United States Court of Appeals

For the First Circuit

No. 13-2012

FIRST AMERICAN TITLE INSURANCE COMPANY,

Plaintiff, Appellee,

v.

LANE POWELL PC,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young, U.S. District Judge]

Before

Torruella, Circuit Judge,

Souter,* Associate Justice,

and Thompson, Circuit Judge.

John R. Neeleman, with whom Lane Powell PC and Steven A. Ross

were on brief, for appellant.

Jason A. Manekas, with whom Bernkopf Goodman LLP was on brief,

for appellee.

August 22, 2014

*

 Hon. David H. Souter, Associate Justice (Ret.) of the Supreme

Court of the United States, sitting by designation.
TORRUELLA, Circuit Judge. Defendant-Appellant Lane

Powell PC ("Lane Powell") appeals the District Court of

Massachusetts' grant of summary judgment in favor of PlaintiffAppellee First American Title Insurance Company ("First American"). 

Lane Powell, a Washington-based law firm, contracted with First

American for the latter to provide title insurance on two mortgages

that Lane Powell took as security from Charles Crovo ("Crovo"), a

client who was indebted to Lane Powell for a considerable amount of

attorney's fees. Though the letter of the insurance policies in

question seemingly provides coverage for priority liens, First

American denied Lane Powell coverage upon foreclosure of liens that

were superior to those of Lane Powell.

Upon Lane Powell's request for indemnification, First

American sought declaratory judgment in Massachusetts state court,

essentially arguing that coverage for priority liens was never

intended by either party. Lane Powell removed the action to

federal district court. On cross-motions for summary judgment, the

district court granted judgment in favor of First American. Ruling

from the bench, the district court found that because Lane Powell

was aware of the prior mortgages, it could not expect to receive

coverage it did not bargain for. We agree.

I. Background

Charles Crovo and others engaged Lane Powell for legal

representation regarding a number of commercial disputes that are

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unrelated to this matter. As Lane Powell's unpaid invoices for

attorney's fees accumulated, Lane Powell and Crovo entered into an

amended fee arrangement in April of 2011. By way of the

arrangement, Crovo granted mortgages to Lane Powell over two

properties in Massachusetts as security for payment of the fees

owed -- the West Tisbury Mortgage and the Newton Mortgage.

There was some discussion between Crovo and Lane Powell

regarding the equity on the West Tisbury and Newton properties, as

well as regarding liens on both properties that would be superior

to Lane Powell's mortgages. Lane Powell understood that these

superior liens would take priority over its mortgages and accepted

the inferior positions.

In August of 2011, Lane Powell retained a Massachusetts

firm, Coogan Law Office ("Coogan"), to examine title to the West

Tisbury and Newton properties, to assist Lane Powell with recording

a mortgage over each property, and to facilitate the issuance of a

lender's policy of title insurance for each property in favor of

Lane Powell. For purposes of the tasks requested of Coogan,

paralegal Kate Iiams ("Iiams") of Lane Powell, and employees Lori

Pfingst and Jennifer Cutrer of Coogan handled most communications. 

There was apparently little or no direct dialogue between the

attorneys of each firm.

Coogan carried out the title searches for each property

and reported to Lane Powell that the West Tisbury property was

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encumbered by a mortgage in favor of ING Bank ("ING Mortgage"), and

the Newton property was encumbered by two mortgages -- one in favor

of JP Morgan Chase Bank ("Chase Mortgage") and one in favor of

Raymond C. Green, Inc. ("Green Mortgage").

On or about September 7, 2011, Coogan provided Lane

Powell with a commitment for title insurance ("West Tisbury

Commitment") and a draft title insurance policy for the West

Tisbury Property ("Draft West Tisbury Policy"). The West Tisbury

Commitment identifies the ING Mortgage as an encumbrance to be

discharged. The Draft West Tisbury Policy, however, does not

specifically except the ING Mortgage from coverage.

On September 7, 2011, Iiams of Lane Powell wrote Coogan

to inform him that Lane Powell did not "expect the existing lien of

$1,950,000 with ING Bank to be paid off or released on the [West

Tisbury] property." Jennifer responded on behalf of Coogan that

"if that mortgage is remaining and the mortgage we are putting on

will be in addition to that one then we have to charge the full

rate." On September 13, 2011, First American, by way of its agent

Coogan, issued the West Tisbury policy of title insurance ("West

Tisbury Policy") to Lane Powell. Like the West Tisbury Commitment,

the West Tisbury Policy does not specifically except the ING

Mortgage from coverage.

Coogan never provided Lane Powell with a commitment for

title insurance or a draft policy for the Newton property, though

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it did inform Lane Powell of the Chase and Green Mortgages that

encumbered the Newton property when it reported on the results of

its title search in August of 2011. On October 30, 2011, Lori from

Coogan wrote Iiams from Lane Powell and asked whether Lane Powell

intended to pay off the Chase and Green Mortgages: "will this

mortgage be paying off any of the outstanding mortgages on the

property? (in order to qualify for a refinance rate?)." In

response, Iiams, on behalf of Lane Powell, confirmed it would not

be paying off any existing mortgages on the Newton property. On

March 30, 2012, Coogan relayed to Lane Powell a policy of title

insurance for the Newton Property ("Newton Policy"). The Chase and

Green Mortgages are not excepted from coverage under the Newton

Policy.

Crovo defaulted on his debt to Lane Powell, as well as on

debts owed to ING Bank and Raymond Green, Inc., leading the latter

two to foreclose on their respective mortgages over the West

Tisbury and Newton properties. Lane Powell recovered no proceeds

from these foreclosures. On October 3, 2012, Lane Powell notified

First American of its claim under the Newton Policy. First

American responded on October 5, 2012, informing Lane Powell that

First American would afford it coverage according to the terms of

the Newton Policy. Shortly thereafter, however, on November 9,

2012, First American reneged, and it denied coverage under the

Newton Policy. As to the West Tisbury Policy, though it remains

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unclear when exactly the parties discussed the matter, First

American denied coverage from the outset.

First American filed for declaratory judgment in

Massachusetts state court, seeking reformation of the West Tisbury

and Newton Policies on grounds of mutual mistake. First American

also argued that a clause in the policies, Exclusion 3(a), excludes

from coverage the mortgages superior to Lane Powell's. The

underlying theory is that the true intent of both parties was to

except the superior liens from coverage under the policies. The

policies do not read this way, First American contends, because of

a mere clerical error overlooked by First American when it reduced

the policies to writing -- a simple case of scrivener's error.

Lane Powell removed the action to the District Court of

Massachusetts and discovery ensued. The parties elicited

deposition testimony from Brian Powell ("Powell") and John Neeleman

("Neeleman"), both partners at Lane Powell, and from Iiams.

Powell reviewed title to the West Tisbury and Newton

properties in connection with Lane Powell's efforts to record its

mortgages and secure title insurance over both properties. Powell

testified that he was aware that both properties were encumbered by

mortgages that would be superior to Lane Powell's. He also

understood that, because of Lane Powell's inferior position, its

potential to recover proceeds from the foreclosure of superior

liens depended on the amount of equity in each property. Powell

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thus conceded that Lane Powell's mortgages would be in junior

positions and that foreclosure of the senior liens might result in

no recovery for Lane Powell at all.

Neeleman's written communications to Powell show that he

was also aware that Lane Powell's mortgages would be inferior to

prior encumbrances on both the West Tisbury and Newton properties. 

Neeleman also testified, however, that in his mind, the rank of

Lane Powell's mortgages in the land registry bore no relation to

the title insurance policies. Finally, Neeleman testified that,

upon receiving notice of the foreclosures, he reviewed both title

insurance policies and "thought it was interesting" that they did

not except the prior mortgages from coverage.

Iiams testified that she was charged with inquiring with

Coogan as to the price of the Newton Policy, and that she

understood that the policy premium would be higher if Lane Powell

decided not to pay off the prior mortgages. Thus, Iiams was also

aware of the senior mortgages.

Lane Powell moved for summary judgment on May 29, 2013. 

Lane Powell argued that the prior mortgages in question are not

excepted from the West Tisbury or Newton policies, and, as per the

letter of the policies, First American must provide it coverage. 

First American cross-moved for summary judgment, advancing its

theory that despite the letter of the policies, neither it nor Lane

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Powell ever intended that the mortgages superior to Lane Powell's

would be covered under the policies.

The district court held a hearing on the parties' crossmotions and, from the bench, granted summary judgment in favor of

First American. As to the district court's reasoning, we are left

only with the following words the court addressed to counsel for

Lane Powell: "You people are attorneys here, and you agree that

they had knowledge, but you say that because of this error First

American is on this policy to make, to reimburse you for a

situation of which you had knowledge." Lane Powell's timely appeal

followed.

II. Discussion

Review of a district court's grant of summary judgment on

cross-motions for summary judgment is de novo. Barnes v. Fleet

Nat'l Bank, N.A., 370 F.3d 164, 170 (1st Cir. 2004). "Crossmotions for summary judgment require us to determine whether either

of the parties deserves judgment as a matter of law on facts that

are not disputed." Sch. Union No. 37 v. United Nat'l Ins. Co., 617

F.3d 554, 559 (1st Cir. 2010) (alterations and internal quotations

marks omitted).

We sit in diversity jurisdiction, and thus apply the law

of Massachusetts to this case. OneBeacon America Ins. Co. v.

Travelers Indem. Co. of Ill., 465 F.3d 38, 41 (1st Cir. 2006).

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A. Reformation and mutual mistake

The facts, as they have been recited, are essentially

undisputed. First American claims it is not liable to Lane Powell

under the Newton or West Tisbury policies. Despite the letter of

the policies to the contrary, First American says that the parties'

intent was to except from coverage the ING Mortgage from the West

Tisbury Policy, and the Chase and Green Mortgages from the Newton

Policy -- the letter of the policies is the result of a mutual

mistake. Accordingly, First American would have us reform the

policies and except these liens from coverage, so as to reflect

what it purports was the true intent of the parties: to insure Lane

Powell against the risk of defects in title arising from

encumbrances other than the existing senior mortgages.

"Insurance policies may be reformed under the same

principles as any other contract." Caron v. Horace Mann Ins. Co.,

466 Mass. 218, 222, 993 N.E.2d 708, 711 (2013). "In order to

prevail on a motion for summary judgment on a claim for reformation

due to mutual mistake, the moving party must establish that the

undisputed material facts fully, clearly, and decisively show a

mutual mistake." Id. at 221 (citation omitted); OneBeacon, 465 

F.3d at 41 ("The critical limitation in a contract reformation case

is the burden of proof: to be entitled to reformation, a party must

establish that the undisputed facts fully, clearly, and decisively

show a mutual mistake."). "The mutual mistake doctrine exists to

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effectuate the agreement intended by the parties to a contract 

where the contract language fails to capture that agreement." 

Caron, 466 Mass. at 223. "Central to this doctrine is the

fundamental underpinning that the parties had reached an agreement

on a point which they intended to enshrine in the written contract

but which, for some reason, was mistakenly omitted from that

written contract." Id. A court will not grant reformation unless

the movant has shown "that the parties expressed agreement and an

intention to be bound in accordance with the terms that [it is]

asked to establish and enforce." Sancta Maria Hosp. v. City of

Cambridge, 369 Mass. 586, 595, 341 N.E.2d 674, 681 (1976); see also

Caron, 466 Mass. at 223-24.

First American posits that Lane Powell unequivocally

assented and agreed to policies that excepted from coverage the ING

Mortgage and the Chase and Green Mortgages, respectively. This is

made clear, First American argues, by the acts of Lane Powell

leading up to the recording of the mortgages and issuing of the

West Tisbury and Newton Policies. In the words of First American, 

Lane Powell was aware of the senior mortgages, was told by Crovo

that its mortgages would occupy junior positions, "confirmed its

own understanding it would occupy junior positions, had its own

real estate department review title and analyze the equity

available for such junior positions, confirmed both internally and

externally to both its counsel and First American's issuing agent

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that it would not be satisfying the senior mortgages, and then

recorded its mortgages." First American argues that this evinces

Lane Powell's consent to except these prior mortgages from

coverage. According to First American, the letter of the West

Tisbury and Newton Policies -- not excepting the prior mortgages

from coverage -- is the result of a clerical error by First

American and does not represent the true intent of either party. 

Therefore, First American suggests that if the policies are not

reformed, Lane Powell stands to receive a windfall that neither

party ever intended or bargained for.

First American's reformation argument fails, squarely. 

Chiefly, it cannot point to any evidence on the record that Lane

Powell ever agreed to, much less manifested an intent, to have the

ING, Chase, or Green Mortgages excepted from the West Tisbury and

Newton Policies, respectively. Sancta Maria, 369 Mass. at 596. 

The evidence indicates that Lane Powell was indeed aware that its

mortgages would occupy junior positions to the record mortgages

already existing on the West Tisbury and Newton properties. First

American would have us conclude that this amounts to Lane Powell's

consent to except these superior mortgages from the policies. 

Nonetheless, as the record shows, Lane Powell never conveyed any

such consent to First American.

Specifically as to the West Tisbury property, Lane Powell

knew from its initial negotiations with Crovo that the property was

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encumbered by an existing mortgage. Coogan confirmed to Lane

Powell the existence of the ING Mortgage. Lane Powell readily

assumed the subordinate rank for its mortgage.

Coogan then issued to Lane Powell the West Tisbury

Commitment and the West Tisbury Draft Policy. Though the West

Tisbury Commitment required that Lane Powell discharge the ING

Mortgage, the record does not show that the parties exchanged any

thoughts on this particular document. Regardless of Lane Powell's

awareness of the contents of the West Tisbury Commitment, it made

no manifestation to First American that it agreed to except the ING

Mortgage from coverage.

Subsequently, before issuance of the West Tisbury Policy,

and in response to Lane Powell's indication that it would not be

paying off the ING Mortgage, Coogan indicated that "if that

mortgage is remaining and the mortgage we are putting on will be in

addition to that one then we have to charge the full rate." This

is perhaps a suggestion from First American's agent to Lane Powell

that, given Lane Powell's decision to not discharge the ING

Mortgage, coverage would extend and the resulting premium would be

higher. Indeed, First American issued the West Tisbury Policy

shortly afterwards, with no exception for the ING Mortgage, and it 

charged Lane Powell the higher premium. Notwithstanding whatever

this exchange might have meant to either party, it certainly does

not "fully, clearly, and decisively show" that Lane Powell

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communicated to First American that it consented to an exception

for the ING Mortgage. See Caron, 466 Mass. at 222 (internal

quotation marks omitted).

The Newton Policy involved a similar narrative. First

American admittedly did not provide Lane Powell with a commitment

or a draft policy during the Newton Policy negotiations. A similar

exchange did take place between Lane Powell and Coogan regarding

coverage, discharge of prior liens, and the premium to be charged. 

Coogan asked whether Lane Powell intended to pay off the Chase and

Green Mortgages "in order to qualify for a refinance rate." Iiams

responded on behalf of Lane Powell that it would not be discharging

the existing mortgages on the Newton Property. Coogan, on behalf

of First American, issued the Newton Policy to Lane Powell with no

exception for the Chase or Green Mortgages and charging the higher

premium. There is no indication that Lane Powell manifested to

First American that it agreed to except the Chase and Green

Mortgages from coverage.

We stress that, for purposes of Lane Powell's

negotiations with Crovo and its interactions with Coogan related to

the title searches and recording of mortgages over the West Tisbury

and Newton properties, it is undisputed that Lane Powell accepted

that the West Tisbury Mortgage would be subordinate to the ING

Mortgage, and that the Newton Mortgage would be subordinate to the

Chase and Green Mortgages. Nonetheless, these undisputed facts are

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not probative of Lane Powell's purported manifestation of its

expectation that the ING, Chase, and Green mortgages would be

excepted from coverage. Caron, 466 Mass. at 222.

B. Exclusion 3(a)

First American also argues that since Lane Powell agreed

with Crovo to assume mortgages with inferior positions on both the

West Tisbury and Newton Policies, any loss due to the foreclosure

of any of the superior mortgages is excluded from coverage by

Exclusion 3(a). Exclusion 3(a) is a clause within a section of the

respective policies titled "Exclusions From Coverage." It provides

that: "The following matters are expressly excluded from the

coverage of this policy and the Company will not pay loss or damage

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." Exclusion 3(a) is standard language

in most title insurance policies.

Ostensibly, the letter of Exclusion 3(a) would seem to

bar coverage of the ING, Chase, and Green mortgages. Lane Powell

indeed agreed with Crovo to take out mortgages over the West

Tisbury and Newton properties that were inferior in rank to the 

existing mortgages on both properties. Furthermore, Powell's and

Neeleman's own testimony confirms Lane Powell's knowledge of the

superior ING, Chase, and Green mortgages, and that its own

mortgages over the West Tisbury and Newton properties would be in

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junior positions, respectively. It is clear then, that Lane Powell 

"assumed" and "agreed to" junior positions for the West Tisbury and

Newton Mortgages. Nat'l Cred. Union Admin. v. Ticor Title Ins.

Co., 873 F. Supp. 718, 728 (D. Mass. 1995) (holding that the

insured-mortgagor "suffered, assumed or agreed to" an existing

superior mortgage where officers were aware of the superior

mortgage and agreed to a junior position, thus barring coverage

under Exclusion 3(a) despite error in title insurance policy).

In Ticor, plaintiff National Credit Union Administration 

("NCUA"), a liquidating agent and successor to a defunct credit

union and, consequently, an insured-mortgagor under a title

insurance policy issued by defendant Ticor to the credit union,

sought declaratory judgment that the title policy it held was in

full force and effect. Id. at 720. The title insurance policy

listed the former credit union's lien as a first mortgage, even

though a superior mortgage encumbered the property offered as

security to the extant credit union -- the result of a clerical

error on the part of Ticor. Id. at 722. NCUA's suit was prompted

by foreclosure of the prior mortgage. Id. Ticor, the issuer of

the title insurance policy, countered that, since the credit union

was aware of the prior mortgage and agreed to a junior position

with the debtor and owner of the encumbered property, Exclusion

3(a) applied to bar coverage for foreclosure of the prior lien. 

Id. at 726. The district court held in favor of Ticor, finding

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that the credit union's officers were aware of the prior mortgage

and knowingly agreed to a junior position. Id. at 728 ("Given the

extensive involvement of the officers in arranging for the two

mortgages, the undisputed evidence supports Ticor's position that

[the credit union]'s officers intentionally 'suffered, assumed, or

agreed to' the first mortgage."). A contrary outcome, the court

reasoned, would result in an unwarranted and entirely unintended

windfall for the insured. Id.

Consistent with this reasoning, we find that First

American has carried its burden of showing that Exclusion 3(a)

applies and, accordingly, the policies do not provide coverage for

the ING, Chase, or Green Mortgages. See id. at 726 (citing Todisco

v. Nat'l Fire Ins. Co. of Hartford, 356 Mass. 736, 736-37, 254

N.E.2d 787, 788 (1970)). First American has put forth testimony

from two witnesses, both partners at Lane Powell, who -- although

to varying degrees -- were directly involved in equity and title

analysis of both the Newton and West Tisbury properties, and who

candidly admitted that they were well aware that Lane Powell's

mortgages would be junior to the ING, Chase, and Green Mortgages. 

An insured party "assumes" or "agrees" to a lien pursuant to

Exclusion 3(a) when it takes property that is subject to an

existing encumbrance it has knowledge of. See Am. Title Ins. Co.

v. E. W. Fin., 16 F.3d 449, 455-56 (1st Cir. 1994); Lawyers Title

Ins. Corp. v. Doubletree Partners, L.P., 739 F.3d 848, 868 (5th

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Cir. 2014) ("An insured only 'assumes' the defect if it has

'knowledge of the specific title defect assumed.'"). It is clear

then, that Lane Powell "assumed" and "agreed to" the prior

mortgages on the West Tisbury and Newton properties. See Ticor,

873 F. Supp. at 728.

To find otherwise would effectively morph the title

insurance the parties agreed to into a credit insurance policy of

sorts that Lane Powell did not pay for, and that neither party

intended. More importantly, extending coverage to the loss

incurred by Lane Powell caused by the foreclosure of the superior

mortgages would result in a windfall to Lane Powell that neither

party ever expected or agreed to. See id. (citing Brown v. St.

Paul Ins. Corp., 634 F.2d 1103, 1107 n.8 (8th Cir. 1980)). Equity

will simply not have it.

Lane Powell mounts two challenges to this result, both

unpersuasive. First, Lane Powell contends that under Chicago Title

Ins. Co. v. Resolution Trust Corp., 53 F.3d 899 (8th Cir. 1995), in

order to avoid coverage and for Exclusion 3(a) to apply, First

American must show that Lane Powell engaged in affirmative

misconduct. To the extent that Chicago Title is an Eighth Circuit

case based entirely on Minnesota law, we are not bound by the

learned court's reasoning in that case, though we may opt to find

it persuasive. More importantly, however, and contrary to Lane

Powell's rather nearsighted reading, Chicago Title does not stand

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for the proposition that, in order for Exclusion 3(a) to apply, the

insurer must show intentional misconduct on the part of the

insured. Though our sister circuit recognized that other courts

have taken slightly varying views on the matter, it squarely held

that Exclusion 3(a) "bars coverage where there has been misconduct

or inequitable behavior on the part of the lender" as well as

"where the lender assumes or agrees to liens, or where the lender

stands to receive an inequitable windfall." Id. at 905.

Second, Lane Powell argues that First American cannot

marshal evidentiary support for its Exclusion 3(a) theory because

an integration clause in the West Tisbury and Newton Policies bars

the use of parol evidence to show that Exclusion 3(a) applies. 

This flight of fancy fails as a matter of logic. The parol

evidence rule prohibits the use of evidence of prior or

contemporaneous agreements that is proffered in an attempt to

challenge, change, or broaden an integrated writing. See, e.g.,

Gifford v. Gifford, 354 Mass. 247, 249, 236 N.E.2d 892, 893 (1968). 

However, First American's evidentiary effort serves to forward its

theory of why Exclusion 3(a) applies -- which the parol evidence

rule does not prohibit -- and is not an affront to the letter or

meaning of the clause.

III. Conclusion

First American has not shown that Lane Powell ever

communicated its expectation that the superior mortgages over the

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West Tisbury and Newton properties would be excepted from coverage. 

However, First American has conclusively shown that Lane Powell was

well aware that its bargain with Crovo for security of its debt

would result in junior mortgages. Exclusion 3(a) clearly excludes

such encumbrances from coverage. Accordingly, the district court's

grant of summary judgment in favor of First American is affirmed.

AFFIRMED.

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