Present: All the Justices
FIRST AMERICAN TITLE INSURANCE COMPANY
v. Record No. 111394 OPINION BY JUSTICE DONALD W. LEMONS
March 2, 2012
WESTERN SURETY COMPANY
UPON QUESTIONS OF LAW CERTIFIED BY THE UNITED STATES
COURT OF APPEALS FOR THE FOURTH CIRCUIT
Pursuant to Article VI, Section 1 of the Constitution of
Virginia and Rule 5:40, we accepted the following certified
questions from the United States Court of Appeals for the
Fourth Circuit ("Fourth Circuit"), pursuant to its order
entered August 2, 2011:
1. Does the Virginia Consumer Real Estate Settlement
Protection Act, Va. Code Ann. § 6.1-2.19 et seq.
(recodified at Va. Code Ann. § 55-525.16 et seq.)
("CRESPA") recognize a private cause of action
that may be asserted against a surety and the
surety bond issued pursuant to Va. Code Ann.
§ 6.1-2.21(D)(3) (recodified at § 55-
525.20(B)(3)) by a party other than the State
Corporation Commission?
2. If Question 1 is answered in the negative, does
Virginia law nonetheless permit a cause of action
against a surety and the surety bond issued
pursuant to Va. Code Ann. § 6.1-2.21(D)(3)
(recodified at § 55-525.20(B)(3)) by the
assertion of a common law claim such as for
breach of contract as in this case?
3. If Questions 1 or 2 are answered in the
affirmative, does a title insurance company have
standing, either in its own right or as a
subrogee of its insured, to maintain a cause of
action against a surety and the surety bond
issued pursuant to Va. Code Ann. § 6.1-2.21(D)(3)
(recodified at § 55-525.20(B)(3))?
I. Facts and Prior Proceedings
The facts, as presented in the certification order, are as
follows. This action arose out of a real estate transaction
involving an owner of real property in Alexandria, Virginia,
who sought to refinance his existing mortgage debt through
SunTrust Mortgage, Inc. ("SunTrust"). As part of the
refinancing process, First American Title Insurance Company
("FATIC") provided title insurance for the refinancing to
SunTrust through FATIC's title agent, First Alliance Title
Company ("First Alliance"). First Alliance conducted the
closing for the refinance transaction.
As required by the Virginia Consumer Real Estate
Settlement Protection Act ("CRESPA"), former Code §§ 6.1-2.19
through -2.29 (1999 & Supp. 2001), ∗ First Alliance obtained a
$100,000 surety bond ("the CRESPA bond") from Western Surety
Company ("Western"). The CRESPA bond included language stating
that "any aggrieved person may maintain an action in its own
name against this bond."
∗
At the time of its promulgation in 1997, CRESPA was
codified at Code §§ 6.1-2.19 through -2.29. After the United
States District Court for the Eastern District of Virginia
entered judgment in this case, CRESPA was amended and
recodified at Code §§ 55-525.16 through -525.32. Because the
former section numbers were used by the District Court in its
rulings, the Fourth Circuit in its certified questions, and by
the parties in their briefs, this opinion likewise utilizes
them herein.
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At settlement, an employee of First Alliance diverted the
funds received from SunTrust, which were designated to pay off
the original mortgages on the property. As a result, the
original mortgages were not paid and the deeds of trust
securing that indebtedness were not released. Consequently,
SunTrust's deeds of trust securing the refinance indebtedness
were behind the original deeds of trust in order of priority.
Thereafter, the property owner defaulted under the
original mortgages and the mortgagor foreclosed, resulting in
the bankruptcy of the property owner. The original mortgagor's
foreclosure on the property eliminated SunTrust's secured
interest in the property, resulting in a loss of $734,296.09 to
SunTrust. FATIC subsequently paid the full amount of this loss
to SunTrust pursuant to the title insurance policy it had
underwritten for the refinance transaction. FATIC then made a
formal demand upon Western for $100,000, the full amount of the
CRESPA bond. Western has refused to pay FATIC, claiming that
no private cause of action can be brought against a statutory
bond created pursuant to CRESPA.
FATIC brought this action against Western and First
Alliance in the Circuit Court of Fairfax County, and Western
removed the action to the United States District Court for the
Eastern District of Virginia ("District Court"). In its
complaint, FATIC asserted three breach of contract claims, all
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based upon Western's failure to pay FATIC under the CRESPA
Bond. Specifically, FATIC brought the cause of action on its
own behalf (Count I), as subrogee of SunTrust, arguing that it
became subrogated to SunTrust's rights after FATIC made full
payment of SunTrust's claim under the title insurance policy
(Count II), and pleaded in the alternative that it was entitled
to bring a claim as subrogee of First Alliance, based upon a
settlement agreement in a separate action (Count III).
Western moved to dismiss the action, and the District
Court granted Western's motion to dismiss Count III; however,
the District Court denied Western's motion to dismiss Counts I
and II and held that: (1) CRESPA did not preclude common law
claims against the surety bond; and (2) FATIC had standing to
assert a direct cause of action for breach of contract against
Western as an aggrieved party. First Am. Title Ins. Co. v. W.
Sur. Co., No. 1:09-cv-403, 2009 U.S. Dist. LEXIS 44231, at *3-
*10 (E.D. Va. May 27, 2009). The parties subsequently filed
motions for summary judgment, and the District Court granted
summary judgment in FATIC's favor under Count I. First Am.
Title Ins. Co. v. First Alliance Title, Inc., 718 F. Supp. 2d
669, 674, 684 (E.D. Va. 2010). The District Court did not
reach FATIC's alternative grounds for relief in Count II. Id.
at 674. Accordingly, the District Court held that Western was
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obligated to pay FATIC the full amount of the CRESPA Bond and
entered judgment in FATIC's favor for $100,000. Id. at 684.
Western appealed to the Fourth Circuit. The parties
agreed that Virginia law applies and governs the resolution of
this case. On August 2, 2011, the Fourth Circuit certified the
above-recited questions to this Court. By order entered
September 22, 2011, we accepted the certified questions.
II. Analysis
A. Certified Question One
CRESPA was created to "authorize existing licensing
authorities in the Commonwealth . . . to require persons
performing escrow, closing or settlement services to comply
with certain consumer protection safeguards relating to
licensing, financial responsibility and the handling of
settlement funds." Former Code § 6.1-2.19(B) (emphasis added).
It "applies only to transactions involving the purchase or
financing of real estate" located in Virginia. Former Code
§ 6.1-2.19(C). CRESPA defines "[l]icensing authority" as the
State Corporation Commission, the Virginia State Bar, or the
Virginia Real Estate Board. Former Code § 6.1-2.20.
Significantly, CRESPA only provided for licensing
authorities to fine and/or otherwise penalize a settlement
agent who violates its provisions. Former Code § 6.1-2.27.
Specifically, former Code § 6.1-2.27(A), titled "Penalties and
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liabilities," provided that the appropriate licensing authority
may order:
1. A penalty not exceeding $5,000 for each
violation;
2. Revocation or suspension of the applicable
licenses; and
3. Restitution to be made by the person
violating this chapter in the amount of any
actual, direct financial loss.
Accordingly, the District Court found that "[t]here is no
doubt that actions for statutory violations of CRESPA must be
brought by the state licensing authority." First Am. Title,
2009 U.S. Dist. LEXIS 44231, at *4 (emphasis in original). In
so concluding, the District Court relied in part upon Stith v.
Thorne, 247 F.R.D. 89, 95-96 (E.D. Va. 2007) (stating that
"CRESPA [does not] provide for private causes of action"). Id.
at *3-*4. In Stith, the United States District Court for the
Eastern District of Virginia relied upon former Code § 6.1-
2.19(B) – which stated that the purpose of CRESPA is to
"authorize existing licensing authorities . . . to require
persons performing escrow, closing or settlement services to
comply with certain consumer protection safeguards" – to
conclude that "CRESPA, by its own statutory language, is clear
on the issue." Id. at 95-96 (emphasis in original).
We have held that "[when] a statute creates a right and
provides a remedy for the vindication of that right, then that
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remedy is exclusive unless the statute says otherwise."
Vansant & Gusler, Inc. v. Washington, 245 Va. 356, 360, 429
S.E.2d 31, 33 (1993) (quoting School Bd. v. Giannoutsos, 238
Va. 144, 147, 380 S.E.2d 647, 649 (1989)). CRESPA expressly
provides a remedy for violations of the statute, but that
remedy exclusively provides licensing authorities the ability
to fine and/or otherwise penalize settlement agents who violate
the statute. Former Code § 6.1-2.27(A).
Significantly, the General Assembly has clearly provided
for private causes of action against other bonds required by
statute where it has intended to do so. See, e.g., Code § 6.2-
1604 (providing, with regard to mortgage lender or mortgage
broker bonds, that "[a]ny person who may be damaged by
noncompliance of a licensee with any condition of such bond may
proceed on such bond against the principal or surety thereon,
or both, to recover damages"); Code § 6.2-1703(E) (providing,
with regard to mortgage loan originator bonds, that "[a]ny
person who may be damaged by noncompliance of a licensee with
any condition of such bond may proceed on such bond against the
principal or surety thereon, or both, to recover damages").
The General Assembly could have similarly provided for a
private cause of action in CRESPA but it did not do so. See
former Code §§ 6.1-2.19 through –2.29.
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Accordingly, because CRESPA expressly states that its
purpose is to authorize "licensing authorities . . . to require
persons performing escrow, closing or settlement services to
comply with certain consumer protection safeguards," former
Code § 6.1-2.19(B) (emphasis added), and because CRESPA only
provides for licensing authorities to fine and/or otherwise
penalize a settlement agent who violates its provisions, former
Code § 6.1-2.27, we hold that CRESPA does not provide for or
recognize a private cause of action against a surety and the
surety bond issued pursuant to former Code § 6.1-2.21(D)(3).
B. Certified Question Two
FATIC maintains that it may pursue a common law breach of
contract claim based upon the CRESPA bond. Consequently,
FATIC's cause of action implicates the principle of Virginia
law, relied upon by the District Court in this case, that "when
the Virginia General Assembly wishes that a statute abrogate a
common law right of action, such as one for breach of contract,
it must say so expressly." First Am. Title, 2009 U.S. Dist.
LEXIS 44231, at *5 (citing Peoples Sec. Life Ins. Co. v.
Arrington, 243 Va. 89, 92, 412 S.E.2d 705, 707 (1992), for the
proposition that, "to alter or abrogate the common law policy,
the General Assembly must manifest its intent to do so").
Because CRESPA contains no abrogation clause, see former Code
§§ 6.1-2.19 through -2.29, the District Court properly
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concluded that "common law claims against the [CRESPA] bond may
proceed." See First Am. Title, 2009 U.S. Dist. LEXIS 44231, at
*5.
A statutory bond is a bond "required by statutory
authority by State, county, district, or municipal officers, by
fiduciaries appointed, created or recognized by law, or by
parties in judicial proceedings, or by officers and agents of
private corporations, taken in pursuance of authority conferred
on them by their charters, or by general law." State v.
Purcell, 5 S.E. 301, 305 (W. Va. 1888). Accordingly, the
surety bond required by former Code § 6.1-2.21(D)(3) is a
statutory bond. Nevertheless, a common law cause of action may
be maintained against statutory bonds under certain
circumstances. This is one of those situations.
Virginia follows the general rule that a statutory bond that
either expands liability from the statute requiring the bond or
conflicts with the statute is "void as to any condition imposed
beyond what the law required, and good so far as it was in
conformity with the act." Aetna Cas. & Sur. Co. v. Earle-
Lansdell Co., 142 Va. 435, 442, 129 S.E. 263, 264 (1925). We
have observed that this "rule has been frequently applied to
. . . bonds of fiduciaries, as well as to bonds of public
officials, and to those required where there were attachments,
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injunctions, or other judicial proceedings." Id. at 443, 129
S.E. at 265.
Significantly, however, we have also recognized "[t]he
general rule, which is amply supported by reason and authority,
[that if] the bond required of a surety cannot be upheld as a
statutory bond, it is at least good as a common law voluntary
obligation." Stinson v. Board of Supervisors, 153 Va. 362,
375, 149 S.E. 531, 535 (1929). See also Kiser v. Hensley, 123
Va. 536, 539, 96 S.E. 777, 778 (1918) (stating that statutory
bonds "must substantially conform to the statutes authorizing
their execution. Unless they do so conform, while they may be
good as common law bonds, they are not valid as statutory
bonds"). It has been observed that "[t]he chief distinction
between statutory and common-law bonds is that the obligee in
the former is entitled to all the special privileges, remedies,
and processes which are granted by the statute, while the
common-law or voluntary bond stands upon the ground of any
other contract." Purcell, 31 W. Va. at 53, 5 S.E. at 305-06.
As we noted with approval in Stinson,
The rule is well settled that a bond given . . .
in pursuance of some requirement of law, may be
valid and binding upon the parties as a voluntary
or common law obligation, when not made with the
formalities or executed in the mode provided by
the statute under which it purports to have been
given, and hence is not enforceable as a
statutory bond, provided it is not in violation
of law. This rule rests on the principle, that,
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notwithstanding the instrument may not conform
with the special requirements of a statute . . .
in compliance with which the parties executed it,
nevertheless it is a contract voluntarily entered
into upon a sufficient consideration, for a
purpose not contrary to law, and therefore is
obligatory on the parties to it in like manner as
any other contract or agreement at the common
law.
153 Va. at 375-76, 149 S.E. at 535 (citing Estate of Ramsey v.
People, 64 N.E. 549 (Ill. 1902); Floyd R. Mechem, A Treatise on
the Law of Public Offices and Officers §§ 271-72, at 169-70
(1890)) (emphasis added). We have previously held, when
addressing the question whether a bond sued upon contained a
valid condition to pay the judgment in an attachment
proceeding, that, "[w]ithout deciding whether or not the bond
sued on is a valid statutory bond, we are of the opinion that
it is a valid common law bond and that the obligors are liable
to the obligee thereon." Foster v. Wilson, 139 Va. 82, 86, 90,
123 S.E. 527, 528-29 (1924).
Accordingly, while CRESPA does not recognize or provide
for a private cause of action based upon a violation of the
statute, Virginia law nonetheless permits a cause of action
against a surety and the surety bond executed pursuant to
CRESPA by the assertion of a common law claim, such as for
breach of contract, as in this case.
C. Certified Question Three
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CRESPA was created to "authorize existing licensing
authorities in the Commonwealth . . . to require persons
performing escrow, closing or settlement services to comply
with certain consumer protection safeguards relating to
licensing, financial responsibility and the handling of
settlement funds." Former Code § 6.1-2.19(B). It "applies
only to transactions involving the purchase or financing of
real estate" located in Virginia. Former Code § 6.1-2.19(C).
Significantly, CRESPA defines "[p]arty to the real estate
transaction," with respect to each particular real estate
transaction, as "a lender, seller, purchaser or borrower."
Former Code § 6.1-2.20.
Therefore, because CRESPA only applies "to transactions
involving the purchase of or lending on the security of real
estate," and because CRESPA explicitly defines the potential
parties to a real estate transaction, the surety bond required
by former Code § 6.1-2.21(D)(3) exists to protect those parties
having an interest in the real estate transaction. See former
Code §§ 6.1-2.19 & -2.20. FATIC, as SunTrust's title insurer
in this case, is not one of the parties the CRESPA bond is
meant to protect. See id. The issuance of a title insurance
policy is a separate transaction and a separate issue from the
settlement transaction involving the purchase of or lending on
the security of real estate.
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Accordingly, because a title insurance company is not one
of the parties the CRESPA bond is meant to protect, we hold
that a title insurance company does not have standing in its
own right to maintain a cause of action against a surety and
the surety bond issued pursuant to former Code § 6.1-
2.21(D)(3).
However, Code § 38.2-207 provides that,
when any insurer pays an insured under a contract
of insurance which provides that the insurer
becomes subrogated to the rights of the insured
against any other party the insurer may enforce
the legal liability of the other party. This
action may be brought in its own name or in the
name of the insured or the insured's personal
representative.
The title insurance policies in this case provided that
"[w]henever [FATIC] shall have settled and paid a claim under
this policy, all right of subrogation shall vest in [FATIC,
which] shall be subrogated to and . . . entitled to all rights
[and] remedies which [SunTrust] would have had against any
person or property in respect to the claim had this policy not
been issued." The title insurance policies further provide
that FATIC has a "right of subrogation against non-insured
obligors," including "the rights of [SunTrust] to indemnities,
guaranties, [and] other policies of [i]nsurance or bonds."
As we have previously stated, "[s]ubrogation is, in its
simplest terms, the substitution of one party in the place of
13
another with reference to a lawful claim, demand, or right so
that the party that is substituted succeeds to the rights of
the other." Yellow Freight Sys., Inc. v. Courtaulds
Performance Films, Inc., 266 Va. 57, 64, 580 S.E.2d 812, 815
(2003). As a subrogee of SunTrust, FATIC steps into the shoes
of SunTrust, may assert all rights belonging to SunTrust, and
is the real party in interest with respect to the rights to
which it has succeeded in any litigation to enforce those
rights. See Allstate Ins. Co. v. Hechinger Co., 982 F. Supp.
1169, 1172 (E.D. Va. 1997) (stating that "[a] subrogee that has
paid out claims to its insured[] is the real party in interest
in the subrogation litigation based on those claims. And as
real party in interest, the insurer-subrogee owns the
substantive rights on which it sues") (emphasis omitted); In re
Hutcherson, 50 B.R. 845, 851 (Bankr. E.D. Va. 1985) (observing
that "Virginia follows the generally accepted view of
subrogation that the subrogee steps into the shoes of the
insured and is both entitled to assert the rights of the
insured and is bound by any defenses valid against the
insured").
Accordingly, because the CRESPA bond required by former
Code § 6.1-2.21(D)(3) exists to protect parties having an
interest in the settlement transaction, including lenders such
as SunTrust in this case, and because FATIC, as a subrogee of
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SunTrust, has succeeded to SunTrust's relevant rights, we hold
that a title insurance company, such as FATIC in this case, may
have standing as a subrogee of its insured to maintain a cause
of action against a surety and the surety bond issued pursuant
to former Code § 6.1-2.21(D)(3).
III. Conclusion
We hold that: (1) CRESPA does not recognize a private
cause of action that may be asserted against a surety and the
surety bond issued pursuant to former Code § 6.1-2.21(D)(3);
(2) Virginia law nonetheless permits a cause of action against
a surety and the surety bond executed pursuant to CRESPA by the
assertion of a common law claim; and (3) a title insurance
company may have standing, not in its own right, but as a
subrogee of its insured, to maintain a cause of action against
a surety and the surety bond issued pursuant to former Code
§ 6.1-2.21(D)(3). Accordingly, we answer certified question
one in the negative and certified questions two and three in
the affirmative.
Certified question 1 answered in the negative.
Certified question 2 answered in the affirmative.
Certified question 3 answered in the affirmative.
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