Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-13-35692/USCOURTS-ca9-13-35692-0/pdf.json

Parties Involved:
Centurion Properties III, LLC
Appellant
Chicago Title Insurance Company
Appellee
SMI Group XIV, LLC
Appellant

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

CENTURION PROPERTIES III, LLC;

SMI GROUP XIV, LLC,

Plaintiffs-Appellants,

v.

CHICAGO TITLE INSURANCE

COMPANY, a Nebraska company,

Defendant-Appellee.

No. 13-35692

D.C. No.

2:12 cv-05130

RMP

CENTURION PROPERTIES III, LLC;

SMI GROUP XIV, LLC,

Plaintiffs-Appellees,

v.

CHICAGO TITLE INSURANCE

COMPANY, a Nebraska company,

Defendant-Appellant.

No. 13-35725

DC No.

2:12 cv-05130

RMP

ORDER RE

CERTIFICATION

Appeals from the United States District Court

for the Eastern District of Washington

Rosanna Malouf Peterson, Chief District Judge, Presiding

Argued and Submitted

June 2, 2015—Seattle, Washington

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2 CENTURION PROPERTIES V. CHICAGO TITLE

Filed July 16, 2015

Before: Diarmuid F. O’Scannlain, A. Wallace Tashima,

and M. Margaret McKeown, Circuit Judges.

Order

SUMMARY*

Certification of Question to State Supreme Court

The panel certified to the Washington Supreme Court the

following question: Does a title company owe a duty of care

to third parties in the recording of legal instruments?

COUNSEL

Steven J. Wells (argued), Timothy J. Droske, Dorsey &

WhitneyLLP, Minneapolis, Minnesota; Peter S. Ehrlichman,

Todd S. Fairchild, Dorsey & Whitney LLP, Seattle,

Washington, for Plaintiffs-Appellants/Cross-Appellees.

Stephen J. Sirianni (argued), Sirianni Youtz Spoonemore

Hamburger, Seattle, Washington, for Defendant-Appellee.

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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CENTURION PROPERTIES V. CHICAGO TITLE 3

ORDER

This case arises from a dispute between plaintiffsappellants Centurion Properties III, LLC (“CPIII”) and SMI

Group XIV, LLC (“SMI”) (together, “Plaintiffs”), and

defendant-appellee Chicago Title Insurance Company

(“Chicago Title”) over whether Chicago Title breached a duty

of care to Plaintiffs, causing damages, when it recorded

unauthorized liens on CPIII’s property. We have jurisdiction

under 28 U.S.C. § 1291. The appeal turns on whether a title

company owes a duty of care to third parties in these

circumstances, which is a potentially dispositive, but

unresolved and important question in Washington law. Thus,

we respectfully certify to the Washington Supreme Court the

following question:

Does a title company owe a duty of care to

third parties in the recording of legal

instruments?

I.

CPIII was formed in 2006 to purchase a tract of real

property in Richland, Washington (the “subject property”). 

SMI, which was owned by Michael Henry (“Henry”),

controlled ten percent of CPIII. The remaining ninety percent

was owned by entities controlled by Tom Hazelrigg III and

his son, Aaron Hazelrigg. CPIII’s managing member upon its

formation was an Aaron Hazelrigg-owned company known

as Centurion Management III, LLC (“CMIII”), which owned

seventy-eight percent of CPIII.

Shortly after its formation, CPIII purchased the subject

property, which was financed by a loan from General Electric

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4 CENTURION PROPERTIES V. CHICAGO TITLE

Capital Corporation (“GECC”); in turn, the loan was secured

by a senior lien on the subject property. As a condition of the

loan, CPIII agreed not to further encumber the subject

property without GECC’s prior written approval. The GECC

Loan Agreement specified that CPIII’s failure to comply with

this condition constituted an event of default.

Chicago Title served as the escrow, closing agent, and

title insurer for the original purchase, and it also was named

trustee of GECC’s senior lien. Pursuant to this role, Chicago

Title received copies of the documents prohibiting the

recording of junior liens on the property.

In July 2007, Aaron Hazelrigg signed a junior deed of

trust to another lender, Centrum Financial Services, Inc.

(“Centrum”), encumbering the property. Chicago Title

served as the title insurer on this transaction, and it was also

tasked with recording the junior lien. Centrum provided

Chicago Title with the following instructions for recording:

You may record the Leasehold [Deed of

Trust], provided you are irrevocably

committed to insure the enclosed Mortgage,

on a mortgagee’s extended basis with

coverage of $10,000,000.00, as a valid

SECOND lien against the leasehold property

which is the subject of the commitment for

title insurance issued under the referenced file

number, subject only to matters set forth

therein.

Centrum also provided Chicago Title with another copy of

the documents prohibitingCPIIIfrom recording a second lien

against the subject property without GECC’s approval. 

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CENTURION PROPERTIES V. CHICAGO TITLE 5

Chicago Title subsequently issued the title insurance policy

and recorded the junior lien. Chicago Title later recorded

three more instruments against the subject property as a

courtesy service to Centrum.1 Chicago Title has “conced[ed]

. . . that it could be charged with actual knowledge of [the

documents prohibiting recording of junior liens] when it . . .

recorded the liens.” Centurion Props., III, LLC v. Chi. Title

Ins. Co., No. CV-12-5130-RMP, 2013 WL 3350836, at *6

(E.D. Wash. July 3, 2013).

In September 2009, GECC learned about the junior liens

on the subject property after obtaining a title report reflecting

the recordings. GECC notified CPIII that events of default

had occurred. In January 2010, GECC declared that CPIII

was in default and commenced foreclosure proceedings.

In response to the default, CPIII – now led by Henry and

SMI, rather than CMIII and the Hazelriggs – sought

replacement financing for the property. CPIII negotiated with

a potential replacement lender, CTL Capital, which at one

point indicated there was a “reasonable likelihood” that it

would be able to provide the loan. However, for reasons the

record does not directly reflect, CTL Capital backed out of

the financing. Henry indicated in affidavit testimony that he

believed, based on “lengthy experience in commercial real

estate transactions and financing,” that CTL Capital backed

out because junior liens had been recorded against the subject

property.

In February 2010, CPIII and SMI filed suit in Washington

state court against a large number of parties, including Tom

1 An additional legal instrument was recorded against the subject

property by First American Title Insurance Co.

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6 CENTURION PROPERTIES V. CHICAGO TITLE

and Aaron Hazelrigg and Centrum, alleging improper actions

taken while the Hazelriggs controlled CPIII. The case was

removed to the U.S. District Court for the Eastern District of

Washington.

CPIII subsequently declared bankruptcy after failing to

obtain replacement financing for the GECC loan. The district

court in October 2010 thus referred the case to the U.S.

Bankruptcy Court for the Eastern District of Washington,

where it became an adversary proceeding in the bankruptcy

case. In April 2011, while the adversary proceeding was

pending in bankruptcy court, Appellants amended their

complaint to assert a claim against Chicago Title for

negligence, stemming from Chicago Title’s recording of the

disputed liens. The district court accepted CPIII’s

reorganization plan before ruling on the parties’ summary

judgment motions in the adversary proceeding; thus, the case

returned to federal district court. The district court

subsequently granted summary judgment to Chicago Title on

the negligence claim, holding that Chicago Title did not owe

a duty of care to Plaintiffs. This appeal followed.

II.

A.

Certification is a means “to obtain authoritative answers

to unclear questions of state law.” Toner for Toner v. Lederle

Labs., Div. of Am. Cyanamid Co., 779 F.2d 1429, 1432 (9th

Cir. 1986). In general, its use “in a given case rests in the

sound discretion of the federal court.” Lehman Bros. v.

Schein, 416 U.S. 386, 391 (1974). Certification is

particularly appropriate “where the issues of law are complex

and have ‘significant policy implications.’” McKown v.

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CENTURION PROPERTIES V. CHICAGO TITLE 7

Simon Prop. Group Inc., 689 F.3d 1086, 1091 (9th Cir. 2012)

(quotingPerez-Farias v. Global Horizons, Inc., 668 F.3d 588,

593 (9th Cir. 2011)).

Washington state law recognizes the propriety of

certification “[w]hen in the opinion of [the] federal court

before whom a proceeding is pending, it is necessary to

ascertain the local law of [Washington] in order to dispose of

such proceeding and the local law has not been clearly

determined.” Wash Rev. Code § 2.60.020; see McKown,

689 F.3d at 1091. Thus, we have certified a question to the

Washington Supreme Court where a question of law “‘has not

been clearly determined’ by the Washington courts,” Bylsma

v. Burger King Corp., 676 F.3d 779, 783 (9th Cir. 2012)

(quoting § 2.60.020), and “the answer to [the] question is

outcome determinative,” id.

B.

Under the standards articulated above, certifying to the

Washington Supreme Court the question whether a title

company owes a duty of care to third parties when recording

legal instruments is an appropriate and reasonable exercise of

our discretion. Whether Chicago Title owed such a duty is

determinative to how this appeal will be resolved. If, as the

district court reasoned, Chicago Title owed no duty, then we

would affirm the district court’s grant of summary judgment

to Chicago Title. If Chicago Title did owe a duty of care,

then summary judgment would be inappropriate at this stage. 

In that event, we likely would remand to the district court for

a determination in the first instance as to causation, which the

parties also dispute. See Quinn v. Robinson, 783 F.2d 776,

814 (9th Cir. 1986) (“As a general rule, ‘a federal appellate

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8 CENTURION PROPERTIES V. CHICAGO TITLE

court does not consider an issue not passed upon below.’”

(quoting Singleton v. Wulff, 428 U.S. 106, 120 (1976))).

Whether a duty of care exists in these circumstances is a

matter of Washington common law. In determining the

existence and scope of a duty, Washington courts weigh

“considerations of ‘logic, common sense, justice, policy, and

precedent.’” Snyder v. Med. Serv. Corp. of E. Wash., 35 P.3d

1158, 1164 (Wash. 2001) (quoting Lords v. N. Auto. Corp.,

881 P.2d 256, 260 (Wash. Ct. App. 1994)).

To date, no Washington case has addressed whether a title

company owes a duty of care to third parties to refrain from

negligently recording legal instruments. Plausible arguments

can be made on both sides.

Washington courts have concluded that professionals owe

duties of care to third parties in other contexts. For example,

in Affiliated FM Insurance Co. v. LTK Consulting Services,

Inc., the Washington Supreme Court concluded that an

engineering firm owed a duty of care – to refrain from

producing negligent designs – to third parties who

foreseeablymight be injured by the products of those designs. 

243 P.3d 521, 528 (Wash. 2010). Washington courts have

indicated that similar duties of care exist in some instances

for accountants and real estate appraisers. See Schaaf v.

Highfield, 896 P.2d 665, 670 (Wash. 1995); Dewar v. Smith,

342 P.3d 328, 334–35 (Wash. Ct. App. 2015).

According to Plaintiffs, title companies occupy a position

of public trust similar to engineers and accountants, see White

v. W. Title Ins. Co., 710 P.2d 309, 315–16 (Cal. 1986) (“A

title company is engaged in a business affected with the

public interest . . . .”), and ought to be held liable insofar as

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CENTURION PROPERTIES V. CHICAGO TITLE 9

their negligence in recording legal instruments affects

foreseeable victims. For this proposition, Plaintiffs lean

heavily on the Washington Supreme Court’s decision in

Affiliated FM. However, Affiliated FM arguably gave special

treatment to engineers because of the propensity of their work

to result in physical injury. Affiliated FM, 243 P.3d at 528

(“An interest we must consider is the safety of persons and

property from physical injury, an interest that the law of torts

protects vigorously.”). Further, title companies engaged in

the recording of legal instruments may be different from other

professionals because recording typicallydoes not involve the

exercise of professional discretion, as does the provision of

accounting or appraisal services.2

See McLean v. City of N.Y.,

905 N.E.2d 1167, 1173 (N.Y. 2009) (“[M]inisterial acts may

support liability only where a special duty is found.”). We

cannot extrapolate from Affiliated FM that the Washington

Supreme Court would extend a duty of care to companies

recording legal instruments.

Chicago Title’s arguments are equally unsatisfactory. 

Chicago Title emphasizes that the Washington Supreme

Court has held that title companies do not owe tort duties to

contracting parties when issuing “preliminary commitments”

for title insurance, which, according to Chicago Title, means

that Washington courts would not approve of title companies’

owing duties to third parties. See Barstad v. Stewart Title

Guar. Co., 39 P.3d 984, 988 (Wash. 2002); Klickman v. Title

Guar. Co. of Lewis Cnty., 716 P.2d 840, 842 (Wash. 1986). 

Although these precedents arguably suggest a reticence to

impose duties on title companies beyond those they assume

2 We note, however, that Plaintiffs presented plausible evidence that

Centrum instructed Chicago Title to record the disputed liens only if they

were valid, thereby calling on Chicago Title’s professional discretion.

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10 CENTURION PROPERTIES V. CHICAGO TITLE

through contract, that is not the only reasonable

interpretation. That tort duties do not attach when a title

company issues “a statement submitted to the potential

insured establishing the terms and conditions upon which the

title insurer is willing to issue a title policy” does not prove

that title companies have blanket immunity from tort liability. 

Barstad, 39 P.3d at 988 (citing Wash Rev. Code

§ 48.29.010(3)(c)). Considerations of “logic, common sense,

justice, policy, and precedent” may counsel for more

expansive liability when a title company actually acts on

behalf of a client. Snyder, 35 P.3d at 1164 (quoting Lords,

881 P.2d at 260).

Precedent outside of Washington is also inconclusive. 

We are aware of only two cases to address whether title

companies owe a duty of care to third parties. In the first

case, Seeley v. Seymour, the California Court of Appeal

concluded emphatically that the title company defendant did

owe a duty of care to a third party to refrain from negligent

recording of title documents. 237 Cal. Rptr. 282, 291–92 (Ct.

App. 1987) (“As institutions charged with the public trust, it

is important that [title companies] be held accountable when

their negligent acts result in economic harm to individual

property interests.”). In the other case, Luce v. State Title

Agency, Inc., the Court of Appeals of Arizona reached

precisely the opposite conclusion. 950 P.2d 159, 162 (Ariz.

Ct. App. 1997).

In sum, there is no way accurately to predict how the

Washington Supreme Court would decide this matter. “Our

task, when sitting in diversity, is to ask ourselves what the

Washington Supreme Court would do with this case . . . . 

Simply put, we just do not know what it would do.” 

McKown, 689 F.3d at 1093–94. Any decision by the panel

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CENTURION PROPERTIES V. CHICAGO TITLE 11

essentially would be making a policy judgment that lies

properly within the purview of the Washington Supreme

Court.3

Holding that title companies owe duties to third parties

when recording legal instruments might have a significant

impact on how the title industry and recording generally

operates in Washington. Cf. Keystone Land & Dev. Co. v.

Xerox Corp., 353 F.3d 1093, 1097 (9th Cir. 2003) (certifying

question to the Washington Supreme Court, in part, because

of potential “far-reaching effects on those who contract in, or

are subject to, Washington law”). These concerns are

particularly acute given Washington courts’ insistence on a

stable, orderly recording system. See Ellingsen v. Franklin

Cnty., 810 P.2d 910, 913 (Wash. 1991). We take no position

on the issue; we merely wish to indicate that the common

law issue at bench is a weighty one, and that Washington’s

own courts are best suited to decide it.

III.

In light of the foregoing discussion, we hereby certify the

following question to the Washington Supreme Court:

Does a title company owe a duty of care to

third parties in the recording of legal

instruments?

3 Ordinarily, we are hesitant to certify a question when certification is

requested for the first time on appeal. Thompson, 547 F.3d at 1065. The

question presented here, however, “raise[s] important policy

considerations that only Washington state can answer.” McKown,

689 F.3d at 1094.

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12 CENTURION PROPERTIES V. CHICAGO TITLE

In framing the question this way, “[w]e do not intend to

restrict the Washington Supreme Court’s consideration ofthis

issue, and we recognize that it may reformulate the question.” 

Queen Anne Park Homeowners Ass’n v. State Farm Fire &

Cas. Co., 763 F.3d 1232, 1235 (9th Cir. 2014).

The Clerk of Court is hereby ordered to transmit to the

Washington Supreme Court, under official seal of the United

States Court of Appeals for the Ninth Circuit, a copy of this

order and all briefs and excerpts of record pursuant to Wash.

Rev. Code §§ 2.60.010(4), 2.60.030(2), and Wash. R. App. P.

16.16.

If the Washington Supreme Court accepts the certified

question, we designate appellant CPIII as the party to file the

first brief pursuant to Wash. R. App. P. 16.16(e)(1).

We hereby vacate submission and stay further

proceedings in this court pending the Washington Supreme

Court’s decision whether it will accept the certified question

and, if so, receipt of the Washington Supreme Court’s answer

to the certified question. The panel will resume control and

jurisdiction upon receipt of an answer to the certified question

or upon the Washington Supreme Court’s decision to not

accept the certified question.

When the Washington Supreme Court decides whether or

not to accept the certified question, the parties shall file

promptly a joint status report informing this court of the

decision. If the Washington Supreme Court accepts the

certified question, the parties shall file a further joint status

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CENTURION PROPERTIES V. CHICAGO TITLE 13

report informing this court when the Washington Supreme

Court issues an answer to the certified question promptly

upon the issuance of that determination.

IT IS SO ORDERED.

___________________________________

Chief Judge Sidney R. Thomas

U.S. Court of Appeals for the Ninth Circuit

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