Court Opinion

ID: 205753
Source: CourtListenerOpinion
Date Created: 2011-03-01 19:30:09+00
Date Added: 2024-06-11T17:27:49.321914
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                             No. 10-1087

WELLS FARGO BANK, N.A.,

                Plaintiff - Appellant,

           v.

OLD REPUBLIC TITLE INSURANCE COMPANY,

                Defendant - Appellee.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria.    Claude M. Hilton, Senior
District Judge. (1:09-cv-00297-CMH-TRJ)

Argued:   January 27, 2011                 Decided:   March 1, 2011

Before WILKINSON, MOTZ, and DUNCAN, Circuit Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: August J. Matteis, Jr., GILBERT, LLP, Washington, D.C.,
for Appellant. F. Douglas Ross, II, ODIN, FELDMAN & PITTLEMAN,
PC, Fairfax, Virginia, for Appellee.       ON BRIEF: William E.
Copley, GILBERT, LLP, Washington, D.C., for Appellant.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

       In this diversity action, Wells Fargo Bank, N.A. seeks to

recover from Old Republic Title Insurance Company the value of

seventeen       worthless         mortgages        it   purchased       from    Financial

Mortgage, Inc. (“FMI”) in the secondary mortgage market.                            Wells

Fargo contends that (1) TitlePro, Inc. acted as Old Republic’s

agent when it fraudulently closed the real estate transactions

underlying          Wells    Fargo’s     mortgages        and     (2)     Old    Republic

contractually agreed to indemnify Wells Fargo for its losses.

The district court granted summary judgment to Old Republic.                            We

affirm.

                                              I.

       Wells        Fargo    is    a    national        banking     association        that

purchases      roughly       500,000    mortgage-secured          loans    every    year.

This lawsuit grows out of a fraudulent scheme perpetrated by FMI

and its owner, Vijay Taneja, on Wells Fargo. 1                          FMI was in the

business of originating mortgages.                      It drew on warehouse lines

of credit offered by several financial institutions.                            After the

warehouse lenders advanced funds to FMI for a mortgage loan, FMI

then       resold    the    mortgages    to       secondary     investors,      used   the

       1
       On November 13, 2008, Taneja pled guilty to one count of
conspiracy to commit money laundering in violation of federal
law and received a sentence of 84 months imprisonment, to be
followed by three-years of supervised release.

                                              2
proceeds       to    pay      back    the     warehouse            lenders,        and     thereby

replenished its lines of credit.

       Beginning       May     2004,    Wells          Fargo       entered        into    a     Loan

Purchase       Agreement       with    FMI,      agreeing          to   purchase         from    FMI

numerous residential mortgage loans secured by a note and deed

of     trust    on     real    property.              The     investments          Wells       Fargo

purchased       from    FMI    failed       at       their    inception,          because       FMI,

through Taneja, misrepresented to Wells Fargo that the mortgages

were recorded in Virginia’s public records system and provided

Wells Fargo with first and exclusive priority over all other

creditors.           Wells      Fargo       eventually         discovered          the        bitter

reality.        Contrary to the requirements in Wells Fargo’s Loan

Purchase Agreement with FMI, the mortgages sold to Wells Fargo

were    not     recorded       nor     free      from        the    prior     liens.            This

deficiency left Wells Fargo in an unsecured and/or subordinate

position on these loans.

       To cover the losses arising from the seventeen loans at

issue here, Wells Fargo brought this action against the title

insurer on these loans, Old Republic.                         Wells Fargo seeks to hold

Old Republic responsible, not for Old Republic’s own misdeeds,

but    for     the   fraudulent       settlement            activities       of    one     of    Old

Republic’s title agents.

                                                 3
     That title agent, TitlePro, is a title company owned and

operated by Kamran Kahn.     As relevant here, the Agency Agreement

between Old Republic and TitlePro provides:

     1.   APPOINTMENT OF AGENT
     Insurer [Old Republic] appoints Agent [TitlePro] a
     policy issuing agent for Insurer for the purpose of
     signing,   countersigning   and   issuing  commitments,
     binders,   title  reports,   certificates,  guarantees,
     title insurance policies, endorsements, and other
     agreements under which Insurer assumes liability for
     the condition of title . . .

     2.    AGENT’S DUTIES
     Agent shall:
     . . .
     C.    Timely transmit to the appropriate public office
     and cause the recording of all documents necessary to
     insure the interest, estate or title described in the
     policy,    and  to   timely  issue  appropriate  Title
     Insurance Forms.
     . . .
     F.    Keep safely in a federally insured trust account
     separate from Agent’s operating accounts all funds
     received by Agent in connection with transactions
     where Insurer’s Title Insurance Forms are issued, and
     disburse said funds only for the purposes for which
     the same were entrusted, and reconcile all such
     accounts not less frequently than monthly.

     The    Agency   Agreement     also    recognizes     that,   on       some

occasions, TitlePro might serve as a settlement agent.                     When

TitlePro    performed   these      services,   the       Agency   Agreement

expressly   prohibits   TitlePro    from   acting   as   an   agent   of   Old

Republic:

    12. ESCROWS AND OTHER BUSINESS OF AGENT
    A.   The relationship created by this Agreement does
    not extend to (1) any escrow, closing or settlement
    business . . . conducted by Agent and/or Agent’s
    Principals, employees or Subcontractors . . . or (3)

                                     4
        to any other activity of Agent . . . that does not
        involve the Insurer’s assumption of liability for the
        condition of title.
        B.   Agent agrees not to receive or receipt for any
        fund, including escrow funds, in the name of Insurer
        but, rather, shall receive and receipt for funds,
        including escrow funds, for its own account.

        For the transactions at issue here, TitlePro and FMI worked

in tandem to defraud warehouse lenders, ultimately resulting in

losses to Wells Fargo.               After FMI secured a buyer of land or a

refinancing       opportunity,           it    sent        the    necessary         mortgage

documents to TitlePro, the appointed settlement agent.                              TitlePro

then used the loan documents to create the appearance of loan

closings,       including         completing       a   HUD-1     Settlement     Statement

detailing       the     actual      settlement         costs     for   each    settlement

activity.        This consequently allowed TitlePro to obtain funds

from    FMI’s     warehouse         lenders    (which       did    not    include      Wells

Fargo).         After     obtaining      the       funds,      TitlePro    violated      its

settlement instructions, failing to use those funds to clear

title    or    pay     off   pre-existing          deeds    of    trust,      and   instead

transferred the funds to FMI.                  For many transactions, FMI also

created multiple unrecorded “first” mortgages on each property

by   having      borrowers        sign   multiple        sets     of   “original”       loan

documents at closing.

       After FMI fabricated the notes, it sold these unrecorded

“first”       mortgages      to    several     secondary         investors,     including

Wells Fargo.          In each of the seventeen transactions, FMI failed

                                               5
(1) to disclose the existence of other “first” mortgage’s with

prior liens to purchasers of these mortgages and (2) to record

the mortgages it subsequently sold.                Wells Fargo dealt with FMI

exclusively, sending payment for the notes directly to FMI’s

accounts.      It did not interact with TitlePro or Old Republic in

any way.

       In   the    first    transaction,      Taneja     refinanced      his    Summit

Drive home for $2,950,000, borrowing funds from FMI.                      The HUD-1

listed TitlePro as the settlement agent and required TitlePro to

pay off the prior deed of trust in favor of BB&T Bank.                              After

retrieving funds from a warehouse lender, TitlePro applied them

to   release      the    prior   deed   of    trust     from   record.         It    also

properly recorded the deed of trust in favor of FMI.                      After the

closing, Taneja fabricated numerous other $2,950,000 notes and

deeds of trust, selling one to Wells Fargo.                    TitlePro possessed

only    the    original      documents       in   its   files,    not    the        other

falsified instruments.            No deed of trust on the Summit Drive

property secured the note purchased by Wells Fargo because the

deed of trust in the public records secured a note with an

interest rate of 6.25%, not Wells Fargo’s note with an interest

rate of 6.375%.           Taneja admitted to perpetrating this fraud on

his own, without the assistance of TitlePro.

       The next transaction involved a refinance of a property on

Poland Road.            The owners obtained two loans from FMI in the

                                         6
amount of $613,600 and $115,050.               The HUD-1 required the first

loan to pay off two prior deeds of trust in favor of Bank of

America.      TitlePro did in fact pay off those deeds of trust,

releasing their hold on the property.               The HUD-1 also required

TitlePro to disburse the second loan to the borrowers.                    TitlePro

did so and recorded the deeds of trust securing both notes.                      Old

Republic issued a Commitment letter for this property, which

required a Credit Line Deed of Trust securing $4,345,000 to be

paid off and released of record.              Because the borrowers did not

borrow enough money, and not because of TitlePro’s mishandling

of   the    funds,   this    condition       remained    unsatisfied,     and    the

insurance policy never issued.               Taneja, through FMI, fabricated

duplicated mortgage notes for these loans and sold them to Wells

Fargo.

      The next fourteen transactions followed a different scheme. 2

In   each   of    these   transactions,       TitlePro    filled   out    a     HUD-1

settlement       statement    and   received      loan     proceeds      from    the

      2
       These transactions involved fourteen properties with one
note each: 15903 Carroll Ave., 20251 Mohegan Dr., 2524 Hilda’s
Way, 13997 Sawteeth Way, 2247 Christy Pl., 3375 Oakham Mount
Dr., 14763 Winding Loop, 12547 Armada Pl., 9671 Janet Rose Ct.,
3446 Caledonia Circle, 2827 Wakewater Way, 17588 Victoria Falls
Dr., 7918 Edinburgh Dr., and 15009 Lutz Ct. Wells Fargo did not
come forward with a Commitment for one transaction, 3375 Oakham
Mount Dr.    The lack of a Commitment on this property would
affect Old Republic’s contractual liability to Wells Fargo, but
we need not reach this issue because of our equally applicable
reasons for disposing of this claim.

                                         7
warehouse    lender.     The    HUD-1       Settlement    Statements    required

TitlePro to use these funds to pay off the prior deeds of trust

on the properties.      For all these transactions, TitlePro failed

to pay the prior deeds of trust and release them of record.

TitlePro also failed to record the new deeds of trust in favor

of FMI that “secured” the notes eventually sold to Wells Fargo.

Because    Old   Republic’s    Commitment      letters     required    the   prior

deeds to be “paid and released of record” as a condition of

issuing the title insurance policies, Old Republic did not issue

policies on these transactions.

     For some of these transactions, Old Republic also issued a

standard-form     closing     protection      letter     (“CPL”),   agreeing   to

reimburse FMI and its successors for losses arising out of an

issuing agent’s misconduct in closing a transaction, including:

     1.   Failure of the Issuing Agent or Approved Attorney
     to comply with your written closing instructions to
     the extent that they relate to (a) the status of the
     title by said interest in land or the validity,
     enforceability and priority of the lien of said
     mortgage on said interest for land, including the
     obtaining of documents the disbursement of funds
     necessary to establish such status of title or lien.
     2.   Fraud or dishonesty of the issuing Agent or
     Approved Attorney in handling your funds or documents
     in connection with such closings . . .

Wells Fargo now possesses the seventeen worthless notes in its

residential mortgage portfolio, all of which are presently in

default.

                                        8
                                       II.

    On March 18, 2009, Wells Fargo filed this action against

Old Republic, alleging six claims:                (1) breach of contract; (2)

a business conspiracy in violation of § 18.2-499 of the Virginia

Code; (3) common law civil conspiracy; (4) fraud; (5) violations

of Virginia’s Wet Settlement Act, Va. Code Ann. § 6.1-2.13; and

(6) negligence.         For all but the breach of contract claims,

Wells Fargo alleged that TitlePro acted as Old Republic’s agent

when it closed the disputed transactions.

     Properly applying Virginia law, the district court granted

summary    judgment   to    Old    Republic.        First,     it   rejected     Wells

Fargo’s     contention      that     Virginia’s         Consumer     Real      Estate

Settlement Protection Act (“CRESPA”) made Old Republic liable,

reasoning that CRESPA does no more than authorize non-attorneys,

including title agents, who meet specific statutory conditions

to serve as settlement agents, Va. Code Ann. § 55-525.19 (2011).

Second,    the   district    court    held       that   TitlePro     did   not     have

actual agency authority because the Agency Agreement explicitly

prohibited TitlePro from acting as a settlement agent on Old

Republic’s    behalf.       Third,    in       accord   with   Virginia     law,    the

district     court    rejected      Wells       Fargo’s    theory     of    apparent

authority, reasoning that Wells Fargo did not reasonably rely on

Old Republic’s conduct or statements allegedly cloaking TitlePro

with apparent authority to act as a settlement agent on Old

                                           9
Republic’s behalf.       For these reasons, the district court also

granted summary judgment to Old Republic on the conspiracy, Wet

Settlement Act, and fraud claims.                 Finally, the court rejected

the breach of contract claim, reasoning that Old Republic could

assert the same defenses against Wells Fargo as it could against

the assignor of the contract, FMI, and one such defense -- fraud

-- shielded it from contractual liability. 3                    Thus, the district

court granted summary judgment to Old Republic on all claims.

                                         III.

      Wells Fargo noted a timely appeal.                 On appeal, Wells Fargo

argues that (1) an assertedly “ambiguous” agency agreement and

Old   Republic’s      course       of   conduct    raise       genuine    issues   of

material fact as to the scope of TitlePro’s agency; (2) the

district court misinterpreted CRESPA; (3) TitlePro furthered the

conspiracy by issuing title insurance instruments, as authorized

by Old Republic, thus making the latter liable in conspiracy;

(4)   a   provision     in     Old      Republic’s      title    insurance    policy

absolved Wells Fargo (an innocent purchaser for value) of any

fraud-based   defenses       Old     Republic     may   have    against   FMI.     We

      3
       The district court also ruled that the negligence claim
failed because, in negligence claims, the common law duty
protecting person or property does not extend to Wells Fargo’s
acquisition of worthless notes. Wells Fargo does not challenge
this holding on appeal.

                                          10
review a grant of summary judgment de novo, examining the facts

in   the    light    most        favorable    to     the   nonmoving    party.     See

Anderson v. Russell, 247 F.3d 125, 129 (4th Cir. 2001).

      After having the benefit of oral argument and carefully

reviewing the briefs, record, and controlling legal authorities,

we conclude that the district court's analysis was correct.                         We

note that at oral argument before us, Wells Fargo vigorously

contended that Section 2 of the Agency Agreement conflicts with

Section     12,    thus     rendering     the      agreement     ambiguous.      Wells

Fargo, however, is mistaken.

      The two provisions of the Agency Agreement do not conflict,

but rather serve separate, but complementary ends.                       On one hand,

Section 2 requires TitlePro to record documents “necessary to

insure the interest,” not every document necessary to close the

transaction.        The primary purpose of this settlement-like duty

is   to    “minimize       the    risk   of   loss    under    the   title   insurance

policies,” not create a general agency relationship capturing

all the agent’s settlement activities.                        Fidelity Nat’l Title

Ins. Co. v. Mussman, 930 N.E.2d 1160, 1168 (Ind. Ct. App. 2010).

On the other hand, in Section 12, Old Republic unequivocally

withholds consent for TitlePro to act as an agent when TitlePro

performs “any escrow, closing or settlement” services (emphasis

added).           Courts     throughout        the    country,       including   those

interpreting Virginia law, agree that such an express limitation

                                              11
on agency duties controls.    See, e.g., First Am. Title Ins. Co.

v. First Alliance Title, Inc., 718 F. Supp. 2d 669 (E.D. Va.

2010); see also Bluehaven Funding, LLC v. First Am. Title Ins.

Co., 594 F.3d 1055 (8th Cir. 2010); Northeast Credit Union v.

Chicago Title Ins. Co., No. 09-cv-71-PB, 2010 WL 4851075 (D.N.H.

Nov. 23, 2010); Proctor v. Metro. Money Store Corp., 579 F.

Supp. 2d 724 (D. Md. 2008); Fidelity Nat’l Title Ins. Co., 930

N.E.2d 1160; Business Bank of St. Louis v. Old Republic Nat’l

Title Ins. Co., 322 S.W.3d 548 (Mo. Ct. App. 2010).

       Accordingly, we affirm on the basis of the district court's

well   reasoned   opinion.   See   Wells   Fargo   Bank,   N.A.    v.   Old

Republic Nat’l Title Ins. Co., No. 1:09-cv-00297-CMH-TRJ (E.D.

Va. Dec. 17, 2009).

                                                                  AFFIRMED

                                   12