Shamrock Bank of Florida v. First American Title Ins. Co.

Filing 47

ORDER granting in part 26 MOTION for Summary Judgment on Count I of Its First Amended Complaint and on First American Title Co. Inc's Counterclaim for Declaratory Judgment filed by Shamrock Bank of Florida, granting 30 MOTION for S ummary Judgment on First American Title Ins. Co.'s Affirmative Defenses filed by Shamrock Bank of Florida, granting 43 MOTION to Supplement the Summary Judgment Record filed by Shamrock Bank of Florida, denying 39 MOTION t o Strike Portions of Defendant First American Title Ins. Co.'s Undisputed Facts as Set Forth in its Memorandum in Support of Motion for Summary Judgment Pursuant to F.R.C.P. 56(c)(2) filed by Shamrock Bank of Florida, denying 27 MOTION for Summary Judgment filed by First American Title Ins. Co., and granting in part 41 MOTION to Strike filed by First American Title Ins. Co. Signed by Chief Judge David R. Herndon on 3/28/2014. (mtm)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
SHAMROCK BANK OF FLORIDA,
as assignee of MERIDIAN BANK,
Plaintiff-Counterclaim Defendant,
v.
FIRST AMERICAN TITLE INS. CO.,
Defendant-Counterclaim Plaintiff.

Case No. 13-cv-92-DRH-PMF

MEMORANDUN & ORDER
HERNDON, Chief Judge:
I.

INTRODUCTION

Shamrock Bank of Florida (Shamrock), as assignee of Meridian Bank (Meridian),
brings its complaint against First American Title Ins. Co. (First American) for breach of
contract.

First American countersues for a declaratory judgment.

The following

motions are now before the Court:
Shamrock moves for summary judgment on Count I of its First Amended
Complaint and on First American’s Counterclaim for Declaratory Judgment (Doc. 26),
for summary judgment on First American’s affirmative defenses (Doc. 30), to strike
portions of First American’s undisputed facts as set forth in its memorandum in
support of motion for summary judgment pursuant to F.R.C.P. 56(c)(2) (Doc. 39), and
to supplement the summary judgment record (Doc. 43).

First American moves for

summary judgment (Doc. 27), and to strike portions of Shamrock’s facts pursuant to
F.R.C.P. 56(c)(2) (Doc. 41).

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For the reasons stated below, Court finds as follows:
As for Shamrock, the Court grants in part its motion for summary judgment on
Count I of its First Amended Complaint and on First American’s Counterclaim for
Declaratory Judgment (Doc. 26), grants its motion for summary judgment on First
American’s affirmative defenses (Doc. 30), grants its motion to supplement the summary
judgment record (Doc. 43), and denies its motion to strike portions of First American’s
undisputed facts (Doc. 39).
As for First American, the Court denies its motion for summary judgment (Doc.
27) and grants in part its motion to strike portions of Shamrock’s facts (Doc. 41).
II.

UNDISPUTED FACTS 1

a. The Simmons Convey the Property to Great River
This dispute begins with a real estate transaction entered into on January 22,
2007, between John and Jayne Simmons (the Simmons), as Trustees of the River
House Trust dated August 21, 2003, and Great River Enterprises Limited Partnership
No. 1 (Great River).

Lloyd Tomer (Tomer) was Great River’s principal shareholder

(Doc. 29-1, Tomer Sept. 15, 2011, Depo., p. 15 ). Tomer’s attorney, Raymond Stillwell
(Stillwell) represented Great River in the transaction (Doc. 28-2, Tomer Jan. 20, 2011
Depo., p. 18). The Simmons conveyed the real estate located at 12 Danforth, Alton,
Illinois (the Property), commonly referred to as the Olin Mansion, to Great River. In
exchange for the conveyance, Great River agreed to deliver to the Simmons 1,000,000
shares of YTB International, Inc. (YTB) (collectively, the Real Estate Agreement) (Doc.
28-1, § 2).

1

This section is of course the Court’s interpretation of what facts are “undisputed.”
Page 2 of 34

Paragraph 3.1 of the Real Estate Agreement, titled, “Possibility of Reverter,”
provides that the Property would revert back to the Simmons on December 31, 2011,
unless certain conditions were met as to YTB stock.

The Real Estate Agreement

provided that, “the Reversion Date will be accelerated automatically upon the occurrence
of . . . the Purchaser’s waste of the Property” (Id. at pp. 3-4). A trustee’s deed dated
January 24, 2007, documents the conveyance (Trustee’s Deed) (Doc. 29-4). The
Trustee’s Deed notes, “[t]he Property is subject to a possibility of reverter, the specific
terms and conditions of which are set forth in Section 3.1 of [the Real Estate Agreement]
. . . which terms and conditions are hereby incorporated” (Id. at p. 3). The Trustee’s
Deed was recorded in the Madison County Recorder’s Office on February 12, 2007 (Id.
at p. 9).
b. Great River Loan, Participation Agreement, and Title Policy
In late 2007, Tomer decided to take a loan against the Property to make some
improvements. Tomer states he spoke with Brad Rench (Rench), president and CEO of
Meridian, regarding the loan. Tomer states Rench was the only Meridian personnel he
spoke with regarding the loan (Doc. 29-5, Tomer Jan. 20, 2011, Depo., pp. 7-10).
According to Robert Carney (Carney), in November 2007, the vice president in
charge of lending for Shamrock, Clay Winfield (Winfield) a member of the Board of
Directors at Meridian, Shamrock, and YTB, approached Carney about Shamrock
entering into a participation agreement with Meridian, whereby Shamrock would
purchase an interest in the Great River Loan (Participation Agreement) (Doc. 28-7,
Carney Depo. pp. 9-17).

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The parties dispute how the Great River Loan and the Participation Agreement
came to fruition. The extent these disputes are material remains to be seen. However,
in the Court’s opinion, the following is undisputed:
Through the loan underwriting process, Meridian ordered a title commitment
from First American. First American issued a title commitment; dated November 30,
2007, file no. 1753426 (Title Commitment), to Meridian. The Title Commitment did not
identify the Trustee’s Deed or the “Possibility of Reverter” as an exception (Doc. 29-7).
On December 6, 2007, Meridian and Great River executed a promissory note,
titled, “Universal Note,” in which Meridian agreed to loan Great River $1,300,000.00
based on a line of credit.

Great River agreed to pay Meridian on demand, or if no

demand was made, then, “monthly payments of accrued interest calculated on the
amount of credit outstanding beginning 01-06-2008 and principal due on 12-06-2008”
(Great River Loan) (Doc. 29-9).

Also on December 6, 2007, Great River executed

several documents incidental to the Universal Note: Agreement to Provide Insurance,
Disbursement Authorization, Guaranty (James Tomer), Guaranty (Christine Tomer),
Commercial Security Agreement and Collateral Receipt (collectively, Loan Documents)
(Doc. 29-10). All Loan Documents are between Great River and Meridian. Great River
also executed a mortgage on the Property in favor of Meridian securing the Universal
Note for the $1,300,000.00 line of credit on December 6, 2007. The lien the Insured
Mortgage created was subject to existing encumbrances on the Property, i.e., the
“Possibility of Reverter” (Insured Mortgage) (Doc. 29-11).
As for the Participation Agreement between Meridian and Shamrock, a copy was
forwarded by Meridian to Shamrock after Meridian entered the Universal Note with
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Great River (Doc. 29-12). 2

Shamrock’s Directors Loan Committee approved the

Participation Agreement on December 10, 2007 (Doc. 28-14). Winfield abstained (Id.).
Pursuant to the Participation Agreement, Meridian, as the originating lender and seller,
agreed to sell Shamrock, the participating lender and purchaser, a share in the Great
River Loan for $1,250,000.00 with a variable interest rate of 7.5%. Meridian agreed to
pay Shamrock, on a pro rata basis, 96.15% of the money it received from Great River
and to bear all costs of servicing and administering the Great River Loan. The
Participation Agreement states Shamrock agreed to purchase participation in the Great
River Loan “without recourse to” Meridian. It further states a, “First Mortgage on [the
Property] and assignment of [YTB] stock for 2,000,000 shares” secured the Great River
Loan (Id.).
When Great River made a request for money, Meridian would notify Shamrock to
Forward Meridian money to Meridian’s account in proportion to Shamrock’s pro rata
share of the Participation Agreement.

Meridian would disburse the full amount

requested directly to Great River. Great River owned Meridian $1,300,000.00 pursuant
to the Universal Note (Doc. 29-8, Rench Depo., pp. 14, 48). The full amount allowed
under the Universal Note was advanced to Great River (Doc. 28-20).
On December 11, 2007, for a premium of $1,300.00 (Doc. 29-13, Rekart Depo.,
p. 54), First American issued a loan policy of title insurance, policy no. 1753426, to
Meridian, its successors and assigns, in the amount of $1,300,000.00 for the Property
(Title Policy) (Doc. 29-14). The Title Policy provides coverage “against loss or damage,
2

Two copies of the Participation Agreement have been submitted. One contains only the signature of Brad
Rench (Rench), former president and CEO of Meridian, and the other has the signatures of both Rench
and Don York (York), a director of Shamrock. Both contain the type-written date “12-6-2007” at the top
(Doc. 29-12). According to Carney, Shamrock (York) did not execute the Participation Agreement until it
had reviewed the Title Commitment (Doc. 29-6, Carney Depo., p. 104).
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not exceeding the Amount of Insurance, sustained or incurred by the Insured by reason
of: Title being vested other than as stated in Schedule A.” Schedule A does not reference
the “Possibility of Reverter” (Id.).
c. Meridian Fails
On October 10, 2008, the Department of Financial and Professional Regulation of
the Illinois Division of Banking closed Meridian. The FDIC was named the receiver and
charged with winding up Meridian’s business affairs (Receiver) (Doc. 29-15, Campagna
Aff.). On December 17, 2008, the FDIC, as the owner and holder of Meridian’s interest
in the Great River Loan and Title Policy due to its status as the Receiver, sent First
American a letter providing it notice of a potential claim.

The FDIC stated First

American failed to note an exception for the “Reversionary Interest,” and thus caused the
FDIC to have a junior lien on the Property. Therefore, it submitted its claim to First
American, “to be made whole on the subject $1,300,000 [Great River Loan] under
Meridian’s lender’s policy.” The FDIC further notified First American that the Simmons
were at that time considering enforcing the “Reversionary Provision” (See Doc. 29-15).
On February 13, 2009, the FDIC entered into a loan sale agreement with FH
Partners, LLC (FDIC LSA). The FDIC assigned Meridian’s interest in the Great River
Loan 3 to FH Partners, LLC (FH Partners) (See id. at pp. 7-46). 4 The FDIC recorded an
Assignment of Loans and Liens with the Madison County Recorder of Deeds (Doc. 2916, Butler Aff., Ex. A, p. 6).
The parties dispute whether claims under the Title Policy were assigned to FH Partners.
First American states, “[t]here is no evidence that Shamrock consented in writing to the assignment of
[Meridian’s] interest in the Great River loan as required by the Participation Agreement and the validity of
the assignment to FH Partners is therefore in dispute” (Doc. 28, p. 8). Shamrock responds that it has
never challenged the validity of the assignments and it had the power to waive provisions of the contract
for its benefit. See Whalen v. K-Mart Corp., 519 N.E.2d 991, 994 (Ill. App. 1988). The Court is in
agreement with Shamrock.
3

4

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After the FDIC learned of the “Possibility of Reverter,” Tomer’s attorney, Stillwell,
contacted Shamrock and advised: 1. Great River was about to go into default on the
Great River Loan, and 2. Great River’s title to the Property was subject to the “Possibility
of Reverter.” 5 On August 25, 2009, Shamrock, through its attorney James Vogel (Vogel),
sent First American notice of a claim of title or potential claim of title adverse to the
Insured Mortgage as referred to in the Title Policy (Doc. 29-17).

Vogel also stated

Shamrock might purchase FH Partners’ interest in the Great River Loan and asked for
prior confirmation that First American would provide coverage for the purchase amount
(Doc. 29-17).

Adriana Duran, claims attorney and recovery specialist for First

American, concluded the “Possibility of Reverter” was omitted from the Title
Commitment (Doc. 29-18, Duran Depo., pp. 18-19), and deferred to Shamrock’s
discretion in its purchase of the Universal Note (Doc. 29-19, p. 2).
On September 15, 2009, Carney, of Shamrock, sent Tomer a letter declaring
Great River in default under the terms of the Loan Documents (Doc. 28-26).

On

November 4, 2009, FH Partners entered into a loan sale agreement with Shamrock (FH
Partners LSA) (Doc. 29-16, Ex. B). Shamrock and FH Partners entered into an absolute
assignment and assumption of mortgage and loan documents (Absolute Assignment),
which was recorded with the Madison County Recorder of Deeds on November 30, 2009
(Id. at Ex. C).
d. “Possibility of Reverter” Triggered
Great River committed waste and neglect of the Property by failing to replace
boilers and pay real estate taxes (Doc. 29-5, Tomer Jan. 20, 2011 Depo., pp. 42-43).
First American disputes whether Meridian and/or Shamrock had “knowledge” of the “Possibility of
Reverter” prior to this time.
5

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The Simmons and Great River entered into an agreement regarding reversion on
January 15, 2010 (Reversion Agreement), wherein the parties agreed that the reversion
date had accelerated automatically and that title to the Property had reverted to the
Simmons.

A deed evidencing the transfer was recorded with the Madison County

Recorder of Deeds on January 22, 2010 (Doc. 29-20).
e. Madison County Litigation
On February 25, 2010, the Simmons brought an action to quiet title against
Shamrock in the Circuit Court of Madison County, Illinois. See John and Jayne
Simmons, et al. v. Shamrock Bank of Florida, et al. (2010-CH-245). First American
defended Shamrock under a reservation of rights. On October 25, 2011, the Honorable
Clarence Harrison entered judgment in favor of the Simmons and against Shamrock,
effectively foreclosing any interest Shamrock had in the Property (the Judgment) (Doc.
29-21). On October 10, 2012, the Illinois Fifth District Court of Appeals affirmed the
Judgment (Doc. 29-22).
Shamrock obtained a judgment against Tomer on June 22, 2011 (Doc. 29-23).
Shamrock received right and title to the YTB Stock, along with various other assets
(Doc. 29-24). Shamrock has not been able to collect on these assets (Doc. 29-6, Carney
Depo., p. 96; Doc. 29-26, Kvetko Depo., p. 28). As of July 29, 2013, the trading price
for YTB stock was $0.00 (Doc. 29-27).
First American removed this action from the Circuit Court for the Third Judicial
Circuit, Madison County, Illinois, pursuant to diversity jurisdiction, 28 U.S.C. § 1332
(Doc. 2).
(Doc. 20).

Shamrock’s First Amended Complaint brings Count I: Breach of Contract
Shamrock alleges First American issued the Title Policy to Meridian, its
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successors and assigns. Shamrock alleges Meridian, through FH Partners, assigned the
Title Policy to Shamrock. And Shamrock further alleges the Title Policy insures against
any defect in or lien encumbrance in the title to the Property.
Shamrock states that had First American disclosed to Meridian and/or Shamrock
the Trustee’s Deed or “Possibility of Reverter” contained therein, Meridian would not
have issued the Great River Loan and Shamrock would not have entered the
Participation Agreement. Shamrock cites First American’s alleged breach of the Title
Policy and asks for damages in the amount of $1,300,000.00 million dollars.
Additionally, because First American chose to pursue its rights and was unsuccessful,
under Section 5 of the Policy Conditions, Shamrock alleges the amount of insurance
increases by 10% (See Doc. 20).

Shamrock moves for summary judgment, requesting

that the Court enter judgment in its favor on Count I and against First American for
$1,430,000.00, plus pre-judgment interest (Doc. 26). Shamrock also moves for
judgment in its favor on certain affirmative defenses of First American (Doc. 30), and to
supplement the summary judgment record (Doc. 43).
As to First American’s counterclaim for declaratory judgment, it alleges Meridian
contributed $50,000.00 of the Great River Loan, while Shamrock contributed the
remaining $1,250,000.00. The Title Policy does not expressly identify Shamrock and it
does not insure the Participation Agreement. First American alleges the FH Partners
LSA excluded from the transfer to Shamrock any, “right, title and interest of the FDIC in
and to any and all claims that the FDIC has or might have against any party from whom
the FDIC or Meridian [] contract[ed] for title insurance in connection with the making,
insuring or servicing the loan.” Further, “[a]ccording to the [FH Partners LSA], all such
Page 9 of 34

interests of the FDIC and Meridian [] were retained by the FDIC under the terms of the
FDIC [LSA] and FH Partners does not claim or own any right or interest in such claims
or interests of the FDIC and Meridian [].”
First American additionally alleges Meridian’s president and CEO, Brad S. Welch
(Welch), “had direct knowledge of the possibility of reverter that extinguished the
Insured Mortgage,” and that Shamrock also “had knowledge of the possibility of
reverter.” As a “successor in ownership of the indebtedness,” First American alleges
Shamrock is entitled to $50,000.00, if anything. First American seeks judgment in its
favor declaring that it is not liable to Shamrock because Meridian and Shamrock had
knowledge of the possibility of reverter at the time the Title Policy was issued and
alternatively, that Shamrock’s actual damages are limited to an amount between
$45,000.00 and $50,000.00 (Doc. 12). First American moves for summary judgment
(Doc. 27). 6
III.

STANDARD AND APPLICABLE LAW

The parties do not dispute the applicability of the federal summary judgment
standard, see Fed. R. Civ. P. 56, or Illinois substantive law to this diversity action. See

Shamrock moves to strike various statements from First American’s statements of undisputed facts as
constituting inadmissible legal opinion and testimony precluded by the integration clause of the
Participation Agreement (Doc. 39). The Court shall not recite the specific statements herein and refers the
reader to the motion. As for the statements Shamrock believes are inadmissible legal opinion, the Court
denies Shamrock’s request as the Court does not feel the cited statements are inadmissible legal opinions.
However, the Court does not feel the statements are material to the issues before it. Further, as to the
statements Shamrock feels are inadmissible parol evidence, precluded by the integration clause of the
Participation Agreement, the Court agrees with First American that the Court is not being called upon to
interpret the Participation Agreement. First American generally relies on the cited statements in support
of its argument that Shamrock did not rely on the Title Commitment when it entered the Participation
Agreement. For the reasons stated in the Court’s above ruling, Shamrock’s reliance is not material to this
dispute. However, to the extent Shamrock’s reliance is relevant, the Court does not feel the cited
statements are inadmissible parol evidence that are used to contradict the express written terms of the
Participation Agreement and it shall rely upon them if relevant and material to this dispute. Thus,
Shamrock’s motion to strike is denied (Doc. 39).
6

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Nationwide Ins. Co. v. Cent. Laborers’ Pension Fund, 704 F.3d 522, 525 (7th Cir.
2013).
Summary judgment is proper when the pleadings, discovery, and disclosures
establish that there is no genuine issue of material fact and the movant is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56(a); Winsley v. Cook Cnty., 563 F.3d
598, 602–03 (7th Cir. 2009); see Celotex Corp. v. Catrett, 477 U.S. 317, 322–23
(1986). The movant bears the initial burden of establishing the absence of fact issues
and its entitlement to judgment as a matter of law. Santaella v. Metro. Life Ins. Co.,
123 F.3d 456, 461 (7th Cir. 1997) (citing Celotex, 477 U.S. at 323). Once the movant
has shown the facts entitle it to judgment in its favor, the burden shifts to the nonmoving party to identify some evidence in the record that establishes a triable factual
issue. Trentadue v. Redmon, 619 F.3d 648, 652 (7th Cir. 2010).
A genuine dispute as to a material fact exists if “the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Pugh v. City of Attica,
Indiana, 259 F.3d 619, 625 (7th Cir. 2001). The Court will enter summary judgment
against a party who does not “come forward with evidence that would reasonably permit
the finder of fact to find in [its] favor on a material question.” McGrath v. Gillis, 44 F.3d
567, 569 (7th Cir. 1995).
IV.

ARGUMENTS AND APPLICATION

“[T]he purpose of a title insurance policy . . . is to protect a purchaser of real
estate against title surprises.” Citicorp Sav. of Ill. v. Stewart Title Guar. Co., 840 F.2d
526, 529 (7th Cir. 1988) (quoting Pohrer v. Title Ins. Co., 652 F. Supp. 348, 352 (N.D.
Ill. 1987) (Moran, J.)). In a nutshell, Shamrock argues that because First American
Page 11 of 34

admits it failed to disclose the “Possibility of Reverter,” the focus of its motion for
summary judgment on its Count I centers on 1. Shamrock’s standing to assert its
breach of contract claim against First American, and 2. Shamrock’s right to recover
$1,430,000.00 as assignee of Meridian.
1.

Shamrock’s Standing Under the Title Policy
Shamrock argues it has standing to bring its breach of contract claim on the Title

Policy because 1. It is an “owner” and/or “successor in ownership of the Indebtedness,”
and 2. It is an assignee of the Title Policy.
a. “owner of the Indebtedness”
The Title Policy provides coverage against loss or damage sustained or incurred
by the “Insured.” “Insured” is defined under the Title Policy as, “[t]he insured named in
Schedule A,” i.e., “Meridian, its successors and assigns” (Doc. 29-14, p. 2, ¶ 1(e)). It
also includes:
(A) the owner of the Indebtedness and each successor in ownership of
the Indebtedness, whether the owner or successor owns the Indebtedness
for its own account or as a trustee or other fiduciary, except a successor
who is obligor under the provisions of Section 12(c) of these Conditions;
(Id. at ¶ 1(e)(i)(A)). “Indebtedness” denotes:
The obligation secured by the Insured Mortgage including one evidenced by
electronic means authorized by law, and if that obligation is the payment of
a debt, the Indebtedness is the sum of
(i) the amount of the principal disbursed as of the Date of the Policy;
(ii) the amount of the principal disbursed subsequent to the Policy;
.

.

.

(Id. at ¶ 1(d)).
Shamrock argues that pursuant to the Participation Agreement, Meridian and
Shamrock agreed that Shamrock would be “the legal and equitable owner” of its share
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in the Great River Loan and thus it is an “Insured” under the Title Policy as it was an
“owner of the Indebtedness” once the Participation Agreement was executed (See Doc.
29-12, p. 2, ¶ 2).
First American argues first that Shamrock has waived this argument as its First
Amended Complaint alleges it has standing as it was assigned the Title Policy from FH
Partners. Federal pleading rules require that a complaint provide “’fair notice of what
the . . . claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 545 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). The
First Amended Complaint, brought explicitly in the name of Shamrock, as assignee of
Meridian, cites the entire definition of “Insured” from the Title Policy and states,
“[p]ursuant to the terms of the Loan Sale Agreement, Meridian, through FH Partners,
assigned the [Title] Policy to Shamrock.”

And further, “Shamrock, as assignee of

Meridian, has incurred an actual monetary loss . . . WHEREFORE, Plaintiff, Shamrock
[], as assignee of Meridian [] requests the Court enter judgment in its favor” (See Doc.
20).
The Seventh Circuit has noted more than once that, “a plaintiff may not amend
his complaint through arguments in his brief in opposition to a motion for summary
judgment.” Grayson v. O’Neill, 308 F.3d 808, 817 (7th Cir. 2002); Trade Fin. Partners,
LLC v. AAR Corp., 573 F.3d 401, 412 (7th Cir. 2009). In this case, Shamrock’s First
Amended Complaint provided notice of its claim as an “Insured” under the Title Policy.
However, it did not provide express notice of its theory that the Participation Agreement
made it an “owner of the Indebtedness” and thus an “Insured” under the Title Policy.

Page 13 of 34

As the Court feels Shamrock’s argument fails on its merits, the Court does not
expressly address whether Shamrock waived this theory by raising it for the first time in
its motion for summary judgment.

Shamrock asks this Court to look to the

Participation Agreement to inform the meaning of “Insured” under the Title Policy. The
Title Policy unambiguously defines “Insured,” as, “Meridian [], its successors and
assigns,” including, “the owner of the Indebtedness and each successor in ownership of
the Indebtedness” (emphasis added).

“Indebtedness” is defined as “[t]he obligation

secured by the Insured Mortgage.” The “obligation” is the Universal Note. The Universal
Notes makes no reference to Shamrock and neither does the Title Policy. Shamrock
takes great pains in the remainder of its briefing to convince the Court that the
Participation Agreement and Universal Note are separate and distinct agreements. The
Court finds Shamrock is not an “Insured” under the Title Policy due to the rights
bestowed upon it under the Participation Agreement.
b. Shamrock is a “successor in ownership of the Indebtedness”/
assignee of the Title Policy
Additionally, Shamrock states it is an “Insured” as it is a “successor in ownership
of the Indebtedness” and alternatively, an assignee of the Title Policy.

Again, the

obligation secured by the Insured Mortgage is the Universal Note, requiring the payment
of $1,300,000.00. Thus, the amount of “Indebtedness” is the principal; $1,300,000.00.
Shamrock states it is the “successor in ownership of the Indebtedness” and thus an
“Insured” under the Title Policy, as the Universal Note was assigned by the FDIC to FH
Partners who then assigned it to Shamrock through the FH Partners LSA.
First American’s response states that Shamrock’s recovery as a “successor in
ownership of the Indebtedness,” is limited to $50,000.00. The Court shall address First
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American’s arguments as to the amount of recovery below. However, the Court finds
that Shamrock is a “successor in ownership of the Indebtedness” and thus an “Insured”
under the Title Policy.
Alternatively, Shamrock states it has standing to sue as it is an assignee of the
Title Policy and thus an assignee of the action Meridian has against First American on
the Title Policy.
The FDIC LSA, between the FDIC (Seller) and FH Partners (Buyer), Article II,
Section 2.1, states:
Terms and Conditions of Sale: Seller agrees to sell, assign, transfer and
convey to Buyer, and Buyer agrees to purchase and accept from Seller, all
the right, title and interest of Seller, . . . , in and to each Loan in the Loan
Pool(s) on a servicing-related basis, and all rights in the Property pursuant
to the Collateral Documents.
(Doc. 29-15, p. 18).

“Loan” under the FDIC LSA denotes, “all rights, powers, liens or

security interests of Seller in or under the Collateral Documents” (Id. at p. 15).
“Collateral Documents” include each, “loan agreement or other agreement or document,
. . . securing in any manner the performance or payment by any Borrower of its
obligations or the obligations of any other Borrower under any Note evidencing a Loan”
(Id. at p. 13).
Shamrock argues that the Title Policy is a “document” securing payment under
the Universal Note.

In addition to the FDIC LSA, it offers the affidavit of Colette

Campagna (Campagna), the FDIC receivership specialist responsible for Meridian’s
account (Doc. 29-15, pp. 2-4). Campagna states, “[i]t was the intent of the FDIC as
Receiver to include the Title Insurance Policy with the Loan” (Id. at p. 3).

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First American moves to strike Campagna’s statement concerning the FDIC’s
intent, arguing the FDIC LSA is facially unambiguous and thus Campagna’s statement is
inadmissible parol evidence.

Shamrock responds that the Seventh Circuit has

recognized that in the context of assignments, even in unambiguous contracts, Illinois
courts have looked to extrinsic evidence to inform the parties’ intent and scope of the
assignment. See Kaplan v. Shure Bros., Inc., 266 F.3d 598, 605-06 (7th Cir. 2001)
(compiling Illinois cases).

And further, the parol evidence rule only applies to the

parties to the written contract. See id.

The Court is in agreement and will consider

Campagna’s statement.
First American also argues that the Title Policy did not secure payment of the
Universal Note. First American cites two non-binding cases, Heyd v. Chicago Title Ins.
Co., 354 N.W.2d 154, 156 (Neb. 1984); Karl v. Commonwealth Land Title Ins. Co., 20
Cal. App. 4th 972, 24 Cal. Rptr. 2d 912 (1993), which do not persuade the Court that
the Title Policy is not included within the broad definition of “Collateral Documents”
contained within the FDIC LSA. And further, the FDIC did not retain claims on the Title
Policy (See FDIC LSA, Doc. 29-15, Section 2.7(d), p. 20). On the basis of the above, the
Court finds the Title Policy and claims thereon were assigned to FH Partners.
Shamrock then cites FH Partners’ assignment of the Title Policy to Shamrock
through the FH Partners LSA. Article III, “Title Insurance,” states, “Seller [FH Partners]
shall assign to Buyer [Shamrock] all of Seller’s right, title, and interest in and to any title
insurance policy for land, buildings, structures and improvements located thereon
serving as security for the Loan (the ‘Real Property Collateral’), if any” (Doc. 29-16, p.
15).
Page 16 of 34

In opposition, First American cites Article 1, Section 1.1, of the FH Partners LSA:
Buyer and Seller agree that the sale of the Loan pursuant to this Agreement
will exclude the transfer to Buyer of any right, title and interest of the
FDIC…, and Bank in and to any and all claims of any nature whatsoever
that might now exist or hereafter arise, whether known or unknown, that
the FDIC has or might have … (d) against any appraiser or other party from
whom the FDIC or Bank or any servicing agent contracted for services or
title insurance in connection with the making, insuring or servicing of the
Loan…
(Doc. 29-16, p. 12). First American argues it is an “other party” referred to in Section
1.1 and thus any claims against First American were excluded from the sale. Shamrock
argues that the FDIC did not retain claims under the Title Policy and that First
American’s interpretation would render Article III, “Title Insurance,” meaningless and
thus “other party” refers to third party providers and not First American.
Shamrock additionally moves to supplement the summary judgment record to
include an “Amended Loan Sale Agreement,” which purports to amend Article 1, Section
1.1, of the FH Partners LSA. The Amended Loan Sale Agreement states that it amends
Section 1.1 to the extent there is ambiguity concerning assignment of the Title Policy and
claims thereon from FH Partners to Shamrock. The Amended Loan Sale agreement
adds the following language to Section 1.1(d):
The foregoing exclusions shall not apply to any claims for title coverage
under the title insurance policy issued by First American Title Ins. Co.,
described as Loan Policy of Title Insurance, Policy Number 1753426, and
such claims have been assigned pursuant to Article III herein.
(Doc. 43-1).

First American of course argues the Court should not exercise its

discretion in granting the motion to supplement. First American cites Vance v. Ball
State Univ., 646 F.3d 461 (7th Cir. 2011), wherein the Seventh Circuit affirmed a
district court’s denial of a motion to supplement the summary judgment record with
Page 17 of 34

additional “individual acts” as evidence of a hostile work environment claim after the
deadlines for discovery and dispositive motions had “long passed.” Id. at 469.
The Court accepts Shamrock’s interpretation. To summarize, the FDIC did not
retain claims on the Title Policy (See FDIC LSA, Doc. 29-15, Section 2.7(d), p. 20). The
FDIC assigned claims that Meridian would have had on the Title Policy to FH Partners.
Article III of the FH Partners LSA unambiguously assigns FH Partners’ “right, title, and
interest” in the Title Policy to Shamrock. Article 1, Section 1.1, of the FH Partners LSA
excludes claims that the FDIC retained, but because the FDIC did not retain claims
under the Title Policy it assigned those claims, pursuant to Article III, to Shamrock.
Alternatively, to the extent there is an ambiguity, the Court grants Shamrock’s
motion to supplement.

As to First American’s complaint of untimeliness, the Court

notes that discovery had not yet closed when Shamrock moved to supplement. First
American could have deposed the signatories to the Amended Loan Sale Agreement or
even asked the Court for an extension of the discovery period, but failed to do so. While
of course the dispositive motion deadline set forth in Magistrate Judge Frazier’s
scheduling order had passed, First American cannot cite any specific prejudice arising
from the timing of Shamrock’s request. The Amended Loan Sale Agreement is offered
to clarify an ambiguity, to the extent there is one, in the FH Partners LSA.

As this

amendment merely coincides with Shamrock’s previously stated argument, the Court
cannot see how its addition to the record could unduly prejudice First American. Thus,
for all the reasons stated above, it is clear to the Court that the FH Partners LSA
assigned Shamrock the right to sue under the Title Policy.

Page 18 of 34

Thus, Shamrock is an “assignee” of the Title Policy as it has “rights” to the Title
Policy, “transmitted by particular title, such as sale, gift, legacy, transfer or cession.”
Sauls v. Cox, 67 N.E.2d 187, 191 (Ill. 1946). Thus, Shamrock is an “Insured” under
the Title Policy as it is the “successor in ownership of the Indebtedness,” and
alternatively, because it is an “assignee” of Meridian’s rights under the Title Policy,
including claims thereon.
2.

Shamrock’s right to recover $1,430,000.00.
a. First American’s Motion for Summary Judgment
First American moves for summary judgment, arguing the Title Policy is void ab

initio, neither Meridian nor Shamrock “relied” on the Title Policy, and finally that the
defect was “suffered, assumed, or agreed to” by the “Insured.”
i. Void ab Initio
First American argues the Title Policy is void ab initio, citing paragraph 4 of the
Title Commitment which states, “[o]ur only obligation is to issue to you the Policy
referred to in this Commitment, when you have met its Requirements” (Doc. 29-7, p. 3).
And further Requirements, subsection (d), stating, “[y]ou must tell us in writing the
name of anyone not referred to in this Commitment who will get an interest in the land
or who will make a loan on the land” (Id.). First American argues that pursuant to the
Participation Agreement, Shamrock received a security interest in the Property in
proportion to its investment and that for all intents and purposes the Great River Loan
was a loan from Shamrock. Thus, the Title Policy is void as written notice was not given
to First American.

Page 19 of 34

Shamrock responds first that because the Title Policy contains an integration
clause, Requirements subsection (d) of the Title Commitment was not integrated into the
Title Policy (See Doc. 29-14, Section 14(a), “This policy together with all endorsements,
if any, attached to it by the Company is the entire policy and contract between the
Insured and the Company.”). In light of this integration clause, the parties intended the
Title Policy to supersede the Title Commitment. See Cont’l Mobile Tel. Co., Inc. v.
Chicago SMSA Ltd. P’ship, 587 N.E.2d 1169, 1174-73 (Ill. App. 1992) (integration
clause supersedes all prior discussion and agreements); see also Archambo v. Lawyers
Title Ins. Corp., 646 N.W.2d 170, 176-77 (Mich. 2002) (subsequently issued title policy
superseded antecedent title commitment due to integration clause of title policy and
thus conditions of title commitment were nullified).

The Title Policy does not contain

Requirements subsection (d) referenced above and thus First American’s argument fails.
Moreover, assuming the Title Commitment controls the Title Policy dispute, the
Title Commitment required Meridian to act in good faith in informing First American of
parties who may take an interest in, or make a loan on, the Property. Shamrock states
First American has not offered evidence that Meridian did not act in good faith when it
entered into the Participation Agreement after the Title Commitment was issued. And
further, First American’s argument mischaracterizes the nature of the Participation
Agreement.

Shamrock states a Participation Agreement is a loan between banks.

Shamrock purchased an interest in the Great River Loan; not the Property. Further, it
did not make a loan on the Property.

Duran, claims attorney for First American,

confirmed this understanding of the Participation Agreement (See Doc. 29-18, Duran
Depo., p. 28).
Page 20 of 34

And finally, Shamrock notes that First American is essentially raising its
affirmative defense that had Meridian disclosed the Participation Agreement, First
American would have made additional requirements or exceptions to the Title
Commitment and Title Policy (Doc. 11, p. 12).

In opposition, Shamrock offers the

following portion of Duran’s deposition:
Q:
Okay. So there would be no additional requirements or exceptions
of the title commitment and policy resulting from the participation
agreement, correct?
A:

In reference to coverage under the policy, yes.

Q:

Can you explain that?

A:
Under the policy, only the person who's insured, which in this case is
Meridian Bank, and or assigned is the insured under this policy. But
Shamrock Bank is claiming an interest under the terms of the policy, and
it's our position that Shamrock Bank is not an insured under the policy.
Q:
Okay. So would your analysis change if Shamrock Bank was
asserting its claim as assignee to Meridian Bank?
A:

Yes.

Q:
And in that instance, there would be no [additional] requirements as
referenced in paragraph 11 [of the Third Affirmative Defense], correct?
A:

That is correct.

(Doc. 29-18, Duran Depo., pp, 29-30). On the basis of all of the above, the Title Policy is
not void ab initio due to the Requirements subsection (d) of the Title Commitment. 7
ii. Reliance
Next, First American argues that as an assignee, Shamrock is subject to the same
defenses First American would have against Meridian.

7

As neither Meridian nor

As Requirements subsection (d) of the Title Commitment does not render the Title Policy void ab initio,
summary judgment is granted in Shamrock’s favor as to First American’s Third Affirmative Defense.
Page 21 of 34

Shamrock relied on the Title Commitment or Title Policy when approving the Great
River Loan and/or entering the Participation Agreement, First American argues it has no
liability under the Title Policy to Shamrock. See First Nat’l. Bank of Northbrook, N.A.
v. Stewart Title Guar. Co., 664 N.E.2d 310, 314 (Ill. App. 1996).
In support, First American argues Tomer told Rench, president and CEO of
Meridian, about the “Possibility of Reverter,” and also that Winfield and Peggy Stillwell 8
had “direct knowledge” of its existence. According to First American, Rench’s and Peggy
Stillwell’s knowledge can be imputed to Meridian, while Winfield’s knowledge can be
imputed to both Meridian and Shamrock as he was also a director, member of the loan
committee, and shareholder of Shamrock.
As a preliminary matter, the Court notes that Meridian’s reliance is the focus of
this inquiry, as Shamrock’s rights under the Title Policy arise from its status as a
“successor in ownership of the Indebtedness” and/or assignee of Meridian.

As to

Meridian’s reliance on the Title Commitment, Meridian ordered the Title Commitment
on November 29, 2007 (Doc. 37-2). On November 30, 2007, First American issued the
Title Commitment to Meridian. On December 6, 2007, the Universal Note and Insured
Mortgage were executed.
As president and CEO of Meridian, Rench testified that he was in charge of
approving loans with the help of a loan committee (Doc. 29-8, p. 6). Rench stated the
underwriting process for loans involved reviewing title work (Id. at p. 10). Rench did
not specifically recall reviewing the Title Commitment First American prepared, but
stated it was his practice to, “completely review any title commitment before the loan is
8

According to Rench, Peggy Stillwell was on the board of directors of Meridian as of February 20, 2007
(Doc. 28-5, Rench Depo., p. 29).
Page 22 of 34

ever funded” (Id. at p. 23). Rench did not recall discussing the “reverter clause” with
Tomer (Id. at 10). Rench further testified that he was not aware of any “reverters” on
the Property, that Meridian did not agree to assume the risk regarding any “reverter,”
and that Meridian would have relied on the Title Commitment from First American to
inform its decision (Id. at p. 48).
First American relies on Tomer’s deposition of January 20, 2011, as evidence that
Rench, i.e., Meridian, did not rely on the Title Commitment or Title Policy.

Tomer

testified as follows:
At that time I said I thought about taking, it would be nice if we could do a
loan on [the Property] but it probably wouldn’t qualify because there’s a
reverter clause. [Rench] said he had glanced over the title policy but didn’t
notice one, but [would] check that out.
I don’t know the dates of any of these conversations because I was in the
bank many times . . . The next time I recall he said, there’s no, nothing on
your title, there’s no cloud on it. I said, are you sure? I know we talked
about it during the closing. He said, check your title policy. I went and
checked my title policy, and sure enough, it was clear.
.

.

.

I was advised by [] Rench that there was nothing against the title, I believed
I had full right to do whatever.
(Doc. 29-5, Tomer Jan. 20, 2011 Depo., pp. 9, 11).
First American argues Tomer’s alleged statements to Rench concerning the
“reverter clause” demonstrate Meridian did not rely on the Title Commitment and/or
Title Policy in determining whether to enter into the Great River Loan.
Additionally, First American moves to strike Tomer’s following statements as
hearsay:

Page 23 of 34

“He said he had glanced over the title policy but didn’t notice one, but I’ll check
that out” (Id. at p. 9).
“The next time I recall he said, there’s no, nothing on your title, there’s no cloud
on it” (Id. at p. 11).
Hearsay is defined as an out of court statement offered to prove the truth of the
matter asserted. Fed. R. Evid. 801. Shamrock argues the above statements are either
1. not offered for the truth of the matter asserted, and/or 2. fall within the state of mind
exception to hearsay.
As to the first statement, it concerns a future intent to perform an action.
Shamrock offers these statements not to prove that Rench “glanced over the title policy,”
but as evidence of Rench’s intent to investigate Tomer’s alleged statements further.
As to the second statement, Shamrock does not offer it for the truth of the matter
asserted, i.e., that there was no cloud on the title as that is clearly not true. Shamrock
offers the statement as evidence of Meridian’s reliance on the Title Commitment and/or
Title Policy.
Further, to the extent the above statements are hearsay, they are used to
demonstrate Rench’s intent to investigate Tomer’s alleged statements concerning the
“Possibility of Reverter” and thus fall under the state-of-mind exception, FEDERAL RULE
OF

EVIDENCE 803(3), to the hearsay rule. See Catalan v. GMAC Mortg. Corp., 629 F.3d

676, 694-95 (7th Cir. 2011) (citing Fed. R. Evid. 803(3)).

Thus, First American’s

motion to strike these statements from the Court’s consideration is denied.
Shamrock also asks that the Court disregard Tomer’s January 20, 2011
statements in reliance on a June 17, 2009, deposition wherein Tomer testified that he
Page 24 of 34

did not recall discussing the Simmons’ “reversionary interest” with Meridian, i.e.,
Rench, at the “time of the mortgage” (Doc. 29-29, 2009 Tomer Depo., p. 118). First
American moves to strike the 2009 Tomer deposition. First American relies on FEDERAL
RULE OF CIVIL PROCEDURE 32(a)(8):
Deposition Taken in an Earlier Action. A deposition lawfully taken
and, if required, filed in any federal- or state-court action may be used in a
later action involving the same subject matter between the same parties, or
their representatives or successors in interest, to the same extent as if
taken in the later action. A deposition previously taken may also be used
as allowed by the Federal Rules of Evidence.
Fed. R. Civ. P. 32(a)(8). First American states this deposition was taken in Braswell v.
Tomer, et al., (Madison County Illinois Case No. 08-L-582), a case involving a
mechanics lien filed against Tomer to which First American was not a party.
Shamrock responds that it is using Tomer’s prior 2009 deposition to
demonstrate that the Court should disregard his 2011 testimony as inconsistent. Thus,
it is properly before the Court pursuant to Fed. R. Civ. P. 32(a)(2) (“Any party may use a
deposition to contradict or impeach the testimony given by the deponent as a witness, or
for any other purpose allowed by the Federal Rules of Evidence.”), and the rules of
evidence.

However, Shamrock notes that the admission of the 2009 deposition would

not create a genuine issue of material fact, as the inconsistency demonstrates that
Tomer’s 2011 testimony is such that “no reasonable person would believe it.” Seshadri
v. Kasraian, 130 F.3d 798, 802 (7th Cir. 1997).
Shamrock would like the Court to consider Tomer’s 2011 statements concerning
Rench’s reaction to Tomer’s alleged discussion of the “Possibility of Reverter,” but also
disregard the January 20, 2011 deposition as unreliable and inconsistent. The Court
finds the 2011 statements are not of such a nature that “no reasonable person would
Page 25 of 34

believe” them.

To the extent that Shamrock asks this Court to weigh Tomer’s

credibility, it grants First American’s motion to strike Tomer’s 2009 deposition and thus
does not consider it.

Alternatively, the Court finds admission of Tomer’s 2009

deposition would not create a genuine dispute of material fact. Assuming the truth of
the 2009 statement (“I do not recall”) and 2011 statement (to summarize, “I now recall
very well”), the substance of Tomer’s 2011 statements do not raise a genuine dispute of
material fact for the reasons below.
First American moves for summary judgment, arguing Meridian did not rely on
the Title Commitment, in part, because Tomer made Rench aware of the existence of the
“Possibility of Reverter.”

Tomer’s 2011 statements, made without reference to time

frame, do not demonstrate Meridian did not rely on the Title Commitment.

And

further, Tomer’s recitation of Rench’s reaction to Tomer’s discussion of the “Possibility
of Reverter” bolsters a finding that Meridian did in fact rely on the Title Commitment.
Assuming the truth of Tomer’s recollections, this conversation clearly took place after
the Title Commitment and/or Title Policy had been issued.
As for Winfield, Tomer could not recall a specific conversation with Winfield
concerning the “Possibility of Reverter” (Doc. 29-5, pp. 13-14). He said it was possible,
because he and Winfield were friends, but was not sure (Id.). However, Tomer did state
that he was “positive” Rench was the only Meridian “personnel” he dealt with in terms of
the “substance of the [Great River Loan] transaction” (Id. at p. 10).

As for Peggy

Stillwell, First American does not reference the record when it states Peggy Stilwell has
“direct knowledge” of the “Possibility of Reverter.” The Court assumes it refers to the
fact Peggy Stilwell ordered the Title Commitment (Doc. 28-3, Rekart Depo., pp. 22-23)
Page 26 of 34

and in part notarized the Trustee’s Deed (Doc. 29-4). Rench could not recall ever having
a conversation with Peggy Stillwell about the Great River Loan (Doc. 28-5, Rench Depo.,
p. 33). And again, Tomer stated Rench was the only person he dealt with at Meridian
concerning the substance of the Great River Loan. The above facts do not raise a
genuine issue of material fact concerning Meridian’s reliance on the Title Commitment
and/or Title Policy.
To the extent Shamrock’s reliance on the Title Commitment is material to this
dispute, First American generally cites Winfield’s friendship with Tomer, Rench’s
statement that Shamrock asked Meridian to take the lead in the Great River Loan as
Shamrock was based in Florida (Doc. 28-5, Rench Depo., p. 8), and similar factors, as
evidence that Shamrock did not rely on the Title Commitment when it entered the
Participation Agreement.
On December 4, 2007, Carney, in a memo to the “Directors Loan Committee”
characterized the “Collateral” on the Great River Loan, in part, as “First mortgage on
[the Property].” His recommendation was as follows:
Approval as submitted. Great River, combined with the guarantees of
J. Lloyd and Christine Tomer, provides an acceptable risk for this loan.
The Tomer’s exhibit strong cash flow and credit scores. The loan-to-value
based on the real estate solely is 45%, and combined with the current value
of YTB stock is 24%. Risks are recognized with the volatility of the YTB
stock price, and the collateral. However this is mitigated by the previously
mentioned reasons, and the excellent relationship Lloyd Tomer has with
Meridian [].
(Doc. 28-12).
In reliance on an email exchange between Carney and Rench (Doc. 28-13), First
American argues that Shamrock had not seen the Title Commitment when it entered the
Participation Agreement. On December 7, 2007, Carney emailed Rench with questions
Page 27 of 34

about the Great River Loan. Most notably, “where is copy of title commitment?” On
December 10, 2007, Rench stated, “I will fax you a copy of the title commitment this
morning” (Id.). According to Carney, Rench provided Carney a copy of the Title
Commitment on the morning of December 10, 2007. And further when the Shamrock’s
Directors’ Loan Committee approved the Participation Agreement on December 10,
2007, he had seen the Title Commitment (Doc. 29-6, Carney Depo., p. 104; Doc. 28-14).
Similarly to Meridian, the Court finds First American has not presented sufficient
evidence of Shamrock’s lack of reliance on the Title Commitment in its decision to enter
the Participation Agreement.

The Court has reviewed the record and finds that the

evidence demonstrates that Shamrock based its decision to enter the Participation
Agreement on a number of factors. Shamrock relied, in part, on Tomer’s relationship
with Meridian.

However, the evidence also demonstrates that Shamrock looked to

additional factors such as the Tomers’, Great River’s, and YTB’s financial soundness (at
that time), and its belief that the Insured Mortgage was a “first mortgage” on the
property. The fact that Shamrock looked to multiple factors does not logically lead to
the conclusion that it did not also rely on the Title Commitment.
iii. “Suffered, Assumed, or Agreed to”
In reliance on the above, First American also argues Meridian “suffered, assumed,
or agreed to,” the “Possibility of Reverter,” and thus Shamrock’s claim is excluded (See
Doc. 29-14, p. 2, “Exclusions From Coverage,” ¶ 3). “The burden is on the insurer to
establish that a policy exclusion applies, and its applicability must be definite and free
from doubt. Exclusion provisions that limit or exclude coverage must be construed
liberally in favor of the insured and strictly against the insurer.” Czapski v. Maher, 954
Page 28 of 34

N.E.2d 237, 240 (Ill. App. 2011) (additional citations omitted).

“The ‘created or

suffered’ exclusion is a standard one in title insurance contracts, and it is apparently
‘[o]ne of the most litigated’ clauses in the field.’” Home Federal Sav. Bank v. Ticor Title
Ins. Co., 695 F.3d 725, 732 (7th Cir. 2012) (quoting Palomar, Title Insurance Law §
6:10) (applying Indiana Law). In summarizing the majority approach on the subject, the
Seventh Circuit recently stated, “the ‘created or suffered’ language is intended to protect
the insurer from liability for matters caused by the insured's own intentional
misconduct, breach of duty, or otherwise inequitable dealings.” Id. at 732-33 (compiling
cases).
And further,
The cases discussing the applicability of the ‘created or suffered’
exclusion generally have stated that the insurer can escape liability only if it
is established that the defect, lien or encumbrance resulted from some
intentional misconduct or inequitable dealings by the insured or the
insured either expressly or impliedly assumed or agreed to the defects or
encumbrances in the course of purchasing the property involved. The
courts have not permitted the insurer to avoid liability if the insured was
innocent of any conduct causing the loss or was simply negligent in bringing
about the loss.
Id. (quoting Brown v. St. Paul Title Ins. Co., 634 F.2d 1103, 1107–08 n. 8 (8th Cir.
1980) (applying Missouri law) (additional citations omitted)).
First American seemingly relies on Rench’s, Winfield’s, and Peggy Stillwell’s
alleged “direct knowledge” of the “Possibility of Reverter,” as evidence that coverage is
excluded.

As stated above, First American has presented no evidence of either

Winfield’s or Peggy Stillwell’s “direct knowledge” of the “Possibility of Reverter.” And
there is no evidence that anyone associated with Meridian had knowledge of the effect
the “reversionary interest” would have on the title.
Page 29 of 34

Assuming Tomer generally discussed the “reversionary interest” with Rench at
some unknown time period this does not demonstrate awareness of the effect it would
have on the title. “Assume,” requires knowledge of the specific defect at issue, and
“agreed to” denotes an explicit agreement. In this case, Tomer’s s statement to Rench
that he thought there was a “reverter clause” in the deed does not amount to evidence of
either. First American has not provided evidence of intentional misconduct or
affirmative action on the part of Rench, or anyone at Meridian associated with the Great
River Loan, to “create, suffer, assume, or agree to,” the title defect.
Meridian retained an expert, First American, to review the title of the Property,
including the public records, to notify Meridian of any specific encumbrances on the
Property.

First American admits its mistake in failing to expressly except the

“Possibility of Reverter” noted in the properly recorded Trustee’s Deed. First American
has not offered evidence capable of shifting the blame for its mistake to Meridian or its
assignee, Shamrock. 9
b. Amount of First American’s Liability
Whether Shamrock is an “Insured” because it is a “successor in ownership of the
Indebtedness,” or because it an assignee of the Title Policy, First American argues
Shamrock is subject to the same defenses it would have had against FH Partners and
Meridian. As the Title Policy is a contract for indemnity against actual monetary loss of
9

As the Court finds Meridian did not “suffer, assume, or agree to,” the title defect at issue, Shamrock’s
motion for summary judgment as to First American’s Second Affirmative defense is granted. And finally,
Shamrock seeks summary judgment as to First American’s Fifth Affirmative defense (incorrectly identified
by Shamrock as First American’s Fourth Affirmative Defense), arguing Shamrock cannot file suit in
Illinois as it is not registered to do business in Illinois. See 805 ILCS 5/13.70. Shamrock has offered
evidence that it does not “transact business” in Illinois and is thus not required to obtain a certificate of
authority to maintain a civil action in Illinois (Doc. 29-6, Carney Depo., pp. 46-47). First American has
not offered evidence in rebuttal. Thus, summary judgment is granted in Shamrock’s favor as to First
American’s Fifth Affirmative Defense.
Page 30 of 34

damage, First American argues its liability is limited to Meridian’s “actual loss of
$50,000.00.”
It is undisputed that Great River defaulted on the Great River Loan and that the
Insured Mortgage is invalid.
Section 8 of the Title Policy provides,
DETERMINATION AND EXTENT OF LIABILITY
This policy is a contract of indemnity against actual monetary loss or
damage sustained by the Insured Claimant who has suffered loss or damage by
reason of matters insured against by this policy.
(a) The extent of liability of the Company for loss or damage under this policy
shall not exceed the least of
(i) The Amount of Insurance,
(ii) The indebtedness,
(iii) The difference between the value of the Title as insured and the value of
the Title subject to the risk insured against by this policy, or
.
.
.
(Doc. 29-14, p. 4).
First American argues that the Participation Agreement reduces the amount of
Indebtedness. The Court agrees with Shamrock that First American’s interpretation of
its extent of liability is not reflected in the Title Policy.

Shamrock relies on C.A.M.

Affiliates, Inc. v. First Am. Title Ins. Co., 715 N.E.2d 778, 783-84 (Ill. App. 1999). In
C.A.M., the original plaintiff, the lending bank, assigned its rights, title, and interest in
the subject note and mortgage, along with claims on the title policy, to C.A.M. C.A.M.
was then substituted as plaintiff in the action against the title company. The trial court
granted C.A.M.’s motions for summary judgment and the title company appealed. On
appeal, the title company argued C.A.M.’s recovery was limited to $4,500.00; the
difference between the amount of the mortgage and the amount C.A.M. paid for the
assignment. The title company relied on the following provision of the policy at issue:

Page 31 of 34

Payment in part by any person of the principal of the indebtedness,
or any other obligation secured by the insured mortgage, or any voluntary
partial satisfaction or release of the insured mortgage, to the extent of the
payment, satisfaction or release, shall reduce the amount of insurance pro
tanto. The amount of insurance may thereafter be increased by accruing
interest and advances made to protect the lien of the insured mortgage and
secured thereby, with interest thereon, provided in no event shall the
amount of insurance be greater than the amount of insurance stated in
Schedule A.
Id. at 783-84 (citing Section 9(b) of the policy). The appellate court found, “C.A.M.’s
payment was not a repayment of the principal of the indebtedness.

Rather, it was

simply a transfer of the indebtedness from one entity to another for a premium.” Id. at
784. While not directly on point, the Court agrees that C.A.M. is at least instructive.
Meridian paid $1,300.00 for $1,300,000.00 in title insurance. To reiterate, there
was a complete failure of the Insured Mortgage.

$1,300,000.00 reflects the amount

Great River owed Meridian under the Universal Note and thus to Shamrock as
Meridian’s assignee. First American fails to convince the Court that the Participation
Agreement, a separate and distinct agreement from the Universal Note, impacts the
amount owed Meridian under the Universal Note. The Amount of Insurance owed under
the Title Policy does not decrease because a lender sells or assigns the Indebtedness to a
third party.

And further, the fact Shamrock’s participation was “without recourse”

against Meridian does not alter the amount Great River owed to Meridian, i.e., the
amount Meridian could not recover due to the Insured Mortgage’s complete failure.
As to the exact amount of First American’s liability, Shamrock states that “actual
monetary loss or damage” arising from a complete failure of title is the difference
between the mortagee’s security interest and the value of the mortgage subject to the
defect. See Gray v. Commonwealth Land Title Ins. Co., 27 A.3d 852, 856 (N.H. 2011)
Page 32 of 34

(Duggan, J.); see also Allison v. Ticor Title Ins. Co., 907 F.2d 645, 651-52 (7th Cir.
1990) (“It is hard to see how ‘actual loss’ could exceed market value on the date of the
loss.”) (applying Wisconsin law).
Shamrock offers an appraisal of the Property conducted by Colliers Appraisers,
Ltd. on October 29, 2010, valuing the property at $3,225,000.00 (Doc. 29-2). This of
course exceeds the Amount of Insurance and the indebtedness.

As for the other

collateral securing the Great River Loan, Shamrock states that as of July 29, 2013, the
YTB stock price was $.01 and had a 52 week high of $.02. Thus, First American’s
liability, pursuant to Conditions, Section 8(a), for the complete failure of the Insured
Mortgage, is $1,300,000.00. 10
Further, under Conditions, Section 8(b)(i), Shamrock is entitled to an additional
increase of 10% to the “Amount of Insurance,” as First American unsuccessfully
defended Shamrock in the Madison County Litigation.
Finally, Shamrock’s motion for summary judgment seeks entry of judgment
against First American in the amount of “$1,430,000, plus pre-judgment interest” (Doc.
26). It does not appear Shamrock addresses its pre-judgment interest request in its
briefing to the Court. Illinois courts have recently noted that the award of statutory
interest is within the sound discretion of the trial court. See Fed. Ins. Co. v. Binney &
Smith, Inc., 913 N.E.2d 43, 60 (Ill. App. 2009); United Nat. Ins. Co. v. 200 North
Dearborn P’ship., 979 N.E.2d 920, 929 (Ill. App. 2012). As Shamrock does not address
its request for pre-judgment interest, the Court denies its request.

10

To this extent, Shamrock’s motion for summary judgment as to First American’s First Affirmative
Defense is granted.
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Thus, Shamrock’s motion for summary judgment on Count I of its First Amended
Complaint and on First American’s Counterclaim for Declaratory Judgment is granted
in part (Doc. 26) and First American’s motion for summary judgment is denied (Doc.
27). Judgment shall be entered in favor of Shamrock and against First American in the
amount of $1,430,000.00.
V.

CONCLUSION

For the reasons stated above, the Court finds as follows:
Shamrock’s motion for summary judgment on Count I of its First Amended
Complaint and on First American’s Counterclaim for Declaratory Judgment is
GRANTED in part, as the Court shall enter judgment in favor of Shamrock and against
First American in the amount $1,430,000.00 (Doc. 26). Shamrock’s motion for
summary judgment on First American’s affirmative defenses (Doc. 30), and its motion to
supplement the summary judgment record (Doc. 43), are GRANTED.

Shamrock’s

motion to strike portions of First American’s undisputed facts (Doc. 39) is DENIED.
First American’s motion for summary judgment is DENIED (Doc. 27). First American’s
motion to strike portions of Shamrock’s facts is GRANTED in part (Doc. 41).
The Clerk is instructed to enter judgment in favor of Shamrock and against First
American on Shamrock’s Count I in the amount of $1,430,000.00. Judgment shall also
enter in favor of Shamrock and against First American as to First American’s
counterclaim for declaratory judgment.
IT IS SO ORDERED.
Signed this 28th day of March, 2014.

Digitally signed
by David R.
Herndon
Date: 2014.03.28
12:47:30 -05'00'
Chief Judge
United States District Court

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