Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almb-3_07-ap-08052/USCOURTS-almb-3_07-ap-08052-1/pdf.json

Parties Involved:
United General Title Insurance Company
Plaintiff
Clinton L. Jordan
Defendant
Tracy A. Jordan
Defendant

Document Text:

UNITED STATES BANKRUPTCY COURT

MIDDLE DISTRICT OF ALABAMA

In re Case No. 07-80222-DHW

Chapter 7

CLINTON L. JORDAN and

TRACY A. JORDAN,

Debtors.

____________________________

UNITED GENERAL TITLE

INSURANCE COMPANY,

Plaintiff,

v. Adv. Proc. No. 07-08052-DHW

CLINTON L. JORDAN and

TRACY A. JORDAN,

Defendants.

MEMORANDUM OPINION

Before the court is the complaint filed by United General Title Insurance

Company (“United General”) seeking a determination that its claim against

Clinton L. and Tracy A. Jordan (“Jordans” or “debtors”) is nondischargeable

pursuant to 11 U.S.C. § 523(a)(6). For the reasons that follow, the court

concludes that the Jordan’s debt to United General is dischargeable. 

JURISDICTION

The court derives its jurisdiction in this proceeding from28 U.S.C. § 1334

and from an order of the United States District Court for this district referring

title 11 jurisdiction to this court. See General Order of Reference of Bankruptcy

Matters (M.D. Ala. Apr. 25, 1985). Further, because this proceeding is one to

determine the dischargeability of a particular debt, this is a core proceeding

under 28 U.S.C. § 157(b)(2)(I), and the court’s jurisdiction extends to the entry

of a final judgment or order. 

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FACTUAL FINDINGS AND PROCEDURAL BACKGROUND

On February 2, 2008, United General filed a motion for summary

judgment in this proceeding (Doc. #29). Following a March 17, 2008 hearing,

the court entered a memorandum opinion (Doc. #37) and order (Doc. #38)

granting the motion in part finding that the Jordans had willfully and

maliciously converted sale proceeds, but denying the motion in part concluding

that, as to the element of injury to property, United General was not entitled to

summary judgment. A copy of the memorandum opinion addressing United

General’s motion for summary judgment is attached hereto. Therein is a

recitation of the relevant facts which neither party disputes and which the court

adopts here as its final finding of facts. 

On April 28, 2008, a trial was held on the limited issue of the extent of the

injury, if any, to United General’s property. At trial, neither party presented any

further evidence. United General, however, argued that as a result of the

Jordan’s conversion of sale proceeds, it had sustained an injury to its property

that is equal to the amount of its claim.

LEGAL CONCLUSIONS

Because this court was not persuaded that the undisputed facts necessarily

led to the conclusion that United General had suffered an injury to its property

interest, United General’s earlier motion for summary judgment was denied. In

reaching that result, the court was impressed by the fact that United General

brought this dischargeability complaint as the assignee of Phenix-Girard. As an

assignee, United General’s rights were the same as, but not greater than, those

of the assignor, Phenix-Girard. Although the Jordans failed to pay PhenixGirard the proceeds from the sale of the mortgaged realty, at the end of the day,

Phenix-Girard’s mortgage lien on the realty was unaffected by the sale. PhenixGirard’s remedy of foreclosure remained intact and would have mitigated, if not

completely satisfied, its claim against the Jordans. See Memorandum Opinion

(Doc. #37).

United General makes a number of arguments in support of its contention

that an injury to its property interest indeed resulted from the Jordans’

conversion of the sale proceeds. First, it contends generally that discharging this

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 That fact, however, is not entirely certain in that the conveyance was 1

accomplished by means of a quit claim deed. 

 Although the title insurance policy protected only IndyMac Bank’s interest and 2

not that of the Ivorys, the Ivorys nevertheless may have an enforceable interest in that

contract as third-party beneficiaries. 

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debt leaves “United General in the untenable position of having to foreclose on

the individuals that dutifully paid the Jordans. Allowing the Jordans to walk

away from their actions without consequence is simply inequitable and unjust.”

Brief of United General, Doc. #43, p. 9. 

The court does not dispute that the Ivorys’ property interest may have

been harmed by the failure of the Jordan’s to pay off the mortgage on the

transferred realty. There is no indication that the Ivorys intended to purchase

the Jordans’ realty subject to the mortgage of Phenix-Girard, and one would

expect that they intended to buy the property free of any mortgage. If so, their 1

property interest may have been harmed by the Jordans’ failure to satisfy an

existing mortgage with the sales proceeds. Yet, the Ivorys did not file a

complaint to determine the nondischargeability of their claim.

Further, United General contends that a finding of nondischargeability

would result in inequitable and unjust harm to the Ivorys because United

General would foreclose its mortgage on the Ivorys’ realty. The court is not

persuaded by that argument. United General provided IndyMac Bank with a

title insurance policy insuring it against loss or damage arising out of a defect

in the title. Through its own negligence, or that of its agent, United General

failed to discover the Phenix-Girard mortgage. When IndyMac Bank made a

claim under that policy, United General satisfied the Phenix-Girard mortgage

and took an assignment. Its duty to IndyMac arising under the title insurance

policy would no more allow it to foreclose the mortgage than it would to have

allowed Phenix-Girard to do so prior to the assignment. Should United General

foreclose its first lien position, it would necessarily breach its duties under the

title insurance policy to IndyMac Bank. Hence, in the view of the court, United 2

General’s implied threat of foreclosure is a hollow one. 

Next, United General cites the court to authority standing for the

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 The authority cited includes Landsman Packing Co., Inc. v. Continental Can 3

Co., 864 F.2d 721 (11 Cir. 1989); American General Finance v. Taylor (In re Taylor), th

187 B.R. 736 (Bankr. N.D. Ala. 1995); Call Federal Credit Union v. Sweeney (In re

Sweeney), 264 B.R. 866 (W.D. Ky. 2001). While Landsman Packing Co. is discussed

supra, no further discussion of the holdings in Taylor and Sweeney is needed. In each

of those cases, the collateral conversion was complete, leaving the creditor with no

possibility of mitigation unlike the case at bar.

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proposition that “the measure of the damages is the value of the property

converted at the time of conversion plus interest.” Id at 9. United General 3

reasons that its damage is pegged at the amount of the sales proceeds, which is

tantamount to its entire claim as of the time of the sale. 

In Landsman Packing Co. v.Continental Can Co., 864 F.2d 721 (11 Cir. th

1989), the Eleventh Circuit Court of Appeals did indeed state that in conversion

cases the general measure of damages is the “fair and reasonable market value

at the time of the conversion plus interest.” Id. at 733. Yet, the court went on

to observe that those damages would be mitigated by the tortfeasor’s return of

the converted property. Id. at 734 n.25. That result is not dissimilar to the case

at bar where foreclosure would have mitigated Phenix-Girard’s damages.

Although the Jordans’ conversion deprived Phenix-Girard of the sale proceeds,

Phenix-Girard could not forego remedies (here foreclosure) which could

potentially make it whole. Indeed, Phenix-Girard was in the process of

foreclosing when United General purchased its claim. If foreclosure would have

resulted in the satisfaction of its claim, Phenix-Girard would have fully

mitigated its damages resulting from the conversion.

 

Next, United General contends that in intentional tort cases, plaintiffs

have a lesser duty to mitigate damages. Brief of United General, Doc. #43, p.

9. See Stifel, Nicolaus & Co. v. Smithson (In re Smithson), 372 B.R. 913, 919

n.1 (Bankr. E.D. Mo. 2007) (citing Restatement (Second) of Torts § 918(2)) and

Washington Mutual Bank v. Dubovoy (In re Dubovoy), 377 B.R. 705 (Bankr.

M.D. Fla. 2006). 

The Smithson court, however, did not conclude that the plaintiff had no

duty to mitigate damages. Under 11 U.S.C. § 523(a)(6), a debt is not

dischargeable in bankruptcy if it is the result of a willful and malicious injury

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 United General posits that because the Dubovoy court did not require the 4

mortgagee to mitigate by filing an action to revive its mortgage, the court intimated that

mitigation in a collateral conversion case is not required. This court disagrees. Efforts

at mitigation are not required if such efforts would prove futile. In Dubovoy a suit to

reinstate a mortgage on property which was by then in the hands of a bona fide

purchaser would likely have been viewed as futile, rendering it a non-issue.

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to the property of another. That debt is determined, that is, liquidated, by

applying traditional elements used in calculating damages, including the element

of mitigation. 

In Dubovoy the creditor had mistakenly released its mortgage on the

debtor’s realty. The debtor sold the property and did not pay the sale proceeds

to the creditor. The court found that the failure to remit the sale proceeds

constituted a willful and malicious injury to the creditor’s property and that the

debt was nondischargeable. Id. at 711. In brief, United General notes that the

court in Dubovoy did not hold the creditor accountable for erroneously releasing

its mortgage and did not require it to mitigate damages such as by seeking to

revive its mortgage. 

The Dubovoy decision and this court’s holding are not at odds. In both

cases it was found that the debtors acted willfully and maliciously when they

sold mortgaged property and failed to pay the sales proceeds to the creditor. 

The ultimate holdings differ only because of factual distinctions. In Dubovoy,

at the time of the sale, the mortgagee had mistakenly released its mortgage.

Once the property was sold to a third party, the only remaining interest of the

mortgagee was in the sales proceeds. When those proceeds were converted, 4

the mortgagee had no other avenue to pursue recovery. These facts are

distinguishable from the case at bar because here the mortgagee, after the

conversion of the sales proceeds, retained its in rem rights in the collateral

which, if pursued, would mitigate, if not eliminate, its claim. 

Finally, United General contends that under Alabama law “a creditor is

not required to foreclose its interest in collateral, but can instead look to its

debtor for payment.” Brief of United General, Doc. #43, p. 11. In support of

this statement, United General cites to Morris v. Fidelity Mortgage Bond Co.,

187 Ala. 262, 65 So. 810 (1914), overruled on other grounds, Fidelity Mortgage

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Bond Co. v. Morris, 191 Ala. 318, 68 So. 153 (1915). There the Court stated

that “[t]he holder of the note and mortgage is not required to first foreclose the

mortgage, but may bring his action on the note alone.” Id. at 811. The Morris

court goes on to state: “A mortgagee may, in the absence of an agreement to the

contrary, proceed on all of his remedies at once, or use such of his remedies as

will give him the easiest relief against the mortgagor or a subsequent

incumbrancer or assignee.” Id. at 811. Relying on Morris, United General

states: 

The Jordans liability for the indebtedness to United General cannot

be discharged simply because United General has another source

of recovery. If such were the case, no creditor would be able to

seek damages for willful and malicious conversion (inside

bankruptcy or otherwise) until and unless the creditor had first

exhausted all other possibilities of recovery. 

Brief of United General, Doc. #43, p. 11. To the extent that the above quote

means that a conversion plaintiff has no duty to mitigate damages, the court

disagrees. If a defendant destroys the collateral of a plaintiff, a plaintiff may

have no other option besides a claim for the monetary value of the collateral.

However, in the instant case, although the Jordans converted the sale proceeds,

they did nothing to destroy the interest of Phenix-Girard in the real property. At

the time of the conversion, the value of the real property exceeded the claim of

Phenix-Girard, and Phenix-Girard was protected from injury by the value of the

property. United General purchased the claim of Phenix-Girard. If PhenixGirard had no injury, United General has none either. 

 

CONCLUSION

This conclusion is not one that the court reaches lightly or without second

thoughts. This decision means that the Jordans, who knowingly failed to pay

over proceeds from the sale of mortgaged property, see that mortgage claim

discharged in bankruptcy. Yet, the plaintiff has not met its burden of showing

that the conversion resulted in an injury. 

United General contracted to insure this realty against defects in title or

other encumbrances. Through its negligence, it failed to discover a recorded

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mortgage against the subject property. It now finds itself in the rather unique

position of not being able to foreclose because of its obligations under the title

insurance policy but also being unable to prove an injury absent foreclosure.

Again, this predicament was brought about by its own negligence.

For these reasons and pursuant to Fed. R. Bankr. Proc. 9021, a separate

order will enter finding United General’s claim against the Jordans

dischargeable.

Done this the 3 day of July, 2008. rd

/s/ Dwight H. Williams, Jr.

 United States Bankruptcy Judge

c: Jeremy L. Retherford, Plaintiff’s Attorney

 F. Patrick Loftin, Defendants’ Attorney

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