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First American Title Insurance Co. v. National Title Agency, LLC

United States District Court, D. Utah, Central Division

May 19, 2017



          DALE A. KIMBALL, United States District Judge

         This matter is before the court on Plaintiff First American Title Company's Motion for Partial Summary Judgment [Docket No. 93], and Defendants National Title Agency of Utah, William D. Rowley, and Sterling Spencer Rowley's Motion for Partial Summary Judgment [Docket No. 96]. On April 27, 2017, the court held a hearing on the motions. At the hearing, Plaintiff First American was represented by Richard L. Cobb and Defendants were represented by Sean A. Monson. The court took the motions under advisement. The court has carefully considered the materials submitted by the parties and the facts and law relevant to the motions. Now being fully advised, the court issues the following Memorandum Decision and Order.


         National Title Agency was a licensed escrow and title agent that closed real estate transactions in Utah. William Rowley formed National Title in 2006. National Title and First American entered an Agency Agreement on or about March 31, 2009. The Agency Agreement provided that National Title was to deposit all funds and monies it received in trust for others in a separate escrow account. The Agency Agreement also provided that National Title “and all of [National Title]'s principals (in their individual capacity) shall be liable for all trust funds collected as First American's agent.” The following paragraph also stated that “[National Title] shall be liable to First American for any shortage in [National Title]'s trust fund account(s). First American shall have a lien on all real or personal property of [National Title], which shall serve as security for the repayment of any shortage in said account(s). Upon receiving a demand by First American, [National Title] shall immediately produce and transfer the shortage to First American.” William Rowley executed the Agency Agreement on behalf of National Title as National Title's President and also executed a personal guarantee to induce First American to enter into the Agency Agreement with National Title. National Title created an escrow trust account at JP Morgan Chase Bank (“Chase”) on or about February 4, 2008. The trust account contained escrow deposits from customers of National Title and did not contain money belonging to National Title.

         On April 6, 2010, a Utah state court entered a Default Judgment against National Title in Bell, et al. v. Hemsley, et al., Case No. 080902845, Third District Court, Salt Lake County, Utah, for failure to appear at a court status conference. The Judgment states that nonappearance at the status conference would result in default judgment. Because National Title did not appear, the court entered judgment against National Title in the amount of $95, 000. The judgment in the Bell matter was satisfied through a writ of garnishment served on Chase. After being served with an order to show cause relating to its failure to respond to the Writ of Garnishment, Chase released $89, 783.84, to satisfy the judgment.

         On May 7, 2010, a Utah state court entered a Default Judgment against National Title in Hill, et al. v. Tibbits, et al., Case No. 080921870, Third District Court, Salt Lake County, Utah, for failure to appear and answer the Complaint. The judgment entered in the Hill case was $387, 510.72. Plaintiffs in the Hill matter sought a writ of garnishment from the state court, which was granted and served on Chase. Chase completed the Response to Interrogatories accompanying the Writ of Garnishment and removed the funds pursuant to the garnishment on September 20, 2010.

         In October 2013, William Rowley, the President and sole owner of National Title, learned that the Chase trust account was short. That same day, Rowley contacted First American to let them know of the shortfall. Rowley also contacted his outside bookkeeping service, Horizon West, and talked to its owner Ken Judd. Judd looked into the issue and told Rowley that the trust account was short of funds because of charges for $89, 783.84 and $514, 088.32. Judd did not know the cause of those charges.

         At Rowley's request, First American sent a forensic accounting team, which determined that the two state court garnishments for National Title's debts had been paid from the trust account and were the cause of the shortfall. First American terminated National Title's agency agreement on November 25, 2013, and initiated this lawsuit for breach of the Agency Agreement and indemnification.

         First American has paid out $188, 508.40 to customers of National Title who were unable to recover their escrow funds from National Title's trust account. First American is still litigating claims for $177, 000 that would constitute additional damages if the claimant prevails. First American is defending the claim because First American contends that the claimant's loss did not stem from the agency relationship between First American and National Title and did not involve a transaction involving the issuance of title insurance. First American also claims that it should have been paid $775.28 in premiums for title insurance policies issued that National Title failed to remit.

         Approximately two years after First American Title sued National Title for indemnification relating to shortfalls in the trust accounts that it was required to pay to third parties, National Title sued Chase for improperly releasing money from the trust accounts in response to the writs for garnishment. This court dismissed National Title's Third-party Complaint against Chase, ruling that National Title needed to bring its claims against Chase in the state court actions that issued the writs of garnishments. National Title pursued those cases in the state courts.

         William Rowley managed the day-to-day affairs of National Title. He was responsible for hiring and firing employees, executing contracts on behalf of National Title, and managing National Title's offices and affairs. Spencer Rowley, William's son, worked for National Title. There is a dispute as to whether Spencer Rowley was a manager at National Title.

         Approximately two months after William Rowley discovered the shortfall, in December of 2013, National Title stopped providing escrow and title services. Although National Title conducts no business activities, it remains an ongoing Utah Limited Liability Company in good standing. National Title states that since December 2013 it has continued in existence to pay legal fees.

         On November 15, 2013, William Rowley created National Title Agency of Utah (“NTAU”) as a Limited Liability Company and listed himself as its manager member. That same day, he then converted the LLC into a corporation with himself as Director and President. On November 21, 2013, he amended the Articles of Incorporation to remove himself as Director and President and to make Sterling Spencer Rowley Vice President and Director.

         NTAU began doing business as a title company after entering an underwriting agreement with Chicago Title. NTAU began doing business using the same location, employees, fixtures, and equipment that National Title had used. National Title employees worked through December 31, 2013, as employees of National Title and became employees of NTAU on January 2, 2014, with the same titles. NTAU occupied the same office space as National Title and several months later, NTAU assumed NTA's lease.

         On March 27, 2014, but effective January 1, 2014, William Rowley transferred all of National Title's assets to National Title Agency of Utah. The Asset Purchase Agreement states that all of National Title's assets were sold to National Title Agency of Utah for $96, 000. First American's expert, however, opined that National Title's assets were actually worth $620, 000 at the time of the transfer. The $96, 000 National Title Agency of Utah paid to ...

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