Judge: Helen Zukin, Case: 20SMCV00106, Date: 2022-07-28 Tentative Ruling
Case Number: 20SMCV00106 Hearing Date: July 28, 2022 Dept: 207
Background
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).
Analysis
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.
Conclusion
Defendant’s motion for summary judgment is GRANTED.