United States District Court, N.D. Illinois, Eastern Division
JAMES GONDECK and PETER G. O'MALLEY, Plaintiffs,
A CLEAR TITLE AND ESCROW EXCHANGE, LLC, STEPHEN J. CORMIER, JUSTYNA MICHALOWSKA, FIDELITY NATIONAL TITLE GROUP, INC. (d/b/a CHICAGO TITLE INSURANCE COMPANY and TICOR TITLE), CHICAGO TITLE INSURANCE COMPANY, TICOR TITLE INSURANCE COMPANY, SRV ASSOCIATES, LLC, THE LUX GROUP, LLC, SRV HOLDINGS & ASSOCIATES, LLC, MAREK R.
HARRISON, and MICHAEL SPIES, Defendants
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
For James Gondeck, Peter G O'Malley, Plaintiffs: David G. Wix, LEAD ATTORNEY, Tarpey Wix LLC, Chicago, IL USA.
For A Clear Title And Escrow Exchange, LLC, Justyna Michalowska, Stephen Cormier, Defendants: R. Steven Polachek, LEAD ATTORNEY, Attorney at Law, Barrington, IL USA.
Marek Harrison, Defendant, Pro se, Tampa, FL USA.
For Marek Harrison, Defendant: Gerald Michael Nelson, PRO HAC VICE, Nelson, Bisconti & Mcclain, LLC, Tampa, FL USA.
For Fifth Third Bank, Defendant: Marta Ann Stein, LEAD ATTORNEY, John D. Bonini, Steven David Hamilton, McGuireWoods LLP, Chicago, IL USA.
For Chicago Title Insurance Company, Ticor Title Insurance Company, Defendants: Robert J. Fogarty, LEAD ATTORNEY, PRO HAC VICE, Christina Therese Hassel, Hahn Loeser & Parks Llp, Cleveland, OH USA; Dennis Robert Rose, PRO HAC VICE, Hahn Loeser & Parks, Cleveland, OH USA; James Alan Roth, Fidelity National Law Group, Chicago, IL USA; Leslie Johanna Hines, PRO HAC VICE, Hahn Loeser & Parks, LLP, Cleveland, OH USA.
For Ticor Title Insurance Company, Chicago Title Insurance Company, Cross Claimants: Dennis Robert Rose, LEAD ATTORNEY, PRO HAC VICE, Hahn Loeser & Parks, Cleveland, OH USA; Robert J. Fogarty, LEAD ATTORNEY, Christina Therese Hassel, Hahn Loeser & Parks Llp, Cleveland, OH USA; James Alan Roth, Fidelity National Law Group, Chicago, IL USA; Leslie Johanna Hines, PRO HAC VICE, Hahn Loeser & Parks, LLP, Cleveland, OH USA.
For A Clear Title And Escrow Exchange, LLC, Justyna Michalowska, Stephen Cormier, Cross Defendants: R. Steven Polachek, LEAD ATTORNEY, Attorney at Law, Barrington, IL USA.
For Fifth Third Bank, Cross Defendant: Marta Ann Stein, LEAD ATTORNEY, John D. Bonini, Steven David Hamilton, McGuireWoods LLP, Chicago, IL USA.
For Marek Harrison, Cross Defendant: Gerald Michael Nelson, PRO HAC VICE, Nelson, Bisconti & Mcclain, LLC, Tampa, FL USA.
For Michael Spies, Cross Defendant: Robert W. Queeney, LEAD ATTORNEY, Chicago, IL USA.
Memorandum Opinion and Order
Gary Feinerman, United States District Judge.
James Gondeck and Peter G. O'Malley allege in this suit that they were the victims of a fraudulent scheme involving the improper withdrawal and misappropriation of funds they deposited into an escrow account that A Clear Title and Escrow Exchange maintained at Fifth Third Bank. Doc. 68. The suit alleges, among other things, that Chicago Title Insurance Company and Ticor Title Insurance Company--which, having merged effective June 2010, Doc. 245 at p. 2, ¶ 3, together will be called " Chicago Title" --are vicariously liable for A Clear Title's misconduct and directly liable for their own negligence. In ruling on Chicago Title's motion to dismiss, the court allowed both claims to proceed, but held that the vicarious liability claim could go forward only on an apparent authority theory and also that Chicago Title could not be held vicariously liable for A Clear Title's alleged civil RICO violations or for treble or punitive damages. Docs. 131-132 (reported at 2012 WL 3638321 (N.D. Ill. Aug. 22, 2012)).
A jury trial has been set for August 4, 2014. Doc. 240. Now before the court is Chicago Title's motion for summary judgment. Doc. 205. The motion is granted as to the negligence claim and denied as to the vicarious liability/apparent authority claim.
The following facts are stated as favorably to Plaintiffs, the non-movants, as permitted by the record and Local Rule 56.1. See Hanners v. Trent, 674 F.3d 683, 691 (7th Cir. 2012).
A. A Clear Title and Chicago Title
Chicago Title is a provider of title insurance and escrow services. Doc. 245 at p. 2, ¶ 3. Prior to the events at issue in this case, Plaintiffs used Chicago Title as the title and escrow agent for the purchases of their homes and the closings of those transactions. Id. at p. 28, ¶ 26.
On September 10, 2007, A Clear Title and Chicago Title entered into an Issuing Agency Contract appointing A Clear Title " as a policy issuing agent of [Chicago Title] for the sole purpose of issuing title insurance commitments, policies, endorsements and other title assurances approved by [Chicago Title]." Id. at pp. 2-3, ¶ 5; see Doc. 207-1 at 2-11. The Issuing Agency Contract itself was not accessible to the general public, Doc. 248 at ¶ 25, but the Florida Department of Financial Services website showed A Clear Title as being a " TITLE INS AGENCY" on behalf of Chicago Title, Doc. 200-6 at 32.
A policy issuing agent like A Clear Title may issue a title insurance policy on Chicago Title's behalf only if it employs individuals who are appointed as title insurance agents. Doc. 248 at ¶ 4. At the time Chicago Title entered into the Issuing
Agency Contract with A Clear Title, Chicago Title knew that Stephen J. Cormier, a Managing Member of A Clear Title and a signatory to the Issuing Agency Contract, was only an escrow signatory and not a title agent; moreover, neither Cormier nor Justyna Michalowska, another Managing Member of A Clear Title and signatory to the Issuing Agency Contract, had Chicago Title appointments as title agents. Ibid.; Doc. 207-1 at 6; Doc. 245 at p. 3, ¶ ¶ 8-9.
Prior to July 2010, Chicago Title knew that the services provided by title insurance agents varied across the country and could include acting as an escrow agent, obtaining releases, and conducting closings and/or settlements. Doc. 248 at ¶ 3. Chicago Title had non-escrow agents in States other than Florida that were authorized solely to issue policies and not to handle money at all. Ibid. Chicago Title also knew prior to July 2010 that A Clear Title acted as an escrow agent in real estate transactions, including the refinancing of existing mortgages; provided escrow-related services to its customers; handled escrow funds in connection with real estate transactions; handled and conducted closings in connection with real estate transactions; and conducted closings involving the disbursement of settlement funds or the provision of settlement services. Id. at ¶ 1.
When A Clear Title conducted closings and handled and disbursed settlement funds related to a real estate transaction, it did so as Chicago Title's agent so long as the transaction resulted in the issuance of a title insurance policy, id. at ¶ 2, and Chicago Title was entitled to a portion of the title insurance premiums each time A Clear Title issued such a policy, id. at ¶ 8. A Clear Title also acted as Chicago Title's agent when it handled commercial escrow settlements. Id. at ¶ 2. Chicago Title required that A Clear Title obtain and maintain in full force, at A Clear Title's expense, a Title Insurance Agent's Professional Liability Policy that covered A Clear Title's errors and omissions when it acted as an escrow agent. Id. at ¶ 7. Chicago Title provided A Clear Title with an Escrow Accounting Standards for Agents Manual that detailed proper escrow processes and procedures; referenced Chicago Title agents who provide construction loans and settlement services, wherein the agent agreed to act as a depository for instruments and money relating to specific real estate transactions; and stated that " [a]ssisting agents in managing and minimizing areas of risk is a duty of utmost importance to the underwriter." Id. at ¶ ¶ 19-20. In 2009 or 2010, prior to A Clear Title's involvement in escrow-related services separate from real estate closings, Michalowska asked Barry Mazer--Chicago Title's agency representative--about the possibility of A Clear Title handling, as an agent for Chicago Title, escrows unrelated to real estate transactions. Id. at ¶ 6.
Chicago Title never issued any public pronouncements, press releases, or advertising materials alerting the public that A Clear Title was Chicago Title's agent only for the purpose of issuing title commitments, policies, endorsements, and assurances. Id. at ¶ 22. Chicago Title also never required A Clear Title to disclose on its website the limitations on its agency relationship with Chicago Title. Ibid. Chicago Title did not mention A Clear Title by name or otherwise on its website in any context or for any reason, including for purposes of clarifying the limitations on the scope of A Clear Title's agency. Id. at ¶ 21. In 2013, Chicago Title's website stated that it provides " Special Escrows," " Lender Escrows," and " Commercial Escrows," and that " Chicago Title offers you experienced escrow settlement agents who are well trained in real estate closing procedures
and the issuance of title insurance. Our agents act as a disinterest [ sic ] third-party who follows the instructions of the principals." Id. at ¶ 23; Doc. 245-12 at 16. Also in October 2013, a page of Chicago Title's website titled " Who May Handle Escrow Settlements" stated that " [t]he settlement agent is responsible for safe-guarding and properly distributing funds and documents required to successfully complete the transaction," and another page titled " What Happens in Escrow Settlement" described the settlement agent as " [a]cting as the impartial 'stake-holder,' or depository of documents and funds" and " [k]eeping all parties informed of the progress on the escrow." Doc. 248 at ¶ 24; Doc. 245-12 at 17-18. The content of Chicago Title's website was the same or similar in 2010. Doc. 245-4 at 33, 66.
The Issuing Agency Contract provided that A Clear Title would " not use the trade name, trade mark or any variation thereof of [Chicago Title] ... on any of its advertising without the prior written approval of [Chicago Title]." Doc. 200-4 at 6. However, Chicago Title did not have any policies or procedures in place for monitoring or reviewing A Clear Title's advertising or promotional materials and did not monitor or review those materials. Doc. 248 at ¶ ¶ 11-12. Chicago Title provided A Clear Title with pens and other promotional materials containing Chicago Title's name that A Clear Title could provide to customers at closings. Id. at ¶ 12. A Clear Title used a due diligence package, which was provided to Plaintiffs, stating that A Clear Title had an office in California, that " [w]e are a full service title & escrow company, licensed, bonded and insured," that " Chicago Title is our underwriter which part of the Fidelity National Title Group, one of the largest in the world," and that: " We are a full service title & escrow company, licensed, bonded and insured. Chicago Title Insurance, which belongs to the Fidelity National Title Group, one of the largest Insurer's in the World. We handle all aspects of commercial and residential real estate transactions, custodian of escrowed funds and closings on multi-million dollar commercial transactions." Id. at ¶ 10 (alterations deleted). A Clear Title's use of Chicago Title's name in its advertising and promotional material without Chicago Title's approval was grounds for terminating the Issuing ...