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Johnson v. U.S. Title Agency, Inc.

Court of Appeals of Ohio, Eighth District, Cuyahoga

May 18, 2017


         Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-11-760834

          ATTORNEYS FOR APPELLANT Robert D. Kehoe Lauren N. Orrico Tatyana Pishnyak Kehoe & Associates L.L.C.

          ATTORNEYS FOR APPELLEES For U.S. Title Agency, Inc. Debra J. Horn Meyers, Roman, Friedberg & Lewis.

          For Chicago Title Insurance Company Alexander E. Goetsch Sikora Law L.L.C.

          BEFORE: Laster Mays, J., Keough, A.J., and Boyle, J.



         {¶1} Plaintiff-appellant Richard G. Johnson, Esq. ("Johnson") appeals the trial court's grant of summary judgment on behalf of defendants-appellees, U.S. Title Agency, Inc. ("US Title") and Chicago Title Insurance Company ("Chicago Title") on several grounds, arising from the closing of a home renovation construction loan. After a thorough review of the record, the matter is reversed and remanded.


         {¶2} In 2008, Johnson hired Berns Custom Homes ("Berns") as the general contractor ("Contractor") to renovate his recently purchased home in Bentleyville, Ohio ("Property"). Johnson obtained a $815, 581 construction loan (the "Loan") from KeyBank National Association ("KeyBank") to satisfy the existing mortgage and finance the renovations.

         {¶3} Johnson, an attorney specializing in legal malpractice issues, retained counsel Mark Wachter ("Wachter") to assist him with negotiating the Loan. A key factor in the negotiations was to ensure that the project proceeded to completion and that contractual and insurance protections were sufficient to accomplish this goal.

         {¶4} At Wachter's recommendation, the parties agreed that U.S. Title would serve as the closing agent, escrow agent, and title agent for Chicago Title who would issue the title policies. KeyBank provided written closing instructions to U.S. Title for the transaction, entitled "Construction-to-Permanent Closing Instructions" ("Closing Instructions"). Wachter allegedly issued verbal closing instructions to U.S. Title ("Johnson Closing Instructions"), asking for the same protections against mechanics liens that KeyBank received, and for compliance with KeyBank's Closing Instructions.

         {¶5} Closing took place at the offices of U.S. Title, who was charged with, among other responsibilities, adhering to the Closing Instructions or absorbing liability for their failure to do so. Documents executed at the closing included the construction loan agreement and rider dated May 27, 2010 (collectively "Loan Agreement"), and the mortgage agreement that included a construction rider ("Mortgage"). The Mortgage, executed by Johnson and KeyBank, and recorded by U.S. Title, included a construction rider, and a provision that no lien whatsoever could take priority over the Mortgage.

         {¶6} Following the printed provisions, the Loan Agreement contains a signature block signed by Johnson and the date May 27, 2010. The next page contains a contractor's consent clause (the "Consent Clause") with a signature block for Berns and the date of May 27, 2010 inserted, followed by a signature page executed by a KeyBank director, on behalf of KeyBank.

         {¶7} The Consent Clause provides that the Contractor "hereby subordinates its lien on the Property, now existing or hereafter arising, to the lien of the Security Documents." The sum of $477, 723.00 is also set forth, representing the amount of the construction contract between Johnson and Berns. The signature portion below the subordinate clause contained typewritten language:

May 27, 2010
Berns Custom Homes, Inc.
By: Name: Justin Berns, Authorized Signatory

         {¶8} US Title concedes in its appellate brief that, "when signed, " the Consent Clause, "provides for the Contractor to contractually subordinate his rights to any liens the Contractor may file on the property, now or in the future, in favor of the Mortgage such that the Mortgage would still remain in first position." Though the May 27, 2010 date is inserted below the clause, and the name of the authorized signatory for Berns is typed underneath the signature line, U.S. Title states that it did not have Berns sign because Berns was not a party to the Loan, and it was not required by the Closing Instructions.

         {¶9} On June 14, 2010, U.S. Title provided Johnson with a copy of the HUD-1 settlement statement setting forth the charges and allocations for the transaction. The HUD-1 reflects Johnson's payment for Closing Protection Coverage ("CP Coverage"). On July 15, 2010, U.S. Title provided Johnson's counsel with a copy of the owner's policy of title insurance ("Owner's Policy") issued by Chicago Title for the Loan and Mortgage. Also on that date, U.S. Title states it provided KeyBank with a copy of the lender's policy of title insurance ("Lender's Policy") issued by Chicago Title.

         {¶10} As required by Ohio law, [1] Johnson was offered CP Coverage via a closing protection letter form ("CP Letter") from U.S. Title that Johnson signed indicating acceptance. According to the language of the CP Letter, the CP Coverage indemnified Johnson for any loss resulting from listed conditions, including the closing agent's "[f]ailure to comply with any applicable written closing instructions, when agreed to by the Licensed Agent [US Title]." No exclusions are listed in the CP Letter. The parties agree that Johnson paid for and was entitled to the CP Coverage, but did not receive a copy of the CP Coverage.

         {¶11} During September 2010 to October 2010, a dispute arose between Berns and Johnson. Johnson terminated Berns. Berns and four subcontractors filed mechanic's liens for $297, 191. The matter proceeded to mandatory mediation and, later, to arbitration.[2]

         {¶12} US Title notified KeyBank of the liens on December 29, 2010. KeyBank dishonored Johnson's draw request as a result. Subsequently, Johnson discovered that: (1) the Lender's Policy had not been issued to KeyBank until after KeyBank was provided with notice of the liens, an assertion disputed by U.S. Title, (2) the CP Coverage policy that Johnson purchased had not been provided to Johnson, (3) the Consent Clause containing the Contractor's consent to subrogation to the Mortgage of all liens had not been executed by the Contractor; (4) neither the Owner's Policy nor the Lender's Policy contained a future advance endorsement or exclusion protecting against priority of mechanics liens, and (5) the use of an open end form of mortgage instead of the Mortgage used in this transaction would have assured priority for future advances.

         {¶13} On several dates between December 31, 2010 and January 17, 2011, Johnson and his counsel corresponded with U.S. Title and Chicago Title requesting removal of the liens pursuant to the CP Coverage and the title insurance under the Owner's Policy, and asserting Johnson's third-party beneficiary status under KeyBank's Lender's Policy. Johnson also requested that the Owner's Policy be corrected to remove the lien exceptions, and that appellees satisfy the mechanics liens claim. Johnson asserted that appellees' failure to comply with the Closing Instructions caused the current issues. Appellees did not respond to the claim requests. The liens remained and KeyBank refused to release further draws.

         {¶14} Johnson filed suit against U.S. Title and Chicago Title. The complaint asserts six counts:

I. U.S. Title - breach of contract against U.S. Title including the failure to insure for mortgage priority, violating the Closing Instructions, failing to have the contractor sign the Construction Loan, refusal to honor the title policies.
II. Chicago Title - breach of contract against Chicago Title including the failure of Chicago Title's agent, U.S. Title, to properly handle the closing; and denial of claims under the owner's policy, closing protection coverage, and as a third-party beneficiary of KeyBank's Lender's Policy.
III. Chicago Title and U.S. Title - specific performance and injunctive relief requiring that appellees extinguish the liens, provide for subordination of the liens or issue title insurance insuring over any after-filed liens.
IV. U.S. Title - alleging U.S. Title was negligent in performing professional services by failing to issue the proper title insurance policies, filing closing documents without properly examining them for compliance with the requirement that the Mortgage must maintain priority over subsequent liens.
V. U.S. Title - breach of fiduciary duty to Johnson, including the failure to correctly conduct the closing to effect the intention of the parties that the Mortgage maintain priority at all time, and to record and/or issue the proper documents.
VI. Chicago Title and U.S. Title - breach of duty of good faith and fair dealing by failing to remedy the problems caused by the breaches set forth in Counts I through V.

         {¶15} Private mediation between the parties was unsuccessful. The court ordered plaintiffs expert deadline of May 15, 2013, defense's expert deadline of June 15, 2013, and dispositive motion deadline of July 1, 2013.

         {¶16} Chicago Title filed for summary judgment on June 27, 2013, supported by evidence including testimony from Johnson, Edward R. Horejs, Jr. ("Horejs") of Chicago Title, Michael Gerome ("Gerome") of U.S. Title, title expert Michael Waiwood ("Waiwood"), and various exhibits. U.S. Title filed for summary judgment on June 28, 2013. The motion was supported by Waiwood's affidavit. Appellees also filed motions to prevent Johnson from offering expert witness testimony at trial due to his failure to designate an expert by the deadline.

         {¶17} Johnson filed for summary judgment on July 1, 2013, with evidence that included a supporting affidavit by Johnson. Johnson was granted leave until August 14, 2013, to respond to appellees' motions for summary judgment. On August 14, 2013, Johnson filed the replies to summary judgment, and a motion for leave to submit the expert report of Dr. Robert Belinger ("Belinger"), opposed by appellees. A series of motions ensued between the parties regarding the expert report; however, there are no dispositive journal entries in the record resolving any of these motions. On August 29, 2013, Johnson filed the notice of original affidavit of Belinger.

         {¶18} On September 18, 2013, the trial court granted appellees' motions for summary judgment, and denied Johnson's motion, finding:

(1) Johnson's claims are excluded by the express terms of the Owner's Policy and CP Coverage as the liens were created by Johnson after closing and after he chose to fire the Contractor;
(2) Johnson's claims were excluded by the CP Coverage terms, as Johnson created the lien problem and he failed to provide written closing instructions to U.S. Title seeking a variance of the customary exclusions and limitations regarding mechanics liens;
(3) Johnson lacked standing to assert a breach of contract regarding the KeyBank's Lender's Policy and Closing Instructions, as he failed to demonstrate that he was a party to those documents; and
(4) the claims for bad faith, specific performance and injunctive relief failed as a result of the court's finding on the stated issues.

         {¶19} Johnson appealed; however, this court dismissed the appeal because Counts IV and V of the amended complaint had not been resolved.[3] On February 21, 2014, the trial court dismissed the two counts pursuant to Civ.R. 41(A), without prejudice.

         {¶20} A second appeal was filed on March 24, 2014.[4] This court granted Johnson's motion to dismiss the appeal on June 13, 2014, because the Civ.R. 41(A) dismissal was not sufficient to constitute a final appealable order:

A court order granting a motion for summary judgment without actually entering judgment for any party is not an final order. Bapst v. Goodwin, 4th Dist. Pike No. 08CA780, 2009-Ohio-6244, ¶ 9. It is not made final or appealable by the dismissal of some other claims without prejudice.

         {¶21} The trial court returned the case to the active docket and issued dispositive motion deadlines for the remaining counts. U.S. Title and Johnson filed "renewed" motions for summary judgment. Johnson's filing included an affidavit from Wachter. The affidavit was not submitted with Johnson's prior motion for summary judgment.

         {¶22} On September 24, 2015, the trial court granted summary judgment for appellees on Counts IV and V of the amended complaint without opinion. This appeal followed.


         {¶23} Johnson advances four assignments of error proposing various grounds upon which the trial court improperly granted summary judgment in this case:

I. The trial court erred in granting summary judgment in favor of defendants as to plaintiff's claims for breach of contract where defendants failed to properly execute the Closing Instructions, failed to honor the terms of their policies, and failed to issue the correct policy.
II. The trial court erred in granting summary judgment in favor of U.S. Title as to plaintiff's claim for breach of fiduciary duty where U.S. Title served as an escrow agent for plaintiff and KeyBank, and breached its duty to follow the Closing Instructions.
III. The trial court erred in granting summary judgment in favor of U.S. Title as to plaintiffs claim for negligence where U.S. Title failed to secure the correct form of coverage for plaintiff and failed to follow Closing Instructions.
IV. The trial court erred in granting summary judgment in favor of defendants as to plaintiffs claim for bad faith where defendants failed to acknowledge receipt and pay plaintiffs claim.


         {¶24} Our standard of review for summary judgment appeals is de novo:

We review the trial court's decision on summary judgment de novo. Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105, 671 N.E.2d 241 (1996). In so doing, we use the same standard as the trial court. Lorain Natl. Bank v. Saratoga Apts., 61 Ohio App.3d 127, 129, 572 N.E.2d 198 (9th Dist.1989). The party moving for summary judgment bears the initial burden of apprising the trial court of the basis of its motion and identifying those portions of the record which demonstrate the absence of a genuine issue of fact on an essential element of the nonmoving party's claim. Dresher v. Burt, 75 Ohio St.3d 280, 293, 662 N.E.2d 264 (1996). Once the moving party meets its burden, the burden shifts to the nonmoving party to set forth specific facts demonstrating a genuine issue of material fact exists. Id. To satisfy this burden, the nonmoving party must submit evidentiary materials showing a genuine dispute over material facts. PNC Bank, NA. v. Bhandari, 6th Dist. Lucas No. L-12-1335, 2013-Ohio-2477, ¶ 9.

Lillie & Holderman v. Dimora, 8th Dist. Cuyahoga No. 100989, 2015-Ohio-301, ¶ 9.

         {¶25} The following elements must be established to grant summary judgment:

The motion for summary judgment may only be granted when the following are established: (1) that there is no genuine issue as to any material fact; (2) that the moving party is entitled to judgment as a matter of law; and (3) that reasonable minds can come to but one conclusion, and that conclusion is adverse to the party against whom the motion for summary judgment is made, who is entitled to have the evidence construed most strongly in its favor. Harless v. Willis Day Warehousing Co., 54 Ohio St.2d 64, 67, 375 N.E.2d 46 (1978); Civ.R. 56(C).


         {¶26} We, as the reviewing court, evaluate the record in a light most favorable to the nonmoving party. Saunders v. McFaul, 71 Ohio App.3d 46, 50, 593 N.E.2d 24 (8th Dist.1990). Any "doubts must be resolved in favor of the nonmoving party." Murphy v. Reynoldsburg, 65 Ohio St.3d 356, 358-359, 604 N.E.2d 138 (1992).


         {¶27} Johnson argues that the trial court decision misconstrues the facts and is contrary to Ohio law. We agree.

         A. Preliminary Evidentiary Issues

         {¶28} An appellate court reviews "the same evidentiary materials that were properly before the trial court at the time it ruled on the summary judgment motion." Am. Energy Servs., Inc. v. Lekan, 75 Ohio App.3d 205, 208, 598 N.E.2d 1315 (5th Dist.1992). Appellees argue the Belinger and Wachter affidavits should be excluded from consideration because they were not properly before the court.

         1. Belinger Affidavit and Report

         {¶29} Appellees posit that the affidavit and report of Belinger (collectively "Belinger Report") may not be considered because the affidavit was not accompanied by the report upon initial filing, the report was submitted after the expert disclosure deadline of May 15, 2013, and that, due to the trial court's failure to rule on the subsequent motion for leave to file the report, the motion was presumptively denied when final judgment was granted. Kostelnik v. Helper,96 Ohio St.3d 1, 2002-Ohio-2985, 770 N.E.2d 58, ΒΆ 13 ("a motion not expressly decided by a trial court when the case is concluded is ...

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