Wells Fargo Bank, National Association as Trustee for Soundview Home Loan Trust 2007-OPT1, Asset-Backed Certificates, Series 2007-OPT1 v. First American Title Insurance Company

Filing 17

MEMORANDUM AND ORDER denying 9 Defendant's Motion to Dismiss. Signed by Judge William M Nickerson on 4/6/2016. (bmhs, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND

WELLS FARGO BANK, N.A.
v.
FIRST AMERICAN TITLE
INSURANCE COMPANY

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Civil Action No. WMN-15-2882

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MEMORANDUM & ORDER
Before the Court is Defendant’s Motion to Dismiss.
9.

The motion is fully briefed.

ECF No.

Upon a review of the pleadings

and the applicable case law, the Court determines that no
hearing is necessary, Local Rule 105.6, and that Defendant’s
motion will be denied.
On September 23, 2015, Plaintiff Wells Fargo Bank, National
Association1 brought the present action against Defendant First
American Title Insurance Company asserting a claim for breach of
contract and seeking a declaratory judgment.

In its Motion to

Dismiss, Defendant argues that Plaintiff’s claims are barred by
the applicable statute of limitations.

The facts relevant to

limitations are as follows.
On or about March 19, 2007, Thomas E. Hardnett and Derry D.
Hardnett refinanced a loan secured by their property located at
1

Plaintiff is bringing this action as the Trustee for
Soundview Home Loan Trust 2007-OPT1, Asset-Backed Certificates,
Series 2007-OPT1.

7405 Kathydale Road, Baltimore, Maryland (the Property), with a
loan from Option One Mortgage Company.

The loan was secured by

the Property by virtue of a deed of trust dated March 19, 2007,
and recorded among the Land Records for Baltimore County.

In

conjunction with the closing of the loan, Huntington Title &
Escrow Company issued a lender’s policy of title insurance
underwritten by Defendant.

The title policy insured that the

lien of the insured deed of trust would operate as a first
priority lien against the Property.

Following the issuance of

the title policy, the loan was assigned to Plaintiff.
Subsequently, on January 30, 2012, Plaintiff made a claim
under the title policy demanding that Defendant compensate it
for losses incurred as the result of an alleged title defect.
This claim arose due to a claim of priority by, and subsequent
foreclosure of, an indemnity deed of trust on the Property that
had been granted to Bank of America (BOA Deed of Trust) in 1998.
The BOA Deed of Trust was not excepted to in the title policy
underwritten by Defendant.

The foreclosure sale held on August

11, 2011, was ratified on November 21, 2011, and with the
recordation of a trustees’ deed on December 29, 2011,
Plaintiff’s interest in the Property under the insured deed of
trust “was wiped out.”

Accordingly, Plaintiff demanded from

Defendant payment of policy limits for loss and damages
suffered.
2

By letter dated November 20, 2012, Defendant denied the
Title Claim.

Compl., Ex. H, ECF No. 1-9.

The basis for

Defendant’s denial was that Plaintiff failed to provide
Defendant timely notice of the alleged title defect arising from
the existence of the BOA Deed of Trust.

In its denial,

Defendant maintained that Plaintiff did not inform Defendant of
the title defect until after the foreclosure sale had been
completed and a final judgment had been entered.

On September

4, 2015, Plaintiff requested that Defendant reconsider its
denial of the title claim.

On September 16, 2015, Defendant

reiterated that its previous communication regarding the claim
was appropriate.

In this action, Plaintiff seeks declaratory

relief and monetary damages against Defendant for breach of
contract as a result of Defendant’s denial of the demand for
indemnity.
As stated above, Defendant moves to dismiss this action
solely on the ground that Plaintiff’s claims are barred by the
applicable statute of limitations.

The statute of limitations

is an affirmative defense that a party typically must raise in a
pleading under Federal Rule of Civil Procedure 8(c) and is not
usually an appropriate ground for dismissal.

See Eniola v.

Leasecomm Corp., 214 F. Supp. 2d 520, 525 (D. Md. 2002);
v. Metts, 203 F. Supp. 2d 426, 428 (D. Md. 2002).

Gray

Nonetheless,

dismissal is proper “when the face of the complaint clearly
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reveals the existence of a meritorious affirmative defense.”
Brooks v. City of Winston–Salem, North Carolina, 85 F.3d 178,
181 (4th Cir. 1996);

see 5B Charles A. Wright & Arthur R.

Miller, Federal Practice & Procedure § 1357, at 714 (3rd ed.
2004) (“A complaint showing that the governing statute of
limitations has run on the plaintiff's claim for relief is the
most common situation in which the affirmative defense appears
on the face of the pleading and provides a basis for a motion to
dismiss under Rule 12(b)(6).”).

Here, the parties agree that

the applicable statute of limitations for Plaintiff’s claim is
Maryland’s general statute of limitations, which provides that
“a civil action at law shall be filed within three (3) years
from the date it accrues. . . .”
Proc. § 5-101.

Md. Code Ann., Cts. & Jud.

The parties disagree as to when Plaintiff’s

claims accrued.
A cause of action accrues for purposes of limitations when
all elements of the cause of action have occurred.

Shailendra

Kumar, P.A. v. Dhanda, 43 A.3d 1029, 1034 (Md. 2012).

Under

Maryland law, the elements for a breach of contract claim are:
1) the existence of a contractual obligation owed, and 2) a
material breach of that obligation.
N.A., 776 A.2d 645, 651 (Md. 2001).2

2

Taylor v. NationsBank,
Thus, a cause of action for

Defendant contends, and Plaintiff does not dispute, that the
limitations period for seeking a declaratory judgment based upon
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breach of contract accrues and limitations begins to run on that
claim when the breach occurs.

Goodman v. Praxair, Inc., 494

F.3d 458, 465 (4th Cir. 2007).
In its Motion to Dismiss, Defendant contends that the
statute of limitations began running, at the latest, on January
30, 2012, when Plaintiff first submitted a claim to Defendant
under the title insurance policy.

In Defendant’s view, that

submission was an acknowledgement that Plaintiff’s interest in
the Property had been “wiped out, thereby making any demand that
[Defendant] cure the defect or take other steps to place the
Insured Deed of Trust in its contracted for lien position
futile.”

Mot. at 7-8, ECF No. 9-1.

Because the Complaint was

filed more than three years after January 30, 2012, Defendant
asserts it is time barred.
In support of its view, Defendant relies almost exclusively
on a decision from the United States District Court for the
Eastern District of Pennsylvania, United States Bank, Nat. Ass'n
v. First Am. Title Ins. Co., 944 F. Supp. 2d 386 (E.D. Pa.
2013).

United States Bank addressed the question as to when the

statute of limitations begins to run, under Pennsylvania law, on

a breach of contract is the same as the limitations period for
bringing the breach of contract action. See Commercial Union
Ins. Co. v. Porter Hayden Co., 698 A.2d 1167, 1193 (Md. Ct.
Spec. App. 1997) (holding that “the period of limitations
applicable to ordinary actions at law and suits in equity should
be applied in like manner to actions for declaratory relief”).
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a title insurance claim after the plaintiff’s interest in
property was divested through a sheriff’s sale.

Following a

1935 decision of the Supreme Court of Pennsylvania, In re
Gordon¸ 176 A. 494 (Pa. 1935), the United States Bank court held
that “a loss in a title insurance policy occurs when the
interest in the property is affected” and, since the plaintiff’s
interest was definitely affected when its lien was divested in
the sheriff’s sale, the statute of limitations begins to run at
the time of that loss, at the very latest.3

944 F. Supp. 2d at

399, 400 (citing In re Gordon, 176 A. at 495).
In response, Plaintiff argues that the statute of
limitations began running, not when Plaintiff “first learned
that it had suffered a loss of its mortgage lien” but rather on
the date in which Defendant first “informed [Plaintiff] that it
was denying [Plaintiff’s] title claim arising from that loss.”
ECF No. 16 at 2.

Plaintiff contends that Maryland law states

that a cause of action for breach of an insurance contract
“accrues only after a claim is tendered to the insurer and the
insurer fails to comply with its obligations under the
agreement.”

Id.

Thus, limitations did not begin to run, in

Plaintiff’s view, until November 20, 2012, when Defendant denied
the title claim.

The Court agrees.

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The United States Bank court opined that plaintiff’s interest
“was arguably affected long before the sheriff’s sale.” Id. at
399.
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In Stewart Title Guaranty Co. v. West, 676 A.2d 953 (Md.
Ct. Spec. App. 1996), Maryland’s Court of Special Appeals
comprehensively analyzed “the fundamental principles of title
insurance.”4

Id. at 960.

The Stewart Title court noted that

title insurance “is a contract of indemnity, and not a contract
of guaranty or warranty.”

Id.

Thus, “a title insurer does not

‘guarantee’ the status of the grantor’s title” but instead
“agrees to reimburse the insured for loss or damage sustained as
a result of title problems, as long as coverage for the damages
incurred is not excluded from the policy.”

Id.

The Stewart Title court then addressed “when a title
insurer may be deemed to have ‘breached’ its insurance
contract.”

Id. at 961.

While the Court of Special Appeals

considered varied approaches, including Pennsylvania’s approach
in In re Gordon, the court specifically rejected that approach
and concluded that “an insurer is not immediately in breach
simply because title is defective on the day the policy is
issued.”

Id.

Instead, once the insurer is given notice of a

title problem, “the insurer still has the option of paying the
insured's loss, clearing the defects within a reasonable time,

4

As Plaintiff correctly suggests, although Stewart Title is not
a decision of Maryland’s highest court, “[t]he general rule is
that a federal court must follow the decision of an intermediate
state appellate court unless there is ‘persuasive data’ that the
highest court would decide differently.” United States v.
Little, 52 F.3d 495, 498 (4th Cir. 1995) (citation omitted).
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or showing that the defects do not exist.”

Id. at 964.

As

such, a title insurance policy is breached only after notice of
an alleged defect in title is tendered to the insurer and the
insurer fails to perform any of those options.

See id. at 962.

In this case, Defendant’s alleged failure was its refusal to
indemnify Plaintiff’s loss and that refusal was first expressed
in the November 20, 2012, denial of Plaintiff’s title claim.
While Defendant did not submit a reply to Plaintiff’s
Opposition, it did anticipate Plaintiff’s reliance on Stewart
Title in a footnote in its motion.

Mot. at 8 n.3.

Defendant

argued that Stewart Title is inapplicable because Defendant
never had the opportunity to disprove or cure the title defect
in that it was not given notice of the defect until after the
foreclosure.

Late notice might give rise to a different defense

to an indemnity claim should Defendant be able demonstrate that
the delay in providing notice resulted in actual prejudice.
Sherwood Brands, Inc. v. Hartford Accident & Indem. Co., 698
A.2d 1078 (Md. 1997).

Late notice, however, does not change the

timing of the breach.

Furthermore, whether Defendant was

prejudiced because of late notice is not a question that can be
resolved on a motion to dismiss.
The Court concludes that the statute of limitations in this
case began running November 20, 2012, when Defendant denied

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Plaintiff’s Title Claim and therefore, Plaintiff’s filing of the
Complaint on September 23, 2015, was timely.
Accordingly, IT IS this 6th day of April, 2016, by the
United States District Court for the District of Maryland,
ORDERED:
1) That Defendant’s Motion to Dismiss, ECF No. 9, is
DENIED; and
2) That the Clerk of the Court shall transmit a copy of
this Memorandum and Order to all counsel of record.

____________/s/___________________
William M. Nickerson
Senior United States District Judge

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