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Kwok v. Transnation Title Insurance Co.

February 10, 2009

PATRICK MAN KEE KWOK ET AL., PLAINTIFFS AND APPELLANTS,
v.
TRANSNATION TITLE INSURANCE COMPANY, DEFENDANT AND RESPONDENT.



APPEAL from a judgment of the Superior Court of Los Angeles County. Charles W. Stoll, Judge. Affirmed. (Los Angeles County Super. Ct. No. EC044350).

The opinion of the court was delivered by: Doi Todd, J.

CERTIFIED FOR PUBLICATION

Appellants Patrick Man Lee Kwok and his wife Maria Oi Yee Kwok appeal a grant of summary judgment in favor of respondent Transnation Title Insurance Company on appellants' complaint for breach of contract and bad faith denial of coverage on a title insurance policy. The trial court found that appellants did not succeed as insureds "by operation of law" under the terms of the policy after transfer of the property from a wholly owned limited liability company, of which appellants were the only members, to appellants as trustees of a revocable family trust. We agree and affirm.

FACTUAL AND PROCEDURAL BACKGROUND

In April 2004, appellants formed Mary Bell, LLC (the LLC) and the LLC purchased real property located on Mary Bell Avenue in Los Angeles (the property). At all times, appellants were the only members of the LLC. At the time of the purchase, respondent issued a "CLTA Standard Coverage Policy of Title Insurance" (the policy), insuring title to the property and to an easement over a neighboring parcel. The LLC is the only named insured on Schedule A of the policy. The policy defines "insured" as "the insured named in Schedule A, and, subject to any rights or defenses the Company would have had against the named insured, those who succeed to the interest of the named insured by operation of law as distinguished from purchase including, but not limited to, heirs, distributees, devisees, survivors, personal representatives, next of kin, or corporate or fiduciary successors." Paragraph 2(b) of the conditions and stipulations of the policy provides: "The coverage of this policy shall continue in force as of Date of Policy in favor of an insured only so long as the insured retains an estate or interest in the land or holds an indebtedness secured by a purchase money mortgage given by a purchaser from the insured, or only so long as the insured shall have liability by reason of covenants of warranty made by the insured or any transfer or conveyance of the estate or interest."

After appellants commenced construction of a single-family residence on the property, their neighbors refused to give them access to the easement for sewer and drainage, asserting that the easement was invalid. Construction was delayed by the easement dispute and not completed until after a downturn in the real estate market. When it became clear to appellants that the LLC would no longer be able to realize a profit on the sale of the property, they decided to move into the residence upon its completion and rent out their existing home until the real estate market improved.

On September 21, 2005, Mr. Kwok signed a grant deed, transferring the property from the LLC to himself and his wife "as trustees of the Patrick Man Kee Kwok and Maria Oi Yee Kwok Revocable Trust dated 3/12/1996." The grant deed was recorded on September 27, 2005, with a notation that no documentary transfer tax had been paid. On December 15, 2005, appellants' accountant filed a "Limited Liability Company Certificate of Cancellation," with the California Secretary of State stating that the LLC had been dissolved by a vote of all members.

Appellants could not resolve the easement dispute with their neighbors and ultimately filed a lawsuit seeking to enforce their rights. They tendered a claim to respondent under the policy. The neighbors cross complained against appellants, individually and as trustees, for quiet title and declaratory relief. Appellants tendered defense of the cross-complaint to respondent. The lawsuit between appellants and their neighbors eventually settled.

Respondent denied coverage under the policy on the grounds that the transfer of the property by the LLC to appellants as trustees was a voluntary act that did not arise by operation of law and therefore terminated coverage. The letter denying coverage noted that appellants had not availed themselves of an available endorsement for coverage after transfer of the property to a separate legal entity. Appellants then sued respondent for breach of contract and bad faith.

Respondent moved for summary judgment, focusing the motion on the timing of the decision to dissolve the LLC. Respondent argued that it owed no duty to appellants because the LLC voluntarily transferred the property to them by grant deed prior to the LLC's dissolution and therefore appellants did not become insureds by "operation of law" under the terms of the policy. Respondent proffered Mr. Kwok's deposition testimony that he decided to dissolve the LLC one or two months after the transfer of the property to himself and Ms. Kwok as trustees.

Appellants opposed summary judgment arguing that there was a triable issue of fact as to when the decision to dissolve the LLC had been made. They relied on Mr. Kwok's declaration that "[i]n September 2005 we decided to dissolve the LLC and distributed all of its assets, consisting of the Property, from our LLC to ourselves individually as trustees of our revocable inter vivos family trust and assume[d] any outstanding liabilities of the LLC." They also relied on Mr. Kwok's deposition testimony that was "corrected" to state that he decided to dissolve the LLC one to two months before the certificate of cancellation was filed; his unchanged deposition testimony to the same effect; and a declaration from their accountant, stating that "[o]n or about mid-September 2005, I met with Patrick Man Kee Kwok and during this meeting Patrick informed me that they had decided to dissolve Mary Bell, LLC."

The trial court granted the motion for summary judgment, finding that appellants did not succeed to the interest of the LLC by operation of law because the undisputed evidence showed that the property was transferred by grant deed in September 2005 and that the LLC was not dissolved until December 2005. Rejecting Mr. Kwok's "dramatic reversal" in his corrected deposition testimony, the court concluded that appellants had failed to meet their burden of establishing a triable issue of material fact as to when the LLC was dissolved.

Appellants' motion for a new trial was denied and this ...


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