JP Morgan Chase Bank, N.A. v. First American Title Insurance
2011 U.S. Dist. LEXIS 62692
E.D. Mich.2011Background
- First American issued a Closing Protection Letter (CPL) to WaMu in connection with the Truong Loan and reserved to reimburse WaMu for actual losses caused by the closing agent's fraud.
- Patriot Title Agency LLC, as First American’s issuing agent and closing agent, fraudulently procured and closed the Truong Loan.
- WaMu wired $4.5 million; Patriot Title diverted funds, created a sham seller and buyer, leaving WaMu with a defective lien and unresolved title defects.
- FDIC, as WaMu’s receiver, intervened and asserted a CPL indemnity claim against First American after acquiring WaMu’s obligations and assets, including the Title Policy.
- Chase acquired WaMu’s loan and title policy under the Purchase & Assumption Agreement; First American tendered a quitclaim deed to Chase, which Chase refused to accept, seeking monetary relief under the Title Policy instead.
- The court denied First American’s motions for summary judgment and granted FDIC’s partial summary judgment on liability but left damages to be resolved.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing under the CPL | FDIC has WaMu’s CPL rights despite WaMu’s sale | FDIC lacks standing because WaMu’s CPL rights transferred | FDIC has standing under the CPL despite WaMu’s sale |
| Indemnity independent of the Title Policy | CPL obligations are separate from the Title Policy and survive WaMu’s sale | CPL is integrated with Title Policy and not independently recoverable | CPL is independent of the Title Policy; FDIC may pursue indemnification under the CPL |
| Actual loss under the CPL | WaMu’s actual loss was $4,543,593.07; FDIC seeks $1,771,593.07 after accounting for recoveries | Plaintiff’s loss measure is erroneous; loss should be tied to WaMu’s sale value | WaMu’s fraud caused actual loss; amount to be determined with a factual damages dispute |
| Contributory negligence under the CPL | WaMu’s underwriting negligence is irrelevant under the CPL | WaMu’s negligence could limit CPL liability | WaMu’s potential negligence is irrelevant; no defense to CPL indemnity |
| Damages finality and set-off | WaMu’s recoveries from Chase reduce FDIC’s loss | Uncertain Chase purchase price precludes precise loss calculation | There is a genuine fact question on damages due to uncertain sale price; liability for damages remains unresolved |
Key Cases Cited
- New Freedom Mortg. Corp. v. Globe Mortg. Corp., 281 Mich.App. 63, 761 N.W.2d 832 (Mich.App. 2008) (closing protection letters independent of title policy; consideration supported by policy purchase)
- Bergin Financial, Inc. v. First American Title Co., 397 Fed.Appx. 119 (6th Cir. 2010) (CPL is indemnity contract; separate from Title Policy; not insurance policy)
- New Freedom Mortg. Corp. v. Globe Mortg. Corp. (quoted), 761 N.W.2d 832 (Mich. App. 2008) (distinguishes CPL coverage from title policy coverage)
- First Fed. Sav. and Loan Assoc. v. Transamerica Title Ins. Co., 19 F.3d 528 (10th Cir. 1994) (title policy indemnifies against title defects; CPL covers agent misconduct at closing)