Court Opinion

ID: 1086354
Source: CourtListenerOpinion
Date Created: 2013-10-22 16:16:19.995914+00
Date Added: 2024-06-11T12:10:18.825450
License: Public Domain

Case: 12-15907       Date Filed: 10/22/2013       Page: 1 of 12

                                                                       [DO NOT PUBLISH]

                  IN THE UNITED STATES COURT OF APPEALS

                            FOR THE ELEVENTH CIRCUIT
                              ________________________

                                    No. 12-15907
                              ________________________

                         D. C. Docket No. 4:10-cv-00023-RLV

OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY,

                                                                       Plaintiff-Appellee,

                                            versus

TYLER C. MCCAIN,
TYLER C. MCCAIN, P.C.,
d.b.a. The McCain Law Firm,

                                                           Defendants-Cross Defendants-
                                                           Cross Claimants-Appellants.

                              ________________________

                      Appeal from the United States District Court
                         for the Northern District of Georgia
                           _________________________

                                     (October 22, 2013)

Before PRYOR and BLACK, Circuit Judges, and RESTANI, * Judge.

PER CURIAM:

       *
          The Honorable Jane A. Restani, United States Court of International Trade Judge,
sitting by designation.
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      In this case, Tyler C. McCain, P.C., d/b/a The McCain Law Firm, (the

McCain Firm) and its principal, Tyler McCain (collectively, the McCain

Defendants), appeal the district court’s grant of summary judgment to Old

Republic National Title Insurance Company (Old Republic) on its claim of fraud.

The parties have fully briefed the issues presented by this appeal, and we have held

oral argument. The parties are aware of the underlying facts, which we will

briefly summarize.

                                    I.     BACKGROUND

      Prior to the events giving rise to this action, Old Republic had appointed the

McCain Firm as a policy-issuing agent in connection with its title insurance

business. Subsequently, in March 2001, McCain became involved in the financing

of a feature film through his representation of Clarence King and Wade Thomas.

The film was to be produced by Martin Poll, who had procured a $10 million

commitment from Azimut Investments, Limited 1 (Azimut) contingent on Poll’s

ability to independently raise the additional $60 million necessary to produce the

film. The parties intended King and Thomas to raise the additional funds.

      To facilitate King and Thomas’s efforts, the parties intended Azimut to

deposit the $10 million into escrow to be held until such time as it could be

transferred to Poll along with the additional $60 million or, failing that, returned to

      1
          Azimut was controlled by Ayed al Jeaid, a Saudi Arabian General.

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Azimut. The parties agreed that McCain could serve as the escrow agent, but

Azimut required assurance of the safe handling of its deposit. To this end, McCain

contacted Jane McHenry, a senior employee with Old Republic, who provided

letters stating McCain was Old Republic’s authorized agent and Old Republic

would indemnify any loss Azimut incurred due to a breach of the escrow

agreement up to $10 million. 2 Satisfied, Azimut and the other parties (or their

associated entities) entered into the first escrow agreement in March 2001.

Pursuant to the parties’ objectives described above, the escrow agreement required

Azimut to deposit $10 million into an escrow account on which the McCain Firm

was to be the sole signatory. The agreement further provided the McCain Firm

would disburse the funds to Poll only when accompanied by an additional $60

million. If the additional funds were not raised within 45 days of Azimut’s

deposit, the original $10 million would be returned to Azimut with interest. The

       2
          McHenry initially sent Azimut a “closing protection letter” on February 28, 2001, with
references to real-estate closings, which caused Azimut to be uncertain whether McHenry
understood the true nature of the transaction. Azimut voiced these concerns, and in response,
McHenry prepared a second letter dated March 15, 2001, that stated in its entirety as follows:
        This letter will serve as confirmation that the McCain Lawfirm is an authorized
        agent of Old Republic Title Insurance Company, and is insured to act in the
        capacity of Escrow Agent in accordance with the terms outlined in the Escrow
        Agreement attached to this letter as Exhibit “A”.
A third letter sent on the same day added an additional sentence: “In the event Escrow Agent
defaults in regard to the Escrow Agreement, Old Republic Title shall indemnify Azimut up to
$10,000,000.00.”
        McHenry sent additional letters on June 27, July 30, and August 9, 2001, that reaffirmed
that Old Republic continued to insure Azimut’s $10 million deposit as the escrow agreement was
modified and extended.

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escrow agreement prohibited any other transfers of the $10 million unless

expressly authorized in writing by Azimut.

      King and Thomas proved unable to raise the additional funds required to

produce the film, and the parties began to consider alternative means of financing.

McCain alleges that in July he spoke with General Ayed al Jeaid, Azimut’s

principal, who orally authorized McCain to transform the escrow agreement into a

loan to Poll. McCain alleges that Poll and an associate, Charlene Marant, believed

they could use the $10 million to generate the additional funding for the film. By

the end of July 2001, McCain had transferred nearly all of the $10 million out of

the escrow account in contravention of the escrow agreement. Despite this fact,

McCain prepared and asked McHenry to sign letters stating the funds continued to

be held in escrow and the McCain Firm would transfer the funds pursuant to

Azimut’s instructions.

      The only evidence in the record that McCain disclosed the alleged

transformation of the escrow agreement to Old Republic are statements McCain

made during his deposition regarding a conversation he allegedly had with

McHenry on August 13, 2001, when he personally delivered an insurance premium

check to her. Specifically, when asked whether he told McHenry about the

transformation, McCain stated, “I don’t think we had any conversation about any

of it other than just there was a check that I remitted and I told her that it had

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closed, the loan had closed.” Later, when asked whether McHenry ever asked

whether the $10 million had been returned to Azimut, McCain stated, “No. . . . I

did tell her that the Azimut investment, the escrow deal had closed, and remitted a

check from the—basically remittance on the loan amount.” For her part, McHenry

stated she had no memory of a conversation when McCain delivered the premium

check but stated McCain never told her the escrow agreement had been changed to

a loan. She also said, “[A]t some point I spoke to [McCain], and we were assured

that the fund had been—that the escrow was complete. When I got the check, it

was—I thought the escrow was completed, that there was no further obligations.”

       Suffice it to say the parties were never able to raise the additional funds and,

in the process of attempting to do so, Azimut’s initial $10 million deposit was lost.

Azimut sued Old Republic for indemnity and recovered approximately $7 million

in a settlement. Old Republic then commenced the instant action.

                                      II.     DISCUSSION

   A. The District Court’s Findings

       The district court granted Old Republic’s motion for summary judgment on

its claim of fraud. 3 In its orders, the district court concluded the McCain

       3
          For reasons known to the parties but irrelevant to our analysis, Old Republic voluntarily
dismissed all of its claims other than fraud after the district court had granted its motion for
partial summary judgment as to liability on October 17, 2011. After Old Republic dropped its
other claims, the district court entered a second order October 11, 2012, granting Old Republic’s
“recast second motion for summary judgment” in which the court reaffirmed its earlier findings
as to liability and granted judgment on damages as well. Although the McCain Defendants

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Defendants had committed fraud as a matter of law by concealing and suppressing

material facts regarding the Azimut transaction—facts the McCain Defendants

were obligated to disclose as Old Republic’s agent. Specifically, the district court

found the McCain Defendants had changed the material terms of the escrow

agreement without informing Old Republic, noting the McCain Defendants

“admit[ted] that they did so.”

       In the second order granting summary judgment, the district court addressed

the McCain Defendants’ argument that the court had improperly discredited certain

evidence in its prior order. In particular, the McCain Defendants relied on

McCain’s deposition testimony in which he stated he told McHenry about the

transformation of the escrow agreement into a loan to argue a genuinely disputed

material fact existed as to whether the McCain Defendants failed to make the

required disclosures. The McCain Defendants also argued Old Republic failed to

establish scienter as a matter of law because McCain believed he had no further

responsibilities regarding the $10 million once the escrow had been converted to a

loan up until the time the additional $60 million was raised.

       In resolving the McCain Defendants’ arguments, the district court first

pointed out additional material omissions in an August 9, 2001 letter that provided

an independent basis to find the McCain Defendants had committed fraud as a

appeal the latter order specifically, our analysis draws on the district court’s reasoning in both.

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matter of law. The district court then concluded there was no genuine dispute the

McCain Defendants had failed to inform Old Republic of the material changes to

the escrow account and to McCain’s duties thereunder. Because a confidential

relationship existed between the McCain Defendants and Old Republic, this failure

constituted fraud. Accordingly, the district court reaffirmed its prior findings and

entered judgment in Old Republic’s favor.

   B. Standard of Review

      We review the district court’s grant of summary judgment de novo, viewing

the evidence and drawing all reasonable inferences in the light most favorable to

the non-moving party. Harrison v. Benchmark Elecs. Huntsville, Inc., 593 F.3d
1206, 1211 (11th Cir. 2010).

   C. Analysis

      The McCain Defendants raise three issues on appeal: (1) whether the district

court erred by discrediting McCain’s testimony that he told McHenry about the

transformation of the escrow agreement into a loan; (2) whether the district court

erred by concluding the McCain Defendants possessed the scienter required for

fraud as a matter of law; and (3) whether the district court erred by finding that Old

Republic exercised due diligence so as to allow a finding of justifiable reliance as a

matter of law.

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      1. Whether the district court erred by finding McCain failed to disclose the
         transformation of the escrow account to Old Republic

      The district court did not err in concluding McCain failed to disclose the

transformation of the escrow account to Old Republic. McCain’s alleged

disclosure—i.e., “the loan had closed”—was insufficient to convey all of the

material facts regarding the transformation of the escrow agreement into a loan,

particularly a loan for which Old Republic would essentially be a guarantor. While

the district court did not expressly reconcile this statement with its finding that the

McCain Defendants admitted to changing the terms of the escrow agreement

without informing Old Republic, the district court’s finding was justified given the

McCain Defendants alleged only a disclosure insufficient to satisfy their duties as

Old Republic’s agent. See Hunter, Maclean, Exley & Dunn, P.C. v. Frame, 507
S.E.2d 411, 414 n.14 (Ga. 1998) (“In cases of [a] confidential relationship, silence

when one should speak, or failure to disclose what ought to be disclosed, is ‘as

much a fraud in law as an actual affirmative false representation.’” (quoting Brown

v. Brown, 75 S.E.2d 13, 17 (Ga. 1953))).

      McCain variously stated he told McHenry that “the escrow deal had closed,”

“the loan had closed,” and the “transaction had closed.” None of these

statements—whichever was actually made—were full disclosures that reliably

conveyed all of the material facts, particularly in light of McCain’s admission that

he and McHenry did not “have any conversation about any of it other than just

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there was a check that I remitted[,] and I told her that it had closed, the loan had

closed.” By making these statements, McCain would not have disclosed the

escrowed funds were now being loaned to Poll without any restrictions and that

Old Republic would still be on the line to indemnify any losses resulting from the

loan. McHenry’s impression when she received the premium check from

McCain—i.e., the escrow agreement had come to completion and Old Republic

would have no continuing responsibility to Azimut—is entirely consistent with

McCain’s alleged disclosures and demonstrates their inadequacy. Accordingly,

the district court did not err in concluding McCain had admitted to failing to

disclose the material changes to the escrow agreement to Old Republic.

      Moreover, although the district court focused on this particular act of fraud,

the record discloses many others that independently justify the same conclusion.

The district court mentioned the August 9, 2001 letter that McCain prepared and

asked McHenry to sign. That letter stated the McCain Firm would “transfer funds

as designed by Azimut investments” despite the fact the same funds had already

been removed from the escrow account and released to Poll in contravention of the

escrow agreement. The letter of August 9 followed a letter dated July 30, also

prepared by McCain and signed by McHenry, stating “the escrowed funds [were]

currently being held by Citibank, N.A.,” the location of the escrow account, even

though they had already been disbursed. Even if McCain disclosed the loan on

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August 13, 2001, he did not disclose that the statements in these earlier letters

regarding the location and security of the escrow funds were false. In addition to

all of this, McCain also failed to disclose to Old Republic the details of the

transfers. These details were material facts given Old Republic’s continuing

obligation to ensure the money was returned to Azimut or transferred to Poll if the

additional $60 million were raised. In short, the McCain Defendants committed

ample omissions to justify the district court’s conclusions. We reject the McCain

Defendants’ contention the transfers out of escrow were “obvious”—despite the

contrary statements in the letters they prepared—in light of the transformation of

the escrow agreement into a loan. Likewise, we reject the argument that the details

of the transfers were immaterial as mere “details of the loan” when, as in the

instant case, a continuing duty existed to indemnify any loss of the funds. The

McCain Defendants’ other arguments excusing these omissions are equally without

merit.

         2. Whether the district court erred in finding as a matter of law the McCain
            Defendants possessed the requisite scienter to commit fraud

         Scienter can properly be inferred from McCain’s numerous fraudulent

misrepresentations and omissions, described above. See Crown Ford, Inc. v.

Crawford, 473 S.E.2d 554, 557-58 (Ga. App. Ct. 1996). McCain has offered no

facts warranting a contrary inference so as to create a genuine question of fact.

McCain’s allegation that General Ayed al Jeaid orally authorized him to transfer

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the escrowed funds to Poll does not undermine a finding of scienter because the

relevant misrepresentations are his failures to inform Old Republic, not Azimut.

Even if McCain could not have intended to deceive Azimut, there has been no

suggestion McCain ever made Old Republic aware of his conversations with

Azimut or any of the other parties to the escrow agreement. The undisputed record

therefore strongly supports an inference of the McCain Defendants’ intent to

deceive Old Republic, and this inference justifies a finding of scienter as a matter

of law.

      3. Whether the district court erred by finding as a matter of law that Old
         Republic fulfilled its duty of due diligence

      Under Georgia law, a fraud claim requires a plaintiff to show justifiable

reliance. Cox v. Bank of Am., N.A., 742 S.E.2d 147, 148 (Ga. Ct. App. 2013).

“Where a confidential relationship exists, a plaintiff does not have to exercise the

degree of care to discover fraud that would otherwise be required, and a defendant

is under a heightened duty to reveal fraud where it is known to exist.” Hunter, 507

S.E.2d at 414.

      All of the parties agree a confidential relationship existed between the

McCain Defendants and Old Republic. In light of this and the fact the escrow

agreement required the McCain Firm be the sole signatory on the escrow account,

Old Republic was entirely justified in relying on McCain to keep it informed

regarding the status of the account. Simply put, McCain was uniquely positioned

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to monitor and safeguard the escrow funds. Any argument that McHenry should

have somehow become a signatory on the account in contravention of the escrow

agreement is meritless and warrants no further discussion.

                                 III.   CONCLUSION

      In light of the foregoing, we conclude the district court committed no error

with regard to any of the issues raised in this appeal.

      AFFIRMED.

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