Court Opinion

ID: 4666675
Source: CourtListenerOpinion
Date Created: 2021-03-11 01:00:31.431479+00
Date Added: 2024-06-11T08:02:51.092997
License: Public Domain

Case: 20-10268      Document: 00515774605           Page: 1     Date Filed: 03/10/2021

            United States Court of Appeals
                 for the Fifth Circuit                                United States Court of Appeals
                                                                               Fifth Circuit

                                                                             FILED
                                                                       March 10, 2021
                                    No. 20-10268
                                                                        Lyle W. Cayce
                                                                             Clerk

   Hall CA-NV, L.L.C.,

                                                              Plaintiff—Appellant,

                                        versus

   Old Republic National Title Insurance Company,

                                                              Defendant—Appellee.

                   Appeal from the United States District Court
                       for the Northern District of Texas
                             USDC No. 3:18-CV-380

   Before Clement, Ho, and Duncan, Circuit Judges.
   James C. Ho, Circuit Judge:
          Imagine a seller who typically offers two services, A and B. Now
   imagine that this seller tells a particular buyer that he is interested in selling
   him only service A—and not service B. The buyer agrees to these terms. But
   later, when it turns out that the buyer would have benefited from purchasing
   service B, the buyer turns around and claims that in purchasing service A, he
   actually purchased service B as well. The buyer then sues the seller for
   refusing to provide him with service B.
Case: 20-10268      Document: 00515774605          Page: 2   Date Filed: 03/10/2021

                                    No. 20-10268

          You might think that it takes real chutzpah to bring that suit (and this
   appeal). And you would be right. Yet that is precisely what this suit presents.
          Plaintiff Hall CA-NV, LLC (Hall) purchased title insurance from
   Defendant Old Republic National Title Insurance Company (Old Republic).
   The parties contracted using standard title insurance policy forms designed
   by the American Land Title Association (ALTA).
          During that contracting process, Hall agreed to the removal of
   Covered Risk 11(a), the standard protection against losses from mechanic’s
   liens arising out of work begun on or before the policy date. Hall even
   expressly agreed to a separate, much more limited mechanic’s lien provision.
   Yet Hall now asserts that other contractual provisions—namely, Covered
   Risks 2 and 10—do just the work that Covered Risk 11(a) would have done.
          Old Republic understandably resists Hall’s post hoc attempt to
   shoehorn Covered Risk 11(a) into another provision of the contract. It points
   out that Hall’s interpretation of Covered Risks 2 and 10 would render
   Covered Risk 11(a) surplusage—and the parties’ decision to remove and
   replace Covered Risk 11(a) meaningless.
          Curiously, Hall’s reply brief does not even deign to respond. What’s
   more, at oral argument, Hall’s counsel was unable to identify a single scenario
   that would trigger coverage under Covered Risk 11(a) that would not also
   trigger coverage under its overbroad reading of Covered Risks 2 and 10.
          Needless to say, these are not the hallmarks of a worthy interpretive
   theory or persuasive appellate strategy. And it suggests that this is nothing
   more than a case of buyer’s remorse. We affirm.

                                         2
Case: 20-10268        Document: 00515774605           Page: 3       Date Filed: 03/10/2021

                                       No. 20-10268

                                             I.
          Hall was one of the major funders behind a recent renovation of the
   (in)famous Cal-Neva Lodge & Casino, a resort straddling the California-
   Nevada border near Lake Tahoe. 1
          Before Hall agreed to finance the project, the owner of the property,
   New Cal-Neva Lodge, LLC (New Cal-Neva), had a general contractor,
   PENTA Building Group (Penta), conduct some preliminary work.
   Accordingly, Hall had Penta agree in writing to subordinate any lien that
   Penta might ever assert in favor of Hall. Only then did Hall agree to fund the
   project. Hall initially authorized up to $29 million in debt financing in
   exchange for a mortgage on the property.
          At the same time, Hall obtained both California and Nevada title
   insurance policies from Old Republic. In so doing, Hall agreed to remove the
   standard ALTA forms’ Covered Risk 11(a). That provision typically protects
   the insured against any “loss or damage . . . sustained or incurred . . . by
   reason of . . . [t]he lack of priority of the lien of the Insured Mortgage . . . over
   any    statutory     lien    for    services,     labor,    or    material     arising
   from construction of an improvement or work related to the Land when the
   improvement or work is . . . contracted for or commenced on or before Date
   of Policy.”
          The project continued, but the loan became out of balance in the wake
   of significant change orders. Hall eventually stopped advancing funds after

          1
              The Cal-Neva Lodge—once owned by Frank Sinatra, Dean Martin, and
   (allegedly) Chicago mob boss Sam Giancana, among others—has long been the subject of
   controversy. The rumors have involved everything from Prohibition-era tunnels to arson.
   See, e.g., Katie Dowd, Mobsters, Marilyn and Sinatra: The legendary Cal Neva Lodge is
   preparing for guests again, SFGate (Oct. 18, 2019), https://www.sfgate.com/sfhistory/
   article/history-larry-ellison-Cal-Neva-Lodge-14496588.php.

                                             3
Case: 20-10268      Document: 00515774605           Page: 4    Date Filed: 03/10/2021

                                     No. 20-10268

   New Cal-Neva failed to obtain additional equity. However, Penta continued
   its work for some months thereafter.
          Finding itself unpaid, Penta filed and began foreclosing on mechanic’s
   liens, claiming in California and Nevada state courts that its liens had priority
   because they related back to Penta’s initial work (performed before Hall
   provided funding for the project). Old Republic hired Kolesar & Leatham,
   P.C. (K&L) to defend both Hall and another lender, Ladera, jointly against
   the Penta claims—rather than provide separate counsel. The cases were
   removed to federal bankruptcy court, where the parties eventually settled.
   Old Republic agreed that it would not invoke Hall’s settlement to deny any
   claim for indemnity, and the property sold in 2018 for $38 million. When all
   was said and done, Hall was left with a loss of approximately $4.9 million.
          Hall then filed various contract, statutory, and common-law claims
   against Old Republic in federal district court for failing to indemnify Hall
   under its title insurance policies.
          The district court concluded that, although the “unpaid Penta pre-
   policy-date work” is a “defect” under Covered Risk 2 and an
   “encumbrance” under Covered Risk 10, coverage is precluded by Exclusions
   3(a) and 3(d), which bar claims “for liens and work performed after the policy
   date.” The court found that Hall had “not raised a genuine dispute of
   material fact that [Penta’s] liens were for unpaid work before the policy
   date,” and accordingly granted Old Republic’s motion for summary
   judgment and denied Hall’s motion for partial summary judgment. Hall
   appeals.
                                          II.
          “A district court ‘shall grant summary judgment if the movant shows
   that there is no genuine dispute as to any material fact and the movant is
   entitled to judgment as a matter of law.’” Hassen v. Ruston La. Hosp. Co.,

                                          4
Case: 20-10268      Document: 00515774605           Page: 5    Date Filed: 03/10/2021

                                     No. 20-10268

   932 F.3d 353, 355 (5th Cir. 2019) (quoting Fed. R. Civ. P. 56(a)). “We
   review a grant of summary judgment de novo, applying the same standard as
   the district court. But we view the evidence and draw all justifiable inferences
   in favor of the nonmovant.” Id. (citations omitted).
          According to Hall, the district court erred in granting Old Republic’s
   motion for summary judgment on Hall’s contract claims because Exclusions
   3(a) and 3(d) do not relieve Old Republic of its duty to cover the Penta lien
   losses. But as Old Republic correctly notes, the threshold question is whether
   the policies’ insuring clauses cover the claimed losses in the first place.
          Hall contends that the Penta lien losses are insured under Covered
   Risks 2 and 10. Those provisions state that Old Republic “insures as of Date
   of Policy” against losses “sustained or incurred . . . by reason of . . . [a]ny
   defect in or lien or encumbrance on the Title” or “[t]he lack of priority of
   the lien of the Insured Mortgage upon the Title over any other lien or
   encumbrance.”
          Specifically, Hall argues that, because the Penta liens “relate back” to
   the preliminary work Penta conducted prior to the Hall mortgage, the liens
   actually existed (at least in some qualifying, inchoate form) at the time the
   policies went into effect—“as of Date of Policy.” See, e.g., Cal. Civ.
   Code § 8450 (providing that, under certain conditions, a mechanic’s lien
   “has priority over a lien, mortgage, deed of trust, or other encumbrance on
   the work of improvement or the real property on which the work of
   improvement is situated”); J.E. Dunn Nw., Inc. v. Corus Constr. Venture,
   LLC, 249 P.3d 501, 504 & n.2 (Nev. 2011) (explaining that “all mechanics’
   liens relate back to the date overall construction commenced” and “ha[ve]

                                          5
Case: 20-10268         Document: 00515774605                Page: 6       Date Filed: 03/10/2021

                                           No. 20-10268

   priority over a deed of trust recorded after the commencement of
   construction”). 2
           However, any doubt about whether Covered Risks 2 and 10 could
   possibly be read to cover the Penta lien losses at issue here is removed by the
   fact that the parties also signed standard ALTA Form 32-06. In so doing, the
   parties specifically contracted to eliminate one coverage provision of the
   standard-form insurance policy—Covered Risk 11(a).                         As noted, that
   provision usually protects the insured against any loss incurred as a result of
   “[t]he lack of priority of the lien of the Insured Mortgage . . . over any
   statutory lien for services, labor, or material arising from construction of an
   improvement or work related to the Land when the improvement or work is . . .
   contracted for or commenced on or before Date of Policy.”
           In other words, the parties took a standard-form ALTA contract and
   used a standard-form addendum to specifically remove the provision that
   would have unquestionably provided Hall coverage in this exact scenario.
   This fact alone should doom Hall’s claim that the remaining provisions of the
   insurance policies somehow cover the Penta lien losses. As Old Republic
   points out, reading Covered Risks 2 and 10 to cover a loss specifically covered
   by the (removed) Covered Risk 11(a) would render Covered Risk 11(a) in the

           2
              It is far from clear that the Penta liens existed “as of Date of Policy” under
   California and Nevada law. See, e.g., Picerne Constr. Corp. v. Castellino Villas, 199 Cal. Rptr.
   3d 257, 263 (Ct. App. 2016) (“In order to have a valid mechanic’s lien, a claimant must
   record a claim of lien within a prescribed period of time . . . . Once recorded, a claim of
   mechanic’s lien constitutes a direct lien on the improvement and the real property.”)
   (emphases added) (citations omitted); Nev. Rev. Stat. § 108.226 (“To perfect a lien,
   a lien claimant must record a notice of lien in the office of the county recorder of the county
   where the property . . . is located.”). At a minimum, it is dubious that a mechanic’s lien
   (even an inchoate one) could have existed before Penta (a) continued to work on the project
   and (b) was left unpaid for that work. This was not a situation where, “as of Date of
   Policy,” there was “an inchoate lien where the only remaining act was the filing of the
   lien.”

                                                  6
Case: 20-10268         Document: 00515774605                Page: 7       Date Filed: 03/10/2021

                                           No. 20-10268

   standard-form ALTA contract surplusage. This would contravene both
   California and Nevada contract principles. See Cal. Civ. Code § 1641
   (“The whole of a contract is to be taken together, so as to give effect to every
   part, if reasonably practicable, each clause helping to interpret the other.”);
   Musser v. Bank of Am., 964 P.2d 51, 54 (Nev. 1998) (“[C]ontracts should be
   construed so as to avoid rendering portions of them superfluous.”). See also
   Fed. Ins. Co. v. Coast Converters, Inc., 339 P.3d 1281, 1285 (Nev. 2014) (“This
   court will not . . . increase an obligation to the insured where such was
   intentionally and unambiguously limited by the parties.”) (quotations
   omitted). 3
           Oddly, Hall does not even respond to this surplusage argument in its
   reply. And at oral argument, Hall all but conceded that Covered Risk 11(a) is
   superfluous, protesting only that “just because the parties chose to eliminate
   a more specific grant of coverage d[oes] not eliminate those broader
   provisions of coverage.”

           3
              The district court interpreted the insurance contract under Texas law, on the
   ground that Old Republic “failed . . . to meet its burden to prove a conflict” between Texas
   law on the one hand, and California and Nevada law on the other. But the insurance policies
   at issue have an express choice-of-law provision that dictates that “the court . . . shall apply
   the law of the jurisdiction where the Land is located . . . to interpret and enforce the terms
   of this policy.” And absent extraordinary circumstances, “Texas will enforce a choice-of-
   law clause.” Western-Southern Life Assurance Co. v. Kaleh, 879 F.3d 653, 658 (5th Cir.
   2018). Accordingly, we apply California and Nevada contract law in determining whether
   Hall is entitled to indemnification under the terms of the policies. See id. (explaining that
   in a diversity action, we look to the “forum state” for the “choice-of-law principles
   necessary ‘to determine which substantive law will apply’”) (citation omitted).
           In any event, Texas applies the same contract principles we apply in this case. See
   In re Pirani, 824 F.3d 483, 494 (5th Cir. 2016) (explaining that “[w]hen contractual
   provisions arguably conflict, Texas courts employ canons of construction as tools to
   harmonize them,” including “the rules that . . . specific provisions control over general
   provisions . . . and . . . the interpretation of an agreement should not render any material
   terms meaningless”).

                                                  7
Case: 20-10268        Document: 00515774605              Page: 8      Date Filed: 03/10/2021

                                         No. 20-10268

           In effect, Hall’s argument amounts to this: The standard contract
   employs a “belt-and-suspenders” approach to insuring the type of
   mechanic’s lien losses at issue here. So it should not matter if parties decide
   to ditch the belt (Covered Risk 11(a)), so long as they keep the suspenders
   (Covered Risks 2 and 10).
           We cannot accept that argument. We are reluctant to say that the
   parties’ alteration of a standard-form contract is meaningless. And we are
   especially loath to do so here, where the parties’ alteration doesn’t just
   “delete[]” Covered Risk 11(a)—it replaces the provision with substantially
   narrower coverage. The 32-06 endorsements here replaced the standard
   mechanic’s lien coverage with more limited coverage, specifically cautioning
   that the policies “do[] not insure against loss or damage . . . by reason of any
   Mechanic’s Lien arising from services, labor, material, or equipment . . . not
   designated for payment in the documents supporting a Construction Loan
   Advance disbursed . . . on or before Date of Coverage.” (Emphases added.)
   In other words, Old Republic did what Hall argues it should have done—it
   “issue[d] a [(qualified)] mechanic’s lien exception to the Policies.” 4
           Finally, even assuming arguendo that the 32-06 endorsements and the
   Covered Risks conflict or result in an ambiguity about whether the Penta lien
   losses are covered, it is the more general provisions that suggest that there
   may be coverage (under Hall’s theory), while the more specific provisions
   instruct that there is no such coverage. And of course it is a basic principle
   of contract interpretation, recognized in California and Nevada law alike, that
   the specific controls the general. See Boghos v. Certain Underwriters at Lloyd’s
   of London, 115 P.3d 68, 73 (Cal. 2005) (explaining that when two contract

           4
           Hall does not allege that the Penta liens arose from “services, labor, material, or
   equipment . . . designated for payment in the documents supporting a Construction Loan
   Advance disbursed . . . on or before Date of Coverage.”

                                               8
Case: 20-10268      Document: 00515774605           Page: 9    Date Filed: 03/10/2021

                                     No. 20-10268

   provisions are “truly inconsistent,” “more specific contractual provisions
   control over more general ones”); Shelton v. Shelton, 78 P.3d 507, 510 (Nev.
   2003) (explaining that when a contract is ambiguous, “a specific provision
   will qualify the meaning of a general provision”).
          In sum, the insuring clauses do not cover Hall’s Penta lien losses. We
   therefore need not review the district court’s conclusions regarding
   Exclusions 3(a) and 3(d) to affirm the judgment.
                                         III.
          We likewise affirm the district court’s grant of Old Republic’s motion
   for summary judgment on Hall’s bad-faith and Texas Insurance Code claims.
   As Hall is not entitled to indemnification for the Penta lien losses, Hall cannot
   show that Old Republic acted in bad faith in denying its claim. And as Hall
   alleges no other harm apart from the Penta lien losses, Hall cannot
   demonstrate that Old Republic caused it any harm in violating the Texas
   Insurance Code—assuming arguendo that the Texas Insurance Code applies,
   and that Old Republic ran afoul of its provisions. See Certain Underwriters at
   Lloyd’s of London v. Lowen Valley View, L.L.C., 892 F.3d 167, 172 (5th Cir.
   2018) (“[Defendant’s] counterclaims under the Texas Insurance Code are
   based on unpaid coverage benefits rather than some other, independent
   injury. Accordingly, [its] statutory claims fall with its breach of contract
   claim.”); USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 500 (Tex.
   2018) (“An insured cannot recover any damages based on an insurer’s
   statutory violation unless the insured establishes a right to receive benefits
   under the policy or an injury independent of a right to benefits.”).
                                         IV.
          Finally, we affirm the district court’s grant of Old Republic’s motion
   for summary judgment on Hall’s independent-counsel (or duty-to-defend)
   claim. Hall contends that the district court erred in holding that it failed to

                                          9
Case: 20-10268      Document: 00515774605            Page: 10    Date Filed: 03/10/2021

                                      No. 20-10268

   present evidence of harm resulting from Old Republic’s failure to provide
   Hall and Ladera with separate counsel. In so doing, Hall points to vague
   testimony from its corporate representative that Hall spent “[m]aybe a
   couple hundred thousand dollars[,] tops, something like that” “[d]oing
   things” that K&L would have done but for its dual obligations to Hall and
   Ladera. But the only concrete shortcoming Hall alleges on appeal is K&L’s
   decision to leave the room during one mandatory mediated settlement
   meeting. Hall does not explain what actual conflict existed, or why K&L
   recused itself in that instance. That is insufficient under both California and
   Nevada law. See Fed. Ins. Co. v. MBL, Inc., 160 Cal. Rptr. 3d 910, 920 (Ct.
   App. 2013) (explaining that “not every conflict of interest entitles an insured
   to insurer-paid independent counsel” because a “conflict of interest must be
   ‘significant, not merely theoretical, actual, not merely potential’”) (citation
   omitted); State Farm Mut. Auto. Ins. Co. v. Hansen, 357 P.3d 338, 343 (Nev.
   2015) (“Courts must inquire, on a case-by-case basis, whether there is an
   actual conflict of interest . . . . [D]ual-representation is appropriate as long as
   there is ‘no actual conflict.’”) (citation omitted).
                                         ***
             Hall agreed to remove one standard-form contract provision—one
   that would have insured against the precise misfortune it ultimately
   suffered—and replace it with a much narrower one. We will not stretch the
   remaining contract provisions to resurrect the more generous coverage. We
   affirm.

                                           10