Houston Specialty Insurance Company v. Titleworks of Southwest Florida, Inc. et al

Filing 149

OPINION & ORDER sua sponte affording Plaintiff the opportunity to file a Third Amended Complaint, solely for the purpose of alleging a "prior knowledge of Wrongful Act" theory; denying as moot without prejudice to refile 114 118 [13 3] 135 all pending summary judgment motions. Limited discovery and an opportunity to file renewed motions for summary judgment will be provided. New dates for the previously-cancelled deadlines, including for limited discovery and the filing of new dispositive motions, will be set by separate order. See Order for details. Signed by Judge John E. Steele on 6/15/2017. (KP)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
FORT MYERS DIVISION
HOUSTON SPECIALTY INSURANCE
COMPANY,
Plaintiff,
v.

Case No: 2:15-cv-219-FtM-29MRM

TITLEWORKS
OF
SOUTHWEST
FLORIDA,
INC.,
MIKHAIL
TRAKHTENBERG, and WESTCOR
LAND
TITLE
INSURANCE
COMPANY,
Defendants.
OPINION AND ORDER
This matter comes before the Court on review of the four
pending motions for summary judgment (Docs. ## 114, 118, 133, 135).
For the reasons that follow, the Court denies the summary judgment
motions as moot without prejudice to refile and, in the interest
of justice, affords Plaintiff the opportunity to file a Third
Amended Complaint, subject to the limitations set forth below.
I.
This is a declaratory judgment action arising out of a dispute
over a “prior knowledge” exclusion contained in a professional
liability

insurance

policy

(the

Policy)

(Doc.

#51-1)

that

Plaintiff Houston Specialty Insurance Company (Houston) issued to
Defendant Titleworks of Southwest Florida, Inc. (Titleworks) in
2014.

Under the Policy, Houston agrees to defend Titleworks

against, and indemnify Titleworks for, “Claims” arising out of

“Wrongful Acts” 1 occurring between August 2, 2005 and August 2,
2015. 2

(Id. p. 7.)

Houston’s obligations are not triggered,

however, if Titleworks had “knowledge of the actual or alleged
Wrongful Act prior to the inception date of th[e] Policy” – August
2, 2014.

(Id.)

Instead, the Policy relieves Houston’s duty to

defend against (and indemnify for) any Claim “arising out of, based
upon, relating to, or attributable to” a Wrongful Act about which
Titleworks

“had

knowledge

prior

to

the

Policy

Period[,]

if

[Titleworks] had a reasonable basis to believe that such Wrongful
Act could give rise to a Claim.”

(Id. pp. 10-11.)

A “Claim” against Titleworks occurred on or around August 14,
2014, when Michael Rich (Titleworks’ President and agent) received
a

copy

of

the

complaint

(Doc.

#51-2)

that

Defendant

Mikhail

Trakhtenberg planned to file against Titleworks in state court
(the Underlying Action) accusing Titleworks of negligent failure
to disclose title defects and breach of fiduciary duty.

According

to the complaint - which was filed on August 22, 2014 - Mr.
Trakhtenberg engaged Titleworks to perform a title search on, and
act as his closing agent for, a piece of real property (the

1

The Policy defines “Claim” as “a written demand received by
[Titleworks] for Damages or non-monetary relief based on any actual
or alleged Wrongful Act.” (Doc. #51-1, p. 8.) A “Wrongful Act”
is “any actual or alleged breach of duty, negligent act, error,
omission or Personal Injury offense committed by an Insured solely
in the performance of, or failure to perform, Professional
Services.” (Id. p. 10.)
2

The Policy Period is August 2, 2014 through August 2, 2015, but
the Policy has a retroactive date of August 2, 2005. (Id. p. 3.)
- 2 -

Property)

Mr.

Trakhtenberg

was

interested

in

purchasing.

Titleworks failed to uncover (and therefore did not disclose)
defects in the Property’s title – namely, multiple judgment liens. 3
Titleworks tendered Houston with a copy of Mr. Trakhtenberg’s
complaint on or about August 29, 2014.
Titleworks

with

a

defense

in

the

Houston has been providing
Underlying

Action

under

a

reservation of rights but now seeks declarations from this Court,
pursuant to 28 U.S.C. § 2201, that (i) “that there is no coverage
for the claims alleged against Titleworks in the Underlying Action
because Titleworks had actual knowledge of the Claim prior to the
Policy Inception date,” and (ii) more generally, that it has “no
obligation to continue to defend Titleworks in the Underlying
Action.”

4

(Doc. #51, ad damnum clause.)

3

These encumbrances subsequently prevented Mr. Trakhtenberg from
closing on an attempted sale of the Property. (Doc. #51-3, p. 4.)
4

Houston also seeks a declaration that it “is under no obligation
to provide a defense or indemnify Titleworks against any claim
brought by Westcor.”
(Doc. #51, ad damnum clause.)
Defendant
Westcor Land Title Insurance Company has a contractual duty to
clear clouded title on the Property, pursuant to the terms of a
title insurance policy (the Westcor Policy) Westcor issued to Mr.
Trakhtenberg.
In accordance with that duty, Westcor is
representing Mr. Trakhtenberg in a separate lawsuit (Doc. #51-4)
that was filed in state court on March 16, 2015 against the
Property’s lienholders, seeking to quiet title to the Property.
A separate agency agreement with Titleworks allows Westcor to
recover from Titleworks any amounts paid in connection therewith.
Westcor thus has an interest in Titleworks’ ability to recover
under the Policy. Seeking to protect that interest, Westcor filed
a one-count counterclaim (Doc. #57) requesting a declaration that
Houston is obligated to indemnify Titleworks for Titleworks’
liability to Trakhtenberg and reimburse Westcor for all amounts
paid as a result of Titleworks’ failure to uncover the liens. No
party has moved for summary judgment on that counterclaim.
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All

parties

now

move

declaratory judgment claim.

for

summary

judgment

on

Houston’s

Houston contends that, prior to

executing the Policy, Titleworks’ knew of a Wrongful Act – the
missed liens – and reasonably believed such Act could give rise to
a claim.

Accordingly, there remains no genuine issue of fact

concerning Houston’s lack of contractual obligation to defend or
indemnify Titleworks.
In seeking summary judgment in their own favor, Defendants
have primarily raised grounds of waiver and estoppel.
waiver,

Defendants

contend

that

the

operative

Second

As to
Amended

Complaint never alleges that Titleworks had “prior knowledge of a
Wrongful Act,” as might excuse Houston’s obligations; rather, the
Complaint alleges only that Titleworks had “prior knowledge of a
Claim.” 5

Regarding estoppel, Defendants assert that Houston’s

“Wrongful Act” theory was already “judicially foreclosed” by way
of the undersigned’s December 6, 2016 Opinion and Order (the
December 6 Order) (Doc. #113) adopting the Magistrate Judge’s
Report (Doc. #108) recommending denial of Houston’s Motion for
Leave to File a Third Amended Complaint (Doc. #99).

Defendants

also argue that, even if Houston can pursue a “Wrongful Act”
theory, genuine issues of material fact prevent summary judgment
on whether the exclusion actually applies.

5

This distinction is important because Titleworks received no
written demand (i.e. “Claim”) from Mr. Trakhtenberg until after
August 2, 2014 and, as such, unquestionably had no “prior
knowledge” of any “Claim.”
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II.
A.

Waiver
It is true that the operative Second Amended Complaint (Doc.

#51) does not expressly allege Titleworks had “prior knowledge of
a Wrongful Act.”

But these specific words were not needed for

Houston to pursue such a theory.

Even in the Twombly/Iqbal era,

“[f]ederal pleading rules call [only] for ‘a short and plain
statement of the claim showing that the pleader is entitled to
relief,’; they do not countenance [penalizing a plaintiff] for
imperfect statement of the legal theory supporting the claim
asserted.”

Johnson v. City of Shelby, 135 S. Ct. 346, 346 (2014)

(per curiam) (quoting Fed. R. Civ. P. 8(a)(2)).
the

pleading

obligation

Rule

8

imposes

is

In other words,

one

of

including

sufficient facts to support a claim, not of alleging all possible
legal theories underlying that claim.

Brisk v. Shoreline Found.,

Inc., 654 F. App'x 415, 417 (11th Cir. 2016) (per curiam) (“A
complaint need not specify in detail the precise theory giving
rise to recovery.” (citing Sams v. United Food & Comm'l Workers
Int'l Union, 866 F.2d 1380, 1384 (11th Cir. 1989))).

All that

Rule 8 requires “is that the defendant be on notice as to the claim
being asserted against him and the grounds on which it rests.”
Id.; see also Hamilton v. Allen-Bradley Co., Inc., 244 F.3d 819,
825

(11th

Cir.

2001)

(observing

that

a

complaint

need

only

“outline[] sufficient facts to put [the defendant] on notice of [a
particular] claim,” not contain any “specific words”).

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The

allegations

Complaint

provide

contained

sufficient

in

notice

Houston’s
of

Second

both

Amended

Houston’s

claim

(declaratory judgment, based on a lack of contractual obligation
to defend or indemnify Titleworks/Westcor pursuant to the Policy’s
“prior knowledge” exclusion 6) and the ground on which that claim
rests (a July 2014 phone call between Mr. Trakhtenberg and Mr.
Rich regarding the missed encumbrances). 7

Accordingly, the Court

rejects Defendants’ contention that the “Wrongful Act” theory is
not appropriately raised on summary judgment.

See Johnson, 135

S. Ct. at 346-47 (summarily reversing entry of summary judgment
against

plaintiffs

whose

complaint

did

not

expressly

invoke

Section 1983, where complaint adequately alleged factual basis for
Section 1983 claim); Hamilton, 244 F.3d at 823-25 (rejecting
defendant’s
judgment

waiver

where

argument

“complaint

and

reversing

outlined

grant

sufficient

of

facts

summary
to

put

[defendants] on notice” that plaintiff was asserting claims for
“wrongful termination” and “breach of fiduciary duty”); see also

6

Indeed, the Policy expressly excludes coverage for “prior
knowledge of a Wrongful Act that could reasonably give rise to a
Claim,” not merely for “knowledge of a Claim.” This language is
cited (as well as underlined and italicized) in the Second Amended
Complaint. (Doc. #51, p. 6.)
7

What is more, Defendants’ have had actual notice of Houston’s
“Wrongful Act” theory since at least April 28, 2016 – five weeks
before the end of discovery – when Houston filed an Answer to
Westcor’s Counterclaim asserting the following affirmative
defense: “The relief sought in the Counterclaim is unavailable to
Westcor because Titleworks had knowledge of the Wrongful Act, as
defined by the Policy prior to the inception of the Policy.” (Doc.
#65, p. 4.)
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Hatmaker v. Mem'l Med. Ctr., 619 F.3d 741, 743 (7th Cir. 2010)
(finding “mistaken”

district

court’s

holding

that

plaintiff’s

failure to raise “participation” theory of retaliation waived her
right to pursue that theory, since complaint did adequately raise
“opposition” theory of retaliation).
B.

Estoppel
The Court also rejects Defendants’ argument that Houston’s

“Wrongful Act” litigation theory was “judicially foreclosed” when
Houston was denied leave to amend.

The two issues squarely before

the undersigned when Houston sought to amend for a third time and those decided by the December 6 Order – were (1) whether
Houston’s motion to amend was timely, and (2) if not, whether
Houston had nevertheless established good cause sufficient to
outweigh

the

potential

for

prejudice

posed

to

Defendants

by

allowing amendment to occur on the eve of the dispositive-motion
deadline and only a few months out from trial.

The Magistrate

Judge recommended answering both of these questions in the negative
and denying leave to amend, and the undersigned agreed with, and
affirmed, that recommendation. 8

8

Houston’s proposed Third Amended Complaint expressly changed the
exclusion theory from one of “prior knowledge of a Claim” to one
of “prior knowledge of a Wrongful Act” without any explanation.
(See Doc. #113, pp. 4-5 (“The reason articulated to the Magistrate
Judge for amending the complaint was to simply add the new lawsuit
of Westcor; however plaintiff also elected to add additional
language in the proposed document to alter the allegations
[regarding knowledge of the Claim].”).
- 7 -

Whether - based on the arguments and authority raised in
Houston’s Motion for Leave to Amend and Defendants’ Responses
thereto - Houston should have been afforded leave to amend is a
different question from the one now before this Court: whether
Houston may pursue a “prior knowledge of a Wrongful Act” theory of
relief for declaratory judgment, despite the operative complaint’s
failure to expressly allege that theory. 9

As just discussed, the

answer to that question is yes.
Nonetheless,

“for

clarification

and

to

ward

off

further

insistence on a punctiliously stated ‘theory of the pleadings,’”
Johnson, 135 S. Ct. at 347, and since the Court’s schedule does
not permit trial to be scheduled until December 2017 at the
earliest, the Court will sua sponte afford Houston the opportunity
to file a Third Amended Complaint, solely for the purpose of
alleging a “prior knowledge of Wrongful Act” theory.

The Court

will also permit the parties to take limited discovery on this
issue, if they so choose.

See Hamilton, 244 F.3d at 827 n.1.

9

The Court acknowledges that, in discussing the appropriate
standard under which to review the Report and Recommendation, the
December 6 Order seemed to imply that Houston was attempting “to
amend to present a revised theory of litigation that would
otherwise be foreclosed in this case.” (Doc. #113, pp. 5-6 n.2.)
However, Defendants’ reliance on this incidental remark – or any
other similar dictum - for estoppel purposes is inappropriate.
The first time this Court was presented with argument and authority
on whether Houston is legally permitted to assert a “Wrongful Act”
theory, despite not having expressly pled that theory in the
operative Second Amended Complaint, was on summary judgment.
- 8 -

Accordingly, it is hereby
ORDERED:
1.

Plaintiff is afforded leave to amend its complaint to

allege a “prior knowledge of Wrongful Act” theory only.

The Third

Amended Complaint shall be filed within FOURTEEN (14) DAYS of this
Order.
2.

Plaintiff’s Motion for Summary Judgment (Doc. #135) and

Defendants’ Motions for Summary Judgment (Docs. ## 114, 118, 133)
are DENIED as moot without prejudice to refile.
3.

Limited discovery and an opportunity to file renewed

motions for summary judgment will be provided.
4.

New dates for the previously-cancelled deadlines (see

Doc. #141), including for limited discovery and the filing of new
dispositive motions, will be set by separate order.
DONE and ORDERED at Fort Myers, Florida, this 15th day of
June, 2017.

Copies:
Counsel of Record

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