ECF No. 35 at 6.) Plaintiff initiated this action on February 21, 2014 seeking a declaratory judgment on the issue of coverage under the Policy, and asserting claims for bad faith failure to settle and breach of contract. (ECF No. 1.) In its Motion, Defendant seeks summary judgment on the declaratory judgment and breach of contract counts of Plaintiff's operative Complaint. (ECF No. 35.)
Summary judgment is appropriate only if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Henderson v. Inter-Chem Coal Co., Inc., 41 F.3d 567, 569 (10th Cir. 1994). Whether there is a genuine dispute regarding a material fact depends upon whether the evidence presents a sufficient disagreement as to require submission to a jury or, conversely, is so one-sided that one party must prevail as a matter of law. Anderson v. Liberty Lobby, 477 U.S. 242, 248-49 (1986); Carey v. U.S. Postal Serv., 812 F.2d 621, 623 (10th Cir. 1987).
A fact is "material" if it pertains to an element of a claim or defense, and a factual dispute is "genuine" if the evidence is so contradictory that if the matter went to trial, a reasonable juror could return a verdict for either party. Anderson, 477 U.S. at 248. The Court must examine the facts in the light most favorable to the nonmoving party, and resolve factual ambiguities against the moving party. Houston v. Nat'l Gen. Ins. Co., 817 F.2d 83, 85 (10th Cir. 1987). The summary judgment standard thus favors a right to trial. See id.
The Court must first determine what law applies to the resolution of Plaintiff's claims, and to the interpretation of the Policy. Federal courts sitting in diversity apply the forum state's choice of law principles. U.S. Aviation Underwriters, Inc. v. Pilatus Bus. Aircraft, Ltd., 582 F.3d 1131,1143 (10th Cir. 2009). Colorado courts "apply the law chosen by the parties unless there is no reasonable basis for their choice or unless applying the chosen state's law would be contrary to the fundamental policy of the state whose law would otherwise govern." Target Corp. v. Prestige Maint. USA, Ltd., 2013 WL 363324, at *2 (Colo. App. Jan. 31, 2013) (citing Hansen v. GAB Bus. Servs., Inc., 876 P.2d 112, 113 (Colo. App. 1994)).
Here, the Policy contains a choice of law provision that states that Plaintiff acknowledges Defendant (ECF No. 1-1 at 4.) Lot 176 is located in Montana. (ECF No. 35 at 7.) The Court thus finds that the parties had a reasonable basis for selecting Montana law. See Prestige Maint. USA, Ltd., 2013 WL 363324, at *2. Although Plaintiff applies Colorado law in its briefs, it does not address the choice of law provision, or state why Montana law would be contrary to the fundamental policies of Colorado. (See ECF No. 42.) The Court will therefore interpret the Policy under Montana law.
The interpretation of insurance contracts is a question of law. Steadele v. Colony Ins. Co., 260 P.3d 145, 149 (Mont. 2011) (citation omitted). Under Montana law, courts apply general rules of contract interpretation to insurance policies, and strictly construe policies against the insurer and in favor of the insured. Id. Courts must interpret a policy's terms "according to their usual, common sense meaning as viewed from the perspective of a reasonable consumer of insurance products." Id. Exclusions are to be strictly and narrowly construed because they are "contrary to the fundamental protective purpose of an insurance policy." Id. Similarly, all ambiguities are resolved in favor of coverage. Id.
Defendant argues that the Policy does not provide coverage for the judgment against Plaintiff in the bankruptcy proceeding. (ECF No. 35.) The Policy provides that "[t]he voluntary satisfaction or release of the Insured Mortgage shall terminate all liability of the Company except as provided in Section 2 of these Conditions." (Id. at 3.)Plaintiff's January 24, 2008 assignment of its Mortgage on Lot 176 states that Plaintiff "does hereby sell, assign, transfer, and set over . . . [its] interest in [the Mortgage] . . . including any amendment or modification thereto, together with all right and interest in the land herein described . . . ." (ECF No. 35-2.) Plaintiff's contention that the assignment was only a "collateral assignment" intended to secure certain repayment obligations to the assignee is unavailing. (ECF No. 42 at 22.) The assignment unambiguously conveys "all right and interest" in the Mortgage. Therefore, Defendant argues that Plaintiff's assignment terminated Policy coverage pursuant to the exclusion. (ECF No. 35 at 2-3.) However, it is unclear whether the exclusion applies under these circumstances based on the date that the Policy coverage was triggered.
Countrywide Home Loans, Inc. v. United General Title Insurance Company, 109 A.D.3d 950, 950 (N.Y. App. 2013) is instructive. In Countrywide, the plaintiff granted a borrower a mortgage loan that was secured by property located in New York. Id. The plaintiff obtained a policy of title insurance for the transaction. Id. Shortly thereafter, the plaintiff learned that the borrower had falsified his identity, prompting the plaintiff to execute a satisfaction of its mortgage and release of its lien on the property. Id. The plaintiff then made a claim under its title insurance policy, and the insurer disclaimed coverage based on an exclusion that voided coverage upon assignment of the insured mortgage. Id. at 951-52.
The court held that the assignment exclusion did not apply. Id. at 952. The court found that the plaintiff held a mortgage based on forged documents that rendered it "invalid and unenforceable ab initio." Id. Therefore, the plaintiff's loss due to themortgage's...
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