ACCEPTED
01-14-00170-cv
FIRST COURT OF APPEALS
HOUSTON, TEXAS
6/15/2015 10:48:00 PM
CHRISTOPHER PRINE
CLERK
CASE NO. 01–14–00170–CV
FILED IN
1st COURT OF APPEALS
HOUSTON, TEXAS
IN THE FIRST COURT OF APPEALS6/15/2015 10:48:00 PM
HOUSTON, TEXAS CHRISTOPHER A. PRINE
Clerk
_____________________________________________
FIRST AMERICAN TITLE INSURANCE COMPANY
V.
PATRIOT BANK
_____________________________________________
On Appeal from the 61st Judicial District Court of
Harris County, Texas, Cause No. 2012–47633
_____________________________________________
PATRIOT BANK’S MOTION FOR REHEARING
LEYH, PAYNE & MALLIA, PLLC
Sean M. Reagan
Texas Bar No. 24046689
sreagan@lpmfirm.com
9545 Katy Freeway, Suite 200
Houston, Texas 77024
(713) 785-0881
(713) 784-0338 (Fax)
Counsel for Appellee and Cross–Appellant, Patriot Bank
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TABLE OF CONTENTS
TABLE OF CONTENTS ........................................................................... 2
ISSUES PRESENTED ON REHEARING................................................ 3
INTRODUCTION ...................................................................................... 4
ARGUMENT & AUTHORITIES............................................................... 5
A. The Court didn’t address Patriot’s argument that the
proper measure of damages for a complete failure of
title should be the same as the measure of damages
for breach of the covenants of seisin and warranty of
good title. ................................................................................. 5
B. The Court didn’t address Patriot’s argument that the
Texas Department of Insurance’s Manual of Title
Insurance dictates that the value of the property at
issue must be at least $1.5 million. ........................................ 8
C. First American’s alleged reliance on Shelkey’s
affidavit is legally insufficient as a matter of law
because the linchpin for his claim that a bona fide
dispute exists is an appraisal done more than three
years after Patriot’s claim accrued. The date of
valuation, if any, must be the date of the loss, April
29, 2009, and not some date three years after the
fact. ........................................................................................ 10
PRAYER .................................................................................................. 12
CERTIFICATE OF SERVICE................................................................. 13
CERTIFICATE OF COMPLIANCE ........................................................ 14
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ISSUES PRESENTED ON REHEARING
Issue Presented Number One:
Texas Rule of Appellate Procedure 47.1(a) requires the Court to address
every issue raised and necessary to the final disposition of an appeal.
The Court’s opinion didn’t address the following issues raised by
Patriot:
(1) whether the measure of damages for a complete failure of
title is the same as the measure of damages for breach of the
covenants of seisin and good title,
(2) whether the Texas Department of Insurance’s Manual of
Title Insurance dictates that the value of the property at
issue must be at least $1.5 million, and
(3) what is the correct date on which to measure Patriot’s loss.
Should the Court grant rehearing and address these issues?
Issue Presented Number Two:
First American claims that Patriot’s insurance bad faith claims are
barred as a matter of law because a bona fide dispute exists. The
linchpin of this claim is First American’s reliance on an appraisal that
valued the property as of June 19, 2012—three years after Patriot’s
claim accrued. Is First American’s reliance on this appraisal legally
sufficient to establish a bona fide dispute as a matter of law?
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TO THE HONORABLE FIRST COURT OF APPEALS:
INTRODUCTION
The Court should grant rehearing and address each issue raised
by Patriot in its opening brief, including (1) whether the measure of
damages for a complete failure of title is the same as the measure of
damages for breach of the covenants of seisin and good title, (2) whether
the Texas Department of Insurance’s Manual of Title Insurance dictates
that the value of the property at issue must be at least $1.5 million, and
(3) what is the correct date on which to measure Patriot’s loss. The
Court should also grant rehearing and address whether First
American’s reliance on an appraisal that valued the property as of June
19, 2012—more than three years after Patriot’s claim accrued—is
legally sufficient to establish a bona fide dispute exists as a matter of
law and thus, bar Patriot’s insurance bad faith claims.
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ARGUMENT & AUTHORITIES
A. The Court didn’t address Patriot’s argument that the proper
measure of damages for a complete failure of title should be
the same as the measure of damages for breach of the
covenants of seisin and warranty of good title.
Patriot argued in its opening brief that a complete failure of
insured title is virtually identical to a breach of the covenants of seisin
and warranty of good title. The Court did not address this argument in
its opinion.
As set forth in Patriot’s opening brief, the covenant of seisin, in
the absence of any qualifying expression, is read into every conveyance
of land or interest in land, except in quitclaim deeds. Childress v. Siler,
272 S.W.2d 417, 420 (Tex. Civ. App.—Waco 1954, writ ref’d’n.r.e.). The
proper measure of damages for breach of the covenants of seisin and
warranty of good title is the consideration paid for the conveyance. Sun
Exp. and Prod. Co. v. Benton, 728 S.W.2d 35, 37 (Tex. 1987); Boatright,
790 S.W.2d at 727; Johns, 381 S.W.2d at 936; Childress, 272 S.W.2d at
420. This measure of damages is applied upon the theory that since the
grantor had no title, he had none to convey, and thus, the grantee may
recover the money paid without consideration. See Evans v. Henderson,
460 B.R. 848, 899 (Bankr. S.D. Miss 2011) (quoting Securities Serv.,
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Inc. v. Transamerica Title Ins. Co., 583 P.2d 1217, 1221 (Wash. 1978)).
This measure of damages makes the plaintiff “whole” because he is
allowed to recover the consideration he provided in the event there is a
failure of title. This is virtually identical to the purpose of title
insurance. See also, Chicago Title Ins. Co. v. McDaniel, 875 S.W.2d 310,
311 (Tex. 1994) (title insurance is a contract of indemnity requiring an
insurer to pay the loss or damage its insured suffered because of the
title defect); see also, (CR 822, ¶ 8(a) (“This policy is a contract of
indemnity against actual monetary loss or damage sustained by the
Insured Claimant who has suffered loss or damage by reason of matters
insured against by this policy.”).
Here, it is undisputed that a complete failure of title exists
regarding the 8.225 acre and 7.500 acre tracts. (CR 828, ¶ 3). The
question is how to measure Patriot’s loss or damage when there is such
a complete failure of title.
Patriot asserts that, just as when there is a breach of the
covenants of seisin and warranty of good title, its loss or damage is
measured by the amount of consideration it provided for the deed of
trust Tantalus Bay had no right to convey. Patriot would not have
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loaned $1.5 million to Tantalus Bay if it knew its collateral was
worthless, nor would any lender do so. See, e.g., Citicorp Sav. of Ill. v.
Stewart Title Guar. Co., 840 F.2d 526, 530 (7th Cir. 1988) (“As a
practical matter, Citicorp would not have extended $27,000 credit to
Robinson on the basis of a voidable mortgage. No lender would do so.”).
Thus, to be made whole, Patriot would have to recover the consideration
it provided to Tantalus Bay in exchange for title to real property that
Tantalus Bay had no right to convey, which was $1.5 million. Patriot’s
claim is virtually identical to a claim for breach of the covenants of
seisin and warranty of good title and its damages must be measured the
same way.
The Court did not address this issue in its opinion. Texas Rule of
Appellate Procedure 47.1(a) requires the Court to address every issue
raised and necessary to the final disposition of appeal. TEX. R. APP. P.
47.1(a). Patriot respectfully requests that the Court grant rehearing
and address this issue.
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B. The Court didn’t address Patriot’s argument that the Texas
Department of Insurance’s Manual of Title Insurance
dictates that the value of the property at issue must be at
least $1.5 million.
Patriot also asserted in its opening brief that, even if First
American were correct and the value of the property were relevant, the
value of the property for purposes of calculating Patriot’s damages
would still be at least $1.5 million. The Court didn’t address this issue
in its opinion.
Under the Texas Department of Insurance’s Manual of Title
Insurance, which First American admits it is bound by, “[w]hen the
land covered in the policy represents only part of the security of the
loan(s), then the policy shall be written in the amount of the value of
such land or the amount of the loan, whichever is the lesser.” (CR 1013).
Tantalus Bay pledged a laundry list of collateral for the underlying
loan, including:
All buildings and other improvements existing or placed on
the land in the future;
All equipment, fixtures, furnishings, and other articles of
personal property existing or placed on the land in the
future;
All water and water rights utility capacity;
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All leases, rents, royalties, bonuses, profits, revenues, or
other benefits of the land; and
An assignment of rents.
(CR 499–502). Thus, the land at issue was not the only security for
Patriot’s loan. (Id.). So, the amount of insurance at issue, $1.5 million,
must be either the value of the land or the amount of the loan,
whichever is less. (Id.). Logic thus dictates the value of the property as
insured must be at least $1.5 million as a matter of law under the Texas
Department of Insurance’s Manual of Title Insurance. Therefore, even if
the value of the property were relevant, the value of the property would
nevertheless be at least $1.5 million under the Texas Department of
Insurance’s mandate as a matter of law.
The Court did not address this issue in its opinion. Texas Rule of
Appellate Procedure 47.1(a) requires the Court to address every issue
raised and necessary to the final disposition of appeal. TEX. R. APP. P.
47.1(a). Patriot respectfully requests that the Court grant rehearing
and address this issue.
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C. First American’s alleged reliance on Shelkey’s affidavit is
legally insufficient as a matter of law because the linchpin
for his claim that a bona fide dispute exists is an appraisal
done more than three years after Patriot’s claim accrued.
The date of valuation, if any, must be the date of the loss,
April 29, 2009, and not some date three years after the fact.
First American’s claim that Patriot’s bad faith claims are barred
as a matter of law because a bona fide dispute exists is predicated on
the appraisal Shelkey ordered. First Am. Title Ins. Co., Slip. Op. at 17–
18 (“First American explained that it had determined that it was liable
for $205,000, which is the value of the Property, as determined by First
American’s appraiser. *** First American attempted to promptly effect
what it reasonably considered to be a fair and equitable settlement of
the claim based upon First American’s *** reliance upon an
independent appraisal ***.”). But the appraisal Shelkey allegedly relied
upon to generate the dispute at issue valued the property as of June 19,
2012, which is legally insufficient because this date is more than three
years after Patriot’s claim accrued. Id. at 17; (CR 863).
The rule in Texas has long been that contract damages are
measured at the time of the breach. Miga v. Jensen, 96 S.W.3d 207, 214
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(Tex. 2002).1 This rule of law is equally applicable to title policies.
Southern Title Guar. Co., Inc. v. Prendergast, 494 S.W.2d 154, 157 (Tex.
1973) (valuation is determined as of the date of the policy); Stewart
Title Guar. Co. v. Cheatham, 764 S.W.2d 315, 318 (Tex. App.—
Texarkana 1988, writ denied) (any damage occurred on the date the
property was purchased). Patriot’s title failed on the date of closing,
April 29, 2009. (C.R. 498–526). Thus, Patriot’s damages must be
measured as of April 29, 2009, the date Patriot’s claim accrued. Miga,
96 S.W.3d at 214; Prendergast, 494 S.W.2d at 157.
First American’s appraisal valued the property as of June 19,
2012—more than three years after Patriot’s title failed. (CR 863). The
valuation of the property more than three years after the claim accrued
is patently irrelevant as a matter of law. The date the breach
occurred—April 29, 2009—is what matters, not some date three years
down the road. So, Shelkey’s reliance on a legally insufficient appraisal
cannot support a summary judgment in First American’s favor as a
matter of law.
1 Patriot’s actual damages for insurance bad faith are contractual in nature, i.e.,
benefit of the bargain.
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Patriot raised the issue of when to calculate its loss in its opening
brief. But the Court did not address this issue in its opinion. Texas Rule
of Appellate Procedure 47.1(a) requires the Court to address every issue
raised and necessary to the final disposition of appeal. TEX. R. APP. P.
47.1(a). Patriot respectfully requests that the Court grant rehearing
and address this issue.
PRAYER
FOR THESE REASONS, Patriot Bank respectfully requests that
the court grant rehearing, set aside its May 12, 2015 opinion, affirm the
trial court’s summary judgment in favor of Patriot Bank, award it its
reasonable and necessary attorney’s fees set forth in the trial court’s
judgment for defending this appeal, and its costs of appeal. Patriot
Bank also requests that the Court reverse the summary judgment in
favor of First American and remand Patriot’s bad faith claims back to
the trial court for further proceedings. Patriot also requests any other
such and further relief to which it is entitled to receive.
{Signature on next page}
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Respectfully submitted,
LEYH, PAYNE & MALLIA, PLLC
By: /s/ Sean M. Reagan
Sean Michael Reagan
sreagan@lpmfirm.com
Texas Bar No. 24046689
9545 Katy Freeway, Suite 200
Houston, Texas 77024
Telephone: 713-785-0881
Facsimile: 713-784-0884
ATTORNEY FOR APPELLEE
CERTIFICATE OF SERVICE
I certify that a true and correct copy of this document has been
served to all interested parties of record on this the 15th day of June
2015:
Tim McDaniel Via E–Service
Kelly Conklin
Irelan McDaniel, PLLC
440 Louisiana, Suite 1800
Houston, Texas 77002
Don Colleluori Via E–Service
Mark T. Davenport
Figari & Davenport, LLP
901 Main Street, LB 125
Dallas, Texas 75202
/s/ Sean M. Reagan
Sean M. Reagan
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CERTIFICATE OF COMPLIANCE
Under Rule 9.4 of the Texas Rules of Appellate Procedure, I certify
that the foregoing document is a computer-generated document
containing 1,738 words. The undersigned relied upon the word count
feature on his word processor in determining the word count.
/s/ Sean M. Reagan
Sean M. Reagan
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