Edelman et al v. Belsheim & Bruckert, L.L.C. et al

Filing 46

ORDER granting #27 Motion to Dismiss for Failure to State a Claim: For the reasons thoroughly explained in the attached Order, pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court GRANTS the motion to dismiss Counts 7, 8, and 9 of Plaintiffs' second amended complaint (the breach of fiduciary duty claims against Attorneys' Title Guaranty Fund, Inc.) with prejudice. Signed by Judge Michael J. Reagan on 5/21/12. (soh )

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
STEVEN EDELMAN,
C. BRADFORD JEFFRIES, Trustee of
the C. Bradford Jeffries Living Trust, and
WILL FURMAN, Trustee of the FurmanDoane Family Revocable Trust,
Plaintiffs,
vs.
BELSHEIM & BRUCKERT, LLC,
BELCO TITLE & ESCROW, LLC,
and ATTORNEYS’ TITLE
GUARANTY FUND, INC.,
Defendants.

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Case No. 11-cv-1121-MJR-PMF

MEMORANDUM AND ORDER
REAGAN, District Judge:
A.

Introduction
Filed in this United States District Court, the above-captioned case

involves a series of transactions, agreements, documents, and communications relating
to the financing for Phase II of a multi-use real estate development called Forest Lakes.
Stripped to its essentials, three Plaintiffs (one individual and two trusts, through their
trustees) bring claims of negligent misrepresentation and breach of fiduciary duty
against a law firm, a title company, and an underwriter. 1

1

The three Plaintiffs are (1) Steven Edelman, (2) C. Bradford Jeffries, as
Trustee of the C. Bradford Jeffries Living Trust dated September 19, 1994, and
(3) Will Furman, as Trustee of the Furman-Doane Family Revocable Trust. The
three Defendants are (1) Belsheim & Bruckert, LLC (the law firm,
“Belsheim/Bruckert”), (2) Belco Title & Escrow, LLC, and (3) Attorneys’ Title
Guaranty Fund, Inc. (ATG). Where convenient in this Order, the Court refers to
the parties by their names as highlighted in this footnote.

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The gist of the January 26, 2012 Second Amended Complaint (complaint)
is that Plaintiffs collectively loaned three million dollars to a non-party, Caseyville Sport
Choice, LLC, in reliance on representations that the loan was secured by a first lien
mortgage on a parcel of real property. Several years later, Plaintiffs discovered that
their mortgage on the property was in fact subordinate to a $20,000,000 prior mortgage
in favor of another entity (Meridian Bank). Meridian Bank foreclosed on the property,
and Plaintiffs lost their entire investment.
Plaintiffs sue to recoup their pecuniary losses plus interest, attorney’s fees
and costs.

So, for instance, Plaintiff Edelman sues Belsheim/Bruckert for the

$1,000,000 he allegedly lost as a proximate result of Belsheim/Bruckert negligently
providing information on which Edelman relied in investing in Phase II of Forest Lakes;
Jeffries sues Belsheim/Bruckert to recover $1,400,000 he lost in this transaction; and
Furman sues Belsheim/Bruckert to recover $600,000 he lost in this transaction.
More specifically, the claims in the complaint are:
Count 1 -- Negligent Misrepresentation (Edelman v. Belsheim/Bruckert);
Count 2 – Negligent Misrepresentation (Jeffries v. Belsheim/Bruckert);
Count 3 – Negligent Misrepresentation (Furman v. Belsheim/Bruckert);
Count 4 – Breach of Fiduciary Duty (Edelman v. Belco);
Count 5 – Breach of Fiduciary Duty (Jeffries v. Belco);
Count 6 – Breach of Fiduciary Duty (Furman v. Belco);
Count 7 – Breach of Fiduciary Duty (Edelman v. ATG);
Count 8 – Breach of Fiduciary Duty (Jeffries v. ATG); and
Count 9 – Breach of Fiduciary Duty (Furman v. ATG).
Defendant Belco answered the complaint (Doc. 37).

Defendant ATG

moved to dismiss Counts 7, 8, and 9. That motion has been fully briefed (Docs. 27, 39,
42). Defendant Belsheim/Bruckert moved to dismiss Counts 1, 2, and 3. That motion

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became ripe when the May 3, 2012 reply deadline elapsed (Docs. 35, 36, 38, 45).
Enjoying subject matter via the federal diversity statute, 28 U.S.C. 1332, the Court now
rules on ATG’s dismissal motion. 2
B.

Applicable Legal Standards
Attorneys’ Title Guaranty Fund, Inc. (ATG) seeks dismissal of the three

breach of fiduciary claims against ATG (Counts 7, 8, and 9) under Federal Rule of Civil
Procedure 12(b)(6).

Analysis begins with standards governing Rule 12(b)(6) motions

and then focuses on the facts specific to the three counts in question.
In deciding a motion to dismiss for failure to state a claim on which relief
can be granted under Rule 12(b)(6), the district court’s task is to determine whether the
complaint includes “enough facts to state a claim to relief that is plausible on its face.”
Khorrami v. Rolince, 539 F.3d 782, 788 (7th Cir. 2008), quoting Bell Atlantic Corp.
v. Twombly, 550 U.S. 544 (2007).
As the Court of Appeals for the Seventh Circuit has clarified: “Even after
Twombly, courts must still approach motions under Rule 12(b)(6) by ‘construing the
complaint in the light most favorable to the plaintiff, accepting as true all well-pleaded
facts alleged, and drawing all possible inferences in her favor.’” Hecker v. Deere &
Co., 556 F.3d 575, 580 (7th Cir. 2009), cert. denied, 130 S. Ct. 1141 (2010), quoting
Tamayo v. Blagoyevich, 526 F.3d 1074, 1081 (7th Cir. 2008).
However, legal conclusions and conclusory allegations that merely recite
the elements of a claim are not entitled to the presumption of truth afforded to well-pled

2

By separate Order, the Court will rule on the other pending motion –
Belsheim/Bruckert’s May 12, 2012 motion to dismiss Counts 1, 2, and 3 of the
complaint (Doc. 35).

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facts. See, e.g., McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011).
Therefore, after excising the allegations not accepted as true, the Court must decide
whether the remaining factual allegations plausibly suggest entitlement to relief. Id. In
other words, the complaint must contain allegations plausibly suggesting (not merely
consistent with) an entitlement to relief. Id., citing Twombly, 550 U.S. at 557. This
determination is a “context-specific task that requires the reviewing court to draw on its
judicial experience and common sense.” McCauley, 671 F.3d at 616, citing Ashcroft
v. Iqbal, 556 U.S. 662, 663-64 (2009).
Also bearing note is that a Rule 12(b)(6) dismissal motion “must be
decided solely on the face of the complaint and any attachments that accompanied its
filing.” Miller v. Herman, 600 F.3d 726, 733 (7th Cir. 2010), citing FED. R. CIV. P. 10(c)
and Segal v. Geisha NYC, LLC, 517 F.3d 501, 504-05 (7th Cir. 2008). If, on a Rule
12(b)(6) motion, matters outside the pleadings are presented to (and not excluded by)
the court, the motion must be treated as a Rule 56 motion for summary judgment.
General Insurance Co. of America v. Clark Mall Corp., 644 F.3d 375, 378 (7th Cir.
2011); FED. R. CIV. P. 12(d).
That means the court must notify the parties that it will consider the
additional matters and provide a reasonable opportunity for the parties to present all
materials pertinent to the motion, so construed. Doss v. Clearwater Title Co., 551
F.3d 634, 639-40 (7th Cir. 2008). See also Santana v. Cook County Bd. of Review, -F.3d --, 2012 WL 1608601, *2 (7th Cir. May 9, 2012). Of course, documents attached
to the complaint are considered as part of the complaint itself. See Arnett v. Webster,

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658 F.3d 742, 746 (7th Cir. 2011). Bearing these standards in mind, the undersigned
turns to ATG’s motion to dismiss.
C.

Analysis
→

T HE ALLEGATIONS OF PLAINTIFFS’ COMPLAINT

As bears on ATG’s motion, the complaint alleges the following. Forest
Lakes was developed through Caseyville Sport Choice, LLC (Caseyville) and promoted
by John Nicholson and Craig Nicholson.

In January 2007, Edelman, Furman and

Jeffries (collectively, Plaintiffs) received a letter and offering memorandum from
Caseyville, requesting a loan for Phase II of Forest Lakes.

The letter and offering

memorandum represented that the loan would be secured by a first lien mortgage.
Plaintiffs (and non-party Nam Yung Suh) agreed to loan Caseyville $3,000,000 to
finance Phase II of Forest Lakes, in exchange for a first lien mortgage on the property.
A Loan Agreement was executed by Plaintiffs, Suh, and Caseyville in
March 2007. Belsheim/Bruckert represented Caseyville in connection with obtaining the
financing from Plaintiffs. As part of that representation, Belsheim/Bruckert negotiated
and drafted the Loan Agreement and Mortgage. 3 The Loan Agreement provided that
the loan would be secured by a first lien mortgage on the development. 4

3

The complaint alleges (Doc. 21, p. 6): “Upon information and belief,
Belsheim represented Caseyville in its development of Forest Lakes and the
refinancing of Phase II, including its negotiation and execution of the Loan
Agreement with Plaintiffs and Suh, the negotiation and execution of the Mortgage
required by the Loan Agreement to be provided in favor of Plaintiffs and the
closing of the loan transaction….” Additionally, the complaint alleges upon
information and belief that the letter and offering memorandum were given to
Belsheim/Bruckert, and the Mortgage was drafted by Belsheim/Bruckert (Id., p. 5
and p. 8).

4

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The mortgage, dated April 25, 2007, was executed by Terry Bruckert (as
power of attorney for Caseyville) and was consistent with the terms of the Loan

In April 2007, Defendant Belco (as title agent) issued a title commitment in
favor of Plaintiffs on the $3,000,000 loan to Caseyville, with ATG as the underwriter.
The title commitment disclosed and expressly identified as a “Special Exception” an
existing mortgage dated June 15, 2005, recorded June 16, 2005, executed by
Caseyville, and given to Meridian Bank to secure a note in the amount of $20,000,000
(Complaint, p. 7). At that time, Plaintiffs did not see the title commitment (which clearly
disclosed the prior mortgage on the property).

The loan funds were disbursed to

Caseyville.
Sometime in 2009, Plaintiffs were sued by Meridian Bank, who was
attempting to foreclose its mortgage on the subject property. On December 21, 2009,
Plaintiffs discovered that their loan was subordinate to the Meridian Bank loan. Meridian
successfully foreclosed on the property, and Plaintiffs lost their investment.
The counts of the complaint directed against ATG (Counts 7, 8, 9) assert
that ATG breached its fiduciary duty to each of the three Plaintiffs.

Each of these

counts alleges that (1) ATG was aware of Plaintiffs’ expectation that they would get a
first lien mortgage on the property, and (2) ATG breached its fiduciary duty to all three
Plaintiffs by (a) failing to inform Plaintiffs about the existing mortgage in favor of
Meridian Bank, (b) failing to provide closing documents to Plaintiffs prior to or
immediately after the closing, (c) failing to contact Plaintiffs during the closing process,
and (d) failing to seek instructions from Plaintiffs regarding the closing, “despite the fact
that Belco admits that it was acting as an agent of Plaintiffs during closing” (Doc. 21, ¶¶
90, 97, 104).

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Agreement. The mortgage provided that it was a first lien mortgage on the
subject property. The mortgage was record on May 7, 2007.

Each of these counts against ATG also alleges that ATG’s conduct was
outrageous “because of Attorneys’ Title’s evil motive and reckless indifference to the
rights of others,” entitling Plaintiffs to punitive damages (Doc. 21, ¶¶ 92, 99, 106). 5
→

ATG’S MOTION TO DISMISS COUNTS 7, 8, AND 9

ATG moves to dismiss Counts 7 through 9 under Federal Rule of Civil
Procedure 12(b)(6), contending that these counts fail to state a claim upon which relief
can be granted.

In the context of ATG’s motion, the Court accepts as true all well-

pleaded facts in the complaint and determines whether those allegations state a claim
to relief that is facially plausible. See Zemeckis v. Global Credit & Collection Corp, -F.3d --, 2012 WL 1650479, *1 (7th Cir. May 11, 2012); Santana, 2012 WL 1608601, *5.
A claim survives Rule 12(b)(6) dismissal “when its factual allegations ‘raise a right to
relief about the speculative level.’” Zemeckis at *1, quoting Twombly, 550 U.S. at
555-56.
ATG maintains dismissal is warranted here, because ATG owes no
fiduciary duty to Plaintiffs, so Plaintiffs’ claims against ATG must fail as a matter of law.
Under Illinois law, to establish a claim for breach of fiduciary duty, a plaintiff must prove:
(1) a fiduciary duty on the part of the defendant; (2) a breach of that duty; (3) damages;
and (4) a proximate cause between the breach and the damages. Carter v. Carter, —
N.E.2d --, 2012 WL 398934 (Ill. App. 2012).

Stated another way, “To recover for

breach of a fiduciary duty, a plaintiff must prove that a fiduciary duty exists, that the
fiduciary duty was breached, and that the breach proximately caused the injury of which

5

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Punitive damages are available as a matter of law for a breach of
fiduciary duty. Tully v. McLean, 948 N.E.2d 714, 729 (Ill. App. 2011).

the plaintiff complains.”

Tully v. McLean, 948 N.E.2d 714, 739 (Ill. App. 2011),

quoting Crichton v. Golden Rule Ins. Co., 832 N.E.2d 843 (Ill. App. 2005).
In the instant case, ATG’s motion focuses on the first element – the
existence of a fiduciary duty.

A “fiduciary relationship exists where, by reason of

friendship, agency, or business association and experience, trust and confidence are
reposed by one party in another and the latter party gains an influence and superiority
over the first as a result.” Tully, 948 N.E.2d at 739. In Illinois, it is “well settled that no
fiduciary relationship exists between an insurer and an insured as a matter of law.”
Greenberger v. GEICO General Ins. Co., 631 F.3d 392, 401 (7th Cir. 2011), quoting
Fichtel v. Board of Directors of River Shore of Naperville Condo. Ass’n, 907
N.E.2d 903, 912 (Ill. App. 2009).
As the United States Court of Appeals for the Seventh Circuit explained
last year in Greenberger, 631 F.3d at 401 (a case applying Illinois substantive law):
A fiduciary duty may be created “where one party places
trust and confidence in another, thereby placing the latter
party in a position of influence and superiority over the
former,” … but the “mere fact that a contract of insurance …
existed between the parties is insufficient to support a finding
of a fiduciary relationship.” Martin v. State Farm Mut. Ins.
Co., … 808 N.E.2d 47, 52 ([Ill. App.] 2004)….
The plaintiff has the burden to plead with specificity and
prove by clear and convincing evidence the existence of a
fiduciary or special relationship. Martin, … 808 N.E.2d at
52.
The Court concluded:

“[Plaintiff] has not satisfied this burden. Insurers

ordinarily are not fiduciaries, and the facts and circumstances here do not suggest any
basis for displacing this general rule.”

Greenberger, 631 F.3d at 401.

Accord

Crichton, 576 F.3d at 397-98 (7th Cir. 2009), citing Nielsen v. United Servs. Auto.

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Ass’n, 612 N.E.2d 526, 631 (Ill. 1993)(“In Illinois, there is no fiduciary relationship
between an insurance company and an insured.”).
Similarly, in Lyerla v. AMCO Ins. Co., 536 F.3d 684, 694 (7th Cir. 2008),
the Seventh Circuit reiterated that Illinois law is well established that no fiduciary
relationship exists between an insurer and an insured, and the mere fact that two
companies or individuals are parties to an insurance contract is insufficient to support a
finding of a fiduciary relationship. Noting that the same principle governs title insurance,
ATG seeks dismissal of Counts 7, 8, and 9, arguing that Plaintiffs have not and cannot
satisfy their burden of pleading facts taking this case outside the ambit of the general
rule that insurers ordinary owe no fiduciary duty to insureds.
Plaintiffs concede that there is no fiduciary duty between an insurer and
an insured as a matter of Illinois law. They do not dispute that this principle applies
equally to title insurers. But they contend that, nonetheless, they have stated a claim for
breach of fiduciary duty by ATG, because their claims are not based on ATG’s role as
an insurer.

Instead, say Plaintiffs, a fiduciary duty exists here based on (1) special

circumstances of the parties’ relationship, and (2) the fact that ATG acted as Plaintiffs’
agent and Belco’s principal. These arguments are unavailing.
As noted above, a fiduciary duty may be created where one party places
its trust and confidence in another, putting the latter in a position of influence and
superiority. See Martin, 808 N.E.2d at 52. This position of superiority may arise by
reason of friendship, experience, or agency. Id., citing Connick v. Suzuki Motor Co.,
675 N.E.2d 584, 593 (Ill. App.1996).

Nevertheless, if the relationship between the

parties is not a fiduciary one as a matter of law (for instance, insurer-insured), then the

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party alleging a fiduciary duty (here, Plaintiffs) must plead, and ultimately, prove it by
clear and convincing evidence.

Fichtel, 907 N.E.2d at 912.

And “significant

dominance and superiority [are] necessary to establish a fiduciary relationship.”

Id.,

quoting Martin, 808 N.E.2d at 52.
Plaintiffs point out that the complaint clearly alleges that ATG owed
Plaintiffs a fiduciary duty (see Doc. 39,p. 6, sub-¶ 5). But the Court cannot accept as
true legal conclusions, only well pled facts.

Accepting as true all well pled facts in

Plaintiffs’ complaint (and construing in Plaintiffs’ favor all reasonable inferences from
those facts), Plaintiffs have not alleged the significant dominance and superiority
(arising from, for instance, a longstanding friendship, prior history of dealings, or
“special confidence reposed” in another party, etc.) or any other special circumstances
to show the existence of a fiduciary relationship between ATG and Plaintiffs. The fact
that ATG was aware of Plaintiffs’ expectation that Plaintiffs would receive a first lien
mortgage on the subject property is not enough to trigger a fiduciary duty owed by ATG
to Plaintiffs.
Plaintiffs’ also argue that ATG can be held liable to Plaintiffs for breach of
fiduciary duty because Belco enjoyed a position of superiority over Plaintiffs, Belco was
bound to act in good faith, ATG “was the principal of Belco, and Belco was acting within
the scope of such principal-agency relationship,” and thus ATG (as principal) is liable for
the tortious acts of Belco (as agent). While it is delineated in the response brief on the
dismissal motion, this theory of liability against ATG -- vicarious liability for Belco’s acts
as closing/escrow agent for Plaintiffs on the loan transaction – is not pled in the second
amended complaint.

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Nor can the Court conceive how Plaintiffs have a plausible claim against
ATG via this theory of principal-agent vicarious tort liability, as the only claims directed
at Belco are for breach of fiduciary duty, and (although the caselaw reflects some
confusion exists on this point), the more modern view appears to be that breaches of
fiduciary duty are governed by contract -- not tort -- law in Illinois.
In more recent decisions, Illinois courts have … recognized
that an action seeking damages for breach of fiduciary duty
is an equitable action. For example, in Kinzer v. City of
Chicago, … 539 N.E.2d 1216 (1989), our supreme court
expressly rejected the Restatement’s view that an action
for breach of fiduciary duty is a tort….
Instead, the supreme court regarded a claim for breach of
fiduciary duty as controlled by the substantive law of agency,
contract, and equity. Kinzer, … 539 N.E.2d 1216. Relying
on Kinzer, reviewing courts have consistently characterized
complaints for breach of fiduciary duty as equitable actions.
[Citations omitted.]
Bank One, N.A. v. Borse, 812 N.E.2d 1021, 1026 (Ill. App. 2004)(emphasis added).
See also Kling v. Landry, 686 N.E.2d 33, 39 (Ill. App. 1997)(“An action for the
breach of fiduciary duty is not a tort; rather, it is governed by the substantive law
of contracts.”).
To summarize, as a general rule, insurers (including title insurers, such as
ATG) owe no fiduciary duty to insureds and cannot be held liable for breaching duties
they do not owe.

The exception to this rule is that special relationships may give rise to

a fiduciary duty, where one party puts his trust and confidence in another, elevating the
latter to a position of influence and superiority. Plaintiffs have invoked this exception but
the complaint does not contain factual allegations of such a relationship.

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On the Rule 12(b)(6) motion before it, taking as true all well-pled factual
allegations and construing in Plaintiffs’ favor all reasonable inferences therefrom, the
Court finds that the complaint does not plead the requisite special circumstances to
support the existence of a fiduciary duty owed by ATG to Plaintiffs. And

even

if

the

complaint can be read to allege that ATG is vicariously liable to Plaintiffs as Belco’s
principal, Plaintiffs have not cited (nor does the Court know of) Illinois caselaw
permitting an action for the breach of fiduciary duty in these circumstances.

The

doctrine of respondeat superior allows the imposition of liability against a principal for
the tortious conduct of its agent undertaken within the scope of the agency, but the
breach of fiduciary duty is viewed as a contractual breach not a tortious act in Illinois.
The complaint contains abundant factual allegations, many of which
outline the interwoven relationships between Belco (the title company that was Plaintiffs’
closing/escrow agent on the transaction in question) and Belsheim/Bruckert (the law
firm that represented Caseyville in the transaction and drafted the April 2007 mortgage
which erroneously stated that it was a first lien mortgage on the property). 6

The

complaint alleges that Belco issued the title commitment on the property, and ATG
issued a title insurance policy consistent with the commitment. 7

The complaint alleges

that Belco and ATG were well aware of Plaintiffs’ expectation that they would get a first
6

By way of example, the complaint pleads that the members of
Belsheim/Bruckert are Harold G. Belsheim and Terry Bruckert; the members of
Belco Title are Harold G. Belsheim and Terry Bruckert; and both Belco and
Belsheim/Bruckert are located at 1002 E. Wesley Drive, Suite 100, O’Fallon,
Illinois (Doc. 21, pp. 2-3). The complaint alleges that the agents, employees, and
representatives of Belco were also the agents, employees, and representatives
of Belsheim/Bruckert (Doc. 21, pp. 14-15, 16, 18).
7

The complaint also alleges that the commitment expressly identified the
prior (Meridian Bank) mortgage on the property (Doc. 21, p. 7), but Plaintiffs
never saw or read the title commitment until December 2009 (Doc. 21, p. 9).

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lien mortgage on the property.

The complaint alleges that Plaintiffs’ expectation was

defeated, they did not get a first lien mortgage, and they lost their entire investment.
The complaint does not state a facially plausible claim for breach of fiduciary duty by
ATG, the underwriter/insurer in the transaction.
To recap, the facts alleged in the complaint establish no fiduciary duty
owed by ATG to Plaintiffs. As the Illinois Supreme Court has held: “a title insurer is not
in the business of supplying information when it issues a … policy of title insurance,”
and the “scope of a title insurer’s liability is properly defined by contract.” First Midwest
Bank, N.A. v. Stewart Title Guar. Co., 843 N.E.2d 327, 336 (Ill. 2006). Plaintiffs’
remedy against ATG, if one exists, lies under the title policy.
D.

Conclusion
For all these reasons, the Court GRANTS ATG’s motion to dismiss

Counts 7, 8, and 9 of the complaint for failure to state a claim upon which relief can be
granted (Doc. 27). Counts 7, 8, and 9 of the second amended complaint are
DISMISSED with prejudice.
IT IS SO ORDERED.
DATED May 21, 2012.

s/ Michael J. Reagan
Michael J. Reagan
United States District Judge

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