UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

CLINTON DAVID, INCORPORATED, a

South Carolina Corporation;

MCMILLAN'S FLYING TIGERS,

INCORPORATED, RETIREMENT TRUST,

a/k/a McMillan's Flying Tigers,

Incorporated, Retirement Trust,

No. 98-1305

Plaintiffs-Appellees,

v.

LAWYERS TITLE INSURANCE

CORPORATION,

Defendant-Appellant.

Appeal from the United States District Court

for the District of South Carolina, at Charleston.

David C. Norton, District Judge.

(CA-96-980-2-18)

Argued: October 26, 1998

Decided: March 10, 1999

Before WILKINSON, Chief Judge, MURNAGHAN, Circuit Judge,

and MOON, United States District Judge for the

Western District of Virginia, sitting by designation.

_________________________________________________________________

Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: Griffin Vann Canada, Jr., MILES & STOCKBRIDGE,

P.C., Rockville, Maryland, for Appellant. Gedney Main Howe, III,
GEDNEY M. HOWE, III, P.A., Charleston, South Carolina, for

Appellees. ON BRIEF: J. Stephen McAuliffe, III, MILES &

STOCKBRIDGE, P.C., Rockville, Maryland; Michael W. Tighe,

Louis H. Lang, CALLISON, TIGHE, ROBINSON & HAWKINS,

Columbia, South Carolina, for Appellant.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Clinton David, Inc. ("Clinton David") and McMillan's Flying

Tigers, Inc., Retirement Trust ("Trust") sued Lawyers Title Insurance

Corporation ("Lawyers Title"), alleging that Lawyers Title breached

its obligations under a title insurance policy. After a two-day bench

trial, the district court granted judgment in favor of Clinton David and

the Trust. Because the findings of the district court are not clearly

erroneous, we affirm.

I.

Sometime during the 1970s, David McMillan, a Florida resident,

began investing money for his retirement trust with one Paul

Hoekenga, Jr. By the mid-1980s, McMillan and his retirement trust

had accumulated approximately $1,400,000.

From 1986 to 1989, McMillan received approximately $12,000 per

month from his investments. When Hoekenga stopped making payments, McMillan and his Retirement Trust sued Hoekenga in the

United States District Court for the Middle District of Florida, inter

alia, on the grounds of fraud and deceit, as well as for conversion and

civil theft. In May 1990, McMillan obtained a default judgment

against Hoekenga in the amount of $2,209,189.03. To enforce the

default judgment, McMillan hired counsel to conduct proceedings in

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California, where Hoekenga resided. During these supplemental proceedings in California, McMillan discovered that Hoekenga was the

general partner of Columbia Properties Fund II Limited Partnership

("Limited Partnership") which owned Anchorage Apartments in

Charleston, South Carolina ("Property"). Hoekenga claimed that the

Limited Partnership owed him $1,150,735. This was reflected on the

partnership tax return for the year 1989, which was provided to

McMillan's lawyers.

Counsel for McMillan and Hoekenga then entered into a series of

negotiations aimed at resolving the claim. Hoekenga had the partnership issue a note and second mortgage on the Property to him for the

debt he claimed was due. Hoekenga then executed an assignment of

the Demand Note and the Second Mortgage to McMillan and the

Trust in partial satisfaction of the judgment against Hoekenga. Prior

to this action, McMillan's attorneys obtained two opinion letters from

two different attorneys regarding the validity of the Second Mortgage

and the assignment. In essence, both letters opined that Hoekenga was

indeed authorized to sign the documents and that the $1,150,735 obligation to Hoekenga from Columbia Properties Fund II was a valid,

binding obligation.

On July 10, 1990, McMillan, without success, demanded payment

of the debt, evidenced by the Demand Note. Therefore, McMillan and

the Trust foreclosed on the note and second mortgage. The Property

was sold at a foreclosure sale in May 1991. McMillan and the Trust

purchased the Property at the foreclosure sale and assigned the bid to

Clinton David, Inc. and the Trust on June 3, 1991. Upon the advice

of the foreclosure attorney, Elizabeth Settle, appellees obtained a title

insurance policy from Lawyers Title. The agent for Lawyers Title

reviewed Ms. Settle's file, performed a title search, and on September

12, 1991, issued a policy commitment, effective June 3, 1991.

During the week of September 16, 1991, Ms. Settle was contacted

by attorney John P. Linton, who informed her that he represented

some of the limited partners in the Limited Partnership to investigate

the validity of the Demand Note and the Second Mortgage which was

assigned to McMillan by Hoekenga and foreclosed upon by Ms. Settle. Ms. Settle informed the agent for Lawyers Title about Mr. Lin-

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ton's clients and their concern regarding the legality of the

foreclosure.

Lawyers Title issued its policy to appellees on September 26, 1991

in the amount of $1,275,000, insuring that the fee simple title to the

property was vested in Clinton David and the Trust effective June 3,

1991, subject to the Exclusions from Coverage contained on Schedule

B of the Policy. J.A. II-747, I-200-207.

The insuring provisions of the Policy show that Lawyers Title

agreed to indemnify Clinton David and the Trust against loss. Paragraph 3 of the Policy section, entitled Exclusions from Coverage,

states that:

The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or

damage, costs, attorneys' fees or expenses which arise by

reason of: 3. Defects, liens, encumbrances, adverse claims

or other matters; (a) created, suffered, assumed or agreed to

by the insured claimant; (b) not known to the Company, not

recorded in the public records at Date of Policy, but known

to the insured claimant and not disclosed in writing to [Lawyers Title] by the insured claimant prior to the date the

insured claimant became an insured under this policy....

On March 19, 1992, sixteen limited partners of the Limited Partnership filed a Motion to Intervene and Set Aside Judgment in the

Court of Common Pleas for Charleston County, South Carolina, in the

foreclosure proceeding filed in 1991 by Ms. Settle on behalf of

McMillan. The motion was based, in part, on the contention that the

partnership records raised a question regarding the validity of the debt

of the partnership to Mr. Hoekenga. Lawyers Title provided a defense

on behalf of appellees on the grounds that the matter appeared to be

a risk covered by their title policy. However, Lawyers Title also

reserved its rights to deny coverage and liability under the Policy if

the challenge to the title to the Property mounted by the intervening

limited partners was successful as the result of overreaching or any

"breach of fiduciary duty" by McMillan, which could then be imputed

to Clinton David or the Trust through the agency of McMillan.

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While the Court of Common Pleas did not make explicit findings

of fact, it found that enough evidence existed to merit giving the limited partners a chance to review the situation. The court allowed the

limited partners to reopen the matter and to intervene and assert

defenses on behalf of the partnership due to "unanswered questions

... which questions warrant further judicial inquiry." J.A. I-297. This

order to reopen the foreclosure was appealed to the South Carolina

Court of Appeals, which affirmed. In January of 1995, the Supreme

Court of South Carolina denied appellees' Petition for a Writ of Certiorari and remanded the case to the trial court. At this time, McMillan

and the Trust discovered that the actual debt owed by the partnership

to Hoekenga was, at best, around $300,000. Consequently, the parties

entered into settlement negotiations prior to trial.

Letters among all sides were exchanged in an effort to reach a viable compromise. On February 24, 1995, G. Trenholm Walker, representing the appellees, wrote a letter to Lawyers Title conveying a

settlement proposal he received from the limited partners for

$700,000. Lawyers Title responded with a letter on February 27,

1995, stating that "[s]hould the Court set this matter aside, there is

virtually no likelihood we would have a duty to indemnify." J.A. I323. However, Lawyers Title agreed to contribute $50,000 in settlement of the matter.

On August 29, 1995, Mr. Walker wrote to Lawyers Title with a

proposed amount of $600,000 to settle the claims between the limited

partners and appellees. He indicated that McMillan was prepared to

proceed with the settlement without the participation of Lawyers

Title, "reserving his right to seek full indemnity from Lawyers Title."

J.A. I-334. Lawyers Title responded with a letter dated September 5,

1995, stating that it "will therefore offer to Mr. McMillan, Clinton

David, Inc., and McMillan's Flying Tigers, Inc. Retirement Trust

$150,000 for a complete release of Lawyers Title from any claims

arising from the matters currently being litigated," even though Lawyers Title believed the trial court had found evidence of wrongdoing

by McMillan which would preclude coverage. This letter stated,

"However, I do believe this is a matter that should be terminated,"

which Alexander Conlyn, author of the letter, said meant "settled."

J.A. II-718. Significantly, Lawyers Title made no comment that it

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would deny coverage if the case was settled without a limit of its liability to $150,000.

McMillan and the limited partners eventually reached a settlement

amount of $600,000. No part of the settlement was paid by Lawyers

Title. Appellees thereafter brought this action for indemnification

from Lawyers Title. Lawyers Title filed a counterclaim to recover

attorneys' fees and costs expended on behalf of Clinton David and the

Trust in the claim asserted by intervening limited partners in the state

court action. The case was tried in the United States District Court for

the District of South Carolina, Charleston Division. After a two-day

bench trial, the court awarded judgment to appellees in the amount of

$600,000, in addition to prejudgment interest, attorneys' fees and

costs and post-judgment interest. The court dismissed Lawyers Title's

counterclaim for costs and attorneys' fees.

II.

We review the findings of fact by a district court for errors which

are clearly erroneous. Fed. R. Civ. P. 52 (a). A finding is "clearly

erroneous" when the reviewing court believes that a mistake has been

committed, despite the existence of evidence to support the factual

determination. Anderson v. Bessemer City, North Carolina, 470 U.S.

564, 573 (1984) (quoting United States v. United States Gypsum Co.,

333 U.S. 364, 395 (1948)).

Because this is a diversity case, we apply the substantive law of

South Carolina, the state where the contract was formed. See Erie

R.R. v. Tompkins, 304 U.S. 64, 78-80 (1938), including South Carolina's choice-of-law rules. See Klaxon Co. v. Stentor Mgf. Co., 313

U.S. 487, 496 (1941). In South Carolina, the interpretation of a contract is governed by the law of the place where the contract was made.

Unisun Insurance Company v. Hertz Rental Corp., 436 S.E.2d 182

(S.C. Ct. App. 1993). The Policy, which is the contract at issue here,

was made in South Carolina. Therefore, South Carolina law governs

its interpretation.

III.

The appellant asserts that the district court made erroneous findings

of fact when it held that Lawyers Title had no reasonable cause to

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refuse payment of the claim asserted against McMillan and the Trust

by the intervening limited partners. Appellant reasons that the state

court's order reopening the foreclosure constituted a finding of fraud

or collusion between McMillan and Hoekenga. Accordingly, appellant argues, it is precluded from providing coverage pursuant to subparagraphs 3(a) and 3(b) of the Policy's Exclusions from Coverage,

which includes fraud, deceit and collusion as grounds for exclusion.

Despite the state court's order allowing the limited partners' intervention, this did not constitute a finding of fact which is binding on

the parties. Consequently, no evidence was presented to demonstrate

fraud, deceit, or any other factor which would bring the claim within

the ambit of an exclusion or limitation of the policy. McMillan denied

any collusion between him and Hoekenga. Absent such collusion or

deceit, appellees were able to prove the existence of a defect, lien,

encumbrance and unmarketability of title sufficient to apply the covered loss provisions of the Policy. See Sale Int'l Ltd. v. Black River

Farms, Inc., 242 S.E. 2d 432, 435 (S.C. 1978) (stating that title is

unmarketable if there is a reasonable probability of litigation). In

addition, the trial court found that the appellees took reasonable steps

to assure the validity of the debt evidenced by the note and second

mortgage. Therefore, the trial court's finding that Lawyers Title had

no reasonable cause to refuse payment of the claim is not clearly erroneous and must be upheld.

Alternatively, Lawyers Title argues that paragraph 9(c) of the Policy contains a "consent to settlement" provision which states that

Lawyers Title is not obligated to provide coverage if they do not consent to the settlement. Appellants contend they did not consent to the

settlement and rightfully denied indemnification on those grounds.

However, the exchange of letters between McMillan's lawyer and

Lawyers Title concerning settlement of the state court action, with

Lawyers Title encouraging settlement while not indicating that it

would deny coverage if the case was settled, was sufficient for the

trial judge to infer that Lawyers Title agreed to the settlement, and

therefore, was estopped to deny coverage.

Having determined that the district court properly made findings of

fact that are not clearly erroneous, we affirm on the reasoning of the

district court.

AFFIRMED

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