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Dahm v. First American Title Insurance Co.

April 9, 2008


The opinion of the court was delivered by: Wayne R. Andersen District Judge


Plaintiffs Ralph and Patricia Dahm ("plaintiffs" or the "Dahms") filed a five-count First Amended Complaint ("complaint") against defendants First Global Pacific Funding, Inc. ("First Global"), First American Title Insurance Co. ("First American"), J&J Lending Corp. ("J&J"), and Dana Capital Group, Inc. ("Dana"), seeking various remedies related to a mortgage dispute. First American and Dana answered the complaint in February 2007. First Global and J&J moved to dismiss plaintiffs' claims for negligent failure to procure title insurance (Counts III), negligent misrepresentation (Count IV) and a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (Count V), pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6). For the reasons set forth more fully below, the motion to dismiss is granted in part and denied in part.

I. Factual Background

This case stems from a mortgage dispute over plaintiffs' home in Wheaton, Illinois (the "property"). According to plaintiffs, defendants First Global and J&J (collectively "defendants") had some type of contractual relationship to jointly provide mortgage services to plaintiffs. Defendants originated and brokered the loan at issue in this case. In 2004, defendants' representative, Jesse Cavett ("Cavett"), contacted the Dahms regarding the possibility of refinancing the mortgage on their property. At that time, Real Estate Mortgage and Financial Corp. ("REMFC") had a mortgage on the Dahms' property. On October 14, 2004, Mr. Dahm informed Cavett, through oral conversations and a written letter, that SBA might also have a mortgage on the property. The next day, October 15, 2004, Cavett wrote a letter back to Mr. Dahm certifying that the SBA Mortgage was no longer a good lien on the property and that the title company, defendant First American, had certified that fact and that there were no current title issues related to the SBA Mortgage.

That same month, Mr. Dahm instructed Cavett to procure title insurance that would indemnify and defend the Dahms against any claims by the holder of the SBA Mortgage. On October 18, 2004, Cavett confirmed that he had procured title insurance for the Dahms that would protect them from any claims on the SBA Mortgage. Cavett faxed Mr. Dahm a title commitment stating that an owner's policy was to issue and a letter stating that there were no current title issues with the property for which the Dahms would be liable.

Based on the above representations, the Dahms chose to refinance their mortgage with People's Choice. In early 2005, the Dahms paid off the REMFC mortgage with funds from People's Choice. Contrary to defendants' representations, at the time the Dahms refinanced with People's Choice, defendants had not procured the Dahms a title insurance policy that would insure them against claims by the holder of the SBA Mortgage. In August or September 2005, First American became the holder of the SBA Mortgage. On September 19, 2005, First American contacted the Dahms and asserted that the SBA Mortgage was a valid lien on the property. First American threatened to file a complaint for foreclosure on the property if the Dahms did not pay it to the lien. Thereafter, the Dahms initiated the instant case.

II. Legal Analysis

A. Rule 12(b)(6) Standard of Review

Rule 12(b)(6) permits motions to dismiss a complaint for "failure to state a claim upon which relief can be granted. . ." FED. R. CIV. P. 12(b)(6). To survive a Rule 12(b)(6) motion, "the complaint need only contain a 'short and plain statement of the claim showing that the pleader is entitled to relief.'" Equal Employment Opportunity Comm'n v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007)(citation omitted). The language in Rule 12(b)(6) "impose[s] two easy to clear hurdles. First, the complaint must describe the claim in sufficient detail to give the defendant 'fair notice of what the ... claim is and the grounds upon which it rests.' Second, its allegations must plausibly suggest that the plaintiff has a right to relief, raising that possibility above a 'speculative level'; if they do not, the plaintiff pleads itself out of court." Id. (citations omitted). In determining whether plaintiffs have cleared these hurdles, the court assumes "that all the allegations in the complaint are true." Jennings v. Auto Meter Prods., Inc., 495 F.3d 466,472 (7th Cir. 2007) (citations omitted). Now, the court turns to the specific counts in the complaint that defendants seek to dismiss.

B. Negligent Failure to Procure an Owner's Title Policy (Count III)

In Count III, the Dahms claim that defendants, as their mortgage brokers, had a duty to procure the type of title insurance policy for the property that the Dahms requested. Specifically, the Dahms requested a policy that would insure them against any claims from the holder of the SBA Mortgage. The Dahms allege that defendants negligently failed to procure such a policy. Defendants seek to dismiss this claim on two grounds. First, defendants argue this claim is barred by the Moorman Doctrine. Second, defendants contend plaintiffs failed to allege any duty on the part of defendants.

We begin with the parties' arguments regarding the Moorman Doctrine. The Moorman Doctrine is an economic loss doctrine adopted by the Illinois Supreme Court in Moorman Mfg. Co. v. National Tank Co., 91 Ill.2d 69, 88 (1982). With limited exceptions, the Moorman Doctrine prohibits plaintiffs from recovering in tort for purely economic losses. Id. In other words, "Moorman prevents the use of tort measures of damages in what are really contract cases." Decatur Memorial Hosp. v. Connecticut General Life Ins. Co., 990 F.2d 925, 928 (7th Cir. 1993). In Count III, plaintiffs seek purely economic losses under a tort theory -- negligence. Accordingly, this claim is dismissed with prejudice because it is barred by the Moorman Doctrine. See Gage-Wilson v. Chase Manhattan Mort. Corp., 2006 WL 1431047, *2, No. 05 C 5801 (N.D.Ill. May 17, 2006).

The Dahms' argument that one of the limited exceptions to the Moorman Doctrine applies to their negligence claim is meritless. The exception cited by the Dahms only applies to claim for negligent misrepresentation, not claims for negligent procurement. In Moorman, the Illinois Supreme Court recognized an exception to the economic loss doctrine for cases "where the plaintiff's damages are proximately caused by a negligent misrepresentation by a defendant in the business of supplying information for the guidance of others in their business transactions." Fireman's Fund Ins. Co. v. SEC Donohue, Inc., 176 Ill.2d 160, 165 (1997). Construing this "commercial information supplier" exception narrowly, as we must, the court finds that it does not apply to plaintiffs' negligent procurement claim. See Gerdes v. John Hancock Mut. Life Ins. Co., 712 F. Supp. 692, 698 (N.D.Ill. 1989). The court further notes that plaintiffs' reliance on Kanter v. Deitelbaum is misplaced. 271 Ill.App.3d 750, 753 (Ill. App. 1st Dist. 1996). Kanter involved claims of actual fraud and negligent misrepresentation and the holding was limited to "the facts and circumstances" of that case. Id. at 755. Therefore, the holding in Kanter is not applicable to the instant negligent procurement claim.

Finally, to the extent plaintiffs argue in their response brief to the motion to dismiss that their negligent procurement claim is really a professional negligence claim based on an "extra-contractual duty," that argument also fails. Illinois courts have allowed tort recovery against attorneys and accountants based on an "extra-contractual duty" theory. Congregation of the Passion v. Touche Ross & Co., 159 Ill.2d 137, 159-60 (1994). However, beyond that narrow range of professionals, courts have not imposed an extra-contractual duty on other professionals and have held that the Moorman Doctrine applies to bar various tort claims. Bank One, Oklahoma, N.A. v. Trammell Crow Services, Inc., 2003 WL 23019173, No. 03 C 3624 (N.D.Ill. Dec. 23, 2003). ...

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