After purchasing title insurance and transferring title to their property several times, property owners in California discovered an encroachment on their property that prevented them from selling it. The claim dispute eventually went to arbitration. When the arbitrator ruled in favor of the property owners, the title insurer appealed.
The case is First American Title Insurance Co. v. David Ordin et al. (Court of Appeal for the Second District of California, No. B226671).
On May 1, 2002, First American Title Insurance Co. issued a title insurance policy to David and Batya Ordin in connection with the purchase of property in Studio City, Calif. At that time, they executed a trust deed to Washington Mutual Bank. Nine days later, on May 10, 2002, the Ordins transferred title in the property to Claremont Investments Inc., a corporation of which they were the sole shareholders. On April 6, 2004, Claremont Investments Inc. conveyed title to the Ordins as trustees of the family trust. On Dec. 16, 2004, the Ordins, as trustees of their family trust, executed another trust deed to California National Bank. On Aug. 4, 2005, the Ordins recorded a parcel map that showed the property had been divided into two parcels. On Aug. 25, 2005, the Ordins, as trustees of their family trust, transferred title in both parcels to Ranchito Development LLC, a limited liability company of which they were the sole members.
On June 9, 2006, Claremont Investments Inc., through David Ordin, entered into an agreement to sell the property to Allison and Christopher Simmons for $1.475 million. In June 2006, the Ordins discovered a neighbor’s house encroached onto their property. The Simmons refused to complete the purchase because of the encroachment. On June 26, 2006, the Ordins notified First American of their claim. First American denied the claim on June 29, 2006 as being premature. On Sept. 14, 2006, First American appointed an appraiser who determined that diminution in value to the property caused by the encroachments was $5,000. First American tendered $5,000 to the Ordins.
On Dec. 22, 2006, the Ordins sold the property for $1.255 million. The Ordins claimed an actual loss of $244,291 plus carrying costs of $50,707, relying on a report prepared by another appraiser in May 2007. That appraiser concluded the diminution in value of the property caused by the encroachments and decline in the local housing market between June and December 2006 was $220,000 plus carrying costs of $87,330.
The parties agreed to arbitration and selected retired Presiding Justice Robert Feinerman as the arbitrator. The parties submitted several briefs during the hearing, which was conducted on Oct. 19 and 20, 2009. In early November, the parties submitted post-arbitration briefs. In its brief, First American argued that the Ordins’ Aug. 25, 2005, transfer of title to Ranchito Development precluded coverage of the loss caused by the encroachments because only they were covered by the policy. The Ordins argued in their post-arbitration brief that their policy covered them even after they transferred title and as trustors on a May 1, 2002, trust deed payable to Washington Mutual Bank.
The award was issued the same day as First American’s letter brief. Feinerman found the Ordins were covered under the policy. He also found the Ordins had suffered actual loss and First American had breached the implied good faith and fair dealing covenant. He awarded the Ordins $277,330 in contract damages and $75,000 in tort damages, for a total of $352,330, plus interest. The award was not served until Nov. 19, 2009.
On Dec. 10, 2009, First American wrote to Feinerman to request leave to file a brief in response to the Ordins’ argument that they were insured under the title policy as trustors under the trust deeds. Feinerman denied the request and awarded the Ordins an additional $128,833 in damages for attorneys’ fees and expenses.
On Feb. 23, 2010, First American filed a petition to vacate the arbitration awards on arbitrator misconduct grounds, arguing that Feinerman unfairly refused to hear material evidence. On April 6, 2010, the Ordins filed a petition to confirm the arbitration awards. On July 8, 2010, the trial court granted the Ordins’ petition to confirm and denied First American’s petition to vacate the awards. While the court found that Feinerman didn’t receive First American’s brief before issuing the first award, it said there was nothing in the brief that was not argued before that time.
On appeal, First American argued that it was prejudiced by Feinerman’s refusal to hear evidence material to the controversy; consider the evidence attached to its Nov. 13, 2009, letter; and permit further briefing on the effect of the California National Bank construction trust deed.
The appellate court affirmed the trial court’s judgment.
“To begin with, we have no way to judiciously assess the issues of relevance or prejudice,” the court stated. “The plaintiff did not have a reporter’s transcript of the arbitration prepared. There is no requirement that a reporter’s transcript of the arbitration be prepared, although on occasion one is utilized in motions to vacate an award. And the plaintiff filed no declaration detailing the state of the evidence or other pertinent matters elicited during the two-day arbitration.”
First American relied on Burlage v. Superior Court in making its decision. In that case, the appellate court and the trial court found the seller was prejudiced because the arbitrator refused to hear evidence concerning a lot-line adjustment.
“Burlage is distinguishable,” the court stated. “In Burlage, the arbitrator excluded evidence of the financial effects of the lot-line adjustment on the purchasers’ damages. Here, the arbitrator did not exclude any evidence because the plaintiff’s Nov. 13, 2009 letter did not introduce any new evidence.”
First American also relied on Harvey Aluminum Inc. v. United Steel Workers of America, AFL-CIO. In that case, the district court vacated the award because the arbitrator refused to hear and consider the testimony of a rebuttal witness. The court also found Harvey Aluminum Inc. distinct from the present case, saying that unlike the scenario in Harvey Aluminum Inc., First American did not introduce any rebuttal evidence.
First American also contended that it was substantially prejudiced by the arbitrator’s denial of its request to file supplemental briefs. The court disagreed.
“Contrary to the plaintiff’s assertion, the arbitrator complied with American Arbitration Association rule R-30(a) by allowing the parties to submit several briefs and letter briefs after the arbitration hearing. There is no evidence to show the arbitrator did not follow or had varied the arbitration procedures set forth in American Arbitration Association rule R-30(a),” the court stated.
“Finally, even if the arbitrator had accepted the plaintiff’s arguments and found the defendants were not covered under the policy as trustees of their family trust, based on our current record, the awards would still stand,” the court concluded. “The arbitrator found the defendants were covered under two separate sections of the policy given the totality of the evidence. … Here, the plaintiff did not suffer substantial prejudice so as to warrant vacation of the arbitration awards because there was an additional, separate basis to support the arbitrator’s coverage finding. There is no reason to believe had the disputed matters been resolved differently, the result might well have been different.”