Filed: Oct. 22, 2013
Latest Update: Mar. 28, 2017
Summary: Case: 12-15907 Date Filed: 10/22/2013 Page: 1 of 12 [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 12-15907 _ D. C. Docket No. 4:10-cv-00023-RLV OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY, Plaintiff-Appellee, versus TYLER C. MCCAIN, TYLER C. MCCAIN, P.C., d.b.a. The McCain Law Firm, Defendants-Cross Defendants- Cross Claimants-Appellants. _ Appeal from the United States District Court for the Northern District of Georgia _ (October 22, 2013) Before PRYOR
Summary: Case: 12-15907 Date Filed: 10/22/2013 Page: 1 of 12 [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 12-15907 _ D. C. Docket No. 4:10-cv-00023-RLV OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY, Plaintiff-Appellee, versus TYLER C. MCCAIN, TYLER C. MCCAIN, P.C., d.b.a. The McCain Law Firm, Defendants-Cross Defendants- Cross Claimants-Appellants. _ Appeal from the United States District Court for the Northern District of Georgia _ (October 22, 2013) Before PRYOR ..
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Case: 12-15907 Date Filed: 10/22/2013 Page: 1 of 12
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 12-15907
________________________
D. C. Docket No. 4:10-cv-00023-RLV
OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY,
Plaintiff-Appellee,
versus
TYLER C. MCCAIN,
TYLER C. MCCAIN, P.C.,
d.b.a. The McCain Law Firm,
Defendants-Cross Defendants-
Cross Claimants-Appellants.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________________
(October 22, 2013)
Before PRYOR and BLACK, Circuit Judges, and RESTANI, * Judge.
PER CURIAM:
*
The Honorable Jane A. Restani, United States Court of International Trade Judge,
sitting by designation.
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In this case, Tyler C. McCain, P.C., d/b/a The McCain Law Firm, (the
McCain Firm) and its principal, Tyler McCain (collectively, the McCain
Defendants), appeal the district court’s grant of summary judgment to Old
Republic National Title Insurance Company (Old Republic) on its claim of fraud.
The parties have fully briefed the issues presented by this appeal, and we have held
oral argument. The parties are aware of the underlying facts, which we will
briefly summarize.
I. BACKGROUND
Prior to the events giving rise to this action, Old Republic had appointed the
McCain Firm as a policy-issuing agent in connection with its title insurance
business. Subsequently, in March 2001, McCain became involved in the financing
of a feature film through his representation of Clarence King and Wade Thomas.
The film was to be produced by Martin Poll, who had procured a $10 million
commitment from Azimut Investments, Limited 1 (Azimut) contingent on Poll’s
ability to independently raise the additional $60 million necessary to produce the
film. The parties intended King and Thomas to raise the additional funds.
To facilitate King and Thomas’s efforts, the parties intended Azimut to
deposit the $10 million into escrow to be held until such time as it could be
transferred to Poll along with the additional $60 million or, failing that, returned to
1
Azimut was controlled by Ayed al Jeaid, a Saudi Arabian General.
2
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Azimut. The parties agreed that McCain could serve as the escrow agent, but
Azimut required assurance of the safe handling of its deposit. To this end, McCain
contacted Jane McHenry, a senior employee with Old Republic, who provided
letters stating McCain was Old Republic’s authorized agent and Old Republic
would indemnify any loss Azimut incurred due to a breach of the escrow
agreement up to $10 million. 2 Satisfied, Azimut and the other parties (or their
associated entities) entered into the first escrow agreement in March 2001.
Pursuant to the parties’ objectives described above, the escrow agreement required
Azimut to deposit $10 million into an escrow account on which the McCain Firm
was to be the sole signatory. The agreement further provided the McCain Firm
would disburse the funds to Poll only when accompanied by an additional $60
million. If the additional funds were not raised within 45 days of Azimut’s
deposit, the original $10 million would be returned to Azimut with interest. The
2
McHenry initially sent Azimut a “closing protection letter” on February 28, 2001, with
references to real-estate closings, which caused Azimut to be uncertain whether McHenry
understood the true nature of the transaction. Azimut voiced these concerns, and in response,
McHenry prepared a second letter dated March 15, 2001, that stated in its entirety as follows:
This letter will serve as confirmation that the McCain Lawfirm is an authorized
agent of Old Republic Title Insurance Company, and is insured to act in the
capacity of Escrow Agent in accordance with the terms outlined in the Escrow
Agreement attached to this letter as Exhibit “A”.
A third letter sent on the same day added an additional sentence: “In the event Escrow Agent
defaults in regard to the Escrow Agreement, Old Republic Title shall indemnify Azimut up to
$10,000,000.00.”
McHenry sent additional letters on June 27, July 30, and August 9, 2001, that reaffirmed
that Old Republic continued to insure Azimut’s $10 million deposit as the escrow agreement was
modified and extended.
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escrow agreement prohibited any other transfers of the $10 million unless
expressly authorized in writing by Azimut.
King and Thomas proved unable to raise the additional funds required to
produce the film, and the parties began to consider alternative means of financing.
McCain alleges that in July he spoke with General Ayed al Jeaid, Azimut’s
principal, who orally authorized McCain to transform the escrow agreement into a
loan to Poll. McCain alleges that Poll and an associate, Charlene Marant, believed
they could use the $10 million to generate the additional funding for the film. By
the end of July 2001, McCain had transferred nearly all of the $10 million out of
the escrow account in contravention of the escrow agreement. Despite this fact,
McCain prepared and asked McHenry to sign letters stating the funds continued to
be held in escrow and the McCain Firm would transfer the funds pursuant to
Azimut’s instructions.
The only evidence in the record that McCain disclosed the alleged
transformation of the escrow agreement to Old Republic are statements McCain
made during his deposition regarding a conversation he allegedly had with
McHenry on August 13, 2001, when he personally delivered an insurance premium
check to her. Specifically, when asked whether he told McHenry about the
transformation, McCain stated, “I don’t think we had any conversation about any
of it other than just there was a check that I remitted and I told her that it had
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closed, the loan had closed.” Later, when asked whether McHenry ever asked
whether the $10 million had been returned to Azimut, McCain stated, “No. . . . I
did tell her that the Azimut investment, the escrow deal had closed, and remitted a
check from the—basically remittance on the loan amount.” For her part, McHenry
stated she had no memory of a conversation when McCain delivered the premium
check but stated McCain never told her the escrow agreement had been changed to
a loan. She also said, “[A]t some point I spoke to [McCain], and we were assured
that the fund had been—that the escrow was complete. When I got the check, it
was—I thought the escrow was completed, that there was no further obligations.”
Suffice it to say the parties were never able to raise the additional funds and,
in the process of attempting to do so, Azimut’s initial $10 million deposit was lost.
Azimut sued Old Republic for indemnity and recovered approximately $7 million
in a settlement. Old Republic then commenced the instant action.
II. DISCUSSION
A. The District Court’s Findings
The district court granted Old Republic’s motion for summary judgment on
its claim of fraud. 3 In its orders, the district court concluded the McCain
3
For reasons known to the parties but irrelevant to our analysis, Old Republic voluntarily
dismissed all of its claims other than fraud after the district court had granted its motion for
partial summary judgment as to liability on October 17, 2011. After Old Republic dropped its
other claims, the district court entered a second order October 11, 2012, granting Old Republic’s
“recast second motion for summary judgment” in which the court reaffirmed its earlier findings
as to liability and granted judgment on damages as well. Although the McCain Defendants
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Defendants had committed fraud as a matter of law by concealing and suppressing
material facts regarding the Azimut transaction—facts the McCain Defendants
were obligated to disclose as Old Republic’s agent. Specifically, the district court
found the McCain Defendants had changed the material terms of the escrow
agreement without informing Old Republic, noting the McCain Defendants
“admit[ted] that they did so.”
In the second order granting summary judgment, the district court addressed
the McCain Defendants’ argument that the court had improperly discredited certain
evidence in its prior order. In particular, the McCain Defendants relied on
McCain’s deposition testimony in which he stated he told McHenry about the
transformation of the escrow agreement into a loan to argue a genuinely disputed
material fact existed as to whether the McCain Defendants failed to make the
required disclosures. The McCain Defendants also argued Old Republic failed to
establish scienter as a matter of law because McCain believed he had no further
responsibilities regarding the $10 million once the escrow had been converted to a
loan up until the time the additional $60 million was raised.
In resolving the McCain Defendants’ arguments, the district court first
pointed out additional material omissions in an August 9, 2001 letter that provided
an independent basis to find the McCain Defendants had committed fraud as a
appeal the latter order specifically, our analysis draws on the district court’s reasoning in both.
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matter of law. The district court then concluded there was no genuine dispute the
McCain Defendants had failed to inform Old Republic of the material changes to
the escrow account and to McCain’s duties thereunder. Because a confidential
relationship existed between the McCain Defendants and Old Republic, this failure
constituted fraud. Accordingly, the district court reaffirmed its prior findings and
entered judgment in Old Republic’s favor.
B. Standard of Review
We review the district court’s grant of summary judgment de novo, viewing
the evidence and drawing all reasonable inferences in the light most favorable to
the non-moving party. Harrison v. Benchmark Elecs. Huntsville, Inc., 593 F.3d
1206, 1211 (11th Cir. 2010).
C. Analysis
The McCain Defendants raise three issues on appeal: (1) whether the district
court erred by discrediting McCain’s testimony that he told McHenry about the
transformation of the escrow agreement into a loan; (2) whether the district court
erred by concluding the McCain Defendants possessed the scienter required for
fraud as a matter of law; and (3) whether the district court erred by finding that Old
Republic exercised due diligence so as to allow a finding of justifiable reliance as a
matter of law.
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1. Whether the district court erred by finding McCain failed to disclose the
transformation of the escrow account to Old Republic
The district court did not err in concluding McCain failed to disclose the
transformation of the escrow account to Old Republic. McCain’s alleged
disclosure—i.e., “the loan had closed”—was insufficient to convey all of the
material facts regarding the transformation of the escrow agreement into a loan,
particularly a loan for which Old Republic would essentially be a guarantor. While
the district court did not expressly reconcile this statement with its finding that the
McCain Defendants admitted to changing the terms of the escrow agreement
without informing Old Republic, the district court’s finding was justified given the
McCain Defendants alleged only a disclosure insufficient to satisfy their duties as
Old Republic’s agent. See Hunter, Maclean, Exley & Dunn, P.C. v. Frame, 507
S.E.2d 411, 414 n.14 (Ga. 1998) (“In cases of [a] confidential relationship, silence
when one should speak, or failure to disclose what ought to be disclosed, is ‘as
much a fraud in law as an actual affirmative false representation.’” (quoting Brown
v. Brown,
75 S.E.2d 13, 17 (Ga. 1953))).
McCain variously stated he told McHenry that “the escrow deal had closed,”
“the loan had closed,” and the “transaction had closed.” None of these
statements—whichever was actually made—were full disclosures that reliably
conveyed all of the material facts, particularly in light of McCain’s admission that
he and McHenry did not “have any conversation about any of it other than just
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there was a check that I remitted[,] and I told her that it had closed, the loan had
closed.” By making these statements, McCain would not have disclosed the
escrowed funds were now being loaned to Poll without any restrictions and that
Old Republic would still be on the line to indemnify any losses resulting from the
loan. McHenry’s impression when she received the premium check from
McCain—i.e., the escrow agreement had come to completion and Old Republic
would have no continuing responsibility to Azimut—is entirely consistent with
McCain’s alleged disclosures and demonstrates their inadequacy. Accordingly,
the district court did not err in concluding McCain had admitted to failing to
disclose the material changes to the escrow agreement to Old Republic.
Moreover, although the district court focused on this particular act of fraud,
the record discloses many others that independently justify the same conclusion.
The district court mentioned the August 9, 2001 letter that McCain prepared and
asked McHenry to sign. That letter stated the McCain Firm would “transfer funds
as designed by Azimut investments” despite the fact the same funds had already
been removed from the escrow account and released to Poll in contravention of the
escrow agreement. The letter of August 9 followed a letter dated July 30, also
prepared by McCain and signed by McHenry, stating “the escrowed funds [were]
currently being held by Citibank, N.A.,” the location of the escrow account, even
though they had already been disbursed. Even if McCain disclosed the loan on
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August 13, 2001, he did not disclose that the statements in these earlier letters
regarding the location and security of the escrow funds were false. In addition to
all of this, McCain also failed to disclose to Old Republic the details of the
transfers. These details were material facts given Old Republic’s continuing
obligation to ensure the money was returned to Azimut or transferred to Poll if the
additional $60 million were raised. In short, the McCain Defendants committed
ample omissions to justify the district court’s conclusions. We reject the McCain
Defendants’ contention the transfers out of escrow were “obvious”—despite the
contrary statements in the letters they prepared—in light of the transformation of
the escrow agreement into a loan. Likewise, we reject the argument that the details
of the transfers were immaterial as mere “details of the loan” when, as in the
instant case, a continuing duty existed to indemnify any loss of the funds. The
McCain Defendants’ other arguments excusing these omissions are equally without
merit.
2. Whether the district court erred in finding as a matter of law the McCain
Defendants possessed the requisite scienter to commit fraud
Scienter can properly be inferred from McCain’s numerous fraudulent
misrepresentations and omissions, described above. See Crown Ford, Inc. v.
Crawford, 473 S.E.2d 554, 557-58 (Ga. App. Ct. 1996). McCain has offered no
facts warranting a contrary inference so as to create a genuine question of fact.
McCain’s allegation that General Ayed al Jeaid orally authorized him to transfer
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the escrowed funds to Poll does not undermine a finding of scienter because the
relevant misrepresentations are his failures to inform Old Republic, not Azimut.
Even if McCain could not have intended to deceive Azimut, there has been no
suggestion McCain ever made Old Republic aware of his conversations with
Azimut or any of the other parties to the escrow agreement. The undisputed record
therefore strongly supports an inference of the McCain Defendants’ intent to
deceive Old Republic, and this inference justifies a finding of scienter as a matter
of law.
3. Whether the district court erred by finding as a matter of law that Old
Republic fulfilled its duty of due diligence
Under Georgia law, a fraud claim requires a plaintiff to show justifiable
reliance. Cox v. Bank of Am., N.A., 742 S.E.2d 147, 148 (Ga. Ct. App. 2013).
“Where a confidential relationship exists, a plaintiff does not have to exercise the
degree of care to discover fraud that would otherwise be required, and a defendant
is under a heightened duty to reveal fraud where it is known to exist.” Hunter, 507
S.E.2d at 414.
All of the parties agree a confidential relationship existed between the
McCain Defendants and Old Republic. In light of this and the fact the escrow
agreement required the McCain Firm be the sole signatory on the escrow account,
Old Republic was entirely justified in relying on McCain to keep it informed
regarding the status of the account. Simply put, McCain was uniquely positioned
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to monitor and safeguard the escrow funds. Any argument that McHenry should
have somehow become a signatory on the account in contravention of the escrow
agreement is meritless and warrants no further discussion.
III. CONCLUSION
In light of the foregoing, we conclude the district court committed no error
with regard to any of the issues raised in this appeal.
AFFIRMED.
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