ABDUL K. KALLON, District Judge.
Fidelity National Title Insurance Company ("Fidelity") filed this action against Tracy and Kristi Wooden (the "Woodens") and Smartbank, seeking legal and equitable relief related to a title policy it issued to the Woodens. Doc. 1. Fidelity maintains that the Woodens were partially responsible for creating a defective legal description of the property the Woodens purchased from Smartbank and also were not financially harmed by the defect. Doc. 96 at 8. Therefore, Fidelity maintains that the title policy it issued should exclude Lot 5 which was included in the legal description based on a purported mistake. Id. The Woodens contend that they believed that the property they purchased from Smartbank included Lot 5, that they did not create the legal defect in the property description, and that they are due compensation for the loss under the title policy. Doc. 98 at 12-23. Smartbank maintains that it never represented that it owned Lot 5 in the property sale to the Woodens and should not be held liable for the defective property description. Doc. 95 at 3-6.
Based on their varying contentions, the parties have pleaded the following claims: Fidelity asserts six claims including reformation (Count I) and declaratory judgment (Count II) against the Woodens and Smartbank, negligent misrepresentation (Count III) and unclean hands/estoppel from opposing reformation efforts (Count IV) against the Woodens, and contingent claims for breach of contract (Count V) and breach of warranty (Count VI) against Smartbank in the event the Woodens prevail against Fidelity, docs. 91, 96; (2) the Woodens countered with claims against Fidelity for declaratory judgment (Count I), breach of contract and judgment for interest (Count II), and bad faith refusal to pay (Count III), doc. 98; and (3) Smartbank filed counterclaims against Fidelity and crossclaims against the Woodens seeking reformation (Count I) and declaratory judgment (Count II), doc. 95.
Presently before the court are the parties' partial motions and cross-motions for summary judgment. Specifically, Fidelity moves on its own reformation and declaratory judgment claims, as well as on the Woodens' counterclaims against it. Doc. 112. For their part, the Woodens seek summary judgment on their counterclaim for declaratory judgment, on all of Fidelity's claims against them, doc. 114, and on Smartbank's crossclaims for reformation and declaratory judgment, doc. 115. Finally, Smartbank has moved on its reformation claim and Fidelity's breach of contract claim against it. Doc. 116. For the reasons stated fully below, the court finds that only Fidelity's motion related to the Woodens' bad faith claim is due to be granted.
Under Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56. "Rule 56[] mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (alteration in original). The moving party bears the initial burden of proving the absence of a genuine issue of material fact. Id. at 323. The burden then shifts to the nonmoving party, who is required to "go beyond the pleadings" to establish that there is a "genuine issue for trial." Id. at 324 (citation and internal quotation marks omitted). A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
On summary judgment motions, the court must construe the evidence and all reasonable inferences arising from it in the light most favorable to the non-moving party. Adickes v. S. H. Kress & Co., 398 U.S. 144, 157 (1970); see also Anderson, 477 U.S. at 255. Any factual disputes will be resolved in the non-moving party's favor when sufficient competent evidence supports the non-moving party's version of the disputed facts. See Pace v. Capobianco, 283 F.3d 1275, 1276, 1278 (11th Cir. 2002) (a court is not required to resolve disputes in the non-moving party's favor when that party's version of events is supported by insufficient evidence). However, "mere conclusions and unsupported factual allegations are legally insufficient to defeat a summary judgment motion." Ellis v. England, 432 F.3d 1321, 1326 (11th Cir. 2005) (per curiam) (citing Bald Mountain Park, Ltd. v. Oliver, 863 F.2d 1560, 1563 (11th Cir. 1989)). Moreover, "[a] mere `scintilla' of evidence supporting the opposing party's position will not suffice; there must be enough of a showing that the jury could reasonably find for that party." Walker v. Darby, 911 F.2d 1573, 1577 (11th Cir. 1990) (citing Anderson, 477 U.S. at 252).
The simple fact that all parties have filed partial motions for summary judgment does not alter the ordinary standard of review. See Chambers & Co. v. Equitable Life Assurance Soc., 224 F.2d 338, 345 (5th Cir. 1955) (explaining that cross-motions for summary judgment "[do] not warrant the granting of either motion if the record reflects a genuine issue of fact"). Rather, the court will consider each motion separately "`as each movant bears the burden of establishing that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law.'" 3D Med. Imaging Sys., LLC v. Visage Imaging, Inc., 228 F.Supp.3d 1331, 1336 (N.D. Ga. 2017) (quoting Shaw Constructors v. ICF Kaiser Eng'rs, Inc., 395 F.3d 533, 538-39 (5th Cir. 2004)). The court notes that although cross-motions "`may be probative of the non-existence of a factual dispute'" they "`will not, in themselves, warrant [the granting of] summary judgment.'" United States v. Oakley, 744 F.2d 1553, 1555 (11th Cir. 1984) (quoting Bricklayers Int'l Union, Local 15 v. Stuart Plastering Co., 512 F.2d 1017, 1023 (5th Cir. 1975)).
In April 2010, Smartbank acquired a deed at a foreclosure sale to a 635-acre property consisting of undeveloped lots in an area known as Long Island Overlook that is located in Jackson County, Alabama. Doc. 96-3. The foreclosure deed included all but one lot within the property, known as "Lot 5, Phase II," which the previous owner, Southern Group, LLC, had transferred to another individual the prior year. Doc. 113-2. Three months after acquiring the property deed, Smartbank agreed to sell the property to the Woodens for $800,000. Doc. 96-4. The contract described the property as "land located in Jackson County, Alabama" and "635 acres owned by Seller known as the Long Island Overlook property." Id. at 2. The contract also included placeholder language stating that "the legal description is to be replaced with a title company's legal description upon completion of the title examination." Id. at 7.
Subsequently, Warranty Title created a description of the property without explicitly referencing individual subdivision lots, and RLS Group LLC provided a "corners survey" of the property which included Lot 5 of "Final Plat Long Island Overlook-Phase 2." Doc. 113-8. RLS's survey work and descriptions of the property, which erroneously included Lots 5 and 38 but left out Lot 39, were used for the legal description in the Special Warranty Deed Smartbank issued to the Woodens. Docs. 113-11; 113-23.
After obtaining the deed, the Woodens purchased a title insurance policy from Fidelity. Doc. 113-21. The policy incorporated by reference the property description in the foreclosure deed to Smartbank (which did not include Lot 5) and the property description in the Special Warranty Deed (which included Lot 5). Id. at 6. The policy Fidelity issued is a standard one covering risks related to title being vested other than as stated in the property description, defects in lien or encumbrance on the title, and unmarketable title. Id. at 3. The policy excluded coverage for "defects, liens, encumbrances, adverse claims, or other matters . . . created, suffered, assumed, or agreed to by the Insured Claimant." Id.
Warranty Title subsequently discovered the mistakes in the property description and presented the Woodens with a revised instrument to reform the Special Warranty Deed. The Woodens refused to sign, maintaining among other things that they are due coverage for Lot 5 under the policy Fidelity issued. Docs. 27-2; 113-23. Thereafter, Fidelity filed this lawsuit seeking in part to reform the policy to exclude Lot 5 and a declaratory judgment that it has no obligation to provide coverage for Lot 5. Doc. 96.
Presently before the court are the parties' partial motions for summary judgment on reformation and declaratory judgment claims, as well as various claims for breach of contract, bad faith, negligent misrepresentation, and unclean hands/estoppel. The court will address the motions collectively beginning with the reformation and declaratory judgment claims, followed by the breach of contract and tort claims.
Under Alabama law,
Fidelity seeks reformation of the title policy based on the reference to Lot 5 in the Special Warranty Deed. Doc. 112 at 11-15. More specifically, Fidelity contends that Smartbank and the Woodens mistakenly relied on the legal description prepared by the scrivener who conveyed more property than what Smartbank and the Woodens purportedly intended. Id. at 13. Reformation of an instrument based on mutual mistake requires that the "mistake be mutual as to all parties to the instrument." Fadalla v. Fadalla, 929 So.2d 429, 434 (Ala. 2005). The parties must have a "meeting of minds, an agreement actually entered into, but the contract or deed in its written form does not express what was really intended by the parties." Gray v. Bain, 164 So.3d 553, 564 (Ala. 2014). Because the instrument is presumed to support the true agreement, Fidelity must produce "clear, convincing, and satisfactory evidence" that the deed fails to express the parties' true intent at the time they created the instrument. Simpson v. First Alabama Bank of Montgomery, N. A., 364 So.2d 289, 291 (Ala. 1978) (emphasis added).
To support its position, Fidelity cites Lawyers Title Ins. Co. v. Golf Links Dev. Corp., a case where the court granted reformation on a title policy that erroneously included an extra lot in the property's legal description. 87 F.Supp.2d 505, 508 (W.D.N.C. 1999). Lawyers Title Ins. Co. is distinguishable however because the defendant admitted that he "absolutely" did not know what he was purchasing, merely looked at the pictures of the property, gathered a "general sense" of the property value, did not read the legal description, and briefly visited the property. Id. In contrast, Tracy Wooden and Travis Shield (Chief Manager of Southern Group) testified that Southern Group led Tracy Wooden to believe that the foreclosed property that the Woodens purchased from Smartbank included the home on Lot 5. Docs. 113-17 at 11; 114-7. Moreover, RLS Group circulated the survey (which included Lot 5) prior to the closing on the property purchase and before the Woodens purchased the title policy, reinforcing the Woodens' contention that their purchase included Lot 5. Docs. 113-6, 113-7, 113-8, 113-11 at 9. Indeed, Kristi Wooden testified about seeing the house on Lot 5 prior to the purchase, reviewing the title commitment and deed, and tracing the legal description to the RLS survey. Doc. 58-6 at 5. This evidence creates a material factual dispute over whether the Woodens believed their purchase included Lot 5, and precludes the court from granting Fidelity's motion on the reformation claim. A trier of fact must weigh the evidence to determine whether the Woodens' belief was due to a unilateral mistake on their part or if their testimony on intending to purchase Lot 5 is contradicted even by their own testimony and actions as Fidelity maintains. See American and Foreign Ins. Co. v. Tee Jays Mfg. Co., Inc., 699 So.2d 1226, 1227-28 (Ala.1997); Sunshine Bank of Ft. Walton Beach v. Smith, 631 So.2d 965, 968 (Ala. 1994). See also docs. 112 at 8; 114-9 (Fidelity's contention that the Woodens equivocate over their intent to purchase Lot 5 based on when the Woodens obtained keys, changed utilities, spoke with Randy King, the current owner of Lot 5, or paid taxes on Lot 5).
The Woodens and Smartbank both seek summary judgment on Smartbank's claim to reform the Special Warranty Deed. Docs. 115 at 8, 117 at 26. For its part, Smartbank argues that (1) the parties mutually relied on the scrivener who mistakenly included Lot 5 and/or (2) it made a unilateral mistake based on the Woodens' inequitable conduct. Doc. 117 at 26-31. See Ala. Code § 35-4-153 (2014) (reformation of deed, mortgage or other conveyance); Ala. Code § 8-1-2 (1975) (reformation of contracts). To prevail, Smartbank must provide clear and convincing evidence that the contract does not express the parties' actual intent. See Simpson, 364 So.2d 289; Gray, 164 So. 3d at 564. At this juncture, however, viewing the evidence in the light most favorable to the Woodens, the court cannot find that the Woodens did not intend to purchase Lot 5. The contract explicitly states that the property's "legal description is to be replaced with a title company's legal description upon completion of the title examination" and that "[Smartbank] agrees to provide [the Woodens] with a survey of the Property and to provide GPS coordinates on the survey" as a condition to closing. Doc. 113-4 at 3, 6. Consistent with this language, RLS Group's survey, which included Lot 5, became part of the contract. Based on this sequence of events, Smartbank has failed to meet its burden to demonstrate a mutual mistake
All three parties have pleaded claims for declaratory judgment, and Fidelity and the Woodens have moved for summary judgment on these claims. In Alabama, parties "whose rights, status, or other legal relations are affected by a . . . contract" may "have determined any question of construction or validity arising under the . . . contract" and obtain declaratory "judgment of rights, status, or other legal relations." Ala. Code § 6-6-223 (1975). "General rules of contract law govern an insurance contract," and "[t]he court must enforce the insurance policy as written if the terms are unambiguous." Lambert v. Coregis Ins. Co., Inc., 950 So.2d 1156, 1161 (Ala. 2006) (quoting Safeway Ins. Co. of Ala. v. Herrera, 912 So.2d 1140, 1143 (Ala. 2005)) (internal citations and quotations omitted). "[W]hen doubt exists as to whether coverage is provided under an insurance policy, the language used by the insurer must be construed for the benefit of the insured." St. Paul Mercury Ins. Co. v. Chilton-Shelby Mental Health Ctr., 595 So.2d 1375, 1377 (Ala. 1992). Further, "when ambiguity exists in the language of exclusion, the exclusion will be construed so as to limit the exclusion to the narrowest application reasonable under the wording." Id. (citation omitted). Nonetheless, "in the absence of statutory provisions to the contrary, insurers have the right to limit their liability by writing policies with narrow coverage." Id. Indeed, "[i]f there is no ambiguity, courts must enforce insurance contracts as written and cannot defeat express provisions in a policy, including exclusions from coverage, by making a new contract for the parties." Id.
Fidelity asks the court to declare that the Woodens cannot claim an actual loss under the policy because drafting errors committed by the Woodens' agent led to the inclusion of Lot 5 in the policy. Doc. 112 at 17. In particular, Fidelity cites the exclusions related to "defects, liens, encumbrances, adverse claims or other matters: (a) created, suffered, assumed or agreed to by the Insured Claimant; . . . [or] (c) resulting in no loss damage to the Insured Claimant . . ." Doc. 1-7 at 3. However, as to the first exclusion, although evidence shows that the "Woodens were intimately involved in the surveying process," doc. 94 at 2, a genuine dispute exists regarding whether the Woodens assumed or created the defect and whether the survey and legal description errors can be imputed to the Woodens via an agency relationship.
Similarly, as to the second exclusion, the court cannot find as a matter of law that the Woodens have suffered no loss or damages. To the contrary, Tracy Wooden maintains that based on "being familiar with property values in that specific area [of Jackson County, Alabama] for a large number of years, [he] knew the property wasn't anywhere near [$]800,000 without [Lot 5] and the appraisal confirms that." Doc. 113-17 at 29, 34. Moreover, he attests that "if [he got] neither good title to Lot 5 nor recovery on [his] claim, then [he] will have paid dramatically more per acre than [he] paid per acre for other large tracts nearby." Doc. 114-8 at 5-6. For these reasons, Fidelity's motion on its declaratory judgment claim is due to be denied.
The Woodens also ask the court to rule that the title policy covered Lot 5 and to dismiss Fidelity's declaratory judgment claim, noting that the policy covers "loss or damage . . . sustained or incurred by the Insured by reason of: 1. Title being vested other than as stated in Schedule A," or "2. Any defect in or lien or encumbrance on the Title." Doc. 1-7 at 2. Although the court must construe insurance policies "in a manner most favorable to the insured" when an ambiguity exists, the court must also "enforce the contract as written and cannot defeat express provisions in the policy, including exclusions, by making a new contract for the parties." Westchester Fire Ins. Co. v. Barnett Millworks, Inc., 364 So.2d 1137 (Ala.1978). Thus, given the dispute regarding whether the Woodens caused the defect related to Lot 5, the court cannot find as a matter of law that the title policy covered Lot 5 or that the policy exclusions are inapplicable. Turner v. U.S. Fid. & Guar. Co., 440 So.2d 1026, 1028 (Ala. 1983) ("To arrive at a construction reasonably calculated to accomplish the intent and purpose of the parties, moreover, we cannot construe a sentence in the policy in isolation, but rather we construe it in connection with other provisions of the policy."). As such, the Woodens' motion as to their declaratory judgment claim and Fidelity's claim is also due to be denied.
For the same reasons, the Woodens' motion on Smartbank's declaratory judgment crossclaim
In Count III of their counterclaim, the Woodens plead that Fidelity has engaged in bad faith by failing to pay their claim related to Lot 5. Fidelity contends that the Woodens are unable to prove the various elements to sustain this claim.
"Under Alabama law, bad faith is a `singular' tort with two different methods of proof—`normal' bad faith, also known as bad faith refusal to pay, and `abnormal' bad faith, also known as bad faith failure to investigate." Cole v. Owners Ins. Co., 326 F.Supp.3d 1307, 1329 (N.D. Ala. 2018). Bad faith tort claims are an "extreme remedy" and "available only in extreme circumstances," Alfa Mutual Insurance Co. v. Northington, 604 So.2d 758, 760 (Ala. 1992). As such, the Woodens must show that Fidelity engaged in conduct that was "not simply bad judgment or negligence," but rather "imports a dishonest purpose and means a breach of a known duty, good faith and fair dealing through some motive or self-interest or ill will." Gulf Atlantic Life Insurance Co. v. Barnes, 405 So.2d 916, 924 (Ala. 1981). "For a `normal' bad-faith claim to be submitted to the jury, the underlying contract claim must be so strong that the plaintiff would be entitled to a preverdict judgment as a matter of law." Shelter Mut. Ins. Co. v. Barton, 822 So.2d 1149, 1155 (Ala. 2001); see also Mut. Serv. Cas. Ins. Co. v. Henderson, 368 F.3d 1309, 1314 (11th Cir. 2004) (internal citation omitted) ("Ordinarily, if the evidence produced by either side creates a fact issue with regard to the validity of the claim and, thus, the legitimacy of the denial thereof, the [`normal' bad faith] claim must fail and should not be submitted to the jury.").
Fidelity has presented a "debatable reason for denying the claim at the time the claim was denied" which is sufficient to "defeat a bad faith failure to pay claim." Coleman v. Unum Grp. Corp., 207 F.Supp.3d 1281 (S.D. Ala. 2016). Given the factual disputes outlined earlier, the Woodens have failed to show that Fidelity had "no legal or factual defense to the insurance claim." Nat'l Security Fire & Casualty Co. v. Bowen, 417 So.2d 179 (Ala. 1982) (holding that the plaintiff must demonstrate more than just a "mere showing of nonpayment" to make out a bad faith nonpayment claim). Moreover, Fidelity's resolution of the Woodens' separate claims for Lot 38 and mineral rights issues undercuts the Woodens' contention of bad faith. Doc. 113-17 at 9. Accordingly, summary judgment is due on this claim.
There are two breach of contract claims being challenged — the Woodens' claim against Fidelity and Fidelity's claim against Smartbank. Docs. 112 at 28; 114 at 31-32; 117 at 16. For the reasons stated below, both claims survive summary judgment.
Based also Fidelity's failure to pay their claim, the Woodens plead in Count II a claim for a breach of the title policy and judgment for interest. Both Fidelity and the Woodens seek summary judgment on this claim.
The elements of a breach-of-contract claim are "(1) a valid contract binding the parties; (2) the plaintiff's performance under the contract; (3) the defendant's nonperformance; and (4) resulting damages." State Farm Fire & Cas. Co. v. Slade, 747 So.2d 293, 303 (Ala. 1999). Relevant here, as explained in Part B, supra, there are several factual questions related to the merits of the Woodens' contention of an alleged breach of the policy. Again, it is unclear whether the error in the legal description is covered under the policy or qualifies as a defect assumed by the Woodens and thus exempted from the policy. Accordingly, because neither party has conclusively demonstrated whether the Lot 5 claim is covered or excluded under the policy, Fidelity and the Woodens' separate motions on this claim are due to be denied.
Citing Alabama's statute of frauds and the defense of mistake in support of its motion,
The Woodens seek summary judgment on Fidelity's negligent misrepresentation claim. To prove misrepresentation, Fidelity must present substantial evidence of "(i) a misrepresentation of a material fact, (ii) made to willfully deceive recklessly, without knowledge, or mistakenly, (iii) which was reasonably relied on by the claimant under the circumstances, and (iv) which proximately injured the claimant." Bryant Bank v. Talmage Kirkland & Co., 155 So.3d 231, 238 (Ala. 2014) (emphasis added). As explained in Part B, supra, material issues of fact preclude the court from finding as a matter of law that the Woodens have willfully, recklessly, or mistakenly misrepresented a material fact, that the Woodens are responsible for RLS Survey Group's misrepresentation of material fact, that any of the parties can be held liable to a third party's negligent misrepresentation, or that Fidelity had an agency relationship with RLS Survey Group and/or Warranty Title and is therefore responsible for the inclusion of Lot 5 in the legal description. Accordingly, the Woodens' motion on this claim is also due to be denied.
The Woodens also seek summary judgment on Fidelity's unclean hands and equitable estoppel claims in which Fidelity asks the court to preclude "the Woodens from opposing Plaintiff's efforts to reform the Title Policy" or alternatively "conclude that the Woodens' conduct estops them from opposing reformation of the Title Policy." Doc. 96 at 15. Although Fidelity raised the unclean hands and equitable estoppel doctrines as separate causes of action, the doctrines are more appropriate as "affirmative defenses." Abbott Point of Care, Inc. v. Epocal, Inc., 868 F.Supp.2d 1310, 1316 (N.D. Ala. 2012). Nonetheless, the Woodens' motion is due to be denied because material factual disputes exist over, as to the unclean hand claim, whether the Woodens engaged in any wrongdoing with respect to their involvement with RLS Group and drafting the defective legal description, and, as to the equitable estoppel claim, whether the Woodens misled Smartbank to include Lot 5 in the purchased property's legal description. Therefore, Fidelity's assertion of these "affirmative defense[s] of inequitable conduct should be presented to the jury." Id. at 1318.
Consistent with this opinion, Smartbank's motion, doc. 116, and the Woodens' motions for summary judgment, docs. 114 and 115, are
Fidelity's Motion to Strike the testimony of T. Boice Turner, Jr., doc. 64, which Smartbank did not oppose, see doc. 73, is
Trial will proceed on
