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STEWART TITLE GUAR. v. GREENLANDS REALTY

July 20, 1999

STEWART TITLE GUARANTY CO., PLAINTIFF,
v.
GREENLANDS REALTY, L.L.C., DEFENDANT, V. STEWART TITLE GUARANTY CO., TITLE COMPANY OF NEW JERSEY AND SUN INTERNATIONAL OF NORTH AMERICA, INC., ADDITIONAL COUNTERCLAIM DEFENDANTS.



The opinion of the court was delivered by: Orlofsky, District Judge.

    OPINION

This case requires me to revisit the concept of marketability of title,*fn1 and consider whether every defect in title renders title unmarketable. I must also examine the nebulous line dividing the realm of contract law from that of tort law by applying the New Jersey Supreme Court's holding in Walker Rogge, Inc. v. Chelsea Title & Guaranty Co., 116 N.J. 517, 562 A.2d 208 (1989).

The dispute arises out of an agreement between Defendant, Greenlands Realty, L.L.C. ("Greenlands"), and Additional Counterclaim Defendant, Sun International of North America, Inc. ("Sun"), in which Sun agreed to purchase property known as 1315 Boardwalk, located in Atlantic City, New Jersey from Greenlands. Sun terminated this purchase agreement, claiming that title to 1315 Boardwalk was neither marketable nor insurable. Plaintiff and Additional Counterclaim Defendant, Stewart Title Guaranty Company ("Stewart Title"), who insured title to the property, and Additional Counterclaim Defendant, Title Company of New Jersey ("TCJ"), who investigated titled for Stewart Title, have moved for summary judgment on Count II of their Complaint and on all counts asserted against them in Greenlands's Counterclaim.*fn2 Specifically, Stewart Title and TCJ (collectively, the "Title Companies") argue that Stewart Title has fulfilled all of its obligations under the title insurance policy it issued to Greenlands, and that all of Greenlands's tort claims are precluded by the "Economic Loss Doctrine." This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332, as there is complete diversity of citizenship between the parties, and the amount in controversy is in excess of $75,000, exclusive of interest and costs.

In my last opinion in this case, filed May 12, 1999, I concluded that the title to 1315 Boardwalk was marketable. Thus, I will consider the Title Companies' motion for summary judgment in light of that holding.

For the reasons set forth below, I find that there are several genuine issues of material fact with respect to whether or not the Title Companies acted in good faith, honestly, and with reasonable diligence in their dealings with Greenlands. As a result of this finding, I hold that I must deny the Title Companies' motion for summary judgment on: (1) Count II of the Complaint, which seeks a declaratory judgment finding that Stewart Title has fulfilled its obligations under the title insurance policy issued to Greenlands; (2) Count III of the Counterclaim, asserting a claim for slander of title against the Title Companies; (3) Count V of the Counterclaim, asserting a claim for breach of contract against Stewart Title; and (4) Count X of the Counterclaim, asserting a claim under the New Jersey Unfair Trade Practices Act, N.J. Stat. Ann. § 56:8-2,*fn3 against the Title Companies. Therefore, I will deny the Title Companies' motion for summary judgment on Counts III, V, and X of the Counterclaim.

These same genuine issues of material fact require that I grant in part, and deny in part, the Title Companies' motion for summary judgment with respect to the part of Count VIII of the Counterclaim, which alleges a claim of bad faith, that relates to Stewart Title's conduct in connection with the title insurance policy that it issued to Greenlands. By contrast, I hold that Greenlands may only assert a claim for bad faith in connection with a contractual relationship. Because I have found that there is absolutely no evidence in the summary judgment record that Greenlands had a contractual relationship with TCJ, I will grant the Title Companies' motion for summary judgment on Count VIII of the Counterclaim asserted against TCJ. Further, I will also grant the motion for summary judgment with respect to Greenlands's allegations, asserted as part of Count VIII of the Counterclaim, that Stewart Title acted in bad faith while negotiating a commitment for title insurance for Sun.

Finally, I will grant the motion for summary judgment on: (1) Count IV of the Counterclaim, which alleges a claim of breach of fiduciary duty against Stewart Title, because, under Walker Rogge, the availability of contractual remedies to Greenlands prohibit it from pursuing tort remedies; (2) Count VI of the Counterclaim, which alleges a claim of negligent title search against TCJ, because there is no evidence in the summary judgment record that TCJ voluntarily assumed the duty to conduct a title search; (3) Count VII of the Counterclaim, which asserts a breach of contract claim against TCJ, since there is no evidence in the summary judgment record that Greenlands and TCJ entered into a contract; and, (4) Count IX of the Counterclaim, which asserts a claim of negligent misrepresentation against the Title Companies, because, under Walker Rogge, Greenlands cannot pursue tort remedies where it has a remedy available in contract.

I. FACTUAL AND PROCEDURAL BACKGROUND

On April 29, 1996, Joseph Zoll ("Zoll") entered into an agreement to purchase property, located at and known as 1315 Boardwalk, in Atlantic City, from F.W. Woolworth's ("Woolworth") for $1,100,000. See First Amended Counterclaims ("Counterclaim"), filed Mar. 13, 1998, ¶ 8. "After Zoll signed the contract to purchase 1315 Boardwalk, `Greenlands Realty, L.L.C.[, of which Zoll is] a managing member[,] was formed and [Zoll] assigned [his] rights under the Woolworth agreement to Greenlands which then exercised those rights by purchasing the property.'" Stewart Title Guaranty Co. v. Greenlands Realty, L.L.C., Civil Action No. 97-3577, 1999 WL 308713, at *2, 58 F. Supp.2d 360, ___ (D.N.J. 1999) (quoting Affidavit of Joseph Zoll in Support of Defendant/Counterclaim Plaintiff Greeland[s] Realty, L.L.C.'s Motion for Summary Judgment ("Zoll Cert."), filed Nov. 19, 1998, ¶ 3).

The property consisted of "two parcels, the `main parcel' and the `strip,' a threefoot wide segment of land running from the main parcel to the street." Id.; see also Certification of William P. Fitzgerald, dated Nov. 17, 1998, Ex. B (Ponzio Survey showing map of the property).*fn4 "The main parcel front[ed] the boardwalk and the strip connect[ed] the back of the main parcel with South Carolina Avenue, which is 110 feet from the western edge of the main parcel." Id. Both Zoll and Woolworth, however, did not realize that the strip was part of the property. See Counterclaim ¶ 11. That is, Woolworth did not realize that it had title to the strip. "As part of the closing of Greenlands'[s] purchase of the Property from Woolworth, a survey of the lot was made by Arthur Ponzio[, which] revealed that [the s]trip . . . constituted part of the . . . lot being sold by Woolworth." Certification of Robert Hayes ("Hayes Cert."), Dec. 18, 1998, Ex. 14 (Verification of William W. Shultz, Esq., in Support of Defendant/Counterclaim Plaintiff Greenlands Realty, L.L.C.'s Motion for Summary Judgment, Oct. 2, 1998, ¶ 3). "Upon discussing the results of this survey with Woolworth, the company agreed to convey that [s]trip of land to Greenlands as part of the closing of the entire tax block and lot which Woolworth owned and was selling to Greenlands." Id.

On April 26, 1996, just three days before Zoll signed the purchase agreement with Woolworth, Zoll obtained a commitment for title insurance from Stewart Title, covering just the main parcel and not the strip, since, at the time, Zoll did not know that the strip was part of 1315 Boardwalk. See Hayes Cert., Ex. 3 (Commitment for Title Insurance, issued by Stewart Title, dated Apr. 26, 1997). The title commitment attached all of the deeds for the property, the results of a title search performed by TCJ. See id. Neither the commitment for title insurance nor the set of deeds, however, included an abstract of title.*fn5 See id. Further, although Greenlands alleges in its Counterclaim that it "entered into a contract with [TCJ] to abstract title to the Property for the independent purpose of verifying good and marketable title to the entire Property when Greenlands purchased it from F.W. Woolworth Co," Counterclaim ¶ 12, Greenlands could not provide a copy of this abstract when requested to do so by counsel for the Title Companies. See Certification of Stuart Alderoty ("Alderoty Cert."), filed Dec. 18, 1998, Ex. B (Letter from David P. Kalm, Esq., to Douglas R. Widen, Esq., dated Dec. 2, 1997, requesting a copy of the abstract); see also Brief in Support of Motion for Summary Judgment on Plaintiff's Complaint and Dismissing Counterclaims as to Stewart Title Guaranty Company and the Title Company of New Jersey ("Pl.'s Brief"), filed Dec. 18, 1998, at 6-7 n. 4 (noting that "Greenlands never responded [to the request for the abstract] because it could not"). The only evidence that Greenlands has presented that TCJ performed a title search and produced an abstract for Greenlands is the "Charge Breakdown and Worksheet" from TCJ, which charges Greenlands for a variety of "searches," including a "tax search," an "upper courts" search, several "corporate searches," one "tideland search[]," and "other."*fn6 Hayes Cert., Ex. 15. The total charge for "searches" amounted to $257.90. Id.

Approximately ten days after Stewart Title issued the April 26, 1996, commitment for title insurance, TCJ performed a title search for Stewart Title, which revealed a "discrepancy" suggesting that the "strip of property reposed in fee simple, in clear fee simple in Boardwalk Realty Company" ("Boardwalk").*fn7 Hayes Cert., Ex. 5 (Likens Dep. Tr. at 119). After discovering this "discrepancy," Edward J. Likens, the TCJ title officer who examined the title to 1315 Boardwalk for Stewart Title, concluded that Greenlands, despite the "discrepancy," held title to the strip. See id. (Likens Dep. Tr. at 16, 83-85).*fn8 Similarly, William P. Gillingham, Executive Vice President of TCJ, testified, in his deposition, that he believed that the discrepancy was a scrivener's error and did not affect Greenlands's title to the strip. See Appendix of Greenlands Realty, L.L.C. in Support of Motion for Summary Judgment as to Count I of Its Counterclaim for Breach of Contract Against Counterclaim Defendant, Sun International of North America ("App."), Ex. N (Gillingham Dep. Tr. at 60); see also Alderoty Cert., Ex. G (Verifying Affidavit of William P. Gillingham in Support of Plaintiff's Complaint, dated Aug. 21, 1997, ¶ 4, filed in Greenlands Realty, L.L.C. v. Boardwalk Realty Co., Civil Action No. ATL-C-135-97E, New Jersey Superior Court, Atlantic County, Chancery Division) ("I can unequivocally state that as a result of my examination, review and communications, to the best of my knowledge, . . . . it was as a result of inadvertence or mistake that Boardwalk failed to specifically describe the [strip] when it conveyed title to the Property to Colsey in 1970."). Indeed, Gillingham testified that at no time did he ever believe that the discrepancy was more than a scrivener's error.*fn9 See id.

On July 5, 1996, Zoll and Woolworth conducted the closing on the purchase agreement, at which time Woolworth transferred two deeds to Zoll, one for the main parcel, dated June 27, 1996, and a quit claim deed to the strip, dated June 28, 1996. App., Ex. C-7. That same day, Stewart Title issued a title insurance policy to Greenlands, covering both the main parcel and the strip. Alderoty Cert., Ex. E (Insurance Policy). The title policy covered:

  by Deed from F.W. Woolworth Co., a New York
  corporation dated June 27, 1996, recorded July 5,
  1996 in Deed Book 5988 Page 71 in the ATLANTIC County
  Clerk's office.
  by Quit Claim Deed from F.W. Woolworth Co., a New
  York corporation dated June 28, 1997 recorded July 5,
  1996 in Deed Book 5988, page 75 in the ATLANTIC
  County Clerk's office.

Id.*fn10 The policy provided protection against:

  1. Title to the estate or interest described in
    Schedule A being vested other than as stated
    therein;

2. Any defect in or lien or encumbrance on the title;

3. Unmarketability of the title;

4. Lack of a right of access to and from the land.

Id.

"`Even before the closing between Greenlands and Woolworth was completed, [Zoll] was approached by the representative of an undisclosed principal who inquired . . . whether Greenlands would sell the Property it was buying from Woolworth.'" Stewart Title Guaranty Co. v. Greenlands Realty, L.L.C., 58 F. Supp.2d 360, 362 (D.N.J. 1999) (quoting Zoll Cert. ¶ 3). "`As a result of that inquiry, negotiations began and those negotiations resulted in a September 4, 1997, Agreement of Sale wherein Griffin Gaming and Entertainment, Inc. . . . agreed to pay the sum of Five Million ($5,000,000.00) Dollars for the Property.'" Id. (quoting Zoll Cert. ¶ 3); see also Zoll Cert., Ex. A-1 (Agreement of Sale). "`In the period between the execution of the Griffin Agreement and the scheduled closing, Griffin merged into a subsidiary of Sun International, Inc., with Sun emerging as the surviving corporation.'" Stewart Title, 58 F. Supp.2d at 362 (quoting Statement of Undisputed Facts of Defendant/Counterclaim Plaintiff Greenlands[] Realty L.L.C. in Support of Motion for Summary Judgment as to Count I ("Greenlands's Statement"), filed Nov. 19, 1998, ¶ 39); see also Sun's Statement of Disputed Facts as to Greenlands'[s] Statement of Undisputed Facts in Support of Motion for Summary Judgment as to Count I, filed Nov. 19, 1998, ¶ 39 ("Agreed."). "`Sun succeeded to Griffin's rights and obligations under the Griffin Agreement.'" Stewart Title, 58 F. Supp.2d at 362 (quoting Greenlands's Statement ¶ 39).

Under the Agreement of Sale, "[t]he Closing of the purchase and sale of the Property [was to] take place at 10:00 a.m. on July 3, 1997." Id. (quoting Agreement of Sale ¶ 6). The Agreement also provided that: "`[t]ime is of the essence.'" Id. (quoting Agreement of Sale ¶ 6).

Early in February of 1997, Arthur Sklar, Esq., approached Stewart Title, on behalf of Sun, to request a title commitment for the property. Hayes Cert., Ex. 4-A (Application for Commitment for Title Insurance, dated Feb. 7, 1997). On February 14, 1997, Sun received two commitments for title insurance from Stewart Title, one for the main parcel and one for the strip. See Hayes Cert., Exs. 6 (main parcel), 9 (strip). Unlike the title insurance policy that Stewart Title issued to Greenlands, this set of commitments noted that Boardwalk, and not Greenlands, held title to the strip. See id. In his deposition, Likens testified that this change resulted from a conference call between Sklar, Gillingham, and Likens, in which Sklar described how "he felt that title should have been" represented. See id., Ex. 5 (Likens Dep. Tr. at 87). Nothing "Sklar said convince[d Likens] that, in fact, Boardwalk had superior title to Greenlands," rather, it was Sklar's mere conclusory statement that motivated TCJ, and, in turn, Stewart Title to state that Greenlands did not hold title to the strip. See id. (Likens Dep. Tr. at 91).

In the subsequent months, TCJ further searched title to the strip. See id., Ex. 10 (collected documents regarding title to the strip, from March and April of 1997). As part of this investigation, TCJ discovered that Boardwalk had dissolved on March 10, 1970. See id. Then, on June 17, 1997, after TCJ's more detailed investigation of the title to the strip, Stewart Title issued a commitment for title insurance that included both the main parcel and the strip, which noted that the quitclaim deed from Woolworth to Greenlands did, in fact, convey the strip to Greenlands. See id., Ex. 12. This commitment, however, required "[p]roduction of a certified copy of the Resolution of the Board of Directors of Boardwalk Realty Company, its successors and/or assigns authorizing the sale and conveyance of the premises in question TO BE AGREED UPON." Id. Additionally, this commitment noted: "We find Fee Simple Title to [the strip] vested in Boardwalk Realty Company. . . . The said Boardwalk Realty Company failed to include [the strip] in the subsequent Deed of conveyance." Id.

Sklar, counsel for Sun, however, "was dissatisfied with the form of" the June 17, 1997, commitment for title insurance. Id., Ex. 11 (Gillingham Dep. Tr. at 112). Stewart Title changed the commitment for title insurance to conform with "[w]hatever [Sklar's] requests were." Id. Indeed, Stewart Title was willing to do "whatever [Sklar] wanted . . . [w]ithin the realm of title insurance." Id. (Gillingham Dep. Tr. at 112-13). As a result, on June 26, 1997, Stewart Title sent Sklar, by facsimile, a revised commitment for title,*fn11 with the following note: "Please review & let me know if you feel this is more consistent." Id., Ex. 13. The June 26, 1997, version of the commitment for title insurance covered both parcels, however, it contained an exception for an "[o]utstanding estate and interest of Boardwalk Realty Company, its successors and/or assigns, in and to [the strip] of [1315 Boardwalk]." Id.

On June 26, 1997, the same day that William Gillingham sent Sklar the third version of the commitment for title insurance, and exactly one week before the closing date on the purchase agreement between Greenlands and Sun, Sklar sent a letter to Greenlands, stating:

  Title commitment # 31113278 dated June 4, 1997 issued
  by [TCJ] (the "Title Commitment") indicates that
  title to [the strip] . . . is vested in Boardwalk
  Realty Company. A copy of the Title Commitment is
  enclosed. As [the strip] appears to be a part of Lot
  161, Block 20 on the official Tax Map of Atlantic
  City, title to the Property does not appear to be
  marketable or insurable based on the Title
  Commitment. This is to advise you Sun is unwilling to
  accept less than good, marketable and insurable title
  to the Property.

Alderoty Cert., Ex. C (Letter from Arthur Sklar, Esq., to Greenlands Realty, L.L.C., dated June 26, 1997). With only a week to cure the alleged defect, Greenlands had little recourse. On the July 3, 1997, closing date, Sun refused to close. See Verification of William W. Shultz, Esq., in Opposition to Counterclaim Defendant Sun International of North America, Inc.'s Motion to Dismiss, filed June 19, 1998, Ex. 1 (Letter from Arthur Sklar, Esq., to William Shultz, Esq., dated July 3, 1997, explaining Sun's reason for its refusal to close).

"By letter dated July 3, 1997, Greenlands submitted to Stewart [Title] a notice of claim under the Title Policy." Counterclaim ¶ 54. In response, on August 27, 1997, Stewart Title instituted an action in the New Jersey Superior Court, to quiet title to the strip and obtain a confirmatory deed to the strip. See Stewart Title Guaranty Co. v. Greenlands Realty, L.L.C., 58 F. Supp.2d 360, 364 (D.N.J. 1999). "The New Jersey Superior Court, Chancery Division, determined that Boardwalk's failure to include a metes and bounds description of the strip in the 1970 deed to Colsey and Mahon was a mistake and, as a result, the court appointed Nancy Gemmel, Esq., `as a commissioner in accordance with [N.J. Stat. Ann. §] 46:7-1 to execute [a] Confirmatory Deed.'" Id. (quoting Judgment, filed Oct. 15, 1997, in Greenlands Realty, L.L.C. v. Boardwalk Realty Co., Civil Action No. ATL-C-135-97E, New Jersey Superior Court, Atlantic County, Chancery Division). "On November 18, 1997, Ms. Gemmel signed a confirmatory deed to the strip on behalf of Greenlands." Id. "After obtaining the confirmatory deed, Stewart Title then filed this action, seeking a declaratory judgment that it was not obligated to provide coverage for any loss that Greenlands might have sustained as a result of Sun's termination of the Agreement of Sale." Id.

In my Opinion and Order of May 12, 1999, see id., I concluded that Greenlands possessed marketable title, because "Boardwalk intended to convey title to the strip and its failure to include a metes and bounds description of the strip in the deed was a scrivener's error" and, therefore, "none of Boardwalk's successors-in-interest can assert a viable claim, nor are they likely to attempt to do so." Id. at *10. Now I must consider the motion for summary judgment of the Title Companies, which addresses Count II of the Complaint and Counts III through X of Greenlands's Counterclaim.

II. LEGAL STANDARD GOVERNING A MOTION FOR SUMMARY JUDGMENT

A party seeking summary judgment must "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Reitz v. County of Bucks, 125 F.3d 139, 143 (3d Cir. 1997); Hersh v. Allen Prod. Co., 789 F.2d 230, 232 (3d Cir. 1986). In deciding whether there is a disputed issue of material fact, the Court must view the underlying facts and draw all reasonable inferences in favor of the non-moving ...


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