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RTC MORTG. TRUST 1994 N-1 v. FIDELITY NAT. TITLE

July 29, 1999

RTC MORTGAGE TRUST 1994 N-1, A LIMITED LIABILITY DELAWARE BUSINESS TRUST, PLAINTIFF,
v.
FIDELITY NATIONAL TITLE INSURANCE COMPANY, NATIONS TITLE INSURANCE OF NEW YORK, EASTERN DEVELOPERS ABSTRACT, INC., CAINE, DIPASQUA, SLOANE & RAFFAELE F/K/A CAINE, DIPASQUA, SLOANE, RAFFAELE & NIGRO, LAWYERS TITLE INSURANCE CORPORATION, AND ROCCO M. NIGRO, DEFENDANTS.



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

      OPINION
  I.   INTRODUCTION ...........................................................    507
  II.  BACKGROUND .............................................................    509
  III. LEGAL STANDARD GOVERNING MOTIONS FOR SUMMARY JUDGMENT ..................    519
  IV.  DISCUSSION .............................................................    520
       A. RTC Mortgage Trust's Motion for Partial Summary Judgment Against
            Nigro and Caine, DiPasqua .........................................    520
          1. An Attorney's Duty to a Non-Client ...............................    521
          2. Breach of Duty of Care Owed by Nigro to Home Federal .............    522
          3. Proximate Cause and Injury .......................................    526
          4. Respondeat Superior Liability ....................................    529
       B. FNTIC's and NTI's Motion for Summary Judgment .......................    530
          1. FNTIC Is Not Title USA's Successor................................    530
          2. NTI's Motion for Summary Judgment ................................    530
             a. RTC Mortgage Trust's Claim Against NTI for Breach of the Title
                  Insurance Policy ............................................    530
                1)  Legal Standard Governing Construction of Title Insurance
                      Policies ................................................    531
                2)  Title USA Did Not Breach the Title Insurance Policy .......    532
             b. RTC Mortgage Trust's Claim for Negligent Title Search Against
                  NTI .........................................................    535
             c. RTC Mortgage Trust's Claim for Negligent Hiring ...............    542
             d. Statute of Limitations ........................................    542
             e. NTI's Request that this Court "Re-examine" its Holding in RTC
                 Mortgage Trust II ............................................    545
             f. Counsel Fees ..................................................    547
       C. LTIC's Motion for Summary Judgment ..................................    548
  V. CONCLUSION ...............................................................    549

I. INTRODUCTION

This case involves a failed savings and loan's claims for breach of contract, negligence and legal malpractice, arising out of a commercial real estate transaction in which defendant, Rocco M. Nigro, Esq., acted as counsel for the buyer and the seller of the property, rendered an opinion letter for the benefit of the mortgage company, owned the title agency which negotiated the title insurance coverage and acted as the closing agent on behalf of the underwriting title insurance company. In sorting out the conflicting duties of care owed by Mr. Nigro, as well as his law firm and the title insurance companies involved in the mortgage transaction, I must determine the scope of an attorney's duty to a non-client third party and whether the title insurance company voluntarily assumed a duty of care to its insured, independent of its obligations set forth in the title insurance policy.

On June 16, 1997, Plaintiff, RTC Mortgage Trust 1994 N-1, successor in interest to Home Federal Savings and Loan Association, filed a five count amended complaint in this Court alleging claims for breach of contract, negligent title search, negligent hiring, and legal malpractice against Defendants, Fidelity National Title Insurance Company, Nations Title Insurance of New York, Eastern Developers Abstract, Inc., Caine, DiPasqua, Sloane & Raffaele f/k/a Caine, DiPasqua, Sloane, Raffaele & Nigro, Lawyers Title Insurance Corporation, and Rocco M. Nigro, Esq. On December 14, 1998, RTC Mortgage Trust filed a motion for partial summary judgment on the issue of liability on its claims for legal malpractice against Nigro and Caine, DiPasqua, and its claims for breach of contract and negligent title search against NTI. On December 14, 1998, NTI cross-moved for summary judgment on all claims asserted against it by RTC Mortgage Trust. In addition, on December 14, 1998, Lawyers Title Insurance Company also moved for summary judgment on all claims asserted against it by Plaintiff. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332, based upon complete diversity of citizenship between the parties and the requisite amount in controversy.

For the reasons set forth below, I shall grant Plaintiff's motion for partial summary judgment on the issue of liability on its claim for legal malpractice against the Defendants, Rocco M. Nigro, Esq., and Caine, DiPasqua, Sloane & Raffaele. I shall also grant Plaintiff's motion for partial summary judgment on the issue of liability on its claim for negligent title search against Nations Title Insurance of New York. The entry of these partial summary judgments in favor of Plaintiff is subject to a resolution of disputed issues of material fact by a jury,*fn1 pursuant to Lopez v. Swyer, 62 N.J. 267, 300 A.2d 563 (1973); Goodman v. Mead Johnson & Co., 534 F.2d 566 (3d Cir. 1976), to determine whether these claims, as well as Plaintiff's claim for negligent hiring, are barred by the statute of limitations.

I shall grant the motion of Defendant, Nations Title Insurance of New York, for summary judgment on Plaintiff's claims for breach of contract and the recovery of attorneys' fees. I shall, however, deny the motion of Nations Title Insurance of New York for summary judgment insofar as it seeks summary judgment on Plaintiff's claim for negligent hiring, subject to the resolution of disputed issues of material fact by a jury surrounding the statute of limitations defense. Furthermore, I shall grant Defendant, Fidelity National Title Insurance Company's motion for summary judgment on all claims asserted against it by Plaintiff. Finally, I shall grant the motion of Defendant, Lawyers Title Insurance Company, for summary judgment on all claims asserted against it by Plaintiff.

In addition, given the multiple representations undertaken by Mr. Nigro in this transaction, and the myriad conflicts of interest presented by his conduct, I conclude that Rocco M. Nigro, Esq., violated Rule 1.7 of the New Jersey Rules of Professional Conduct, made applicable in this Court pursuant to Rule 103.1(a) of the Local Civil Rules of this Court.*fn2 Accordingly, I shall refer this matter to David E. Johnson, Jr., Esq., Director of the New Jersey Office of Attorney Ethics, for whatever action he deems appropriate.

II. BACKGROUND

The facts and procedural history of this case have been summarized to some extent in this Court's Opinions of October 20, 1997, RTC Mortgage Trust 1994 N-1 v. Fidelity National Title Insurance Co., et al., 981 F. Supp. 334 (D.N.J. 1997) ("RTC I"), and August 14, 1998, RTC Mortgage Trust 1994 N-1 v. Fidelity National Title Insurance Co., et al., 16 F. Supp.2d 557 (D.N.J. 1998) ("RTC II"). What follows below are the facts and procedural history relevant to Plaintiff's and Defendants' respective motions and cross-motions for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure.

On June 16, 1997, Plaintiff, RTC Mortgage Trust 1994 N-1 ("RTC Mortgage Trust"), filed a five count Amended Complaint*fn3 in this Court alleging claims for negligence and breach of contract against Defendants, Fidelity National Title Insurance Company ("FNTIC"), Nations Title Insurance of New York ("NTI"),*fn4 Eastern Developers Abstract, Inc. ("Eastern"), Caine, DiPasqua, Sloane & Raffaele f/k/a Caine, DiPasqua, Sloane, Raffaele & Nigro ("Caine, DiPasqua"), Lawyers Title Insurance Corporation ("LTIC"), and Rocco M. Nigro, Esq. ("Nigro"). See Amended Complaint (filed June 16, 1997). RTC Mortgage Trust's claims include: (1) breach of a title insurance policy, negligent title search and negligent hiring against FNTIC and NTI, Count I; (2) breach of a title reinsurance policy and negligent title search against LTIC, Count II; (3) negligent title search against Eastern, Count III;*fn5 and (4) legal malpractice against Nigro and Caine, DiPasqua, Counts IV and V. See Amended Compl., Counts I-V.

Notwithstanding the convoluted procedural history of this matter and the forest of paper it has generated, see RTC I, 981 F. Supp. at 336-37; RTC II, 16 F. Supp.2d at 559-60, this case involves a relatively common commercial real estate transaction, which went sour after the borrowers/mortgagors defaulted.

George Diemer ("Diemer") and Robert Pacilli ("Pacilli") were commercial real estate developers and the general and limited partners in Mount Laurel Associates ("MLA"), a Pennsylvania limited partnership. See Plaintiff's Rule 56.1 Statement of Undisputed Fact (filed Dec. 14, 1998), ¶ 6, 8 (hereinafter "Pl. R. 56.1 (Cts.IV-V)"). "Starting in or about 1985, . . . Nigro[, an attorney of the bars of New Jersey, Pennsylvania, and Florida, see Letter to the Court from Rocco M. Nigro (dated Jan. 7, 1999),] . . . was the principal attorney for Diemer, Pacilli and MLA with regard to the acquisition, financing and sale of land in Mount Laurel Township, Burlington County, consisting of approximately 350 acres, which came to be known as the Horizon Corporate Center." See Pl. R. 56.1 (Cts.IV-V); see also Certification of Robert A. Berns, Esq. (filed Dec. 14, 1998), Exh. B (Deposition of Rocco M. Nigro, Esq. (dated March 9, 1998) at 39-42). On one of the parcels of land within the Horizon Corporate Center, a 6.94 acre parcel, Lot 1, Block 1300.02 on the Tax Map of Mount Laurel Township, Burlington County, also known as Parcel 2 (the "Property"), was constructed an office building called Atrium II. See Pl. R. 56.1 (Cts.IV-V), ¶ 7; see also Certification of John A. Adler, Esq., in Support of Partial Summary Judgment against Nigro and Caine, DiPasqua (filed Dec. 14, 1998), Exh. K (Deed to the Property (dated Aug. 29, 1988)), and Exh. O (Mortgage Covering the Property (dated Aug. 29, 1988)). The Property and the mortgages covering the Property form the subject-matter of this litigation. See RTC II, 16 F. Supp.2d at 559.

"Prior to August of 1988, Nigro, acting as attorney for Diemer and Pacilli and as title agent through Eastern[, in which Nigro was the sole shareholder,] participated in numerous transactions . . . regard[ing] . . . the Horizon Corporate Center, including transactions involving [the Property]." See Pl. R. 56.1 (Cts.IV-V), ¶ 9 (citing Nigro Dep. at 40-42, 47, 50). "Many of th[e] transactions involved Fidelity Bank, N.A. (`Fidelity') . . . which provided construction and other financing for Diemer and Pacilli with regard to properties owned by them . . . in the Horizon Corporate Center[,]" including the Property. Id.

Two such transactions are of particular relevance to this case. First, on March 7, 1986, Nigro, as title agent for Eastern and as counsel for MLA, participated in a real estate closing of a commercial loan for $11,800,000 from Fidelity to MLA for the purpose of refinancing MLA's previous indebtedness and to finance the construction of an office building in the Horizon Corporate Center ("the construction loan"). See Nigro Dep. at 50-51. "As security for the construction loan, Fidelity obtained a first mortgage on [the Property] in the amount of $11,800,000." See P.R. 56.1 (Cts.IV-V), ¶ 10.

Second, on June 13, 1986, Nigro, again acting as title agent and counsel for MLA, participated in a real estate closing in which Fidelity loaned MLA $9,700,000 to purchase a parcel of raw land located within the Horizon Corporate Center. See id., ¶ 11; see also Nigro Dep. at 53-55. As security for this loan, Fidelity obtained a first mortgage on the raw land and a second mortgage on the Property ("the second mortgage"). See Nigro Dep. at 53-54. Nigro recorded the second mortgage on behalf of MLA and Fidelity.*fn6 See id.

Subsequently, Diemer and Pacilli organized another limited partnership, called Atrium II Limited Partnership ("Atrium II"), to seek additional financing from lenders other than Fidelity. See Adler Cert., Exh. H (Loan Commitment Letter (dated June 8, 1988)). On June 8, 1988, Nationwide Capital, a wholly owned subsidiary of Home Federal Savings and Loan ("Home Federal"), extended a mortgage loan commitment to Diemer, on behalf of Atrium II, in the amount of $13,500,000. See id. As security for the loan, Home Federal sought a first lien priority on the Property. See id. In addition, the loan commitment letter stated the terms and conditions under which Home Federal would proceed with the transaction. See id.

In particular, the loan commitment letter set forth Home Federal's title insurance requirements. See Adler Cert., Exh. H. Specifically, the letter provided:

  (1) Title insurance requirements — A title commitment
  from a title insurer and title agent approved by
  title insurer, acceptable to Home Federal, in form as
  follows:
    (a) The insured amount must be the full loan amount
    plus maximum deferred interest. . . .
    (d) The standard exceptions indicated on the
    commitment must be deleted from the final title
    policy. Home Federal must be provided with the
    recorded copies of all title exceptions and other
    instruments referenced in the title commitment.
    (f) If you are using a title agent, an insured
    closing letter. . . .

Id.

The loan commitment letter further required "[a] letter from an attorney licensed to practice law in New Jersey, retained by the borrower and acceptable to Home Federal, opining as to those matters set forth in the form of opinion letter attached." Id. The attached form opinion letter sought a legal opinion that "[Atrium II] owns good and marketable fee simple title to [the Property] . . . [and that the mortgage] constitutes a first lien security interest valid against all third parties, subject only to the matters and exceptions referred to in [the] Title Commitment. . . ." Id.

As counsel for Diemer, Nigro was retained to represent Diemer, Pacilli, MLA and Atrium II in the Home Federal mortgage transaction. See Nigro Dep. at 75, 107-108. Thus, under the terms of the loan commitment letter, Nigro, as Atrium II's counsel, was required to prepare an opinion letter on the first lien priority position of the Home Federal mortgage. See Adler Cert., Exh. H, and Exh. Q (Letter to Nigro from Nationwide Capital (dated June 23, 1988)).

With regard to title services, Nigro's practice was to refer his real estate clients, like Diemer and Atrium II, to Eastern, in which Nigro was the president, sole director, and sole shareholder. See Nigro Dep. at 11-14. Eastern would then act as the title agent for Nigro's real estate closings with Title USA Corporation of New York ("Title USA"), predecessor in interest to NTI, see NTI's Rule 56.1 Statement of Undisputed Facts (filed Dec. 14, 1998), ¶ 1 (hereinafter "NTI R. 56.1"), serving as the underwriting title insurance company. See Adler Cert., Exh P (Loan Agreement, ¶ 1.31); see also Nigro Dep. at 13-15. This same practice was followed by Nigro in connection with the Home Federal mortgage closing: Nigro served as counsel for Atrium II and, through Eastern, as the title agent, with Title USA underwriting the title insurance policy. See Adler Cert., Exhs. H, P, Q.

Eastern had a total of three employees, namely, Nigro, its president; Linda Winfree, its secretary and treasurer; and Jane Ervin, who is listed as the "manager" on Eastern's letterhead. See Nigro Dep. at 78-79; see also Adler Cert., Exh. X (Letter from Eastern to Title USA (dated July 8, 1998)). Ms. Winfree was also employed as Nigro's legal secretary and paralegal. See Nigro Dep. at 18-19.

Under the terms of the loan commitment letter, the loan agreement, and Eastern's agency agreement with Title USA, Eastern was responsible for searching the Property's title and preparing the Title Commitment. See Nigro Dep. at 13-17; Adler Cert., Exhs. H, P; see also Certification of Josiah A. Knapp, Esq. (filed Dec. 14, 1998), Exh. C (Agency Agreement between Eastern and Title USA). On the issue of Eastern's operations, Nigro testified:

  Q. [By Mr. Adler] At the time we're talking about,
  which is August of 1988, [where was Eastern
  physically located?]
  A. [By Nigro] . . . I had a law office, and Linda
  Winfree who worked for me had another office where
  the title company was — our files were there and our
  equipment was there, and we did our [title] work out
  of there. . . .
  Q. Did Eastern have a separate office with its own
  rooms at Caine[,] DiPasqua?
  A. Yes, that one room. . . . [Eastern] was a title
  agency not in the true sense of the word. It didn't
  do title for a number of people and do a lot of
  transactions. It was relatively limited to my clients
  that I had, and the legal business I did some title
  work for them.
  Q. Tell me how the actual searches were done; who did
  them and what was the procedure?
  A. . . . On a typical [New Jersey] property I would
  be informed that we're going to write a policy for a
  given transaction. I would usually contact . . . Jane
  Ervin. . . . I would tell her that I needed to do a
  transaction, and she would order what we call a
  search commitment. She would order it from some
  independent contractor in the county where we were
  going to insure the property.
  She would contact — I presume she would. She told me
  she would. She would contact, did search work and did
  commitment work. She would get all of the information
  needed to formulate and prepare a [title] commitment
  and then prepare one.

Q. She would prepare a commitment?

A. Yes.

Q. And then what?

  A. Then it would come to me and I would take a look
  at it and decide who we had to contact, what we had
  to do to clear up some of the items on the commitment
  such as judgments, liens or whatever.

See Nigro Dep. at 13-17.

Regarding the title search and commitment prepared in the Home Federal mortgage transaction, Nigro testified:

  Q. [By Mr. Adler] . . . Now who prepared the
  commitment?
  A. [By Nigro] In all probability, it was prepared by
  Jane Ervin because[] [t]hat [sic] who was preparing
  commitments at the time, and also on the commitment
  itself it has as part of the number, EJ, so that
  means Ervin, Jane. So I presume that has something to
  do with it. I have no specific independent
  recollection.
  Q. What role did you play in the preparation of this
  Commitment No. EJ 123?
  A. Probably minimal in preparing it, but I probably
  reviewed it and met with Linda Winfree who apparently
  was writing back and forth to [Home Federal] and [I]
  probably approved the things that she was doing.
  Q. Now, on schedule B [of the Title Commitment],
  there is a number starting with number nine. In
  reference to certain documents of record, where did
  that information come from?
  A. . . . Typically, it would come from either the
  search that we did for that transaction or other
  things that we had on file. In Mount Laurel, unlike
  most transactions, we had insured numerous properties
  in Mount Laurel, the Mount Laurel Park [i.e.,
  Horizon Corporate Center,] and we had insured
  numerous pieces numerous times.
    So a lot of times we didn't go in and do a full
  blown search every time we did something. We relied
  on our prior materials,

  and I would decide whether we needed a further
  search, supplemental search or whatever we may have
  needed in that particular transaction.
    At the time if you did a search on a Mount Laurel
  property, [like the Property at issue,] it would
  probably cost a couple thousand dollars to take
  numerous months to get done because it was so
  voluminous. As a matter of practicality and
  expedience, we had to somehow shorten that process to
  the best we could.
  Q. I take it that in preparation of this commitment,
  a full search of the record was not made?
  A. I'm not certain. It may or may not have been. . .
  . [Regarding the Property,] I'm not sure what was
  done, but we had insured Atrium II. When we acquired
  it, constructed the building, we added the amendment
  to the construction loan when we did the land loan.
  We had numerous files on this [Property]. We would do
  this kind of case and look at what we have and look
  at our policies and our commitments, all of those
  things, and construct what we believe is a
  commitment, what you believe you would find on record
  if you went to the courthouse. . . .
  Q. Would the records of Eastern . . . have included
  [Fidelity's] second mortgage [on the Property] that
  had been recorded in 1986?
  A. They should have. I don't know if they did or not,
  but they should have because we had insured that
  second mortgage and we did the transaction which
  [meant] we had a file on it. We did have one location
  with all of the Mount Laurel documents, the copies of
  them. It was at Jane's house. She told me it used to
  consume yards of file space. So we did have
  everything. Whether or not [a file on Fidelity's
  second mortgage] was actually there, I can't tell
  you. I know we had everything that we had done to
  that date, at least a copy of it.
  Q. Does the second mortgage appear [on] this
  commitment?

A. No.

Q. Can you tell me why?

A. I don't know why.

Q. But should it have?

  A. If it was on record at the time, yes, it should
  have; and if we were going to remove it, it would
  have been removed. . . . If it were on record, it
  should have been there[.]

See Nigro Dep. at 78-83.

In addition, in a previous deposition in 1992, during an adversary proceeding in the Bankruptcy Court, see RTC II, 16 F. Supp.2d at 559, Nigro testified:

  Q. Because Fidelity's second mortgage on the Atrium
  II premises . . . was in your files, that would have
  been reflected on [your title searches]?

A. It should be. Sometimes they are not.

Q. If it weren't, why wouldn't it be?

  A. Human error. Assuming it should be and weren't,
  it's a mistake.
  Q. And if such a mistake was made, whose mistake
  would it be?
  A. Either Jane Ervin's, myself, or possibly the
  person who searched the records. . . . Somebody has
  to make a mistake when something doesn't appear and
  it should appear. But it happens. If you are doing a
  lot of title work, it happens now and then. . . . And
  hopefully we catch those. If we don't, that's what
  the insurance is for.

See Deposition of Rocco M. Nigro, Esq. (dated Mar. 27, 1992), at 119-20 (herinafter, "1992 Nigro Dep.").

On June 23, 1988, Winfree also sent a copy of the proposed Title Commitment, referred to by the parties as the "marked-up" Title Commitment, to Nationwide Capital, which was co-ordinating the mortgage transaction for Home Federal. See Adler Cert., Exh. B (Cover Letter from Eastern to Nationwide Capital (dated June 23, 1988)). The "marked-up" Title Commitment listed Fidelity's construction loan, secured by the Property, but failed to disclose the existence of Fidelity's second mortgage. See Adler Cert., Exh. U ("Marked-Up" Title Commitment). Nationwide Capital reviewed the "marked-up" Title Commitment, making alterations to the commitment directly on the document. See id. Consistent with the terms of the mortgage loan commitment letter, Nationwide Capital noted on the "marked-up" Title Commitment that it still needed copies of some instruments affecting the Property's title, referenced in the "marked-up" Title Commitment. See id.

On August 4, 1988, Baillie, on behalf of Title USA, approved the proposed Title Commitment in the Home Federal mortgage transaction. See Adler Cert. (NTI), Exh. H (Letter from Baillie to Winfree (dated Aug. 4, 1988)). Baillie also informed Winfree that "[i]t [was] not good underwriting practice to mark-up a commitment or pending policy prior to closing." Id. Baillie further informed Winfree that "[m]ark-ups should be made at the closing pursuant to lender request. . . ." Id.

Notwithstanding Baillie's directions regarding "mark-ups," on August 17, 1988, Winfree, on behalf of Eastern, sent Nationwide Capital a second "marked-up" Title Commitment, reflecting Home Federal's changes. See Adler Cert., Exh. V. The second "marked-up" Title Commitment did not disclose the existence of Fidelity' second mortgage on the Property. See id.

On August 17, 1988, Winfree also informed Nationwide Capital that LTIC had contracted with Title USA to reinsure the title policy which would be issued subsequent to the closing. See id. Subsequently, on August 19, 1988, LTIC sent Nationwide Capital and Eastern a letter stating:

  LTIC agrees to accept $8,825,274.00 of secondary
  liability behind Title USA['s] . . . $2,000,000.00 of
  primary liability on the $13,825,274.00 Owner's
  Policy insuring The Atrium II Limited Partnership and
  a simultaneous Mortgagee Policy insuring Home Federal
  . . . on [the Property]. We also understand Title USA
  . . . will be taking $3,000,000.00 of secondary
  liability.

See Certification of Janice D. Walton (filed Dec. 14, 1998), Exh. 9 (Letter to Eastern and Nationwide from LTIC (dated Aug. 19, 1998)).

On June 23, 1988, in accordance with the terms of the loan commitment letter, Nationwide Capital sent Nigro, who was acting as counsel for the borrower, Atrium II, a series of documents necessary to the completion of his opinion letter. See Adler Cert., Exh. Q (Letter from Nationwide Capital to Nigro (dated June 23, 1988)). The enclosed documents included the loan agreement, the mortgage and security agreement, the promissory note, the assignment of rents and leases, and the absolute guaranty of payment and performance. See id. The cover letter informed Nigro that if he had any questions he should contact counsel for Nationwide Capital and Home Federal, Larry Goodman, Esq. See id.

As the closing date for the Home Federal mortgage approached, as required by the mortgage loan commitment letter, on August 18, 1988, Title USA issued an insured closing letter to Nationwide Capital, on behalf of Home Federal. See Adler Cert., Exh. U. The insured closing letter provided that Title USA:

  agree[d] to reimburse [Home Federal] for actual loss
  incurred by [Home Federal] in connection with [the]
  closing[] when conducted by [Title USA's] Issuing
  Agent, . . . when such loss arises out of . . .
  [the][f]ailure of the Issuing Agent[, namely, Nigro,
  on behalf of Eastern,] to comply with [Home
  Federal's] written closing instructions to the extent
  that they relate to . . . the status of the title to
  said interest in land or the validity, enforceability
  and priority of the lien of said mortgage on said
  interest in land. . . .

Id. The insured closing letter also provided that any claim for actual loss by an insured must be filed "within twelve months from the date of [the] closing." Id.

On August 29, 1988, the date of closing, Nationwide Capital, on behalf of Home Federal, issued its written closing instructions to Eastern. See Adler Cert., Exh. L (Letter from Larry Goodman to Linda Winfree (dated Aug. 29, 1988)). The closing instructions letter stated, in relevant part:

  Home Federal has received Title USA's marked-up title
  commitment which evidences that all requirements of
  Schedule B [the instruments of record affecting title
  to the Property] have been satisfied and that Title
  USA is prepared to issue an ALTA title policy in the
  amount of $5,000,000.00 and [LTIC] will
  simultaneously issue a re-insurance policy in the
  amount of $8,825,274.00 as first lienholder on the
  Property encumbered by the Mortgage . . . and subject
  only to those exceptions [listed in Schedule B]. . .
  . [Eastern, as closing agent for Title USA, shall]
  record the [loan documents] . . . with the
  appropriate governmental offices, WHEN AND ONLY WHEN
  [the Home Federal] Mortgage constitutes, in fact, a
  lien of record against the Property . . . and when .
  . . Title USA can affirmatively insure Home Federal
  as of the date and time of recordation of the
  Mortgage that such Mortgage constitutes a valid first
  lien against the Property. . . . You are authorized
  to disburse the Proceeds in accordance with these
  instructions WHEN AND ONLY WHEN you are able to
  strictly comply with the instructions of th[is]
  letter. . . .

Id. (emphasis in original).

On August 29, 1988, Nigro provided Home Federal with his opinion letter. See Adler Cert., Exh. R (Opinion Letter (dated Aug. 29, 1988)). The opinion letter, written on Caine, DiPasqua letterhead, stated, in relevant part:

  At your request we provide you with this opinion in
  our capacity as counsel to the Borrower and its
  general partner. In rendering this opinion, we have
  reviewed originals of the following documents:
  1. The Loan Agreement executed by Borrower and
  Lender.
  2. The Promisory [sic] Note made by Borrower to the
  order of the Lender in the principal amount of
  $13,825,274.00.
  3. The Mortgage and Security Agreement executed by
  the Borrower to Lender.
  4. The Assignment of Rents and Leases executed by
  Borrower.
  5. Uniform Commercial Code Financing Statements
  executed by Borrower in favor of the Lender.
  6. Title USA Insurance Corporation of New York Title
  Commitment bearing File No. EJ — 123, including
  endorsements, if any, issued through the date hereof
  (the "Title Commitment").
    The documents referred to in Paragraphs one through
  six above are each dated of even date herewith and
  collectively referred to as the "Loan Documents".
  [sic]
    In addition, we have examined such other record
  documents, certificates, instruments and materials as
  in our judgment are necessary and appropriate to
  enable us to render this opinion. We have, however,
  assumed the validity of all such records, documents,
  certificates, instruments and materials and the
  genuineness of all signatures thereon. Based upon the
  foregoing, we are of the opinion that: . . .
    Borrower owns good and marketable fee simple title
  to the real property described in the Mortgage and
  Security Agreement subject to those matters noted in
  the Title Commitment delivered to Lender, and the
  Mortgage and Security Agreement constitutes a first
  lien security interest valid against all third
  parties subject only to the matters and exceptions
  referred to in said Title Commitment. Borrower's
  title to such real property is not subject to any
  vendor's lien. . . .
    To the best of our knowledge, the Borrower has made
  no contact or arrangement of any kind except the
  Construction Agreement with Pace Associates, Inc. and
  agreements with its architect, surveyor and engineer,
  the performance of which by the other party thereto
  would give rise to a lien on the Property. . . .
    We are members of the bar of the State of New
  Jersey and do not purport to be expert on, or to
  express any opinion herein concerning, any laws other
  than the laws of the State of New Jersey and the
  Federal laws of the United States, and this opinion
  is. . . . Our opinions are rendered as of the date
  hereof and are solely for the benefit of Lender in
  connection with the Loan. . . . In delivering this
  opinion to you, we are not undertaking to apprise you
  either of any transactions, events or occurrences
  taking place after the date of this letter of which
  we may acquire any knowledge or of any change in
  applicable laws taking place after the date of this
  letter which may affect any of our opinions set forth
  in this letter. The opinions expressed in this letter
  are based upon the applicable laws, regulations and
  ordinances in effect as of the date of this letter.

Id. (emphasis added).

In his March 9, 1998, deposition testimony, Nigro discussed the procedure he followed in drafting the opinion letter. See Nigro Dep. at 113-118. He testified:

  A. [By Nigro] [T]ypically a lender would give me a
  proposed letter. I would look at it, and then
  typically they would tell me what they wanted their
  final draft as; and if I could live with it, I would
  put it on my stationery and sign it. If I couldn't
  live with it, I would call them and say I can't do
  this and that and then I would sign it.
  Q. [By Mr. Adler] Did you review the [loan] documents
  . . . itemized on the first page . . . [of the
  opinion letter]?
  A. I presume that I did, because it says that I did.
  I don't have any independent recollection.
  Q. What was the basis for your opinion that [Home
  Federal] was getting a first loan through its
  ...

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