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James Gondeck and Peter G. O'malley v. A Clear Title and Escrow Exchange

August 22, 2012


The opinion of the court was delivered by: Judge Feinerman


Plaintiffs James Gondeck and Peter G. O'Malley claim in this lawsuit that they were the victims of a fraudulent real estate scheme involving the misappropriation of funds they deposited into an escrow account that Defendant A Clear Title and Escrow Exchange maintained at Defendant Fifth Third Bank. After Fifth Third and Defendant Fidelity National Title Group moved to dismiss the first amended complaint, the court invited Plaintiffs to submit a second amended complaint setting forth all their factual allegations. 2012 WL 773119 (N.D. Ill. Mar. 8, 2012). The second amended complaint alleges, among other things, that Fidelity, Defendant Chicago Title Insurance Company, and Defendant Ticor Title Insurance Company (collectively, "Title Companies") are directly liable for their own negligence regarding the escrow account and vicariously liable for A Clear Title's misconduct. Doc. 68. The Title Companies have moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss the claims against them. The motion is granted in part and denied in part.


The second amended complaint's well-pleaded factual allegations, though not its legal conclusions, are assumed to be true on a Rule 12(b)(6) motion. See Munson v. Gaetz, 673 F.3d 630, 632 (7th Cir. 2012); Reger Dev., LLC v. Nat'l City Bank, 592 F.3d 759, 763 (7th Cir. 2010). In evaluating a motion to dismiss, the court must consider "the complaint itself, documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice." Geinosky v. City of Chicago, 675 F.3d 743, 745 n.1 (7th Cir. 2012). The court also must consider additional facts set forth in Plaintiffs' opposition brief or supported by attachments to the brief, so long as those facts "are consistent with the pleadings." Ibid. To the extent an exhibit attached to or referenced by the complaint contradicts the complaint's allegations, the exhibit takes precedence. See Forrest v. Universal Sav. Bank, F.A., 507 F.3d 540, 542 (7th Cir. 2007). The following sets forth the facts as favorably to Plaintiffs as permitted by the second amended complaint and other materials that may be considered on a Rule 12(b)(6) motion.

A Clear Title and Defendants Stephen Cormier, Marek Harrison, and Michael Spies promoted a Real Estate Funding Program ("REFP") to many individuals, including Plaintiffs. Doc. 68 at ¶¶ 3-4. The potential participants were told that they could secure funding for a real estate project by depositing 10% of the necessary funds into an escrow account; those funds would then be used to secure a letter of credit or a bank guarantee for the project. Id. at ¶ 5; Doc. 68-1. The potential participants were promised that their funds would be returned within 15-20 business days. Doc. 68 at ¶ 6. They also were provided with a "due diligence" package stating that A Clear Title is "a full service title & escrow company, licensed, bonded and insured. Chicago Title is our underwriter which is a part of the Fidelity National Title Group, one of the largest insurers in the world." Id. at ¶¶ 10-11, 53; Doc. 68-2 at 1.

In July 2010, Spies recommended the REFP to Gondeck as a way for him to obtain funding to purchase property in Illinois and to build a home on the property. Doc. 68 at ¶¶ 30-31, 38, 50. On July 6, Gondeck went to Chicago Title's office in Lake Zurich, Illinois, and spoke with the office manager, Tara Doherty. Id. at ¶ 60. Gondeck explained the REFP and stated that he was about to transfer funds into A Clear Title's escrow account at Fifth Third Bank. Ibid. He asked Doherty to confirm that A Clear Title was an agent in good standing with Chicago Title, that A Clear Title was insured by Chicago Title, and that the wire transfer information provided by A Clear Title (Doc. 68-5) was legitimate. Doc. 68 at ¶ 60. Doherty contacted Ernie Winn, Vice President of Fidelity's Florida agency, and explained Gondeck's request. Id. at ¶ 61. Winn emailed Doherty a screenshot of and link to a Florida Department of Financial Services web page listing A Clear Title as a "Title Ins Agency" of Ticor. Ibid.; Doc. 76-2 at 11-12. Doherty forwarded Winn's email to Gondeck. Doc. 68 at ¶ 62; Doc. 76-2 at 26-27. To follow up on Gondeck's request to verify the wire transfer information, Doherty emailed Crystie Pupillo, an employee of Fifth Third Bank. Doc. 68 at ¶¶ 63-65; Doc. 76-2 at 15, 19-20. Pupillo told Doherty that the wire transfer information was accurate (except for a small correction), and Doherty forwarded Pupillo's email to Gondeck. Doc. 68 at ¶ 65; Doc. 76-2 at 24. Gondeck also tried to verify the agency relationship between A Clear Title and Chicago Title by researching the companies on the internet. Doc. 68 at ¶¶ 51, 69.

Gondeck then entered into an Escrow Release and a Sole Escrow Agreement with A Clear Title; the agreement provided that he would transfer $250,000 to the escrow account and that the funds would be returned after 21 days. Doc. 68 at ¶¶ 54-57; Docs. 68-3, 68-4. Gondeck transferred the money on July 8, 2010. Doc. 68 at ¶ 70. Over twenty-one days passed without the real estate purchase closing and without Gondeck's money being returned. Id. at ¶ 71. On August 17, Gondeck entered into another Sole Escrow Agreement that extended the deadline to August 31. Ibid.; Doc. 68-6. On October 12, the deadline was again extended until October 31. Doc. 68 at ¶ 72; Doc. 68-7. On numerous occasions, including in a November 15 letter, A Clear Title represented to Gondeck that his money remained in the escrow account. Doc. 68 at ¶ 73; Doc. 68-8.

Spies marketed the REFP to O'Malley as an investment opportunity. Doc. 68 at ¶ 40. Spies, Cormier, and Harrison told O'Malley that if he deposited $250,000 into an escrow account to be used for real estate financing, he would be paid a $100,000 fee. Id. at ¶¶ 42, 45, 50, 75-76. Prior to agreeing to participate in the REFP, O'Malley researched A Clear Title on the internet and found the Florida Department of Financial Services web page that listed A Clear Title as a "Title Ins Agency" of Chicago Title. Id. at ¶ 81; Doc. 68-10. He also reviewed the web sites of A Clear Title and Chicago Title in an attempt to confirm their agency relationship. Doc. 68 at ¶¶ 51, 82. On November 3, 2010, O'Malley agreed to transfer $250,000 to A Clear Title's escrow account, and Defendant SRV & Associates agreed that the funds plus $100,000 would be returned to O'Malley by November 15. Id. at ¶ 78; Doc. 68-9. O'Malley wired the money the next day. Doc. 68 at ¶ 88. On February 7, 2011, A Clear Title confirmed in writing that the funds were still in the escrow account and would be released within ten business days.

Id. at ¶ 89; Doc. 68-11. Sometime in February 2011, O'Malley spoke with Chicago Title and was told that A Clear Title was its agent. Doc. 68 at ¶ 84.

Throughout 2010 and 2011, Spies, Harrison, and Cormier told Plaintiffs that there had been delays in completing the funding process but that it would be done soon. Id. at ¶¶ 14, 91-96. Based on those representations, Plaintiffs believe that their money remained in the escrow accounts. Id. at ¶ 22. In March 2011, Gondeck contacted Chicago Title to express his belief that A Clear Title was misappropriating client funds. Id. at ¶ 28. The Title Companies did not investigate or take any action to stop A Clear Title, and A Clear Title remained an agent until August 16, 2011. Id. at ¶ 29. Eventually Plaintiffs had enough and demanded, to no avail, the return of their money. Id. at ¶¶ 97-98. Plaintiffs now believe that Spies, Cormier, and Harrison absconded with their funds. Id. at ¶¶ 13, 100-02.


The second amended complaint purports to state vicarious liability claims and a direct negligence claim against the Title Companies. Those claims will be considered in turn, though Fidelity's status as a defendant will be addressed first.

A. Fidelity's Status as a Defendant

Chicago Title is a subsidiary of Fidelity, and Ticor is a former subsidiary of Fidelity that merged with Chicago Title in June 2010. Doc. 68 at ΒΆΒΆ 7-8; Doc. 76 at 6 n.1. The Title Companies argue that Fidelity should be dismissed as a defendant because "Plaintiffs have made no factual allegations relating to conduct by Fidelity." Ibid. Plaintiffs do not address this argument in their opposition brief, and therefore have forfeited the point. See Alioto v. Town of Lisbon, 651 F.3d 715, 721 (7th Cir. 2011); Wojtas v. Capital Guardian Trust Co., 477 F.3d 924, 926 (7th Cir. 2007); Stransky v. Cummins Engine Co., 51 F.3d 1329, 1335 (7th Cir. 1995). Dismissal is appropriate even putting aside forfeiture, as the second amended complaint fails to allege that Fidelity itself engaged in misconduct and does not allege facts that would justify piercing the corporate veil to hold Fidelity liable for Chicago Title's or Ticor's supposed misconduct. See Luka v. Procter & Gamble Co., 785 F. Supp. 2d 712, 718 (N.D. Ill. 2011). Because the court's earlier dismissal order ...

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