First American Title Insurance Co. v. APEX TITLE INC et al

Filing 151

ORDER granting 99 Motion for Discovery; denying 103 Motion for Summary Judgment; granting 121 Motion for Partial Summary Judgment. Ordered by U.S. District Judge Clay D. Land on 01/09/2014. (CGC)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF GEORGIA
COLUMBUS DIVISION
FIRST AMERICAN TITLE INSURANCE
COMPANY,

*
*

Plaintiff,
*
vs.

CASE NO. 4:12-CV-10 (CDL)
*

MICHAEL A. EDDINGS, COLUMBUS
BANK AND TRUST COMPANY, et al., *
Defendants.

*

O R D E R
This action arises from the misappropriation of funds from
a

lawyer’s

trust

account.

That

misappropriation

eventually

caused the trust account to have insufficient funds to make
legitimate disbursements to close real estate transactions.
some

of

Insurance

those

transactions,

Company,

a

title

Plaintiff
insurance

First
company,

American
had

In

Title

to

make

payments to cover the payoffs that should have been made with
funds from the lawyer’s trust account had those funds not been
misappropriated.
recover

the

amounts

misappropriation.
contract,

First American brings this present action to
it

had

to

pay

because

of

the

First American asserts claims for breach of

indemnification,

professional

negligence,

fraud,

conversion, unjust enrichment, punitive damages, and attorneys’
fees against lawyer Michael A. Eddings, his law firm, the law

firm’s business manager, the law firm’s title insurance agency,
and

various

allegedly

businesses

received

associated

misappropriated

with

the

payments.

lawyer
First

which

American

also asserts a claim against Columbus Bank and Trust Company
(“CB&T”), which was the bank for the Eddings trust account,
claiming

that

CB&T

was

aware

that

funds

were

being

misappropriated from the trust account and failed to act in a
reasonably prudent manner to stop the misappropriation.
First American filed a motion for partial summary judgment
against Defendants Michael A. Eddings, the Law Office of Michael
A. Eddings, P.C., and Apex Title, Inc. (collectively, “Eddings
Defendants”) (ECF No. 121).
response to that motion.

The Eddings Defendants filed no

Having reviewed the motion, the Court

grants partial summary judgment in favor of First American as to
its

claims

against

the

Eddings

Defendants

to

the

extent

described in the remainder of this Order.
CB&T

filed

a

motion

for

summary

judgment

American’s claims against it (ECF No. 103).

as

to

First

As explained below,

the Court finds that genuine factual disputes exist for a jury
to decide regarding this claim, and therefore, CB&T’s motion is
denied.
The

Court

also

has

pending

before

it

First

American’s

objection to the use of an audit report prepared by Stewart
Title Guaranty Company (ECF No. 99).

2

The Court declines to

exclude

the

audit

report

but

will

permit

limited

discovery

regarding the report.
DISCUSSION
I.

First American’s Partial Summary Judgment Motion (ECF No.
121)
First American moved for partial summary judgment as to its

claims against the Eddings Defendants for breach of contract,
indemnification,

and

professional

negligence.

The

Eddings

Defendants did not respond to First American’s partial summary
judgment motion or statement of material facts.

Therefore, the

facts in First American’s statement of material facts are deemed
admitted pursuant to Local Rule 56.

The Court must still review

First American’s citations to the record to determine whether a
genuine fact dispute exists.

Mann v. Taser Int’l, Inc., 588

F.3d 1291, 1303 (11th Cir. 2009).

The materials submitted by

First American in support of its partial summary judgment motion
establish the following.
Eddings is the sole owner and principal of the Eddings Law
Firm and Apex.

The Eddings Law Firm and Apex are parties to

title insurance agency agreements with First American for the
purpose of issuing owners’ and lenders’ title insurance policies
and

collecting

premiums.

Under

the

agency

agreements,

the

Eddings Law Firm and Apex had certain duties related to their
escrow

accounts,

including

a

duty

3

to

keep

escrow

accounts

separate from operating accounts and a duty to disburse escrow
funds only for purposes for which they were entrusted.

The

agency agreements also required the Eddings Law Firm and Apex to
cooperate
First

in

any

American.

title
The

insurance

agency

investigation

agreements

conducted

contain

an

by

indemnity

provision under which the Eddings Law Firm and Apex agreed to
indemnify First American against any loss (including attorneys’
fees and expenses) First American may sustain because of any
dishonest, fraudulent, malicious, or negligent act or omission
by the Eddings Law Firm and Apex.

Michael Eddings personally

guaranteed the agency agreements of the Eddings Law Firm and
Apex.

The

guarantee

expressly

includes

the

indemnity

obligation.
In October 2011, First American received a complaint that
the

Eddings

Law

Firm

failed

to

disburse

loan

following a residential real estate closing.

payoff

funds

First American

conducted a title insurance audit of the Eddings Law Firm and
Apex.

During the audit, the Eddings Law Firm’s business manager

admitted that she regularly diverted funds intended for loan
payoffs or seller proceeds out of the escrow account and used
the funds for other purposes.

First American discovered that

the

to

Eddings

Defendants

failed

numerous lenders and sellers.

disburse

payoff

funds

to

First American’s investigation

also revealed that the Eddings Defendants or their employees

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altered banking records and wire transfer documents to conceal
their conduct.

The Eddings Defendants did not fully cooperate

in the title insurance investigation, and they did not make good
on the escrow account shortages.

As a result, a number of

sellers and lenders did not receive payoff funds from closings
Michael Eddings conducted, and they filed title insurance claims
with

First

American.

$1,551,231.20

in

title

To

date,

insurance

First

claims.

American
First

has

paid

American

is

subrogated to the rights and claims of its insureds upon payment
of their respective title insurance claims.

First American has

also incurred $364,678.44 in attorneys’ fees and expenses in
this

action,

as

well

as

$71,861.27

in

attorneys’

fees

and

expenses in the related interpleader action.
Based on the present record, First American is entitled to
summary judgment on its breach of contract, indemnification, and
professional negligence claims against the Eddings Defendants.
The undisputed evidence establishes the following.

The Eddings

Law Firm and Apex breached their contracts with First American
by failing to disburse loan payoff funds following real estate
closings.

Michael

Eddings

and

his

firm

were

professionally

negligent when they permitted trust account funds to be diverted
and used for other purposes.

The Eddings Law Firm and Apex

agreed to indemnify First American for losses First American
sustained because of any dishonest, fraudulent, malicious, or

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negligent act or omission by the Eddings Law Firm and Apex.
After funds were diverted from the trust account and used for
other purposes, a number of sellers and lenders did not receive
payoff funds from closings Michael Eddings conducted, and First
American

paid

$1,551,231.20.

their

title

First

insurance

American

claims

incurred

totaling

$436,539.71

in

attorneys’ fees and expenses in connection with this action and
the

related

interpleader

action.

Michael

Eddings

personally

guaranteed the agency agreements of the Eddings Law Firm and
Apex

and

obligation.

the

guarantee

expressly

includes

the

indemnity

Finally, First American is subrogated to the rights

and claims of its insureds upon payment of their respective
title

insurance

claims.

Therefore,

the

Court

grants

First

American’s summary judgment motion as to its breach of contract,
indemnification, and professional negligence claims against the
Eddings

Defendants.

First

American

is

entitled

to

recover

$1,987,770.91 from the Eddings Defendants on these claims.
First

American’s

other

claims

against

the

Eddings

Defendants—including the claims for fraud, conversion, unjust
enrichment,

punitive

damages,

and

attorneys’

fees—remain

pending.
II.

CB&T’s Summary Judgment Motion (ECF No. 103)
First American contends that CB&T was aware that funds were

being misappropriated from the Eddings trust account and that it

6

failed

to

act

in

misappropriation.

a

reasonably

prudent

manner

to

stop

the

In support of this contention, First American

points to an alleged pattern of negative balances in the Eddings
Law Firm trust account, inappropriate attempts by the Eddings
Law Firm to make double deposits, and notice to CB&T that wire
transfer

confirmations

had

Eddings

Law

According

negligence

Firm.

caused

been

unauthorized

fraudulently
to

First

payments

altered
American,

to

be

made

by

the

CB&T’s

from

the

trust account which ultimately caused damage to First American
when First American was required to make payments to insure the
validity

of

the

title

misappropriation.

CB&T

to

the

asserts

properties
that

it

involved

was

unaware

in

the

of

the

misappropriation until all of the damage had been done and that
it acted reasonably when it learned of the fraudulent conduct.
For

a

bank

like

CB&T

to

be

liable

for

its

customer’s

misappropriation of trust account funds, there must be evidence
that

the

bank

had

knowledge

that

the

customer

was

dishonestly or intended to commit a breach of trust.

acting
Dalton

Point, L.P. v. Regions Bank, Inc., 287 Ga. App. 468, 471-72, 651
S.E.2d 549, 552 (2007).

Although a bank is not required to

monitor the daily account activity of its customer accounts to
look

for

dishonesty

and

breach

of

trust,

it

cannot

ignore

evidence that would put it on notice of such activity.

Since

the funds in a trust account do not actually belong to the

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depositor but instead are being held in trust for some other
party, negative balances in such accounts would obviously create
some concern.

While negative balances alone certainly do not

place a bank on notice of fraudulent activity, a pattern of
negative balances in a fiduciary trust account may indicate that
a customer’s account activity is attributable to something other
than poor arithmetic or carelessness.

Yet, a pattern of such

negative balances in a trust account may still not be enough to
put

a

bank

on

notice

deposited trust funds.

that

its

customer

is

misappropriating

See Nat’l Bank of Ga. v. Weiner, 180 Ga.

App. 61, 65, 348 S.E.2d 492, 496 (1986) (finding no evidence
that a bank knew that checks submitted by its customer’s agent
to

cure

an

overdraft

in

an

misappropriation of escrow funds).

escrow

account

constituted

Instead, the Court must look

at the totality of the circumstances to determine whether those
circumstances

“reasonably

bank

breach

that

a

of

support
trust

was

the

sole

intended

inference”
by

its

by

the

customer.

Dalton Point L.P., 287 Ga. App. at 471-72 (emphasis added).

And

more precisely, at the summary judgment stage, the Court must
determine whether a reasonable jury could conclude that those
circumstances would have led a reasonably prudent bank to reach
as its only conclusion that its customer was breaching the trust
of the intended beneficiaries of the funds deposited in its
trust account.

Fed R. Civ. P. 56 (stating that summary judgment

8

is appropriate “if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law”).
In this case, First American points to more than simply a
pattern of negative balances in the Eddings Law Firm CB&T trust
account.

Construing the evidence in favor of First American, as

required at this stage of the proceedings, the circumstances
surrounding the misappropriation of funds from the Eddings Law
Firm CB&T trust account are as follows.

In 2007, the trust

account had negative balances seventeen times, including one for
$120,794.80.

In 2008, the trust account ran negative balances

eighteen times, including one for $224,335.91.

In March 2009,

CB&T learned that the Eddings Law Firm regularly attempted to
“re-deposit”

duplicate

checks

in

special on-site deposit device.

its

trust

account

using

a

CB&T found the activity was

“more than just an error;” it sent up “Red Flags” and resulted
in CB&T shutting the on-site deposit practice down.

Faison Dep.

Ex. 8, Email from S. Faison to B. Green, et al. (Dec. 19, 2008),
ECF No. 132-1 at 15.

In 2009, the trust account ran a negative

balance ten times, including one for $250,861.22.

From 2007

through October 2011 (when the trust account was finally closed
by CB&T), the trust account ran a negative balance fifty times.
Though

these

negative

balances

alone

are

not

necessarily

sufficient to put CB&T on notice that the Eddings Law Firm was

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misappropriating

trust

funds

from

the

account,

this

evidence

cannot be ignored in determining whether CB&T had knowledge of
the breach of trust.
In addition to these negative trust account balances and
suspicious deposit practices, CB&T learned that the Eddings Law
Firm

was

conceal

creating

that

closings.

it

fraudulent

was

not

wire

funding

transfer
mortgage

confirmations
payoffs

to

following

Specifically, Michael Eddings acted as the closing

attorney for the sale of a home on July 27, 2011.

As part of

that closing, proceeds from the sale, which had been deposited
in the CB&T trust account, were supposed to be used to pay off
the seller’s previous mortgage on the property.

Shortly after

the closing, the seller was notified by his mortgage company
that the loan had not been paid off.

When he made inquiry with

the Eddings Law Firm, the law firm’s business manager told him
it had been paid by wire on the day of closing, and she provided
him with a purported wire transfer confirmation showing that the
mortgage had been satisfied from the CB&T trust account on the
closing

date.

The

seller

presented

the

wire

transfer

confirmation to CB&T on August 29, 2011 to confirm that the
funds had in fact been wired to his mortgage company to pay off
the loan.

CB&T quickly confirmed that the wire confirmation

provided to the seller by the Eddings Law Firm was fraudulent.
Recognizing the serious nature of this fraudulent activity, an

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internal CB&T email on that same day stated: “Stand down! It
appears

that

Michael

Eddings

[sic]

office

altered

the

wire

advice in order to show they processed a wire on 7/27 that
actually

didn’t

go

out

until

8/25.”

Weldon

Dep.

Ex.

6

at

SB018579, Email from D. Stiggers to A. Breeden et al. (Aug. 29,
2011), ECF No. 117-1 at 28.

A handwritten notation by a CB&T

employee appears on the wire confirmation document describing it
as “FAKE.”

Id. at SB018572, Funds Transfer Receipt, ECF No.

117-1 at 21.
Therefore,

as

of

August

29,

2011,

CB&T

knew

that

its

customer had failed to make a timely payoff for a loan closing
from a CB&T trust account; that to cover up this failure, its
customer manufactured a fake wire transfer confirmation; that
its customer had a history of running negative balances in its
trust account; and that its customer had engaged in suspicious
deposit

practices.

Notwithstanding

these

circumstances,

the

record could be construed to support the finding that CB&T took
no action to address the fraudulent activity.
months

later,

on

October

21,

2011,

another

Approximately two
fraudulent

wire

confirmation was brought to its attention, and yet CB&T arguably
took no action to address the evidence of fraud until after the
Eddings

Law

Firm’s

business

manager

confessed

to

misappropriation six days later on October 27, 2011, at which
time CB&T closed the trust account.

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The Court finds that a genuine factual dispute exists as to
whether
conclude

these
that

circumstances
the

only

could

lead

inference

to

a
be

reasonable
drawn

jury

from

to

these

circumstances is that as of August 29, 2011, CB&T knew that its
customer was misappropriating funds from its CB&T trust account.
The Court also finds that a genuine fact dispute exists as to
whether

CB&T

acted

misappropriation.
factual

dispute

reasonably

Finally,
exists

the

as

upon
Court

to

learning
finds

whether

of

that

a

CB&T’s

proximately caused First American any damages.

this

genuine

negligence
The Court,

however, finds as a matter of law that First American’s damages
would be limited to any damages First American sustained because
of misappropriations from the CB&T trust account that occurred
after

August

29,

2011.

For

all

of

these

reasons,

CB&T’s

summary judgment motion (ECF No. 103) is denied.
III. First American’s Objection
Company Audit (ECF No. 99)

to

Stewart

Title

Guaranty

The Eddings Defendants had an agency agreement with title
insurance company Stewart Title Guaranty Company until 2009.

In

his deposition in August of 2013, Michael Eddings testified that
Stewart Title conducted an audit of the Eddings law firm and
Apex Title in 2009.

CB&T subpoenaed Stewart Title’s records

related to the audit, which were produced to CB&T a month before
discovery closed in this case on November 1, 2013.

12

CB&T secured

permission from Stewart Title to produce the documents to First
American and produced the documents to First American on October
24, 2013.

Because the documents were not subpoenaed or produced

until shortly before the close of discovery, the parties were
not

able

to

documents.

conduct

discovery

regarding

the

Stewart

Title

First American therefore objects to the use of the

Stewart Title documents at trial.

In the alternative, First

American seeks to reopen discovery for forty-five days for the
limited purpose of conducting discovery regarding the Stewart
Title documents.

The Court declines to exclude the Stewart

Title documents.

The Court permits the parties to engage in

discovery regarding the Stewart Title documents.
shall

have

until

Friday,

February

21,

2014

to

The parties
conduct

this

additional discovery.
CONCLUSION
As

explained

in

this

Order,

First

American’s

partial

summary judgment motion against the Eddings Defendants (ECF No.
121) is granted, CB&T’s summary judgment motion (ECF No. 103) is
denied, First American’s motion to exclude the Stewart Title
Guaranty Company audit documents (ECF No. 99) is denied, and
First American’s request to reopen discovery is granted.
IT IS SO ORDERED, this 9th day of January, 2014.
s/Clay D. Land
CLAY D. LAND
UNITED STATES DISTRICT JUDGE

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