Opinion ID: 2106538
Heading Depth: 2
Heading Rank: 1

Heading: Count One The Chicago Title Insurance Company Matter

Text: This matter arose from a formal ethics complaint charging respondent with two counts of knowing misappropriation and one count of gross neglect and lack of diligence. At the relevant times, respondent maintained an office for the practice of law and a title agency business in East Orange, Essex County, New Jersey, operating under the name of Contemporary Title Agency. On July 31, 1987, respondent signed an agency contract with Chicago Title Insurance Company (Chicago Title). Pursuant to the contract, Chicago Title appointed respondent as an agent for the promotion and transaction of a title insurance business in Essex County. As agent, respondent had the following obligations, among others: to solicit business for Chicago Title; to conduct the necessary searches before closings of title; to issue title insurance commitments; to issue title insurance policies; to collect premiums according to a schedule of rates and remittances set forth on a rider to the contract; and to remit to Chicago Title forty percent of the premiums collected, as its compensation. Paragraph 3 of the contract provided as follows: DUTIES OF AGENT. Agent shall:         F. Keep safely in accounts separate from Agent's personal or operating accounts all funds received by Agent from any source in connection with transactions in which Principal's title insurance is involved and to disburse said funds only for the purposes of which they were entrusted     [Exhibit P1-1] Paragraph 7 of the Schedule of Rates and Remittances stated the following: 7. Agent agrees that remittances will be paid at the time of reporting policies issued to the Principal. The payment of remittances, and the simultaneous reporting of policy copies issued during the preceding month, shall be mailed to the Principal's Headquarter Office within 15 days of the issuance of the policy, by the 15th day of each month     (Original emphasis). [Exhibit P1-1] According to Joseph Santosuosso, Chicago Title's then manager for the North Jersey area, in practice, the reporting to Chicago Title of the number of policies issued by an agent would be accomplished by forwarding to Chicago Title a voucher attached to the top of the title policy form. After the agent would issue the title insurance policy, the agent would fill out the voucher and forward it to Chicago Title's office. Chicago Title would then bill the agent for its portion of the premiums collected. That was the sole mechanism for notifying Chicago Title of insurance policies issued. Copies of the vouchers were not sent to Chicago Title's area managers. As noted earlier, respondent became an insurance title agent for Chicago Title on July 31, 1987. As was customary, Chicago Title gave respondent $5,000 or $6,000 in seed money to start the agency business. For reasons unexplained by the record, respondent did not immediately establish bank accounts to operate his title agency business. Six months later, on January 8, 1988, respondent opened two accounts at Midlantic National Bank, in Newark: account # XXXXXXXX (escrow account) and account # XXXXXXXX (agency account). According to the agency contract, all premiums were to be deposited in the escrow account. Between November 1987 and March 28, 1988, respondent collected title insurance premiums in twenty real estate transactions. In none of these transactions did respondent remit to Chicago Title its portion of the premiums, or $4,017.79. Exhibit P1-2A. Neither did respondent issue the corresponding title insurance policies. Chicago Title discovered respondent's wrongdoing only after it began receiving complaints from the banks involved, demanding the title insurance policies. In June 1988, respondent's agency contract with Chicago Title was terminated as a result of his failure to fulfill his obligations. Respondent admitted that he collected the premiums in the twenty real estate transactions at stake and that he did not send forty percent of the premiums to Chicago Title. Respondent also admitted that he had used Chicago Title's portion of the premiums for purposes other than those for which they were intended. Respondent denied, however, that he had knowingly misappropriated the funds. Respondent asserted various defenses against the charges of knowing misappropriation. First, respondent claimed that he was never properly trained by Chicago Title on how to issue title insurance policies and that, even after several sessions of instructions by Chicago Title employees on the subject, he never felt comfortable in issuing title insurance policies. As noted by the Special Master, however, respondent's defense is, at the outset, ingenuous. It is undeniable that Chicago Title gave respondent assistance in learning operating procedures and in issuing policies. On at least two occasions, Carolyn Leakes, a production supervisor and title officer for Chicago Title, visited respondent's agency to explain operating procedures. Although Leakes acknowledged that she did not instruct respondent how to issue title policies, she showed him how to issue title binders before the closing of title stage and had numerous subsequent phone conversations with respondent about underwriting issues. Similarly, Roxanne Logan, a Chicago Title employee whose job was to issue title policies, visited respondent's office once or twice. On those occasions, Ms. Logan explained to respondent how to issue policies and suggested that, if he had any questions, he should contact her. Ms. Logan acknowledged that she had several subsequent phone conversations with respondent, but could not recall whether they related to the issuance of policies. Larry Green, too, at the time an Assistant Vice-President and branch manager for Chicago Title, recalled having five to seven telephone conversations with respondent about how to issue policies and about other operational procedures. Mr. Green testified that respondent called him only once after Roxanne Logan visited respondent's office. At that time, he offered respondent his assistance, if ever needed. Mr. Green testified that respondent did not call him after that occasion. More importantly, as pointed out by the Special Master, the issuance of title insurance policies was at the heart of the reason why Chicago Title had engaged respondent as an agent. Accordingly, if respondent felt incapable or uncomfortable in issuing title insurance policies, he should have sought further assistance in training from Chicago Title or discontinued the operation of a business in which he could not perform adequately. Respondent did neither. The second defense asserted by respondent is that Chicago Title was a necessary component of every closing. Respondent claimed that Chicago Title had notice of the business generated by the agency because Chicago Title had to provide updated information on the various closings. This defense, too, must be rejected. Chicago Title could not have been aware that respondent had issued title insurance commitments and accepted premiums because respondent did not send the corresponding vouchers to Chicago Title. In addition, as Larry Green testified, Chicago Title did not provide agents with updated information on the closings. Furthermore, respondent admitted to G. Nicholas Hall, an investigative auditor with the OAE, that Chicago Title was unaware that he was not issuing title policies. T4/20/1994 187, Exhibit P1-4. Lastly, even if Chicago Title were aware of respondent's activities, there is no explanation or excuse for respondent's failure to remit the forty percent portion of the premiums collected. Respondent's third defense is that he had a verbal agreement with Joseph Santosuosso to delay the remittance of Chicago Title's share of the premiums because he was starting up the agency business and needed the cash at the time. Santosuosso, however, testified that he had no recollection of such agreement and that he never gave respondent permission to use the premiums for his own purposes. To date, respondent has not made restitution to Chicago Title. Respondent alluded to an agreement in place to that end.