GEO Finance, LLC v. University Square 2751 LLC
Filing
44
ORDER Granting 14 Motion to Dismiss, and Denying 23 Motion to Strike as Moot. Signed by District Judge David M. Lawson. (SPin)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
GEO FINANCE, LLC,
Plaintiff,
v.
Case Number 13-14299
Honorable David M. Lawson
UNIVERSITY SQUARE 2751, LLC,
Defendant,
and
UNIVERSITY SQUARE 2751, LLC,
Third-party Plaintiff,
v.
FIRST AMERICAN TITLE
INSURANCE AGENCY,
Third-party Defendant.
_______________________________/
OPINION AND ORDER GRANTING THIRD-PARTY DEFENDANT’S MOTION TO
DISMISS, DISMISSING THIRD-PARTY COMPLAINT, AND DENYING MOTION TO
STRIKE THIRD-PARTY PLAINTIFF’S COUNSEL’S AFFIDAVIT
The main dispute in this case is whether defendant University Square 2751, LLC is liable
to the plaintiff for a geothermal water supply system, which had been installed on premises that
University Square subsequently acquired following foreclosure proceedings. University Square
contests its obligation to pay for the equipment or for the water service; but it maintains that if it is
liable, all damages must be paid by its title insurer, third-party defendant First American Title
Insurance Agency. Presently before the Court is First American’s motion to dismiss the third-party
complaint, in which it argues that as a matter of law, it cannot be liable under its title policy. It
reasons that if the equipment is deemed to be a fixture for which the plaintiff failed to record its
interest, the plaintiff cannot assert a claim against a good faith purchaser without notice. If
University Square had no notice, the reasoning goes, it has no liability and there is no obligation for
First American to indemnify. And if University Square had notice of the plaintiff’s installation,
there is no coverage under the plain terms of a policy exception. Finally, if the plaintiff’s equipment
is deemed to be personal property, First American’s title policy is not implicated in any way.
University Square responded to the motion by raising issues that extend beyond the pleadings. The
Court allowed supplemental briefs to see if the dismissal motion should be converted to a summary
judgment motion. After reviewing the submissions, the Court finds merit to First American’s
arguments, which compel the conclusion that the third-party complaint fails to state a viable claim
against First American. Therefore, First American’s motion to dismiss will be granted.
I.
The claims in this case are based on a contract between certain parties, none of whom are
part of the present lawsuit. According to the original complaint, on October 29, 2001, Hardin
Geotechnologies, Inc. executed two “Geoexchange Water Supply Agreements” with U-Square
Associates, L.P., under which Hardin agreed “to design, construct and maintain geothermal wells,
pipes, pumps, metering equipment, and related infrastructure (“Geothermal Equipment”) necessary
to operate a geoexchange water supply system that provided sufficient water to heat and cool two
office buildings located at 2751 and 2761 E. Jefferson Ave. Detroit, Michigan 48207.” Compl. ¶¶
5-6. The agreement required U-Square to pay a monthly fee to Hardin based on metered water
usage, and stated that all of the installed equipment would remain the property of Hardin. U-Square
evidently had an option under the agreement to purchase the equipment, but it never exercised that
option.
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On September 30, 2010, Hardin defaulted on loans that it owed to its lender Old National
Bank. Subsequently, plaintiff GEO Finance, LLC put together a funding package under which it
paid off the defaulted Old National Bank loans in exchange for acquiring all of Hardin’s assets,
including all of its rights and obligations relating to the geothermal equipment. According to GEO
Finance, “[f]rom June 1, 2011 through October 2012, GEO Finance was paid for the monthly usage
of the Geothermal Equipment by the owner of the property, just as U-Square had paid Hardin since
2001.” Compl. ¶ 12.
In October 2012, the property was foreclosed and sold at a sheriff’s sale. Subsequently, the
purchaser at the sheriff’s sale sold the property to defendant University Square. GEO Finance
contends that it had no notice of the foreclosure or sheriff’s sale, that since University Square
acquired the property it has received no payments under the geothermal equipment agreement, and
that University Square has refused even to allow meter readers on the property to record metered
water usage, despite the fact that the equipment continues to be used to heat and cool the office
buildings. GEO Finance alleges that University Square owes it more than $50,000 for use of the
equipment, and that this sum continues to increase at an estimated rate of $5,000 per month. GEO
Finance also asserts that the fair market value of its equipment exceeds $200,000, and that
University Square has illegally converted all of the equipment to its own use by refusing either to
make required payments or to surrender it.
On June 12, 2012, third-party defendant First American issued to University Square a title
insurance policy covering the property at 2751-2761 East Jefferson Avenue, Detroit, Michigan. As
noted above, on October 29, 2012, University Square completed its purchase of the East Jefferson
property, after it had been foreclosed and sold at the sheriff’s sale. The title policy’s “Covered
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Risks” section states that it insures against “[a]ny defect in or lien or encumbrance on the Title,”
including any “defect in the Title caused by . . . (vi) a document not properly filed, recorded, or
indexed in the Public Records including failure to perform these acts by electronic means authorized
by law . . . .” Third Party Compl., Ex. A, Policy at 1.
University Square alleges in its third-party complaint that “[t]he title work showed no
interest in the Property (either real or personal) that was filed by Plaintiff GEO Finance, or its
predecessor in interest.” Third Party Compl. ¶ 12, Ex. A. University Square also alleges in the
third-party complaint — as it contends in its defense to the original complaint — that the geothermal
equipment “is completely integrated into the Property (wall, ground, and ceiling), and is actually a
‘fixture.’” Third Party Compl. ¶ 16. University Square asserts that it had no notice of any lien or
leasehold interest relating to the equipment before it bought the property.
When the original complaint was filed, University Square submitted a claim for coverage
under the policy to First American and requested that the insurer defend University Square
according to its obligations under the policy. First American denied the claim, explaining:
The Complaint that was filed by GEO Finance, LLC, contains counts for conversion,
unjust enrichment, and breach of contract. None of these counts are covered under
the insuring provisions of the policy, and [they] are outside the scope of the policy.
Although there is no coverage for this matter it is important to understand that even
if an argument could be made that the matter is within an insuring provision, the
insuring provisions are subject to the remaining terms of the policy. Schedule B of
the policy provides that:
This policy does not insure against loss or damage, and the Company
will not pay costs, attorneys’ fees, or expenses that arise by reason of:
1. Any facts, rights, interests, or claims that are not shown by the
Public Records but that could be ascertained by an inspection of the
Land or that may be asserted by persons in possession of the Land.
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The presence of the equipment owned by GEO Finance, LLC was not shown by the
public records but could have been ascertained by an inspection of the land. As
such, this matter is expressly excepted from coverage.
Additionally, the Exclusions from Coverage as listed in the Policy provide that:
The following matters are expressly excluded from the coverage of
this policy, and the Company will not pay loss or damage, costs,
attorneys’ fees, or expenses that arise by reason of:
3. Defects, liens, encumbrances, adverse claims, or other matters (a)
created, suffered, assumed, or agreed to by the Insured Claimant.
The attached Bill of Sale from the time of the transaction provides that any personal
property was quit claimed to University Square 2751 LLC “as is” by the assignor
who “specifically disclaims any warranty, guaranty or representation, oral or written,
past or present, express or implied, concerning the personal property or assignor’s
title thereto. Assignee is hereby thus acquiring the personal property based solely
upon assignee’s own independent investigations and inspections of that property and
not in reliance upon any information provided by assignor or assignor’s agents or
contractors.” This document was signed by the managing member of University
Square 2751 LLC in October 2012. As such, this is a matter that was agreed to by
the insured, and is expressly excluded from coverage under the policy.
For the foregoing reasons, your claim to First American Title Insurance Company
is respectfully denied.
If you are aware of facts or an interpretation of the policy which would alter this
conclusion, please provide that information to me in writing at your earliest
convenience. Although the reasons stated above are sufficient to deny the claim,
they are not intended to be exclusive. First American Title Insurance Company
reserves the right to establish additional grounds for denial should a further review
of the file become[] necessary.
Compl. ¶ 19, Ex. C, Letter (Dec. 2, 2013) at 1-2. Although not cited specifically in First American’s
letter, Schedule B of the policy also excludes from coverage any claim for “costs, attorney’s fees,
or expenses that arise by reason of,” any “[e]asements, liens or encumbrances, or claims thereof, not
shown by the Public Records,” Third-Party Compl., Ex A, Policy Schedule B ¶ 2, which the parties
refer to as “Exception 2.”
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On October 20, 2013, plaintiff GEO Finance, LLC filed its complaint against defendant
University Square, raising claims for conversion (count I), unjust enrichment (count II), and breach
of contract (count III). On January 6, 2014, University Square filed an answer and a third-party
complaint against third-party defendant First American. The third-party complaint raises claims for
indemnity (count I) and contribution (count II), and seeks a declaratory judgment compelling First
American to fulfill its duty to defend University Square in the primary action. First American
responded with a motion to dismiss. The Court heard oral argument on the motion on May 29, 2014.
The parties were granted permission to file supplemental briefs, which have been received. The
motion is now ready for decision.
II.
“The purpose of Rule 12(b)(6) is to allow a defendant to test whether, as a matter of law, the
plaintiff is entitled to legal relief if all the facts and allegations in the complaint are taken as true.”
Rippy ex rel. Rippy v. Hattaway, 270 F.3d 416, 419 (6th Cir. 2001) (citing Mayer v. Mylod, 988 F.2d
635, 638 (6th Cir. 1993)). Under Rule 12(b)(6), the complaint is viewed in the light most favorable
to the plaintiff, the allegations in the complaint are accepted as true, and all reasonable inferences
are drawn in favor of the plaintiff. Bassett v. Nat’l Collegiate Athletic Ass’n, 528 F.3d 426, 430 (6th
Cir. 2008). “[A] judge may not grant a Rule 12(b)(6) motion based on a disbelief of a complaint’s
factual allegations.” Saglioccolo v. Eagle Ins. Co., 112 F.3d 226, 228-29 (6th Cir. 1997) (quoting
Columbia Nat’l Res., Inc. v. Tatum, 58 F.3d 1101, 1109 (6th Cir. 1995)). “However, while liberal,
this standard of review does require more than the bare assertion of legal conclusions.” Tatum, 58
F.3d at 1109; Tackett v. M & G Polymers, USA, L.L.C., 561 F.3d 478, 488 (6th Cir. 2009). “To
survive a motion to dismiss, [a plaintiff] must plead ‘enough factual matter’ that, when taken as true,
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‘state[s] a claim to relief that is plausible on its face.’ Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556,
570 (2007). Plausibility requires showing more than the ‘sheer possibility’ of relief but less than
a ‘probab[le]’ entitlement to relief. Ashcroft v. Iqbal, [556 U.S. 662, 678] (2009).” Fabian v.
Fulmer Helmets, Inc., 628 F.3d 278, 280 (6th Cir. 2010). “Where a complaint pleads facts that are
‘merely consistent with’ a defendant’s liability, it ‘stops short of the line between possibility and
plausibility of entitlement to relief.’ ” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557).
Under the new regime ushered in by Twombly and Iqbal, pleaded facts must be accepted by
the reviewing court but conclusions may not be unless they are plausibly supported by the pleaded
facts. “[B]are assertions,” such as those that “amount to nothing more than a ‘formulaic recitation
of the elements’ ” of a claim, can provide context to the factual allegations, but are insufficient to
state a claim for relief and must be disregarded. Iqbal, 556 U.S. at 681 (quoting Twombly, 550 U.S.
at 555). However, as long as a court can “ ‘draw the reasonable inference that the defendant is liable
for the misconduct alleged,’ a plaintiff’s claims must survive a motion to dismiss.” Fabian, 628
F.3d at 281 (quoting Iqbal, 556 U.S. at 678).
Consideration of a motion to dismiss under Rule 12(b)(6) is confined to the pleadings. Jones
v. City of Cincinnati, 521 F.3d 555, 562 (6th Cir. 2008). Assessment of the facial sufficiency of the
complaint ordinarily must be undertaken without resort to matters outside the pleadings. Wysocki
v. Int’l Bus. Mach. Corp., 607 F.3d 1102, 1104 (6th Cir. 2010). However, “documents attached to
the pleadings become part of the pleadings and may be considered on a motion to dismiss.”
Commercial Money Ctr., Inc. v. Illinois Union Ins. Co., 508 F.3d 327, 335 (6th Cir. 2007) (citing
Fed. R. Civ. P. 10(c)); see also Koubriti v. Convertino, 593 F.3d 459, 463 -n.1 (6th Cir. 2010). Even
if a document is not attached to a complaint or answer, “when a document is referred to in the
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pleadings and is integral to the claims, it may be considered without converting a motion to dismiss
into one for summary judgment.” Commercial Money Ctr., 508 F.3d at 335-36. If the plaintiff does
not directly refer to a document in the pleadings, but that document governs the plaintiff’s rights and
is necessarily incorporated by reference, then the motion need not be converted to one for summary
judgment. Weiner v. Klais & Co., Inc., 108 F.3d 86, 89 (6th Cir. 1997) (holding that plan documents
could be considered without converting the motion to one for summary judgment even though the
complaint referred only to the “plan” and not its associated documents). In addition, “a court may
consider matters of public record in deciding a motion to dismiss without converting the motion to
one for summary judgment.” Northville Downs v. Granholm, 622 F.3d 579 (6th Cir. 2010) (citing
Commercial Money Ctr., Inc., 508 F.3d at 335-36).
A.
The parties agree that First American issued an insurance policy that protected University
Square against any defects in the title to its property, with certain exceptions. The question
presented here is whether anything in plaintiff GEO Finance’s complaint against University Square
triggers any obligation by First American to either defend the lawsuit on behalf of University
Square, or pay damages to GEO Finance if University loses.
Under Michigan law, the typical insurance contract imposes two distinct duties on the
insurer: the duty to defend and the duty to indemnify. Mich. Ed. Employees Mut. Ins. Co. v. Turow,
242 Mich. App. 112, 116-17; 617 N.W.2d 725, 728 (2000). Of the two, the duty to defend is
broader. Auto-Owners Ins. Co. v. City of Clare, 446 Mich. 1, 15, 521 N.W.2d 480, 487 (1994). The
duty to defend is defined by first looking to the policy to determine the scope of coverage, Arco
Industries Corp. v. American Motorists Ins. Co., 448 Mich. 395, 402, 531 N.W.2d 168, 172 (1995),
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and then examining the complaint to see “if the allegations of the underlying suit arguably fall
within the coverage of the policy,” Royce v. Citizens Ins. Co., 219 Mich. App. 537, 542-43, 557
N.W.2d 144, 146-47 (1996) (citing American Bumper & Mfg. Co. v. Hartford Fire Ins. Co., 207
Mich. App. 60, 67, 523 N.W.2d 841, 844 (1994), aff’d 452 Mich. 440, 550 N.W.2d 475 (1996)).
Although broad, the duty to defend is not without limits; the insurer is not obligated to
defend an insured against claims that plainly would be excluded from coverage under the policy.
“‘The insurer is not required to defend the insured against claims expressly excluded from coverage
in the policy. The exception in the policy is a part of the contract between the parties.’” Ginger v.
Am. Title Ins. Co., 29 Mich. App. 279, 284, 185 N.W.2d 54, 56 (1970) (quoting Duval v. Aetna
Casualty & Surety Company, 304 Mich. 397, 401, 8 N.W.2d 112, 114 (1943)). Where the
underlying action is “founded upon a defect not covered by the policy of insurance, it necessarily
follows that [the insurer [does] not breach its duty to defend in refusing to appear. Rather, under the
circumstances, [the] insurance company [has] no duty at all.” Ibid.
University Square has not articulated any set of facts upon which First American plausibly
could be required to defend or indemnify its insured, regardless of the outcome of the underlying
case. Nothing in GEO Finance’s complaint against University Square is based on a defect in the title
to the property; instead it alleges claims for conversion, unjust enrichment, and breach of contract.
As First American points out, it does not matter whether the geothermal equipment is determined
to be “fixtures” or personal property. Either way, under the plain terms of the title insurance policy,
the coverage clauses are not implicated.
First, if the “equipment” described in the complaint is found to be personal property, then
there is no set of facts under which the claims raised in the complaint could implicate any duty to
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defend or indemnify, because by its plain terms the coverage under the policy is limited to losses
attributable to a “defect in or lien or encumbrance on” the title to the real property. So far as the
original complaint goes, it does not assert any claim on the real property that University Square
purchased at all, but only alleges that the defendant illegally has converted “equipment” present on
the property to its own use, or has been unjustly enriched by its use and retention of that equipment,
absent the payment of contractually required metered usage fees. University Square has not alleged
any facts in its third-party complaint to establish that it has suffered from “[a]ny defect in or lien or
encumbrance on the Title.” Third Party Compl., Ex. A, Policy at 1.
University Square attempts to paint its claim as one for injury “caused by . . . (vi) a document
not properly filed, recorded, or indexed in the Public Records including failure to perform these acts
by electronic means authorized by law,” ibid., focusing on isolated language in subsection (vi) and
arguing that whatever interest GEO Finance had was not “properly recorded,” because it never was
recorded at all. But this argument ignores the fundamental premise for coverage, which is that the
insured must establish some “defect in or lien or encumbrance on the Title.” The original complaint
contains no claim to quiet title, and the plaintiff has not alleged any facts in the complaint that could
support any plausible claim of title to the real property on which the “equipment” is located.
Moreover, University Square has not identified in or attached to its pleadings any “document” which
it alleges was improperly recorded or which any involved party allegedly failed to record.
Second, if the geothermal equipment is found to be a “fixture,” GEO Finance’s interest in
it would be a form of lien or encumbrance. It is true that “[u]nder Michigan’s recording statutes,
all subsequent owners or encumbrances take subject to recorded liens, rights, or interests.” Johnson
Family Ltd. P’ship v. White Pine Wireless, LLC, 281 Mich. App. 364, 392, 761 N.W.2d 353, 369
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(2008) (citing Mich. Comp. Laws § 565.25(4)). But here, it is undisputed that no such interest was
recorded before the property was purchased at the foreclosure sale. Any unrecorded interest “would
be void against a subsequent purchaser in good faith for valuable consideration.” Ibid. (citing Mich.
Comp. Laws § 565.29). “Hence, if [the plaintiff was] a purchaser in good faith for valuable
consideration, [the property] would not be subject to” any encumbrance, lien, or interest asserted
by the plaintiff, if that interest was not recorded.
There appears to be no dispute that defendant University Square bought the property in good
faith, for valuable consideration. In its third-party complaint, University Square asserts that it had
no notice of any interest in the property claimed or held by plaintiff GEO Finance prior to the
purchase. It appears undisputed that neither GEO Finance nor the original installer of the
geothermal system ever filed any notice of any lien, lease, or other encumbrance upon the property
relating to their interest in the equipment. Moreover, the original complaint contains no reference
to any such filing, and the third-party plaintiff and third-party defendant, so far as their papers
suggest, evidently agree that no such filing ever was made. Therefore, defendant University Square
took title to the property free of any such interest in the fixtures. Based on the undisputed facts
alleged in the pleadings and relied upon by the parties’ in their briefing, there is no set of facts under
which the claims in the original complaint or third-party complaint would “arguably fall within the
coverage of the policy.” Royce v. Citizens Ins. Co., 219 Mich. App. 537, 542-43, 557 N.W.2d 144,
146-47 (1996).
B.
University Square also contends that First American has “waived” its right to present the
defense that coverage is excluded under Exception 2 in the policy, relating to “[e]asements, liens
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or encumbrances, or claims thereof, not shown by the Public Records.” That argument is both
unsound as a matter of law and unsupported by the undisputed facts shown in the pleadings.
Under Michigan law, in certain circumstances, an insurer’s statement of particular defenses
in a denial letter, coupled with the failure to cite other specific policy provisions, effects a waiver
of its right to raise other, unstated defenses in later proceedings. Bank of Ann Arbor v. Everest Nat.
Ins. Co., 563 F. App’x. 473, 477 (6th Cir. 2014) (citing S. Macomb Disposal Auth. v. Mich. Mun.
Risk Mgmt. Auth., 207 Mich. App. 475, 526 N.W.2d 3, 4 (1994); LeDuff v. Auto Club Ins. Ass’n, 212
Mich. App. 13, 536 N.W.2d 812, 815 (1995)). There are exceptions to this general rule, however.
The application of waiver or estoppel is not appropriate where an insurer has expressly reserved its
right to present additional defenses in a written denial. First Bank of Marietta v. Hartford
Underwriters Ins. Co., 307 F.3d 501, 521 (6th Cir. 2002) (“[I]n its September 16, 1994 letter,
Hartford expressly indicated that it ‘reserved all rights and defenses available to it under the bond
and applicable law’ with regard to Claim II. The Court agrees with the district court that this waiver
argument is meritless.”). And even where an insurer neglects to reserve a specific defense in a
formal denial letter, “Michigan law provides that waiver and estoppel are unavailable to broaden
coverage of a policy to protect the insured against risks that were not included in the policy or that
were expressly excluded.” City of Warren, Mich. v. Int’l Ins. Co. of Hannover, Ltd., 524 F. App’x
254, 260 (6th Cir. 2013) (citing Kirschner v. Process Design Assocs., 459 Mich. 587, 593-94, 592
N.W.2d 707, 709-10 (1999)).
Here, in its denial letter, First American expressly “reserve[d] the right to establish additional
grounds for denial should a further review of the file become[] necessary.” In light of that
reservation, it cannot reasonably be said that First American “intentionally relinquished” its right
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to present the defense under Exception 2. United States v. Willoughby, 742 F.3d 229, 236 (6th Cir.
2014); Hartford Underwriters, 307 F.3d at 521. Moreover, First American did expressly reference
the factual basis of the Paragraph 2 exclusion where it stated in the denial letter that “[t]he presence
of the equipment owned by GEO Finance, LLC was not shown by the public records.” That
statement sufficed to inform the insured that First American intended to rely on the absence of any
public record of the plaintiff’s interest as a defense to the claim. In fact, in its third-party complaint
University Square concedes that the coverage “denial was based on the allegation[] that . . . there
was no public record of the interest alleged by [GEO Finance].” Third-Party Compl. ¶ 20.
Additionally, because Michigan law does not permit the concepts of waiver and estoppel to
compel the insurer to indemnify or defend against claims that plainly lie outside the policy’s scope
of coverage, Kirschner, 459 Mich. at 593-94, 592 N.W.2d at 709-10, University Square cannot rely
on this argument to force First American to defend this lawsuit. University Square does not appear
to argue with any serious force that coverage is not expressly excluded under “Exception 2.”
Accepting its waiver argument would impose on the insurer “a liability not created by the contract
and never assumed by the defendant under the terms of the policy.” Id. at 459 Mich. at 594, 592
N.W.2d at 710.
C.
Finally, University Square argues that Exception 2 “should have been deleted” from the
policy, relying on an affidavit from its attorney and a purchase agreement that it attached as exhibits
to its response, but which were not attached as exhibits to the pleadings or incorporated by reference
in the complaint. That argument is the focus of the supplemental briefs, which the Court permitted
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after considering whether the motion to dismiss should be converted to a motion for summary
judgment under Rule 12(d).
Even with the benefit of supplemental briefing, however, University Square has not pointed
to anything in the pleadings or elsewhere to suggest that the Exception 2 was deleted. Nor is there
any doubt that the copy of the policy that was attached to the complaint fully and faithfully
represents the terms of the contract of insurance that existed between the parties. In fact the thirdparty complaint alleges that “[t]he Policy [attached as Exhibit A] was in effect, by its terms, and
afforded University Square insurance against liability in accordance with the terms, conditions,
limitations, and amounts defined in the Policy.” Third-Party Compl. ¶ 9.
The exhibits submitted with University Square’s supplemental brief include the purchase
agreement and seller’s affidavit from the sale. First American asserts that the hotly disputed
“Exception 2” that was the subject of the supplemental briefing was not deleted from the policy
because the seller’s affidavit did not address “matters not disclosed in the public records.”
University Square does not dispute that the affidavit on its face fails to address the public records
exception, but it maintains that First American must have found the affidavit to be “sufficient” in
the sense contemplated under the purchase agreement, because it deleted two other exceptions that
were addressed in the affidavit. Perhaps, but University Square still admits that Exception 2 was
not deleted.
Moreover, regardless of whatever obligation the seller had to deliver a “sufficient” affidavit,
First American was not obligated to do anything under the purchase agreement other than to handle
the escrow funds, and it did not assume any obligation to do anything related to deleting exceptions.
First American asserts — and the third-party plaintiff does not dispute — that the buyer was
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unrepresented at the closing and failed to ask for a “marked up” title commitment at the closing,
which would have disclosed that the policy was going to issue with Exception 2 still included, due
to the insufficiency of the owner’s affidavit. First American argues that any failure to supply a
sufficient affidavit was a breach by the seller of the agreement with the buyer, and that breach did
not create any duty on the title insurer’s part to accept an insufficient affidavit or to delete an
exception that was not covered by the affidavit.
Finally, in its supplemental brief, University Square raises a new argument that coverage
may exist because its title is “unmarketable” as a result of the claims by the plaintiff in this case.
In support, it offers an affidavit by its attorney that it tried to sell the property, but the buyer
“declined to purchase” because of those claims. That affidavit provoked a motion by First American
to strike. However, the affidavit does not amount to evidence of an unmarketable title. It suggests
at most that a prospective buyer did not want to become entangled in the dispute over the geothermal
water supply system. And it does not alter the fact that the scope of coverage in the title policy does
not extend to personal property or unrecorded interests in fixtures.
III.
After reviewing the parties’ submissions, it is apparent that none of the allegations in the
complaint trigger any obligation by First American to either defend the present lawsuit on behalf
of University Square, or pay any of the damages claimed by GEO Finance against University
Square.
Accordingly, it is ORDERED that the motion to dismiss by third-party defendant First
American Title Insurance Agency [dkt # 14] is GRANTED.
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It is further ORDERED that the third-party complaint is DISMISSED WITH
PREJUDICE.
It is further ORDERED that the motion to strike the affidavit of third-party plaintiff’s
counsel [dkt/ #23] is DENIED as moot.
s/David M. Lawson
DAVID M. LAWSON
United States District Judge
Dated: December 29, 2014
PROOF OF SERVICE
The undersigned certifies that a copy of the foregoing order was served
upon each attorney or party of record herein by electronic means or first
class U.S. mail on December 29, 2014.
s/Susan Pinkowski
SUSAN PINKOWSKI
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