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Republic First Bank v. First American Title Insurance Company

December 20, 2010

REPUBLIC FIRST BANK, PLAINTIFF,
v.
FIRST AMERICAN TITLE INSURANCE COMPANY, ET AL., DEFENDANTS.



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

OPINION

Presently before the Court is the motion of defendants for summary judgment on plaintiff's claim that defendants breached the parties' title insurance contract. For the reasons expressed below, defendants' motion will be granted.

BACKGROUND

This case concerns one aspect of a Ponzi-like scheme the now-bankrupt Mitchell Deutsch allegedly perpetrated on numerous creditors for the purchase of land, businesses, and personal items.

(See Def. Ex. 1.) Prior to this alleged scheme being discovered, plaintiff Republic First Bank ("RFB") made several loans to Deutsch or his corporate entities. At issue in this case are the loans RFB made to Oceans Below Properties, LLC, which consisted of Deutsch and one other individual member.

In June 2005, RFB loaned Oceans Below the first of two payments totaling $4.8 million*fn1 to purchase what the parties refer to as the Pier One Properties located in Toms River, New Jersey. As security for the loan, Oceans Below executed a mortgage to RFB on Pier One. Pier One consisted of two tracts of land, one owned by Ernest Napolitano and the other owned by Double N, Inc., a company owned by Napolitano.

At the closing of the loan on June 30, 2005, three important transactions occurred: (1) Napolitano conveyed the deed to his tract to Oceans Below, which were subsequently recorded in Ocean County, New Jersey; (2) Oceans Below acquired all of the capital stock of Double N from Napolitano; and (3) defendant First American Title Insurance Company ("First American"), through its title insurance agent, General Land Abstract,*fn2 issued a title commitment that insured that the Oceans Below mortgage was an effective first lien on Pier One. One transaction that did not occur, and which now serves as the basis for RFB's claim against First American, was Double N's conveyance of the deeds for its land tract to Ocean Below.

At some point in July 2005, First American's title insurance agent suggested to Oceans Below's counsel that a Confirmatory Deed of Consolidation be made describing both the Napolitano and Double N tracts, which were all now owned by Oceans Below. That Confirmatory Deed was recorded in August 2005.

On November 4, 2005, RFB loaned Oceans Below additional funds with regard to the Pier One properties, and First American issued a second title commitment. In that commitment, it is indicated that Oceans Below received title in the Napolitano tracts on June 30, 2005, and in the Double N tracts through the Confirmatory Deed.

In late 2006, RFB investigated accepting a second mortgage on Pier One, subordinate to its first mortgage on the property, to secure payment from Deutsch on another loan RFB had previously made to him to purchase a car wash, which Deutsch was looking to short sell. For that second mortgage, RFB obtained a title commitment from another title insurance company that noted that although the Confirmatory Deed with regard to the Double N properties had been recorded, no specific deed for those tracts had been recorded. RFB did not alert First American to this issue, and otherwise did not take any action to rectify the perceived problem.*fn3 The short sale, and second mortgage, were never consummated.

In July 2007, Oceans Below defaulted on the Pier One loans. On August 20, 2007, RFB filed a complaint in foreclosure against Oceans Below in this District.*fn4 At that time, Oceans Below owed RFB almost $5 million.

In connection with filing the foreclosure action, RFB's counsel, who is different from RFB's counsel for the car wash short sale, discovered through a title search that although the Confirmatory Deed appears, the title search note states that the deed for the Double N tracts remains in Double N's name, and that deed had been recorded in 1960. On August 28, 2007, RFB informed First American of the purported title defect and possible implication of the title insurance policy. On September 7, 2007, RFB obtained a mortgage from Double N (which was now owned by Deutsch) on the Double N tracts. That mortgage was recorded on September 11, 2007.

On December 3, 2007, Double N filed for bankruptcy. Double N listed the Double N tracts as an asset of its bankruptcy estate. The trustee, however, challenged the priority of the Double N mortgage since it was given less than 90 days from the bankruptcy filing.*fn5

In February 2008, RFB filed the instant suit against First American in the Philadelphia Superior Court. The case was removed to the Eastern District of Pennsylvania, and then transferred here in May 2008, on the premise that the case should be heard in the same ...


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