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Shamrock Bank of Florida v. First American Title Ins. Co.

United States District Court, S.D. Illinois

March 28, 2014

SHAMROCK BANK OF FLORIDA, as assignee of MERIDIAN BANK, Plaintiff-Counterclaim Defendant,
FIRST AMERICAN TITLE INS. CO., Defendant-Counterclaim Plaintiff.


DAVID R. HERNDON, Chief District Judge.


Shamrock Bank of Florida (Shamrock), as assignee of Meridian Bank (Meridian), brings its complaint against First American Title Ins. Co. (First American) for breach of contract. First American countersues for a declaratory judgment. The following motions are now before the Court:

Shamrock moves for summary judgment on Count I of its First Amended Complaint and on First American's Counterclaim for Declaratory Judgment (Doc. 26), for summary judgment on First American's affirmative defenses (Doc. 30), to strike portions of First American's undisputed facts as set forth in its memorandum in support of motion for summary judgment pursuant to F.R.C.P. 56(c)(2) (Doc. 39), and to supplement the summary judgment record (Doc. 43). First American moves for summary judgment (Doc. 27), and to strike portions of Shamrock's facts pursuant to F.R.C.P. 56(c)(2) (Doc. 41).

For the reasons stated below, Court finds as follows:

As for Shamrock, the Court grants in part its motion for summary judgment on Count I of its First Amended Complaint and on First American's Counterclaim for Declaratory Judgment (Doc. 26), grants its motion for summary judgment on First American's affirmative defenses (Doc. 30), grants its motion to supplement the summary judgment record (Doc. 43), and denies its motion to strike portions of First American's undisputed facts (Doc. 39).

As for First American, the Court denies its motion for summary judgment (Doc. 27) and grants in part its motion to strike portions of Shamrock's facts (Doc. 41).


a. The Simmons Convey the Property to Great River

This dispute begins with a real estate transaction entered into on January 22, 2007, between John and Jayne Simmons (the Simmons), as Trustees of the River House Trust dated August 21, 2003, and Great River Enterprises Limited Partnership No. 1 (Great River). Lloyd Tomer (Tomer) was Great River's principal shareholder (Doc. 29-1, Tomer Sept. 15, 2011, Depo., p. 15). Tomer's attorney, Raymond Stillwell (Stillwell) represented Great River in the transaction (Doc. 28-2, Tomer Jan. 20, 2011 Depo., p. 18). The Simmons conveyed the real estate located at 12 Danforth, Alton, Illinois (the Property), commonly referred to as the Olin Mansion, to Great River. In exchange for the conveyance, Great River agreed to deliver to the Simmons 1, 000, 000 shares of YTB International, Inc. (YTB) (collectively, the Real Estate Agreement) (Doc. 28-1, § 2).

Paragraph 3.1 of the Real Estate Agreement, titled, "Possibility of Reverter, " provides that the Property would revert back to the Simmons on December 31, 2011, unless certain conditions were met as to YTB stock. The Real Estate Agreement provided that, "the Reversion Date will be accelerated automatically upon the occurrence of... the Purchaser's waste of the Property" ( Id. at pp. 3-4). A trustee's deed dated January 24, 2007, documents the conveyance (Trustee's Deed) (Doc. 29-4). The Trustee's Deed notes, "[t]he Property is subject to a possibility of reverter, the specific terms and conditions of which are set forth in Section 3.1 of [the Real Estate Agreement]... which terms and conditions are hereby incorporated" ( Id. at p. 3). The Trustee's Deed was recorded in the Madison County Recorder's Office on February 12, 2007 ( Id. at p. 9).

b. Great River Loan, Participation Agreement, and Title Policy

In late 2007, Tomer decided to take a loan against the Property to make some improvements. Tomer states he spoke with Brad Rench (Rench), president and CEO of Meridian, regarding the loan. Tomer states Rench was the only Meridian personnel he spoke with regarding the loan (Doc. 29-5, Tomer Jan. 20, 2011, Depo., pp. 7-10).

According to Robert Carney (Carney), in November 2007, the vice president in charge of lending for Shamrock, Clay Winfield (Winfield) a member of the Board of Directors at Meridian, Shamrock, and YTB, approached Carney about Shamrock entering into a participation agreement with Meridian, whereby Shamrock would purchase an interest in the Great River Loan (Participation Agreement) (Doc. 28-7, Carney Depo. pp. 9-17).

The parties dispute how the Great River Loan and the Participation Agreement came to fruition. The extent these disputes are material remains to be seen. However, in the Court's opinion, the following is undisputed:

Through the loan underwriting process, Meridian ordered a title commitment from First American. First American issued a title commitment; dated November 30, 2007, file no. 1753426 (Title Commitment), to Meridian. The Title Commitment did not identify the Trustee's Deed or the "Possibility of Reverter" as an exception (Doc. 29-7).

On December 6, 2007, Meridian and Great River executed a promissory note, titled, "Universal Note, " in which Meridian agreed to loan Great River $1, 300, 000.00 based on a line of credit. Great River agreed to pay Meridian on demand, or if no demand was made, then, "monthly payments of accrued interest calculated on the amount of credit outstanding beginning 01-06-2008 and principal due on 12-06-2008" (Great River Loan) (Doc. 29-9). Also on December 6, 2007, Great River executed several documents incidental to the Universal Note: Agreement to Provide Insurance, Disbursement Authorization, Guaranty (James Tomer), Guaranty (Christine Tomer), Commercial Security Agreement and Collateral Receipt (collectively, Loan Documents) (Doc. 29-10). All Loan Documents are between Great River and Meridian. Great River also executed a mortgage on the Property in favor of Meridian securing the Universal Note for the $1, 300, 000.00 line of credit on December 6, 2007. The lien the Insured Mortgage created was subject to existing encumbrances on the Property, i.e., the "Possibility of Reverter" (Insured Mortgage) (Doc. 29-11).

As for the Participation Agreement between Meridian and Shamrock, a copy was forwarded by Meridian to Shamrock after Meridian entered the Universal Note with Great River (Doc. 29-12).[2] Shamrock's Directors Loan Committee approved the Participation Agreement on December 10, 2007 (Doc. 28-14). Winfield abstained ( Id. ). Pursuant to the Participation Agreement, Meridian, as the originating lender and seller, agreed to sell Shamrock, the participating lender and purchaser, a share in the Great River Loan for $1, 250, 000.00 with a variable interest rate of 7.5%. Meridian agreed to pay Shamrock, on a pro rata basis, 96.15% of the money it received from Great River and to bear all costs of servicing and administering the Great River Loan. The Participation Agreement states Shamrock agreed to purchase participation in the Great River Loan "without recourse to" Meridian. It further states a, "First Mortgage on [the Property] and assignment of [YTB] stock for 2, 000, 000 shares" secured the Great River Loan ( Id. ).

When Great River made a request for money, Meridian would notify Shamrock to Forward Meridian money to Meridian's account in proportion to Shamrock's pro rata share of the Participation Agreement. Meridian would disburse the full amount requested directly to Great River. Great River owned Meridian $1, 300, 000.00 pursuant to the Universal Note (Doc. 29-8, Rench Depo., pp. 14, 48). The full amount allowed under the Universal Note was advanced to Great River (Doc. 28-20).

On December 11, 2007, for a premium of $1, 300.00 (Doc. 29-13, Rekart Depo., p. 54), First American issued a loan policy of title insurance, policy no. 1753426, to Meridian, its successors and assigns, in the amount of $1, 300, 000.00 for the Property (Title Policy) (Doc. 29-14). The Title Policy provides coverage "against loss or damage, not exceeding the Amount of Insurance, sustained or incurred by the Insured by reason of: Title being vested other than as stated in Schedule A." Schedule A does not reference the "Possibility of Reverter" ( Id. ).

c. Meridian Fails

On October 10, 2008, the Department of Financial and Professional Regulation of the Illinois Division of Banking closed Meridian. The FDIC was named the receiver and charged with winding up Meridian's business affairs (Receiver) (Doc. 29-15, Campagna Aff.). On December 17, 2008, the FDIC, as the owner and holder of Meridian's interest in the Great River Loan and Title Policy due to its status as the Receiver, sent First American a letter providing it notice of a potential claim. The FDIC stated First American failed to note an exception for the "Reversionary Interest, " and thus caused the FDIC to have a junior lien on the Property. Therefore, it submitted its claim to First American, "to be made whole on the subject $1, 300, 000 [Great River Loan] under Meridian's lender's policy." The FDIC further notified First American that the Simmons were at that time considering enforcing the "Reversionary Provision" ( See Doc. 29-15).

On February 13, 2009, the FDIC entered into a loan sale agreement with FH Partners, LLC (FDIC LSA). The FDIC assigned Meridian's interest in the Great River Loan[3] to FH Partners, LLC (FH Partners) ( See id. at pp. 7-46).[4] The FDIC recorded an Assignment of Loans and Liens with the Madison County Recorder of Deeds (Doc. 29-16, Butler Aff., Ex. A, p. 6).

After the FDIC learned of the "Possibility of Reverter, " Tomer's attorney, Stillwell, contacted Shamrock and advised: 1. Great River was about to go into default on the Great River Loan, and 2. Great River's title to the Property was subject to the "Possibility of Reverter."[5] On August 25, 2009, Shamrock, through its attorney James Vogel (Vogel), sent First American notice of a claim of title or potential claim of title adverse to the Insured Mortgage as referred to in the Title Policy (Doc. 29-17). Vogel also stated Shamrock might purchase FH Partners' interest in the Great River Loan and asked for prior confirmation that First American would provide coverage for the purchase amount (Doc. 29-17). Adriana Duran, claims attorney and recovery specialist for First American, concluded the "Possibility of Reverter" was omitted from the Title Commitment (Doc. 29-18, Duran Depo., pp. 18-19), and deferred to Shamrock's discretion in its purchase of the Universal Note (Doc. 29-19, p. 2).

On September 15, 2009, Carney, of Shamrock, sent Tomer a letter declaring Great River in default under the terms of the Loan Documents (Doc. 28-26). On November 4, 2009, FH Partners entered into a loan sale agreement with Shamrock (FH Partners LSA) (Doc. 29-16, Ex. B). Shamrock and FH Partners entered into an absolute assignment and assumption of mortgage and loan documents (Absolute Assignment), which was recorded with the Madison County Recorder of Deeds on November 30, 2009 ( Id. at Ex. C).

d. "Possibility of Reverter" Triggered

Great River committed waste and neglect of the Property by failing to replace boilers and pay real estate taxes (Doc. 29-5, Tomer Jan. 20, 2011 Depo., pp. 42-43). The Simmons and Great River entered into an agreement regarding reversion on January 15, 2010 (Reversion Agreement), wherein the parties agreed that the reversion date had accelerated automatically and that title to the Property had reverted to the Simmons. A deed evidencing the transfer was recorded with the Madison County Recorder of Deeds on January 22, 2010 (Doc. 29-20).

e. Madison County Litigation

On February 25, 2010, the Simmons brought an action to quiet title against Shamrock in the Circuit Court of Madison County, Illinois. See John and Jayne Simmons, et al. v. Shamrock Bank of Florida, et al. (2010-CH-245). First American defended Shamrock under a reservation of rights. On October 25, 2011, the Honorable Clarence Harrison entered judgment in favor of the Simmons and against Shamrock, effectively foreclosing any interest Shamrock had in the Property (the Judgment) (Doc. 29-21). On October 10, 2012, the Illinois Fifth District Court of Appeals affirmed the Judgment (Doc. 29-22).

Shamrock obtained a judgment against Tomer on June 22, 2011 (Doc. 29-23). Shamrock received right and title to the YTB Stock, along with various other assets (Doc. 29-24). Shamrock has not been able to collect on these assets (Doc. 29-6, Carney Depo., p. 96; Doc. 29-26, Kvetko Depo., p. 28). As of July 29, 2013, the trading price for YTB stock was $0.00 (Doc. 29-27).

First American removed this action from the Circuit Court for the Third Judicial Circuit, Madison County, Illinois, pursuant to diversity jurisdiction, 28 U.S.C. § 1332 (Doc. 2). Shamrock's First Amended Complaint brings Count I: Breach of Contract (Doc. 20). Shamrock alleges First American issued the Title Policy to Meridian, its successors and assigns. Shamrock alleges Meridian, through FH Partners, assigned the Title Policy to Shamrock. And Shamrock further alleges the Title Policy insures against any defect in or lien encumbrance in the title to the Property.

Shamrock states that had First American disclosed to Meridian and/or Shamrock the Trustee's Deed or "Possibility of Reverter" contained therein, Meridian would not have issued the Great River Loan and Shamrock would not have entered the Participation Agreement. Shamrock cites First American's alleged breach of the Title Policy and asks for damages in the amount of $1, 300, 000.00 million dollars. Additionally, because First American chose to pursue its rights and was unsuccessful, under Section 5 of the Policy Conditions, Shamrock alleges the amount of insurance increases by 10% ( See Doc. 20). Shamrock moves for summary judgment, requesting that the Court enter judgment in its favor on Count I and against First American for $1, 430, 000.00, plus pre-judgment interest (Doc. 26). Shamrock also moves for judgment in its favor on certain affirmative defenses of First American (Doc. 30), and to supplement the summary judgment record (Doc. 43).

As to First American's counterclaim for declaratory judgment, it alleges Meridian contributed $50, 000.00 of the Great River Loan, while Shamrock contributed the remaining $1, 250, 000.00. The Title Policy does not expressly identify Shamrock and it does not insure the Participation Agreement. First American alleges the FH Partners LSA excluded from the transfer to Shamrock any, "right, title and interest of the FDIC in and to any and all claims that the FDIC has or might have against any party from whom the FDIC or Meridian [] contract[ed] for title insurance in connection with the making, insuring or servicing the loan." Further, "[a]ccording to the [FH Partners LSA], all such interests of the FDIC and Meridian [] were retained by the FDIC under the terms of the FDIC [LSA] and FH Partners does not claim or own any right or interest in such claims or interests of the FDIC and Meridian []."

First American additionally alleges Meridian's president and CEO, Brad S. Welch (Welch), "had direct knowledge of the possibility of reverter that extinguished the Insured Mortgage, " and that Shamrock also "had knowledge of the possibility of reverter." As a "successor in ownership of the indebtedness, " First American alleges Shamrock is entitled to $50, 000.00, if anything. First American seeks judgment in its favor declaring that it is not liable to Shamrock because Meridian and Shamrock had knowledge of the possibility of reverter at the time the Title Policy was issued and alternatively, that Shamrock's actual damages are limited to an amount between $45, 000.00 and $50, 000.00 (Doc. 12). First American moves for summary judgment (Doc. 27).[6]


The parties do not dispute the applicability of the federal summary judgment standard, see Fed.R.Civ.P. 56, or Illinois substantive law to this diversity action. See Nationwide Ins. Co. v. Cent. Laborers' Pension Fund, 704 F.3d 522, 525 (7th Cir. 2013).

Summary judgment is proper when the pleadings, discovery, and disclosures establish that there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Winsley v. Cook Cnty., 563 F.3d 598, 602-03 (7th Cir. 2009); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The movant bears the initial burden of establishing the absence of fact issues and its entitlement to judgment as a matter of law. Santaella v. Metro. Life Ins. Co., 123 F.3d 456, 461 (7th Cir. 1997) (citing Celotex, 477 U.S. at 323). Once the movant has shown the facts entitle it to judgment in its favor, the burden shifts to the non-moving party to identify some evidence in the record that establishes a triable factual issue. Trentadue v. Redmon, 619 F.3d 648, 652 (7th Cir. 2010).

A genuine dispute as to a material fact exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Pugh v. City of Attica, Indiana, 259 F.3d 619, 625 (7th Cir. 2001). The Court will enter summary judgment against a party who does not "come forward with evidence that would reasonably permit the finder of fact to find in [its] favor on a material question." McGrath v. Gillis, 44 F.3d 567, 569 (7th Cir. 1995).


"[T]he purpose of a title insurance policy... is to protect a purchaser of real estate against title surprises." Citicorp Sav. of Ill. v. Stewart Title Guar. Co., 840 F.2d 526, 529 (7th Cir. 1988) (quoting Pohrer v. Title Ins. Co., 652 F.Supp. 348, 352 (N.D. Ill. 1987) (Moran, J.)). In a nutshell, Shamrock argues that because First American admits it failed to disclose the "Possibility of Reverter, " the focus of its motion for summary judgment on its Count I centers on 1. Shamrock's standing to assert its breach of contract claim against First American, and 2. Shamrock's right to recover $1, 430, 000.00 as assignee of Meridian.

1. Shamrock's Standing Under the Title Policy

Shamrock argues it has standing to bring its breach of contract claim on the Title Policy because 1. It is an "owner" and/or "successor in ownership of the Indebtedness, " and 2. It is an assignee of the Title Policy.

a. "owner of the Indebtedness"

The Title Policy provides coverage against loss or damage sustained or incurred by the "Insured." "Insured" is defined under the Title Policy as, "[t]he insured named in Schedule A, " i.e., "Meridian, its successors and assigns" (Doc. 29-14, p. 2, ¶ 1(e)). It also includes:

(A) the owner of the Indebtedness and each successor in ownership of the Indebtedness, whether the owner or successor owns the Indebtedness for its own account or as a trustee or other fiduciary, except a successor who is obligor under the provisions of Section 12(c) of these Conditions;

( Id. at ¶ 1(e)(i)(A)). "Indebtedness" denotes:

The obligation secured by the Insured Mortgage including one evidenced by electronic means authorized by law, and if that obligation is the payment of ...

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