Kathryn Marchetti v. Chicago Title Insurance Compa

In the

United States Court of Appeals
For the Seventh Circuit
____________________  

No.  15-­‐‑1240  
KATHRYN  MARCHETTI  and  JONATHON  MARCHETTI,  
Plaintiffs-­‐‑Appellants,  
v.  

CHICAGO  TITLE  INSURANCE  COMPANY  and  FIDELITY  NATIONAL  
TITLE  INSURANCE  COMPANY,  
Defendants-­‐‑Appellees.  
____________________  

Appeal  from  the  United  States  District  Court  for  the  
Northern  District  of  Illinois,  Eastern  Division.  
No.  12  C  5985  —  Sharon  Johnson  Coleman,  Judge.  
____________________  

ARGUED  OCTOBER  28,  2015  —  DECIDED  JULY  12,  2016  
____________________  

Before   WOOD,   Chief   Judge,   and   EASTERBROOK   and  
HAMILTON,  Circuit  Judges.  
EASTERBROOK,   Circuit   Judge.   In   May   2008   Kathryn   and  
Jonathon  Marchetti  purchased  a  parcel  of  real  estate  in  Cook  
County,   Illinois,   for   $180,000.   Peotone   Bank   and   Trust   lent  
them  the  entire  price,  plus  $155,000  to  pay  for  improvements  
that   the   Marchettis   planned   to   make.   Jonathon   Marchetti  
acted  as  buyer,  real-­‐‑estate  broker  (he  had  a  license  from  Illi-­‐‑
2   No.  15-­‐‑1240  

nois),   mortgage   broker,   and   general   contractor   for   the   im-­‐‑
provements.  The  Bank  put  up  this  $335,000  notwithstanding  
the  fact  that,  three  months  earlier,  Jonathon  had  been  indict-­‐‑
ed   for   mortgage   and   wire   fraud   regarding   other   real-­‐‑estate  
transactions.  He  pleaded  guilty  in  August  2008.  
This   transaction,   too,   was   affected   by   fraud,   though   this  
time  Jonathon  Marchetti  was  a  victim.  The  parcel,  which  the  
Marchettis   nominally   acquired   from   Seville   Development  
Corporation,   actually   was   owned   by   an   Illinois   land   trust  
established  for  the  benefit  of  Carla  Lekich.  A  series  of  sham  
transactions  orchestrated  by  John  Hodgman  made  it  look  as  
if   Seville   held   title.   In   2010   Lekich   and   her   trust   filed   suit,  
seeking  to  quiet  title  in  the  parcel.  
Chicago  Title  Insurance  Company  had  issued  a  policy  of  
title   insurance,   promising   to   indemnify   the   Marchettis   and  
Peotone   Bank   if   they   suffered   a   loss   from   a   problem   in   the  
title.   The   maximum   value   of   the   policy   is   $198,000.   In   2010  
the  Bank’s  successors  (it  had  syndicated  the  loan  after  mak-­‐‑
ing   it)   and   Chicago   Title   had   the   property   appraised.   This  
appraisal  came  in  at  $110,000.  Treating  the  Marchettis’  prom-­‐‑
ise   to   pay   as   worthless,   the   Lender   (as   we   call   the   debt’s  
post-­‐‑syndication   holders)   agreed   to   accept   $110,000   from  
Chicago   Title   as   full   satisfaction.   Lekich’s   suit   was   settled  
and  dismissed  following  this  payment,  plus  a  release  of  the  
mortgage  and  a  disclaimer  by  the  Marchettis  of  any  interest  
in   the   parcel.   Chicago   Title   became   subrogated   to   the   Mar-­‐‑
chettis’  claims  against  their  predecessors  in  the  (fake)  line  of  
title.   After   Hodgman   was   indicted   and   convicted,   Chicago  
Title   was   able   to   obtain   $37,500   in   restitution.   (The   award  
was  greater,  but  only  $37,500  was  collectable.)  
No.  15-­‐‑1240   3  

One   would   have   thought   that   this   brought   matters   to   a  
close.  Lekich  held  clear  title  to  the  parcel.  The  Marchettis  no  
longer  had  the  real  estate—but  they  also  no  longer  owed  the  
Lender  a  penny.  They  had  put  nothing  into  the  deal  and  got  
nothing  out.  The  losers  were  the  Lender  (out  of  pocket  about  
$225,000)   and   Chicago   Title   (out   of   pocket   about   $72,500).  
Nonetheless,   the   Marchettis   took   the   offensive   in   this   suit  
under   the   diversity   jurisdiction.   They   contend   that   Chicago  
Title   owes   them   $125,500—the   $37,500   it   collected   from  
Hodgman,   plus   the   $88,000   difference   between   the   maxi-­‐‑
mum   value   of   the   policy   and   what   it   paid   the   Lender.   Sec-­‐‑
tion  8(b)(ii)  of  the  policy  permits  the  owner  to  elect  between  
the   property’s   value   at   the   time   the   owner   submits   a   claim  
under   the   policy   and   its   value   when   the   claim   is   paid.   The  
Marchettis   had   the   property   appraised   for   $202,000,   and  
they  insist  that  the  insurer  thus  had  to  disburse  the  policy’s  
$198,000  maximum  value—and,  since  it  didn’t,  it  did  not  ac-­‐‑
quire   their   rights   against   Hodgman.   Hence   the   demand   for  
$88,000   ($198,000   less   the   $110,000   paid   to   the   Lender)   plus  
the  $37,500  recovered  from  Hodgman.  
The   district   court   was   not   persuaded   and   granted   sum-­‐‑
mary   judgment   to   Chicago   Title.   2015   U.S.   Dist.   LEXIS   4164  
(N.D.  Ill.  Jan.  14,  2015).  We’re  not  persuaded  either,  and  for  
the  same  reason  as  the  district  court.  The  Marchettis  treat  the  
policy   as   if   it   promised   to   pay   owners   the   market   value   of  
the   property.   But   that’s   not   what   it   says.   The   property’s  
market  value  matters  only  as  one  determinant  of  how  much  
loss  the  owner  suffers.  The  policy  covers  only  “actual  mone-­‐‑
tary   loss   or   damage   sustained   or   incurred   by   the   Insured  
Claimant”.   The   loss   the   Marchettis   suffered   was   zero,   be-­‐‑
cause  they  had  no  equity  interest  in  the  property.  They  paid  
nothing   for   it,   and   the   $335,000   loan   substantially   exceeded  
4   No.  15-­‐‑1240  

the   highest   appraised   value.   (True,   the   Marchettis   made   a  
down   payment   of   $3,000,   but   they   reimbursed   themselves  
from  the  loan,  which  covered  the  full  purchase  price.)  Even  
an   underwater   property   has   some   option   value,   but   the  
Marchettis  do  not  argue  that  the  option  value  of  this  parcel  
was  enough  to  give  them  a  positive  net  interest.  
Indeed,  the  Marchettis  appear  to  have  turned  a  profit  on  
the   transaction,   because   they   did   not   perform   all   of   the  
planned  work  before  they  gave  up  their  claim  of  ownership.  
The  Marchettis  tell  us  that  $100,000  in  renovation  work  was  
done.   Jonathon   Marchetti   was   the   contractor   and   may   have  
profited   in   that   capacity,   and   at   all   events   $100,000   is   less  
than  the  construction-­‐‑loan  amount  of  $155,000.  In  the  district  
court  the  Marchettis  contended  that  they  lost  the  profits  they  
had   anticipated   from   renting   the   improved   property,   but  
they  have  now  acknowledged  that  the  policy  does  not  cover  
consequential   damages.   They   suffered   no   capital   loss,   and  
that   is   all   Chicago   Title   promised   to   make   good.   Since   Chi-­‐‑
cago  Title  relieved  them  of  the  burden  of  the  loan  and  mort-­‐‑
gage,   leaving   them   loss-­‐‑free,   it   acquired   the   Marchettis’  
claim  against  the  fraud’s  perpetrator  and  was  entitled  to  col-­‐‑
lect  from  the  restitution  award.  
There  was  a  loss  on  this  transaction,  but  it  was  incurred  
entirely   by   the   Lender,   which   put   in   $335,000   and   got   back  
$110,000.   It   is   not   complaining,   however,   about   the   differ-­‐‑
ence  between  $110,000  and  the  policy  limit  of  $198,000,  hav-­‐‑
ing   settled   with   Chicago   Title.   The   Marchettis   have   no   re-­‐‑
maining  liability  to  the  Lender,  which  gave  them  a  complete  
release  as  part  of  the  settlement.  Lekich  and  her  trust  did  not  
give   the   Marchettis   a   release,   but   they   dismissed   their   suit,  
so  the  Marchettis  have  the  benefit  of  the  judgment’s  preclu-­‐‑
No.  15-­‐‑1240   5  

sive  effect.  If  Lekich  and  the  trust  were  to  file  a  new  suit,  de-­‐‑
spite   the   judgment,   Chicago   Title   might   have   a   duty   to   de-­‐‑
fend,   but   that   remote   possibility   cannot   be   the   basis   of   the  
monetary  relief  that  the  Marchettis  want  now.  
AFFIRMED