Judge: Helen Zukin, Case: 20SMCV00106, Date: 2022-07-28 Tentative Ruling

Case Number: 20SMCV00106    Hearing Date: July 28, 2022    Dept: 207



Plaintiff Lone Oak Fund, LLC (“Plaintiff”) brings this action against Defendant North American Title Insurance Company (“Defendant”) stemming from an insurance coverage dispute. Plaintiff has alleged causes of action against Defendant for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing. Defendant brings this motion for summary judgment, or, in the alternative, summary adjudication, arguing Plaintiff was not entitled to coverage under the applicable policy.


Request for Judicial Notice


Defendant requests the Court take judicial notice of documents recorded with the Los Angeles Country Recorder’s Office and court records from actions filed in California Superior Court. Defendant’s request is unopposed and is GRANTED.


Objections to Evidence


Defendant’s objections to the Declarations of James Rothstein and Simon Aron are OVERRULED.


Summary Judgment Standard


Motions for summary judgment are governed by Code Civ. Proc. § 437c, which allows a party to “move for summary judgment in an action or proceeding if it is contended that the action has no merit or that there is no defense to the action or proceeding.” (C.C.P. § 437c(a)(1).) The function of a motion for summary judgment or adjudication is to allow a determination as to whether an opposing party cannot show evidentiary support for a pleading or claim and to enable an order of summary dismissal without the need for trial. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) Code Civ. Proc. § 437c(c) “requires the trial judge to grant summary judgment if all the evidence submitted, and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.) “The function of the pleadings in a motion for summary judgment is to delimit the scope of the issues; the function of the affidavits or declarations is to disclose whether there is any triable issue of fact within the issues delimited by the pleadings.” (Juge v. County of Sacramento (1993) 12 Cal.App.4th 59, 67, citing FPI Development, Inc. v. Nakashima (1991) 231 Cal. App. 3d 367, 381-382.) Courts “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.” (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389.)


As to each claim as framed by the complaint, a plaintiff moving for summary judgment must satisfy the initial burden of proof by establishing “each element of the cause of action entitling the party to judgment on the cause of action.” (C.C.P. § 437c(p)(1).) Once the plaintiff has met this burden, the burden shifts to the defendant to show a triable issue of one or more material facts exists as to the cause of action or a defense thereto. (C.C.P. § 437c(p)(1).) To establish a triable issue of material fact, the party opposing the motion must produce substantial responsive evidence. (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.)


Summary Adjudication Standard


A party may move for summary adjudication as to one or more causes of action, affirmative defenses, claims for damages, or issues of duty if the party contends there is no merit to the cause of action, defense, or claim for damages, or if the party contends there is no duty owed. (See CCP §437c(f)(1).) “A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.” (Ibid.) A party moving for summary adjudication bears the burden of persuasion that there are no triable issues of material facts. Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.


In analyzing motions for summary adjudication, the court must “view the evidence in the light most favorable to the opposing party and accept all inferences reasonably drawn therefrom.” (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294; Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389 (Courts “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party”).) A motion for summary adjudication must be denied where the moving party's evidence does not prove all material facts, even in the absence of any opposition (Leyva v. Sup. Ct. (1985) 164 Cal.App.3d 462, 475) or where the opposition is weak (Salasguevara v. Wyeth Labs., Inc. (1990) 222 Cal.App.3d 379, 384, 387).




Defendant has raised similar arguments with respect to each of Plaintiff’s causes of action, arguing its denial of coverage was proper under several provisions of the policy. The facts underlying each of these arguments are largely undisputed.


On September 12, 2014, a deed of trust was recorded with the Los Angeles County Recorder’s Office securing a loan from Plaintiff to Looney in the amount of $1,000,000. (UMF No. 1.) This deed of trust was insured by Defendant pursuant to a title insurance policy under which it insured Plaintiff “against loss or damage … sustained or incurred by the Insured by reason of: … 2. … loss from (a) A defect in the Title caused by (i) forgery, fraud, undue influence, duress, incompetency, incapacity, or impersonation….” (McChesney Decl. at Ex. C.) This loan was repaid and in December 2015, a full reconveyance of the deed of trust was recorded with the Recorder’s Office. (UMF No. 5.) Plaintiff did not retain an interest in the Looney property following this reconveyance. (UMF Nos. 6-8.)


In 2018 and 2019, the trustee of the Hutchins Family Trust, Chirelle Alana Looney (“Looney”) sued Plaintiff, alleging its involvement in a fraudulent scheme to procure a series of loans secured by the subject property, her home, at or before the deed of trust was recorded in 2014. (UMF Nos. 12, 27.) Looney’s first action, filed in July 2017, alleged several defendants, including Union Bank of California employee Maryann Rezaie (“Rezaie”), fraudulently induced her to take out an unnecessary mortgage against her home. Looney alleged Rezaie convinced her to agree to the enter into an agreement with Plaintiff for a loan in the amount of $1,000,000 secured against the house. Looney further alleged Rezaie convinced her to refinance the mortgage with Plaintiff by obtaining two fraudulently created consumer loans with other entities which are unrelated to these proceedings. Plaintiff was not named as a defendant in Looney’s original Complaint but was subsequently substituted into the litigation in place of Doe 2 in an amendment filed in November 2018. On September 11, 2019, Looney filed a First Amended Complaint alleging Plaintiff had, among other things, “willfully or negligently” placed her in a loan she did not need and could not afford, and withheld disclosures from her in connection with the loan agreements, constituting fraud, breach of contract, and unfair business practices by Plaintiff. (FAC at ¶¶ 134, 138, 145, 148, 153, 167.) Plaintiff ultimately settled with Looney and was dismissed from the case on April 9, 2021.


While the first action was pending, on March 4, 2019, Looney brought a second lawsuit against Plaintiff. Looney’s Complaint in this second action mirrors the allegations and causes of action brought against Plaintiff in the First Amended Complaint filed in the first action discussed above. Plaintiff was dismissed from the second action without prejudice on August 13, 2019, presumably so Looney could pursue her claims against Plaintiff in the first action by way of the First Amended Complaint filed a month later.


Plaintiff tendered its defense and indemnity to Defendant for the first action brought by Looney, and Defendant denied coverage. Plaintiff’s causes of action against Defendant are premised on this denial in coverage having been made in error. Defendant advances two theories as to why its denial was proper: (1) Pursuant to sections 2 and 10(b) of the Policy’s conditions, Defendant’s coverage under the policy terminated before Looney brought an action; and (2) Looney’s claims against Plaintiff were excluded from coverage under exclusion 3(a).


            1.         Sections 2 and 10(b) of Policy Conditions


“An insurance company's obligation to indemnify an insured depends upon the nature of the risks covered by the insurance policy.” (Hovannisian v. First American Title Ins. Co. (2017) 14 Cal.App.5th 420, 429.) “In insurance coverage cases, ‘the proper initial focus must be the language of the policy itself … .’” (Golden Security Thrift & Loan Assn. v. First American Title Ins. Co. (1997) 53 Cal.App.4th 250, 255.) To prevail on the duty to defend issue on summary judgment “the insured must prove the existence of a potential for coverage, while the insurer must establish the absence of any such potential. In other words, the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot. Facts merely tending to show that the claim is not covered, or may not be covered, but are insufficient to eliminate the possibility that resultant damages (or the nature of the action) will fall within the scope of coverage, therefore add no weight to the scales.” (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 300.) Even where an insurer has moved for summary judgment, however, it is the insured's burden to prove its claim falls within the policy's coverage. (Albert v. Mid-Century Ins. Co. (2015) 236 Cal.App.4th 1281, 1290; Roberts v. Assurance Co. of America (2008) 163 Cal.App.4th 1398, 1407.)


Section 2 of the conditions of the policy provides:


The coverage of this policy shall continue in force as of the Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of Title. This policy shall not continue in force in favor of any purchaser from the Insured of either (i) an estate or interest in the Land, or (ii) an obligation secured by a purchase money Mortgage given to the Insured.


(UMF No. 43.) Section 10(b) of the conditions provides: “The voluntary satisfaction or release of the Insured Mortgage shall terminate all liability of the Company except as provided in Section 2 of these Conditions.” (UMF No. 41.)


Defendant contends its coverage under the policy stopped as of Plaintiff’s reconveyance in December 2015 pursuant to sections 2 and 10(b). Thus, Defendant argues, the policy does not provide coverage for the claims raised by Looney in 2018 and 2019. Defendant primarily relies on RNT Holdings, LLC v. United General Title Ins. Co. (2014) 230 Cal.App.4th 1289. In RNT Holdings, the lender plaintiff obtained a deed of trust in 2008 as security for a loan and obtained title insurance from defendant insuring the deed of trust in a second position. Before this deed of trust was recorded, Plaintiff’s manager and borrower’s real estate attorney recorded a grant deed transferring the property to borrower’s trust. Plaintiff subsequently secured a second deed of trust in 2010 in connection with a loan to pay off the loan in the first position. In April 2011, plaintiff made a claim with the defendant insurer, arguing the transfer from borrower to the borrower’s trust invalidated the 2008 deed of trust which had only been recorded after the transfer. Shortly thereafter, in May 2011, borrower sold the property and refinanced plaintiff’s loans with a new lender. As part of the May 2011 transaction, plaintiff executed two reconveyances with respect to the 2008 and 2010 trust deeds.


Plaintiff then brought an action against defendant title insurer, arguing the 2008 deed of trust had never properly encumbered the property. The Court of Appeal disagreed, holding the 2008 trust deed imposed a valid lien on the property and thus the “sole potential title defect (if any) relating to that trust deed concerned future sales of the property to bona fide purchasers for value.” (Id. at 1298.) The Court affirmed summary judgment for defendant, finding defendant could not be liable for any defects related to sales of the property to bona fide purchasers because the May 2011 sale was not to a bona fide purchaser because the purchaser was aware of the 2008 trust deed recorded by plaintiff as the borrower was the sole shareholder of the purchaser in the 2011 transaction. (Id. 1299-1300.) The Court then turned to condition 10(b) of the policy, which is substantially similar to the condition at issue here. The Court found the May 2011 reconveyance “ended [defendant]’s liability for any title defect” (Id. at 1300.)


Plaintiff claims RNT Holdings is inapposite as it did not consider whether condition 10(b) applies to relieve an insurer of its coverage obligations for claims based on actions which occurred prior to the reconveyance. Plaintiff argues the reconveyance in RNT Holdings occurred after plaintiff had tendered a claim to defendant insurer, whereas Looney’s claims here concerned conduct occurring in 2014 during the policy period but were not raised by Looney until after the reconveyance had occurred. Plaintiff claims Defendant remains liable for claims which arise after the reconveyance but are based on losses or damages incurred before it, citing to Hovannisian v. First American Title Ins. Co. (2017) 14 Cal.App.5th 420. The Hovannisian Court distinguished the policy at issue from a “claims-made” policy. A “claims-made” policy is one which “cover[s] an insured only for claims asserted during the policy period” rather than “any loss or damage during the policy period.” (Id. at 434.) The Court found the policy at issue there was not a “claims-made” policy because it provided coverage for “loss or damage … sustained or incurred by the Insured.” (Id. at 434.)


The Court finds Defendant’s liability for the Looney claims was extinguished under condition 10(b). It is true Plaintiff’s claims here do not square completely with the fact pattern present in RNT Holdings, however the reasoning and result of RNT Holdings applies in equal force here. The Court in RNT Holdings expressly based its interpretation of condition 10(b) on two cases from other jurisdictions which found 10(b) extinguished coverage for claims raised after reconveyance but based on conduct occurring before it. (RNT Holdings, supra, 230 Cal.App.4th at 1298-1299.) Further Hovannisian did not turn on the applicability or interpretation of a specific contractual condition analogous to condition 10(b) here. Rather, the Hovannisian Court held, in dicta, that the policy at issue was not restricted to claims raised during the policy period and thus plaintiffs were not barred from seeking coverage for loss or damage sustained within the policy period through a claim raised outside of it. Here, however, Plaintiff did not sustain any damage or loss related to the two Looney actions until well after the reconveyance in 2015.


The undisputed facts here show there was no potential basis for coverage under the policy as Defendant’s liability for future losses and damages was extinguished by the 2015 reconveyance. Defendant has thus met its burden of showing Plaintiff cannot establish any breach by Defendant for failing to indemnify or defend Plaintiff in the Looney actions. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 26 [“If the terms of the policy provide no potential for coverage, as in this case, the insurer acts properly in denying a defense”].) Plaintiff has not met its burden of showing the existence of a triable issue of material facts as to the element of breach, and thus Defendant is entitled to summary adjudication as to Plaintiff’s breach of contract cause of action.


The same is true with respect to Plaintiff’s other claims. The claim for breach of the implied covenant of good faith and fair dealing is dependent on a finding of coverage under the policy. “It is clear that if there is no potential for coverage and, hence, no duty to defend under the terms of the policy, there can be no action for breach of the implied covenant of good faith and fair dealing because the covenant is based on the contractual relationship between the insured and the insurer.” (Id. at 36.) And Plaintiff’s final cause of action for declaratory relief is similarly premised on the availability of coverage under the policy to defendant or indemnify against the claims raised by Looney. (Complaint at ¶¶ 14-17.) As the Court has determined there is no potential for coverage under the policy for the Looney actions, the Court finds for Defendant as to Plaintiff’s claims for declaratory relief and breach of the implied covenant.


As Defendant has demonstrated Plaintiff would not be able to establish essential elements of any of its claims against Defendant, the Court GRANTS Defendant’s motion for summary judgment.


            3.         Exclusion 3(a)


As the Court has determined condition 10(b) terminated Defendant’s liability for the Looney claims, the Court need not consider whether the Looney claims also fall within exclusion 3(a) in the policy and declines to do so.


            4.         Exclusions 4 and 5


As with exclusion 3(a), the Court need not determine whether exclusions 4 or 5 apply here and declines to do so. The Court further notes Defendant raised exclusions 4 and 5 for the first time in reply. The purpose of a reply brief is to address arguments made in the responding party’s opposition brief, it is not to be used to raise new arguments, authorities, or evidence as consideration of such new material would either deprive respondent of an opportunity to counter the argument or require the effort and delay of additional brief by permission. (Marriage of Khera & Sameer (2012) 206 Cal.App.4th 1467, 1477 (“Obvious reasons of fairness militate against consideration of an issue raised initially in the reply brief[.]”). Further, in ruling on a motion for summary judgment “the court may ignore evidence not disclosed in moving party's separate statement of undisputed facts” (San Diego Watercrafts, Inc. v. Wells Fargo Bank (2002) 102 Cal.App.4th 308, 315.) As exclusions 4 and 5 are not addressed in Defendant’s moving papers or separate statement, the Court declines to consider them in ruling on Defendant’s motion.



Defendant’s motion for summary judgment is GRANTED.