Claims and Bad Faith Law Blog

COURT HOLDS NO INJURY FROM KICKBACKS, SO NO COMPLAINTS, PLEASE.

In Baehr v. Creig Northrop Team, P.C., 953 F.3d 244, 258 (4th Cir. 2020), the Fourth Circuit Court of Appeals held that on the record in that case paying kickbacks in real estate transactions for their homes was no injury in fact to the plaintiffs who complained about paying kickbacks.  Therefore, the court ruled, the plaintiffs could not sue as a result of being charged kickbacks.

    The plaintiffs sued under the Real Estate Settlement Procedures Act or RESPA. Congress expressly prohibited kickbacks in RESPA. The Fourth Circuit panel held that Congress did not mean to prohibit kickbacks in all cases. This was one of the outlier cases in their eyes.

    No complaints, please. Just pay the kickbacks.

Please read the disclaimer. ©2020 Dennis J. Wall. All rights reserved.

DEFEND ONE COUNT, DEFEND ALL -- OR PAY LAWYER POLICYHOLDER RETAINED.

Image Copyright Dennis J. Wall.  All rights reserved.

A lender-mortgagee foreclosed on property and sold it at a foreclosure sale.  The buyer on foreclosure was Andromeda Real Estate Partners, LLC.  Andromeda was sued immediately by a prior owner of the property who alleged claims in four (4) counts.  At bottom, in each count the underlying plaintiff alleged that Andromeda's deed was invalid.

Andromeda held a title insurance policy issued by Commonwealth Land Title Insurance Co.  Andromeda submitted the claim to Commonwealth and demanded a defense of all four counts against it in the underlying case.  Commonwealth offered to defend only one count.  Commonwealth contended that it had no coverage whatsoever for the other three counts in the underlying complaint against Andromeda.

Andromeda sued Commonwealth in Federal court for coverage.

The Court applied the simple rule that when there is a duty to defend one count in an underlying complaint against a policyholder, there is a duty to defend all counts in the underlying complaint against the policyholder.

"The Court finds that the entire complaint relates to an alleged defective foreclosure sale and a defect in the deed. All four counts are intimately intertwined with whether Andromeda received good title, a covered occurrence under the policy."  Andromeda Real Estate Partners, LLC v. Commonwealth Land Title Ins. Co., C.A. No. 15-224-M-LDA, 2016 WL 715777, at *2 (D.R.I. February 19, 2016).

Next, after holding that Commonwealth wrongly denied a defense to Andromeda, the Court held that as a consequence of its wrongful denial Commonwealth will have to pay the attorney's fees of counsel which Andromeda, not Commonwealth, retained to defend Andromeda in the underlying case.

The Court announced the essential basis for its decision at the beginning of its opinion.  The Court held the way it did "[b]ecause this Court finds that the allegations in the underlying lawsuit taken as a whole are a covered risk under the title insurance policy, and that the insured landowner was entitled to conflict-free representation …."  Andromeda Real Estate Partners, LLC v. Commonwealth Land Title Ins. Co., C.A. No. 15-224-M-LDA, 2016 WL 715777, at *1 (D.R.I. February 19, 2016).

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with  Supplements).  The "defend one count, defend all counts" rule is set out in Volume 1, § 3:53:  "Where several claims are put forward in a single case, the duty to defend is activated regarding all claims whenever coverage potentially exists even for one."  All rights reserved.

LATE NOTICE BARS BAD FAITH CLAIM UNDER TITLE POLICY.

 

 

Indiana State House Rotunda Image Courtesy of Library of Congress.

Late notice was held to bar a breach of contract claim and a bad faith claim against Conestoga Title Insurance Company in Pike v. Conestoga Title Ins. Co., 44 N.E.3d 787 (Ind. Ct. App. 2015).

Michael and Chassidy Pike's title insurance claim was based on a notice of tax sale.  The Pikes received the notice, contacted the mortgage servicer who after all was supposed to pay the taxes out of escrow, and the mortgage servicer told them to ignore the notice of tax sale because, it said, all the taxes were paid.  So, the Pikes did not notify Conestoga.

The Pikes eventually lost their house at the tax sale they previously ignored.   It turns out that the taxes were not paid after all.

The instant decision may not have affected the outcome of the Pikes' pending lawsuit against the mortgage servicer and the bank which bought the Pikes' mortgage.  The Indiana Court of Appeals merely affirmed the trial court's summary judgment in favor of Conestoga.

However, by this time and for whatever reason, the Pikes had already dismissed their case with prejudice against all "the bank defendants."

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with  Supplements).  All rights reserved.

INDEMNITY FROM THE FINANCIAL FIASCO, PROCEDURE, AND EVIDENCE...Whew.

    "WAMU collapsed in 2008 in the biggest bank failure in American history."  FDIC v. Attorneys' Title Insurance Fund, Inc., 2014 WL 4384270 *2 (S.D. Fla. September 3, 2014).  In an action for reimbursement filed by the FDIC as receiver of Washington Mutual Bank, a Federal Court made rulings on the substance and on procedure and evidence that are very much worth noting.

    In this action, the FDIC, as receiver for Washington Mutual Bank (“WaMu”), seeks reimbursement from Attorney's Title Insurance Fund (“ATIF”) for WaMu's losses on 14 defaulted residential mortgages. ATIF's agents and authorized attorneys served as closing agent for each of the transactions. The FDIC now asserts that the agent's malfeasance caused WaMu to lend money to unqualified borrowers under false pretenses, and ultimately, causing a loss of more than nine million dollars when the borrowers defaulted and the loans were written down and sold.

  FDIC v. Attorneys' Title Insurance Fund, Inc., 2014 WL 4384270 *1 (S.D. Fla. September 3, 2014).

    The action was based on indemnity agreements known in the real estate industry as "Closing Protection Letters" or "CPLs," the Court said:

 WaMu and ATIF had a separate indemnity agreement for each closing where ATIF agreed to reimburse WaMu for losses arising out of its closing agent's (a) fraud or dishonesty in handling the bank's funds or closing documents or (b) the agent's failure to follow the bank's closing instructions. These agreements are known in the real estate industry as Closing Protection Letters (“CPL”). As WaMu's receiver after its collapse, the FDIC made claims on each of the CPLs. When ATIF refused to honor them, this action followed.

FDIC v. Attorneys' Title Insurance Fund, Inc., 2014 WL 4384270 *1 (S.D. Fla. September 3, 2014).

    The Court held in this case that for various reasons FDIC's claims on eight of the fourteen indemnity agreements were time-barred.  Of the remaining six indemnity agreements and closing transactions, the Court granted summary judgment for the FDIC (read:  the FDIC standing in the shoes of WAMU) on all of them.  The Court held that in each case, the attorneys-title agents violated WAMU's closing instructions or committed "fraud or dishonesty in handling the bank's funds or closing documents," or both.  In one egregious example, the Court noted that an attorney-title agent was supposed "to receive no more than $1,645.00 for performing the closing," but the record reflected to the Court that the attorney's office disbursed $11,905.00 to itself, reflecting in the eyes of the Court that the attorney acted "dishonestly handl[ing] WAMU's funds".  FDIC v. Attorneys' Title Insurance Fund, Inc., 2014 WL 4384270 *14 (S.D. Fla. September 3, 2014).

    The total damage award for "which Plaintiff is entitled to summary judgment equals $4,910,973.54," the Court further ruled.  FDIC v. Attorneys' Title Insurance Fund, Inc., 2014 WL 4384270 *15 (S.D. Fla. September 3, 2014).

    In addition to its rulings on substance in this opinion, the Court made a procedural ruling and a couple of evidentiary rulings that are well worth noting.  Procedurally, the Court observed that when the Plaintiff FDIC filed and supported its motion for summary judgment, it was incumbent on the defendants to come forward with record evidence tending to support their affirmative defenses.  At that point, the plaintiff's motion for summary judgment would, unless rebutted, overcome the sufficiency of the defendant's affirmative defenses.  That is exactly what happened in this case.  The defendant did not come forward with record, admissible evidence in rebuttal of the plaintiff's motion for summary judgment and summary judgment was entered in favor of the plaintiff including in the plaintiff's favor on the defendant's affirmative defenses -- which were not supported by record evidence tending to reflect any genuine issue of material fact.  See FDIC v. Attorneys' Title Insurance Fund, Inc., 2014 WL 4384270 *8 n.8 (S.D. Fla. September 3, 2014).

    The two evidentiary rulings to note are that this Court held, first, that when the various attorneys-title agents took the Fifth Amendment and refused to answer a given question on the ground that it might tend to incriminate them, their refusals to answer by "taking the Fifth" raised an evidentiary presumption in this case that in effect the witnesses did not answer because the answers would have been adverse to them.  "The Eleventh Circuit recently held that a non-party witness's invocation of the Fifth Amendment in a civil case warrants an adverse inference on a case-by-case basis depending on four, non-exclusive factors....  Accordingly, [a particular non-party witness's] invocation of the Fifth Amendment warrants an adverse inference as to everything pertaining to the transactions about which he refused to answer questions."  FDIC v. Attorneys' Title Insurance Fund, Inc., 2014 WL 4384270 *11 (S.D. Fla. September 3, 2014).

    The Court's second noteworthy evidentiary ruling was to allow the admission of a spreadsheet into evidence to reflect the damages claimed by the Plaintiff in this case.  The Court followed a Sixth Circuit ruling "in a CPL case that admission of a similar spreadsheet was proper because the source data were business records that were selfauthenticating under Fed. R. Evid. 902(11) and exempted from the prohibition on hearsay under Fed. R. Evid. 803(6)."  FDIC v. Attorneys' Title Insurance Fund, Inc., 2014 WL 4384270 *15 n. 19 (S.D. Fla. September 3, 2014).

    Holdings from the Financial Fiasco concerning the conduct of attorneys and indemnity for that conduct, and rulings on procedure and evidence:  What more can a lawyer or banker want in a case like this one?

Please Read The Disclaimer.  Copyright 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government Works.

TITLE AGENT E&O RESCISSION FOR MORTGAGE FRAUD.

          The case of Zurich American Insurance Co. v. Diamond Title was a "declaratory relief action seeking rescission of a title agent's errors and omissions policy".  Zurich American Insurance Co. v. Diamond Title, 2013 WL 6283684 *1 (M.D. Fla. December 4, 2013).

          The title insurer alleged that the applicant for title agent's errors and omissions coverage, Diamond Title, "misrepresented material facts in its application for insurance" by incorrectly answering Question 21, reproduced below.  Question 21 is apparently a standard question, with that number, in many title insurance applications in use across the nation.

          Question 21 of the title insurance agent E&O application asked:

 

Does the Applicant or any prospective insured know of any circumstances, acts, errors or omissions that could result in a professional liability claim against the Applicant?

 

Zurich American Insurance Co. v. Diamond Title, 2013 WL 6283684 *2 (M.D. Fla. December 4, 2013).

          One Rotolo "was the owner, operator, and President of Diamond Title at that time".  She answered Question 21 with a "No" in 2007.  In 2009, she admitted that between 2002 and 2008 she had conspired "to make materially false statements to FDIC-insured banks for the purpose of influencing those banks in connection with mortgage loans and to committing wire fraud".  The purpose of the fraud "was to obtain loans secured by mortgages from FDIC-Insured banks and mortgage lending business."  Among the "false statements" were statements about the buyers and sellers; the family relationships among them; "the properties' actual purchase prices; the borrowers' intended use of the properties; the amount and source of the equity contributed to the purchase of the property by the borrowers," among other things.  Zurich American Insurance Co. v. Diamond Title, 2013 WL 6283684 *1 (M.D. Fla. December 4, 2013).

          The Court in this case had no trouble declaring this conduct was among the things that a title insurance agent does and for which a title insurance agent obtains E&O coverage.  "These false statements are within the Policy's definition of professional services because they are the duties of a closing agent and escrow agent."  Zurich American Insurance Co. v. Diamond Title, 2013 WL 6283684 *3 (M.D. Fla. December 4, 2013).  On that ground alone, rescission was in order in the eyes of this Court.

          But there was a further ground for rescission.  "The Policy makes clear that it does not cover liability for criminal acts ....  Rotolo was not relieved of her duty in the application to report acts that could result in a professional liability claim simply because the Policy many not have covered those acts."  Zurich American Insurance Co. v. Diamond Title, 2013 WL 6283684 *3 (M.D. Fla. December 4, 2013).  [Italics in original; boldface added.]

          The Court in that case granted the insurance company's motion for summary judgment and directed the Clerk to enter judgment in favor of the plaintiff insurance company.

 

 

© 2013 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 

Please Read The Disclaimer.

 

NEW JERSEY FIRST-PARTY CONSEQUENTIAL DAMAGES: "VALUE AS A COMPANY".

          A First-Party Bad Faith breach of contract claim may nonetheless allow for recovery of consequential damages.  In New Jersey, for example, it has been held that an insurer's implied contractual duty to act in good faith and to deal fairly in the settlement of claims, under which the insurer is viewed as a fiduciary to a party with whom it has a contract, will allow for the recovery of consequential damages.  In particular, the plaintiff seeking recovery of damages in excess of the policy limits must show that the insurance company failed to pay without even a debatably valid reason not to pay, and that the claimed consequential damages were clearly within the contemplation of the insurance contract.  Thus, a corporation's  "claim for damages for its diminution in value" is a claim which allows for the potential recovery of consequential damages, it has been held, arising out of Title Insurance Carriers' failure to pay claims under Title Insurance Policies.[1]

---

[1] Walsh Securities, Inc. v. Cristo Prop. Mgt., Ltd., 2012 WL 6053948 *2 (D.N.J. November 28, 2012).

 

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FEDERAL JUDGE REJECTS SETTLEMENT BECAUSE S.E.C. DOES NOT REQUIRE ADMISSIONS.

          A Federal Judge is required as a matter of law to label certain settlements as being "fair, reasonable, adequate and in the public interest."  One such settlement was reached recently by the Securities and Exchange Commission with Citigroup over charges filed by the S.E.C. in which, among other things the S.E.C. did not require, there was no requirement placed upon Citigroup to admit any liability.  The Federal Judge refused to find that the settlement in that case meets legal standards of being fair, or reasonable, or adequate, and especially that the parties -- neither Citigroup nor the S.E.C. -- were able to show that their settlement is in the public interest.

          That decision is now on appeal to the Second Circuit Court of Appeals.  The Second Circuit will decide whether Federal Trial Judges have any power in applying the legal standards which govern such settlements, or whether instead Federal Trial Judges are merely rubber stamps by another name in such settlements.

          There can be no doubt that this is a well-known feature constantly on display in the contemporary  settlement conduct of commissions, departments, and agencies of the Federal Government.  "Other government bodies [besides the S.E.C.] like the Federal Trade Commission and the Justice Department's antitrust division also routinely use the 'neither admit nor deny wrongdoing' language in settling enforcement cases with corporate defendants."  Peter Lattman, "Judge's Rejection of Citigroup Deal Is Heard on Appeal" p.B2, col. 1 (New York Times Nat'l ed., "Business" Section, Saturday, February 9, 2013).

          There can also be no doubt that even if this settlement behavior is approved in a particular case, taken as a rule it is behavior in Bad Faith.  And with bad results ultimately visited upon Mortgage Insurance Carriers and Title Insurance Carriers -- and upon all the rest of us as well.  See "Institutional Bad Faith Will Show Up If It Is There," posted here on Sunday, February 10, 2013.

 

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Related articles

S.E.C.'s Revolving Door Hurts Its Effectiveness, Report Says

INSTITUTIONAL BAD FAITH WILL SHOW UP IF IT IS THERE.

          Newspaper outlets report on the press releases issued by the Department of Justice's civil lawsuit against Standard & Poor's (S&P).  There is speculation that this may only be the first lawsuit in a series of potential lawsuits arising out of the causes of the Great Recession insofar as they involved the conduct of the credit rating agencies.  See Andrew Ross Sorkin and Mary Williams Walsh, "U.S. Accuses S&P of Fraud in Suit on Loan Bundles" (New York Times Online "Dealbook" Blog posted on Monday, February 4, 2013).  It is interesting that part of the Department of Justice's Claim against S&P is that S&P used incorrect computer models to gauge risk.  See Peter Eavis, "U.S. Contends S&P Purposely Used Faulty Models" (New York Times Online "Dealbook" Blog posted on Tuesday, February 5, 2013).

          As securitizations and related deals became more and more complex, investors and dealmakers relied more and more on credit rating agencies to spend the time required to evaluate the credit-worthiness of these complex deals.  Reliance on the credit ratings agencies became -- and still is -- so pervasive that Federal Statutes identified the agencies by name or by listing characteristics that only they could meet, whenever credit-worthiness was at issue.

          The many demonstrated failures of the credit rating agencies include the AAA ratings they incorrectly gave to Residential Mortgage Backed Securities or RMBS.  See Jessica Silver-Greenberg, "E-Mails Imply JPMorgan Knew Some Mortgage Deals Were Bad" (New York Times Online "Dealbook" post on February 6, 2013).  Parenthetically, every time I read that headline, I want to say, "Do ya think?"  It should be noted here that most newspapers, including the New York Times, do not allow reporters to write their own headlines; editors are employed to do that. 

          This has led to huge Claims on Mortgage Insurance Policies and on Title Insurance Policies.  See "Mortgage Insurance" and "Title Insurance" Categories on this Blog, and also on Insurance Claims and Issues Blog.

          There is a question whether the credit rating agencies were ever fully accepted as a part of the financial framework governing the United States at this time.  If they are, then I predict that the lawsuit filed by the Department of Justice against S&P over S&P's alleged misconduct and mis-rating of the credit-worthiness of certain securities, will resemble the settlements reached by such other Federal agencies  and commissions as the Securities and Exchange Commission and the Office of the Comptroller of the Currency with investment banks over those banks' alleged misconduct which caused or contributed to the causes of the Great Recession.  I predict that in that event, the reported Department of Justice civil lawsuit against S&P will be settled, and that the settlement will include a fine which will probably be less, perhaps much less, than 50% of the money S&P made from the alleged mis-rating, and that S&P will settle without admitting liability.

          If on the other hand S&P and the other credit rating agencies are not accepted as a part of the governing financial framework at this time, then I predict that in that event the lawsuit will still be settled but S&P will only be able to reach a settlement by admitting liability, to something.

          Finally, in any case I predict that based on past experience of lawsuits filed by Federal agencies, commissions, and departments, that the reported civil lawsuit filed by the Department of Justice against S&P will never go to Trial.  There are many reasons that all of the past-filed lawsuits all apparently have been settled, not the least of which are definitely fear of losing and perhaps a lack of capacity to try cases.

In any case, Mortgage Insurance Carriers and Title Insurance Companies can expect more of the same old, same old, unfortunately for them -- and for us.

 

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Related articles

S&P as Sole U.S. Target has Wall Street Asking About Moody's

4 Reasons Why the S&P Fraud Lawsuit May Be a Game-Changer

"Say it Ain't a Scam, Pam!"*

*A small child confronted one of the ballplayers who threw the World Series.  The player had pretended to do his best.  That is what he told people before he was brought up on charges of throwing the World Series.  The little kid said, "Say it Ain't So, Joe!"  The young child's comment has inspired the title of this post article.  Thank you.

                 This is really a follow up on the Mortgage Fraud Settlement in which four large Mortgage Servicers settled national claims against them for fraud.  The claims were apparently  never written in a Complaint filed in any Federal Court, nor filed in any State Court, nor filed with any Agency, State or Federal.  However, the national settlement was produced in writing after several weeks following the announcement of the settlement in which its provisions were not known to the public.

                Florida Attorney General Pamela Bondi firmly announced that she alone negotiated $300 Million on behalf of Florida residents who were defrauded by the Mortgage Servicers.  See "Mortgage Servicers, Mortgage Settlement:  Dealing Fairly in Financial Good Faith," published here on October 25, 2012.  The monies were to include mortgage loan reductions, financial counseling, and many other good things, Ms. Bondi's office announced to us.

                It is now reported that Ms. Bondi has negotiated another deal for the $300 Million and Ms. Bondi's office again tells us that this is a good thing for us.   With her agreement, the Florida Legislature has taken a cut of about 25% of that $300 Million which Ms. Bondi, alone, previously negotiated.  See Toluse Olorunnipa, "Pam Bondi Reaches Deal on Florida's $300 Million Foreclosure Settlement" (Tampa Bay Times Online, Friday, November 2, 2012).  She negotiated this deal also.  25% to the Florida Legislature.

                And counting.

                Say it ain't so, Pam.

Please Read The Disclaimer.

MORTGAGE AND TITLE INSURANCE OVERBURDENED BY MORTGAGE SERVICER FRAUD.

TELLING  THE TRUTH, DROPPED LIKE A HOT POTATO.

             These are the opening words they don't want you to read:  "Investment banks caused the Great Recession."  And this is the article they don't want you to read:  "Regulators, Like People, Matter.  Banks Choose Anyone Except Insurance Regulators," posted on Insurance Claims and Bad Faith Law Blog on Tuesday, October 23, 2012.

            On its own website, Executive Counsel Magazine describes its readers as "decision-makers who embrace the challenges of succeeding in an increasingly complicated regulatory environment."  The magazine provides Executive Counsel Daily Digest, an EMail aggregation of blog entries related to their readers.  For many months, my Insurance Claims and Bad Faith Law Blog and my Insurance Claims and Issues Weblog were aggregated.

            Both of my blogs were dropped from the Executive Counsel Daily Digest aggregator the day after the article was published, "Regulators, Like People, Matter.  Banks Choose Anyone Except Insurance Regulators," and these words in it:  "Investment banks caused the Great Recession."

            Not depositary bankers, where individuals and small businesses, like me and mine, make deposits.  And not people from Main Street or small businesses.

            You would have thought this was a radical new thought.  It wasn't and isn't.  It is simply, plainly the known truth.  I am proud to be one of many people to tell you about it.

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Mortgage Servicers, Mortgage Settlement: Dealing Fairly in Financial Good Faith.

     It appears that Mortgage Servicers may have had the tools all along to modify Mortgages including to forgive principal.  See Statement of Hon. Sheila C. Bair, Chair of the Federal Deposit Insurance Corporation, reported by Martin Crustinger in an Associated Press copyrighted story, "Fed Urges Loan Companies to Help Prevent Mortgage Defaults," p. A5, col. 3 (Times-News, Twin Falls, Idaho, Wed., September 5, 2007) available on page 5 of this pdf posted online through twinfallspubliclibrary.org). 

    If that is so, then there was never any need for the Mortgage Servicing Fraud Settlement earlier this year -- except that the investment banks who were also the Mortgage Servicers, or who acquired the Mortgage Servicers, wanted immunity.

UPDATE ON JULY 27, 2012 ARTICLE HERE, "SHAME ON YOU, SHAUN. THAT'LL BE TEN HAIL MARYS, ... One Our Father, and One Glory Be.  Now say a Good Act of Contrition."

    In the article, I wrote:

One further note of, frankly, what is either fantasy or more stuff for Mr. Donovan to confess the next time he unburdens himself in the Confessional.  He says that the settlement agreement "also provides an additional $334 million in state aid" that Pamela Bondi, Florida Attorney General, will use "to help homeowners through proven tools like housing counseling."...  And if you believe that, Mr. Donovan and Ms. Bondi have some swamp land to sell you in South Florida as they say.

It is only now being widely reported that the Florida Legislature has other plans for that money, regardless of what Ms. Bondi says.

 Please Read The Disclaimer.

REGULATORS, LIKE PEOPLE, MATTER.

Banks Choose Anyone Except Insurance Regulators.

 "Financial institutions cannot be relied upon to do the right thing, when doing the wrong thing will line their pockets.  Regulators, not banks, need to set the rules and they must be clear, straightforward, and readily enforceable....  It's time to stop timidly working around the edges and get the job done."

   Sheila C. Bair, former Chair of the Federal Deposit Insurance Commission and current Chair of  the Systemic Risk Council, in an op-ed column entitled, "Two Years After Dodd-Frank, Why Isn't Anything Fixed?"  published online by Yahoo! Finance, The Exchange, Friday, July 20, 2012.

 

            Investment banks caused the Great Recession.  That is a fact.

            It is also unquestionable that for four years, since October, 2008, investment banks and their regulators have tried to divert everyone's attention away from investment banks and their regulators.  "[T]axpayers and the many smaller banks that pay into the F.D.I.C. fund that insures bank deposits were those most likely to be assigned responsibility for the bailout costs, Ms. Bair writes.  Needless to say, these people had no seats at the rescue tables."  Gretchen Morgenson, "Fair Game / Big Questions From a Bailout Eyewitness" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, October 14, 2012), citing Sheila Bair's recently published Book, "Bull By The Horns:  Fighting to Save Main Street From Wall Street and Wall Street From Itself".

            Ms. Bair's observations about Citigroup's former CEO, Vikram Pandit, provide a past example -- and a present insight.  She writes that Mr. Pandit and Citigroup's regulator in October, 2008, Mr. Timothy Geithner of the New York Federal Reserve Bank, held her responsible for Wells Fargo rather than Citigroup acquiring Wachovia and its subprime mortgage loan department.

            Her description of Mr. Pandit is insightful, as she explained why she thought that Mr. Pandit was a poor choice to become the CEO at Citi:

He was a hedge fund manager by occupation and one with a mixed record at that.  He had no experience as a commercial banker, yet now he was heading one of the biggest banks in the country.

Sheila C. Bair, "Bull by the Horns:  Fighting to Save Main Street From Wall Street and Wall Street From Itself" (Free Press , a division of Simon & Schuster, Inc., 2012),  excerpted online in CNN Money (September 20, 2012) and Fortune Magazine (October 8, 2012).

            Those who have ears to hear, let them hear.  

            The price of the Great Recession Bailouts includes enormous unaccounted costs for "the subsidies banks received in cheap capital, low-interest-rate loans and debt guarantees."  ."  Interview with Sheila C. Bair reported by Gretchen Morgenson in "Fair Game / Big Questions From a Bailout Eyewitness" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, October 14, 2012).  The costs of the Great Recession also include those falling upon Mortgage Insurance Companies and Title Insurance Companies for the Mortgage defaults engineered by the investment banks.  See the Categories on this Blog, "Mortgage Insurance" and "Title Insurance," and the corresponding Categories on Insurance Claims and Issues Web Log.

Please Read The Disclaimer.

Is There a Mortgage Foreclosure Fraud Settlement?

And if there Is a Mortgage Foreclosure Fraud Settlement Agreement, why can't we see it?  If it displays Good Faith, Would It not be displayed?  You would think.

   There is no Settlement Agreement on the website set up for the Foreclosure Fraud Settlement.

    The reports of an Agreement may be premature.

    There is an Executive Summary, and something called a fact sheet.  There are no dates in them. 

    The Mortgage Foreclosure Fraud Settlement was announced 3 weeks ago, as this post is written.

    I am interested in how the reported 'settlement' affects Banks' and Mortgage Servicers' liability for past practices that allegedly committed fraud upon the Courts.  Things like submitting Affidavits as proof without personal knowledge despite the signers' oath that they had personal knowledge of what was in the Affidavits they executed.  Things like at least some Foreclosure Plaintiffs' allegations that Notes and Mortgages were lost and could not be found, although allegedly the Notes and Mortgages are in the files of the Foreclosure Plaintiffs who made such allegations.  I have been looking for any information and in researching the entire Internet on this subject, I have found one source of information.

    We owe it to one source among the many weighing in on this reported 'settlement,' who describes what if any provisions are made in it concerning the liability of Banks and Mortgage Servicers for past practices which allegedly perpetrated fraud upon the Courts.  An Assistant Attorney General in Wisconsin writes on the website of the Wisconsin Bar that in the settlement, the participating Banks/Servicers are completely released from all such claims which might be pursued by the Federal Government and the participating State Attorneys General, based on alleged fraud upon the Courts of the States and of the United States.  See Holly Pomraning, Esquire, Assistant Attorney General, Wisconsin Department of Justice, "Wisconsin Joins $25 Billion Mortgage Settlement" posted on February 13, 2012 on State Bar of Wisconsin website.

    If Attorneys General will not ensure that fraud is not committed upon the Courts, who will?

   We would likely be better off if the reported settlement was never born, as they say.  See "Mortgage Foreclosure Fraud Settlement:  This Settlement is a Fraud," posted on February 16, 2012 on Insurance Claims and Bad Faith Law Blog.

Please Read The Disclaimer.   

MISSOURI INDICTS FLORIDA FORECLOSURE FACILITATORS FOR FORGERY.

   "Robosigning" is the act of signing someone else's name, or yours, to papers that will be used to evict people from their homes whether they deserve it or not. 

   Forgery is a felony in most jurisdictions.  It is certainly a crime in Missouri, where a Grand Jury handed up indictments of "DocX" and its founding former president on "136 counts of forgery in the preparation of documents used to evict financially strained borrowers from their homes."  Gretchen Morgenson, "Company Faces Forgery Charges in Foreclosures in Missouri" p. B1, col. 2 (New York Times Nat'l ed., "Business Day" Section, Tuesday, February 7, 2012).

   DocX reportedly employed people for the purpose of signing other people's names and notarizing the signatures on "millions of mortgage documents for big banks and loan servicers".  Id.  Doc X was a part of Lender Processing Services located in Jacksonville, Florida, until DocX was "closed" a year-and-a-half ago.

   You and your clients might be wondering if forgery is a crime in other States besides Missouri?  Of course it is.

   You might also be wondering in what other States has forgery been prosecuted as a crime?  One.  Nevada, where some individuals have been charged with "notary fraud".  Id.

   You might wonder why not?  Why have there not been criminal prosecutions for forgery and Fraud?

   Except in Missouri and Nevada?

   Mortgage Insurance Companies and Title Insurance Companies faced with more and higher payouts on their Policies would like to know the answer to that question, too.

   So would the rest of us.

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Residential Mortgage-Backed Securities Group: The Final Installment.

Unidentified "people close to the talks" say that State Attorneys General have until tomorrow to decide whether to settle with Mortgage Servicers which are also Banks, on undisclosed terms which may involve a Release of "civil state and federal lawsuits about servicing misconduct and faulty foreclosures, and state lawsuits about how they made some of the loans."  Aruna Viswanatha and Rick Rothacker, in a copyrighted Reuters news story as it appears on OrlandoSentinel.com on Thursday, Feb. 2, 2012, entitled "States to Decide This Week on Mortgage Deal".

This ends a series begun on Monday, Jan. 30,2012 on Insurance Claims and Issues Weblog.  Part 2 was posted on Tuesday, Jan. 31, 2012 on Insurance Claims and Bad Faith Law Blog, and Part 3 was posted yesterday on Insurance Claims and Issues Weblog.  

   When we ended Part 3 of this series, we made note of the fact that none of the websites of any of the three State Attorneys General who have expressed reservations about, or withdrawn from, the Mortgage Servicers-Banks Mortgage Fraud settlement talks, even posted a press release or any other news about the Federal Residential Mortgage-Backed Securities Working Group.

   The three State Attorneys General in question have each already launched their own prosecutions, civil or criminal, and the Obama Administration seems to be applying all the pressure that it can bring to bear on them to settle.  The three State Attorneys General involved, are the Attorneys General of:

1. California;
2. Massachusetts; and
3. Nevada.

   By way of further information identifying the lawsuits and reservations of these Attorneys General about the 'talks,' the California Attorney General withdrew from the talks and is pursuing California's own prosecution of Mortgage Fraud.  October 4 and October 27, 2011 posts on Insurance Claims and Bad Faith Law Blog; see November 1, 2011 post on Insurance Claims and Bad Faith Law Blog.

   As if there was not already enough pressure being applied to the California Attorney General to agree to return to the 'talks' and agree to sign the Release demanded by the Banks of all their potential liabilities in the Mortgage Fraud Fiasco, known and unknown, there is this news:  Reportedly if those 'talks' result in a settlement, the Banks will pay more money if California signs on to the Release.  Aruna Viswantatha and Rick Rothacker, Reuters news report, supra.

   The Attorney General of Massachusetts has also filed suit on behalf of her State over Mortgage Fraud.  December 4 and December 6, 2011 posts on Insurance Claims and Bad Faith Law Blog.

   The Nevada Attorney General has similarly filed suit on behalf of Nevada citizens who have allegedly been damaged by Bank misconduct during the Mortgage Fraud Fiasco.  See January 9, 2012 post on Insurance Claims and Issues Weblog, and the links to other reports in it.

   No suit appears to be pending against the Banks over their alleged involvement in the Mortgage Fraud Fiasco, which was filed by the Federal Government.

   There is however tremendous pressure, as we have seen, which is being applied to State Attorneys General to settle, sight unseen, with the Banks over the Banks' involvement if any in the Mortgage Fraud.  We have seen in particular that extreme pressure is being applied by the Administration to three strong women Attorneys General who have rejected the idea of settling, sight unseen.

   Given the activities of recent days which result in as much pressure as can be brought to bear by the current Federal Government, it will not be at all surprising if the positions of one or more of the State Attorneys General  change.

   Time will tell.  In the meantime, Mortgage Insurance Companies and Title Insurance Companies will continue to bear the cost of the Mortgage Fraud Fiasco, more or less alone.

Please Read The Disclaimer.

Title Insurance is 'Not Your Father's Liability Insurance;' One Exception.

  Title Insurance is different from most kinds of Liability Insurance.  That was reinforced once again by a recent holding that a real estate development contract is not covered by Title Insurance, in City of East Providence v. First Amercan Title Insurance Co., 2011 WL 5527604 *3 (D.R.I. November 14, 2011), Download City of East Providence v. First American Title Ins. Co. (D.R.I. Case No. 10.199, Memorandum and Order Filed Nov. 14, 2011) PUBLIC ACCESS. 

   One rule applied to Liability Insurers was equally applied to the Title Insurer under Rhode Island law in this case, though.  There was no Coverage, and thus there could be no Bad Faith.  Id.

Please Read The Disclaimer.

UPDATE on Good Faith: Homeowners Betrayed, Banks Unreal: California Investigates, Refuses Pre-Immunity.

 This is an Update of posts which appeared here on October 4 and 27, 2011.

    The settlement talks between the Iowa Attorney General and other representatives of all the State Attorneys General, with the five largest Mortgage Servicers (each of which are also "banks") in the United States, may be nearing a settlement proposal each side will agree to sell to its constituents.  See Gretchen Morgenson, "Fair Game / A Deal That Wouldn't Sting" p. 1, col. 1 (New York Times, "SundayBusiness" Section, Sunday, October 30, 2011).

   Here is a reported tentative breakdown of the sums which would be paid by the Mortgage Servicers, and distributed by the Iowa and other State Attorneys General represented at the talks:

• $                         1,500.00 "to any borrower who lost his or her home to foreclosure since September 2008."
• $                 90,000,000.00 or $ 90 Million to State bank regulators.
• $              750,000,000.00 or $750 Million to the Federal Government.
• $           2,700,000,000.00 or $2.7 Billion more to "participating states".

   In addition, the Mortgage Servicers would get an estimated $20,000,000.00 or $20 Billion in "credits" if they "agree to reduce a predetermined amount of principal owed on mortgages that they own or service for private investors."

   Their cash outlay, apparently akin to the cash component of a structured settlement, is of course estimated at a much lower figure, in this case, between $3.5 Billion and $5 Billion.  Id.

   The linked report provides information only on the amounts of money that the Banks-Mortgage Servicers participating in this settlement might pay.  It does not contain any information on what Release they would require, or mention the fact that they are insisting on a Release that goes way beyond the original conditions when the parties entered into settlement talks over "robosigning" Fraud and other alleged Bad Faith, Unfair Trade practices.

   Why should there be a settlement then which would include all claims based on anything other than the original conditions of the talks?

   What reason do the Attorneys General have for even considering a Release of All Claims including claims not yet made and which they have not yet investigated -- but which clearly concern the Banks more than the "robosigning" and other Claims that have been made?

   And one thing more, at least:  Especially when the money figures they are proposing are about the same as what the Banks would have proposed to pay, even if the Attorneys General had not shown up?

   Please Read The Disclaimer.

 

UPDATE on Good Faith: Homeowners Betrayed, Banks Unreal: California Investigates, Refuses Pre-Immunity.

  

This is an Update of a post which appeared here on October 4, 2011.

    Over three weeks after California's Attorney General abandoned the settlement talks between representatives of all the State Attorneys General and the five largest Mortgage Servicers in the United States, new demands and offers are reported from the talks.  See Alejandro Lazo, "California is Wooed in Mortgage Settlement Talks" (Los Angeles Times Online, Friday, October 21, 2011).

   The Iowa Attorney General, on behalf of all the other AG's including California, has demanded that the Mortgage Servicers agree to "refinance" up to 300,000 Homeowners.  These would be Homeowners who owe more than their houses are worth.  Looking at the situation on the ground in only one State, California, that is a fraction, 1/7, of the California Homeowners who are in that situation.  See id.

   Predictably, the Mortgage Servicers presented a counter-offer to the Iowa A.G.'s demand:  for exactly 1/2, or no more than 150,000 Homeowners.  My math tells me that that figure is not only 1/2 of the demand, but is also 1/4 of the number of underwater Homeowners who live in, again, one State, California.  It leaves no margin (you should pardon the expression) for the numbers of underwater Homeowners everywhere else.

   Fractions of real value are on their table.  The amount of money involved, in the demand and in the offer alike, is a fraction of the profits the Mortgage Servicers made on these Mortgages.

   These figures also represent a fraction of the profits they made investing Federal Taxpayer monies from the TARP bailout.

ALL RELEASE AND NO ACCOUNTING

   If the Mortgage Servicers agree to refinance a small number of underwater Homeowners, they want a Release of all claims against them, now and in the future, based on their Mortgage misconduct in originating the Mortgage in the first place.

   This goes way beyond the stated purpose of the negotiations in the first place.  It also goes beyond the actual risk of legal liability faced by Mortgage Servicers to reach their roles as Mortgage Originators.  See "Good Faith:  Homeowners Betrayed, Banks Unreal:  California Investigates, Refuses Pre-Immunity" (posted here on October 4,  2011).  This fact has now been picked up by some of the popular press as well.  See, e.g., Los Angeles Times, supra.

   You have to wonder why the California Attorney General is being disrespected in these belated discussions.  In any case, she is not alone.  "New York, Delaware, Nevada, Massachusetts, Kentucky and Minnesota also have voiced unhappiness with the deal being discussed by the attorneys general because of the release from liability being offered to the banks."  Id. 

   Time will tell how the Mortgage Servicers use "their" money in the future.  Chances are it will not be good for you or for me.  Or for the people who are being treated like fractions by the demands and offers reportedly passing across the table in Washington, D.C.

Please Read The Disclaimer.

P.S.

The five largest Mortgage Servicers reportedly involved in the talks ostensibly about mortgage servicing, are also Mortgage Originators:

• Bank of America;
• JPMorgan Chase;
• Wells Fargo;
• Citigroup; and
• Ally Financial.

SEC Settlement Practices Continue to Face Judicial Scrutiny.

   In Securities and Exchange Commission v. Vitesse Semiconductor Corp. et al, 771 F. Supp. 2d 304 (S.D.N.Y. 2011) Download SEC v. Vitesse Semiconductor Corp. (S.D.N.Y. Case No. 10CIV9239, Opinion and Order Filed March 21, 2011), the Securities and Exchange Commission defended its recent settlement practices in cases it brings alleging fraud against directors and officers.  Its settlement practices are codified in the Code of Federal Regulations.  They include filing cases against Defendants in which the SEC alleges fraud, and which the SEC practice is to settle without requiring the Defendants to admit or deny guilt.  The SEC claimed in this case that it instituted this practice in 1972.

   That claim caused the Federal Judge in that case, Judge Jed Rakoff, to set the record straight, as it were, as to the history and effects of this SEC practice:

Long before 1972, the S.E.C. had already begun entering into consent decrees in which the defendants neither admitted nor denied the allegations. This was strongly desired by the defendants because it meant that their agreement to the S.E.C.'s settlements would not have collateral estoppel consequences for parallel private civil actions, in which the defendants frequently faced potential monetary judgments far greater than anything the S.E.C. was likely to impose. But there were benefits for the S.E.C. as well. First, the practice made it much easier for the S.E.C. to obtain settlements. And second, at a time (prior to 1972) when the S.E.C.'s enforcement powers were largely limited to obtaining injunctive relief, the S.E.C.'s focus was somewhat more centered on helping to curb future misconduct by obtaining access to the Court's contempt powers than on obtaining admissions to prior misconduct.

   But, by 1972, it had become obvious that as soon as courts had signed off on such settlements, the defendants would start public campaigns denying that they had ever done what the S.E.C. had accused them of doing and claiming, instead, that they had simply entered into the settlements to avoid protracted litigation with a powerful administrative agency. Thus, the real change effected by the S.E.C. in 1972 was the requirement that a defendant who agreed to a consent judgment “without admitting or denying the allegations of the Complaint” nevertheless agree that the defendant would not thereafter publicly deny the allegations. To this end, each of the proposed Consent Judgments now presented to this Court is accompanied by a *309 formal written “Consent” of the defendant agreeing, pursuant to 17 C.F.R § 205.5, “not to take any action or to make or permit to be made any public statement denying, directly or indirectly, any allegation in the complaint or creating the impression that the complaint is without factual basis.”

   The result is a stew of confusion and hypocrisy unworthy of such a proud agency as the S.E.C. The defendant is free to proclaim that he has never remotely admitted the terrible wrongs alleged by the S.E.C.; but, by gosh, he had better be careful not to deny them either (though, as one would expect, his supporters feel no such compunction). Only one thing is left certain: the public will never know whether the S.E.C.'s charges are true, at least not in a way that they can take as established by these proceedings.

   This might be defensible if all that were involved was a private dispute between private parties. But here an agency of the United States is saying, in effect, “Although we claim that these defendants have done terrible things, they refuse to admit it and we do not propose to prove it, but will simply resort to gagging their right to deny it.”

   The disservice to the public inherent in such a practice is palpable.

Id. at 308-09.  [Emphasis added.]  The Court announced in that case that SEC Settlements containing such provisions would receive a heightened level of scrutiny as a result.  In that unique case, however, the circumstances caused the Court to approve the settlement.  The Court was careful to conclude with the notice that approval of the settlement brokered by the SEC in this case, did not at all mean that SEC settlements in other cases would escape judicial scrutiny:

  

 No reasonable observer of these events could doubt that the company has effectively admitted the allegations of the complaint in the way that, for a company, is particularly appropriate: by letting its money do the talking. Under these unusual circumstances—but reserving for the future substantial questions of whether the Court can approve other settlements that involve the practice of “neither admitting nor denying”—the Court approves the proposed Consent Judgments.

 

Id. at 310.  [Emphasis added.]

 

   Judge Rakoff is the Federal Judge assigned to scrutinize the settlement brokered by the SEC with Citigroup in which "Citigroup had agreed to pay $285 million to settle a civil complaint that it had defrauded investors in a mortgage securities deal.  The bank [Citigroup] did so 'without admitting or denying' the government's accusations."  See Peter Lattman, "Citigroup Deal to Go to Judge Critical of S.E.C. Practices" p. B4, col. 1 (New York Times Nat'l ed., "Business Day" Section, Friday, October 21, 2011).

 

Time will tell what happens once this alleged settlement is subjected to the promised level of judicial scrutiny.

 

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Good Faith: Homeowners Betrayed, Banks Unreal: California Investigates, Refuses Pre-Immunity.

    The California Attorney General has pulled out of national settlement talks with the Banks over unlawful mortgage servicing and foreclosure practices.  Download California AG 093011 Mortgage Letter.  In her letter, she mentioned "Good Faith," or lack of it, three times.

   The New York Attorney General has raised concerns during the talks.  He was immediately removed from the negotiations.  

   These developments have not gone unnoticed in the popular press or in blog posts.  See, e.g., Louise Story, "California Quits States' Talks With Banks on Mortgages" p. B1, col. (New York Times Nat'l ed., "Business Day" Section, Saturday, October 1, 2011); Alejandro Lazo and Nathaniel Popper, Post on "Money & Company" Blog on Los Angeles Times Online, Friday, September 30, 2011:  "California Breaks From 50-State Probe Into Mortgage Lenders [Updated]"; Ruth Simon and Nick Timiraos, "California Pulls Out of Foreclosure Talks" (Wall Street Journal Online, Saturday, October 1, 2011); Rick Daysog, Post on "CapitolAlert" Blog on Sacramento Bee Online, on Friday, September 30, 2011:  "California Pulls Out of Nationwide Wrongful Foreclosure Settlement".

   However, not many of these reports put these developments in the context in which they occurred.  That is the intent behind this post.  It may be a long post, unless you are interested in the reasons these things happened and then the time it takes to understand the background will, I think, be well spent.

Putting it all in perspective:  The context.

   50+ State Attorneys General (counting the chief legal officers of the District and of the U.S. territorial possessions) have been in national settlement talks with the "Banks".  The subjects of their negotiations have been unlawful foreclosure practices and mortgage servicing.

   The Banks have apparently already agreed to change foreclosure practices that they pursue or that "mortgage servicers" pursue in their names.  "Good progress has been made, particularly with respect to identifying common-sense reforms to mortgage servicing and foreclosure practices."  California Attorney General 09.30.11 Letter, supra, at 1.

   But the Banks want more.

   The Banks have expanded their own demands beyond unlawful mortgage servicing and foreclosure practices.  They want immunity from mortgage securitizations.

   The Banks want the State AG's to agree to confer immunity upon the Banks if the Federal Government, any departments of State Governments, or individuals sue the Banks for damages allegedly caused by the Banks' mortgage securitizations.  See the newspaper reports and blog posts linked above.

  Some Attorneys General want these negotiations to include loan modifications to restore a flow of money and stimulate the economy.  Loan modifications by or on behalf of the Banks are apparently not on the negotiating table.  See California A.G. 09.30.11 Letter at 2:  "In return for this broad release of claims, the relief contemplated would allow far too few California homeowners to stay in their homes."

   The Banks' demand for immunity from their mortgage securitizations in contrast is on the negotiating table.  The Obama Administration position is to take the Banks' money in exchange for the Banks' immunity.  This exchange is intended to help restore the economy.

   The Obama Administration has been incessant in putting pressure on State AGs who refuse or are reluctant to talk about mortgage securitization immunity for the Banks.  The New York Attorney General as one example has been an object of attention from officials in the Obama Administration and in the Federal Reserve System in this regard.  E.g., Alan Feuer, "Top Prosecutor Stands Out by Pushing Back" p. 22, col. 1 (New York Times Nat'l ed., Sunday, October 2, 2011);  Gretchen Morgenson, "Attorney General of N.Y. is Said to Face Pressure on Bank Foreclosure Deal" (New York Times Online, August 21, 2011).

The experience of settlement negotiations.

   Experienced negotiators know that your negotiating counterparties have just told you where they perceive themselves to be most vulnerable when they make such a demand.

   That appears to be one of two good reasons why the California AG is exclusively directing the time and resources of her office to investigating things like the role of mortgage securitizations in the mortgage foreclosure crisis.  She and other State Attorneys General -- in contrast to the current Federal Department of Justice -- have already been investigating that issue.  Two good reasons for removing the constraints of the current national settlement discussions therefore include, first, that investigating this area is where the Banks on the other side of the table do not want you to go, and second, this decision tends to push the Obama officials back.

   In actual context, it is clear why the California AG wrote a letter saying that the proposed settlement is "inadequate":

   However, despite your diligence and our good-faith effort to reach reasonable terms with the banking industry, there now exists a proposed settlement that is inadequate for California homeowners....

... California was being asked for a broader release of claims than we can accept and to excuse conduct that has not been adequately investigated.  In return for this broad release of claims, the relief contemplated would allow too few California homeowners to stay in their homes.

California AG 09.30.11 Letter at 1-2.  Many newspaper reporters took this to mean that the contemplated "damages" were inadequate.  See the many newspaper reports and blog posts linked above.  Damages were never mentioned in this letter.  The inadequate relief contemplated in this arrangement was instead mentioned over and over.  It is not about the money.  It is about Good Faith, or lack of Good Faith, in settlement negotiations.

Once, twice, three times "Good Faith".

      I mentioned that the California AG's letter mentioned "Good Faith," or lack of it, three times.  The first time was when the AG identified a good faith effort -- by the AGs -- to reach reasonable terms with the Banks.

   The second time was to describe the fact that the AGs were negotiating in good faith with the Banks when "recently, at the same time" the Banks' foreclosure actions in California "surged again."

   Third and finally, the reforms identified in the talks apparently included enhancing "transparency" and eliminating "incentives to disregard borrowers' rights in foreclosure.  Many of these reforms have been identified in the multistate talks, and I hope that in good faith the banks will adopt those reforms immediately."  California AG 09.30.11 Letter at 1-2.

And in the end, the love you take is not equal to the deals you make.

   The Obama Administration's pressure on State AGs to confer immunity in exchange for an amount of money without investigation, has already been described above. 

   Good Faith in negotiations contemplates an exchange.  It does not mean acceptance without investigation of the counterparty's position.  It includes obtaining something of equal value in return for what the other side demands.  If the other side of a negotiation is not willing to negotiate in Good Faith, then there really are no negotiations that deserve the name.

Please Read The Disclaimer. 

When Facts Destroyed Defense: No Title Insurance For Unpaid Liens.

   A recent decision illustrates the holdings reached by some Courts that where there is no Duty to Indemnify, there cannot be any Duty to Defend either.  The case of Home Federal Savings Bank v. Ticor Title Insurance Co., 2011 WL 4479080 (S.D. Ind. September 27, 2011) involved an unpaid Lien of 6 Million Dollars.  The Policyholder of a Title Insurance Company was the party which allegedly had a duty to pay the lien, which was perfected through the forum State's Mechanic's Lien Law.  Id. at *3. 

   Ordinarily, a Title Insurance Policy will exclude liabilities arising from Mechanic's Liens.  So did the Policy at issue in this case.  Id. at *2.  However, the Policyholder, Home Federal, protected its financing on the particular commercial construction project at issue in this case, by purchasing "a mechanic's lien endorsement," reprinted below for convenience.

   Home Federal brought the present lawsuit against Ticor Title on three alleged Claims, including an alleged breach of the Duty to Defend, an alleged breach of the Duty to Indemnify, and alleged Bad Faith.  The parties both filed Motions for Summary Judgment "specifically addressed to the duty to defend and the duty to indemnify."  Id. at *4.

The Federal Judge in this case first looked at the issue of whether there was a Duty to Indemnify under the undisputed facts.  The Court determined that there was none, and that ruling otherwise would provide Home Federal with a '$6 Million windfall,' in the Court's words, for not paying the lien in question.  See id. at *5 - *6.

   Then the Federal Judge addressed the question of whether a Duty to Defend existed.  Ordinarily, the existence of a Duty to Defend is determined by comparing the underlying allegations against the Insured, with the provisions of the Policy at issue.  Here, once the Federal Court determined the separate issue of no Duty to Indemnify based on the undisputed record facts, the Court determined in one sentence that Ticor Title therefore "necessarily had no duty to indemnify Home Federal either."   Id. at *6.

   Two rulings of consequence are inherent in this one holding.  First, it bears repeating that the Court's decision in this case is not unique.  There are many decisions in which Courts have determined that once there is no Duty to Indemnify, there is no Duty to Defend either.  In doing so, however, they seem to ignore the distinction between determining the existence of a Duty to Indemnify based upon the actual facts, versus the ordinarily separate question of determining the existence of a Duty to Defend based upon the underlying allegations compared with the Policy provisions at issue.  In this particular case, the Court's holdings seem to have been totally correct for the parties involved.  The result, however, is less interesting to an outsider than the way in which the Court got there.

   Second, the Federal Court in this case took a holding generated in standard-form Liability Insurance Policy Declaratory Judgment Actions, namely, in DJA's involving Commercial General Liability Insurance Policies with standard, widely used forms and endorsements, and without discussion applied that holding -- where there is no Duty to Indemnify, there cannot be a Duty to Defend -- to this case involving a Title Insurance Policy, which has its own unique Policy provisions and which may or may not be based on standard, widely used Forms and Endorsements.

   Here, before closing, is the Mechanic's Lien Endorsement under which Home Federal argued for Coverage from Ticor Title in this case:

 Anything contained in said policy to the contrary notwithstanding, the Company insures against loss or damage incurred by the insured by reason of the enforcement or attempted enforcement of any statutory lien for labor or material arising from construction contracted for and/or commenced on the land prior to, at, or subsequent to the effective date of said policy, and any extension of said date, as having priority over, or sharing on a parity with, the lien of the insured mortgage for that portion of the proceeds of the loan secured thereby advanced for the purpose of paying the costs of the acquisition of the land and the development of and the construction of improvements on the land, including by [sic] not limited to the cost of labor or materials incurred in connection therewith. At the time of each disbursement of the proceeds of the loan, the title must be searched by Royal Title Services, Inc., down to such time, for possible liens or objections intervening between the date hereof and the date of such disbursement.

This endorsement is made a part of the policy or commitment and is subject to all the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provision of the policy or commitment and prior endorsements, if any nor does it extend the effective date of the policy or commitment and prior endorsements or increase the face amount thereof.

 

Please Read The Disclaimer.

  

More Reasons to Pray: Mortgage, Title Insurance Claims to Pay.

 Risks caused by self-Inflicted Moral Hazards spread to Mortgage Insurance Companies and Title Insurance Companies paying Claims.

      The effects of an overwhelming number of Foreclosures on Mortgage Insurance Companies and Title Insurance Companies are well-documented.  Mortgage Insurance Companies are overwhelmed with Insurance Claims by Banks and other Foreclosure Plaintiffs.  Title Insurance Companies are similarly overwhelmed as a result of the actions by Banks and other Lenders.  E.g., Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:111, "Mortgage Insurance" (West 3d Edition 2011); see, e.g., "HUD Program Offers Hope of Relief ... to Mortgage, Title Insurers," April 5, 2011 post on Insurance Claims and Issues Web Log ; "Mortgage Insurance Absolutely No Antidote for Radioactive Investments," March 29, 2011 post on Insurance Claims and Issues Web Log;;  "'Fraud Upon the Courts?' Insurance Crisis Result of False Swearing," November 3, 2010 post on Insurance Claims and Issues Web Log.

      Florida's Attorney General since January, 2011, Ms. Pamela Bondi, sees a Moral Hazard in Residential Mortgage Foreclosures.  She does not see a Moral Hazard in lending practices, as can be seen from her own actions since January.  She instead sees a Moral Hazard in principal reductions, in even considering reductions of the Mortgage principal owed by Florida Homeowners to non-Florida Banks.  Principal reduction is not a suitable negotiating chip in discussions between the 50 State Attorneys General and the Banks over the Foreclosure Fraud Fiasco, she has announced.  General Bondi's announced views run counter to negotiation best practices from the beginning of these negotiations, see, e.g., Alejandro Lazo, "Banks Are Foreclosing While Homeowners Pursue Loan Modifications" (Los Angeles Times Online, April 14, 2011); "POSTSCRIPT:  Prayers for Bondi, Mortgage Finance 'Unfair, Deceptive and Unconscionable' Actions," posted here on July 29, 2011, down through today.  See  Michael Hiltzik, "Foreclosure Reforms May Be Coming To a Head" (Los Angeles Times Online, Sunday, August 14, 2011).

    These views also run counter to a view that fairness has a role to play in the process.  "We have to bring a greater sense of equitable treatment.  When we do that Americans will say, 'Yes, we are all in this together.'"  Thomas M. Hoenig, President of the Federal Reserve Bank of Kansas City, quoted by Gretchen Morgenson, "Fair Game / Conventional Fed Wisdom, Defied" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, August 14, 2011).

    Two Assistant Attorneys General received great respect from lawyers across the nation for their successful efforts in investigating Fraud by Mortgage Foreclosure Plaintiffs.  The same two Assistant Attorneys General received high performance reviews of their work in the Florida Attorney General's Office after General Bondi assumed that Office.  General Bondi forced them both to resign, claiming they instead performed poorly, a claim which has yet to be supported by a single page of documentation.  See "POSTSCRIPT:  Prayers Over Bondi, Mortgage Finance 'Unfair, Deceptive and Unconscionable' Actions," posted here on July 29, 2011.

      Now, the Office run by General Bondi has provided more troublesome, potential Moral Hazards.  Another Assistant Attorney General has resigned, this time after the Assistant A.G. investigated the number of cases in which former employees of the Florida Department of Legal Affairs (A.G.'s Office) have landed jobs with targets of the Residential Mortgage Foreclosure Fraud investigation.  The Assistant A.G. concluded that, among other things, where there's smoke, there's fire.  To paraphrase his own departing remarks as quoted in newspaper reports, the Assistant A.G. in question concluded that Florida Taxpayers deserve an Attorney General's Office which does not have its own self-inflicted Moral Hazards.  He immediately resigned.  The Florida A.G.'s Office charged that they were about to dismiss the Assistant A.G. in question on a claim that the Assistant A.G. had a business relationship with a target of the Mortgage Fraud investigation.  See Aaron Deslatte and Kathleen Haughney, "Sentinel Watchdog / Bondi's Office Rocked by Accusations of Impropriety" p. A1, col. 1 (Orlando Sentinel, Saturday, August 13, 2011).

      If we had any doubts before, you and I, we should not have any doubts now, that on this and every day we should pray unceasingly that we will have Justice in Florida, and in our country.

 Please Read The Disclaimer.

 

Contractual, Extracontractual Claims Against Title Insurance Companies ... Bad Faith?

   Bad Faith Claims against Title Insurance Companies are on the rise.  Some succeed; these failed.  See, e.g.,  Download Wilmington Plantation, LLC v. Fidelity Nat'l Title Ins. Co. (M.D. Tennessee, U.S.M.J. Report and Recco Filed Aug. 1, 2011) PUBLIC ACCESS, also published as 2011 WL 3293453 *2-*4 (M.D. Tenn. August 1, 2011 Report and Recommendation of United States Magistrate Judge; authorized password required to access Westlaw); Download Close, Jensen and Miller, P.C. v. Fidelity Nat'l Title Ins. Co. (Connecticut App. Ct. Opinion Filed July 12, 2011) PUBLIC ACCESS, also published as Close, Jensen & Miller, P.C. v. Fidelity National Title Insurance Co., 130 Conn. App. 174, 176, 180-84, 21 A.3d 952, 953-54, 956-58 (Conn. App. Ct. 2011)(affirming Summary Judgment on ground of res judicata in favor of Defendants Fidelity National Title Insurance Company and Commonwealth Land Title Insurance Company against some 7 Claims including asserted Claims for breach of Duty of Good Faith and Fair Dealing and Statutory Unfair Claim Settlement Practices; authorized password or subscription required).

   Breach of Contract Claims seem to survive in general against Title Insurance Companies -- in which, of course, no relief by way of extracontractual Damages appears to be requested, as in Download Lower Town Project, LLC v. Lawyers Title Ins. Co. (E.D. Michigan Case No. 10.11615, Order Filed Aug. 1, 2011) PUBLIC ACCESS, also published as 2011 WL 3319710 *1, *6 (E.D. Mich. August 1, 2011)(authorized password required to access Westlaw).

  The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida.  The author will be speaking.  As a result, the readers of this Blog are invited to a $200.00 discount if they choose to register for the Conference.  The authorized Code from the ACI is ICI 200.  Here is a link to the American Conference Institute Website Page which features this Conference including registration, if you or anyone you know would like to attend.

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Illinois Statutory, Common Law Causes of Action Against Insurance Companies.

   Statutory Claims and causes of action provide one of the hotbeds of Bad Faith Litigation.  This is equally true in Third-Party and in First-Party Bad Faith Cases.  See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" §§ 3:28-3:30 (Third-Party, Settlement), 3:63 (Third-Party, Refusal to Defend), 3:92 (Third-Party, Conduct of Defense), and 9:14-9:16 (First-Party Claims).

    Illinois has been added to the hotbeds in Download Philadelphia Indemnity Ins. Co. v. Chicago Title Ins. Co. (N.D. Ill. Case No. 09C7063, Docket Entry and Statement, both entered July 12, 2011) PUBLIC ACCESS, also published as 2011 WL 2731254 (N.D. Ill. July 12, 2011)(authorized password required to access Westlaw).

   In that Federal Case decided under Illinois substantive law, a Policyholder named Western Capital Partners, LLC loaned money to third parties.  WCP secured its loans with "mortgages on three parcels of property."  To protect its investment, WCP purchased Title Insurance from Chicago Title Insurance Company along with an alleged letter agreement, the terms of which are not relevant to this post.  Philadelphia Indemnity Insurance Co. v. Chicago Title Insurance Co., 2011 WL 2731254 at *1.  At any rate, the Title Insurance Policy allegedly contained a Duty to Defend among its provisions.

   "WCP filed foreclosure actions regarding certain of the mortgages and was later sued by other parties who claimed to have interests in the properties."  Id.  This was apparently a separately filed lawsuit.  WCP requested CTI to defend.  CTI declined to defend all the claims, offering to defend only some.  WCP turned to another of its Insurers, Philadelphia, which in turn sued CTI claiming that it, Philadelphia, should not have to defend at all, that it was excess to CTI's Policy, and that CTI should defend the entire lawsuit against their common Insured, WCP.

   The Policyholder also sued CTI in Philadelphia's lawsuit.  It filed a Cross-Claim against CTI.  In part, the Policyholder alleged that Chicago Title Insurance Company violated the Illinois Consumer Fraud Act or "ICFA".  "CTI alleges that it was misled into purchasing the title insurance policy and that CTI, in bad faith, evaded its contractual obligations.  This is sufficient to state a claim under ICFA."  Id. at *2.  [Emphasis added.]

   The Federal Court also stated that the Policyholder's Cross-Claim sufficiently alleged Fraud under Federal Rule 9(b).  Id. 

   However, there is no Common Law cause of action available for Bad Faith to the Policyholder against Chicago Title in this case, the Court further held.  Id.

   The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida.  The author will be speaking.  As a result, the readers of this Blog are invited to a $200.00 discount if they choose to register for the Conference.  The authorized Code from the ACI is ICI 200.  Here is a link to the American Conference Institute Website Page which features this Conference including registration, if you or anyone you know would like to attend.

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Mortgage Insurance Rescission Remedy ...

   ... for Mortgage Fee-Taking Fiasco.  

   The financial world continues to offer headlines about fees taken from issuing mortgages to people who could not afford them.  Unfortunately the news behind the headlines does not offer much hope of a remedy.  See, e.g., Barry Ritholtz, "Why Didn't Prosecutors Go After Wall Street?" (July 14, 2011 post on "The Big Picture" Blog); Barry Ritholtz, "Will the AGs Turn the US Into a Banktocracy?" (July 11, 2011 post on "The Big Picture" Blog)

   Banks and other lenders are making claims on Mortgage Insurance Companies as a result.  Defaults by mortgagors translate into fewer fees collected.  Mortgage Insurance Companies may have found a remedy for these claims in Rescission.  The remedy is based on the simple concept that the Banks and associated persons provided nothing short of material representations in their applications for Mortgage Insurance that the Mortgagors were just not able to pay their Mortgages from the outset.  See, e.g, Download JPMorgan Chase Bank, N.A. v. Republic Mortgage Insurance Co. (D.N.J. Case No. 10.06141, Opinion Filed May 4, 2011) PUBLIC RECORDS ACCESS, also published as 2011 WL 1750439 (D.N.J. May 4, 2011)(authorized password required to access Westlaw) and sources cited in this seminal case.

   Will Rescission become a way of doing business in the Great Recession caused by the applicants who caused the Mortgage Fee-Taking Fiasco?  Time will tell.

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"The Banks Still Want a Waiver" ... No, They Also Want Immunity: ...

This is an update to numerous posts in this space, most recently on July 19, 2011 entitled, "Prayers Over Bondi, Mortgage Finance "Unfair, Deceptive and Unconscionable" Actions

... Foreclosure Fraud by Foreclosure Plaintiffs, Continued.

   "MERS" stands for "Mortgage Electronic Registry Systems".  This company has nothing to do with the Clerks of Court in the States.  It is a corporation made by Banks and other Lenders to save them the time and expense not only of recording all the Mortgages they take back to secure their Loans in the first place, but also to file Foreclosure Lawsuits against defaulting Homeowners-Mortgagors.  Unfortunately, MERS did not make the loans and, in addition, MERS does not have the original note or a lawful excuse why not, in many cases.

   There is a split among the Courts over whether MERS has standing to sue for Foreclosure under these circumstances.  The percentage breakdown among the Courts is unclear.  The judicial view that MERS has no standing to sue in such Foreclosure Cases is well-articulated by Federal Judge Robert E. Grossman, quoted by Gretchen Morgenson, "Fair Game / The Banks Still Want A Waiver" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, July 24, 2011):

This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.

   The contrary view is expressed, for example, in a case involving the substantive law of Arizona, which is a Nonjudicial Foreclosure State meaning that the only involvement Courts in Arizona have with Foreclosures is when someone files a lawsuit to halt or to enforce one.  See, e.g., Download Schayes v. BAC Home Loans Servicing, LLP (D. Ariz. Case Nos. CV.10.1893, CV.11.1074, Order Filed July 15, 2011) PUBLIC ACCESS also published as 2011 WL 2746322 *2 (D. Ariz. July 15, 2011)(only Defendant was "the current servicer" of a residential loan secured by a deed of trust; holding in case at bar in pertinent part both that the Plaintiffs had not adequately pled sufficient facts in their Complaint to withstand dismissal of their Claims, and had stated legally insufficient Claims, that the mortgage servicer "is incapable of foreclosing absent actual possession of the note," that the trust deed is invalid, or that the mortgage servicer lacks standing "to conduct a non-judicial foreclosure.")(authorized password required to access Westlaw).

   Banks that own MERS are seeking releases of liability against claims that have not been made yet, it is reported by Gretchen Morgenson, "The Banks Still Want A Waiver," supra.  The Banks are making this demand in their current negotiations with the 50 State Attorneys General.  "Lawyers who have examined this issue say it would be unprecedented to grant a broad release from liability ... from claims that have not been investigated."  Id.

   Demanding a release from Unknown Claims is not exactly unprecedented on Wall Street, however.  The U.S. Government, specifically the Federal Reserve Bank of New York and the Treasury Department, forced AIG to release in advance what a release demanded by AIG's counterparties on Credit Default Swaps specifically labeled as "Unknown Claims".  See "AIG's Secret 'Unknown Claims' Release Worthless Paper?" posted here on July 6, 2010; and see "Who Fleeced the Fiduciaries?  AIG's 'Unknown Claims' Release ... Could Be Worthless Paper" posted on Insurance Claims and Issues Blawg, also on July 6, 2010

   The story about the hidden release of AIG's "Unknown Claims" was broken by New York Times Reporters Louise Story and Gretchen Morgenson.  One of the few good things in this situation is that the newspaper and these fine reporters are still focused on this very important and unfortunately recurring story.

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Prayers Over Bondi, Mortgage Finance "Unfair, Deceptive and Unconscionable" Actions.

   This is an Update to posts about Prayers for Florida's New Attorney General, Ms. Pamela Bondi, on May 26, 2011 and on June 19, 2011.  This post also Updates previous posts concerning Mortgage Foreclosure Issues seemingly designed as a Business Model to Overwhelm the Court System, on June 6, 2011, on June 8, 2011 and on July 19, 2011.

   Prayers issue daily that Florida's Attorney General since January, Ms. Pamela Bondi, will represent the People of Florida in negotiations between all of the 50 State Attorneys General, and  Banks and Mortgage Servicers, over alleged Foreclosure misdeeds.

   The previous Florida Attorney General -- before Ms. Bondi assumed office in January, 2011 -- started an investigation by the Economic Crimes Section.  The 98-page Report which resulted is entitled, "Unfair, Deceptive and Unconscionable Acts in Foreclosure Cases".

   The Report was written by then-Assistant Attorneys General Theresa Edwards and June Clarkson.  It is clearly important to the Attorney Generals' negotiations.  As their Supervisor noted in evaluating job performance, their Report was used in what he believed to be the first settlement of charges against a Law Firm as a "foreclosure mill" engaged in tactics such as the signing and filing of Affidavits without the affiant necessarily being personally familiar with the contents, or even having read the Affidavits before signing them.  See Brady Dennis, "Florida Foreclosure Investigators Say They Were Forced to Resign" (Washington Post Online, Thursday, July 14, 2011).

   Ms. Edwards' and Ms. Clarkson's Supervisor wrote, in that same complimentary employee review, that the Report was "instrumental in triggering a nationwide review of such practices."  See, e.g., Scott Maxwell, "Taking Names / Foreclosure-Fraud Watchdogs' Ouster Troubling" p. B1, col. 1 (Orlando Sentinel, Wednesday, July 20, 2011); Brady Dennis, "Florida Foreclosure Investigators Say They Were Forced to Resign" (Washington Post Online, Thursday, July 14, 2011).

   Their Report is also "instrumental" in a Foreclosure lawsuit in New York State won by a Homeowner in which the New York Court dismissed the case with prejudice.  The Judge "also demanded HSBC Bank officials appear in court to explain why they should not be sanctioned."  Kimberly Miller, "Florida Fraud Report Key to New York Foreclosure Case" (Palm Beach Post Online, Saturday, July 16, 2011).

   As a result of their Report, Assistant Attorneys General Edwards and Clarkson were given the bum's rush by Attorney General Bondi.  They were reportedly not allowed to review their files before they were told to leave.  They were not allowed to brief other attorneys who would be taking over their cases.  In their own words, "[w]e were just locked out."  They were given an option, however:  Resign or be fired that day.  They chose to resign.

   The unconscionable and deceptive practices highlighted by Ms. Edwards and Ms. Clarkson in their Report, are still going on.  See Michelle Conlin & Pallavi Gogoi, AP Business Writers, "Report:  Mortgage 'Robo-signing Goes On'" (Associated Press Report, posted Online on Wisconsin Law Journal at http://wislawjournal.com, Tuesday, July 19, 2011).  In the linked report, the authors point to evidence from County Officials and others about continuing practices -- and investigations by State Attorneys General -- in California, Illinois, Massachusetts, Michigan, and North Carolina as examples.  Further, reportedly the Register of Deeds in Guilford County, North Carolina has stopped filing documents that appear to be signed by "robo-signers" without further Affidavits certifying the signatures and assuming responsibility if legal title was questioned in the future as a result of the original Affidavits.  See id.

   It is also worth noting that the Florida Attorney General's Office also reportedly issued a statement that despite asking the most "instrumental" investigators in the country to leave the investigation, the Office is aggressively  pursuing an investigation, too.

   The costs incurred by Mortgage Insurance Companies and by Title Insurance Companies, as a result of the unconscionable and deceptive practices documented by Ms. Edwards and Ms. Clarkson, have previously been posted here many times.  That bystanders are incurring costs as a result of such practices is unconscionable.

   Florida Governor Rick Scott's suggestion to simply eliminate the Judicial Foreclosure Process in Florida and replace it with nonjudicial foreclosure is examined from several angles with many links in a thought-provoking post by Adam Levitin, "Switching Foreclosure Rules in the Middle of the Game" (Credit Slips / A Discussion on Credit, Finance and Bankruptcy Blog, posted on June 25, 2011).

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Summary Judgment for Title Insurer Against Bad Faith in New Jersey ...

... Policyholder-Plaintiff fails to prove lack of a reasonable basis to deny Coverage, Federal Court holds.

   Title Insurance Coverage and Good Faith are recurring issues in Courts throughout the nation.  In a recent decision under New Jersey Bad Faith Law, a Federal Judge granted Summary Judgment to a Title Insurance Company on the ground that the Plaintiff-Policyholder failed to prove that the Title Insurance Company lacked a reasonable basis for denying Coverage.  Dare Investments, LLC v. Chicago Title Ins. Co., Download Dare Investments, LLC v. Chicago Title Insurance Co. (D.N.J. Case No. 10-6088, Order Filed June 29, 2011) PUBLIC ACCESS, STATED NOT FOR PUBLICATION, also published as 2011 WL 2600594 *1, *12 (D.N.J. June 29, 2011)(authorized Westlaw password required to access Westlaw).
 
   In this decision, the Federal Judge in New Jersey followed a vast majority trend toward requiring Policyholders-Plaintiffs to prove the lack of a reasonable basis for an Insurance Company to deny Coverage as a part of their case.

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Educating the ... Magistrate Judge?

   It is a view held by many lawyers.  Some lawyers who hold this view represent Defendants, some represent Plaintiffs.  Those who hold the view tend to be convinced of its validity even when it does not produce the desired results.  The view is that even if a motion is destined to be denied, sometimes for various reasons it "needs to be filed."  One reason is that in the act of denial the Judge who tries your case must consider the motion.  As she or he considers the motion in question, you as counsel have the opportunity to "educate" her or him on some issue important to your client's case.

   This view seems to have been one factor in Download Lane v. Endurance Am. Specialty Ins. Co. (W.D.N.C. Case No. 3.10cv.401, Order Filed by Keesler, USMJ on April 8, 2011) PUBLIC ACCESS, also published as 2011 WL 1343201 (W.D.N.C. April 8, 2011)(authorized subscription required to access Westlaw).  In that case, a Policyholder under an unspecified Liability Insurance Policy sued a Liability Insurance Company for alleged Bad Faith, among other things.  The Plaintiff-Policyholder is Nations Title Agency of the Carolinas, Inc., which suffered a Judgment against it in an underlying case.  Defendant Endurance American Specialty Insurance Company's attorneys filed a motion to strike portions of Plaintiff's First Amended Complaint which alleged claims of breach of insurance contract, tortious breach-bad faith refusal to settle, and unfair and deceptive trade practices.  The First Amended Complaint also contained a prayer for punitive damages or treble damages, apparently in the alternative.  Lane v. Endurance American Specialty Insurance Co., 2011 WL 1343201 at *1.

   The gist of the motion to strike was that certain allegations in the First Amended Complaint violated Federal Rule of Evidence 408 which bars the admission of evidence concerning "settlement negotiations".  Endurance's attorneys tried to make it clear that they were not attacking evidence of settlement negotiations in the underlying case, but only the question of admissibility of "settlement negotiations" under the Rule in this case, the bad faith case.  The crux of their argument, in turn, was that the Court could not, should not permit the Plaintiff to introduce evidence of "litigation conduct" which takes place during the litigation of the bad faith case.  Id. at *3.

   If one reason for this motion to strike was to "educate the Trial Judge" on an unsettled point of law in that Court, filing a motion to strike may have foreordained the result from the start.  This motion to strike was assigned for disposition to the United States Magistrate Judge.  The Trial Judge may never see it.

   Second, the chosen vehicle -- a motion to strike under Federal Rule of Civil Procedure 12(f) -- was admittedly unfamiliar to the Magistrate Judge in this case.  See id. at *3 ("This court has rarely been called upon to interpret Rule 12(f) ...."). 

   Third, the standard for filing and disposition of a motion to strike under Fed. R. Civ. P. 12(f) is written in the Rule.  A motion to strike may be filed to address, in part here pertinent, "any redundant, immaterial, impertinent, or scandalous matter."  If the motion to strike is granted, the matter is stricken from the case.  In this case, however, after filing the motion to strike, according to the Magistrate Judge, there was no argument that the standard applied by the Court was met in this case.  "Notably, Defendant has not argued that the text it wishes to strike is redundant, impertinent, or scandalous pursuant to Fed.R.Civ.P. 12(f)."  Id. at *3.

   Rather, Endurance's lawyers argued that "evidence of its conduct in this action" should not be admitted into evidence.  This is not the purpose of a motion to strike, the Court held.  "The issue before the Court on a Rule 12(f) motion is not whether evidence is admissible, but whether it is immaterial, impertinent, and scandalous."  Id.

   In conclusion, the Magistrate Judge denied the motion to strike in this case.  Unsettled questions of evidence law would have to remain unsettled, for the time being.  "In short, neither party has cited caselaw that squarely addresses the issue before the Court.  Moreover, the undersigned is not persuaded that Defendant has satisfied its burden ....  The better course at this stage is to leave the Complaint as is, without prejudice to Defendant to raise its arguments in a later dispositive motion, or perhaps at an evidentiary hearing."  Id. at *5.

A post on Insurance Claims And Issues Weblog addresses the same issue apparently arising in a different case on the part of plaintiff-policyholder attorneys in a post on Monday, April 18, 2011.

The Courts' admission of evidence of litigation conduct in Bad Faith cases is examined in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" §9:6 (Shepard's/McGraw-Hill Second Edition; West Publishing Company 2010 Supplement and Third Edition in process).

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Title Insurance Companies Owe Good Faith, Good Faith Not "Infallibility": A Postscript.

   A Postscript has been published today in order to reflect an unrelated change to a case cited in a previous post here on April 30, 2010:

Postscript of Friday, January 14, 2011:

The Mortensen decision was withdrawn and replaced by the Idaho Supreme Court in order to change its ruling from a denial of Appellate Attorney Fees to Stewart Title, to an award of Appellate Attorney Fees to Stewart Title:   Mortensen v. Stewart Title Guaranty Co., 149 Idaho 437, 235 P.3d 387 (2010).  Otherwise, the quoted language from that decision in this post was left unchanged by the Idaho Supreme Court when it re-issued its Opinion in this case:  235 P.3d at 395 & n.1.--Dennis J. Wall.

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