Court Opinion

ID: 4706663
Source: CourtListenerOpinion
Date Created: 2021-07-27 04:55:01.011716+00
Date Added: 2024-06-11T08:06:38.583588
License: Public Domain

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                                                                                    Supreme Court Cieri<

                  IN THE SUPREME COURT OF THE STATE OF WASHINGTON

                  CERTIFICATION FROM THE UNITED                 )
                  STATES COURT OF APPEALS FOR THE               )
                  NINTH CIRCUIT                                 )                   No. 91932-1
                                  IN                            )
                                                                )                     En Bane
                  CENTURION PROPERTIES Ill, LLC; SMI            )
                  GROUP XIV, LLC,                               )
                                                                )         Filed      JUL. 1 4 2016
                                 Plaintiffs-Appellants,         )
                                                                )
                         v.                                     )
                                                                )
                  CHICAGO TITLE INSURANCE                       )
                  COMPANY, a Nebraska company,                  )
                                                                )
                                  Defendant-Appellee.           )
                                                                )

                         WIGGINS, J,-The United States Court of Appeals for the Ninth Circuit certified

              the following question to this court: "Does a title company owe a duty of care to third

              parties in the recording of legal instruments?" We answer the certified question no and

              hold that title companies do not owe a duty of care to third parties in the recording of

              legal instruments. Such a duty is contrary to Washington's policy and precedent, and

              other duty of care considerations.
                                            
          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

                                                     FACTS

                   This certified question arises from a civil action for money damages filed in the

          United States District Court for the Eastern District of Washington. Plaintiffs Centurion

          Properties Ill LLC (CP Ill) and SMI Group XIV LLC (collectively Plaintiffs) assert that

          defendant Chicago Title Insurance Company negligently breached its duty of care and

          caused damages when it recorded unauthorized liens on CP Ill's property.

                   Michael Henry, the sole member of SMI, joined with Thomas Hazelrigg to form

          CP Ill. They formed CP Ill in order to purchase property and commercial buildings in

          Richland, Washington. They further agreed that 90 percent of CP Ill would be owned

          by individuals and entities controlled by Hazelrigg and 10 percent would be owned by

          SMI. Aaron Hazelrigg, through nonparty Centurion Management Ill LLC, was the

          managing member of CP Ill.

                   To purchase the property, CP Ill obtained a $70.8 million loan from General

          Electric Capital Corporation (GECC). The loan was secured by a deed of trust on the

          property naming GECC as the beneficiary. The deed of trust and two other

          instruments-the CP Ill operating agreement and the GECC loan agreement-

          prohibited the placement of any liens or encumbrances on the property without

          GECC's approval. Any unauthorized lien or encumbrance would constitute an event

          of default.

                   Defendant Chicago Title served as escrow agent, closing agent, and title

          insurer for the purchase of the property at issue. Chicago Title recorded the GECC

          deed of trust and is named trustee for GECC's senior lien. Chicago Title, as trustee,

                                                        2
                                            
          Centurion Props. 1/1, LLC v. Chicago Title Ins. Co., No. 91932-1

          also received and reviewed copies of the CP Ill operating agreement and the GECC

          loan agreement as part of the transaction.

                   Following the sale, four liens were placed on the property without GECC's

          approval. The four unauthorized liens were recorded by Chicago Title: two separate

          deeds of trust granted by CP Ill in favor of Centrum Financial Services Inc.; a deed of

          trust granted by CP Ill to Trident Investments Inc.; and a memorandum of agreement

          between CP Ill and Trident. Two additional liens are not at issue in this case.

                   Each of these liens was a facially valid instrument: the instruments bore the

          correct legal description, and they were all signed and notarized through Centurion

          Management by either Aaron Hazelrigg or Thomas Hazelrigg as director of CP

          Management on behalf of CP 111. 1 Chicago Title initially recorded Centrum Financial's

          deed of trust in conjunction with issuing a commitment for title insurance. The

          remaining three recordings were done as accommodations.

                   Later, GECC obtained a title report and learned of the four (prohibited) liens

          that Chicago Title recorded. GECC notified CP Ill that the junior liens were events of

          default and accelerated the entire unpaid balance of the loan, imposing a default rate

          of interest. Though CP Ill attempted to refinance the loan, no lender would refinance

          it while the prohibited liens remained on CP Ill's title. GECC moved forward with its

          foreclosure, forcing CP Ill to file for bankruptcy2

          1 Plaintiffs allege that even though these liens were purportedly entered into by Centurion
          Management on behalf of CP Ill, they were not authorized liens. They further assert that
          Chicago Title was under a duty to look behind the instruments to determine whether the
          signatures were, in fact, valid.
          2 During this time, Henry, as the sole member of SMI, took control of CP Ill from the
          Hazel riggs. He is now the sole owner of both companies.

                                                        3
                                                  
              Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

                     Plaintiffs filed a civil action against the Hazelriggs, Centrum Financial, and

              others, alleging that the named defendants misappropriated funds from CP Ill,

              improperly transferred ownership of CP Ill, and secretly placed liens on CP Ill's

              property. These claims sought to (1) enjoin foreclosure of the allegedly unauthorized

              liens and (2) quiet title by voiding the instruments that created them. Plaintiffs later

              added a sole complaint against Chicago Title; this complaint asserted that Chicago

              Title was negligent in recording the prohibited liens and that the resulting defaults

              caused CP Ill to incur more than $7.5 million in damages, including $3 million in

              default interest. The claims against all other parties settled, leaving only the

              negligence claim against Chicago Title. The district court dismissed this claim on

              summary judgment, finding that Chicago Title did not owe Plaintiffs a duty of care.

              Centurion Props. Ill, LLC      v. Chi. Title Ins. Co., No. CV-12-5130-RMP, 2013 WL
              3350836 (E.D. Wash. July 3, 2013) (court order). Plaintiffs appealed, and the Ninth

              Circuit certified its question to this court. Centurion Props. Ill, LLC v. Chi. Title Ins. Co.,

              793 F. 3d 1087 (9th Cir. 2015). We accepted review pursuant to RCW 2.60.020.

                                                       ANALYSIS

                     We are asked whether a title insurance company owes a duty of care to third

              parties in the recording of legal instruments. A duty of care is '"an obligation, to which

              the law will give recognition and effect, to conform to a particular standard of conduct

              toward another."' Affil. FM Ins. Co. v. LTK Consulting Servs., Inc., 170 Wn.2d 442,

              449, 243 P.3d 521 (2010) (internal quotation marks omitted) (quoting Transamerica

              Title Ins. Co. v. Johnson, 103 Wn.2d 409, 413, 693 P.2d 697 (1985). The duty of care

              question implicates three main issues-the existence of a duty, the measure of that

                                                             4
                                                    
              Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

              duty, and the scope of that duty. /d. (quoting DAN B. DOBBS, THE LAW OF TORTS§ 226,

              at 578 (2000)). "In a negligence action, in determining whether a duty is owed to the

              plaintiff, a court must not only decide who owes the duty, but also to whom the duty is

              owed, and what is the nature of the duty owed." Keller v. City of Spokane, 146 Wn.2d

              237, 243, 44 P.3d 845 (2002). The existence of a duty and the scope of that duty are

              questions of law, and both are determined by considering the factors listed below.

                       We consider logic, common sense, justice, policy, and precedent, as applied to

              the facts of the case, when determining whether a defendant owes a duty in tort. Affil.

              FM Ins. Co., 170 Wn.2d at 449. We have long applied these factors when defining

              "duty," and they can be traced back for more than 100 years. 3 We apply these factors

              here. We first examine precedent and analyze whether our decisions or the decisions

              of neighboring jurisdictions support finding a duty here. We next consider whether

              Washington's policy of protecting the rights of property owners through the title

              recording system is advanced or frustrated by imposing a legal duty of care. Finally,

              we consider logic, common sense, and justice. These considerations lead us to

              conclude that a title insurance company does not owe a duty of care to third parties in

              the recording of legal instruments.

                  I.   Standard of review

                       Certified questions from a federal court are questions of law that we review de

              novo. Gray v. Sutte/1 &Assocs., 181 Wn.2d 329, 337, 334 P.3d 14 (2014). We consider

              3 The original language from 1 Thomas Atkins Street, The Foundations of Legal Liability 100,
              110 (1906) is quoted time and again from Affiliated FM Insurance Co., 170 Wn.2d at 449, to
              Snyder v. Medical Service Corp. of Eastern Washington, 145 Wn.2d 233, 243, 35 P.3d 1158
              (2001 ), to Hartley v. State, 103 Wn.2d 768, 779, 698 P.2d 77 (1985), to King v. City of Seattle,
              84 Wn.2d 239, 250, 525 P.2d 228 (1974).

                                                             5
                                              
          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

          the legal issues not in the abstract but rather based on the certified record provided

          by the federal court. /d. (citing RCW 2.60.030(2)). Our ruling is not advisory-pursuant

          to RCW 2.60.020, our ruling in answer to the certified question resolves actual issues

          pending in the federal proceeding and will be legal precedent in all future

          controversies involving the same legal question. /d.

              II.        Precedent

                         We first consider precedent. Whether a title insurance company owes a duty of

          care to third parties in the recording of legal instruments is a question of first

          impression for this court. However, our precedent firmly supports the conclusion that

          the answer to this certified question is no.

                         Our analysis begins by considering the duties owed by title insurance

          companies in prior cases. We next consider other circumstances that have led us to

          recognize a professional duty of care. Washington law treats professional duties as

          discrete duties owed to clients-absent a special relationship, we have extended a

          professional duty of care to third parties only (1) when the third party is an intended

          beneficiary,          (2) when the third party justifiably relied on a professional's

          representations under a theory of negligent misrepresentation, or (3) when a

          professional is best able to mitigate the risk of a physical injury. See, e.g., Stewart

          Title Guar. Co. v. Sterling Sav. Bank, 178 Wn.2d 561, 567, 311 P.3d 1 (2013) (no duty

          to nonclient absent intent to benefit nonclient); ESCA Corp. v. KPMG Peat Marwick,

          135 Wn.2d 820, 832, 959 P.2d 651 (1998) (negligent misrepresentation); Affil. FM Ins.

          Co., 170 Wn.2d at 545 (engineer owed a duty of care to third parties who may be

          harmed by engineer's negligence). Because Plaintiffs do not assert a theory of

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          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

          negligent misrepresentation, our analysis considers our rule limiting duties to third

          parties who are intended beneficiaries and the rationale extending a duty to

          professionals able to mitigate the risk of physical injury. We conclude by considering

          the approaches of Arizona and California, the only other states to consider the duty

          owed by a title insurance company to a third party when recording legal instruments.

              A. Title insurance companies do not owe a general duty to clients to search for
                   and disclose potential title defects when issuing preliminary commitments

                   Title insurance companies may perform several services for their own benefit

          or for their client's benefit. Consistent with chapter 48.29 RCW ("Title Insurers"), our

          analysis of the duty owed by title insurance companies to their clients follows the

          nature of the service at issue.

                   Though we have not considered the duty owed by a title insurance company to

          nonclient third parties, we thoroughly analyzed and explored the duty of a title insurer

          to its clients-namely to its insureds-in Barstad v. Stewart Title Guaranty Co., 145

          Wn.2d 528, 541, 39 P.3d 984 (2002). We specifically considered a title insurance

          company's duty to search for and/or to disclose title defects to its clients when issuing

          a preliminary commitment. We held that title insurance companies do not owe their

          clients a duty to search for and/or to disclose title defects when preparing a

          "preliminary title commitment" pursuant to the plain language of RCW 48.29.01 0(3)(c).

          /d. at 530. To reach this conclusion, we considered the meaning of chapter 48.29

          RCW, the legislative purpose of that statutory scheme, and standard industry practice,

          and we conducted a comparative analysis of other states in the Ninth Circuit. /d. at

          535-42.

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          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

                   Barstad considered the general duties imposed on title insurance companies

          by chapter 48.29 RCW. /d. at 535. There, the insureds asserted that title insurers owe

          a duty of care when preparing abstracts of title and argued that a preliminary title

          commitment serves the same purpose as an abstract of title, giving rise to the same

          duty of care. /d. We rejected this argument. /d.

                   We began by examining the definitions of the services performed-and

          resultant duties owed-by title insurers. /d. We observed that an abstract of title is

                   "a written representation, provided pursuant to contract, whether written
                   or oral, intended to be relied upon by the person who has contracted for
                   the receipt of such representation, listing all recorded conveyances,
                   instruments, or documents which, under the laws of the state of
                   Washington, impart constructive notice with respect to the chain of title
                   to the real property described. An abstract of title is not a title policy as
                   defined in this subsection."

          /d. at 535 n.8 (quoting former RCW 48.29.01 0(3)(b) (1997) 4 ). Due to the contractual

          and reliance principles associated with an abstract, we noted that we have long

          recognized the potential duties associated with an abstract of title. /d. at 539 n.14.

                   We contrasted this service with the statutory definition of a "preliminary

          commitment" at RCW 48.29.01 0(3)(c):

                   '"Preliminary report,' 'commitment,' or 'binder' means reports furnished
                   in connection with an application for title insurance and are offers to issue
                   a title policy subject to the stated exceptions in the reports, the conditions
                   and stipulations of the report and the issued policy, and such other
                   matters as may be incorporated by reference. The reports are not
                   abstracts of title, nor are any of the rights, duties, or responsibilities
                   applicable to the preparation and issuance of an abstract of title
                   applicable to the issuance of any report. Any such report shall not be
                   construed as, nor constitute, a representation as to the condition of the
                   title to real property, but shall constitute a statement of terms and

          4Minor wording changes were made in 2005 but do not alter the meaning. LAWS OF 2005,
          ch. 223, § 14.

                                                         8
                                                      
              Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

                       conditions upon which the issuer is willing to issue its title policy, if such
                       offer is accepted."

              /d. at 535 n.8 (quoting former RCW 48.29.01 0(3)( c) 5). We observed that a preliminary

              commitment is "merely an offer to issue the title insurance subject to the stated

              conditions." /d. at 536 (citing former RCW 48.29.010(3)(c)). This research is

              performed specifically for the title insurance company's benefit and not for the benefit

              of the insured. /d. at 540.

                       We also considered industry practice, legislative intent, and the approach of

              other jurisdictions, as well as the insured's argument that title insurance companies

              owe a fiduciary duty to disclose title defects. /d. at 542-44. Every one of these

              considerations led to the conclusion that title insurance companies have no general

              duty to disclose potential or known title defects when they are not preparing an

              abstract of title because these services are not prepared for or intended to be relied

              on by a person other than the insurer. /d. at 530.

                       Our holding in Barstad follows a long line of cases in which we have rejected

              attempts to impose a duty on title insurance companies to search for and disclose title

              defects. See, e.g., Transamerica Title Ins. Co.         v. Johnson, 103 Wn.2d 409, 413-14,
              693 P.2d 697 (1985) (no reliance by third party on title insurer's preliminary

              commitment); Klickman v. Title Guar. Co. of Lewis County, 105 Wn.2d 526, 528, 716

              P.2d 840 (1986) (no liability because no title defect); Lombardo          v. Pierson, 121 Wn.2d

              5  Minor wording changes were made in 2005, including the following changes to the final
              sentence of subsection (3)(c): "Any such The report shall not be construed as, nor constitute,
              is not a representation as to the condition of the title to real property, but shall constitute is a
              statement of terms and conditions upon which the issuer is willing to issue a its title policy, if
              stiGA the offer is accepted." LAWS OF 2005, ch. 223, § 14. The changes do not affect our
              analysis.

                                                               9
                                                 
          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

          577, 581-83, 852 P.2d 308 (1993) (same). These cases strongly suggest that title

          insurers do not owe a duty of care to third parties when merely recording legal

          instruments.

                   Title companies may record documents with the county recorder's office in

          conjunction with the issuance of a title commitment or policy, or as a separate

          accommodation recording at the request of the customer. Here, Chicago Title

          recorded Centrum Financial's deed of trust in conjunction with issuing a commitment

          for title insurance and later completed three such accommodation recordings. No

          party requested an abstract of title, and none of these recordings was done at the

          request of Plaintiffs.

                   Chicago Title did not have a duty to identify or disclose title defects to its client,

          Centrum Financial, in preparing a commitment for title insurance; such a duty is owed

          only in preparing an abstract of title. Accord Barstad, 145 Wn.2d at 536; former RCW

          48.29.010(3)(b), (3)(c). Further, Washington's title insurance and recording statutes

          do not impose liability for the negligent recording of titles. See generally ch. 48.29

          RCW; ch. 65.08 RCW. Because our title insurer liability precedent does not support

          finding a duty to identify and disclose title defects to its own clients, it cannot support

          extending this duty of care to nonclient third parties when recording a legal instrument,

          particularly when that legal instrument is facially valid, as it is here. 6

          6  Plaintiffs cite Hu Hyun Kim v. Lee for the proposition that title companies owe a duty of
          reasonable care when fulfilling professional when fulfilling professional obligations and giving
          professional advice to their clients. 145 Wn.2d 79, 91, 31 P.3d 665 (2001) (title company
          negligent in rendering an expert opinion when it failed to discover and disclose an existing,
          recorded, and perfected lien on the client's property). We are unpersuaded by Kim on these
          facts in view of our decision two years later in Barstad, 145 Wn.2d 528, where we held that
          title insurance companies do not have a duty of care when preparing commitment reports

                                                         10
                                          
          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

              B. Our other title insurance company cases do not inform our analysis of this
                 issue

                   Plaintiffs' citations to other cases holding that title insurance companies owe

          duties in tort are not well taken.

                   Plaintiffs cite Denaxas   v.   Sandstone Court of Bellevue, LLC, 148 Wn.2d 654,

          663, 63 P.3d 125 (2003) for the proposition that title insurance companies have a duty

          to exercise reasonable care in carrying out their instructions. However, Denaxas

          actually held that "the Title Company did not have a duty to point out the discrepancy

          between the legal description in the Agreement and that in the closing documents."

          /d. To the extent Denaxas discussed a duty to follow instructions, we held that an

          "'escrow agent's duties and limitations are defined . . . by his instructions."' /d.

          (alteration in original) (quoting Nat'/ Bank of Wash. v. Equity Investors, 81 Wn.2d 886,

          910, 506 P.2d 20 (1973)). This point arises strictly out of the specific characteristics

          governing escrow holders-characteristics that are undisputedly not at issue in this

          case as Chicago Title did not perform any escrow services. See Nat'/ Bank of Wash.,

          81 Wn.2d at 910.

                   Plaintiffs also rely on Walker v. Transamerica Title Insurance Co., 65 Wn. App.

          399, 828 P.2d 621 (1992). But Walker addresses only proximate cause; the court did

          not address duty because Transamerica Title conceded duty for the purpose of its

          summary judgment motion. /d. at 402. Further, Walker involved the recording of a

          under RCW 48.29.010. Kim addresses neither chapter 48.29 RCW nor liability in regard to
          commitments. Furthermore, there being no contract here between Chicago Title and CP Ill,
          Kim cannot inform our analysis of the certified question before us.

                                                          11
                                                    
              Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

              facially invalid lien that did not contain a description of the property at issue. /d. at 401.

              Walker does not inform our duty analysis.

                   C. Absent a substantial risk to public safety or property damage, professionals
                       do not owe a duty to third parties when the transaction at issue is not intended
                       to benefit the third party

                       The duty of a title insurance company to third parties is a question of first

              impression to this court. Therefore, we turn to analogous considerations of a

              professional's duty to third-party nonclients for guidance. Using a modified version of

              California's multifactor test,? we recently considered whether attorneys owe nonclient

              third parties a duty of care in Sterling Savings Bank, 178 Wn.2d 561. Because our

              multifactor test is derived from the California test applied in Seeley v. Seymour, 190

              Cal. App. 3d 844, 237 Cal. Rptr. 282 (1987) (see infra Section II .D) and because the

              issue of a lawyer's duty to a nonclient is similar to the duty of a title insurer to a

              nonclient, our analysis in Sterling is instructive to our analysis here.

                       In Sterling, we applied a multifactor test designed to determine when an

              attorney rnay be liable for malpractice to a nonclient third party. These factors are:

                       "1.   The extent to which the transaction was intended to benefit the
                             plaintiff [that is, the third party suing the attorney];

                       "2.   The foreseeability of harm to the plaintiff;

                       "3.   The degree of certainty that the plaintiff suffered injury;

                       "4.   The closeness of the connection between the defendant's .
                             conduct and the injury;

              7 We first adopted the multifactortest in Trask v. Butler, 123 Wn.2d 835, 872 P.2d 1080 (1993).
              In Trask, we considered California's multifactor test and the Illinois "third party beneficiary''
              test in deciding whether an attorney owes a duty to a nonclient. /d. at 840. After discussing
              both tests, the court combined the two and created Washington's modified multifactor test.
              /d. at 841-43.

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          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

                   "5.     The policy of preventing future harm; and

                   "6.     The extent to which the profession would be unduly burdened by
                           a finding of liability."

          178 Wn.2d at 565-66 (first alteration in original) (quoting Trask v. Butler, 123 Wn.2d

          835, 843, 872 P.2d 1080 (1994)). Quoting Trask, we explained that the first factor is

          the '"primary inquiry"' in determining liability to third parties. /d. (quoting Trask, 123

          Wn.2d at 842). We further explained that "'under the modified multifactor balancing

          test, the threshold question is whether the plaintiff is an intended beneficiary of the

          transaction to which the advice pertained'" and held that "'no further inquiry need be

          made unless such an intent exists."' /d. (quoting Trask, 123 Wn.2d at 843). Ultimately,

          we found no duty because the transaction at issue was not intended to benefit the

          third party. /d. at 570.

                   These factors do not support finding a duty in this case. Neither Chicago Title's

          preliminary commitment and recording nor its subsequent accommodation recordings

          for the benefit of its client, Centrum Financial, were intended to benefit CP Ill. Indeed,

          the opposite is true-any recording of Centrum Financial's interest in the property

          would burden CP Ill. Under the multifactor test, this threshold inquiry is dispositive of

          Plaintiffs' claim.

                   Plaintiffs do not argue that the transaction between Centrum Financial and

          Chicago Title was intended to benefit them. Instead, they seem to assert two separate

          arguments in support of liability. First, they argue that Chicago Title assumed a duty

          of care arising out of the foreseeability of the injury to CP Ill when it agreed to issue a

          commitment to Centrum Financial and to record its instruments. Second, they assert

                                                        13
                                                  
          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

          that Washington law recognizes tort duties by title insurance companies. Our

          precedent requires rejection of both arguments.

                   Plaintiffs' first argument is that liability to CP Ill arises out of Centrum Financial's

          instruction to Chicago Title. From this instruction, Plaintiffs argue that Chicago Title

          owed them a duty of care "given the obvious and known risks to the landowner." Pis.'

          Reply Br. at 7. This assertion assumes that a duty to CP Ill could be inferred from the

          contractual agreement between Centrum Financial and Chicago Title, an argument

          we reject. See infra Section IV. a. This argument for a duty also appears to be entirely

          predicated on the foreseeability of the harm. However, foreseeability of harm is only

          one of six factors necessary to determine whether a duty exists. Sterling, 178 Wn.2d

          at 566. Further, we do not consider the foreseeability of harm when a transaction is

          not intended to benefit the third-party plaintiff. /d. Thus, foreseeability of harm, alone,

          is insufficient to support imposing a duty.

                   Plaintiffs also assert that title insurance companies are professional institutions

          charged with the public trust; therefore, they owe a duty of reasonable care to third

          parties in the exercise of their professional responsibilities. Recognizing that title

          insurance companies may owe a duty of reasonable care to their clients in certain

          scenarios not before us today, we hold that the duty considerations do not support

          extending the duties owed by title insurance companies to encompass liability to third

          parties in the recording of legal instruments.

                   Plaintiffs rely heavily on a recent decision establishing a professional duty of

          care toward third parties under a theory of general negligence. See Affil. FM Ins. Co.,

          170 Wn.2d at 453-54. Plaintiffs read Affiliated FM Insurance Co. too broadly: the policy

                                                          14
                                            
          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

          considerations, precedent, logic, justice, and common sense underlying that decision

          are not present here.

                   In Affiliated FM Insurance Co., we considered a certified question from the

          Ninth Circuit. The question asked whether a party who has a contractual right to

          operate commercially and extensively on property owned by a nonparty may sue an

          engineering consulting firm in tort for damage to that property when the party and the

          engineers are not in privity of contract. /d. at 447. The dispute arose from a fire aboard

          a train on Seattle's monorail system. /d. at 445. Though the city of Seattle owned the

          property that was physically damaged by the fire, Seattle Monorail Service operated

          the monorail and suffered significant economic damages as a result of the fire. /d.

          Seattle Monorail Services argued that the fire was the result of an engineer's negligent

          design and sued, arguing that the engineers were under a duty to Seattle Monorail

          Services to exercise reasonable care, despite the lack of contractual privity. /d. at 446.

                   We found that a duty existed. /d. at 453-54. In doing so, we balanced the risk

          to the physical safety of persons and property arising out of an engineer's work against

          the usefulness of private ordering (e.g., preference for contractual remedies) and

          against the economic burden a duty would place on engineers. See id. at 451-54.

          These policy considerations supported the court's analysis that a duty exists where

          "the interest in safety is significant" and the engineers occupy a position of control

          such that their training, education, and experience place them in the best position to

          prevent harms caused by their work. /d. at 453. We also considered precedent, both

          here and nationally, finding that the "engineers' common law duty of care has long

          been acknowledged in Washington. /d. at 454.

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          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

                   These considerations do not weigh in favor of a duty here. There is no

          significant interest in public safety at issue and no concerns for physical safety. We

          therefore reject Plaintiffs' attempts to borrow our professional duty analysis from

          inapposite contexts.

              D. Other jurisdictions do not provide persuasive authority on this issue

                   As the Ninth Circuit recognized in its certification order, only two cases have

          considered whether title insurance companies owe a duty of care to third parties: the

          Arizona Court of Appeals in Luce v. State Title Agency, Inc., 190 Ariz. 500, 950 P.2d

          159 (1997) and the California Court of Appeals in Seeley, 190 Cal. App. 3d 844 (1987).

          These decisions reach opposite conclusions, in part because the decisions are based

          on different legal theories and different facts. Due to the difference in legal theories

          and facts, these cases provide limited persuasive reasoning for our consideration in

          this case.

                   On facts nearly identical to this case, the Arizona Court of Appeals considered

          whether a title agency owed a professional duty of care to protect a third party from

          foreseeable harm when it gratuitously recorded a deed of trust on behalf of a lender.

          See Luce, 190 Ariz. at 502. In Luce, a general partner signed a deed of trust to a

          lender without the approval of his limited partners, despite the fact that the partnership

          agreement required him to have their approval. /d. at 501. The lender asked State

          Title Agency to insure the policy and to record the deed of trust. /d. State Title issued

          a preliminary title report, provided a lender's policy of title insurance, and gratuitously

          recorded the deed. /d. State Title acknowledged that it read the partnership agreement

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          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

          during this process, and the court inferred that State Title had actual knowledge of the

          agreement's limitations on the general partner's authority. !d.

                   The limited partners sued, asserting that State Title owed a duty based on either

          its review of the partnership agreement or its gratuitous recording of the deed of trust.

          !d. at 501-02. The trial court granted summary judgment in favor of State Title, id. at

          501, and the Court of Appeals affirmed. !d. at 504. The Court of Appeals first held that

          there was no professional duty arising out of the foreseeable harm because State Title

          had no contractual relationship with anyone, no special relationship (or indeed, any

          relationship at all) with the injured plaintiff, and no ability to control the behavior of the

          general partner. !d. at 502-03.s

                   The facts presented to the Arizona Court of Appeals are virtually identical to

          those in the case before us and reinforce our conclusion here. Further, as discussed

          supra Section ll.c of this opinion, Washington recognizes that foreseeability of harm

          is one of six factors the court considers in deciding whether a duty is owed to a

          nonclient. Though Arizona applied a different legal analysis and did not explicitly

          consider the intent to benefit, the application of the "intent to benefit" factor would have

          resulted in the same conclusion. Their conclusion that no duty exists on analogous

          facts supports our decision here.

                   In Seeley, the California Court of Appeals reached the opposite conclusion on

          significantly different facts. See 190 Cal. App. 3d 844. In Seeley, a buyer attempted

          8The Arizona Court of Appeals also considered whether State Title owed a duty of care under
          Restatement (Second) of Torts § 324A (Am. Law lnst. 1965) and concluded that the section
          was inapplicable.

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          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

          to buy property owned by Seeley. /d. at 850. Seeley was not interested in selling but

          indicated that he would consider a long term lease of the property. /d. at 851. The

          parties negotiated the terms of the lease at length but did not come to an agreement.

          /d.

                     Following further negotiations, the buyer unilaterally prepared a "'Memorandum

          of Agreement"' that set forth the terms of a 60-year lease between himself and Seeley.

          /d. The buyer signed the agreement and had his signature notarized; he never

          presented the agreement to Seeley. /d. Instead, the buyer took the agreement to a

          title insurance company. /d. The buyer was a regular customer of the title insurance

          company, which agreed to file the unsigned agreement for recording. /d. The title

          insurance company filed the agreement in a stack of documents insured by their

          company, and the recorder recorded the invalid, unsigned encumbrance on Seeley's

          property. /d. Seeley knew nothing of this agreement. /d.

                     The encumbrance affected Seeley's ability to sell his title. /d. at 852. He then

          sued the county recording office for negligent recording; he later amended his

          complaint and sued the title insurance company for negligence. /d.

                     The California Court of Appeals considered whether a title insurance company,

          not acting as escrow, may be held liable "for the negligent recordation of a

          nonrecordable document." /d. at 860. In holding that the title company here was liable,

          the court considered six factors:

                     "(1) the extent to which the transaction was intended to affect the plaintiff;
                     (2) the foreseeability of harm to the plaintiff; (3) the degree of certainty
                     that the plaintiff suffered injury; (4) the closeness of the connection
                     between the defendant's conduct and the injury suffered; (5) the moral

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          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

                   blame attached to the defendant's conduct; and (6) the policy of
                   preventing future harm."

          !d. at 861 (quoting Earp v. Nobmann, 122 Cal. App. 3d 270, 290, 175 Cal. Rptr. 767

          (1981 )). As discussed earlier, these factors are comparable to Washington's

          multifactor test in Sterling and support our adoption of that test here. Compare Seeley,

          190 Cal. App. 3d at 861, with Sterling, 178 Wn.2d at 566.

                   But there are critical differences between Seeley and this case that limit its

          persuasive value here. Seeley first considered whether the transaction was intended

          to affect a third-party plaintiff. 190 Cal. App.3d at 861. The transaction was intended

          to undermine Seeley's interest in the property. !d. at 861. Conversely, the recordation

          in the instant case was intended to secure Centrum Financial's procured lien; there

          was no intent to benefit or harm CP 111. 9

                   Further, the instrument at issue in Seeley was facially invalid. 10 Thus-unlike

          our case-the title insurance company in Seeley did not have to review any other

          documents to know that the document was not recordable. The title insurer in Seeley

          also submitted the facially invalid instrument to a special "'stopped clock"' station. /d.

          at 861 n.7. The county recorder automatically recorded all instruments dropped at that

          station pursuant to a contract with the title insurer that required the title insurer to

          review all documents for recording compliance prior to filing; the title insurer in Seeley

          violated its contract with the recording office by submitting the invalid instrument with

          other, compliant instruments at this station. /d.

          9 In Washington, the factor to be considered is whether the transaction was intended to benefit
          the third party. Sterling, 178 Wn.2d at 566 (emphasis added).
          10 The Arizona Court of Appeals also distinguished the case on this ground. Luce, 190 Ariz.

          at 503 (citing Seeley, 190 Cal. App. 3d at 861 ).

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          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

                    These facts played a significant role in the Seeley court's evaluation of factors

          two, four, five, and six. /d. at 861. The court held that these facts made the harm

          foreseeable and that the title insurance company's actions gave the invalid instrument

          a presumption of validity-establishing both a close connection between the act and

          the harm, and rendering the title insurer's conduct worthy of moral blame. /d. at 861-

          62. The title insurance company's violation of the recording statutes as well as its

          contract with the county recording office also presented a danger to title stability in the

          future, satisfying California's sixth factor. /d. at 862.

                    These considerations are not present here, where a title insurer presented

          facially valid instruments to a county recording office. We discuss the arguments

          against burdening title insurance companies to look behind facially valid instruments

          before recording throughout this memorandum; in sum, placing this burden on title

          insurance companies frustrates Washington's strong public policy of protecting

          property owners through the recording process. These factual differences are

          substantial; Seeley's facts and conclusions are inappositen

                    In sum, our precedent supports our conclusion that title insurance companies

          have a duty of care in only limited situations outside of a contractual relationship and

          no duty to third parties in the recording of legal instruments. Plaintiff's argument that

          a duty is created merely because the harm is foreseeable is inconsistent with our

          11 We recognize the slight variations between the Seeley factors and the Sterling factors.
          Compare Seeley, 190 Cal. App.3d at 861, with Sterling, 178 Wn.2d at 566. Due to the
          significant factual differences, we do not address the differences in the factors. We also note
          that the Seeley court expressly denied that it was recognizing a "tort of 'negligent slander of
          title"' or that liability arose "solely from the recordation of the document." 190 Cal. App. 3d at
          862 n.8.

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          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

          jurisprudence; their remaining citations to our case law and to other jurisdictional

          approaches are not instructive to our analysis. Our review of our precedent suggests

          that the answer to the certified question is no.

              Ill.        Public policy does not support extending a duty on title companies recording
                          legal instruments to search for and disclose potential title defects

                          We next consider public policy. "The concept of duty is a reflection of all those

          considerations of public policy which lead the law to conclude that a 'plaintiff's interests

          are entitled to legal protection."' Taylorv. Stevens County, 111 Wn.2d 159, 168, 759

          P.2d 447 (1988) (quoting W. PAGE KEETON, ET AL., PROSSER AND KEETON ON THE LAW

          OF TORTS § 53, at 357 (5th ed. 1984 )). We balance the interests at stake to determine

          whether a title insurance company owes a duty to search for and disclose potential

          title defects when recording legal instruments. Accord Affil. FM Ins. Co., 170 Wn.2d at

          450.

                          Plaintiffs encourage us to find a duty, arguing that the Washington state courts

          and legislature have long recognized the important public policy of protecting the

          rights of property owners. We agree that this is an important policy of this State, but

          Plaintiffs are incorrect to suggest that extending a duty of care to title insurance

          companies would further this public policy. Washington has a comprehensive title

          insurance scheme, see generally ch. 48.29 RCW, and extensive recording

          requirements, see generally ch. 65.08 RCW. The purpose of the recording acts is to

          ensure stability and certainty of title to real property. See Ellingsen v. Franklin County,

          117 Wn.2d 24, 28-29, 810 P.2d 910 (1991 ). These recording requirements further this

          purpose by holding recorded interests superior to unrecorded interests. See RCW

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          Centurion Props. Ill, LLC   v. Chicago Title Ins. Co., No. 91932-1

          65.08.070. Thus, these statutory schemes further Washington's policy of protecting

          property rights by encouraging parties to record their interests.

                    We evaluate whether finding a duty of care from title insurance companies to

          third parties in the recording of legal instruments fulfills or frustrates these public

          policies. Washington's statutory schemes do not contemplate liability to third parties

          for the negligent recording of titles. See generally ch. 65.08 RCW. In lieu of a statutory

          remedy, Washington protects the valid interests of property owners from improper

          recording through the torts of slander of title and tortious interference with a contract. 12

          Rorvig v. Douglas, 123 Wn.2d 854, 873 P.2d 492 (1994) (slander of title); Calbom             v.
          Knudtzon, 65 Wn.2d 157, 396 P.2d 148 (1964) (tortious interference). These torts,

          discussed below, are not within the scope of this opinion. 13

                    "Slander of title is defined as: (1) false words; (2) maliciously published; (3) with

          reference to some pending sale or purchase of property; (4) which go to defeat

          plaintiff's title; and (5) result in plaintiff's pecuniary loss." Rorvig, 123 Wn.2d at 859.

          Tortious interference with a contract requires (1) the existence of a valid contractual

          relationship or business expectancy, (2) knowledge of the relationship or expectancy

          on the part of the interferer, (3) intentional interference inducing or causing a breach

          or termination of the relationship or expectancy, and (4) resultant damage to the party

          whose relationship or expectancy has been disrupted. Ca/bom, 65 Wn.2d at 162-63.

          12 Washington residents may also secure their property rights through equitable actions to
          quiet title. See, e.g., Kobza v. Tripp, 105 Wn. App. 90, 93, 18 P.3d 621 (2001 ).
          13 CP Ill does not argue that its proposed duty arises out of a special relationship, such as a

          fiduciary duty, between itself and Chicago Title. Nor do they argue that Chicago Title acted
          maliciously or in bad faith. Plaintiffs assert only that Chicago Title owes them a duty under
          general negligence principles. In rejecting Plaintiffs' argument, our decision does not suggest
          that title insurance companies are not liable for their intentional torts.

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          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

                     Neither of these torts is satisfied by simple negligence. Tortious interference

          with a contract requires intentional conduct, and slander of title requires malicious

          conduct. The reason for this rule is clear: if simple negligence were the rule, a party

          claiming an erroneous but good faith interest in real property would not be entitled to

          litigate his claim and have an adjudication without fear of being penalized in damages.

          See, e.g., Ward      v.   Mid-West & Gulf Co., 1923 OK 972, 97 Okla. 252, 223 P. 170; see

          a/so RESTATEMENT (SECOND) OF TORTS § 773 (AM. LAW INST. 1979) (recognizing

          privilege to assert claim in good faith). These heightened requirements further the

          policy of protecting the rights of property owners by encouraging property owners to

          assert valid property rights while protecting property owners from unlawful claims.

          Thus, we agree with Chicago Title that recognizing liability for the "negligent recording"

          of a facially valid instrument would have a chilling effect on recording documents and

          undermine the goals of RCW 65.08.070. Policy supports our answer of no; to hold

          otherwise would frustrate Washington's policy of protecting property rights through the

          title recording process.

          IV.        Considerations of common sense, logic, and justice provide further support

                     Our conclusion that title insurance companies do not owe third parties a duty

          of care when recording legal instruments is consistent with Washington's policies and

          precedent. The remaining considerations of common sense, logic, and justice only

          reinforce this conclusion.

                A. Logic and common sense weigh against finding a duty of care

                     Logic and common sense require us to reject Plaintiffs' argument that Chicago

          Title's duty of care to CP Ill arises out of Centrum Financial's instruction to Chicago

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          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

          Title directing it to record the leasehold deed of trust only if they are committed to

          providing title insurance. That instruction reads in full:

                   You may record the Leasehold [deed of trust]. provided you are
                   irrevocably committed to insure the enclosed Mortgage, on a
                   mortgagee's extended basis with coverage of $10,000,000.00, as a valid
                   SECOND lien against the leasehold property which is the subject of the
                   commitment for title insurance issued under the referenced file number,
                   subject only to the matters set forth therein.

          2 Appellant's Excerpts of R. at 58.

                   This instruction plainly directs Chicago Title to issue an insurance policy on the

          mortgage and to record if it is committed to issue that insurance policy. Chicago Title

          did so: it issued a commitment, insured the lien as valid, and recorded it. Under

          Barstad, Chicago Title did not owe a duty to Centrum Financial (its actual client) in

          issuing the title commitment because the commitment was for Chicago Title's benefit.

          145 Wn.2d at 541. If the lien was not valid, Centrum Financial may have had a claim

          under its insurance policy. But it is impossible to understand how this action and

          agreement between Centrum Financial and Chicago Title created a duty to CP Ill

          when CP Ill could not possibly have relied on the commitment or the insurance policy.

          See ESCA Corp., 135 Wn.2d at 832 (accountant did not owe a duty of care to bank

          absent justifiable reliance on accountant's draft report in making loan).

                   As a matter of logic and common sense, CP Ill is not entitled to something for

          not11ing; not having entered into a contract with Chicago Title relating to future

          recordings, CP Ill is not entitled to the benefit of Centrum Financial's bargain with

          Chicago Title. Nor are they entitled to have Chicago Title review operating agreements

          and presumably lengthy loan agreements without a contract for-and paying for-that

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          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

          benefit. These factors reinforce our conclusion that title insurance companies do not

          owe third parties a duty of care when recording legal instruments.

              B. Justice does not support finding a duty to search for and disclose potential
                 title defects to third-party nonclients

                   Finally, considerations of justice do not support finding a duty of care for the

          recording of these legal instruments. This factor supports placing liability on the party

          best able to mitigate or control the anticipated harm. Cf. Affil. FM Ins. Co., 170 Wn.2d

          at 453-54 (responsibility on party best able to mitigate the risks; balancing engineer's

          ability to design a project safely against an "innocent party who never had the

          opportunity to negotiate the risk of harm"); see also Zabka v. Bank of Am. Corp., 131

          Wn. App. 167, 173, 127 P.3d 722 (2005) (bank owed no duty of care to plaintiffs who

          could have easily taken steps to avoid fraud by bank's customer). Here, the manager

          of CP Ill had signed the documents filed by Chicago Title. When facially valid

          instruments are at issue, justice supports placing liability on the parties to those

          instruments.

                   Plaintiffs urge us to hold that justice requires title insurance companies to look

          behind the signatures on the document and police the parties' agreements against

          conflicting corporate documents or loan agreements. This is not a just result, and

          placing this burden on title insurance companies increases their costs, slows the

          recording process, and frustrates public policy, with no appreciable benefit. Here, the

          existence of the invalid liens was the result of an (arguably invalid) agreement

          between CP Ill and Centrum Financial. These liens, which were signed and notarized

          by CP Ill's manager, placed CP Ill in default and caused damages. These actions

                                                        25
                                                
          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

          placed CP Ill in default regardless of any action taken by Chicago Title. We decline to

          impose these damages on Chicago Title. 14

                    After considering each of the duty factors, we hold that title insurance

          companies do not owe third parties a duty of care when recording legal instruments.

                                                 CONCLUSION

                    In light of the foregoing, we answer the certified question as follows:

                    Question: Does a title company owe a duty of care to third parties in the
                    recording of legal instruments?

                    Answer: No.

          14 Plaintiffs' argument that Chicago Title "knew" it was recording invalid liens is unavailing.
          Chicago Title conceded, for the purposes of its summary judgment motion arguing that it did
          not owe Plaintiffs a duty, that it could be charged with knowledge of the GECC loan
          agreement's prohibition on secondary liens because it had access to that information but did
          not check it. Washington recognizes that both actual and constructive notice provides a party
          with knowledge of another person's real property interest. E.g., Miebach v. Colasurdo, 102
          Wn.2d 170, 175-76, 685 P.2d 1074 (1984). Requiring title insurance companies to look behind
          every facially valid instrument because they have documents in their possession that may
          undermine that instrument frustrates public policy, increases costs, and asks title insurance
          companies to police legal instruments entered into by the independent parties.

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          Centurion Props. Ill, LLC v. Chicago Title Ins. Co., No. 91932-1

                   WE CONCUR.

                                                        27