Flagstone Development, LLC et al v. Joyner et al

Filing 271

ORDER granting 214 American Title and Escrow's Motion for Summary Judgment; finding as moot 266 Motion to Strike Affidavit; finding as moot 200 Motion for Determination of Plaintiffs' Privilege Claims; finding as moot 220 Motion to Compel. Signed by Judge Richard F. Cebull on 11/3/2011. (EMA)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION
FLAGSTONE DEVELOPMENT, LLC, an
Arizona limited liability company, and
LAWRENCE A. HEATH,

Cause No. CV-08-100-BLG-RFC

Plaintiffs,
-vsWAYNE JOYNER, JUSTIN JOYNER, as
individuals; ROCKY MOUNTAIN
TIMBERLANDS, LLC, a Montana limited
liability company, WAYNE
MARCHWICK, AMERICAN TITLE
AND ESCROW, a Montana corporation,
FIRST AMERICAN TITLE COMPANY,
a California corporation, DEVELOPER
FINANCE CORPORATION, a
Massachusetts corporation, NICHOLAS
POWERS, III, a/k/a NICHOLAS D.
POWERS, JAKE KORELL, LANDMARK
OF BILLINGS, INC., a Montana
corporation, JON USSIN, U BAR S REAL
ESTATE, a Montana corporation, and
JOHN DOES 11 through 30,
Defendants.

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ORDER GRANTING
AMERICAN TITLE AND
ESCROW’S MOTION FOR
SUMMARY JUDGMENT

Currently pending before the Court is Defendant American Title and
Escrow’s Motion for Summary Judgment on all Claims. Defendant American
Title and Escrow specifically seeks dismissal of Count Five (Negligence); Count
Seven (Tortious Interference); and Count Eight (Conspiracy).
UNDISPUTED MATERIAL FACTS
Plaintiffs are Flagstone Development Co., LLC, and Lawrence A. Heath,
citizens of Arizona. Defendant Rocky Mountain Timberlands, LLC, is a Montana
Corporation which owned real property in Mussellshell County, Montana. On
May 25, 2007, Flagstone entered into a land Buy-Sell agreement with Rocky
Mountain Timberlands (RMT) for approximately 13,000 acres in Mussellshell
County. Flagstone and RMT entered into several separate addendums to the BuySell.
On July 23, 2007, and pursuant to the Flagstone/RMT Buy-Sell, American
Title received in escrow a $100,000 wire transfer from Flagstone. On July 24,
2007, American Title opened an interest-bearing account at First Interstate Bank
for Flagstone with a deposit of $100,000.
On July 27, 2007, American Title issued a Preliminary Title Commitment to
Flagstone. Contained within the Preliminary Title Commitment was a “Privacy
Policy Statement,” providing: “We request information from you for our own
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legitimate business purposes and not for the benefit of any nonaffiliated party.
Therefore, we will not release your information to nonaffiliated parties except: (1)
as necessary for us to provide the product or service you have requested for us; or
(2) as permitted by law.” Doc. 216, Ex. “E”.
Under the “Confidentiality and Security” section of the “Privacy Policy
Statement,” it was disclosed to Flagstone: “We will use our best efforts to ensure
that no unauthorized parties have access to any of your information. We restrict
access to nonpublic personal information about you to those individuals and
entities who need to know that information to provide products to you. . .” Id.
After opening the $100,000 escrow account, Flagstone and RMT agreed to
several releases of escrow funds for certain disbursements. Based on Flagstone
and RMT’s agreement, which was required pursuant to the subject Buy-Sell,
American Title released the requested escrow funds. See Doc. 76.
After the earnest money escrow was set up pursuant to the terms of the
Flagstone/RMT Buy-Sell, there were several problems with the proposed sale of
property. Road construction cost tripled, water was not accessible, and the real
estate market worsened. Flagstone requested material revisions to the original
Flagstone/Heath contract including “seller carry back financing,” “price
concession” and “Wayne Joyner’s personal guaranty.” Doc. 216, Ex. “M”.
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Flagstone’s attorney represented: “At this point, however, because of the size of
the unexpected expenses, the whole deal may need to be reworked” and “[i]f this
meeting and a restructured deal does not happen, a cease and desist demand will
be served.” Id. Larry Heath also sent several emails discussing the problems.
Doc. 216, Exs. “J”, “K” and “L”.
On February 21, 2008, RMT entered into a back-up offer with CoDefendant Nicholas Powers III for the purchase and sale of a portion of the 30
Mile Ranch. One of the stated contingencies between the parties was “Subject to
release of Heath contract.” Doc. 216, Ex. “F”.
On February 25, 2008, a request was made for American Title to issue a
Preliminary Title Commitment and open an escrow for the RMT/Powers back-up
offer. On March 6, 2008, American Title issued a Preliminary Title Commitment
to Nicholas Powers III. Contained within the Powers Preliminary Title
Commitment was the identical “Privacy Policy Statement” that was issued to
Flagstone and any other customer of American Title. Doc. 216, Ex. “H”.
RMT sent a “Notice of Termination” on April 3, 2008 and proceeded with
closing on the Powers/RMT Buy-Sell on April 4, 2008.
At closing, both parties to the Powers/RMT Buy-Sell waived the “release of
Heath contract” contingency at closing. Because it was represented to American
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Title that the Flagstone/RMT contract was terminated, but the official document
had not been received at the time of closing, in addition to requiring the parties to
the Powers/RMT transaction to waive the “Heath contingency,” American Title
also obtained an “Indemnity Agreement” from RMT.
No deeds or exclusive options to purchase in favor of Flagstone were placed
in escrow. No documentation exists demonstrating the Flagstone/RMT Buy-Sell
was an exclusive offer or premised upon a granted option or right of first refusal.
At the commencement of this action, American Title asserted interpleader
claims against Flagstone and RMT in relation to dispersal of the remaining escrow
funds. Per stipulation, American Title, Flagstone and RMT agreed to tender the
principal remaining balance of $68,381.99 to “Flagstone Development, LLC c/o
Michael Coil, Esq.”

STANDARD OF REVIEW
Summary judgment “should be rendered if the pleadings, the discovery and
disclosure materials on file, and any affidavits show that there is no genuine issue
as to any material fact and that the movant is entitled to judgment as a matter of
law.” Fed.R.Civ.P. 56(c)(2). An issue is “genuine” only if there is a sufficient
evidentiary basis on which a reasonable fact finder could find for the nonmoving
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party and a dispute is “material” only if it could affect the outcome of the suit
under the governing law. Anderson, v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). The party moving for summary judgment has the initial burden of
showing the absence of a genuine issue of material fact. Anderson, 477 U.S. at
256-57. Once the moving party has done so, the burden shifts to the opposing
party to set forth specific facts showing there is a genuine issue for trial. In re
Barboza, 545 F.3d 702, 707 (9th Cir. 2008). The nonmoving party “may not rely
on denials in the pleadings but must produce specific evidence, through affidavits
or admissible discovery material, to show that the dispute exists.” Id.
On summary judgment, the evidence must be viewed in the light most
favorable to the non-moving party. Id. The court should not weigh the evidence
and determine the truth of the matter, but determine whether there is a genuine
issue for trial. Anderson, 477 U.S. at 249.
ANALYSIS
A.

Tortious Interference

In order to prevail on a claim of tortious interference with contract claim, a
plaintiff must demonstrate a defendant’s actions: (1) were intentional and willful;
(2) were calculated to cause damage to the plaintiff in his or her business; (3) were
done with the unlawful purpose of causing damage or loss, without right or
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justifiable cause on the part of the actor; and (4) that actual damages and loss
resulted. Emmerson v. Walker, 2010 MT 167, ¶ 23, 236 P.3d 598. An obvious
prerequisite to a tortious interference with contract claim is the existence of a valid
contract. Dahood v. McDonald, 140 Mont. 453, 456-57, 372 P.2d 928 (1962).
A contract is treated as rescinded when the parties’ conduct clearly and
unequivocally evidences their intent to abandon the contract. Forsyth v.
Pendelton, 617 P.2d 358, 361 (Utah 1980). Although normally a question of fact,
rescission may be found as a matter of law when the parties’ intent to abandon is
sufficiently unambiguous. General Mortg. Corp. v. Peacock, 594 S.W.2d 35 (Ark.
Ct. App. 1980).
There is sufficient evidence in this case to demonstrate abandonment.
Flagstone, by and through its principal Larry Heath, realized that there were
several problems with the proposed sale of land and clearly and unequivocally
evidenced an intent to abandon the contract.
First, Heath stated in an email, “the number aren’t working out for
[Flagstone’s] cash flow model.” Doc. 216, Ex. “I”. Specifically, with regard to
county road requirements, Heath stated, “[t]his triples the road construction costs
of the planned development and makes the project economically unfeasible.” Doc.
216, Ex. “J”.
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Second, based upon his recognition that the project was “economically
unfeasible,” Heath stated to at least two of his third-party investors:
As you know, the real estate market has worsened considerably
since we last discussed my project in Montana. Partially as a
result of this, I am in the process of extracting myself from the
transaction. Fortunately it appears I will be able to get out of
this deal with my pursuit costs reimbursed. My plan is to let
the market recover to the point where second home properties
are in vogue and put together another ranch development.
Doc. 216, Exs. “K” and “L”.
Third, and also of great significance is the fact that it was represented
through counsel that Flagstone would only proceed if RMT agreed to a new
material term in the Buy-Sell Agreement including additional financing
obligations and price concessions. Doc. 216, Ex. “M”. Flagstone’s attorney
stated: “because of the size of the unexpected expenses, the whole deal may need
to be reworked” and insisted upon a “restructured deal” or a “cease and desist
demand” would be issued. Id.
RMT was unwilling to agree to Flagstone’s material revisions in the form of
a new Buy-Sell or fourth addendum. Flagstone has conceded it would not
perform until new material terms were incorporated in a new Buy-Sell or
addendum. Doc. 216, Exs. “N”. RMT elected to terminate and/or rescind the
Flagstone/RMT Buy-Sell and close with Nicholas Powers.
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Flagstone and RMT’s representations and conduct unambiguously revealed
the material terms contained in the Buy-Sell were rescinded and/or abandoned.
Because there was not a valid contract in existence, the tortious interference
contract claim fails.
B.

Negligence

In order to establish a prima facie case of negligence against a title
company, a plaintiff is required to present expert testimony as to the standard of
care. Doble v. Lincoln County Title Co., 215 Mont. 1, 692 P.2d 1267 (1985).
Actionable negligence arises from a breach of legal duty and whether a legal duty
is owed from one party to another is a question of law for the Court. Nautilus Ins.
Co. v. First Nat. Ins., 254 Mont. 296, 837 P.2d 409 (1992).
An escrow agent owes fiduciary duties to the parties to the escrow
agreement. Dulan v. Montana National Bank of Roundup, 203 Mont. 177, 182,
661 P.2d 28 (1983). These fiduciary duties are “narrowly defined by law.”
Brandt v. Sande, 2000 MT 98, ¶ 28, 1 P.3d 929. “An agent is bound to comply
only with the instructions of the parties to the escrow agreement and may not
exceed this authority.” Id. at ¶ 29; see also First Fidelity v. Mathews, 214 Mont.
323, 692 P.2d 1255 (1984); and Turbiville v. Hansen, 233 Mont. 487, 761 P.2d
389 (1988).
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The written escrow instructions in this case originated from Flagstone and
RMT and came in the form of the Buy-Sell Agreement and Addendums. A
specific escrow agreement was not provided to American Title. The escrow
instructions provided that American Title was to receive $100,000.00 in earnest
money deposit and obtain consent prior to distribution of funds necessary for
preliminary plat approval. American Title complied with the instructions and an
interpleader action was commenced. The parties stipulated to the release of the
remaining funds and an Order dismissing claims relating to release and entitlement
to the escrow funds was issued.
Flagstone argues that the claims against American Title stem from their
decision to “assist, facilitate and conceal Defendant Wayne Joyner’s sale” of the
subject property to Nicholas Powers. Contrary to Plaintiffs’ assertions, Montana
law did not require American Title to intervene in the disputes between Flagstone
and RMT. American Title had no duty to independently investigate the legal
significance of every disclosed fact. There was no escrow agreement instructing
American Title to disclose adverse information or instructions preventing the
opening and closing of a back-up offer.
American Title relied upon the representations made by RMT that the
Flagstone/RMT Buy-Sell was terminated and acted accordingly. American Title
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obtained waivers of contingencies and indemnification if there was a resulting
dispute. American Title was under no obligation to determine the legal
sufficiency of RMT’s Notice of Termination, nor was it under any obligation to
further investigate if proceeding with the Powers sale was legally justified.
The only legal duty imposed on American Title was strictly adhering to the
written escrow instructions provided by Flagstone and RMT. American Title
fulfilled those duties.
C.

Conspiracy

A civil conspiracy is a combination of two or more persons by concerted
action to accomplish an unlawful purpose, or to accomplish some purpose not in
itself unlawful by unlawful means. 15A C.J.S. Conspiracy § 1(1).
The elements of civil conspiracy are: “(1) two or more persons . . .(2) an
object to be accomplished; (3) a meeting of the minds on the object or course of
action; (4) one or more unlawful overt acts; and (5) damages at the proximate
result thereof.” Schumacker v. Meridian Oil Co., 1998 MT 79, ¶ 18, 956 P.2d
1370.
“[I]t is not really the conspiracy which gives rise to a right of action, but the
torts which may be committed in furtherance thereof.” Duffy v. Butte Teachers’
Union, No. 332, AFL-CIO, 168 Mont. 246, 251, 541 P.2d 1199 (1975) citation
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omitted. In 15A C.J.S. Conspiracy § 2, it is further noted that if the object of an
alleged ‘conspiracy’ is lawful, and the means used to attain that object are lawful,
there can be no civil action for conspiracy. The foregoing is true even though
damage may result to the plaintiffs and even though defendants may have acted
with a malicious motive. If such were not the rule, obviously many purely
business dealings would give rise to an action in tort on behalf of one who may
have been adversely affected. Duffy, 168 Mont. 246, 251, 541 P.2d 1199.
Because Flagstone cannot sustain its underlying negligence and tortious
interference claims against American Title, the claim of civil conspiracy must also
fail.
D.

Punitive Damages

Without viable claims, punitive damages are not appropriate. See H-D
Irrigating, Inc. v. Kimble Properties, Inc., 2000 MT 212, ¶ 47, 8 P.3d 95.
CONCLUSION
Therefore, IT IS HEREBY ORDERED that the Motion for Summary
Judgment by Defendant American Title and Escrow [Doc. 214] is GRANTED.
The Clerk of Court is directed to terminate American Title and Escrow as a
party and MOOT the Motion to Strike Don Eilbott’s Affidavit [Doc. 266];

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Motion for Determination of Plaintiffs’ Privilege Claims [Doc. 200]; and
Defendant American Title and Escrow’s Motion to Compel [Doc. 220].
DATED this 3rd day of November, 2011.
_/s/ Richard F. Cebull_________
RICHARD F. CEBULL
U.S. DISTRICT COURT JUDGE

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