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Fdic v. First American Title Insurance Company

August 24, 2011


The opinion of the court was delivered by: David O. Carter United States District Judge


Before the Court are Defendant First American Title Insurance Company's Motion for Summary Judgment (dkt. 15) and Plaintiff FDIC's Motion for Summary Adjudication (dkt. 20). The Court has considered the moving, opposing, and replying papers, as well as oral arguments, and DENIES Defendant's Motion ("DMSJ") and GRANTS Plaintiff's Motion ("PMSA").

I. Background

The facts in this case are largely undisputed. The Court summarizes the factual history below and will address other facts as relevant throughout this Order.

Plaintiff FDIC ("Plaintiff" or the "FDIC") filed its Complaint against First American Title Insurance Company ("Defendant" or "First American") on June 3, 2010 as the Receiver for IndyMac Bank, F.S.B. ("IndyMac"). IndyMac served as a lender to buyer Steven Darling ("Darling" or "Buyer") to secure the purchase of a single family home on August 17, 2007. D.J. Bushway ("Bushway"), an escrow officer at First American, served as the escrow holder for Darling. Bushway also served as IndyMac's closing agent.

The FDIC's claim for breach of contract in this case centers on the Closing Instructions IndyMac provided to First American, and which First American signed. The Closing Instructions required First American to inform IndyMac if its escrow agent knew of a transaction involving the same borrower taking place within 180 days of the closing. First American failed to inform IndyMac of the existence of two other mortgage loans on additional properties that Bushway helped Darling to purchase at around the same time. The FDIC contends that this constituted a breach of the contract created by the Closing Instructions because when First American signed the Closing Instructions, it was agreeing not to authorize to close the loan if it knew of another transaction involving Darling or, if it did know of other transactions, to notify IndyMac in writing of any other transactions prior to closing. Because Bushway was involved in all three of the transactions, the FDIC insists that First American knew of those transactions and its closure of the loan using IndyMac funds on August 17, 2007, without revealing that knowledge of other transactions, immediately breached the agreement. The FDIC avers that IndyMac would not have entered into the loan had it known of Darling's other purchases, which would have dramatically changed his debt-to-income ratio. As a result of First American's failure to disclose its knowledge of the other transactions, the FDIC contends that IndyMac entered into a loan it would not have otherwise taken on, and as a result, Darling defaulted after only two payments. As a result, the FDIC requests damages of $447, 280 plus interest, costs, and attorney's fees.

First American argues that even if a contractual relationship existed as a result of the Closing Instructions, it sent IndyMac an additional document, a "Funding Letter," along with the signed Closing Instructions. First American maintains that the Funding Letter served to modify any contract formed by the Closing Instructions. Because IndyMac received the Funding Letter prior to funding the loan, and thereafter funded the loan, and because the terms of the Funding Letter indicated that the act of funding the loan constituted acceptance, First American insists that IndyMac accepted the Funding Letter's terms.

The Funding Letter provided that First American was committing to "perform only those functions customarily handled by settlement agents processing loans in the geographic area where the land is located and will not accept responsibility for the performance of any other matters addressed in your closing instructions." First American therefore argues that it acted in full compliance with the Funding Letter because the custom in Southern California is not to report knowledge of other transactions.

Defendant First American moves for summary judgment and Plaintiff the FDIC moves for summary adjudication as to the issue of liability.

II. Legal Standard

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(c). The court must view the facts and draw inferences in the manner most favorable to the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1992); Chevron Corp. v. Pennzoil Co., 974 F.2d 1156, 1161 (9th Cir. 1992). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact for trial, but it need not disprove the other party's case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986). When the non-moving party bears the burden of proving the claim or defense, the moving party can meet its burden by pointing out that the non-moving party has failed to present any genuine issue of material fact. Musick v. Burke, 913 F.2d 1390, 1394 (9th Cir. 1990).

Once the moving party meets its burden, the opposing party must set out specific facts showing a genuine issue for trial; merely relying on allegations or denials in its own pleading is insufficient. See Anderson, 477 U.S. at 248-49. A party cannot create a genuine issue of material fact simply by making assertions in its legal papers. S.A. Empresa de Viacao Aerea Rio Grandense v. Walter Kidde & Co., Inc., 690 F.2d 1235, 1238 (9th Cir. 1982). Rather, there must be specific, admissible evidence identifying the basis for the dispute. Id. The Supreme Court has held that "[t]he mere existence of a scintilla of evidence . . . will be insufficient; there must be evidence on which the jury could reasonably find for [the opposing party]." Anderson, 477 U.S. at 252.

III. Discussion

This case involves only one cause of action: breach of contract. The essential elements of a breach of contract claim are: (1) the existence of a contract, (2) plaintiff's performance or excuse for not performing under the contract, (3) defendant's breach, (4) damage to plaintiff. First Commercial Mortgage Co. v. Reece, 89 Cal. App. 4th 731, 745 (2001).

The FDIC alleges that the Closing Instructions established a contract through which First American was required to inform it of other transactions involving the buyer; that First American breached the terms of its contract pursuant to the Closing Instructions; that IndyMac performed under the contract by financing the relevant purchase; and that it has been damaged because of First American's breach, because had it known of the other transactions it would not have financed the purchase of the property, on which Darling defaulted. First American does not challenge that IndyBank performed on the contract; instead, the thrust of its challenge involves the terms of the relevant contract, its denial that it breached those terms, and its argument that it did not cause the damages IndyMac incurred.*fn1

A. The Operative Contract

First American suggests that no contract between the parties actually existed based on the Closing Instructions, as it insists that there was no provision in the Escrow Instructions requiring it to comply with IndyMac's Closing Instructions. Nonetheless, for the purposes of First American's Motion, it appears to accept that the Escrow Instructions instructed it to comply with IndyMac's Closing Instructions. See Defendant's Motion for Summary Judgment ("DMSJ"), 8. Indeed, California Law establishes that escrow holders are to carefully comply with lender's closing instructions. Amen v. Merced County Title Co., 58 Cal. 2d 528, 531-32 (1962). By signing the Closing Instructions, First American entered into a contractual relationship. See, e.g., Plaza Home Mortg. v. North American Title Co., Inc., 184 Cal. App. 4th 130, 140 (2010). As a result "[u]pon the escrow holder's breach of an instruction that it has contracted to perform . . . the injured party acquires a cause of action for breach of contract." Amen, 58 Cal. 2d at 531-32.Therefore, the Court focuses on the parties' dispute over the terms of the governing contract. It is undisputed that First American signed IndyMac's Closing Instructions on August 13, 2007. See Declaration of Ignacio Gomez ("Gomez Decl."), ΒΆ 10, Ex. C. The very first paragraph of the Closing Instructions states that, "[y]ou are not authorized to close this transaction unless you can strictly comply with these instructions." It also explains that the Instructions can "only be changed, modified or waived in writing and delivered or telecopied to [First ...

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