Wells Fargo Bank, N.A. v. MLD Mortgage, Inc.
Filing
67
MEMORANDUM OPINION AND ORDER granting in part and denying in part 50 Motion to Dismiss; Third-Party Defendant United General Title Insurance Companys Motion to Dismiss is DENIED, Third-Party Defendant First American Title Insurance Companys Motion to Dismiss is GRANTED and is DISMISSED WITHOUT PREJUDICE (Written Opinion). Signed by Judge Ann D. Montgomery on 12/11/2012. (TLU)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Wells Fargo Bank, N.A.,
Plaintiff,
MEMORANDUM OPINION
AND ORDER
Civil No. 12-227 ADM/AJB
v.
MLD Mortgage, Inc.,
Defendant,
___________________________________
MLD Mortgage, Inc.,
Third Party Plaintiff,
v.
United General Title Ins. Co.,
First American Title Ins. Co., and
Global Edge Settlement
Solutions LLC,
Third Party Defendants.
______________________________________________________________________________
J. Robert Keena, Esq., Hellmuth & Johnson PLLC, Edina, MN, on behalf of Third Party
Plaintiff.
Joel T. Wiegert, Esq., and Erin D. Doran, Esq., Meagher & Geer, PLLP, Minneapolis, MN, on
behalf of Third Party Defendants.
______________________________________________________________________________
I. INTRODUCTION
On October 29, 2012, the undersigned United States District Judge heard oral argument
on Third Party Defendants’ Motion to Dismiss or in the Alternative, Motion for More Definite
Statement [Docket No. 50] (“Motion to Dismiss”). For the reasons stated below, Third Party
Defendants United General Title Insurance Company’s and First American Title Insurance
Company’s Motion to Dismiss is granted in part and denied in part.
II. BACKGROUND1
On March 4, 2009, United General Title Insurance Company (“United General”) sold
MLD Mortgage, Inc. (“MLD”) a title insurance policy for a property in Naugatuck, Connecticut.
Third-Party Compl. [Docket No. 22] ¶ 41.2 The title insurance policy supported MLD’s
approval of a mortgage loan for the owner of the Naugatuck property, secured by the property
itself (the “Naugatuck Loan”). Third-Party Compl. ¶ 43. On April 16, 2009, MLD sold and
transferred the Naugatuck Loan to Wells Fargo Bank, N.A. (“Wells Fargo”). Am. Compl.
[Docket No. 13] ¶ 39 (filed April 27, 2012). The owner of the Naugatuck property defaulted on
her mortgage payments. As a result, Wells Fargo began foreclosure procedures in January 2011.
Id. ¶ 49.
The Loan Purchase Agreement, through which Wells Fargo purchased the Naugatuck
Loan from MLD, incorporates the terms of the Wells Fargo Funding, Inc. Seller Guide. Id. ¶ 10.
The Seller Guide requires MLD to repurchase and to pay fees and penalties on loans that do not
meet certain standards. Id. ¶¶ 13-25. During the foreclosure process, Wells Fargo discovered
that the Naugatuck Loan is secured by a property lacking a legal ingress, that is, Wells Fargo
found the property is landlocked. Id. ¶¶ 39-53. Because the lack of access affects the title, sale,
and marketability of the property, Wells Fargo claims MLD is now obligated to repurchase the
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“[T]he allegations of the complaint should be construed favorably to the pleader” in a
motion to dismiss, whether the complaint is challenged on the basis of Rule 12(b)(1) or 12(b)(6).
Scheuer v. Rhoades, 416 U.S. 232, 236 (1974).
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Although one document, the Court will cite the Answer and the Third-Party Complaint
sections separately as “Answer Am. Compl.” and “Third-Party Compl.” as each section has
independent paragraph enumeration. [Docket No. 22].
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loan in accordance with the Loan Purchase Agreement and the Seller’s Guide. Id. ¶¶ 49-53.
On June 15, 2012, MLD answered Wells Fargo’s Amended Complaint and also filed a
Third-Party Complaint against First American Title Insurance Company (“First American”) and
United General. See Answer Am. Compl. MLD “believes any responsibility [for defects in the
title, sale, and marketability of the property] lies with the title insurance company involved in the
matter.” Answer Am. Compl. ¶ 53. At the time of the loan, MLD had purchased title insurance
for the Naugatuck Loan from United General. Third-Party Compl. ¶ 41. The title insurance
policy names as beneficiaries “MLD Mortgage, Inc., its successors and/or assigns as their
interest may appear.” Decl. Pierre Blanc [Docket No. 53] Ex. A (“Title Insurance Policy”). The
policy covers the insured against loss or damage caused by, among other things, title defects,
unmarketable title, and access to and from the land. Id.
United General is a subsidiary of Third-Party Defendant First American. First American
provided MLD a Closing Protection Letter for the Naugatuck Loan. Third-Party Compl. ¶¶ 37,
40; Decl. Pierre Blanc Ex. B (“CPL”). The CPL promises “to reimburse [MLD] for actual loss
incurred by [MLD] in connection with the closing of the Real Estate Transaction conducted by
the Issuing Agent or Approved Attorney. . . .” Global Edge Settlement is listed as the Issuing
Agent. Id.
MLD sues United General and First American for: 1) breach of contract; 2) negligence;
3) negligent misrepresentation; 4) unjust enrichment; and 5) implied indemnity. Id. ¶¶ 51, 56,
58, 68, 73, 106. On each count, MLD claims it is entitled to recover from First American and
United General its losses and damages arising from any liability on the Naugatuck Loan. Id. ¶¶
52, 64, 70, 74.
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III. DISCUSSION
A. Federal Rules of Civil Procedure
1. Rule 14
Rule 14(a) allows impleader of a third-party “who is or may be liable to [a defending
party] for all or part of the claim against it.” Fed. R. Civ. P. 14(a)(1). The circumstances in
which impleader is permissible are limited to those where the liability of the third-party “is in
some way dependent upon the outcome of the main claim.” Mattes v. ABC Plastics, Inc., 323
F.3d 695, 698 (8th Cir. 2003) (quoting United States v. Olavarrieta, 812 F.2d 640, 643 (11th Cir.
1987)). Rule 14(a) is liberally construed in favor of impleading a third party because the
purpose of impleader is to promote efficiency and avoid a circuity of actions and a multiplicity
of suits. United States v. J&D Enters. of Duluth, 955 F. Supp. 1153, 1156 (D. Minn. 1997)
(quotations omitted). Often, this means that the primary defendant may assert a cause of action
for indemnity or contribution against a third-party defendant, though the doctrine is not limited
solely to such claims. Doucette v. Vibe Records, Inc., 233 F.R.D. 117, 120 (E.D.N.Y. 2005);
Jeub v. B/G Foods, 2 F.R.D. 238, 240 (D. Minn. 1942); see also Green v. U.S. Dep’t of Labor,
775 F.2d 964, 971 n.7 (8th Cir. 1985).
2. Rule 12(b)(6)
Rule 12(b)(6) of the Federal Rules of Civil Procedure governs a motion to dismiss for
failure to state a claim. A Rule 12(b)(6) motion to dismiss is granted when the factual
allegations, even assumed to be true, do not entitle that party to relief. See, e.g., Taxi
Connection v. Dakota, Minn. & E. R.R. Corp., 513 F.3d 823, 826-27 (8th Cir. 2008).
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B. Analysis
MLD brought First American and United General into this lawsuit via Third-Party
Complaint under Rule 14 impleader. Without admitting a defective title, MLD “believes any
responsibility [for defective title] lies with the title insurance company involved in the matter.”
See Answer ¶¶ 39-52, 53. MLD claims First American is liable for MLD’s loss because it
provided a Closing Protection Letter for the Naugatuck Loan. MLD also claims United General
is liable because it provided a title insurance policy for the Naugatuck Loan. For its part, United
General admits that when the Naugatuck property foreclosure proceedings are concluded, United
General will have to either cure the issues that make the Naugatuck property title defective or
otherwise honor its responsibilities under the title insurance policy.
1. Title Insurance Policy
United General is inextricably enmeshed in this case. When it issued MLD the title
insurance policy, United General promised to cover losses stemming from a defective title. And
at the center of the case between MLD and Wells Fargo is MLD’s promise to sell Wells Fargo
properties free of title defects. Wells Fargo claims that if the title is found to be defective or if
the property is found unmarketable due to its lack of legal ingress, then MLD should be required
to buy back the mortgage under the terms of its Loan Purchase Agreement. The quality of title is
the same factual issue disputed between MLD and United General. If the title is found defective
and MLD has to buy back the mortgage loan, then MLD will again be the policy holder. At the
end of this case, either MLD or Wells Fargo will hold the title insurance policy and if the title is
defective, then either MLD or Wells Fargo will have a claim against United General.
Impleading United General fits the purpose of Rule 14 as described by the courts, by promoting
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efficiency and avoiding circuity. The issue of defective title will be ruled on once, not twice, and
claims for loss can be handled together rather than in a multiplicity of suits.
2. Closing Protection Letter
When MLD filed its Third-Party Complaint, it named First American in every claim
against United General. But, although United General is a subsidiary of First American, MLD’s
claims against First American are entirely based on First American’s issuance of a CPL for the
Naugatuck Loan. MLD argues the CPL provided by First American indemnifies MLD against
losses stemming from a title defect. Third-Party Compl. ¶¶ 37-38. But, according to the CPL,
First American only agreed “to reimburse [MLD] for actual loss incurred by [MLD] in
connection with [1] the closing of the Real Estate Transaction [2] conducted by the Issuing
Agent or Approved Attorney. . . .” See CPL. The CPL covers failure of the issuing agent to
follow MLD’s written closing instructions or fraud of the issuing agent in handling MLD’s funds
or documents. Id. On its face, the CPL language refers to the conduct of the issuing agent.
MLD does not make any claims about the conduct of the issuing agent, Global Edge Settlement.
MLD also does not allege any mishandling of funds or documents by Global Edge Settlement or
First American. If the issuing agent were to abscond with money in escrow or misplace the
documents related to the closing, then First American, having vouched for the agent, would be
liable for the loss. MLD construes the CPL as obligating First American to search for title
defects or inform it of a title defect. But, MLD pleads no facts in the Third-Party Complaint that
could lead to holding First American responsible for the actions of its agent. As a result, MLD
has failed to state a claim upon which relief may be granted.
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IV. CONCLUSION
Based upon the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that: Third Party Defendants United General Title Insurance Company’s
and First American Title Insurance Company’s Motion to Dismiss [Docket No. 50] is DENIED
in part and GRANTED in part;
1. Third-Party Defendant United General Title Insurance Company’s Motion to Dismiss
is DENIED;
2. Third-Party Defendant First American Title Insurance Company’s Motion to Dismiss
is GRANTED and is DISMISSED WITHOUT PREJUDICE.
BY THE COURT:
s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: December 11, 2012.
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