First American Title Insurance v. National Title Agency et al

Filing 115

MEMORANDUM DECISION AND ORDER: Plaintiff First American Title Insurance Company's Motion for Partial Summary Judgment 93 is GRANTED IN PART AND DENIED IN PART, and Defendants National Title Agency of Utah, William D. Rowley, and Sterling Spencer Rowley's Motion for Partial Summary Judgment 96 is GRANTED IN PART AND MOOT IN PART. Signed by Judge Dale A. Kimball on 5/19/17. (dla)

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION

FIRST AMERICAN TITLE
INSURANCE COMPANY,

MEMORANDUM DECISION
AND ORDER

Plaintiff,
Case No. 2:13CV1055DAK
vs.
Judge Dale A. Kimball
NATIONAL TITLE AGENCY, LLC,
WILLIAM D. ROWLEY, NATIONAL
TITLE AGENCY OF UTAH, INC.,
SPENCER ROWLEY,
Defendants.

This matter is before the court on Plaintiff First American Title Company’s Motion for
Partial Summary Judgment [Docket No. 93], and Defendants National Title Agency of Utah,
William D. Rowley, and Sterling Spencer Rowley’s Motion for Partial Summary Judgment
[Docket No. 96]. On April 27, 2017, the court held a hearing on the motions. At the hearing,
Plaintiff First American was represented by Richard L. Cobb and Defendants were represented
by Sean A. Monson. The court took the motions under advisement. The court has carefully
considered the materials submitted by the parties and the facts and law relevant to the motions.
Now being fully advised, the court issues the following Memorandum Decision and Order.
BACKGROUND
National Title Agency was a licensed escrow and title agent that closed real estate
transactions in Utah. William Rowley formed National Title in 2006. National Title and First

American entered an Agency Agreement on or about March 31, 2009. The Agency Agreement
provided that National Title was to deposit all funds and monies it received in trust for others in a
separate escrow account. The Agency Agreement also provided that National Title “and all of
[National Title]’s principals (in their individual capacity) shall be liable for all trust funds
collected as First American’s agent.” The following paragraph also stated that “[National Title]
shall be liable to First American for any shortage in [National Title]’s trust fund account(s). First
American shall have a lien on all real or personal property of [National Title], which shall serve
as security for the repayment of any shortage in said account(s). Upon receiving a demand by
First American, [National Title] shall immediately produce and transfer the shortage to First
American.”
William Rowley executed the Agency Agreement on behalf of National Title as National
Title’s President and also executed a personal guarantee to induce First American to enter into
the Agency Agreement with National Title. National Title created an escrow trust account at JP
Morgan Chase Bank (“Chase”) on or about February 4, 2008. The trust account contained
escrow deposits from customers of National Title and did not contain money belonging to
National Title.
On April 6, 2010, a Utah state court entered a Default Judgment against National Title in
Bell, et al. v. Hemsley, et al., Case No. 080902845, Third District Court, Salt Lake County, Utah,
for failure to appear at a court status conference. The Judgment states that nonappearance at the
status conference would result in default judgment. Because National Title did not appear, the
court entered judgment against National Title in the amount of $95,000. The judgment in the
Bell matter was satisfied through a writ of garnishment served on Chase. After being served with
an order to show cause relating to its failure to respond to the Writ of Garnishment, Chase
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released $89,783.84, to satisfy the judgment.
On May 7, 2010, a Utah state court entered a Default Judgment against National Title in
Hill, et al. v. Tibbits, et al., Case No. 080921870, Third District Court, Salt Lake County, Utah,
for failure to appear and answer the Complaint. The judgment entered in the Hill case was
$387,510.72. Plaintiffs in the Hill matter sought a writ of garnishment from the state court,
which was granted and served on Chase. Chase completed the Response to Interrogatories
accompanying the Writ of Garnishment and removed the funds pursuant to the garnishment on
September 20, 2010.
In October 2013, William Rowley, the President and sole owner of National Title,
learned that the Chase trust account was short. That same day, Rowley contacted First American
to let them know of the shortfall. Rowley also contacted his outside bookkeeping service,
Horizon West, and talked to its owner Ken Judd. Judd looked into the issue and told Rowley that
the trust account was short of funds because of charges for $89,783.84 and $514,088.32. Judd
did not know the cause of those charges.
At Rowley’s request, First American sent a forensic accounting team, which determined
that the two state court garnishments for National Title’s debts had been paid from the trust
account and were the cause of the shortfall. First American terminated National Title’s agency
agreement on November 25, 2013, and initiated this lawsuit for breach of the Agency Agreement
and indemnification.
First American has paid out $188,508.40 to customers of National Title who were unable
to recover their escrow funds from National Title’s trust account. First American is still
litigating claims for $177,000 that would constitute additional damages if the claimant prevails.
First American is defending the claim because First American contends that the claimant’s loss
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did not stem from the agency relationship between First American and National Title and did not
involve a transaction involving the issuance of title insurance. First American also claims that it
should have been paid $775.28 in premiums for title insurance policies issued that National Title
failed to remit.
Approximately two years after First American Title sued National Title for
indemnification relating to shortfalls in the trust accounts that it was required to pay to third
parties, National Title sued Chase for improperly releasing money from the trust accounts in
response to the writs for garnishment. This court dismissed National Title’s Third-party
Complaint against Chase, ruling that National Title needed to bring its claims against Chase in
the state court actions that issued the writs of garnishments. National Title pursued those cases
in the state courts.
William Rowley managed the day-to-day affairs of National Title. He was responsible
for hiring and firing employees, executing contracts on behalf of National Title, and managing
National Title’s offices and affairs. Spencer Rowley, William’s son, worked for National Title.
There is a dispute as to whether Spencer Rowley was a manager at National Title.
Approximately two months after William Rowley discovered the shortfall, in December
of 2013, National Title stopped providing escrow and title services. Although National Title
conducts no business activities, it remains an ongoing Utah Limited Liability Company in good
standing. National Title states that since December 2013 it has continued in existence to pay
legal fees.
On November 15, 2013, William Rowley created National Title Agency of Utah
(“NTAU”) as a Limited Liability Company and listed himself as its manager member. That same
day, he then converted the LLC into a corporation with himself as Director and President. On
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November 21, 2013, he amended the Articles of Incorporation to remove himself as Director and
President and to make Sterling Spencer Rowley Vice President and Director.
NTAU began doing business as a title company after entering an underwriting agreement
with Chicago Title. NTAU began doing business using the same location, employees, fixtures,
and equipment that National Title had used. National Title employees worked through
December 31, 2013, as employees of National Title and became employees of NTAU on January
2, 2014, with the same titles. NTAU occupied the same office space as National Title and
several months later, NTAU assumed NTA’s lease.
On March 27, 2014, but effective January 1, 2014, William Rowley transferred all of
National Title’s assets to National Title Agency of Utah. The Asset Purchase Agreement states
that all of National Title’s assets were sold to National Title Agency of Utah for $96,000. First
American’s expert, however, opined that National Title’s assets were actually worth $620,000 at
the time of the transfer. The $96,000 National Title Agency of Utah paid to National Title are
the funds that National Title has used to pay legal fees. All of the defendants are represented by
the same counsel.
William Rowley testified that he transferred the assets because of First American’s
lawsuit and that he contacted nobody else before selling to his son. Spencer Rowley testified that
he was aware of First American’s claims when he received the assets. At the time he became
Vice President of National Title Agency of Utah (“NTAU”), Spencer was a high school graduate
and had taken a few general classes at a community college. He had never run a title company.
However, Defendants contend that Spencer Rowley manages the day-to-day affairs of NTAU, is
responsible for hiring and firing employees, executing contracts on behalf of NTAU, and
managing NTAU’s offices and affairs. William Rowley works for NTAU providing
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underwriting services and coordinates and works with Chicago Title policies.
William Rowley is now an employee of NTAU and is paid $180,000 per year. At
National Title, William Rowley made $150,000 per year. Spencer Rowley had never made more
than $100,000 per year at National Title and his salary at NTAU in 2014 was in the range of
$90,000-95,000.
Up until December 2013, National Title had its own tax identification number,
maintained bank accounts at JP Morgan Chase, Zions Bank, and US Bank, used FAST as its title
and escrow software, and did not have an IT service provider. NTAU has its own tax
identification number, maintains bank accounts at Wells Fargo Bank, employs RHYNO Live
accounting software, uses Title Express as its tile and escrow software, has an IT service
provider, and now maintains corporate offices in Midvale, Utah.
DISCUSSION
First American’s Motion for Partial Summary Judgment
First American moves for summary judgment on its breach of contract cause of action
against National Title and William Rowley.
1. National Title’s Breach of the Agency Agreement
Under the Agency Agreement between First American and National Title, National Title
was obligated to keep monies from third parties that was not the property of National Title in a
trust account. The Agency Agreement also makes National Title and its principals liable for “all
trust funds collected as First American’s agent.” Furthermore, the Agency Agreement
specifically states that National Title is liable for shortfalls in any trust account and that First
American is entitled to a lien as security for the repayment of any shortage.
In accordance with the Agency Agreement, National Title opened a trust account at
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Chase and deposited funds from third parties into the account. However, subsequently, two writs
of garnishment were served on Chase seeking collection of judgments against National Title, and
Chase paid the judgment creditors from the trust account. These transfers of funds, paying off
National Title’s debts, caused a shortage in the trust account.
The Agency Agreement specifically states that National Title is responsible for any
shortages in the trust account, but First American has had to pay the losses resulting from the
shortage. Accordingly, First American seeks a determination that National Title is in breach of
the Agency Agreement.
Defendants argue that there is a genuine issue of material fact as to whether National
Title’s conduct caused First American’s alleged damages or whether they were caused by the
intervening conduct of Chase Bank, which released funds from National Title’s trust account in
violation of Utah law. In Utah, “the non-breaching party” asserting a breach of contract must
“show that the breach proximately caused the damages sought.” Christensen & Jensen P.C. v.
Barrett & Daines, 2008 UT 64 ¶ 26, 194 P.3d 931. In this case, Defendants argue that Chase was
at fault for how it responded to the writs of garnishment.
However, National Title’s complaint with its bank does not overcome National Title’s
contract with First American. National Title’s trust account was garnished--whether because of
its own errors or the errors of its agent Chase Bank–and the Agency Agreement makes National
Title liable for the resulting shortage. First American has no contract with Chase Bank, and
National Title does not articulate any theory under which First American could recover from
Chase. National Title’s argument is that First American cannot recover from National Title
despite the plain language of the Agency Agreement because a party First American cannot
recover from is liable. National Title contractually agreed to protect First American from such a
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situation.
The facts in the record establish causation for purposes of First American’s breach of
contract damages against National Title. National Title and First American have a contract that
states that National Title is liable to First American for shortfalls in National Title’s trust
account. National Title does not dispute there was a shortfall in its trust account. National Title
does not dispute that First American has had to make payments to third parties as a result of the
shortfalls in National Title’s trust account. National Title, therefore, has admitted all of the
elements of First American’s breach of contract claim.
The cases National Title cite do not compel the court to deny summary judgment.
Christensen & Jensen is a legal malpractice case dealing with the issue of whether an attorney’s
actions that fall below the standard of care caused damages. 2008 UT 64, 194 P.3d at 931. Legal
malpractice cases in Utah are unique in that Utah courts recognize that a cause of action for legal
malpractice can be based on three things: negligence, breach of fiduciary duty, and breach of
contract. Id. ¶ 21. Although Utah courts have recognized that each of the three theories of legal
malpractice “deals with a different type of harm, “‘the same standard of causation applies
whether the alleged wrong is a negligent act, a fiduciary breach, or even a contractual breach.’”
Id. ¶ 25. The Christensen & Jensen court explained that “in a breach of contract action, the nonbreaching party is required to show that the breach proximately caused the damages sought.
Generally, an award of damages in a breach of contract case attempts to ‘place the aggrieved
party in the same economic position the party would have been in if the contract was not
breached.’” Id. ¶ 26. This is in line with other contract cases. A legal malpractice “action for
breach of contract . . . is very different from the other two legal malpractice theories . . . . A legal
malpractice claim based on contract deals directly with the attorney’s breach of a specified term
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in a contract between the attorney and the client, within the scope of the attorney-client
relationship, that causes the client to suffer damages. In other words, ‘[r]ules of contract, not
rules of legal malpractice, govern an action for breach of a promise.’” 2008 UT 64 ¶ 24, 194 P.3d
at 938. In addition, the Christensen & Jensen court stated that when the facts are not in dispute,
proximate causation may be determined as a matter of law. Id. ¶ 32.
While the issue may be confusing in the legal malpractice context, it is not confusing in a
regular breach of contract case. Causation in this case is simple. National Title promised to be
liable for all trust monies and shortfalls in the trust account and breached that promise by failing
to pay for those shortfalls. First American had to pay for the shortfalls as a result of National
Title’s breach. First American is entitled to be put in the place it would have been in if National
Title had honored its promises under the Agency Agreement. Chase was not a party to National
Title’s obligations to First American. Although National Title may have a right of indemnity
against Chase if Chase breached its obligations to National Title, Chase’s potential indemnity
obligation to National Title does not impact First American’s rights under the Agency
Agreement.
Accordingly, the court grants First American summary judgment on its breach of contract
claim against National Title. First American will prove the exact damages resulting from that
breach at trail.
2. William Rowley’s Breach of Agency Agreement and Personal Guaranty
Next, First American seeks summary judgment for breach of the Agency Agreement
against William Rowley individually in relation to the trust account shortages and for breach of
his Personal Guaranty in relation to failure to remit insurance premiums.
Paragraph 3.e of the Agency Agreement states that National Title and its principals, in

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their individual capacities, “shall be liable for all trust funds collected as First American’s agent,
including, but not limited to, Escrow Funds, recording fees (including transfer and mortgage
taxes), real estate taxes, First American’s share of Premiums related to Policies, and any other
monies held by” National Title that are not the exclusive property of National Title. The next
paragraph, Paragraph 3.f, states that National Title “shall be liable to First American for any
shortage in [National Title]’s trust fund account(s). First American shall have a lien on all real or
personal property of [National Title], which shall serve as security for the repayment of any
shortage in said account(s).”
The parties dispute how the two paragraphs should be read together. First American
argues that William Rowley breached Paragraph 3.e by failing to pay the shortages caused by the
garnishment payments and that paragraph makes him individually liable for all funds collected as
First American’s agent. However, Defendants argue that according to the basic rule of contract
interpretation that a specific provision controls over a general one, Paragraph 3.f controls over
Paragraph 3.e because Paragraph 3.f specifically refers to only National Title being liable for
trust account shortages whereas Paragraph 3.e more generally holds National Title and its
principals “liable for all trust funds collected as First American’s agent.” Accordingly,
Defendants contend that whatever obligations Paragraph 3.e is intended to impose on National
Title and its principals in their individual capacities, principals are not liable for shortfalls in the
trust account because that is specifically dealt with in Paragraph 3.f. Defendants further assert
that if Paragraph 3.e controlled liability for trust account shortfalls, it would render Paragraph 3.f
wholly superfluous.
But First American argues that another fundamental rule of contract interpretation is to
consider “each contract provision in relation to all of the others, with a view toward giving effect

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to all and ignoring none.” Terry v. Hinds, 47 F. Supp. 3d 1265, 1271-72 (D. Utah 2014). First
American contends that Paragraph 3.f does not render the language in Paragraph 3.e ambiguous,
but merely gives First American a lien on shortfalls in the trust account. Under this reading, the
two paragraphs work together and are consistent. To read Paragraph 3.f as negating the liability
of the principals leaves the language of 3.e ineffectual because there are no other obligations with
respect to the trust monies.
Based on the conflicts these paragraphs present, the finds concludes the Agency
Agreement to be ambiguous. The court agrees that it must harmonize these seemingly
conflicting provisions but it is unable to do so with the plain language of the agreement. The
only apparent way to harmonize the two provisions is to read Paragraph 3.f as a provision
intended to provide a lien in favor of First American. However, if both National Title and its
principals are liable for shortfalls in the trust account, it is unclear why the agreement would
provide for a lien only against National Title and not both National Title and its principals.
However, reading Paragraph 3.f to mean that a principal is not liable for trust account shortfalls
makes Paragraph 3.e meaningless. Because the plain language of these provisions creates
ambiguity, parole evidence is necessary to fully understand the scope of the provisions. At trial,
the parties will need to introduce parole evidence regarding these provisions. Accordingly, the
court finds it would be inappropriate to enter summary judgment as a matter of law on this issue
prior to trial.
Next, First American seeks premium payments from William Rowley under his Personal
Guaranty. The Personal Guaranty makes Rowley liable for “the obligations of the Agent under
Section 6 of the Agency Agreement to remit the Company’s share of the title insurance premiums
received.” National Title has failed to remit premiums in the amount of $775.28. Defendants,

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however, argue that First American is not entitled to the premiums because it failed to identify
this unpaid premium in response to document requests.
However, First American properly disclosed its claim for the $775.28 payment in
response to Interrogatory No. 7 in discovery. First American provided this information over a
year before discovery closed in this case. The documents showing the debt were produced with
the responses to the discovery requests at FA00030 to 00035. Admittedly there is an
inconsistency in the interrogatory response and document request response. But, Rowley cannot
claim to be unaware of the claim or surprised. Moreover, he had more than a year before the
close of discovery to clarify the discrepancy. Accordingly, the court grants First American’s
motion for summary judgment against William Rowley with respect to the insurance premium
remittance claim.
Defendant’s Motion for Partial Summary Judgment
Defendants move for summary judgment on First American’s fraudulent transfer claims
against Spencer Rowley and William Rowley, First American’s successor liability claims against
NTAU, and First American’s fraudulent concealment claim against Spencer Rowley and NTAU.
In response, First American clarified that it is only stating its fraudulent concealment cause of
action against William Rowley and National Title. In addition, First American clarified that it is
bringing its cause of action for successor liability under the second and fourth exceptions
recognized in Utah, not the third exception which is the basis for Defendants’ motion.1

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In Utah, successor liability exists if the following four exceptions exist: (1) the
purchaser expressly or impliedly agrees to assume such debts; (2) the transaction amounts to a
consolidation or merger of the seller and purchasers; (3) the purchasing corporation is merely a
continuation of the selling corporation; and (4) the transaction is entered into fraudulently in
order to escape liability for such debts. Decius v. Action Collection Serv., Inc., 2004 UT 484 ¶ 8,
105 P.3d 956, 958-59.
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Therefore, the court deems Defendants’ motion on the third exception to be moot. Accordingly,
the only issue remaining for the court to decide is whether First American can maintain a claim
against William and Spencer Rowley for fraudulent transfer.
Defendants seek summary judgment on First American’s fraudulent transfer claim against
Spencer Rowley and William Rowley because they are premised on the Asset Purchase
Agreement between National Title and NTAU, not the individuals. Under Utah law,
corporations and limited liability companies are “regarded as . . . legal entit[ies] separate and
apart from [their] stockholders.” Lodges at Bear Hollow v. Bear Hollow Restoration, LLC, 2015
UT App 6, ¶ 13, 344 P.3d 145. A party seeking to impose liability on an officer, director, or
shareholder must proffer evidence that the business entity is an “alter ego” of the individual and
“pierce” the corporate veil. Id.
Defendants argue that First American’s fraudulent transfer claims against Spencer and
William Rowley fail because the Fraudulent Transfer Act provides no cause of action against
individual directors or shareholders of a corporate entity and First American has not brought a
claim to pierce the corporate veil. Under Utah law, a transfer may be fraudulent under two
scenarios: (1) When a transfer is made with “actual intent to hinder, delay, or defraud any
creditor of the debtor;” or (2) If the transfer is made without “receiving reasonably equivalent
value in exchange for the transfer” and the debtor intended to incur, or “should have believed that
he would incur, debts beyond his ability to pay as they became due.” Utah Code Ann. § 25-6-5.
The creditor may obtain “avoidance of the transfer or obligation to the extent necessary to satisfy
the creditor’s claim.” Id. § 25-6-8(1)(a). Furthermore, “the creditor may recover judgment for
the value of the asset transferred . . . against” . . . “the first transferee” and “any subsequent
transferee other than a good faith transferee who took for value.” Id. § 25-6-9(2).

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In this case, the only “debtor” or “transferee” identified in the Complaint is National Title
and NTAU. National Title is the only entity that dealt with First American and NTAU is the
only entity that received assets from National Title. None of the remedies provided for in the
Fraudulent Transfer Act includes an independent tort action against persons who did not
personally transfer or receive assets in a fraudulent transfer. Thus, the Act does not authorize
First American to seek relief from the individual directors or shareholders absent a piercing of
the corporate veil.
Utah Supreme Court precedent suggests that the Act’s remedies are limited to the parties
to an alleged fraudulent transfer. BYU v. Tremco Consultants, Inc., 2005 UT 19, ¶ 7, 110 P.3d
678. Here, the undisputed facts demonstrate that Spencer Rowley and William Rowley were not
parties to the APA. The transfer was between two separate legal entities. First American has not
brought a claim to pierce the corporate veil. Consequently, First American cannot impose
individual liability on Spencer and William Rowley for a fraudulent transfer.
First American argues that there is a reasonable inference that National Title used its
assets to pay legal fees incurred by William and Spencer Rowley as well as NTAU and although
National Title might properly pay a lawyer to defend itself, gratuitously giving its assets to third
parties is a fraudulent transfer because National Title receives no benefit from paying fees for the
Rowleys and NTAU. However, prior to the summary judgment briefing, First American had
made no claim that National Title’s payment of attorney fees constitutes a fraudulent transfer.
Moreover, as a defendant in this action, National Title is incurring its own legal fees that must be
paid, and National Title represents that it has incurred in excess of $98,000 in attorney’s fees and
costs defending this action and bringing claims on its own behalf. Therefore, the evidence before
the court does not establish a fraudulent transfer claim against William and Spencer Rowley in

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their individual capacities.
CONCLUSION
Based on the above reasoning, Plaintiff First American Title Insurance Company’s
Motion for Partial Summary Judgment [Docket No. 93] is GRANTED IN PART AND DENIED
IN PART, and Defendants National Title Agency of Utah, William D. Rowley, and Sterling
Spencer Rowley’s Motion for Partial Summary Judgment [Docket No. 96] is GRANTED IN
PART AND MOOT IN PART.
DATED this 19th day of May, 2017.
BY THE COURT:

___________________________________
DALE A. KIMBALL
United States District Judge

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