In a lawsuit involving a title insurance dispute stemming from litigation over a homeowner’s association’s foreclosure sale, the defendant title insurer moved to dismiss a first amended complaint. In issuing its opinion, the U.S. District Court for the District of Nevada looked to its decision in a very similar case.
The case is HSBC Bank USA N.A., as trustee for the registered holders of Nomura Home Equity Loan Inc., asset-backed certificates, series 2006-HE2 v. Fidelity National Title Insurance Co. (U.S. District Court for the District of Nevada, No. 3:19-cv-00265-MMD-CSD).
The court noted that it issued a prior order granting First American Title Insurance Co.’s motion for judgment on the pleadings and dismissing the original complaint.
The Ninth U.S. Circuit Court of Appeals reversed in part the district court’s order and vacated the dismissal order. That court found that the district court erred in declining to grant HSBC Bank USA N.A. leave to amend the original complaint based on trade usage evidence HSBC Bank wished to present. The appellate court held that the extrinsic evidence could support HSBC Bank’s claims. In addition, it held that Nevada law permits courts to consider the custom and practice of the pertinent trade even when construing an unambiguous contract.
The district court granted HSBC Bank’s motion to amend upon remand. The first amended complaint contains claims for declaratory judgment, breach of contract, breach of the implied covenant of good faith and fair dealing, deceptive trade practices, and unfair claims practices in violation of NRS Section 686A.310. The court noted that many of the arguments made in this case were very similar to the arguments in Wells Fargo.
One argument that is not the same as Wells Fargo is HSBC Bank’s argument that CLTA 100.13 covers its loss due to a mutual mistake. It provided evidence purportedly issued by CLTA as an instruction to title insurance agents who were considering selling CLTA 100.13 that states that the endorsement ‘provides coverage in the event the insured mortgage lacks priority over assessment liens, provided for in any CC&Rs shown as an exception in Schedule B, which arise prior to the acquisition of title by the insured.’
Chief U.S. District Judge Miranda Du granted in part and denied in part Fidelity’s motion to dismiss.
In making her decision, Du noted that the court recently issued an order is a similar case, Wells Fargo Bank N.A. v. Fidelity National Title Insurance Co.
“The reasoning in the court’s recent Wells Fargo decision applies in this case as well and resolves a significant portion of the arguments pertinent to the motion,” she said. “However, unlike in Wells Fargo, the plaintiff also alleges that the California Land Title Association Form 100.13 endorsement to the pertinent title insurance policy covers its loss. Because the court finds that CLTA 100(1)(a) covers the plaintiff’s loss, but CLTA 100(2)(a) does not, and CLTA 100.13 does not based on the lack of an essential allegation or allegations in the first amended complaint, the court will grant in part, and deny in part, the motion. And this order also denies the plaintiff’s motion for leave to supplement its opposition to the motion.”
Regarding coverage from the CLTA 100(1)(a) and CLTA 100(2)(a) endorsements, Du stated, “As noted, the court found in Wells Fargo that the CLTA 100(1)(a) endorsement covered the plaintiff’s loss, but the CLTA 100(2)(a) endorsement did not. The court makes the same findings here for the reasons provided in that order. After all, the allegations, arguments, and pertinent evidence attached to the FAC in this case are substantially similar to the materials the court considered in Wells Fargo as to these two endorsements.
“Accordingly, the defendant’s motion is denied to the extent it is based on the argument that the CLTA 100(1)(a) endorsement does not cover the plaintiff’s loss but granted to the extent it is based on the argument that the CLTA 100(2)(a) endorsement does not cover the plaintiff’s loss,” Du continued.
Concerning coverage from the CLTA 100.13 endorsement, Du stated, “As the court found in the dismissal order, the CLTA 100.13 endorsement included in the policy does not cover the plaintiff’s loss by its express terms because it covers a loss by reason of lack of priority of the insured mortgage resulting from an easement for passage of aircraft, and incidental purposes. And while the plaintiff alleges in the first amended complaint that this was a result of mutual mistake, mutual mistake is a question of contract interpretation and ‘contract interpretation generally presents a question of law.’ Ad as a practical matter, it would be logically easier to accept the allegation of mutual mistake as plausible if the defendant agreed there had been a mutual mistake. But the defendant does not, making the facially inapplicability of the CLTA 100.13 endorsement in the policy its lead argument in the motion and doubling down on it in in reply. Thus, there appears to be a genuine dispute as to whether the parties made a mutual mistake in drafting and agreeing to the CLTA 100.13 endorsement in the policy. But in any event, at this stage, the court does not accept as true the plaintiff’s allegation that there was a mutual mistake.
“And whether reformation is a cause of action or a remedy, the plaintiff’s FAC lacks any reference to, or discussion of, the concept,” she continued. “Without any discussion of reformation in the FAC, particularly no request for it as part of the relief sought as to the CLTA 100.13 endorsement, how can the court find in the plaintiff’s favor that the CLTA 100.13 endorsement covers its loss? The question begs the answer: the court cannot—not based on the allegations in the FAC. The court would first have to reform the contract in the way that plaintiff desires, but the FAC gives the court no avenue to do so.”
She also denied HSBC Bank’s motion to supplement and ordered HSBC Bank to file any amended complaint within 30 days.
“The plaintiff does not proffer any precedential authority that post-dates its opposition in this case in its motion to supplement,” Du stated. “Nor does the plaintiff proffer any new evidence. Instead, the plaintiff attempts to expand its argument on CLTA 100(2)(a), primarily relying on a series of out-of-state, state court cases that all predate its opposition. The plaintiff does not offer any explanation as to why it did not raise any of these cases in its opposition—though they undisputedly existed at the time—other than its counsel has become more familiar with title insurance cases since February. This does not constitute the requisite good cause. Moreover, none of these cases bind the court in any event, much less control the outcome of this litigation.”