Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

New Jersey Lawyers' Fund for Client Protection v. Stewart Title Guaranty Co.

August 2, 2010

NEW JERSEY LAWYERS' FUND FOR CLIENT PROTECTION, PLAINTIFF-RESPONDENT,
v.
STEWART TITLE GUARANTY CO., DEFENDANT-APPELLANT, AND ATLANTIC TITLE AGENCY, INC., AND RICHARD PIZZI, DEFENDANTS.



On certification to the Superior Court, Appellate Division, whose opinion is reported at 409 N.J. Super. 28 (2009).

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

This appeal presents the question of whether the title insurance company in a real estate transaction is responsible for an attorney's theft of his clients' funds from his attorney trust account. In this case, the attorney misappropriated the funds before the title company became involved in the transaction.

In January 2004, Stuart and Susan Goodman (the Goodmans) sold their home in Bedminster and received approximately $325,000 in net proceeds. Richard Pizzi, a local lawyer who had represented the Goodmans in other transactions, represented them in that closing. The Goodmans, who were going to close soon on a new residence in Somerset and apply the proceeds of the sale to the Somerset purchase, instructed Pizzi to disburse $50,000 of the proceeds to them and to hold the balance in his trust account pending the closing on the Somerset property.

Pizzi ordered title insurance for the Somerset property on May 19, 2004, using the services of Atlantic Title Agency (Atlantic Title), agent for Stewart Title Guaranty Company (Stewart Title). Atlantic Title mailed Pizzi a Commitment for Title Insurance on May 25, 2004. The Commitment contained among its terms a notice and disclosure to the purchasers that stated that the attorney closing title on the property was not the agent of the title company and that the title company assumed no liability for any loss caused by the attorney's mistake or misapplication of funds. The Commitment was sent only to Pizzi as attorney for the Goodmans; Atlantic Title assumed Pizzi would share its terms with his clients. Atlantic Title never dealt directly with the Goodmans through the date of closing, June 1, 2004. No representative of Atlantic Title or Stewart Title attended the closing.

As closing attorney, Pizzi was responsible for making all required distributions and payments from the closing funds. He issued a number of checks from his trust account for this purpose, but some were dishonored and soon the Goodmans learned that the check that had been issued to pay off the seller's mortgage was returned for insufficient funds. Pizzi had misappropriated all or most of the money he had been holding for the Goodmans, which was in excess of $300,000, and he had done so prior to the date on which he ordered title insurance.

The Goodmans filed an unsuccessful claim with Stewart Title to cover their loss and thereafter filed a claim with the New Jersey Lawyers' Fund for Client Protection (Fund), which was established by the Supreme Court to reimburse clients for losses caused by the dishonesty of attorneys. The Fund awarded the Goodmans a total of $307,456, and after receiving an assignment of the Goodmans' rights, attempted to obtain reimbursement from others, including Stewart Title. Stewart paid the Fund $20,000 without conceding liability. The Fund sued Pizzi, Stewart Title and Atlantic Title (together, Title Company) in Superior Court. The court granted summary judgment in favor of the Title Company, finding that the agency relationship between Pizzi and the Title Company was created after Pizzi had taken the money, and that it would be unfair to hold the Title Company responsible for Pizzi's dishonest conduct because it had no control over him at the time he took the money.

The Lawyers' Fund appealed, and in a published opinion, the Appellate Division reversed. The court relied on Sears Mortgage Corp. v. Rose, 134 N.J. 326 (1993) and held that because the Title Company's notice and disclaimer form was not sent directly to the Goodmans, the agency relationship between the Title Company and Pizzi continued and the Title Company was liable to the Goodmans. The Supreme Court granted Stewart Title's petition for certification.

HELD: No agency relationship existed between the title company and the attorney who misappropriated the clients' funds at the time the misappropriation occurred; the title company is not liable for the misappropriation.

1. In Sears, the Court considered the relationships among a client, the closing attorney, and the title insurance company to determine which party should bear the loss caused by the closing attorney's theft of funds designated to satisfy existing obligations on the property. The attorney had misappropriated the purchaser's funds after the closing. The Court held in Sears that a closing attorney designated as the "approved attorney" by the title insurer served in a dual capacity as an agent for both the purchaser and the title insurance company, so responsibility for the attorney's theft of funds at closing should be borne by the insurer, which exercised greater control over the attorney and was in a better position to avoid the loss. ( pp. 11-14 ).

2. A court must examine the totality of the circumstances to determine whether an agency relationship existed in a situation in which the principal did not have direct control over the agent. Here, the Goodmans gave their money to Pizzi in January 2004 and by the time Pizzi ordered the title insurance for the Goodmans in May, he already had misappropriated their funds. Prior to Pizzi's contact with the Title Company, there was no agency relationship between them. It cannot be said that the Goodmans relied on Pizzi as a representative of the Title Company and the Title Company never represented to the Goodmans that Pizzi had actual or apparent authority to act on its behalf. (pp.14-16).

3. When Pizzi applied for title insurance and the Title Company mailed its standard notice and disclaimer to Pizzi, the Title Company was not in a position to prevent the Goodmans' loss for the theft already had occurred. Because the theft occurred before the agency relationship between Pizzi and the Title Company was formed, the Title Company is not liable for Pizzi's misappropriation. ( p.16 ).

The judgment of the Appellate Division is REVERSED and the matter is REMANDED to the trial court to reinstate the judgment in favor of the Title Company.

CHIEF JUSTICE RABNER and JUSTICES LONG, LaVECCHIA, ALBIN, RIVERA-SOTO, and HOENS join in JUSTICE WALLACE's opinion.

The opinion of the court was delivered by: Justice Wallace, Jr.

Argued March 8, 2010

In this case, we must determine whether the title insurance company in a real estate transaction is responsible for an attorney's theft of his clients' funds from the attorney's trust account. After the unauthorized removal of the clients' funds, the attorney ordered title insurance and the real estate closing took place. The checks written from the attorney's trust account to cover the costs related to the closing were dishonored. The title company refused to honor the clients' claim, and the clients were forced to pay the deficiency. Subsequently, the Lawyers' Fund for Client Protection (Lawyers' Fund) reimbursed ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.