Warczak v. Attorneys' Title Guaranty Fund, Inc.

• Decision Date: 23 June 2015
• Docket Number: No. 2-14-0677,2-14-0677
• Citation: 2015 IL App (2d) 140677 -U
• Parties: MICHAEL WARCZAK, Plaintiff-Appellant, v. ATTORNEYS' TITLE GUARANTY FUND, INC., Defendant-Appellee (U.S. Bank National Association, as successor in interest to Park National Bank, and Grace A. Distilo, Defendants).
• Court: United States Appellate Court of Illinois

2015 IL App (2d) 140677-U

MICHAEL WARCZAK, Plaintiff-Appellant, v. ATTORNEYS' TITLE GUARANTY FUND, INC., Defendant-Appellee(U.S. Bank National Association, as successor in interest to Park National Bank, andGrace A. Distilo, Defendants).

No. 2-14-0677

APPELLATE COURT OF ILLINOIS SECOND DISTRICT

June 23, 2015

NOTICE: This order was filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1).

Appeal from the Circuit Court of Kane County.

No. 09-L-674

Honorable Edward C. Schreiber, Judge, Presiding.

JUSTICE SPENCE delivered the judgment of the court.

Justices Hutchinson and Zenoff concurred in the judgment.

ORDER

¶ 1 Held: The trial court erred in granting ATGF's motion to dismiss count I of plaintiff's third amended complaint, in which he sought to recover under a title insurance policy; even though a land trustee was the named insured, plaintiff could still seek coverage as the trust's beneficiary. We did not find any error in the trial court's grant of summary judgment for ATGF on counts II and III, which respectively claimed professional negligence and breach of implied contract for ATGF's failure to discover a tax lien on the property. Specifically, count II was barred by the Moorman doctrine, and ATGF did not owe plaintiff a duty to discover and report the unpaid taxes during the closing. Regarding count III, there was no genuine issue of material fact showing an implied contract to convey accurate title

information during the closing, beyond the guarantees through the title insurance. Therefore, we affirmed in part, reversed in part, and remanded the cause.

¶ 2 Plaintiff, Michael Warczak, brought suit against defendant, Attorneys' Title Guarantee Fund (ATGF), after unpaid taxes not disclosed in the title commitment resulted in a tax buyer obtaining the property at issue. The trial court granted ATGF's motion to dismiss count I, through which plaintiff sought to recover under ATGF's title insurance policy. The trial court granted summary judgment for ATGF on counts II and III, alleging professional negligence and breach of implied contract. We affirm the trial court's grant of summary judgment on counts II and III but reverse its dismissal of count I and remand for further proceedings.

¶ 3 I. BACKGROUND

¶ 4 On October 23, 2009, plaintiff filed a two-count complaint against Park National Bank. Plaintiff alleged that he was the beneficiary of a land trust for which the bank was the trustee; that property was deeded to the trust in 2005; that the bank received notice of tax proceedings against the property based on unpaid property taxes from 2003; that the bank failed to notify plaintiff of the proceedings; and that as a result, the property was transferred to a tax buyer without plaintiff's knowledge.

¶ 5 Plaintiff filed a first amended complaint on July 2, 2010. The first two counts were largely unchanged. Plaintiff added two counts against Grace Distilo, who sold the subject property. Plaintiff alleged that Distilo was responsible for paying the 2003 property taxes but failed to do so, resulting in the tax sale. Plaintiff also added a fifth count, against ATGF, alleging that ATGF was liable for coverage under its title insurance policy for the property.

¶ 6 Distilo subsequently filed a counterclaim and amended counterclaims against ATGF. She additionally filed a third-party complaint against Rita Thomas, the attorney who represented her at the real estate closing. Distilo alleged that Thomas also acted as an agent for ATGF byselling Distilo an owner's title insurance policy. In January 2012, the trial court granted ATGF's motion to dismiss Distilo's third amended complaint with prejudice.

¶ 7 Plaintiff filed a second amended complaint on July 23, 2012. He re-alleged the first five counts and added a negligence count against ATGF.

¶ 8 On August 22, 2012, the trial court entered an agreed order stating that plaintiff and third-party defendant Thomas had reached a confidential settlement agreement. The order stated that as a result, plaintiff's claims against Distilo were dismissed with prejudice, as were Distilo's claims against Thomas.

¶ 9 Another settlement was memorialized through a court order entered on February 14, 2013. The order stated that plaintiff and the bank had reached a settlement and that plaintiff's claims against the bank were dismissed with prejudice.

¶ 10 On March 13, 2013, plaintiff filed a third amended complaint against ATGF; this complaint is the subject of the instant appeal. Count I, seeking a declaratory judgment, alleged as follows. On August 3, 2005, plaintiff entered into a written contract with Distilo to purchase a parcel of unimproved real property in West Dundee for $130,000. On August 1, 2005, ATGF, through Thomas as its agent, issued a commitment for title insurance for the property, naming plaintiff as the proposed insured. Thomas also represented Distilo as the property's seller. On August 29, 2005, plaintiff, through his attorney, directed Thomas to have the property deeded to Cardunal Savings Bank, FSB, as trustee of an Illinois land trust. The real estate closing occurred on September 2, 2005, at Thomas's law offices. ATGF provided closing services through its agents, Suzanne Benner and Thomas. The sale closed with a deed from Distilo to Cardunal Savings Bank as trustee under the provisions of a trust agreement dated July 15, 2004, known as trust number 98-446. Plaintiff was the trust's sole beneficiary.

¶ 11 Plaintiff further alleged as follows. On September 12, 2005, ATGF issued an owner's title insurance policy insuring the subject property, with the land trust as the named insured. As the trust's beneficiary, plaintiff was the intended direct beneficiary of the title insurance policy. At the time the policy was issued, real estate taxes for 2003 had not been paid by the property's seller but rather had been sold to a third party in November 2004. The non-payment of the taxes constituted a lien or encumbrance on the property's title. Pursuant to the unpaid 2003 taxes, a tax deed was issued to Conrad Gacki on October 20, 2007, and recorded July 21, 2008. Plaintiff did not have knowledge of this until about May 22, 2009, when he called the county to inquire about not receiving a bill for 2008 taxes. The same day, plaintiff made an insurance claim with ATGF. ATGF denied coverage in a letter dated July 27, 2009. In count I, plaintiff sought a declaration that coverage existed under the policy and that he was entitled to collect the proceeds.

¶ 12 Count II, claiming professional negligence, alleged many of the previous facts and additionally alleged as follows. ATGF charged a fee of $410 for its real estate closing services, and plaintiff and Distilo each paid one-half of the fee. Part of ATGF's services was to discover and disclose recorded liens against property through its process of preparing a title commitment, and to secure the payoff or other disposition of unresolved liens at the closing. When ATGF prepared a commitment for title insurance on August 1, 2005, for the property, the lien for the 2003 unpaid taxes was in place. The commitment listed unpaid taxes for 2004 but did not report the lien for the 2003 taxes. ATGF had a duty to discover and resolve tax liens but breached this duty, which allowed the title to be conveyed by a tax deed to a third party, which in turn damaged plaintiff.

¶ 13 Count III, claiming breach of contract, alleged the same general facts surrounding thetransaction as alleged in counts I and II. It also alleged as follows. According to the ATGF website, the title insurance commitment provided a guide for the real estate closing by showing the condition of the property's title and listing what steps were necessary to complete the title transfer. Plaintiff and ATGF had an agreement that ATGF would provide real estate closing services for the property. The terms of ATGF's contract included: (1) the discovery of unpaid and past due real estate taxes that created a lien on the property, (2) the disclosure in the title commitment of such unpaid and past due taxes, and (3) the facilitation of payment by the seller of the aforementioned taxes through the closing process. ATGF breached each of these terms, damaging plaintiff.

¶ 14 On April 9, 2013, ATGF filed a motion to dismiss under sections 2-615 and 2-619 of the Code of Civil Procedure (735 ILCS 5/2-615, 619 (West 2012)). ATGF argued that count I should be dismissed under section 2-615 because plaintiff failed to plead his performance of all contractual conditions required of him; ATGF did not receive timely notice of the claim; and plaintiff did not plead any facts showing that he was entitled to recover as an insured under the policy. It argued that count II should be dismissed under section 2-615 because plaintiff did not plead any facts showing a duty, a breach of duty, and damages. ATGF argued that count II should also be dismissed under section 2-619 because it was barred by the five-year statute of limitations, the Moorman doctrine,¹ and paragraph 15 of the policy. ATGF argued that count III should be dismissed under section 2-615 for the failure to plead facts to show a contract, including offer, acceptance, terms, breach and damages. It also argued that, under section 2-619, count III was barred by the five-year statute of limitations.

¶ 15 On June 27, 2013, the trial court granted ATGF's motion in part and dismissed count Iwith prejudice. It denied the motion as to counts II and III. We summarize its reasoning regarding count I. Plaintiff issued the check for the title insurance but directed his attorney to have the property deeded to the trust before closing. Plaintiff had a beneficial interest in the trust and a potential cause of action against the trust, which was apparently settled with the bank. Plaintiff had an equitable interest in the trust but not a legal interest in the trust, because if he had both, the...