Opinion
2064/08.
Decided July 22, 2008.
Kelly, Lucas Pacifico, LLP, Locust Valley, New York, COUNSEL FOR PLAINTIFF.
First American Title Insurance Company of New York, Salamon, Gruber, Blaymore Strenger, P.C., Roslyn Heights, New York, COUNSEL FOR DEFENDANT.
Defendant, First American Title Insurance Company of New York ("First American"), moves for an order pursuant to CPLR 510 to change venue of this action to New York County or, in the alternative, pursuant to CPLR 3211(a)(1) and (7), for dismissal of the complaint insofar as asserted against First American.
BACKGROUND
On March 18, 2005, Plaintiff, Robert G. Lucas ("Lucas"), as agent for Lucas Investors Group, made a loan of $150,000 to Maxine Holder ("Holder"). The loan was secured by a mortgage ("Mortgage") on property located at 300 East 108th Street, New York, NY, consisting of three condominium units identified as units 1D, 1E, and 1F (the "Premises"). After the closing of the transaction, which occurred in Locust Valley, NY, Lucas delivered the mortgage executed by Holder to Defendant, Kensington Abstract LLC ("Kensington"), a title abstract company that conducts title searches and performs related services with regard to transactions involving real property. Kensington agreed to record the Mortgage in the proper office of New York County so as to make the Mortgage a valid lien on the Premises.
Kensington failed to record the Mortgage until April 30, 2007. In the two years between the closing date and the date the Mortgage was recorded, Lucas asserts that six mortgages were recorded on the Premises, totaling $2,397,750, that now take priority over its Mortgage.
Additionally, on March 18, 2005, Lucas obtained a title insurance policy with First American. The $150,000 policy insured that the Mortgage delivered to Lucas by Holder was free and clear of all prior liens and encumbrances that were not specifically listed in the policy. According to the complaint, First American's policy failed to report three prior liens existing against the Premises.
On April 2, 2007, Lucas demanded that First American pay $150,000 for breach of its title insurance policy. First American has refused to make such a payment to the Plaintiff. Subsequent to Lucas's demand, an action was commenced by Deutsche Bank National Trust Company and Freemont Investment and Loan to foreclose two prior mortgage obligation on Units 1E and 1F of the Premises. First American has since taken up defending those foreclosure actions, both of which are currently pending.
On January 28, 2008, Lucas filed this action in Nassau County, alleging four causes of action. In his first cause of action, Lucas alleges that by reason of its failure to properly record the Mortgage, Kensington was grossly negligent. As a result of said negligence, Lucas alleges that he been damaged by the loss of its principal in the amount of $150,000, with interest at the rate of 20% per annum from November 1, 2006, together with late charges and reasonable attorneys fees. Lucas also claims he is additionally entitled to $250,000 in punitive damages as consequence of the "egregious negligence and deliberate omissions" of Kensington.
In his second cause of action, Lucas asserts that Kensington was duly authorized to act on First American's behalf and, therefore, First American is jointly and severally liable for all acts and omissions performed by Kensington while it was acting as its agent. Thus, Plaintiff alleges that First American is liable for compensatory damages of $150,000 with 20% per annum interest accruing from November 1, 2006, plus punitive damages of $250,000.
In the third cause of action, Lucas alleges breach of contract by First American for failing to identify and disclose the three prior liens that predated the Mortgage in its title policy. Plaintiff states that if he were aware of such prior liens and encumbrances, he would not have made the loan to Holder. Upon this cause of action, Lucas seeks $150,000 plus interest accruing from April 2, 2007.
Lastly, Lucas alleges bad faith. According to the complaint, First American is tendering a frivolous defense that is without merit with respect to the Deutsche Bank and Fremont foreclosures in order to delay payment to the Plaintiff under the policy. Upon the fourth cause of action, Lucas seeks punitive damages in the sum of $250,000.
DISCUSSION
A. Change of Venue
Generally, a plaintiff may commence an action in any county in which any party to the action resides. CPLR 503(a). The residence of a domestic corporation for venue purposes is the county designated as its Certificate of Incorporation. Hamilton v. Corona Ready Mix, Inc. ,21 AD3d 448 (2nd Dept. 2005). See also, Siegel, New York Civil Practice 4th § 119. In this case, venue is premised upon Lucas' designated principal place of business, which is located in Locust Valley, NY, which is in Nassau County.
1. Forum Non Conveniens
Pursuant to CPLR 510, the court may change the place of trial of an action where (1) the county designated for that purpose is not a proper county; (2) there is reason to believe that an impartial trial cannot be had in the proper county; or (3) the convenience of material witnesses and the ends of justice will be promoted by the change.
First American first argues pursuant to CPLR 510(3), claiming that the allegations primarily involve witnesses and events that occurred in New York County, and that its witnesses would be inconvenienced by being forced to appear in Nassau County.
However, First American has not offered any information establishing how its witnesses would be any more inconvenienced testifying in Nassau County than they would in New York County. In J A Interiors, Inc. v. Roth, 239 N.Y.L.J. 102, p. 27 col. 3 (Sup.Ct. Nassau. Co. 5/28/08), this Court found that the commute from New York County to Nassau County was not so lengthy as to substantially inconvenience the witnesses, and that "mere inconvenience to witnesses which the defendants may call at trial is not grounds for a change of venue."
Moreover, First American has failed to meet the basic requirements for a change of venue motion under CPLR 510(3). See, O'Brien v. Vassar Brothers Hosp., 207 AD2d 169, 172-173 (2nd Dept. 1995), which established the standard for changing venue on the basis of a forum non conveniens. The defendant must submit (1) a detailed justification for the change; (2) the identity and availability of the proposed witnesses; (3) the nature and materiality of their anticipated testimony; and (4) the manner in which they would be inconvenienced by the initial venue. See also, Cilmi v. Greenburg, Trager, Troplity Herbat, 273 AD2d 266 (2nd Dept. 2000). First American has failed to provide the Court with adequate justification for the change, or sufficient proof of specific circumstances or conflicts that would prevent witnesses in this case from appearing in Nassau County. Significantly, the identity of the purported "material witnesses," the nature of their anticipated testimony and the manner in which they would be inconvenienced by maintaining venue in Nassau County is either omitted or discussed in conclusory terms.
First American urges the Court to disregard the requirements as laid out in O'Brien, and exercise its discretion in granting the motion, as the courts did in Santiago v. Walsh-Atkinson Co., Inc, 202 AD2d 307 (1st Dept. 1995); and Mar v. MHZ Realty Corp., 205 AD2d 667 (2nd Dept. 1994). Even if the Court was to overlook the defects in First American's motion, the fact remains that the cause of action still essentially arose in Nassau County. That is where the parties entered into their contractual agreement. Additionally, First American conducts business, and maintains business offices in Nassau County. Therefore, the "ends of justice" will not, in this case, be promoted if the action were moved New York County.
2. Action Affecting Real Property
An action affecting title to, or possession, use or enjoyment of, real property should be brought in the county where the property is located. CPLR 507. Section 183 of the Civil Practice Act ("CPA"), the predecessor of CPLR 507, specified the types of actions that fall within the purview of the statute, including: (1) ejectment; (2) partition; (3) dower; (4) mortgage foreclosure; (5) to determine a claim to real property; (6) waste; (7) nuisance; (8) to compel a conveyance; and (9) every other action to recover or to procure a judgment establishing, determining, defining, forfeiting, annulling, or otherwise affecting an estate, right, type, lien, or other interest in real property.Alexander, Practice Commentaries, p. 109 (McKinney's 2006).CPLR 507 includes all of the actions that were listed in Section 183. N.Y.Sen. Fin. Comm. et al, Fifth Prelim. Rep., Legis. Doc. No. 15, p. 76 (1961).
First American contends that Lucas seeks to procure a judgment affecting a lien and, thus, it is the type of action incorporated by the ninth subdivision of CPA § 183. First American further asserts that Lucas is "first and fore-most" seeking re-payment of the loan he made to Holder and that whether that mortgage is satisfied clearly affects the right, title, and use and enjoyment of the property. This Court disagrees.
While Lucas is seeking repayment of the loan, that is not the gravaman of his complaint. Lucas is seeking monetary damages resulting from the alleged negligence, breach of contract and bad faith of the Defendants. Generally, where money damages are sought for a breach of contract involving realty, title is not affected. McNamara Realty, Inc. v. Hutchinson 54 Misc 2d 810 (Sup.Ct. Albany Co. 1967); 3-5 New York Civil Practice: CPLR P 507.03. Where, as here, the claims "involve" title to property, but do not "affect" title, CPLR 507 does not apply. See, Nassau Hotel Co. v. Barnett, 164 A.D. 203, 205 (1st Dept. 1914). Because title is not affected, the action is deemed transitory. Therefore, venue is properly based on residence rather than on the location of the realty.
B. First American's Motion to Dismiss 1. Legal Standard
To obtain a dismissal pursuant to CPLR 3211(a)(1), the defendant must establish that the documentary evidence that forms the basis of the defense must be such that it resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff's claim. Leon v. Martinez, 84 NY.2d 83 (1994); and Sheridan v. Town of Orangetown ,21 AD3d 365 (2nd Dept. 2005).
In deciding a motion made pursuant to CPLR 3211(a)(7), the court must determine whether the pleader has a cognizable cause of action. Leon v. Martinez, supra; Well v. Yeshiva Rambam, 300 AD2d 580 (2nd Dept. 2002). In doing so, the complaint must be liberally construed in the light most favorable to the plaintiff, and all allegations must be accepted as true. 511 West 232nd Street Owners Corp. v. Jennifer Realty Co., 98 NY2d 144 (2002); Well v. Yeshiva Rambam, supra . If, from the facts alleged in the complaint and the inferences which can be drawn from the opposition to the motion, the court determines that the pleader has a cognizable cause of action, the motion to dismiss must be denied. Sokoloff v. Harriman Estates Development Corp, 96 NY2d 409 (2001); and Stucklen v. Kabro Assocs. , 18 AD3d 461 (2nd Dept 2005).
2. Second Cause of Action — Negligence
The second cause of action alleges that First American is liable for the negligence of Kensington. First American argues that the liability of an insurer to the insured is based in contract law. Thus, the rights and obligations of the parties are governed and limited by the terms and conditions of the agreement. First American further asserts because subsection six of the title policy covers defects by reason of "priority of any lien or encumbrance over the lien of the insured mortgage," Plaintiff's claims are directly addressed by the policy, which bars an action for negligence.
In support of its position, First American cites Crupi v. Newell Talarico Title Agency, 14 Misc 3d 1225(A) (Sup.Ct. Richmond Co. 2007). In Crupi, the court held that a claim for negligence could not proceed against a title insurer where its agent failed to record a spreader agreement in a timely fashion. The court found that because the title insurer never agreed to perform that service, it was not within the contemplation of the insurance policy. Therefore, the insurer could not be held liable.
Lucas contends that when First American directed its agent, Kensington, to "record the Mortgage immediately," it had agreed to perform the service, unlike the title insurer in Crupi. However, recordation occurred on April 2, 2007, two years after the closing date. It was likely only done then to prevent further financial harm to the Plaintiff. In the original title policy, First American had no obligation to record the Mortgage in a timely manner. Rather, Lucas contracted with Kensington specifically to perform that task.
Additionally, the agency relationship between First American and Kensington was limited to its performance of certain services, such as the solicitation, production and issuance of title insurance policies underwritten by First American. The agency agreement between First American and Kensington does not, however, cover the recording of mortgages. The fact that Lucas contracted separately with Kensington for this purpose reinforces the notion that it was Kensington's own, independent contractual duty towards the Plaintiff to timely record the Mortgage. Thus, Kensington's omissions cannot be attributed to First American.
Plaintiff's reliance on Cruz v. Commonwealth Land Title Ins. Co., 157 AD2d 333, 336 (1st Dept. 1990); and Gem v. United General Title Ins. Co. , 28 AD3d 516, 516 (2nd Dept. 2006) is misplaced. In each of those cases, the title company admittedly undertook a duty to record the mortgages at issue, separate from the duty of its title insurance contract. In this case, First American had no such obligation. Therefore, Lucas's second cause of action for negligence must be dismissed.
3. Third Cause of Action — Breach of Contract
The third cause of action alleges that First American breached its contract with Lucas by failing to list the three mortgages that predated the Plaintiff's mortgage in its title policy. The elements of a cause of action for breach of contract are: (1) formation of a contract between the parties; (2) performance by plaintiff; (3) defendants' failure to perform; and (4) resulting damage. Furia v. Furia, 116 AD2d 694, 695 (2nd Dept 1990).
A policy of title insurance is a contract by which the title insurer agrees to indemnify its insured for loss caused by a defect in title. Brucha Mtge. Bankers Corp. v. Nations Title Ins. of NY, Inc., 275 AD2d 337, 338 (2nd Dept. 2000). Such a policy "entitles the insured to indemnity only to the extent that its security is impaired and to the extent of the resulting loss which it sustains." Id. The title insurer's obligation to indemnify is defined by the policy itself. Citibank, N.A. v. Chicago Title Ins. Co., 214 AD2d 212 (1st Dept. 1995).
First American argues that Lucas' only avenue of recovery under the policy is by establishing an actual loss arising from a loss of priority interest. Because Lucas has failed to institute foreclosure proceedings (thereby asserting its right to priority over the other mortgages), First American contends that Lucas has not shown that it has incurred any actual loss.
Lucas argues that it would be futile to initiate foreclosure proceedings for the purposes of ascertaining its damages in property which is known to have no equity in excess of the mortgages which currently exist with priority to its Mortgage. Moreover, Lucas asserts that plaintiff may maintain a claim for anticipatory indemnification, relying on Crupi v. Newell Talarico Title Agency, supra at 7, which states that "a party who has not yet sustained actual loss may still assert an anticipatory claim for indemnification." While First American correctly points out that the court in Crupi was referring to a negligence action, anticipatory claims for contractual indemnification have been sustained by courts in the past, even where no damages have been suffered. See, Pennsylvania v. General Ins. Co. v. Austin Powder Co., 68 NY2d 465, 470 n. 2 (1986) ("Of course, a party who has not yet been cast in damages or sustained actual loss may assert an anticipatory claim for common-law or contractual indemnification."); and McDermott v. New York, 50 NY2d 211, 218 n. 4 (1980).
First American further argues that because two of the pre-existing mortgages (Aleppo Pine and JP Morgan) have since been satisfied, and the third mortgage (MERS) is currently being defended by First American on Plaintiff's behalf, even if Lucas was to foreclose in the future, it would not be able to establish any actual loss of priority to those liens.
Lucas counters that the two satisfied mortgages were actually refinanced, and that the new mortgages also have priority as a result of the failure to timely record its Mortgage. Additionally, Plaintiff has submitted a copy of the New York endorsement loan policy, which was attached to the title insurance policy. In part, clause 3(d) provides that "if the recording date of the instruments creating the insured interest is later than the policy date such policy shall also cover intervening liens or encumbrances."
Therefore, even if Lucas does not suffer an actual loss from the three pre-existing mortgages, Plaintiff might still have a contractual claim for damages as a result of the six intervening encumbrances that were recorded between the closing date and the recording of the Mortgage, which totaled $2,397,750. Therefore, the motion to dismiss this cause of action must be denied.
4. Fourth Cause of Action — Bad Faith
The fourth cause of action alleges that First American is acting in bad faith by asserting frivolous defenses in the two foreclosure actions, in order to delay paying the Plaintiff under the Policy. Lucas contends that he only informed First American of the two foreclosure proceedings because such notice and request were mandated by the terms and conditions of the title policy and the failure to do so would have constituted a breach of the contract. Thus, in making its decision to go to trial with regard to the two foreclosure actions, Lucas alleges that First American was disingenuous and dishonest, and grossly disregarded his interest.
New York does not recognize a separate cause of action for violation of the implied covenant of good faith and fair dealing. Cohen v. Nassau Educators Fed. Credit Union , 37 AD3d 751 (2nd Dept. 2007). Generally, a demand or request for punitive damages possesses no viability absent its attachment to a substantive cause of action. Rocanova v. Equitable Life Assur. Soc. of U.S., 83 NY2d 603, 616 (1994). See also, Lee Mfg. v. Chemical Bank, 186 AD2d 548, 550 (2nd Dept 1992) ("there can be no separate cause of action for punitive damages"). Thus, Lucas has not established an underlying claim upon which punitive damages may be granted.
Even if Lucas had alleged a breach of contract as his underlying claim, First American's conduct would not meet the high standard for punitive damages. In breach of contract cases, punitive damages are only recoverable where the conduct "involves policy evincing a high degree of moral turpitude, and demonstrating such wanton dishonesty as to imply to a criminal indifference to civil obligations," and where the conduct is "aimed at the public generally." Rocanova v. Equitable Life Assur. Soc. of U.S., supra at 613. Lucas has failed to show that First American's decision to act pursuant to the title policy, and tender a defense in the foreclosure actions rises to the level required to justify punitive damages.
In addition, New York does not recognize a cause of action for unfair dealing or bad faith inasmuch as it is duplicative of a breach of contract claim. See, Parker East 67th Assoc., L.P. v. Minister, Elders Deacons of Reformed Protestant Dutch Church of City of NY, 301 AD2d 453, 454 (1st Dept.), lv. app. den., 100 NY2d (2003).
Thus, the claim of bad faith must be dismissed.
Accordingly, it is,
ORDERED that First American's motion to change venue of this action is denied, and it is further
ORDERED that First American's motion to dismiss the second, third, and fourth causes of action is granted to the extent of dismissing the second and fourth causes of action and denied with regard to the third cause of action and, it is further
ORDERED, that counsel for the parties shall appear for a preliminary conference on September 9, 2008 at 9:30 a.m.
This constitutes the decision and Order of this Court.