Plaintiff, OPINION

V.

DAVID SADEK, ETTY SADEK,

FIRST FINANCIAL EQUITIES,

INC., WINTHROP ABSTRACT OF

NEW JERSEY, LLC, WINTHROP

ABSTRACT, LLC, UNITED

GENERAL TITLE INSURANCE

COMPANY, and FIRST AMERICAN

TITLE INSURANCE COMPANY,

Defendants.

Defendants David and Etty Sadek took out a refinancing loan, secured

by a mortgage on their Teaneck residence. Mr. Sadek, however, was not merely

the borrower. He is in the home financing field; he and his associates wore

several hats in the transaction. When Mr. Sadek defaulted on the loan, the

lenders’ successor in interest, Plaintiff PNC Bank, N.A. (“PNC”) found that the

property had been sold but that the mortgage lien had not been properly

recorded. PNC sued all of the participants in the refinancing transaction: the

Sadeks; the loan originator, First Financial Equities, Inc. (“FFE”); the titleagent, Winthrop Abstract, LLC (“Winthrop Abstract”), and a related entity,

Winthrop Abstract of New Jersey, LLC (“Winthrop-NJ”); the title insurer, United

General Title Insurance Company (“UG”); and UG’s successor in interest, First

American Title Insurance Company (“FATICO”). Now before the court is the

1
FFE, Winthrop Abstract, LLC and Winthrop—NJ, LLC failed to answer or defend.

As to them, default judgment was entered as to liability. (Dkt. Nos. 133, 134)

What PNC is attempting to do here is to hold the title insurer, UG, liable

for its losses as a result of the actions of Sadek and associated persons andentities. 2For the reasons set forth below, I find that UG’s liability raises

multiple issues of fact, and deny the motion for summary judgment.Background

Parties

At the time of the events relevant here, Defendants David and Etty Sadek

were husband and wife residing at 374 Winthrop Road, Teaneck, New Jersey

(the “Property”). (Declaration of Jeffrey L. Rudnick, Esq. In Support of PNC’s

Answer to Title Insurer Defendants’ Motion for Summary Judgment, Dkt. No.

157—S (“Rudnick Decl.”), Ex. P (David Sadek’s Answers to PNC’s Requests for

Admission, Dkt. No. 157-2 1 (“D. Sadek Admissions”), Response No. 17) David

Sadek was the principal shareholder and CEO of Defendant First Financial

Equities, Inc. (“FFE”), a mortgage banking entity which funded loans and soldthose loans on to investors on the secondary market. FFE drew on monies froma warehouse line of credit through Washington Mutual. (Declaration of Frank

J. Haupel In Support of Motion for Summary Judgment, Dkt. No. 3 (“Haupel

Deci.”), Ex. D) The Sadeks were also involved in title agency entities under thename Winthrop Abstract, LLC (“Winthrop Abstract”). There were two suchentities, one based in New Jersey (“Winthrop-NJ”) and the other in New York

1 The defendant Title Insurers have asserted cross-claims against their co

defendants. This motion for summary judgment does not relate to those claims.

2 UG has recourse against Sadek, but presumably PNC and UG both believe

Sadek cannot satis1i the judgment.

2
Englewood, New Jersey.

David Sadek’s mother, Rachel Sadek, worked at Winthrop-NJ in its

Englewood office. (D. Sadek Admissions, Response Nos. 12, 13) David Sadek’s

sister, Miriam Greenberg, conducted closings as an independent contractor,

sometimes on behalf of Winthrop-NJ. (Id. at Response Nos. 14, 15)

Another entity is relevant. The Closing Network was “formed” by Jay

Zucker and Steven Kwestel of the law firm Zucker & Kwestel, LLP, and David

Sadek. According to Kwestel the actual partners were their three spouses,

including Etty Sadek. The Closing Network may or may not have acted as a

closing or settlement agent here. 3

The Refinancing

In 2005, Etty Sadek was the record owner of the Property. (Title Insurer

Defs. Facts ¶ 19; Haupel Decl., Ex. P) As of October 2005, there were two

recorded mortgages on the Property: (1) one mortgage dated December 23,

1989, held by Summit Bank in the amount of $461,435.00, and (2) a second

mortgage dated March 30, 2002, held by Chevy Chase Bank in the amount of

$348,000.00. (Haupel Deci., Exs. Q, R; D. Sadek Admissions, Response No. 20)

David Sadek sought to refinance those mortgages at a fixed rate with a

$792,000.00 secured loan from FFE. (D. Sadek Admissions, Response Nos. 18,

3 The Closing Network was formed around 1998 to act as a settlement agent.

(Haupel Deci., Ex. I, 19:11-14) At its inception, the principals were Etty Sadek, Linda

Katz and Hadassah Sohn, the spouses of David Sadek, Jay Zucker, and StevenKwestel, respectively. (Id. at 26:10-27:7) Kwestel denied that he, Zucker or David

Sadek had an interest in The Closing Network (id. at 20:11-21), but also testified that

after meeting David Sadek in 1998, the three developed a relationship and “at some

point after that we formed the Closing Network.” (Id. at 35:6-11) Kwestel denied that

the law firm of Zucker & Kwestel provided legal services for The Closing Network, but

said they acted as an escrow agent for The Closing Network and would receive and

distribute funds on its behalf. (Id. at 32:13-33:1)

3
number of documents were executed, including a promissory note signed by

David Sadek and a mortgage executed by David and Etty Sadek in favor of

Mortgage Electronic Registration System, Inc. (“MERS”), a nominee for FFE.

(Haupel Decl., Exs. V, W) Another document executed at the closing was a U.S.Department of Housing and Urban Development settlement statement (“HUD

1”). (Id., Ex. GG) The HUD-1 provides a breakdown of settlement costs. The

HUD- 1 for the Property listed, among other things, $375 for a settlement orclosing fee, $2157 for title insurance, $25 for notice of settlement and $375 forrecording charges. (Id.) All of these amounts were noted as “POC,” or paidoutside of closing, to Winthrop Abstract. (Id.)

David Sadek’s sister Miriam Greenberg conducted the closing, although

the parties seem to dispute whether Ms. Greenberg did so on behalf ofWinthrop-NJ or The Closing Network. There were two HUD- 1 statements in the

loan file for this Property. (UG Exs. FF, GG) One of the statements listed The

Closing Network (Ex. FF), while the second listed Winthrop-NJ (Haupel Deci.,

Ex. GG).

Post-Closing/ SettlementFollowing the execution of the documents on October 31, 2005, the

proceeds of the loan were to be sent to the settlement agent for distribution to

the outstanding mortgage holders, and the mortgage was to be recorded. Theparties again disagree as to who was responsible.

At the closing, Miriam Greenberg took possession of the mortgage and

gave it to Rachel Sadek, who transmitted it to the Winthrop-NJ Staten Islandoffice. Ms. Greenberg acknowledged that she did the closing on the Property asclosing agent for Winthrop Abstract. (Haupel Decl., Ex. J, 19:18-2 1, 20:14-18).

Ms. Greenberg denied, however, that she was responsible as settlement agent;

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Winthrop Abstract. That was “the procedure.” (Haupel Deci., Ex. J, 2 1:22-22:9)

For her part, Rachel Sadek testified that her role at Winthrop-NJ was to

obtain the closing package of documents from FFE, make copies and distribute

those copies to the closer, and then, after the closing, receive the package back

to be overnighted to the title agent, David Cappucelli. (Haupel Deci., Ex. L,

12:2-19) It was her understanding that Cappucelli would record the mortgage

for Winthrop-NJ. (Id. at 30:20-22) Rachel Sadek would not review the

documents; she just shipped them out. (Id. at 15:24-16: 19; 31:18-23) Rachel

Sadek kept no records of the loans or copies of the closing package. (See id. at

19:1-7)

Greenberg disclaimed any role in disbursement of the loan proceeds.

That function, too, was to be performed by the settlement agent, Winthrop-NJ.

(Id. at 37:24-38:10) On November 2, 2005, however, Washington Mutual, the

warehouse lender for FFE, wired the loan proceeds in the amount $787,255.85.

(Haupel Deci., Ex. CC) The money was wired not to Winthrop-NJ, but rather to

The Closing Network’s attorneys (who—of course—were also part owners, along

with Etty Sadek). On November 8, 2005, The Closing Network issued two

checks, one to Chevy Chase Bank in the amount of $344,492.76, and one to

Bank of America in the amount of $442,763.09. (Id., Exs. CC, DD, EE) The

memo lines for both checks read “Sadek w/ FFEI.” (Id.) Those checks went topay off the underlying mortgages on the Property. According to the attorney,

this was not done on behalf of the Closing Network per Se, but merely as a

favor to Sadek. (Haupel Decl., Ex. I, 42:13-43:3)

On November 2, 2005, Winthrop-NJ issued an invoice for $2,557.

(Haupel Decl., Ex. Y) The invoice reflects $1,734 for “premium rate refinance”

5
(PNC Facts ¶ 167) The mortgage had not been recorded.

On March 2, 2006, just four months after the refinancing, the Sadeks

sold the Property to Daniel and Tsipora Gurell for $995,000.00. (D. Sadek’s

Admissions, Response No. 36) The Gurells financed the purchase in part with a

$400,000 mortgage from JP Morgan Chase Bank, N.A. (Haupel Deci., Ex. MM)

The Sadeks did not inform the Gurells about the loan and mortgage, now held

by National City. And they did not tell National City about the sale. (D. Sadek’s

Admissions, Response Nos. 39, 41) The Sadeks did not use the proceeds of the

sale of the Property to pay off the mortgage loan. (Id. at Response Nos. 46, 47)

In February of 2006, National City sold the loan to Bank of America

(although National City continued to service the loan), and on July 3, 2009,

MERS assigned the mortgage to Bank of America. (Haupel Decl., Exs. TT, UU)

Later that year, National City merged with PNC. PNC repurchased the loan inMarch of 2010 and Bank of America assigned the mortgage to PNC on January

20, 2011. (RudnickDecl., Ex. V)

The Agency Agreement, Closing Service Letter,

and Title Insurance Commitment

PNC alleges that its losses flow from the failure to record the mortgage.

Sadek, as owner of the property, is primarily liable for failing to disclose the

mortgage, and PNC already has a judgment against him for the $995,000 sale

price of the house. 4But Sadek wore other hats. PNC asserts that his company,Winthrop-NJ, was responsible for recording the mortgage, and that Winthrop

NJ was UG’s agent.

The Sadeks, of course, had actual knowledge of the mortgage lien; as to them,

recordation is not an issue. Hence the consent judgment for $995,000.

6
Winthrop’s Agency Agreement with UG

Winthrop-NY and Winthrop-NJ were both approved title agents of the

title insurer, UG. Jonathan Boxman, on behalf of Winthrop Abstract, signed a

Title Insurance Agency Agreement with UG on February 18, 2004 (“Agency

Agreement”). (Haupel Deci., Ex. 0) Pursuant to the Agency Agreement,

Winthrop Abstract was authorized to issue “Title Insurance Products” in the

State of New Jersey on behalf of UG. (Id. § 2.1)

The Agency Agreement defined Title Insurance Products to include

policies of title insurance, as well as similar instruments:

all policies of title insurance, commitments for title insurance, binders,

guarantees, title reports, endorsements and other authorized titleinsurance contracts under which the Company expressly assumes

specific indemnity obligations concerning the state or condition ofownership or title to land.

(Id. § 1.1)

Winthrop Abstract could issue title insurance products up to an

underwriting limit of $500,000.00. For products above that dollar amount,

prior written approval by UG was required. (Id. § 1.5, 4.4)

The Agreement also had an “insider” provision. Winthrop Abstract

needed to obtain prior written approval to issue Title Insurance Products on

property in which

the Agent or any of the Agent’s officers, directors, employees, partners,

stockholders, attorneys, or agent have an interest, either ownership or

financial or some other type of vested right, and also have a direct input,

control or influence over title decisions concerning the Title Insurance

Products to be issued on such property.

(Id. § 4.10)

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misappropriation of funds or failure to record the mortgage in accordance with

the lender’s instructions.

The Agency Agreement defined an Insured Closing Service Letter thus:

Letter or agreement issued at the discretion of [UG] wherein [UG]assumes certain expressly defined responsibilities for proper

performance of closing or settlement services by Agent. The obligations

assumed are separate and apart from liabilities or obligations assumedby [UG] under Title Insurance Products and may be terminated and

cancelled by [UG] at any time without notice to Agent.

(Id. § 1.10)

This Agency Agreement has a built-in conflict of interest. That is, the

Closing Service Letter is not issued by UG directly, but by its agent, Winthrop

Abstract. UG’s guarantee of the agent’s conduct is thus issued by that very

agent, on UG’s behalf. UG sought to protect itself by closing the circle of

indemnification. The Agency Agreement provided that Winthrop Abstract would

indemnify UG for losses arising from any Closing Services Letter issued by

Winthrop or its agents. (Id. § 5.6)

On November 2, 2005, Winthrop-NJ, on behalf of UG, issued such a

Closing Services Letter (the “CSL”) to the lender, FFE, in connection with the

Sadek refinancing. (PNC Exs. M, N) That CSL obligated UG to reimburse FFE

for loss arising from (1) the Issuing Agent’s failure to comply with FFE’s written

instructions, or (2) the Issuing Agent’s fraud or misapplication with respect to

the loan proceeds. (Id.) Although Winthrop-NJ’s loan file has apparently been

destroyed, those “instructions,” says PNC, included recordation of the

mortgage. More about that later.

8
Property. Winthrop-NJ issued a commitment for title insurance on behalf of UG

dated October 10, 2005 (the “Commitment”). (Haupel Decl., Ex. AA) TheCommitment provides that UG “commits to issue its policy or policies of title

insurance.., in favor of the proposed Insured.., upon payment of the premiums

and charges therefor.” (Id.) The named Insured was FFE, its successors and

assigns.

Schedule B to the Commitment set forth the conditions under which the

Commitment would ripen into an actual policy of title insurance. These

included:

2. Document(s) satisfactory to us creating the interest in the land and/or

the mortgage to be insured must be signed, delivered and recorded and

properly indexed in the land records:

a. Mortgage by David Sadek and Etty Sadek to the insuredmortgagee. If married, spouse must join in mortgage.

b. Deed from Etty Sadek to David Sadek and Etty Sadek

3. Pay us the premiums, fees and charges for the policy.

(Id. Schedule B)

The Commitment expired after 180 days, or when the title insurance

policy actually issued, whichever came first. (Id.)

Procedural History

Pre-suit Claims Against UG

On February 14, 2008, JP Morgan (as holder of the Gurells’ mortgage),

notified UG of a potential title insurance claim. JP Morgan, in connection with

a foreclosure on the Property, had conducted a title search and discovered the

Sadeks’ unrecorded $792,000 mortgage. (Haupel Deci., Ex. JJ) G. Randolph

Comstock, on behalf of UG, investigated the claim. Mr. Comstock determined

9
the denial.

On March 31, 2010, Bank of America, as assignee of the mortgage,

requested that UG reconsider its denial of JP Morgan’s claim. UG confirmed its

denial of coverage on May 3, 2010. Bank of America did not dispute the denial.

After acquiring the mortgage from Bank of America, by letter dated

March 1, 2011, PNC sought reconsideration of UG’s denial of coverage. (Haupel

Decl., Ex. 00) Without waiting for a response, PNC filed this action.

This Action

PNC filed the complaint in this action on March 8, 2011. (Dkt. No. 1) On

August 28, 2012, PNC filed an amended complaint. (Dkt. No. 87) Less than a

month later, on September 13, 2012, PNC filed a Second Amended Complaint.

(Dkt. No. 93) David Sadek answered the Second Amended Complaint on

October 5, 2012, and cross-claimed against all defendants. (Dkt. No. 106) On

October 9, 2012, the Title Insurers answered the Second Amended Complaint,

cross-claimed against all defendants, and counterclaimed against PNC. (Dkt.

No. 108) On November 10, 2012, Etty Sadek answered the Second Amended

Complaint and David Sadek’s cross-claim, and she also asserted cross-claims

against David Sadek. (Dkt. No. 110) On November 12, 2012, PNC answered the

Title Insurers’ counterclaim. (Dkt. No. 116)

On February 14, 2013, a consent judgment was entered in favor of PNC

and against David Sadek on count 1 of the Second Amended Complaint in the

amount of $995,048.21. (Dkt. No. 132) Defendants FFE, Winthrop Abstract,

LLC and Winthrop-NJ, LLC failed to answer or defend. On March 6, 2013,

default judgment was entered against those defendants on the issue of liability.

(Dkt. Nos. 133, 134)

10
parties and the amount in controversy exceeds $75,000.

Discussion

A. Legal Standard

Federal Rule of Civil Procedure 56(a) provides that summary judgment

should be granted “if the movant shows that there is no genuine dispute as to

any material fact and the movant is entitled to judgment as a matter of law.”

Fed. R. Civ. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

248 (1986); Kreschollek v. S. Stevedoring Co., 223 F.3d 202, 204 (3d Cir. 2000).

In deciding a motion for summary judgment, a court must construe all facts

and inferences in the light most favorable to the nonmoving party. See Boyle v.

County of Allegheny Pennsylvania, 139 F.3d 386, 393 (3d Cir. 1998). The

moving party bears the burden of establishing that no genuine issue of

material fact remains. See Celotex Corp. v. Catrett, 477 U.S. 317, 322—23

(1986). “[W]ith respect to an issue on which the nonmoving party bears the

burden of proof ... the burden on the moving party may be discharged by

‘showing’—that is, pointing out to the district court—that there is an absence

of evidence to support the nonmoving party’s case.” Celotex, 477 U.S. at 325.

Once the moving party has met that threshold burden, the non-moving

party “must do more than simply show that there is some metaphysical doubt

as to material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475

U.S. 574, 586 (1986). The opposing party must present actual evidence that

creates a genuine issue as to a material fact for trial. Anderson, 477 U.S. at

248; see also Fed. R. Civ. P. 56(c) (setting forth types of evidence on which

nonmoving party must rely to support its assertion that genuine issues of

11
If the nonmoving party has failed “to make a showing sufficient to establish the

existence of an element essential to that party’s case, and on which that party

will bear the burden of proof at trial, ... there can be ‘no genuine issue of

material fact,’ since a complete failure of proof concerning an essential element

of the nonmoving party’s case necessarily renders all other facts immaterial.”

Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3d Cir. 1992) (quoting Celotex,

477 U.S. at 322—23).

B. Actual and Apparent Authority

PNC alleges that in failing to record the mortgage, Winthrop-NJ failed to

follow written closing instructions, committed fraud, and misappropriated the

loan proceeds, thereby breaching the Commitment and CSL. PNC claims that

UG is liable because Winthrop-NJ issued the Commitment and CSL as agent

for UG. The Commitment and CSL were designed to indemnify FFE (and its

successors and assigns, such as PNC) for losses caused by Winthrop-NJ’s

failure to record the mortgage. The Title Insurers assert that they cannot be

liable to PNC for breach of the Commitment or CSL because Winthrop-NJ

lacked authority to issue them.

An agent may bind a principal only for acts that “are within [the agent’s]

actual or apparent authority.” New Jersey Lawyers’ Fund for Client Protection v.

Stewart Title Guar. Co., 1 A.3d 632, 639 (N.J. 2010) (citing Carlson v. Hannah,

78 A.2d 83, 88 (N.J. 1951)). Actual authority arises “when, at the time of taking

action that has legal consequences for the principal, the agent reasonably

believes, in accordance with the principal’s manifestations to the agent, that

the principal wishes the agent so to act.” Restatement (Third) of Agency § 2.01

(2006). Apparent authority arises “when a third party reasonably believes the

12
1987). The focus is on the principal’s acts and statements; the agent’s

unilateral, unauthorized representations do not create apparent authority. See

Wilzig v. Sisselman, 506 A.2d 1238, 1244 (N.J. App. Div. 1986) (citing Mesce v.

Auto. Assoc’n. of New Jersey, 73 A.2d 586, 589 (N.J. App. Div. 1950)).Whether

there is apparent authority depends in addition upon the third party’s reliance

on the agent’s seeming authority to act. See Sears Mortg. Corp. v. Rose, 634

A.2d 74, 80 (N.J. 1993).

a. Actual Authority

Actual authority is lacking, say the Title Insurers, for two reasons. First,

the loan was for $792,000, far above the $500,000 underwriting limit set forth

in the Agency Agreement. Second, the “insider” provision of the Agency

Agreement required advance authorization from UG, because Etty Sadek was a

member of Winthrop-NJ and also held title to the property in question. (See Ex.

0, § 4.4, 4.10) Therefore, Winthrop-NJ lacked the contractual authority to

issue the Commitment or the CSL as UG’s agent.

As to the Commitment, PNC does not seem to disagree that Winthrop-NJ

lacked actual authority. I therefore set it aside.

As to the CSL, however, PNC contends that Winthrop-NJ did have actual

authority. According to PNC, the $500,000 underwriting limit applied only to

“Title Insurance Products.” Those Products did not, says PNC, include Closing

Servicing Letters.

The Agency Agreement limits Winthrop-NJ’s authority to “commit,

obligate or hold Agent out as having the authority to bind Company to any

obligation, contract, liability or duty other than for Title Insurance Products as

expressly authorized herein.” (Ex. 0 § 4.11) And the Agency Agreement does

13
contemporaneous amendment to the Agency Agreement imposes an

independent limit on Winthrop-NJ’s authority. Defining Insured Closing Service

Letters, the Agreement adds:

Company shall not, and shall have no obligation to, issue any CLS

to, for or for the benefit of any entity or individual which is an

owner, officer, director, employee, partner, stockholder or member

of Agent, or their agents, representatives or attorneys. Agent shall

have no authority or standing to request the issuance of CLS’s by

Company to such entities or individuals, and Agent shall have no

authority to issue CLS’s for such entities or individuals through

the Company’s automatic CLS system.

(Ex. 0 p. 13) True, the direct beneficiary of a CSL is the lender, FFE. But David

Sadek was the principal shareholder and CEO of that entity. The borrower

(Sadek again) might also be seen as a beneficiary. That, too, raises issues of

fact and interpretation.

On this record, there is material issue of fact as to Winthrop-NJ’s actual

authority to issue this CSL without specific authorization in advance. Viewed

favorably to PNC, the evidence would suggest that actual authority existed.

That is enough to dispose of the authority issue for present purposes. I

nevertheless briefly discuss apparent authority.

b. Apparent Authority

As to claims between UG and PNC apparent authority is pertinent. 5The

Title Insurers contend that Winthrop-NJ did not have “apparent authority” to

Lack of actual contractual authority would be most pertinent to a claim

between UG and Winthrop-NJ. The jury could conclude that an outsider—a bank

taking the loan by assignment, for example—would not be expected to familiarize itself

with the details of the agreement between the title insurer and its agent, even

assuming it had access.

14
Commitment or CSL would alert a third party that this transaction was an

exception—i.e., that in this particular case, Winthrop-NJ’s authority did not

extend to issuing those documents on UG’s behalf.

As to apparent authority, I find that there is a genuine material issue of

fact. Winthrop-NJ was, and was held out as, UG’s agent. The CSL itself states

that the lender is protected against certain losses “incurred by you in

connection with such closing when conducted by the above named Issuing

Agent (an agent authorized to issue title insurance for the company)....” Such a

letter conveys to the lender (if the lender bothers to look), that the named agent

possesses authority and that the title insurer stands behind the agent. See RTC

Mortg. Trust v. Fid. Nat’l Title Ins. Co., 58 F. Supp. 2d 503, 539 (D.N.J. 1999).

The Title Insurers contend that the lenders, especially National City, were

on notice and did not act with reasonable prudence. Perhaps; the issue is one

of factual interpretation. But a third party does not have “an affirmative duty to

inquire of one appearing to be a general agent regarding the scope of his

authority. Rather, what is required is that the third party act reasonably in

light of the facts of which it has notice.” PXRE Corp. v. Terra Nova Ins. Co. Ltd.,

76 F. App’x 485, 490 (3d Cir. 2003). There is at least an issue of fact in thisregard.

Once again, the many-hats problem requires that I inject a note of reality. Mr.

Sadek, wearing his Winthrop-NJ hat, did not represent (or misrepresent) his authority

to himself, wearing his FFE hat. The record would support an inference, however, that

the entire business model here involved FFE’s quickly ifipping the loans to others. The

purchasers would have relied on the apparent regularity of the underlying

transaction—such as the statement in the HUD- 1 that title insurance had been

purchased and paid for “outside of closing.” A jury could also find that FFE’s failure to

“protect” itself by ensuring recordation of the mortgage was, from Sadek’s point of

view, not a bug but a feature.

15
an issuing agent (who acts for the title insurer) and the settlement agent (who

acts for the lender), and say that the latter position was occupied by The

Closing Network. That, however, is a statement of the ideal anatomy of a

transaction, not the particular pathology of this one. The overlapping, illdefined responsibilities of the participants (all of whom seem to trace back to

David Sadek one way or another) create multiple issues of fact.

The CSL provides coverage for the “failure of Issuing Agent or Attorney to

comply with your written closing instructions to the extent that they relate to

[title orj the collection and payment of funds due you” or “fraud of or

misapplication by the Issuing Agent or Attorney in handling your funds.” (Ex.

BB) CSLs, which “are integral to title insurance policies,” are interpreted in the

same manner, i.e., liberally in favor of the insured and strictly against the

insurer. Walsh Secs., Inc. v. Cristo Prop. Mgmt., Ltd., 858 F. Supp. 2d 402, 418

(D.N.J. 2012).

The Title Insurers stress that they cannot be liable under the CSL for the

issuing agent’s failure to follow written closing instructions to record the

mortgage. 6This is because, according to the Title Insurers, no written closing

instructions were found in the loan file, and thus there is no evidence that6 The other basis for liability in the CSL is the issuing agent’s fraud or

misapplication with respect to the lender’s funds. The evidence presented

demonstrates that The Closing Network (represented by Zucker & Kwestel, LLP)

received the closing funds via a wire on November 2, 2005 in the amount of

$787,255.85, and six days later wrote two checks totaling that amount and satisfying

the two mortgages on the Property: one check was written to Chevy Chase Bank in the

amount of $344,492.76 and the other was written to Bank of America in the amount

of $442,763.09. (UG Exs. 1 32:13-22, CC, DD) The memo line for each of the checks

read “Sadek w/ FFE.” (Id.) Mr. Kwestel contends that his firm received the loan moneyin error and distributed that money to Chevy Chase Bank and Bank of America as a

favor to Mr. Sadek. (Haupel Deci., Ex. I 42:13-43:3)

16
mortgage. 7PNC cites to a document from FFE to Winthrop-NJ that reads “loan

must be recorded in 1 lien position.” (Rudnick Deci., Ex. 0) That document,

however, refers to a borrower named Shmuel Rapoport and a property address

of 43 South Plaza Place, Atlantic City, NJ, not the property at issue here.

Apparently this was offered as an example of FFE’s usual practice. A jury could

accept is as representative of a course of dealing in what were, after all,

repetitive, cookie-cutter transactions. And there is evidence that FFE routinely

enclosed such written instructions to record the mortgage, although it is not

clear who bore responsibility for ensuring such written instructions were

actually included in the closing document set. (See Haupel Deci., Ex. J, 26:20-

27:20, Ex. L, 24:15-23, 26:20-28:11)

Of course, a closing will not take place at all without some instructions

from the lender. And it beggars belief that a lender would not issue the routine

instruction that its mortgage lien be recorded. That is the whole point, from the

lender’s point of view. Even assuming that FFE gave no such instructions, a

jury could conclude that this was the result of manipulation by Sadek, in his

double role on behalf of the lender and UG’s agent, Winthrop. This scenario

positively bristles with issues of fact.

As to breach of the Commitment, the Title Insurers emphasize that it was

no more than an offer to issue title insurance provided certain conditions were

met. Under the Commitment, Title Insurance Defendants “commit[ted] to issue

its policy or policies of title insurance.. .upon payment of the premiums and

PNC’s brief is phrased misleadingly: “On October 31, 2005, Winthrop NJ closed

the Loan. FFE sent written closing instructions to Winthrop NJ requiring it to record

the mortgage in first lien position.” (Brf., at 2) Apparently the first sentence is about

this transaction; the second is seemingly a description of what usually was done.

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to represent to outside lenders that the premium was paid. UG’s agent putthem in a position to believe that the Commitment had ripened or would ripen

into an actual policy of title insurance.

A second precondition is that the mortgage and deed be recorded.

Schedule B of the Commitment sets forth the requirements, including that amortgage and deed be recorded. As to that, UG’s agent, Winthrop-NJ, could be

found responsible for the lapse on this record.

I do not say that PNC must or even will prevail. But here, too, issues of

fact bar summary judgment in favor of the Title Insurers.

D. Negligence

In Count Seven, PNC has alleged a cause of action sounding in

negligence. Specifically, PNC maintains that UG is liable for Winthrop-NJ’s

alleged negligence in failing to record the mortgage and failing to follow written

closing instructions.

The relationship between a title company and an insured is “essentially

contractual.” Walker Rogge v. Chelsea Title & Guar. Co., 562 A.2d 208, 220

(N.J. 1989). This is because the title company does not provide services to the

insured; rather, that relationship culminates in the issuance of a title

insurance policy and thus, the policy sets the rights and responsibilities of the

company and the insured. See id. However, a title company may be liable for

negligence where “the company engaged in conduct by which it voluntarily

B An HUD- 1 statement notes $2157 next to the entry for “title insurance” and an

invoice from Winthrop-NJ reflects the same amount for title insurance and related

fees. (Haupel DecL, Exs. Z, GG) David Sadek testified that monies he owed to

Winthrop-NJ would be denoted as “offsets.” (Id., Ex. D, 82:6-17) The premium owed,

he said, would be listed on the HUD- 1 as “paid outside of closing” and would “be a

credit against money owed to [Winthrop-NJ] for title insurance.” (Id. at 82:18-20)

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Other facts suggest that a negligence claim is sustainable on this record.

Here, I again interpret the facts, as I must, in the light most favorable to PNC.

Winthrop-NJ seems to have obscured and divided responsibility for

settlement of the transaction at every turn. No one, it seems, was clearly

responsible for the most important aspects of settlement of this mortgage

transaction. Ms. Greenberg sent the closing documents, including the

mortgage, to Rachel Sadek, who sent the documents to Winthrop-NJ’s Staten

Island office. That suggests that Winthrop-NJ would be responsible for

settlement, including the recording of the mortgage. Greenberg, at least, seems

to have thought so. The Closing Network, however, performed a major part of

the settlement, receiving the proceeds and paying off the prior liens. WinthropNJ seems to be unable to lay its hands on the relevant records. Neither Ms.

Greenberg nor Rachel Sadek could testify that the closing package contained

written closing instructions at all, or that such instructions included a

direction to record the mortgage. A jury could conclude that the lack of any

instruction to record the mortgage would have been a red flag to anyone in this

business. Miriam Greenberg and Rachel Sadek, however, seem not to have read

the closing instructions, and each said she sent the documents on to someone

else, which discharged her responsibility. No one at Winthrop-NJ, it seems,

checked. (See Haupel Deci., Ex. J, 27:17-20, Ex. L, 24:15-23, 26:20-27:20) And

Winthrop-NJ is UG’s agent.

Summary judgment is denied as to the negligence claim.

E. Fraud

In Count Eight, PNC has alleged that the Title Insurers are liable for

Winthrop-NJ’s alleged fraud in failing to record the mortgage, failing to record a

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misrepresentation, (4) reasonable reliance thereon by the other person, and (5)

resulting damages. See Gennari v. Weichert Co. Realtors, 691 A.2d 350, 367

(N.J. 1997).

Here, too, there are issues of fact. A jury could conclude that the multiple

failures in this transaction were not negligent, but purposeful. The intent, the

argument would run, was to enable David Sadek to sell the house out from

under whatever entity bought the loan from Sadek’s company, FFE. A jury

issue is presented as to whether UG’s negligent oversight permitted this tooccur. Certainly, UG could be found blameworthy for failing to note David

Sadek’s presence on all sides of the transaction, and the common ownership of

entities that should have checked and offset each other.

F. Bad Faith

Counts Nine and Ten are substantially the same. In those counts, PNC

alleges that the Title Insurers acted in bad faith when, without sufficient basis,denied PNC’s claim for indemnity under the CSL.

To demonstrate bad faith based on a denial of insurance benefits, “a

plaintiff must show the absence of a reasonable basis for denying benefits of

the policy and the defendant’s knowledge or reckless disregard of the lack of areasonable basis for denying the claim.” Pickett v. Lloyd’s, 621 A.2d 445, 453

(N.J. 1993). In other words, bad faith in denial of insurance benefits is shown

where there are “no debatable reasons” for the denial. Id. at 457. “Under the

‘fairly debatable’ standard, a claimant who could not have established as a

matter of law a right to summary judgment on the substantive claim would not

be entitled to assert a claim for an insurer’s bad faith refusal to pay the claim.”

Id. at 454-54. Where an insured has a reasonable basis on which to deny the

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Whether a bad faith claim can be maintained will depend on many of the

issued outlined above. To put it another way, the claim will depend on a jury’s

decision as to the extent to which the Title Insurers’ analysis of the claim

should have coincided with that of PNC. Here, too, summary judgment must be

denied.

CONCLUSION

For the foregoing reasons, the Title Insurers’ motion for summary

judgment as to the claims alleged against them by Plaintiff PNC is DFNIED. An

appropriate order follows.

KIVINMCNULTY,U.S.D.

Date: March 11, 2016

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