Case Title: First Am. Title Ins. Co. v. W. Surety Co.

Citation: 

Docket Number: 

State: virginia

Court: Virginia Supreme Court

Date: 2012-03-02T00:00:00Z

Document:
Present:  All the Justices 
 
FIRST AMERICAN TITLE INSURANCE COMPANY 
 
v.  Record No. 111394 
OPINION BY JUSTICE DONALD W. LEMONS 
 
 
 
 
 
 
 
March 2, 2012 
WESTERN SURETY COMPANY 
 
UPON QUESTIONS OF LAW CERTIFIED BY THE UNITED STATES 
 COURT OF APPEALS FOR THE FOURTH CIRCUIT 
 
Pursuant to Article VI, Section 1 of the Constitution of 
Virginia and Rule 5:40, we accepted the following certified 
questions from the United States Court of Appeals for the 
Fourth Circuit ("Fourth Circuit"), pursuant to its order 
entered August 2, 2011: 
1. 
Does the Virginia Consumer Real Estate Settlement 
Protection Act, Va. Code Ann. § 6.1-2.19 et seq. 
(recodified at Va. Code Ann. § 55-525.16 et seq.) 
("CRESPA") recognize a private cause of action 
that may be asserted against a surety and the 
surety bond issued pursuant to Va. Code Ann. 
§ 6.1-2.21(D)(3) (recodified at § 55-
525.20(B)(3)) by a party other than the State 
Corporation Commission? 
 
2. 
If Question 1 is answered in the negative, does 
Virginia law nonetheless permit a cause of action 
against a surety and the surety bond issued 
pursuant to Va. Code Ann. § 6.1-2.21(D)(3) 
(recodified at § 55-525.20(B)(3)) by the 
assertion of a common law claim such as for 
breach of contract as in this case? 
 
3. 
If Questions 1 or 2 are answered in the 
affirmative, does a title insurance company have 
standing, either in its own right or as a 
subrogee of its insured, to maintain a cause of 
action against a surety and the surety bond 
issued pursuant to Va. Code Ann. § 6.1-2.21(D)(3) 
(recodified at § 55-525.20(B)(3))? 
 
 
2 
I. Facts and Prior Proceedings 
 
The facts, as presented in the certification order, are as 
follows.  This action arose out of a real estate transaction 
involving an owner of real property in Alexandria, Virginia, 
who sought to refinance his existing mortgage debt through 
SunTrust Mortgage, Inc. ("SunTrust").  As part of the 
refinancing process, First American Title Insurance Company 
("FATIC") provided title insurance for the refinancing to 
SunTrust through FATIC's title agent, First Alliance Title 
Company ("First Alliance").  First Alliance conducted the 
closing for the refinance transaction. 
As required by the Virginia Consumer Real Estate 
Settlement Protection Act ("CRESPA"), former Code §§ 6.1-2.19 
through -2.29 (1999 & Supp. 2001),∗ First Alliance obtained a 
$100,000 surety bond ("the CRESPA bond") from Western Surety 
Company ("Western").  The CRESPA bond included language stating 
that "any aggrieved person may maintain an action in its own 
name against this bond." 
                     
∗ At the time of its promulgation in 1997, CRESPA was 
codified at Code §§ 6.1-2.19 through -2.29.  After the United 
States District Court for the Eastern District of Virginia 
entered judgment in this case, CRESPA was amended and 
recodified at Code §§ 55-525.16 through -525.32.  Because the 
former section numbers were used by the District Court in its 
rulings, the Fourth Circuit in its certified questions, and by 
the parties in their briefs, this opinion likewise utilizes 
them herein. 
 
 
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At settlement, an employee of First Alliance diverted the 
funds received from SunTrust, which were designated to pay off 
the original mortgages on the property.  As a result, the 
original mortgages were not paid and the deeds of trust 
securing that indebtedness were not released.  Consequently, 
SunTrust's deeds of trust securing the refinance indebtedness 
were behind the original deeds of trust in order of priority. 
Thereafter, the property owner defaulted under the 
original mortgages and the mortgagor foreclosed, resulting in 
the bankruptcy of the property owner.  The original mortgagor's 
foreclosure on the property eliminated SunTrust's secured 
interest in the property, resulting in a loss of $734,296.09 to 
SunTrust.  FATIC subsequently paid the full amount of this loss 
to SunTrust pursuant to the title insurance policy it had 
underwritten for the refinance transaction.  FATIC then made a 
formal demand upon Western for $100,000, the full amount of the 
CRESPA bond.  Western has refused to pay FATIC, claiming that 
no private cause of action can be brought against a statutory 
bond created pursuant to CRESPA. 
FATIC brought this action against Western and First 
Alliance in the Circuit Court of Fairfax County, and Western 
removed the action to the United States District Court for the 
Eastern District of Virginia ("District Court").  In its 
complaint, FATIC asserted three breach of contract claims, all 
 
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based upon Western's failure to pay FATIC under the CRESPA 
Bond.  Specifically, FATIC brought the cause of action on its 
own behalf (Count I), as subrogee of SunTrust, arguing that it 
became subrogated to SunTrust's rights after FATIC made full 
payment of SunTrust's claim under the title insurance policy 
(Count II), and pleaded in the alternative that it was entitled 
to bring a claim as subrogee of First Alliance, based upon a 
settlement agreement in a separate action (Count III).   
 
Western moved to dismiss the action, and the District 
Court granted Western's motion to dismiss Count III; however, 
the District Court denied Western's motion to dismiss Counts I 
and II and held that: (1) CRESPA did not preclude common law 
claims against the surety bond; and (2) FATIC had standing to 
assert a direct cause of action for breach of contract against 
Western as an aggrieved party.  First Am. Title Ins. Co. v. W. 
Sur. Co., No. 1:09-cv-403, 2009 U.S. Dist. LEXIS 44231, at *3-
*10 (E.D. Va. May 27, 2009).  The parties subsequently filed 
motions for summary judgment, and the District Court granted 
summary judgment in FATIC's favor under Count I.  First Am. 
Title Ins. Co. v. First Alliance Title, Inc., 718 F. Supp. 2d 
669, 674, 684 (E.D. Va. 2010).  The District Court did not 
reach FATIC's alternative grounds for relief in Count II.  Id. 
at 674.  Accordingly, the District Court held that Western was 
 
5 
obligated to pay FATIC the full amount of the CRESPA Bond and 
entered judgment in FATIC's favor for $100,000.  Id. at 684.   
Western appealed to the Fourth Circuit.  The parties 
agreed that Virginia law applies and governs the resolution of 
this case.  On August 2, 2011, the Fourth Circuit certified the 
above-recited questions to this Court.  By order entered 
September 22, 2011, we accepted the certified questions. 
II. Analysis 
A. Certified Question One 
 
CRESPA was created to "authorize existing licensing 
authorities in the Commonwealth . . .. . . to require persons 
performing escrow, closing or settlement services to comply 
with certain consumer protection safeguards relating to 
licensing, financial responsibility and the handling of 
settlement funds."  Former Code § 6.1-2.19(B) (emphasis added).  
It "applies only to transactions involving the purchase or 
financing of real estate" located in Virginia.  Former Code 
§ 6.1-2.19(C).  CRESPA defines "[l]icensing authority" as the 
State Corporation Commission, the Virginia State Bar, or the 
Virginia Real Estate Board.  Former Code § 6.1-2.20.   
 
Significantly, CRESPA only provided for licensing 
authorities to fine and/or otherwise penalize a settlement 
agent who violates its provisions.  Former Code § 6.1-2.27.  
Specifically, former Code § 6.1-2.27(A), titled "Penalties and 
 
6 
liabilities," provided that the appropriate licensing authority 
may order: 
1. 
A penalty not exceeding $5,000 for each 
violation; 
 
2. 
Revocation or suspension of the applicable 
licenses; and  
 
3. 
Restitution to be made by the person 
violating this chapter in the amount of any 
actual, direct financial loss.  
 
 
Accordingly, the District Court found that "[t]here is no 
doubt that actions for statutory violations of CRESPA must be 
brought by the state licensing authority."  First Am. Title, 
2009 U.S. Dist. LEXIS 44231, at *4 (emphasis in original).  In 
so concluding, the District Court relied in part upon Stith v. 
Thorne, 247 F.R.D. 89, 95-96 (E.D. Va. 2007) (stating that 
"CRESPA [does not] provide for private causes of action").  Id. 
at *3-*4.  In Stith, the United States District Court for the 
Eastern District of Virginia relied upon former Code § 6.1-
2.19(B) – which stated that the purpose of CRESPA is to 
"authorize existing licensing authorities . . .. . . to require 
persons performing escrow, closing or settlement services to 
comply with certain consumer protection safeguards" – --to 
conclude that "CRESPA, by its own statutory language, is clear 
on the issue."  Id. at 95-96 (emphasis in original).   
We have held that "[when] a statute creates a right and 
provides a remedy for the vindication of that right, then that 
 
7 
remedy is exclusive unless the statute says otherwise."  
Vansant & Gusler, Inc. v. Washington, 245 Va. 356, 360, 429 
S.E.2d 31, 33 (1993) (quoting School Bd. v. Giannoutsos, 238 
Va. 144, 147, 380 S.E.2d 647, 649 (1989)).  CRESPA expressly 
provides a remedy for violations of the statute, but that 
remedy exclusively provides licensing authorities the ability 
to fine and/or otherwise penalize settlement agents who violate 
the statute.  Former Code § 6.1-2.27(A).   
Significantly, the General Assembly has clearly provided 
for private causes of action against other bonds required by 
statute where it has intended to do so.  See, e.g., Code § 6.2-
1604 (providing, with regard to mortgage lender or mortgage 
broker bonds, that "[a]ny person who may be damaged by 
noncompliance of a licensee with any condition of such bond may 
proceed on such bond against the principal or surety thereon, 
or both, to recover damages"); Code § 6.2-1703(E) (providing, 
with regard to mortgage loan originator bonds, that "[a]ny 
person who may be damaged by noncompliance of a licensee with 
any condition of such bond may proceed on such bond against the 
principal or surety thereon, or both, to recover damages").  
The General Assembly could have similarly provided for a 
private cause of action in CRESPA but it did not do so.  See 
former Code §§ 6.1-2.19 through –2.29.   
 
8 
Accordingly, because CRESPA expressly states that its 
purpose is to authorize "licensing authorities . . .. . . to 
require persons performing escrow, closing or settlement 
services to comply with certain consumer protection 
safeguards," former Code § 6.1-2.19(B) (emphasis added), and 
because CRESPA only provides for licensing authorities to fine 
and/or otherwise penalize a settlement agent who violates its 
provisions, former Code § 6.1-2.27, we hold that CRESPA does 
not provide for or recognize a private cause of action against 
a surety and the surety bond issued pursuant to former Code 
§ 6.1-2.21(D)(3). 
B. Certified Question Two 
FATIC maintains that it may pursue a common law breach of 
contract claim based upon the CRESPA bond.  Consequently, 
FATIC's cause of action implicates the principle of Virginia 
law, relied upon by the District Court in this case, that "when 
the Virginia General Assembly wishes that a statute abrogate a 
common law right of action, such as one for breach of contract, 
it must say so expressly."  First Am. Title, 2009 U.S. Dist. 
LEXIS 44231, at *5 (citing Peoples Sec. Life Ins. Co. v. 
Arrington, 243 Va. 89, 92, 412 S.E.2d 705, 707 (1992), for the 
proposition that, "to alter or abrogate the common law policy, 
the General Assembly must manifest its intent to do so").  
Because CRESPA contains no abrogation clause, see former Code 
 
9 
§§ 6.1-2.19 through -2.29, the District Court properly 
concluded that "common law claims against the [CRESPA] bond may 
proceed."  See First Am. Title, 2009 U.S. Dist. LEXIS 44231, at 
*5. 
 
A statutory bond is a bond "required by statutory 
authority by State, county, district, or municipal officers, by 
fiduciaries appointed, created or recognized by law, or by 
parties in judicial proceedings, or by officers and agents of 
private corporations, taken in pursuance of authority conferred 
on them by their charters, or by general law."  State v. 
Purcell, 5 S.E. 301, 305 (W. Va. 1888).  Accordingly, the 
surety bond required by former Code § 6.1-2.21(D)(3) is a 
statutory bond.  Nevertheless, a common law cause of action may 
be maintained against statutory bonds under certain 
circumstances.  This is one of those situations. 
Virginia follows the general rule that a statutory bond that 
either expands liability from the statute requiring the bond or 
conflicts with the statute is "void as to any condition imposed 
beyond what the law required, and good so far as it was in 
conformity with the act."  Aetna Cas. & Sur. Co. v. Earle-
Lansdell Co., 142 Va. 435, 442, 129 S.E. 263, 264 (1925).  We 
have observed that this "rule has been frequently applied to   
. . .. . . bonds of fiduciaries, as well as to bonds of public 
officials, and to those required where there were attachments, 
Formatted: Indent: First line:  0", Don't adjust
space between Latin and Asian text
 
10 
injunctions, or other judicial proceedings."  Id. at 443, 129 
S.E. at 265. 
 
Significantly, however, we have also recognized "[t]he 
general rule, which is amply supported by reason and authority, 
[that if] the bond required of a surety cannot be upheld as a 
statutory bond, it is at least good as a common law voluntary 
obligation."  Stinson v. Board of Supervisors, 153 Va. 362, 
375, 149 S.E. 531, 535 (1929).  See also Kiser v. Hensley, 123 
Va. 536, 539, 96 S.E. 777, 778 (1918) (stating that statutory 
bonds "must substantially conform to the statutes authorizing 
their execution.  Unless they do so conform, while they may be 
good as common law bonds, they are not valid as statutory 
bonds").  It has been observed that "[t]he chief distinction 
between statutory and common-law bonds is that the obligee in 
the former is entitled to all the special privileges, remedies, 
and processes which are granted by the statute, while the 
common-law or voluntary bond stands upon the ground of any 
other contract."  Purcell, 31 W. Va. at 53, 5 S.E. at 305-06.   
 
As we noted with approval in Stinson, 
The rule is well settled that a bond given  
. . .. . . in pursuance of some requirement of 
law, may be valid and binding upon the parties as 
a voluntary or common law obligation, when not 
made with the formalities or executed in the mode 
provided by the statute under which it purports 
to have been given, and hence is not enforceable 
as a statutory bond, provided it is not in 
violation of law.  This rule rests on the 
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11 
principle, that, notwithstanding the instrument 
may not conform with the special requirements of 
a statute . . .. . . in compliance with which the 
parties executed it, nevertheless it is a 
contract voluntarily entered into upon a 
sufficient consideration, for a purpose not 
contrary to law, and therefore is obligatory on 
the parties to it in like manner as any other 
contract or agreement at the common law. 
 
153 Va. at 375-76, 149 S.E. at 535 (citing Estate of Ramsey v. 
People, 64 N.E. 549 (Ill. 1902); Floyd R. Mechem, A Treatise on 
the Law of Public Offices and Officers §§ 271-72, at 169-70 
(1890)) (emphasis added).  We have previously held, when 
addressing the question whether a bond sued upon contained a 
valid condition to pay the judgment in an attachment 
proceeding, that, "[w]ithout deciding whether or not the bond 
sued on is a valid statutory bond, we are of the opinion that 
it is a valid common law bond and that the obligors are liable 
to the obligee thereon."  Foster v. Wilson, 139 Va. 82, 86, 90, 
123 S.E. 527, 528-29 (1924). 
Accordingly, while CRESPA does not recognize or provide 
for a private cause of action based upon a violation of the 
statute, Virginia law nonetheless permits a cause of action 
against a surety and the surety bond executed pursuant to 
CRESPA by the assertion of a common law claim, such as for 
breach of contract, as in this case. 
 
12 
C. Certified Question Three 
 
CRESPA was created to "authorize existing licensing 
authorities in the Commonwealth . . .. . . to require persons 
performing escrow, closing or settlement services to comply 
with certain consumer protection safeguards relating to 
licensing, financial responsibility and the handling of 
settlement funds."  Former Code § 6.1-2.19(B).  It "applies 
only to transactions involving the purchase or financing of 
real estate" located in Virginia.  Former Code § 6.1-2.19(C).  
Significantly, CRESPA defines "[p]arty to the real estate 
transaction," with respect to each particular real estate 
transaction, as "a lender, seller, purchaser or borrower."  
Former Code § 6.1-2.20.   
 
Therefore, because CRESPA only applies "to transactions 
involving the purchase of or lending on the security of real 
estate," and because CRESPA explicitly defines the potential 
parties to a real estate transaction, the surety bond required 
by former Code § 6.1-2.21(D)(3) exists to protect those parties 
having an interest in the real estate transaction.  See former 
Code §§ 6.1-2.19 & -2.20.  FATIC, as SunTrust's title insurer 
in this case, is not one of the parties the CRESPA bond is 
meant to protect.  See id.  The issuance of a title insurance 
policy is a separate transaction and a separate issue from the 
 
13 
settlement transaction involving the purchase of or lending on 
the security of real estate. 
 
Accordingly, because a title insurance company is not one 
of the parties the CRESPA bond is meant to protect, we hold 
that a title insurance company does not have standing in its 
own right to maintain a cause of action against a surety and 
the surety bond issued pursuant to former Code § 6.1-
2.21(D)(3). 
 
However, Code § 38.2-207 provides that, 
when any insurer pays an insured under a contract 
of insurance which provides that the insurer 
becomes subrogated to the rights of the insured 
against any other party the insurer may enforce 
the legal liability of the other party.  This 
action may be brought in its own name or in the 
name of the insured or the insured's personal 
representative. 
 
The title insurance policies in this case provided that 
"[w]henever [FATIC] shall have settled and paid a claim under 
this policy, all right of subrogation shall vest in [FATIC, 
which] shall be subrogated to and . . .. . . entitled to all 
rights [and] remedies which [SunTrust] would have had against 
any person or property in respect to the claim had this policy 
not been issued."  The title insurance policies further provide 
that FATIC has a "right of subrogation against non-insured 
obligors," including "the rights of [SunTrust] to indemnities, 
guaranties, [and] other policies of [i]nsurance or bonds."   
Formatted: Indent: Left:  0.5"
 
14 
 
As we have previously stated, "[s]ubrogation is, in its 
simplest terms, the substitution of one party in the place of 
another with reference to a lawful claim, demand, or right so 
that the party that is substituted succeeds to the rights of 
the other."  Yellow Freight Sys., Inc. v. Courtaulds 
Performance Films, Inc., 266 Va. 57, 64, 580 S.E.2d 812, 815 
(2003).  As a subrogee of SunTrust, FATIC steps into the shoes 
of SunTrust, may assert all rights belonging to SunTrust, and 
is the real party in interest with respect to the rights to 
which it has succeeded in any litigation to enforce those 
rights.  See Allstate Ins. Co. v. Hechinger Co., 982 F. Supp. 
1169, 1172 (E.D. Va. 1997) (stating that "[a] subrogee that has 
paid out claims to its insured[] is the real party in interest 
in the subrogation litigation based on those claims.  And as 
real party in interest, the insurer-subrogee owns the 
substantive rights on which it sues") (emphasis omitted); In re 
Hutcherson, 50 B.R. 845, 851 (Bankr. E.D. Va. 1985) (observing 
that "Virginia follows the generally accepted view of 
subrogation that the subrogee steps into the shoes of the 
insured and is both entitled to assert the rights of the  
insured and is bound by any defenses valid against the 
insured").   
 
Accordingly, because the CRESPA bond required by former 
Code § 6.1-2.21(D)(3) exists to protect parties having an 
 
15 
interest in the settlement transaction, including lenders such 
as SunTrust in this case, and because FATIC, as a subrogee of 
SunTrust, has succeeded to SunTrust's relevant rights, we hold 
that a title insurance company, such as FATIC in this case, may 
have standing as a subrogee of its insured to maintain a cause 
of action against a surety and the surety bond issued pursuant 
to former Code § 6.1-2.21(D)(3).   
III. Conclusion 
We hold that: (1) CRESPA does not recognize a private 
cause of action that may be asserted against a surety and the 
surety bond issued pursuant to former Code § 6.1-2.21(D)(3); 
(2) Virginia law nonetheless permits a cause of action against 
a surety and the surety bond executed pursuant to CRESPA by the 
assertion of a common law claim; and (3) a title insurance 
company may have standing, not in its own right, but as a 
subrogee of its insured, to maintain a cause of action against 
a surety and the surety bond issued pursuant to former Code 
§ 6.1-2.21(D)(3).  Accordingly, we answer certified question 
one in the negative and certified questions two and three in 
the affirmative. 
 
 
Certified question 1 answered in the negative. 
Certified question 2 answered in the affirmative. 
Certified question 3 answered in the affirmative.