JBGR LLC v. Chicago Title Ins. Co.
Cite as: JBGR LLC v. Chicago Title Ins. Co., 35140-11, NYLJ 1202586873107, at *1 (Sup., SUF, Decided January 17, 2013)
Justice Elizabeth Hazlitt Emerson
Decided: January 17, 2013
Attorneys For Plaintiffs: Hartman & Craven LLP, New York, New York.
Attorneys For Defendant: Fidelity National Law Group, New York, New York.
Upon the following papers numbered 1-59 read on this motion to dismiss and cross-motion to stay and compel;
Notice of Motion and supporting papers 1-28;
Notice of Cross Motion and supporting papers 29-54;
Answering Affidavits and supporting papers 55-59;
Replying Affidavits and supporting papers ; it is,
ORDERED that the motion by the defendant for an order dismissing the complaint is denied; and it is further
ORDERED that the branch of the cross motion by the plaintiffs which is for an order staying the defendant's motion to dismiss is denied as academic; and it is further
ORDERED that the branch of the cross motion by the plaintiffs which is for an order compelling the defendant to respond to their discovery demands is referred to a conference, which shall be held on January 30, 2013, at 9:45 a.m., Supreme Court, Courtroom 7, Arthur M. Cromarty Criminal Court Building, 210 Center Drive, Riverhead, New York 11901.
In 1994, Paul Elliot, an experienced real estate investor and developer, and another individual purchased 286 acres in Wading River, New York, on which they planned to build a residential community around an 18-hole golf course. By 1999, development of the golf course had been started; the roads and infrastructure were substantially complete, and 140 building lots had been sold. Elliot then sold his interest in the project to Thomas Costello, who continued to work on the development d/b/a Great Rock Golf, Inc. By 2005, 140 homes had been built, and Elliot
entered into negotiations with Costello to repurchase the property. On January 19, 2006, Great Rock Golf, Inc., entered into a contract of sale with Great Rock Golf 2006 LLC, of which Elliot was the managing member. On April 12, 2006, Great Rock Golf 2006 LLC assigned its right to purchase the property for $9.97 million to the plaintiff LLC's. Elliot is a member of the plaintiff Elliot WR Golf, LLC. As part of the purchase price, the plaintiffs gave Great Rock Golf, Inc., a promissory note in the principal amount of $2.97 million secured by a second mortgage on the property and guaranteed by individual members of the plaintiff LLC's. The plaintiffs intended to build another 55 residences on the property, but they learned in 2009 that development had been limited to 140 homes pursuant to a declaration signed by Elliot and recorded on December 24, 1997. Also in 2009, Great Rock Golf, Inc., assigned the note and mortgage to its shareholders, including Costello. When the plaintiffs and the individual guarantors defaulted, Costello and the other shareholders of Great Rock Golf, Inc., commenced an action in this court (Index No. 28474-11) to recover on the note and guarantees. By an order dated July 23, 2012, this court granted their motion for summary judgment and awarded them damages in the principal amount of $2.97 million.
The plaintiffs in this action were defendants in the aforementioned action. They commenced this action against the defendant, Chicago Title Insurance Company, who issued a title insurance policy in connection with the sale of the property from Great Rock Golf, Inc., to them in 2006. The plaintiffs allege that they were unaware of the 1997 declaration that restricted development of the property to 140 homes and that they detrimentally relied on the defendant's title search, which failed to advise them of the declaration. The plaintiffs allege that the defendant is obligated to indemnify them for their losses because the policy failed to exclude the 1997 declaration from its coverage. The defendant moves to dismiss the complaint, inter alia, on the ground that exclusion 3(a) of the policy excludes from coverage any defects, liens, encumbrances, adverse claims, or other matters created, suffered, assumed, or agreed to by the plaintiffs and that Elliot, who created or agreed to the declaration, was an agent of the plaintiffs.
In opposition, the plaintiffs attempt to recast the defendant's argument so that it falls within exclusion 3(b) of the policy, which excludes coverage for any defects, liens, encumbrances, adverse claims, or other matters not known to the defendant, not recorded in the public records as of the date of the policy, but known to the insured claimant and not disclosed in writing to the defendant prior to the insured claimant becoming an insured under the policy. Relying on Smirlock Realty Corp. v. Title Guar. Co. (52 NY2d 179), the plaintiffs argue that, because the 1997 declaration was a matter of public record, the defendant may not avoid its obligation under the policy. The plaintiffs also argue that Smirlock Realty Corp., which interpreted exclusion 3(b), applies equally to exclusion 3(a) and that some title insurers have added to exclusion 3(a) language indicating that it applies whether or not the defects, liens, or encumbrances appear in public records. The plaintiffs argue that, because such additional language does not appear in the defendant's policy, exclusion 3(a) does not apply to defects, liens, or encumbrances that are a matter of public record.
Under New York law, an insurance policy is a contract, which, like any other contract, must be construed to effectuate the parties' intent as expressed by their words and purposes (Alfin, Inc. v. Pacific Ins. Co., 735 F Supp 115, 118 [SDNY]). A title insurer's obligation to indemnify is defined by the policy itself (Darbonne v. Goldberger 31 AD3d 693, 695). General rules of contract construction apply to title insurance policies. Any ambiguity in the
policy will be construed in favor of the insured, and exceptions to coverage will be narrowly read (Inavest Enters. v. TRW Tit. Ins. of New York, 151 Misc 2d 402, affd as mod 189 AD2d 111). The burden of proving an exclusion is on the insurer. Thus, it falls to the defendant to establish the meaning and applicability of the exclusion upon which it relies. To negate coverage, the insurer must establish that the exclusion is stated in clear and unmistakable language, that it is subject to no other reasonable interpretation, and that it applies in the particular case (Ben-Avraham v. Lawyers Tit. Ins. Corp., 5 Misc 3d 791, 793 [and cases cited therein]).
The court finds that the defendant has met its burden of establishing exclusion 3(a). The plaintiffs' reliance on Smirlock Realty Corp. (supra) is misplaced, and its interpretation of exclusion 3(a), that it does not apply to defects, liens, or encumbrances that are a matter of public record, is contrary to 3(a)'s plain meaning. Courts should be extremely reluctant to interpret an agreement as impliedly stating something that the parties have neglected to specifically include (see, Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 NY3d 470, 475). Exclusion 3(a), unlike exclusion 3(b), does not contain any language indicating that it does not apply if the defect, lien, or encumbrance is recorded in public records. Thus, the plaintiffs' interpretation of exclusion 3(a) violates the general rule of contract construction that courts may not by construction add or excise terms, nor distort the meaning of those used, and thereby make a new contract for the parties under the guise of interpreting the writing (Id.).
The plaintiffs contend that exclusion 3(a) only applies in cases of fraudulent conduct by the insured, which is absent here. Contrary to the plaintiffs' contention, the cases discussing the applicability of exclusion 3(a) state that the insurer can escape liability only if the defect, lien or encumbrance resulted from some intentional misconduct by the insured or the insured either expressly or impliedly assumed or agreed to the defects or encumbrances in the course of purchasing the property (see, Natl. Credit Union Admin. v. Ticor Tit. Ins. Co., 873 F Supp 718, 728 [D Mass]; Am. Sav. & Loan Assn. v. Lawyers Tit. Ins. Corp., 793 F2d 780, 784 [6th Cir]; Brown v. St. Paul Ins. Corp., 634 F2d 1103, 1108 n 8 [8th Cir]). As the plaintiffs correctly contend, there is no allegation that they acted fraudulently or engaged in any intentional misconduct, which brings us to the plaintiffs' final argument regarding the applicability of exclusion 3(a), that they did not create or agree to the declaration.
It is undisputed that the declaration was created by Elliot in 1997, before he sold his interest in the property to Costello. The defendant contends that Elliot's creation and knowledge of the declaration is imputed to the plaintiffs because he was acting as their agent when they purchased the property from Costello in 2006. In support thereof, the defendant relies on the affidavit submitted by Elliot in the prior action (Index No. 28474-11) in opposition to the motion for summary judgment by Costello and the other shareholders of Great Rock Golf, Inc., and this court's order dated July 23, 2012, granting their motion for summary judgment. In that order, the court found that the defendants (which include the plaintiff LLC's in this action) could not rely on their conclusory and unsubstantiated allegations that they were unaware of the declaration that restricted further development of the premises to the existing 140 homes that had already been built because Elliot conceded in his affidavit that he executed the declaration on December 24, 1997. The defendant contends that, in view of this finding, the plaintiffs are collaterally estopped from denying that Elliot was acting as their agent when they purchased the property and that his knowledge of the declaration was imputed to them.
Since the defendant's collateral-estoppel argument is raised for the first time in the defendant's reply memorandum of law, the plaintiffs have not been afforded a fair opportunity to address it (see, Murphy v. Hanover Ins. Co., 239 AD2d 323, 325). In any event, it fails on the merits. The equitable doctrine of collateral estoppel is based upon the general notion that it is not fair to permit a party to relitigate an issue that has already been decided against it (see, Matter of Juan C. v. Cortines, 89 NY2d 659, 667). Its essential ingredients are: first, that the identical issue necessarily must have been decided in the prior action and be decisive of the present action and, second, that the party to be precluded from relitigating the issue must have had a full and fair opportunity to contest the prior determination (Id.). Although the court impliedly determined in the prior action that Elliot was acting as an agent for the LLC's and that his knowledge of the declaration was imputed to them, those issues were neither raised nor litigated by the parties in that action. Thus, the plaintiffs did not have a full and fair opportunity to contest the court's determination in the prior action. Moreover, even assuming that Elliot was acting as an agent for the LLC's in 2006, dismissal is not warranted.
The general rule is that knowledge acquired by an agent acting within the scope of his agency is imputed to his principal and that the latter is bound by such knowledge even though the information is never actually communicated to the principal (Skiff-Murray v. Murray, 17 AD3d 807, 809-810). The agent's knowledge need not be acquired while he is performing services for the principal and may include information learned in prior transactions and relationships (Id. at 810). As long as it was in the agent's mind when acting on the principal's behalf, the agent's knowledge can be imputed to the principal regardless of how it was obtained, unless it was acquired confidentially (Id. [and cases cited therein]; see also, Haig, Commercial Litigation in NY State Courts §77:46 at 450 [3rd ed 2010]).
On a motion to dismiss pursuant to CPLR 3211, the sole criterion is whether the pleading states a cause of action and if, from its four corners, the factual allegations, taken together, manifest any cause of action cognizable at law (Guggenheimer v. Ginzburg, 43 NY2d 268, 275). The court is to liberally construe the complaint, accept the alleged facts as true, and give the plaintiff the benefit of every possible favorable inference (Leon v. Martinez, 84 NY2d 83, 87). A court may freely consider affidavits submitted by the plaintiff to remedy any defects in the complaint (Rovello v. Orofino Realty, 40 NY2d 633, 635). When evidentiary material is considered, the inquiry turns from whether the complaint states a cause of action to whether the plaintiff actually has one. Unless it can be shown that a material fact as claimed by the plaintiff is not a fact at all and that no significant dispute exists regarding it, the complaint should not be dismissed (Guggenheimer v. Ginzburg, supra).
The affidavits submitted by Elliot in this action and in the prior action reveal that he did not recall in 2006 having executed the declaration nine years earlier in 1997. The court finds that, under these circumstances, there are significant factual disputes as to whether the declaration was in Elliot's mind in 2006 and whether his knowledge thereof can be imputed to the plaintiffs. Accordingly, the court declines to dismiss the complaint under exclusion 3(a).
The defendant's alternate ground for dismissal is that the plaintiffs failed to cooperate with the investigation of their claim. In support thereof, the defendant relies on the affidavit of its senior claims counsel and letters and e-mails between the plaintiffs' counsel and its senior claims counsel.
A motion to dismiss pursuant to CPLR 3211 (a) (1) will be granted only if the documentary evidence resolves all factual issues as a matter of law and conclusively disposes of the plaintiff's claim (Fontanetta v. John Doe 1, 73 AD3d 78, 83). In order for evidence to qualify as documentary, it must be unambiguous, authentic and undeniable (Granada Condominium III Assoc. v. Palomino, 78 AD3d 996, 997). If the evidence submitted is not "documentary," the motion must be denied (Fontanetta at 84). Affidavits are not documentary evidence, nor are letters and e-mails (Granada at 997; Fontanetta at 85-87). Thus, the materials submitted by the defendant in support of this branch of its motion to dismiss do not constitute documentary evidence within the meaning of CPLR 3211 (a) (1). In any event, they fail to establish the plaintiff's noncooperation as a matter of law (Granada at 997). Accordingly, the motion is denied.