STENGEL, District Judge.
Plaintiffs are a group of individuals who were caught up in a "mortgage rescue scam" to save their homes from foreclosure, which resulted in criminal prosecutions of a number of individuals. They brought this civil action against Lawyers Title Insurance Company n/k/a Fidelity National Title Insurance Company for fraud and violation of Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL"). For the reasons discussed below, I will grant defendant's motion for summary judgment.
In their amended complaint, plaintiffs alleged they were victims of a series of foreclosure rescue scams, described as "equity skimming scams." Plaintiffs claim that Lawyers Title Insurance Co. ("Fidelity") is a wholly owned division of Fidelity
Each plaintiff was in the midst of a foreclosure action commenced by their respective lenders when the equity scams took place.
In these transactions, the third party was simply a "straw party" with good credit to act as the purchaser of the plaintiffs' respective residences. Plaintiffs were permitted to remain in their homes under the terms of a lease executed as a part of the transaction. Although plaintiffs were told they would be able to buy back their homes within a year, none of them could articulate how that would take place. Settlement for each transaction was scheduled with Bennett & Doherty and was scheduled for closing at their offices. Preceding settlement First County, through Bennett, issued a preliminary HUD-1 settlement sheet, which set forth costs and showed a "cash-to-seller" payment allegedly illustrating the amount of equity in each home. This prompted the release of the settlement funds.
After the funds were released, First County, through Bennett, issued a phony final HUD-1, which reduced the proceeds paid to plaintiffs to zero. Specifically, the defaulting mortgage was paid off through financing provided by J.P. Morgan Chase, who then obtained a new mortgage on the property.
Plaintiffs claim that Fidelity was imputed with the knowledge of these scams through their agents, First County and Bennett & Doherty, and that defendant must have audited at least one of these transactions and failed to identify the fraud. Plaintiffs also allege that defendant did not question, reject, investigate, or attempt to determine whether the HUD-1 transactions were scams. They argue that they are purchasers of title insurance under the UTPCPL because the equity in their homes was used to buy the policies that were part of this fraudulent transaction. Defendants argue that plaintiffs cannot be considered purchasers because there is no evidence concerning whether the equity was used to purchase the settlement costs. However, even if it was used, defendant argues that plaintiffs simply cannot satisfy the requirements of justifiable reliance and damages.
There was a series of complaints filed by plaintiffs in Bucks County, Pennsylvania, including four other actions that have been stayed pending federal criminal proceedings.
The defendant filed a motion to certify the "purchasers" issue for interlocutory appeal as a question of law. I denied this request because this is an issue of first impression for the Third Circuit, which does not justify an interlocutory appeal. Larsen v. Senate of Commonwealth of Pa., et al., 965 F.Supp. 607, 609 (M.D.Pa.1997). Further, the case was in the early stages of discovery when defendant filed the motion. I held that the first inquiry was not whether plaintiffs are "purchasers" under the act, but whether the equity in their
Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A dispute is "genuine" when "a reasonable jury could return a verdict for the non-moving party" based on the evidence in the record. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual dispute is "material" when it "might affect the outcome of the suit under the governing law." Id.
A party seeking summary judgment initially bears responsibility for informing the court of the basis for its motion and identifying those portions of the record that "it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Where the non-moving party bears the burden of proof on a particular issue at trial, the moving party's initial Celotex burden can be met simply by demonstrating to the district court that "there is an absence of evidence to support the non-moving party's case." Celotex, 477 U.S. at 325, 106 S.Ct. 2548. After the moving party has met its initial burden, the adverse party's response "must — by affidavits or as otherwise provided in this rule — set out specific facts showing a genuine issue for trial." Fed. R. Civ. P. 56(e)(2). Summary judgment is therefore appropriate when the non-moving party fails to rebut by making a factual showing that is "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, 477 U.S. at 322, 106 S.Ct. 2548.
Under Rule 56 of the Federal Rules of Civil Procedure, the court must draw "all justifiable inferences" in favor of the non-moving party. Anderson, 477 U.S. at 255, 106 S.Ct. 2505. The court must decide "not whether ... the evidence unmistakably favors one side or the other but whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented." Id. at 252, 106 S.Ct. 2505. If the non-moving party has produced more than a "mere scintilla of evidence" demonstrating a genuine issue of material fact, then the court may not credit the moving party's "version of events against the opponent, even if the quantity of the [moving party's] evidence far outweighs that of its opponent." Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir.1992).
The parties disagree as to whether plaintiffs qualify as a purchaser of a good or service. The "general purpose of the UTPCPL is to protect the public from fraud and unfair deceptive business practices." Burke v. Yingling, 446 Pa.Super. 16, 666 A.2d 288, 291 (1995). Specifically,
Of the twenty-one total unfair or deceptive acts or practices, plaintiffs allege that the defendant violated 73 P.S. § 201-2(4)(xxi), "engaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunder-standing." This "catchall" provision has been recognized as applying to some residential real estate transactions.
The UTPCPL does not define "purchaser," but the statute unambiguously permits only persons who have purchased or leased goods or services to sue.
In DeFazio v. Gregory, 836 A.2d 935 (Pa.Super.2003), a landowner and a logger disputed whether their contract was a contract for the sale of timber on a portion of the landowner's property or whether it
In Schwarzwaelder v. Fox, 895 A.2d 614 (Pa.Super.2006), the Superior Court of Pennsylvania considered who could qualify as a purchaser under the UTPCPL. In that case, the sellers argued that the protections of the UTPCPL should be expanded to include those parties who pay for a good or service indirectly, even if they did not actually acquire or obtain the good or service because their money was used to pay the commission.
Following the sale, the Schwarzwaelders learned that the alleged agent did not hold a realtor's license and was actually the buyer's wife. The Schwarzwaelders filed suit, claiming that the acts and omissions of the defendants violated the UTPCPL and they should be considered purchasers under the Act because a portion of the real estate commission they paid was remitted to the buyer's agent. Id. at 617. The court found for defendants, holding that the sellers were not purchasers simply because a portion of the real estate commission that they paid was eventually remitted to the buyer's agent. Id. at 620.
In this case, defendant argues the plaintiffs are not purchasers under the UTPCPL because plaintiffs were the sellers of property in various real estate transactions and as part of those transactions, Fidelity provided a title insurance policy to J.P. Morgan, not to plaintiffs. Therefore, plaintiffs did not purchase, and Fidelity did not sell to plaintiffs any goods or services in the allegedly fraudulent transaction. In fact, at deposition, none of the plaintiffs thought that they were purchasing or receiving title insurance and did not know what Fidelity was. Id. at ¶¶ 127-128, 157, 178, 234, 263, 290, 314.
Defendant argues that there is no dispute of fact that the equity in plaintiffs' properties was not used to purchase the title insurance. Plaintiffs sold their properties to the buyers, and First County
Defendant cites to the HUD-1 Settlement Statements issued in each transaction showing the title insurance premiums were paid from the buyers' funds at settlement. Those funds were obtained from new financing provided by the lenders. Defendant also states that no plaintiff testified at deposition that they believed they were buying title insurance or ever received a title insurance policy. Finally, defendant contends that even if plaintiffs are found to be purchasers, they were not damaged through Fidelity's issuance of valid title insurance policies.
Plaintiffs argue that the general purpose of the UTPCPL is to protect the public from fraud. They cite my opinion on the motion for interlocutory appeal where I stated that the UTPCPL does not define purchaser, but "generally, courts have taken a broad approach" to its interpretation.
I disagree. Plaintiffs concede that they were unaware that any title insurance was
Plaintiffs did not know what Fidelity was and had no idea the transaction for the purchase of title insurance was taking place. Plaintiffs were actually the sellers of the property and attempted to frame the situation to fit within the statute much like the plaintiff in DeFazio. Under DeFazio, the definition of "purchaser" is "one that acquires property." DeFazio, 836 A.2d at 939. Plaintiffs also admit that they did not receive a good which, in this case, would be the title insurance policy. This is consistent with the fact that the plaintiffs were sellers of the property under these agreements. The seller of property has no need to be protected by a title insurance policy, nor does a seller have any reason to purchase a policy for a property which will be purchased by another party. It is the buyer and the lender that will benefit from a title insurance policy like the one issued by defendant.
Although there is at least some evidence on both sides that tends to show what funds were used to pay the title insurance, either the plaintiffs' equity or the mortgage financing provide by the lenders, the payment of the title insurance on the HUD-1's was no different from the multitude of other "settlement charges" such as those for hazardous insurance, real estate taxes, and other fees. These expenses were all legitimate non-fraudulent purchases related to the sale of plaintiffs' homes.
The policy behind the UTPCPL is to place buyers and sellers on equal footing, remedy any unequal bargaining power "of opposing forces in the marketplace," and "ensure fairness of market transactions." Katz, 972 F.2d at 55 (quoting Commonwealth v. Monumental Properties, 459 Pa. 450, 329 A.2d 812 (1974)). In Katz, the court found that although strict privity is not required, the statute was not intended to extend the private cause of action to a plaintiff lacking any commercial dealings with the defendant. Id.
In this case, Fidelity had no bargaining power over plaintiffs because it did not sell anything to them. There was no commercial bargaining or exchange. Fidelity sold title insurance to the buyers and lenders involved in the transaction, regardless of whether the transactions were financed indirectly through the plaintiffs' equity. Plaintiffs did not even know who Fidelity was, had no contact with Fidelity, let alone that which could be considered deceptive.
Defendant relies on the argument that plaintiffs cannot show justifiable reliance on any deceptive conduct or misrepresentation on the part of Fidelity because plaintiffs and Fidelity never interacted. Therefore, Fidelity could not have made a material misrepresentation.
Even if the plaintiffs were "purchasers" under the act, they cannot show that they were damaged as a result of the title insurance policy issued by Fidelity nor have plaintiffs demonstrated the necessary element of justifiable reliance. The Supreme Court of Pennsylvania has consistently interpreted the UTPCPL's private-plaintiff standing provision's causation requirement to demand a showing of justifiable reliance, not simply a causal connection between the misrepresentation and the harm. Hunt v. United States Tobacco Co., 538 F.3d 217, 227 (3d Cir.Pa.2008).
Due to the causation requirement in the UTPCPL's standing provision, 73 Pa. Stat. § 201-9.2(a) (permitting suit by private plaintiffs who suffer loss as a result of the defendant's deception), a private plaintiff pursuing a claim under the statute must prove justifiable reliance on the misrepresentation or wrongful conduct resulting injury.
Plaintiffs also fail to show that the title insurance policies form the basis for their claim for relief against Fidelity. In fact, it was the underlying fraud of the HUD-1 scheme, not the title insurance, which caused the plaintiffs' harm. Because the fraudulent acts that form the predicate of plaintiffs' claims under the UTPCPL are unrelated to the purchase of title insurance, plaintiffs could not have been damaged through the purchase of title insurance. The scheme perpetrated by the scam artists, who have been criminally charged and civilly sued, is the exclusive source of plaintiffs' harm. Plaintiffs failed to show any deceptive conduct by Fidelity with regard to the issuance of the title insurance and, consequently, cannot show that they justifiably relied on any allegedly deceptive conduct by Fidelity.
In Schwartz v. Lawyers Title Ins. Co., 680 F.Supp.2d 690 (E.D.Pa.2010), discussed above, the court held that the plaintiffs' satisfied the elements of common law fraud by alleging that the company fraudulently misrepresented amounts owed for title insurance and that plaintiffs justifiably relied upon the veracity of the HUD-1 statement and on the misrepresentation that the HUD-1 reflected the proper rates to which the company was lawfully entitled.
Here, even if the plaintiffs had purchased the title insurance policy, there is no claim that plaintiffs overpaid for the title insurance policy or that they relied on a misrepresentation about the title insurance policy. There is also no evidence that the title insurance policy was anything but valid and remains in place to this day. I am not persuaded that plaintiffs can be considered purchasers simply because a title insurance policy was part of the same transaction where plaintiffs sold their homes; however, no matter the source of funding, the plaintiffs had no contact with Fidelity such that they could have justifiably relied on any deceptive conduct. Moreover, it was the buyers and the lenders who were issued and protected by defendant's title insurance policies and likewise could have been "injured" by them. Plaintiffs simply cannot show any harm as a result of the valid policies issued.
Plaintiffs contend that Fidelity is liable for deceptive conduct through the actions of its closing agent First County, because First County acted with express authority on the terms of the agency agreement between itself and Fidelity. "`An agency relationship is created when one party consents to have another act on its behalf, with the principal controlling and directing the acts of the agent.'" AT & T Co. v. Winback & Conserve Program, Inc., 42 F.3d 1421, 1434 (3d Cir.1994) (quoting Sears Mortg. Corp. v. Rose, 134 N.J. 326, 634 A.2d 74, 79 (1993)). Vicarious liability due to an agency relationship can be based on the agent's actual authority. "An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance
"`Vicarious liability can also be based on apparent authority.'" "`Apparent authority arises in those situations where the principal causes persons with whom the agent deals to reasonably believe that the agent has authority' despite the absence of an actual agency relationship." Winback, 42 F.3d at 1439 (quoting Barticheck v. Fidelity Union Bank/First Nat'l State, 680 F.Supp. 144, 148-49 (D.N.J.1988)).
Plaintiffs argue that Fidelity engaged in deceptive practices through its agents. Plaintiffs allege that Fidelity was principle in the relationship with First County and the agency relationship existed because there was prior authorization and Fidelity ratified the relationship by condoning First County's action — selling the title insurance — after the fact.
Further, they argue that, as a title insurance company, Fidelity had an obligation — prior to issuing a policy of title insurance — to be aware of the liens and encumbrances against the real property and had an affirmative duty to inquire, to question, and to determine whether there are any liens or encumbrances against a property before issuing the policy insuring against unsatisfied liens and encumbrances.
I find there is insufficient evidence that an agency relationship existed between First County and Fidelity for anything outside the scope of selling title insurance. In order to impute liability, plaintiffs must demonstrate that acts by First County far beyond a simple showing employment. Plaintiffs' brief is anemic regarding factual support and case law on the issue of an agency relationship. Plaintiffs argue that there is nothing in the case to indicate that Fidelity "did not accept, denigrate, or disparage the acts done by the conspirators." However, plaintiffs offer no evidence to support that liability should be imputed to defendant.
The authority provided to First County was expressly limited to its role as a policy agent for Fidelity. The agency agreement between First County and Fidelity specifically notes that the "Principal appoints Agent it agent solely for the purpose of issuing, on Principal's forms, title insurance commitments, policies, and endorsements on a non-exclusive basis with reference to real estate located in the Commonwealth of Pennsylvania." See Exhibit A to Defendant's Motion for Summary Judgment; see also Plaintiffs' Exhibit CC-1. It goes on to say that the "Agent shall quote, charge, and collect title insurance premiums" and "receive and process applications for title insurance in a timely, prudent and ethical manner." Id. at 1-2. The agreement states that the "Agent shall not, without written approval of the Principal ... commit Principal to a risk ... which Agent knows is to be based upon disputed title." Id. at 2. Finally, the agreement makes note that "any escrow or closing business conducted by Agent is not within the scope of this Agreement...."
The payoff liens and encumbrances by First County in connection with the transaction at issue were undertaken in First County's role as a closing agent. Fidelity is an underwriter of title insurance who relies on its agents, here First County, to evaluate title to the property. In this case, Fidelity dealt with crooks, as did plaintiffs. Fidelity's participation in the contract did not even occur until after the premium was remitted and the current title insurance policies that were issued to the purchasers of the properties are still open. Not to mention, Fidelity could not have been understood to give apparent authority because it had no contact with plaintiffs nor did plaintiffs know who Fidelity was — a fact which plaintiffs concede. Although it is unfortunate that plaintiffs were deceived by Bennett, Doherty, and the other "players" in this scheme, there is simply nothing in the record to suggest that plaintiffs' damages were caused by a reliance of any deceptive conduct by Fidelity. The actions of the title agents cannot be imputed to Fidelity and there is no causal link between the policies issued by
In order to establish liability for civil conspiracy, a plaintiff must show that: (1) two or more defendants conspired with a common purpose to do (a) an unlawful act, or (b) a lawful act by unlawful means or for an unlawful purpose;
For the reasons discussed above, I will grant defendant's motion for summary judgment.
An appropriate Order follows.
The Clerk of Court is directed to mark this case
The Kemps also filed a class action in 2008 against multiple defendants. Lawyers Title was voluntarily dismissed early on in the action and eventually the remaining parties entered into a stipulation and voluntarily dismissed the action with prejudice.
DeFazio, 836 A.2d at 939.
In this case, there was no commercial bargaining or exchange between plaintiffs and Fidelity. Plaintiffs did not contract with another party to provide goods or services for the buyer's benefit and plaintiffs are not the third-party beneficiary of any contract entered into by the buyer, J. P. Morgan, and Fidelity. Consequently, plaintiff is not acting in a representative capacity as was the third party payor in AFSCME. See Country Classics at Morgan Hill Homeowners' Ass'n v. Country Classics at Morgan Hill, LLC, 780 F.Supp.2d 367, 376 (E.D.Pa.2011) (citing Katz, 972 F.2d at 56-57 (noting that plaintiff lacked standing to sue under the UTPCPL where "[t]here was no commercial bargaining or exchange" between plaintiff and defendant, and stating that "there is no indication the [Valley Forge Towers S. Condo. v. Ron-Ike Foam Insulators, Inc., 393 Pa.Super. 339, 574 A.2d 641 (1990),] court would have extended the private cause of action to a plaintiff lacking any commercial dealings with the defendant")).
The court rejected this argument on summary judgment, explaining that the record evidence demonstrated that the Fowlers "dealt with Rauso as `buyers' interested in `purchasing' Rauso's `services' — i.e., his assistance in avoiding foreclosure on and permanent loss of" their property. Id. The court first found that the defendant marketed himself to the Fowlers "as a person possessed of certain unique training, contracts, and information that would make him and his services valuable to homeowners interested in avoiding foreclosure." Id. Second, "in entering the transaction with Rauso, [the Fowlers] never had the slightest interest in selling the[ir] Property," and were only "convinced to enter into the transaction after Rauso pitched the idea that the temporary transfer of title to the... Property ... would help [them] avoid foreclosure and keep the property in the long term." Id. at 188-89. Third, Rauso never paid anything to the Fowlers in consideration for obtaining title to their property, whereas the Fowlers transferred things of value to both Rauso and corporations that he owned and controlled. Id. at 189. The court therefore concluded that "for purposes of § 201-7 of the UTPCPL, ... [the Fowlers] were `buyers' of Rauso's foreclosure intervention and prevention services." Id. (citation omitted). Fowler gives some perspective on the twist of the buyer-seller relationship. However, in this action, plaintiffs have not brought suit against Bennett and Doherty. The considerations that the Fowler court examined are simply not present in the relationship between Fidelity and plaintiffs. Fidelity had no contact with plaintiffs, provided no good or service to plaintiffs, and there is no evidence that plaintiffs suffered any harm from the valid title insurance policy issued by Fidelity to J.P. Morgan.
Ms. Fox stated that Fidelity does not have any written protocol or policies regarding the selection, oversight, auditing of an authorization to agents and agencies for the issuance of title policies. She indicated that the specifications would be detailed in the agent's contract, but the process was very informal and frequently she or others would approve underwriting contracts through email, fax, or phone. Id. at 29. She also stated that the financial audits were not her responsibility and that title agents were not typically indicted. She mentioned that some agents may have had financial trouble, but the typical issue was that the agent would take the settlement money and the lender or customer would alert Fidelity. Following an alert like this, Fidelity would follow up with the agent and then send the case to the audit team to look into the financials. Ms. Fox also mentioned that "one thing Fidelity does that's different [from Lawyer's Title]" is that "every counsel has to do five underwriting audits every year of agents" but that process was not conducted during the 2004-2006 timeframe. Id. at 31. She concluded by explaining that Fidelity is not responsible for the settlement in these, and other transactions, and does not compare the draft and final HUD-1's. Id. at 38-39.
Plaintiffs cite the exception to the intracorporate conspiracy doctrine applicable when "the employees have acted for their sole personal benefit." Heffeman, 189 F.3d at 412. Plaintiffs maintain that Bennett and Doherty acted for their own personal benefit when they received kickbacks outside their employment as title agents. However, this argument inherently contradicts plaintiffs' contentions that Bennett and Doherty were acting within the scope of the agency relationship with Fidelity. In the context of the intracorporate conspiracy doctrine, the challenged activity may violate the canons of ethics, but so long as it is within the scope of representation, it does not eliminate the exemption from a conspiracy charge. Id. at 412-13 (holding that a conspiracy between a corporation and an officer may exist only "if the officer is acting in a personal, as opposed to official, capacity"). Therefore, an exception exists "when the employees have acted for their sole personal benefit ... [h]owever, ... the mere fact that attorneys have `mixed motives,'... does not remove their conduct from the scope of the agency." Id. at 412-13. It follows that unless an agent is "acting in a purely personal capacity," the intracorporate conspiracy doctrine applies. Sung Tran v. Delavau, LLC, No. 07-3550, 2008 WL 2051992, at *11 (E.D.Pa. May 13, 2008) (citing Gen. Refractories Co., 337 F.3d at 313).
Whether or not Bennett and Doherty gained any personal benefit from their actions, as title agents for Fidelity, plaintiffs argue, on one hand, that their actions fell within the agency relationship and, on the other, that the intracorporate conspiracy doctrine does not apply because they acted entirely part from the agency relationship. As I discussed above, I find that the fraudulent actions were completely outside the relationship with Fidelity to sell title insurance. Moreover, as there is no underlying tort, plaintiffs' civil conspiracy claim fails.
