Fidelity National Title Insurance Company v. Wooden et al

Filing 48

MEMORANDUM OPINION and ORDER GRANTING 31 Smartbank's motion to dismiss the claims against it as to Count III, which is DISMISSED WITHOUT PREJUDICE, and DENIED as to Counts IV and V ; Smartbank's motion for extension of time to file its initial disclosures, 46 , is MOOT. Signed by Judge Abdul K Kallon on 05/23/2017. (KBB)

FILED
2017 May-23 AM 09:49
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
NORTHEASTERN DIVISION
FIDELITY NATIONAL TITLE
INSURANCE COMPANY,
Plaintiff,

v.
TRACY C. WOODEN and KRISTI
WOODEN and SMARTBANK f/k/a
CORNERSTONE COMMUNITY
BANK,
Defendants.

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Civil Action Number
5:16-cv-00844-AKK

MEMORANDUM OPINION AND ORDER
Fidelity National Title Insurance Company filed this action against Tracy
and Kristi Wooden and Smartbank,1 seeking legal and equitable relief related to a
title policy it issued to the Woodens. Federal jurisdiction is premised upon the
diversity statute.

28 U.S.C. § 1332(a)(1).

Relevant here, in its amended

complaint, Fidelity asserts three claims against Smartbank:

indemnification

(Count III), breach of contract (Count IV), and breach of warranty (Count V). See
doc. 16. The court has for consideration Smartbank’s motion to dismiss pursuant
to Federal Rules of Civil Procedure 12(b)(6) and 12(b)(1). The motion is fully

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Smartbank was formerly known as “Cornerstone Community Bank.” Although Fidelity
sometimes refers to Smartbank by its previous name of “Cornerstone,” for purposes of clarity,
the court will uniformly refer to defendant as “Smartbank.”

briefed, docs. 31-1; 33; 36, and ripe for review. Upon consideration, the court
concludes that the motion is due to be granted as to Count III and denied as to
Counts IV and V.
I.

STANDARD OF REVIEW

Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain “a
short and plain statement of the claim showing that the pleader is entitled to relief.”
“[T]he pleading standard Rule 8 announces does not require ‘detailed factual
allegations,’ but it demands more than an unadorned, the-defendant-unlawfullyharmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Mere “labels and conclusions”
or “a formulaic recitation of the elements of a cause of action” are insufficient.
Iqbal, 556 U.S. at 678 (citations and internal quotation marks omitted). “Nor does
a complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual
enhancement.’” Id. (citing Twombly, 550 U.S. at 557).
Federal Rule of Civil Procedure 12(b)(6) permits dismissal when a
complaint fails to state a claim upon which relief can be granted. “To survive a
motion to dismiss, a complaint must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 678
(citations and internal quotation marks omitted). A complaint states a facially
plausible claim for relief “when the plaintiff pleads factual content that allows the
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court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Id. (citation omitted). The complaint must establish “more
than a sheer possibility that a defendant has acted unlawfully.” Id.; see also
Twombly, 550 U.S. at 555 (“Factual allegations must be enough to raise a right to
relief above the speculative level.”). Ultimately, this inquiry is a “context-specific
task that requires the reviewing court to draw on its judicial experience and
common sense.” Iqbal, 556 U.S. at 679.
II.

FACTUAL BACKGROUND 2

Smartbank acquired a deed to a 635-acre property at a foreclosure sale. Doc.
16 at 3. The foreclosure deed included all but one lot within the property, known
as “Lot 5,” which the previous owner had transferred to a third party prior to the
foreclosure sale. Id. After acquiring the deed, Smartbank entered into a contract to
sell the property to the Woodens.

Id.

The contract stated that the current

placeholder legal description of the property “would be replaced with a title
company’s legal description upon completion of the title examination.” Doc. 16-4
at 7. Three weeks after the execution of the sales contract, a third party drafted a

2

The plaintiff’s allegations are presumed true for purposes of Fed. R. Civ. P. 12(b)(6).
As such, the facts are taken from the amended complaint, doc. 16. See Grossman v.
Nationsbank, N.A., 225 F.3d 1228, 1231 (11th Cir. 2000) (quoting GSW, Inc. v. Long Cnty., 999
F.2d 1508, 1510 (11th Cir. 1993)) (“When considering a motion to dismiss, all facts set forth in
the plaintiff’s complaint ‘are to be accepted as true and the court limits its consideration to the
pleadings and exhibits attached thereto.’”). However, legal conclusions unsupported by factual
allegations are not entitled to that assumption of truth. See Iqbal, 556 U.S. at 662.
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description of the property that mistakenly included Lot 5. Doc. 16 at 3. As a
result, when Smartbank conveyed the property to the Woodens by special warranty
deed, the deed included Lot 5. Id. at 4.
After obtaining the warranty deed, the Woodens purchased a title insurance
policy from Fidelity. Id. The policy incorporated by reference both the property
description in the foreclosure deed to Smartbank (which did not include Lot 5) and
the property description in the special warranty deed to the Woodens (which did
include Lot 5).

Id.

When it discovered the mistake, Fidelity presented the

Woodens with a corrective instrument to reform the special warranty deed, but the
Woodens refused to sign it. Id. at 5. Fidelity alleges that this “latent ambiguity” in
the title insurance policy was due to mutual mistake, and concedes that Smartbank
“never made any representations . . . that it owned or intended to convey Lot 5 to
the Woodens.” Id. at 4.
III.

ANALYSIS

The court turns now to Smartbank’s contention that the three claims against
it are due to be dismissed.
A. Indemnification (Count III)
Fidelity asserts that, to the extent that the court rules against it and deems the
Woodens covered with regard to Lot 5, the court should require Smartbank to
indemnify Fidelity for “all coverage proceeds, damages, and attorneys’ fees
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incurred and/or paid.” Doc. 16 at 8. In its motion to dismiss, Smartbank argues
under Rule 12(b)(6) that the indemnification claim is barred by the statute of
limitations or, alternatively, a lack of ripeness argument under Rule 12(b)(1). Doc.
31-1 at 10–11. The contention regarding the statute of limitations is unavailing
because the statute on the indemnification claim would begin to run only when
Fidelity sustained a legal injury, which, in this case, would be Fidelity’s payment
of a claim regarding Lot 5. See Ala. Code § 6-5-221 (1975) (a cause of action
accrues “when a person is injured”); Smith v. Pitts, 52 So. 402, 403 (Ala. 1910) (a
surety’s cause of action against a principal does not accrue until the surety has paid
the debt of the principal); Matthews Bros. Constr. Co. v. Stonebrook Devs., L.L.C.,
854 So. 2d 573, 580 (Ala. Civ. App. 2001) (indemnification claims “generally do
not accrue for the purpose of the Statute of Limitations until the party seeking
indemnification has made payment to the injured person”) (citations and internal
quotation marks omitted). For the same reason, however, because Fidelity has not
paid any claim regarding Lot 5, the court agrees with Smartbank’s alternate
argument that the indemnification claim is not ripe.

Accordingly, Fidelity’s

indemnification claim is due to be dismissed, without prejudice, pursuant to Rule
12(b)(1).

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B. Breach of Contract (Count IV)
Fidelity also claims that Smartbank breached the July 1, 2010 sales contract
when it represented and warranted that it had “good and marketable title” to the
property — specifically, Lot 5. Doc. 16 at 9 (citing doc. 16-4 at 3). In its initial
brief, Smartbank argues, in part, that the contract became unenforceable pursuant
to the “merger doctrine,” when the parties executed the special warranty deed. See
doc. 31-1 at 8. However, Fidelity argues in opposition, and Smartbank apparently
concedes, see doc. 36, that the merger doctrine is inapplicable. See docs. 33 at 3;
1-4 at 3 (stating that the sales contract expressly provided that “[t]he
representations of Seller shall survive the closing”).
Smartbank argues alternatively that the court should dismiss the breach of
contract claim because it did not purport to include Lot 5 in the “Property” it sold
to the Woodens. Doc. 31-1 at 8–9.

Although Fidelity concedes this point, it

counters by arguing that “the incorporated legal description, i.e. the Special
Warranty Deed, included Lot 5.” Doc. 33 at 10. Unfortunately for Fidelity, under
Alabama law, an external document must exist at the time of the contract’s
execution in order to incorporate it by reference into the property description for a
sales contract. Nix v. Wick, So. 3d 209, 213–14 (Ala. 2010). This was not the case
here, and, as Smartbank points out in its reply, “the ‘to be determined’ legal
description results in an unenforceable contract” under Alabama’s Statute of
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Frauds, absent any applicable exception. Doc. 36 at 6. Indeed, the Alabama
Supreme Court has stated that a contract for the sale of land “must describe the
land[] with such certainty that [it] can be identified without resorting to oral
evidence.” Shannon v. Wisdom, 55 So. 102, 103 (Ala. 1911); Nix, 66 So. 3d at
213; Goodwyn v. Jones, 257 So. 2d 320, 323 (Ala. 1971); Dozier v. Troy Drive in
Theatres, Inc., 89 So. 2d 537, 541 (Ala. 1956). The certainty did not exist here at
the time of the sale because a third party drafted the property description for the
sales contract three weeks after the parties executed the sales contract. See doc. 16
at 3. As a result, the contract failed to sufficiently describe the subject property
under Alabama law.
There is an applicable exception, however:

specifically, “the purchase

money, or a portion thereof [was] paid and the purchaser [was] put in possession of
the land by the seller.” See Ala. Code § 8-9-2(5) (1975). See also Keller v.
Security Federal Sav. & Loan Ass’n, 555 So. 2d 151, 156 (Ala. 1989) (“In order to
satisfy the requirements of the exception [past performance], the possession must
be exclusively referable to the contract in issue.”) (citations omitted, alteration and
emphasis in original).

It is undisputed that the parties completed the sales

transaction, and the Woodens now possess the property. See doc. 31-1 at 2 (“The
Subject Property was conveyed to the Woodens by Special Warranty Deed on
October 14, 2010.”). Moreover, there is no indication that the Woodens came into
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possession of the property by any means other than their contract with Smartbank.
Therefore, the contract claim (Count IV) survives.
C. Breach of Warranty (Count V)
Fidelity pleads a breach of warranty based on Smartbank’s purporting to
convey good and marketable title to Lot 5. Doc. 16 at 9–10. The parties disagree
about whether the property was conveyed by special warranty deed, as Smartbank
contends, doc. 31-1 at 5–6, or general warranty deed, as Fidelity claims, see doc.
33 at 7–8. The type of deed matters in light of the parties’ agreement that a third
party, who owned the property prior to Smartbank, sold Lot 5 and separated that
parcel from the property.

Significantly, a general warranty deed expressly

covenants not only against acts of the present grantor but also against acts of
previous grantors, and a special warranty deed only covenants against acts of the
present grantor. St. Paul Title Ins. Corp. v. Owen, 452 So. 2d 482, 485 (Ala.
1984).
The deed states that Smartbank “grant[s], bargain[s], sell[s] and convey[s]”
the property unto the Woodens, and that, “during the period of time [Smartbank]
has held title to said property that same is free from all encumbrances . . . .” Doc.
16-6 at 2. Honing-in on the Owen Court’s iteration that Alabama law construes
“all conveyances of estates in fee where the words ‘grant, bargain, and sell’
appear” as containing “a covenant of seizin; a covenant against encumbrances; and
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a covenant of quiet enjoyment,” 452 So. 2d at 485 (citing Ala. Code § 35-4-271
(1975)), Fidelity argues that the deed is one of general warranty, the assurances of
which extend to the previous owner’s sale of Lot 5. Doc. 33 at 8. Because this
matter is before the court on a motion to dismiss, although Smartbank asserts that
the deed is a special warranty deed because it explicitly limits these covenants to
“the period of time [Smartbank] has held title to said property,” see doc. 16-6 at 2,
the court will allow this claim to proceed at this juncture so that it can have the
benefit of additional discovery and briefing on this issue.
IV. CONCLUSION AND ORDER
For the reasons stated above, Smartbank’s motion to dismiss the claims
against it is GRANTED as to Count III, which is DISMISSED WITHOUT
PREJUDICE, and DENIED as to Counts IV and V.
Smartbank’s motion for extension of time to file its initial disclosures, doc.
46, is MOOT.
DONE the 23rd day of May, 2017.
_________________________________
ABDUL K. KALLON
UNITED STATES DISTRICT JUDGE

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