December 20, 2006
TITAN MANAGEMENT, L.P., PLAINTIFF-APPELLANT/CROSS-RESPONDENT,
FIRST AMERICAN TITLE INSURANCE COMPANY; HERITAGE ABSTRACT COMPANY AND HERITAGE ABSTRACT COMPANY, L.L.C., DEFENDANTS-RESPONDENTS/CROSS-APPELLANTS.
On appeal from Superior Court of New Jersey, Law Division, Burlington County, L-2320-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued November 27, 2006
Before Judges Lintner and S.L. Reisner.
Plaintiff, Titan Management, L.P., appeals from a trial court order dismissing on summary judgment its complaint against defendants, First American Title Insurance Company, Heritage Abstract Company, and Heritage Abstract Company, L.L.C. We affirm.
I We begin by reviewing the most pertinent facts and procedural history. In 1997, First Connecticut Holding Group-1 (FCHG-1)*fn1, a corporation controlled by James Licata, owned a building in Newark known as 555 Elizabeth Avenue (the premises). In December 1997, Titan loaned FCHG-1 $2 million. Because the premises was already encumbered with an existing mortgage from Transatlantic Capital Company, L.L.C. (Transco), the terms of which prohibited junior encumbrances, Titan could not secure its loan with a mortgage on the premises. Instead, Titan required FCHG-1 and Licata to sign a negative pledge agreement, which precluded FCHG-1 from selling or transferring its assets or from incurring any additional indebtedness beyond the Transco mortgage. The first page of the negative pledge agreement stated in large underlined letters that "THIS INSTRUMENT IS NOT A MORTGAGE AND DOES NOT CREATE A MORTGAGE LIEN ON THE SUBJECT PREMISES IDENTIFIED BELOW." Titan also obtained a deed to the premises to be held in escrow against the event of default. Titan recorded the negative pledge agreement.
On October 20, 1998, after FCHG-1 defaulted on the note, Titan filed a complaint against Licata, FCHG-1 and others, to collect the note and enforce the negative pledge. At the same time, by order to show cause, Titan obtained temporary possession of the building. After FCHG-1 filed a motion to recover possession, Judge Fuentes ruled, on January 28, 1999, that the escrow deed provisions of the negative pledge agreement were unenforceable. He entered an order dated February 17, 1999, in which he returned title to FCHG-1, but appointed a rent receiver, and prohibited Licata and FCHG-1 from "selling or otherwise further encumbering the Premises."
On April 14, 1999, Judge Fuentes entered an order reciting his conclusions that "the 'Negative Pledge Agreement' attached to Plaintiffs' Verified Complaint . . . is not a mortgage and created no security interest in the Premises," and "plaintiffs have no title or current lien interest in or to the Premises." He also declared that "those provisions of the Negative Pledge Agreement that in any way operate to divest defendant FCHG-1 of its title to the Premises are VOID as being in contravention of the statutes and public policy of this state."
In June 1999, FCHG-1 filed a motion seeking to discharge the receiver and seeking court approval to refinance the premises. On June 24, 1999, Judge Fuentes approved the re-financing of the mortgage. In connection with that approval, he declined to order that FCHG-1 pay off the Titan loan as part of the refinancing. Addressing Titan through its attorney, he stated:
[Y]ou're in an insecure position . . . .
You have a loan with the defendants . . . and you have a claim.
You have a verified complaint and you're proceeding like any other debt creditor . . . . And if you do get a judgment in your favor, then that constitutes or may constitute a lien on the property.
Right now you don't have that.
The closing of the re-financing of the property took place on August 19, 1999. In connection with the re-financing, FCHG-1 transferred the property to Bel Air Holdings, L.L.C. (Bel Air), another corporation controlled by Licata. According to FCHG-1, the mortagee, First Bank, required the transfer as a condition of extending the loan.
Upon discovering that the property had been transferred, Titan sought and received leave to file an amended complaint against Licata, Bel Air, and First Bank in Essex County. Titan also filed an order to show cause seeking to set aside the transfer, claiming that it was done in violation of the court's February 17, 1999 order which prohibited the parties from "selling or otherwise further encumbering the Premises." At a hearing on January 31, 2000, Judge Fuentes denied that relief, ruling that the transfer of title did not violate the court's February 17, 1999 order, although it violated the specific terms of the negative pledge agreement. However, he ordered that Bel Air not further transfer or encumber the property.
Subsequently, the First Bank mortgage went into default and First Bank filed a foreclosure action in Essex County on August 30, 2001. Titan moved to intervene in that action. The trial court denied the motion, but we reversed that order on appeal. First Bank & Trust Co. v. Titan Mgmt., L.P., No. A-2064-01 (App. Div. Feb. 25, 2003). Significantly, in our decision we rejected Titan's claim that it had an interest in the property and hence could intervene in the foreclosure as of right under R. 4:33-1. We concluded that
Titan did not have "an interest relating to the property" which is the subject of the foreclosure . . . . The decision by Judge Fuentes declining to enforce the NPA renders Titan an unsecured creditor. In short, Titan had no interest in the real property.
[Id. at 6-7.]
However, we held that Titan was entitled to permissive intervention to protect its claims that the transfer to Bel Air violated the Uniform Fraudulent Transfer Act (UFTA), N.J.S.A. 25:2-20 to -34, and that pursuant to Titan's contractual rights under the Negative Pledge Agreement, Bel Air had no right to acquire title to the premises or to mortgage the property. On the latter theory, we held that Titan could challenge the validity of the First Bank mortgage. Id. at 7-9. We also concluded that the transfer to Bel Air did not violate the February 17, 1999 order, because Judge Fuentes had "revoked that provision of the February 17, 1999 order by approving the refinance." Id. at 10. Finally, we held that Titan's complaint against FCHG-1, Licata and others for breach of contract and fraudulent conveyance, should be consolidated with the foreclosure action.
Thereafter, the foreclosure action proceeded, but prior to consolidation, Licata and FCHG-1 filed for bankruptcy.*fn2
Nonetheless, at the end of 2004, Titan, Bel Air and First Bank engaged in discovery in the foreclosure action; Titan obtained First American's files and took depositions of its representatives.
On August 18, 2005, one day before the longest arguable statute of limitations would expire on a claim based on the August 19, 1999 re-financing,*fn3 Titan filed a complaint against First American and Heritage (herein collectively referenced as
"First American")*fn4 in Burlington County. In an opinion of November 9, 2005, Judge Hogan granted First American's motion for summary judgment, concluding that Titan was collaterally estopped from asserting a claim against the title insurer because of the several prior court rulings that Titan had no interest in the property and hence First American had no obligation to include the NPA in its title policy.
At the request of both parties, we take notice of the most recent proceedings in the Essex County foreclosure case, although they occurred after entry of the summary judgment order giving rise to this appeal. On April 4, 2006, Judge Vichness entered an order granting summary judgment dismissing with prejudice Titan's challenge to the validity of the mortgage. He concluded that there were "no legal or equitable grounds to invalidate the mortgage . . . or to require the retransfer of title to the Property by Bel Air to FCHG-1." The order, however, did not dismiss Titan's claims for money damages based on allegations that the transfer of the property was in violation of the negative pledge and made to defraud a creditor.
Our review of Judge Hogan's grant of summary judgment in this matter is de novo, employing the Brill standard. Agurto v. Guhr, 381 N.J. Super. 519, 525 (App. Div. 2005); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). After reviewing the record, we conclude that summary judgment was properly granted.
Titan has variously characterized its claim as based on First American's "complicity in the wrongful transfer of the Premises from First Con-1 [FCHG-1] to Bel Air," and as based on negligence. ("Had the Title Company done its job properly and read more of the Negative Pledge Agreement than the line across the top of the face page [declaring that it was not a mortgage], it would have recognized that First Con-1 lacked the authority to transfer title . . . ."). But the essence of Titan's complaint was that First American should have listed the negative pledge as an exception to its title report and commitment for title insurance, which in turn would allegedly have caused the Bank either to refuse to extend the loan or to demand Titan's consent or a court order. Instead, according to the complaint, First American omitted the negative pledge as an exception, conditioned on receipt of an indemnification agreement from Licata and his corporations. The complaint alleges that First American was negligent in concluding that the negative pledge "was not a matter affecting title to the [Premises]," or that it intentionally omitted "any reference to the Negative Pledge Agreement from the title report and commitment issued to the Bank."
As Judge Hogan noted in his opinion, there are significant obstacles to Titan's claim. Judge Fuentes approved the re-financing of the property. He also later held that the transfer of the property to Bel Air did not violate his order precluding sale of the property. He, and we in our 2003 opinion in the foreclosure case, also concluded that the negative pledge was not a mortgage and did not give Titan an interest in the property. Principles of collateral estoppel prevent Titan from re-litigating those issues, see N.J. Mfrs. Ins. Co. v. Brower, 161 N.J. Super. 293, 297-98 (App. Div. 1978), and Titan does not claim a right to re-visit those issues here.
This brings us to the questions to which Titan has produced no satisfactory answers. What did First American do wrong here? Or, put more precisely, what duty did First American have to Titan in issuing a title policy to First Bank? At oral argument, Titan's counsel admitted that Titan relies entirely on Banco Popular N. Am. v. Gandi, 184 N.J. 161 (2005), to support its claim against First American.
In Banco Popular, the plaintiff bank alleged "a conspiracy cause of action" against an attorney "for encouraging [his client] to violate the UFTA and for assisting him in transferring assets to avoid a creditor." Id. at 178. The complaint alleged that the attorney actually "counseled" his client "to transfer his assets to defraud a creditor" as part of an "agreement to further" the client's fraudulent purpose. Ibid. Given those allegations, we held that the complaint stated a cause of action under UFTA. Ibid. Significantly, we also held that the bank could not pursue a claim of negligent misrepresentation with respect to the asset transfer, because the attorney had no professional duty to the bank with respect to the advice he gave his client. Id. at 182. See also Petrillo v. Bachenberg, 139 N.J. 472, 483 (1995). We also held, however, that the bank could pursue a claim against the attorney for negligent misrepresentation with respect to his issuance of an opinion letter to the bank, because he could have reasonably foreseen that the bank would rely upon it. Banco Popular, supra, 184 N.J. at 183.
We conclude that Banco Popular does not support Titan's claim. Even viewing the allegations of the complaint indulgently for purposes of a motion to dismiss, ibid., we bear in mind that fraud must be pled with specificity. R. 4:5-8(a).
Looking beyond its vague and conclusory allegations, the complaint does not state specific facts which could support a finding that First American intentionally acted to defraud Titan as a creditor or to assist in such fraud. The complaint fundamentally sounds in negligence and, as such, it fails under Banco Popular. As we held in Banco Popular, negligence is not sufficient to create a cause of action for conspiracy to violate the UFTA. "An unwitting party may not be liable under a conspiracy theory." Id. at 178. Moreover, that case provides no basis here to extend the professional duty of a title insurer to a third party such as Titan, as opposed to its professional duty to its client, First American. See id. at 182.
Further, as First American's brief asserts, and Titan's reply brief does not deny, this case was decided on a motion for summary judgment, because the parties placed before the court matters outside the pleadings. R. 4:6-2. That evidence included the transcript of Titan's deposition of First American's representative, Laurence Usignol. He testified as to the basis for his determination not to include in the title policy an exception for the negative pledge:
That decision would have been based on a combination of factors. Certainly the plain statement in the Negative Pledge Agreement that it was not a mortgage was very persuasive. The statement it was not a mortgage lien was persuasive. The fact that the Court had rendered a decision that it was not a mortgage was persuasive. And the offer of the party First Connecticut and Mr. Licata to give an indemnity to support those earlier things, was all part of the package in deciding that this was a risk we would be willing to assume.
Usignol also explained that the indemnity agreement was "a typical form of indemnity agreement that my office will use in an appropriate case in order to assume a title insurance risk based on an indemnification from an outside party." The record is devoid of evidence that First American's conduct was outside the standard of care expected of a title company in this situation. In its brief, Titan has not referred to any legally competent evidence that it produced to the trial court, or that it in good faith believed it would be able to produce, to counter Usignol's entirely cogent and legitimate explanation. A Banco Popular claim against First American must be based on something more than a speculative hope of locating another potential deep pocket from which to recover.
We also comment briefly on the procedural impropriety of filing a separate complaint against First American in Burlington County. At the time this complaint was filed, Titan already had a massive, and very old, complaint pending in Essex County against all parties other than First American that were involved in the re-financing. If Titan believed that First American was involved in the alleged fraudulent transfer, the proper procedure was to file a motion to amend its Essex County complaint to add a defendant. See R. 4:28-1; R. 4:29-1. If necessary, that motion might have been preceded by an application to the Bankruptcy Court seeking permission to make the filing. Of course, the motion to amend would doubtless have required Titan to explain to the Essex County judge why it waited nearly six years to attempt to add a defendant to the action and to demonstrate at least some prima facie merit to the proposed amendment. In light of the foregoing discussion of Banco Popular, we conclude that Titan could not have justified amending the complaint to add First American.
As we concluded in our earlier decision, Titan had the right to challenge the validity of the First Bank mortgage in the context of the foreclosure case. Furthermore, if Titan had prevailed in that action, First American might have been liable to its insured. See Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 116 N.J. 517, 535-36 (1989) (discussing the distinction between title insurer's contractual liability under its title policy versus its possible tort liability if it separately undertakes to produce a title abstract for the client). But First American's alleged negligence in failing to note the negative pledge in its title policy does not give Titan a cause of action against First American. In fact, absent an undertaking to produce a separate title search, as opposed to merely issuing title insurance based upon a title search, First American would not even have tort liability to First Bank for failing to note the negative pledge.*fn5 Ibid. We note the complaint does not allege that First American separately contracted to produce a title search. And, given the outcome of the foreclosure case, it is clear that First American was correct in its conclusion that the negative pledge was not a cloud on title, because the trial court dismissed Titan's objections to the foreclosure.
Finally, addressing First American's cross-appeal, we will not disturb the trial judge's decision to deny First American's application for counsel fees under R. 1:4-8. We defer to his conclusion that, while Titan was making a novel legal argument in seeking to expand the holding in Banco Popular to cover this situation, the complaint was not filed in bad faith. See PortO-San Corp. v. Teamsters Local Union No. 863, 363 N.J. Super. 431, 440 (App. Div. 2003) (recognizing "that both the frivolous claims statute and the signature rule must be interpreted restrictively so as not to discourage creative advocacy"). Further, while we conclude that the complaint should not have been filed in Burlington County, Titan's counsel did offer a colorable explanation for the filing, and counsel disclosed the pending Essex County action in a certification attached to the complaint. It also is not clear from First American's submissions that Titan's filing the complaint in Burlington County, as opposed to Essex County, caused First American any additional expense.