UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-1802
FIRST AMERICAN TITLE INSURANCE COMPANY,
Plaintiff – Appellee,
v.
WESTERN SURETY COMPANY,
Defendant – Appellant,
and
FIRST ALLIANCE TITLE, INCORPORATED,
Defendant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Liam O’Grady, District
Judge. (1:09-cv-00403-LO-IDD)
Argued: May 12, 2011 Decided: August 2, 2011
Before DUNCAN and AGEE, Circuit Judges, and David C. NORTON,
Chief United States District Judge for the District of South
Carolina, sitting by designation.
Unpublished Order of Certification to the Supreme Court of
Virginia. Judge Agee directed entry of the order with the
concurrences of Judge Duncan and Judge Norton.
ARGUED: Richard Thomas Pledger, WALLACEPLEDGER, PLLC, Richmond,
Virginia, for Appellant. David H. Cox, JACKSON & CAMPBELL, PC,
Washington, D.C., for Appellee. ON BRIEF: Thomas J. Moran,
Erick F. Seamster, WALLACEPLEDGER, PLLC, Richmond, Virginia, for
Appellant. Paul D. Smolinsky, JACKSON & CAMPBELL, PC,
Washington, D.C., for Appellee.
ORDER
AGEE, Circuit Judge:
I. Questions Certified
The United States Court of Appeals for the Fourth Circuit,
exercising the privilege afforded it by the Supreme Court of
Virginia through its Rule 5:40 to certify questions of law to
the Supreme Court of Virginia when a question of Virginia law is
determinative in a pending action and there is no controlling
Virginia precedent on point, requests the Supreme Court of
Virginia to exercise its discretion to answer the following
three questions:
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”) 1 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)
1
At the time of its promulgation in 1997, CRESPA was
codified at Va. Code Ann. § 6.1-2.19 et seq. After the entry of
final judgment below, CRESPA was amended and recodified at Va.
Code Ann. § 5-525.16 et seq. Because the former section numbers
were used by the district court in its rulings and the parties
in their briefs, we likewise utilize them herein.
2
(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))?
This court acknowledges that the Supreme Court of Virginia
may restate any of these questions. See Va. Sup. Ct. R.
5:40(d).
II. Nature of the Controversy and
Statement of Relevant Facts 2
As noted by the United States District Dourt below, “[t]his
action arises from a real estate transaction gone awry.” (J.A.
793.) An individual owner of residential real property in
Alexandria, Virginia sought to refinance, through SunTrust
Mortgage, Incorporated (“SunTrust”), his existing mortgage debt.
First American Title Insurance Company (“FATIC”) provided title
insurance to SunTrust for the refinancing through its title
agent, First Alliance Title Company (“First Alliance”). First
2
Additional facts relevant to other issues on appeal, but
unrelated to the certified questions, have been omitted.
3
Alliance also conducted the closing for the refinance
transaction. 3 As required by CRESPA, First Alliance obtained a
$100,000 surety bond (“the CRESPA Bond”) from Western Surety
Company (“Western”). The CRESPA Bond binds the surety to pay
“any aggrieved person who may be injured by the Principal” and
allows “any aggrieved person” to “maintain an action in its own
name against this bond.” (J.A. 118.)
At settlement, an employee of First Alliance diverted the
funds received from SunTrust, which were designated to pay off
the existing mortgages on the real property, so that those
mortgages were not paid and the deeds of trust securing that
indebtedness were not released. This diversion of funds
resulted in SunTrust’s deed of trust securing the refinance
indebtedness being put in position behind the existing deeds of
trust in order of priority. Subsequently, the property owner
defaulted under the original mortgages, and the mortgagor
foreclosed, resulting in the bankruptcy of the property owner.
Foreclosure by the existing mortgagor wiped out SunTrust’s
secured interest in the property, causing a loss of $734,296.09
to SunTrust. FATIC paid the full amount of loss to SunTrust
pursuant to the title insurance policy it had underwritten for
3
The parties dispute on appeal whether First Alliance acted
as FATIC’s agent in First Alliance’s role as closing agent. See
infra at note 4.
4
the refinance transaction. FATIC then made formal demand upon
Western for the $100,000 amount of the CRESPA Bond, which
Western has refused to pay, claiming that no private cause of
action can be brought against a statutory bond created pursuant
to CRESPA.
FATIC instituted this action against Western and First
Alliance, in the Circuit Court of Fairfax County, Virginia, and
Western removed the action to the United States District Court
for the Eastern District of Virginia, asserting diversity
jurisdiction under 28 U.S.C. § 1332. In its complaint, FATIC
asserted three separate claims for breach of contract, all based
on Western’s failure to pay FATIC under the CRESPA Bond. In
Count I, FATIC brought the cause of action on its own behalf.
In Count II, FATIC brought the same breach of contract claim as
subrogee of SunTrust, arguing it became subrogated to SunTrust’s
rights after FATIC made full payment of SunTrust’s claim under
the title insurance policy. In Count III, FATIC pleaded in the
alternative that it was entitled to bring a claim as subrogee of
First Alliance, based on a settlement agreement in a separate
action. As part of that agreement, First Alliance assigned to
FATIC any rights or claim it may have against the CRESPA Bond.
The district court below granted summary judgment in
FATIC’s favor under Count I. It specifically found that FATIC
was an “aggrieved party” under the language of the CRESPA Bond,
5
and that FATIC was entitled to maintain a common law action for
breach of contract against the CRESPA Bond. The district court
did not reach FATIC’s alternative grounds for relief in Counts
II and III. The district court thus concluded that Western was
obligated to pay FATIC the full amount ($100,000) of the CRESPA
Bond. In so doing, it also rejected Western’s arguments that:
(1) no private cause of action could be asserted against a
CRESPA Bond; and
(2) even if a private cause of action could be brought
against a CRESPA Bond, a title insurance company is not the type
of party intended to be protected by CRESPA and thus FATIC is
not an appropriate party to bring such a claim. 4
Western timely appealed to this Court. The parties agree
that Virginia law applies and controls the resolution of the
issues raised.
4
The district court also rejected Western’s arguments that:
(1) FATIC could not recover because First Alliance was acting as
FATIC’s agent when it committed the errors giving rise to the
CRESPA violation in this case, and a principal cannot recover
for the actions of its own agent; and (2) Western’s obligations
as surety were discharged by FATIC’s settlement with First
Alliance and with First Alliance’s errors and admissions
insurance carrier, Steadfast Insurance. If necessary to reach
these issues in light of the answers given by the Supreme Court
of Virginia to our certified questions, the panel has concluded
that it would affirm the district court’s rulings as to these
issues. Thus, they would not provide alternative grounds for
reversal such that we could avoid the questions we have
certified. We do not include any analysis or discussion of
those issues here, however, because answers to the certified
questions may render them moot.
6
III. Legal Discussion and Relevant Virginia Decisions
CRESPA applies to certain transactions involving the
“purchase of or lending on the security of real estate located
in this Commonwealth,” Va. Code Ann. § 6.1-2.19(c), and requires
a non-attorney settlement agent to register and take other steps
to comply with the statute. One such requirement is that an
agent must maintain a surety bond of not less than $100,000. 5
Va. Code Ann. § 6.1-2.21(D)(3). CRESPA also provides for
certain penalties, restitution, and other actions to be taken by
the licensing authorities against agents who fail to comply with
CRESPA’s provisions. See Va. Code Ann. § 6.1-2.27.
A. Private Cause of Action
The district court opined that under Virginia law, a party
could not bring a direct statutory claim for violation of
CRESPA, finding that the statute contains no private right of
action. See Vansant & Gusler, Inc. v. Washington, 429 S.E.2d
31, 33 (Va. 1993) (“[When] a statute creates a right and
5
The applicable statute now requires a $200,000 bond, but
at the time of the transaction involved in this case, the
statute only required a $100,000 bond amount. Most settlement
agents, including First Alliance here, are also required to
maintain an errors or omissions insurance policy with at least
$250,000 in coverage, and, if they have employees other than
owners and partners, a “blanket fidelity bond or employee
dishonesty insurance policy” providing a minimum of $100,000 in
coverage. Va. Code Ann. § 6.1-2.21(D)(1)-(2). These latter
policies and bond are not at issue in this appeal.
7
provides a remedy for the vindication of that right, then that
remedy is exclusive unless the statute says otherwise.”)
(citation omitted and alternation in original). Several circuit
courts in Virginia have relied upon this principle to hold that
there is no private cause of action created by CRESPA. See,
e.g., Koschene v. Hutchinson, 73 Va. Cir. 108, 2007 WL 6013037,
at *2 (Va. Cir. Ct. Mar. 16, 2007); Chicago Title Ins. Co. v.
Main St. Title & Escrow, LLC, 78 Va. Cir. 68, 2008 WL 8203224,
at *2 (Va. Cir. Ct. Dec. 8, 2008), pet. for cert. denied as
premature by Chicago Title Ins. Co. v. Main St. Title & Escrow,
LLC, No. 09-0466 (Va. July 28, 2009); 6 cf. Stith v. Thorne, 247
F.R.D. 89, 95-96 (E.D. Va. 2007) (citing Va. Code Ann. § 6.1-
2.19(B) for the proposition that CRESPA allows remedies for
violations to be pursued only by the licensing authorities, not
individuals, and concluding that “CRESPA, by its own statutory
language, is clear on the issue [of whether a private cause of
action is allowed]”). However, another circuit court apparently
permitted an action to proceed, although it was unclear whether
the basis was a CRESPA statutory right of action, a claim of
common law breach of contract, or both. See First Am. Title
6
In Chicago Title Ins. Co., the circuit court applied this
same rule to expressly reject a claim against a CRESPA surety
bond. See 2008 WL 8203224, at *1-*2. As noted by Western, this
decision is the “only Virginia state court to issue a written
opinion precisely on whether CRESPA bonds may be sued upon” by a
private party. (Br. of Appellant at 27.)
8
Ins. Co. v. Classic Title & Escrow, Inc., Case No. CL-2008-7383
(Va. Cir. Ct. Aug. 29, 2008) (Order Overruling Demurrer), at
J.A. 130. To date, the Supreme Court of Virginia has not
considered the issue of whether a private cause of action is
authorized by CRESPA.
In this case, as in Chicago Title Ins. Co., FATIC
characterizes its action not as a direct claim for a violation
of CRESPA, but instead as a common law claim for breach of
contract premised on the CRESPA Bond. FATIC’s cause of action
implicates the principle of Virginia law, relied upon by the
district court here, that common law rights of action cannot be
impliedly abrogated by statute; instead, the General Assembly
must manifest its intent to do so. (See J.A. at 185 (“[T]o
alter or abrogate the common law policy, the General Assembly
must manifest its intent to do so.”) (quoting Peoples Sec. Life
Ins. Co. v. Arrington, 412 S.E.2d 705, 707 (Va. 1992), and
citing to Hyman v. Glover, 348 S.E.2d 269, 271 (Va. 1986)).)
Reading CRESPA to contain no abrogation of common law rights,
the district court below reasoned that FATIC’s breach of
contract claim against the CRESPA Bond was thus permitted under
Virginia law.
While it would appear that CRESPA contains no abrogation of
common law claims, the case at bar does not appear axiomatically
resolved. This is so, at least in part, because the pled basis
9
for suit here is FATIC’s claim that the CRESPA Bond is an
enforceable contract, but that contract is created only as a
result of the CRESPA statute. And Virginia follows the general
rule that terms and conditions in a statutory bond that either
expand liability from the statute or conflict with the statute
are void. See Aetna Cas. & Sur. Co. v. Earle-Lansdell Co., 129
S.E. 263, 264 (Va. 1925) (“Aetna”) (addressing public works
bond, but noting “the true rule . . . is to hold the bond void
as to any condition imposed beyond what the law required, and
good so far as it was in conformity with the act.”); Branch v.
Richmond Cold Storage, 132 S.E. 848, 850 (Va. 1926) (stating
same general rule in context of suspending bonds and appellate
bonds). Thus, if the CRESPA Bond is a statutory bond, there is
a tension between the rule reflected in Aetna and the rule that
a statute cannot impliedly abrogate common law rights,
particularly if CRESPA contains no statutory private cause of
action. How to best reconcile these rules is the basis for our
first two certified questions.
A brief discussion of Aetna indicates that it does not
directly control this case. Aetna concerned a contractor’s
public works bond under which the general contractor obtained
the required statutory bond but then failed to pay a
subcontractor (the plaintiff) a balance for materials and labor
supplied under the contract. After the general contractor was
10
adjudicated bankrupt, the subcontractor sued the surety based on
language in the bond that required the surety to pay claims “for
damages, for injury to property, and for labor and material”
incurred by the principal as part of the construction contract.
129 S.E. at 264. The surety denied liability, arguing that the
language in the bond was void because it expanded the surety’s
liability beyond that required by the statute, which only
provided in general terms that the contractor should faithfully
perform the work according to the plans and specifications in
the contract.
While acknowledging the general rule that terms in a
statutory bond that expand the statute’s requirements are void,
the Supreme Court of Virginia concluded that a public works bond
required a slightly different approach. Id. at 266. According
to the Aetna court, a public works bond differed from a
statutory bond like a fiduciary bond in that a fiduciary bond
involved no “voluntary contracts.” Id. Instead, the “rights,
duties, and obligations of the principals in such bonds are
fixed by law, generally by statute.” Id. at 265. By contrast,
“contractors’ bonds for public works, though required by
statutes, must be construed in connection with specific
contracts.” Id. Therefore, liability under the bond beyond the
general parameters of the statute was enforceable because that
liability was consistent with the contract contemplated by the
11
statute. Perhaps more importantly for the analysis in the case
at bar, though, the Aetna court also concluded that, because
there was a specific statutory provision that authorized the
plaintiff to sue upon the bond, the cause of action against the
surety was allowed for that independent reason. Id. at 267.
Aetna thus does not appear dispositive in this case because
the statute at issue in Aetna expressly allowed a private cause
of action to be brought against the bond. See id. By contrast,
CRESPA contains no such direct provision. Accordingly, no issue
arose in Aetna as to whether a private cause of action could be
maintained against a bond required by statute because the
statute expressly permitted such a proceeding.
Additionally, neither Aetna nor any other Supreme Court of
Virginia or Court of Appeals of Virginia decision has determined
the proper characterization of a CRESPA surety bond. That is,
whether such a bond is a true “statutory bond” that falls within
the general rule set forth in Aetna. Indeed, the title of the
bond itself refers to the statute and a CRESPA Bond is in
existence only because CRESPA requires it. (See J.A. at 774.) 7
On that basis, Western argues that the CRESPA Bond is a
7
The CRESPA Bond is titled “Bond for Title Insurance
Settlement Agent (Pursuant to Section 6.1-2.21 of the Code of
Virginia).” (J.A. at 774.) It lists the “Commonwealth of
Virginia” as Obligee. The “whereas” clause likewise references
that the Principal is required under CRESPA to maintain a surety
bond. (Id.)
12
statutory bond and is subject to the general rule stated in
Aetna and Branch. As a consequence, Western contends that the
CRESPA Bond attempts to expand liability for CRESPA violations
to allow a private cause of action (in the guise of FATIC’s
common law breach of contract claim) and thus is void as to that
provision.
Conversely, FATIC argues first that the CRESPA Bond is not
a statutory bond, and thus is not subject to the general rule
that a statutory bond must strictly conform to the statute.
FATIC posits that, unlike the bonds at issue in Branch and
Aetna, CRESPA does not require any particular form or terms to
be included in a CRESPA bond. 8 The standard form, published by
the State Corporation Commission (“SCC”) and used in this case,
provides that “any aggrieved person may maintain an action in
its own name against this bond to recover damages as a result of
the Principal breaching any of the above-mentioned laws.”
According to FATIC, cases such as Aetna and Branch demonstrate
that a statutory bond is not one which is simply required by
8
CRESPA delegates to the State Corporation Commission
(“SCC”) the authority to issue “subpoenas, rules, regulations,
and orders” to effectuate CRESPA. Va. Code Ann. § 6.1-2.25.
Consequently, the SCC, through the Bureau of Insurance, has
promulgated 14 Va. Admin. Code § 5-395-10(C) (2010) to establish
the form CRESPA Bond.
13
statute, but one for which the statute prescribes the specific
terms of the bond. 9
FATIC also argues that the Commonwealth (through the SCC)
promulgated the language of the bond and that it did so pursuant
to the language of the statute. It further argues that there is
nothing in the CRESPA Bond that is inconsistent with the
purposes of CRESPA. 10
In response, Western stresses that the CRESPA Bond language
was promulgated not by the General Assembly, but by an
administrative agency. Western challenges whether the SCC
exceeded the authority granted by CRESPA in promulgating a bond
form that allows a private cause of action. (See Br. of
Appellant at 25-26 (“A state agency, acting under statutory
authorization, cannot rise higher than the language of the
statute giving it power to act by creating common law rights.
See Shilling v. Jimenez, 268 Va. 202, 207-08, 597 S.E.2d 206,
209-10 (2004) (political subdivision of the state could not
9
But see Aetna, 129 S.E. at 266 (while discussing
differences in types of bonds, noting that both “bonds of
fiduciaries . . . and bonds of contractors doing public work”
“are required by statute and are therefore statutory”).
10
FATIC also contends, and the district court noted, that
refusing to recognize any private cause of action against a
CRESPA bond creates a windfall for sureties, since the SCC has
confirmed that it had not “pursued any claims on surety bonds
issued under CRESPA for the period 1997 through 2009,” but as of
2009, no person or entity other than FATIC (in this case) had
requested that a licensing authority pursue such a claim. (Cf.
J.A. at 155.)
14
create a third party right of action absent an express grant of
power via statute).”)).
Against those arguments and legal background, we find no
clear controlling Virginia precedent to guide our decision. In
short, we are uncertain whether the Supreme Court of Virginia
would conclude that CRESPA permits any private cause of action.
And even if it does not, whether a common law claim for breach
of contract, as in this case, is nonetheless allowable under the
terms of the CRESPA Bond. Accordingly, we respectfully request
that the first two certified questions be answered.
B. Standing of Title Insurer
The third certified question arises from Western’s argument
that, even if there were an implied private cause of action
under CRESPA, or a common law action against the CRESPA Bond,
FATIC nonetheless lacks standing because it is not an “aggrieved
person.” CRESPA, by its terms, “applies only to transactions
involving the purchase of or lending on the security of real
estate . . . .” Va. Code Ann. § 6.1-2.19(C). Based on this
language, Western contends that FATIC is not aggrieved under
CRESPA because the underlying transaction to which it was a
party was for the procurement of title insurance.
Western also makes several policy arguments against
allowing title insurance companies, like FATIC, to recover on
15
CRESPA bonds, including that: (1) the statute was not designed
to protect title insurers, but only “lender[s], seller[s],
purchaser[s] or borrower[s]” (Br. of Appellant at 30-31 (citing
Va. Code Ann. § 6.1-2.20)); and (2) that allowing FATIC and
other title insurers to recover against CRESPA bonds would
provide entities whose very business is to evaluate risk, after
recovering from various insurance policies and applicable
contracts, to have yet another source of recovery, “leaving
those parties for whose protection CRESPA was enacted to
scramble for an ever-dwindling remedial source.” (Br. of
Appellant at 33.) In effect, Western argues that if FATIC has
standing, it would make statutory sureties reinsurers and not
sureties.
In response, FATIC posits that, under the plain and
unambiguous language of the CRESPA Bond, FATIC was an “aggrieved
person” entitled to bring a direct claim under the bond. FATIC
contends that permitting an “aggrieved person” to recover under
the CRESPA bond is consistent with the statute which requires a
settlement agent to maintain such a bond as a condition of
licensure in order to compensate persons injured by the
settlement agent’s negligence or misconduct. It contends that
the form of the bond is consistent with the purposes of CRESPA,
as is allowing recovery against a CRESPA Bond by a title insurer
who has paid a claim as a result of a violation of CRESPA.
16
Again, we find no controlling Virginia authority that
answers the question of a title insurer’s standing to bring a
cause of action under CRESPA, or a claim against a CRESPA Bond,
if either of those actions are permitted under Virginia law. We
therefore respectfully request that, if either of the first two
certified questions are answered in the affirmative, that the
third certified question also be answered.
IV. Certified Questions Determine This Proceeding
As required by Va. Supreme Court Rule 5:40, the questions
we have certified are determinative of the proceeding here. If
either of the first two certified questions, and the third
certified question, are answered in the affirmative, then the
district court’s decision below was correct, and the judgment in
favor of FATIC will be affirmed. 11 If, however, the certified
questions are answered in the negative, then FATIC is not
11
As indicated supra at note 4, we conclude that the
district court’s resolution of the remaining issues before us
was correct. That is, we agree with the district court that
First Alliance was not FATIC’s agent for purposes of the
settlement and closing, and further agree with the district
court that Western was not discharged as a result of FATIC’s
settlement with either First Alliance or Steadfast Insurance.
Accordingly, the case will turn on whether or not FATIC may
assert a direct claim under CRESPA or a breach of contract claim
against the CRESPA Bond and, if so, whether it has standing to
do so.
17
entitled to summary judgment, and the judgment of the district
court will be reversed.
V. The Parties and Their Counsel
A.
The Plaintiff-Appellee is First American Title Insurance
Company. Counsel for the Plaintiff-Appellee is:
David H. Cox, VSB number 19613
dcox@jackscamp.com
Paul Smolinsky, VSB number 43218
psmolinsky@jackscamp.com
Jackson & Campbell, PC
Suite 300S
1 Lafayette Centre
1120 20th Street, NW
Washington, DC 20036-3437
(202) 457-1600 (Telephone)
(202) 457-1678 (Facsimile)
B.
The Defendant-Appellant is Western Surety Insurance
Company. Counsel for Defendant-Appellant is:
Richard Thomas Pledger, VSB number 28102
rpledger@wallacepledger.com
Thomas Joseph Moran, VSB number 71296
tmoran@wallacepledger.com
Erick Frank Seamster, VSB number 76108
eseamster@@wallacepledger.com
WallacePledger, PLLC
The Capstone Center
7100 Forest Avenue, Suite 302
Richmond, VA 23226
(804)282-8300 (Telephone)
(804) 282-2555 (Facsimile)
18
VI. Conclusion
Pursuant to the privilege made available by Virginia
Supreme Court Rule 5:40, we respectfully:
(1) Certify the questions stated in Part I of this
Order of Certification to the Supreme Court of
Virginia for resolution;
(2) Order the Clerk of this Court to forward to the
Supreme Court of Virginia, under the official seal of
this court, a copy of this Order of Certification,
together with the original or copies of the record
before this court to the extent requested by the
Supreme Court of Virginia; and
(3) Order that any request for all or part of the
record be fulfilled by the Clerk of this court simply
upon notification from the Clerk of the Supreme Court
of Virginia.
QUESTIONS CERTIFIED
FOR THE COURT
/s/ G. Steven Agee
19