497 B.R. 143
S.D. Fla.2013Background
- Denise Roberts-Dude, her husband, and an agent concealed a defectively recorded $1,900,000 WAMU deed of trust on Aspen property and caused sale proceeds of about $1.84 million to be paid to Roberts-Dude instead of satisfying that lien.
- Stewart Title (through agent Stewart Colorado) issued multiple title commitments and policies (for Wells Fargo, Lester, and buyer Yue) that did not except the WAMU deed because the deed omitted a legal description and was not discovered in routine searches.
- Roberts-Dude, Mr. Dude, and others signed sworn indemnity/affidavits falsely stating there were no liens; Stewart Colorado relied on those affidavits when issuing the policies.
- Stewart Title paid WAMU approximately $1,950,000 after WAMU foreclosed and claimed against its Yue policy; it then sought contribution/indemnity from Roberts-Dude and asserted a non-dischargeability claim in her bankruptcy under 11 U.S.C. § 523(a)(2)(A).
- The bankruptcy court found Roberts-Dude deceptive and that Stewart Title suffered nearly $2 million loss, but concluded Stewart Title failed to prove justifiable reliance and allowed discharge; the district court reviewed de novo and reversed, holding Stewart Title’s reliance was justifiable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Stewart Title justifiably relied on Roberts-Dude’s false affidavits and representations for § 523(a)(2)(A) | Stewart Title contends it reasonably relied on the affidavits and routine title searches; the concealed deed was defectively recorded and not discoverable by cursory investigation | Roberts-Dude argues Stewart Title (a sophisticated title insurer) should have discovered the deed by following the title trail and therefore reliance was unjustifiable | Court held reliance was justifiable; bankruptcy court’s contrary legal application reversed and remanded |
| Whether a sophisticated creditor’s failure to uncover a recorded lien defeats justifiable reliance when the record was defectively recorded | Stewart Title: sophistication does not bar justifiable reliance absent warning signs; no duty to undertake extensive investigation | Roberts-Dude: Stewart’s experience and procedures meant its failure was unreasonable and loss is its responsibility | Court held sophistication alone does not negate justifiable reliance; no obvious warning signs required further inquiry |
| What level of inquiry is required to avoid being deemed to have blindly relied (Field standard) | Stewart Title: only a cursory examination is required; facts here would not have revealed the concealed lien on cursory review | Roberts-Dude: several logical steps would have exposed the fraud, so cursory review was insufficient | Court applied Field and found that the additional investigatory steps would exceed what justifiable reliance requires; therefore reliance was justified |
| Precedential weight of Tenth Circuit’s Stewart Title Guar. Co. v. Dude | Stewart Title relies on Dude (same facts re: defectively recorded deed) to support justifiable reliance | Roberts-Dude notes Dude is not binding in this district but argues similar facts were resolved differently below | Court found Dude persuasive and consistent with outcome; used it to support reversal |
Key Cases Cited
- In re Bilzerian, 153 F.3d 1278 (11th Cir. 1998) (elements of fraud for § 523(a)(2)(A) require false representation, reliance, justifiable reliance, and loss)
- Field v. Mans, 516 U.S. 59 (U.S. 1995) (justifiable reliance requires use of one’s senses; blind reliance excused only where falsity would not be apparent on cursory examination)
- Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (exceptions to discharge construed narrowly; dishonest debtors are not entitled to discharge)
- Stewart Title Guar. Co. v. Dude, 708 F.3d 1191 (10th Cir. 2013) (title insurer’s failure to discover a defectively recorded deed did not render its reliance unjustifiable)
- Sanford Institution for Savings v. Gallo, 156 F.3d 71 (1st Cir. 1998) (sophisticated parties may still justifiably rely absent obvious warning signs)
- In re Vann, 67 F.3d 277 (11th Cir. 1995) (reliance is unjustifiable if plaintiff’s conduct is utterly unreasonable in light of apparent information)