Title: Ex parte M & F Bank. PETITION FOR WRIT OF MANDAMUS: CIVIL (In re: M & F Bank v. First American Title Insurance Company)

State: alabama

Issuer: Alabama Supreme Court

Document:

REL: 09/17/2010
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
SPECIAL TERM, 2010
____________________
1090891
____________________
Ex parte M & F Bank
PETITION FOR WRIT OF MANDAMUS
(In re: M & F Bank
v.
First American Title Insurance Company)
(Jefferson Circuit Court, CV-08-903787)
PER CURIAM.
M & F Bank ("M & F") petitions this Court for a writ of
mandamus compelling the Jefferson Circuit Court to vacate its
1090891
According to an affidavit from Chris Eckroate, the
1
project engineer for the Old Towne Station subdivision
development, and as conceded by M & F's attorney in a hearing
on the motion below, a lot apparently was labeled "Lot 95" on
the plat after it was recorded.  
2
order setting aside a previous order in which it had granted
M & F's motion to strike and/or quash subpoenas issued by the
respondent, First American Title Insurance Company ("First
American"), to depose certain individuals.  We deny the
petition.  
I.  Facts and Procedural History
On December 19, 2006, a plat for a subdivision referred
to as Old Towne Station was recorded in the office of the
Judge of Probate of Lee County.  The plat showed lots numbered
1 through 94; it did not show a lot 95.   On December 28,
1
2006, The Shoppes at Old Towne Station, LLC ("the debtor"),
executed a note in favor of M & F evidencing an indebtedness
of $2,855,000; the note purportedly was secured by a mortgage
on "lot 95" of Old Towne Station.  On January 24, 2007, First
American, through its agent, Blue Title, LLC, issued a title-
insurance policy ("the policy") to M & F insuring M & F's
purported interest as mortgagee in lot 95.
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Blue Title has since been dismissed from this action.
2
3
The debtor subsequently defaulted on the loan.  As a
result of the "title work" performed in preparation for a
foreclosure on the mortgage, M & F discovered that lot 95 was
not included on the recorded plat.  On October 29, 2008, M &
F notified First American that it was making a claim under its
title-insurance policy.  On November 19, 2008, M & F --
represented by attorney Burt Newsome -- filed an action
against Blue Title and First American in the Jefferson Circuit
Court, alleging breach of contract.   On April 27, 2009, M & F
2
amended its complaint to include claims of negligence and bad
faith against First American. 
After being served with process in the action filed by
M & F, First American hired attorney Mark Davis to file an
action in the name of M & F seeking a reformation of the
mortgage held by M & F and insured by First American; Davis
filed the action in the Lee Circuit Court on March 20, 2009,
naming as defendants the debtor and certain purported
lienholders.   First American purported to take this action in
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First American contends that the stipulations state,
3
among other things, that 
"[First American] shall have the right, at its own
cost, to institute and prosecute any action or
proceeding or to do any other act which in its
opinion may be necessary or desirable to establish
the title to the estate or interest or the lien of
the insured mortgage, as insured, or to prevent or
reduce loss or damage to the insured."  
According to First American, a further stipulation
states: 
"In all cases where this policy permits or requires
[First American] to prosecute or provide for the
defense of any action or proceeding, the insured
shall secure to [First American] the right to so
prosecute and provide defense in the action or the
proceeding, and all appeals therein, and permit
[First American] to use, at its option, the name of
the insured for this purpose."  
4
accordance with what it contends were stipulations in the
policy it had issued to M & F.  
3
On March 13, 2009, the debtor filed a petition in the
United States Bankruptcy Court for the Northern District of
Alabama ("the bankruptcy court") declaring  bankruptcy under
Chapter 7 of the United States Bankruptcy Code.  The debtor
hired attorney Steven Altman to represent it in the bankruptcy
proceedings.  The bankruptcy court appointed André Toffel, an
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First American asserts, and M & F does not dispute, that
4
Toffel has acted in his capacity as bankruptcy trustee in
relation to the underlying litigation, and not as an attorney.
5
attorney, as bankruptcy trustee.   In turn, Toffel hired
4
attorney Stephen Porterfield to represent the trustee's
interests in the bankruptcy proceedings.  First American
subsequently hired attorney Rick Johanson to initiate an
adversary proceeding in the bankruptcy court in the name of
M & F against the debtor, the trustee, and other parties
seeking reformation of the mortgage deed; Johanson filed a
complaint in the bankruptcy court for this purpose on July 8,
2009.  
On July 27, 2009, Porterfield filed on behalf of
Toffel, as trustee, an application with the bankruptcy court
to sell the property that is the subject of the M & F mortgage
free and clear of all liens.  In effect, Toffel sought to
render the mortgage to M & F of no effect.
Toffel subsequently filed an answer in the adversary
proceeding initiated by Johanson on behalf of M & F; Toffel
asserted affirmative defenses, including that he was what is
known as an "ideal bona fide purchaser" under 11 U.S.C.
§ 544(a) and in that capacity would be able to take the
property at issue free of any mortgage interest held by M & F.
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6
In addition, Toffel and Johanson filed competing motions
for a summary judgment in the adversary proceeding in which
they debated whether Toffel was an "ideal bona fide purchaser"
under 11 U.S.C. § 544(a) and as such would be able to take the
property free of M & F's mortgage.  
First American asserts in its answer to this Court:
"In an extraordinary twist of events, M & F's
counsel, Mr. Newsome, actually had communications
with Toffel and Porterfield regarding research he
had 
done 
for 
them 
and 
critiquing 
the 
brief
Porterfield was preparing in support of their motion
for summary judgment against [M & F,] Mr. Newsome's
client. ...  Mr. Newsome was actually doing research
and assisting his client's adversary who was
attempting to have [M & F] determined to be an
unsecured creditor."
First American also asserts that, in the course of preparing
submissions for the bankruptcy court on behalf of M & F,
Newsome had conversations with the debtor's attorney, Altman,
concerning Toffel's filings with the bankruptcy court.
M & F contends that Newsome engaged in the aforesaid
communications because a resolution of M & F's action against
First American "would have to involve both the debtor's
attorney and the Chapter 7 Trustee."  M & F claims that
Newsome 
"had 
negotiations 
looking 
to 
compromise 
the
outstanding 
controversies 
with 
the 
debtor's 
attorney 
[Altman],
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7
the Chapter 7 Trustee [Toffel,] and the attorney for the
Chapter 7 Trustee [Porterfield]."  M & F also insists that it
"shares common interests" with Altman, Toffel, and Porterfield
because it asserts in the Jefferson Circuit Court action that
the M & F mortgage on the property is void, and the debtor and
Toffel contended in the bankruptcy court that the mortgage is
void.
On December 10, 2009, the bankruptcy court entered a
summary judgment in favor of M & F and against Toffel with
respect to the affirmative defenses asserted by Toffel in the
adversary proceeding, including the defense that Toffel was an
"ideal bona fide purchaser" under 11 U.S.C. § 544(a).  In so
doing, the bankruptcy court declined to conclude that the M &
F mortgage was invalid.  
On January 19, 2010, First American filed in the
Jefferson Circuit Court action subpoenas for notices of
deposition and requests for the production of documents to
Altman, 
Toffel, 
and 
Porterfield 
concerning 
their
communications with M & F attorney Newsome.  First American
contended that it needed the information to determine M & F's
role in attempting to have its own mortgage invalidated
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8
because, according to First American, such activity would bear
directly on First American's defense of the negligence, bad-
faith, and breach-of-contract claims brought against it by
M & F.  
On February 9, 2010, M & F, through Newsome, filed a
motion in the bankruptcy court to remand the adversary
proceeding that had been filed on M & F's behalf to the state
court.  In the alternative, M & F requested that the
bankruptcy court join First American as an indispensable party
to the action.  On March 22, 2010, M & F filed a motion
pursuant to Rule 60(b), Fed. R. Civ. P., in which M & F
contended for the first time that Johanson had no authority to
file an adversary proceeding on M & F's behalf because the
policy First American issued to M & F did not contain
stipulations (such as those quoted in note 3 supra) that
allowed First American to take such an action.  It contended
that the bankruptcy court accordingly should vacate its prior
summary judgment in M & F's favor.
On January 29, 2010, M & F filed a motion to quash and/or
to strike the subpoenas, which the Jefferson Circuit Court
granted on February 5, 2010.  On February 9, 2010, First
1090891
9
American filed a motion to reconsider or to set aside the
circuit court's order granting the motion to quash and/or to
strike.  The circuit court denied the motion on the following
day.  On February 10, 2010, First American filed a renewed
motion to reconsider or to set aside the circuit court's order
granting M & F's motion to quash and/or to strike.  On
March 25, 2010, the circuit court granted First American's
motion and set aside its order granting the motion to quash
and/or to strike.  Four days later, M & F filed the present
mandamus petition.
II.  Standard of Review
This Court reviews a trial court's discovery orders only
"[i]n certain exceptional cases," one of which is "when a
privilege is disregarded."  Ex parte Ocwen Federal Bank, FSB,
872 So. 2d 810, 813 (Ala. 2003).  
"'Mandamus is a drastic and extraordinary writ, to
be issued only where there is (1) a clear legal
right in the petitioner to the order sought; (2) an
imperative duty upon the respondent to perform,
accompanied by a refusal to do so; (3) the lack of
another adequate remedy; and (4) properly invoked
jurisdiction of the court.'  Ex parte Integon Corp.,
672 So. 2d 497, 499 (Ala. 1995).  ...  Our review is
further limited to those facts that were before the
trial court.  Ex parte American Resources Ins. Co.,
663 So. 2d 932, 936 (Ala. 1995)." 
1090891
10
Ex parte National Sec. Ins. Co., 727 So. 2d 788, 789 (Ala.
1998).  
III.  Analysis
As recounted above, the circuit court granted First
American's renewed motion to set aside the circuit court's
order granting M & F's motion to quash and/or to strike First
American's subpoenas to take the depositions of Altman,
Toffel, and Porterfield.  The circuit court reasoned as
follows:
"Under the Alabama Rules of Civil Procedure,
'Parties may obtain discovery of any matter, not
privileged ... if the information sought appears
reasonably calculated to lead to the discovery of
admissible evidence.'  Ala. R. Civ. P. 26(b)(1).  [M
& F] supports its motion [to strike] upon Ala. R.
Evid. 
408, 
which 
states 
that 
compromise 
and
compromise negotiations are not admissible.  Rule
408, however, is an exclusionary rule -- it does not
proscribe the discovery of compromise negotiations,
it merely excludes such negotiations from being
presented at trial.  Notably, Rule 408 does not
declare compromise actions as privileged and, thus,
they do not fall within the category of discovery
proscribed by Rule 26(b)(1).  ...  
"Therefore, the Court deems that, at the very
least, the discovery requested bears on the issue of
the obligation of M & F Bank to mitigate its damages
and, thus, the Court finds that [First American's]
request appears reasonably calculated to lead to the
discovery of admissible evidence.  Whether such
evidence is admissible is a question which has yet
to ripen."
1090891
11
In its petition, M & F does not present an argument
concerning Rule 408, Ala. R. Evid., or explain how the circuit
court erred in its understanding of the limits of that rule as
it relates to the separate action brought by M & F against
First 
American. 
 
Instead, 
M 
& 
F 
contends 
that 
the
communications 
between 
Newsome, 
Altman, 
Toffel, 
and
Porterfield constitute privileged communications between
attorneys representing parties with common interests pursuant
to Rule 502(b)(3), Ala. R. Evid.  Rule 502(b)(3), Ala. R.
Evid., provides, in pertinent part:
"A client has a privilege to refuse to disclose and
to prevent any other person from disclosing a
confidential communication made for the purpose of
facilitating the rendition of professional legal
services to the client ... by the client or a
representative of the client or the client's
attorney or a representative of the attorney to an
attorney 
or 
a 
representative 
of 
an 
attorney
representing another party concerning a matter of
common interest ...."
For all that appears, however, M & F did not present the
circuit court with an argument concerning Rule 502(b)(3), Ala.
R. Evid., in the course of urging that court to quash and/or
strike the subpoenas for deposition filed by First American.
M & F attaches the transcript of the hearing on First
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12
American's renewed motion to reconsider or to set aside the
circuit court's order granting the motion to quash and/or to
strike the subpoenas, but the transcript contains no mention
of Rule 502 or any argument that the communications between
Newsome, Altman, Toffel, and Porterfield are privileged
communications between attorneys representing parties with
common interests.  The hearing focused entirely on Rule 408,
Ala. R. Evid., and whether the policy First American issued to
M & F contained stipulations that permitted First American to
file an action on M & F's behalf.  We do not have the written
submissions of the parties concerning the motion before the
circuit court, but it is the responsibility of the petitioner
for a writ of mandamus to provide this Court with enough of
the materials below to enable this Court to make a ruling in
the petitioner's favor.  See, e.g., Ex parte Ocwen, 872 So. 2d
at 814 n.6 (explaining that "[t]he petitioner has the
responsibility of supplying the Court with those parts of the
record that are essential to an understanding of the issues
set forth in the mandamus petition.  Rule 21(a), Ala. R. App.
P.").  Because it does not appear that the circuit court was
presented with an argument concerning Rule 502(b)(3), we will
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13
not consider that argument as a reason for issuing the writ of
mandamus.  See Ex parte Ebbers, 871 So. 2d 776, 786 (Ala.
2003) (stating that "'the appellate courts will not reverse
the trial court on an issue or contention not presented to the
trial court for its consideration in making its ruling.'"
(quoting Ex parte Wiginton, 743 So. 2d 1071, 1073 (Ala.
1999))); see also Ex parte Ocwen, 872 So. 2d at 814 (refusing
to issue a writ of mandamus based on an argument as to which
the trial court has not made the necessary findings of fact).
Though M & F never mentions Rule 408, Ala. R. Evid., in
its petition, it does spend one page in its petition
contending that 
"M & F, through its attorney, negotiated with the
attorneys for the debtor and the Chapter 7 Trustee
and the Chapter 7 Trustee himself (who is also an
attorney) 
looking 
to 
a 
compromise 
of 
the
controversies in an effort to effect a global
resolution of the case and dispose of the entire
matter."  
M & F quotes Ford v. Bradford, 212 Ala. 515, 518, 103 So. 549,
551 (1925), for the proposition that "[n]egotiations looking
to 
a 
compromise 
of 
controversies 
are 
privileged
communications.  This ... on grounds of public policy ...."
It cites Super Valu Stores, Inc. v. Peterson, 506 So. 2d 317,
1090891
14
321 (Ala. 1987), as support for its assertion that "the logic
behind the privileged nature of settlement negotiations is the
encouragement of the settlement of controversies."
It is unclear to this Court how M & F's provision of
advice and assistance to Altman, Toffel, and Porterfield
concerning Toffel's motion to have M & F's own mortgage
rendered 
invalid 
or 
ineffective 
constitutes 
compromise
negotiations.  Further, as the circuit court explained, Rule
408, Ala. R. Evid., does not place a complete bar on the
discovery 
of 
evidence 
concerning 
negotiations 
and 
settlements.
It merely limits the admissibility of such evidence.
Specifically, "a party seeking discovery of documents relating
to settlement negotiations must make a 'particularized
showing' that the requested documents are relevant and likely
to lead to the discovery of admissible evidence."  Ex parte
Water Works & Sewer Bd. of Birmingham, 723 So. 2d 41, 44 (Ala.
1998) (citing Bottaro v. Hatton Assocs., 96 F.R.D. 158, 160
(E.D.N.Y.1982)).  
The 
circuit 
court 
concluded 
that 
First 
American
demonstrated that at the very least the depositions would lead
to discoverable evidence concerning M & F's duty to mitigate
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15
its damage.  It also is apparent that the depositions could
lead to discoverable evidence concerning First American's
defense to M & F's bad-faith claim, if not also to evidence
concerning its defense to M & F's other claims.  M & F does
not dispute that the depositions could lead to discoverable
evidence. 
 
It 
simply 
insists 
repeatedly 
that 
such
communications are privileged under Rule 502(b)(3). 
IV.  Conclusion
Based on what M & F presented to the circuit court and to
this Court, we cannot conclude that it is entitled to a writ
of mandamus directing the circuit court to reverse its order
setting aside its earlier order granting M & F's motion to
strike and/or quash the subpoenas.  Accordingly, its petition
is denied.
PETITION DENIED.
Cobb, C.J., and Lyons, Stuart, Bolin, and Murdock, JJ.,
concur.