16TH & K HOTEL, LP, Plaintiff, v. COMMONWEALTH LAND TITLE INSURANCE COMPANY, et al., Defendants.
Civil Action No. 11-759 (BAH).
United States District Court, District of Columbia.
Aug. 3, 2011.
James Willard Walker, Stephan F. Andrews, Vandeventer Black, LLP, Richmond, VA, for Defendants.
MEMORANDUM OPINION
BERYL A. HOWELL, District Judge.
The Plaintiff 16th & K Hotel, LP, is the owner of the St. Regis Hotel at 16th and K Streets, N.W. in Washington, D.C. The plaintiff‘s plans to expand the hotel to an adjacent lot literally hit an unexpected brick wall, which had not been disclosed on the surveys relied upon in obtaining financing for the construction. In this case, the plaintiff sues the surveyors and the title insurer for over $23,000,000 in damages due to the alleged nondisclosure оn the surveys of a party wall with an adjoining property. Pending before the Court is the motion by the defendant title insurer, Commonwealth Land Title Insurance Company (hereinafter “Common-
I. BACKGROUND
The plaintiff, a Delaware limited partnership, purchased the St. Regis Hotel, located at 923 16th Street, N.W., in 2005 and thereafter explored the feasibility of expanding the hotel‘s facilities by purchаsing an adjacent lot with a townhouse at street address 1528 K Street, N.W. (referred to as “Parcel Two” in this litigation). Compl. ¶¶ 9-10, 12-13.2 From 2005 through 2007, the plaintiff contracted with the surveyors, defendant Bruce C. Landes, who is a resident of Virginia, and defendant Landmark-Fleet Surveyors, P.C., a Virginia professional corporation with its principal place of business in Virginia, to prepare a series of certified surveys of Parcel Two. Id. ¶¶ 14, 16, 51; Commonwealth Cross-Claim, ECF No. 15, ¶¶ 2-3. The defendant surveyors supplied surveys of Parcel Two in December 2005, November 2006, December 2006, April 2007, and July 2007. Compl. ¶¶ 16, 51; see also Commonwealth Cross-Claim, ECF No. 15, ¶¶ 8-13. These surveys consistently showed that the townhouse on Parcel Two was a “freestanding structure, without material easements or encroachments thereon.” Compl. ¶¶ 17, 51. The plaintiff “reasonably concluded” that the townhouse could be fully demolished and redeveloped as part of the needed hotel facilities and, consequently, in April 2006, purchased Parcel Two. Id. ¶¶ 32-33. Thereafter, in 2006, the plaintiff commenced extensive renovations on the St. Regis, plans for which included demolition of the townhouse on Parcel Two and reconstruction of an addition to the hotel on that parcel. Id. ¶¶ 32, 35.
In connection with a modification of its construction financing, plaintiff purchased from Commonwealth, a Nebraska corporation with its principal place of business in Jacksonville, Florida, an Owner‘s Policy of Title Insurance, Policy No. 08-001112, issued on April 2, 2008, for an insurance amount of $172 million (hereinafter the “Owner‘s Policy“). Id. ¶ 38; Commonwealth Cross-Claim, ECF No. 15, ¶ 1; Compl., Ex. A, Owner‘s Policy of Title Insurance, at 4. The Owner‘s Policy insured plaintiff “against, inter alia, loss or damage sustained or incurred by the reason of defect in or lien or encumbrance on or unmarketability of title for [the St. Regis] and Parcel Two.” Compl. ¶¶ 37-38; see also Commonwealth Answer, ECF No. 15, ¶ 38 (“Commonwealth admits that it sold Owner‘s Policy No. 08-001112 to the Plaintiff“).3 The Owner‘s Policy is a binding agreement between the plaintiff and defendant Commonwealth. Compl. ¶ 67; Commonwealth Answer, ECF No. 15, ¶ 67.
The Owner‘s Policy includes a so-called “ALTA 16 Mezzanine Endorsement,” which provides that Barclays Capital Real Estate Finance, Inc. (hereinafter “plаintiff‘s Mezzanine Lender“) has an interest in some or all of the proceeds of any claim under the Owner‘s Policy up to the amount of the outstanding indebtedness under the Mezzanine Loan between the plaintiff and the Mezzanine Lender. Compl. Ex. A, Owner‘s Policy of Title Insurance; Commonwealth Mot. Dismiss, ECF No. 8, Ex. A-1, Mezzanine Endorsement, at 1-2; Commonwealth Cross-
2.(a) [the Plaintiff] has assigned to the Mezzanine Lender the right to receive amounts otherwise payable to the insured under this policy, not to exceed the outstanding indebtedness under the Mezzanine Loan;...
6.(a) that the amount of insurance under this policy shall be reduced by any amount [Commonwealth] may pay under any policy insuring a mortgage to which exception is taken in Schedule B ... and the amount so paid shall be deemed a payment under this policy; ...
7. If the insured, the Mezzanine Lender or others have conflicting claims to all or part of the loss payable under the Policy, [Commonwealth] may interplead the amount of the loss into Court. The insured and the Mezzanine Lender shall be jointly and severally liable for [Commonwealth‘s] reasonable cost for the interpleader and subsequent proceedings, including attorney‘s fees. [Commonwealth] shall be entitled to payment of the sums for which the Insured and Mezzanine Lender are liable under the preceding sentence from the funds deposited into Court, and it may apply to the Court for their payment.
Commonwealth Mot. Dismiss, ECF No. 8, Ex. A-1, Mezzanine Endorsement, at 1-2.
In late April 2008, while construction on Parcel Two was underway, the plaintiff first discovered the existence of the party wall and immediately stopped construction. Compl. ¶ 52; Commonwealth Cross-Claim, ECF No. 15, ¶ 18. The party wall, which is 12 inches wide, serves as both the east wall of the townhouse on Parcel Two and the west wall of the office building on the adjoining property at 1522 K Street, N.W. Compl. ¶ 52; see also Commonwealth Cross-Claim, ECF No. 15, ¶ 8. The existence of the party wall, which was not disclosed on any of the surveys supplied by the defendant surveyors, rendered Parcel Two “substantially useless” to the plaintiff. Compl. ¶¶ 53, 59. The plaintiff claims that it has incurred damages in excess of $23,000,000 due to the costs of repairing the damage to the party wall, restoring the townhouse on Parcel Two and its inability to meet its deadlines and obligations under the original construction plans. Id. ¶¶ 58, 73.
Subsequent to the discovery of the party wall, in January 2009, Barclays Capital Real Estate, Inc., which was the plaintiff‘s Mortgage Lender, and Barclays Capital Real Estate Finance, Inc., which was the plaintiff‘s Mezzanine Lender (hereinafter collectively referred to as “plaintiff‘s Lenders“), notified Commonwealth of their claims for reimbursement of their lossеs against Commonwealth under both plaintiff‘s Owner‘s Policy and under the Loan Policy. See Commonwealth Mot. Dismiss, ECF No. 8, Ex. B, Notice of Claim Letter from plaintiff‘s Lenders to Commonwealth dated Jan. 16, 2009, at 1-2;5 Commonwealth Cross-Claim, ECF No. 15, ¶¶ 19-20.6 Both of the plaintiff‘s Lenders are Delaware corporations, with their principal place of business in New York. Commonwealth P. & A. Supp. Mot. Dismiss, ECF No. 8, at 2.
According to the plaintiff, a “Substitute Trustees’ Deed” indicates that, in March 2011, the plaintiff‘s Mortgage Lender record-
Plaintiff initiated this suit in Superior Court of the District of Columbia on March 31, 2011, and the Defendant Commonwealth removed it to this Court on April 20, 2011. Notice of Removal, ECF No. 1, ¶ 1. The Complaint contains four counts, asserting, in Count I, breach of the Owner‘s Policy against defendant Commonwealth and, in Counts II through IV, negligence agаinst the defendant surveyors. Compl. ¶¶ 66-100. On April 25, 2011, the defendant filed the pending motion to dismiss.8 Commonwealth Mot. Dismiss, ECF No. 8.
II. DISCUSSION
Defendant Commonwealth urges the Court either to require the plaintiff to join its Lenders as party plaintiffs or to dismiss this action since, without joinder of the plaintiff‘s Lenders, any judgment in this case will not accord complete relief among the existing parties, the plaintiff‘s Lenders’ ability to protect their interests will be impaired, and defendant Commonwealth will be subject to “substantial risk of incurring inconsistent obligations.” Commonwealth P. & A. Supp. Mot. Dismiss, ECF No. 8, at 1. The Court, howevеr, is not persuaded that the plaintiff‘s Lenders are required parties in this action.
A. LEGAL STANDARD
The burden is on the defendant seeking dismissal for failure to name an absent person to show “the nature of the interest possessed by an absent party and that the protеction of that interest will be impaired by the absence.” Citadel Inv. Grp., L.L.C. v. Citadel Capital Co., 699 F.Supp.2d 303, 317 (D.D.C. 2010) (quoting Citizen Band Potawatomi Indian Tribe v. Collier, 17 F.3d 1292, 1293 (10th Cir. 1994)); see also Lenon v. St. Paul Mercury Ins. Co., 136 F.3d 1365, 1372 (10th Cir. 1998); Ilan-Gat Eng‘rs, Ltd. v. Antigua Int‘l Bank, 659 F.2d 234, 242 (D.C. Cir. 1981). The moving party may carry its burden “by providing affidavits of persons having knowledge of these interests as well as other relevant extra-pleading evidence.” Citadel Inv. Grp., L.L.C., 699 F.Supp.2d at 317 (internal quotation marks omitted); see generally 5C Charles A. Wright & Arthur R. Miller, Federal Practice & Procedure § 1359 (3d ed. 2004). Thus, courts may consider both exhibits to pleadings and materials outside the pleadings in resolving a motion to dismiss under
Second, after making the threshold determination that an absent person is required to be a party under
Finally, if the absent person required as a party cannot be joined, the court must determine whether in equity and in good conscience, the action should proceed among the existing parties or be dismissed.
Applying each part of this test is a fact-specific inquiry that “can only be determined in the context of particular litigation.” Provident Tradesmens Bank & Trust Co., 390 U.S. at 118; see also Kickapoo Tribe of Indians of the Kickapoo Reservation in Kansas v. Babbitt, 43 F.3d 1491, 1495 (D.C. Cir. 1995) (
Based upon the record before the Court,9 the plaintiff‘s absent Lenders are not re-
B. DISCUSSION
The crux of defendant Commonwealth‘s motion is that the Ownеr‘s Policy obligates it to pay, first, the plaintiff‘s Mortgage Lender and the Mezzanine Lender at least the first $135,000,000 of any proper claim and, then, the plaintiff any amount in excess of the amount owed to both Lenders up the total amount of the insurance of $172,000,000.10 Defendant Commonwealth asserts that the primacy of both Lenders’ claims makes them “necessary parties” to adjudication of Count I of the Complaint against it for breach of the Owner‘s Policy.11 Commonwealth P. & A. Supp. Mot. Dismiss, ECF No. 8, at 2-3. In these circumstances, unless joinder is required, Commonwеalth argues that (1) “the Court cannot grant complete relief among the parties” since, under the Owner‘s Policy, Commonwealth cannot pay any claim to plaintiff without paying the first $135,000,000 to the Mortgage Lender and some unknown amount to the Mezzanine Lender, id. at 3; (2) the Lenders will be unable to protect their own interests if Commonwealth is re-
First, neither of the plaintiff‘s Lenders is required for the Court to grant complete relief among the parties to this action. The Complaint in Count One alleges that Commonwealth has breached its obligations under the Owner‘s Policy, to which only the plaintiff and Commonwealth are in direct privity. Commоnwealth‘s relationship with the plaintiff under the Owner‘s Policy is different from its relationship with the Lenders. Indeed, payment of any policy proceeds to the plaintiff‘s Lenders is entirely contingent upon whether plaintiff‘s claim under the policy is viable and has merit. In other words, if plaintiff‘s claim against Commonwealth is not sustained, the Lenders are entitled to none of the proceeds. See, e.g., Wometco Home Theatre, Inc. v. Lumbermens Mut. Cas. Co., 97 A.D.2d 715, 468 N.Y.S.2d 625 (1983) (“[A] ‘loss payee’ is not itself an insured under the policy; it is merely the designated person to whom the loss is to be paid. It is established that such a loss payee may only recover if the insured could have recovered.“). A loss payee is “a mere appointee to receive the proceeds to the extent of his interest.” Granite State Ins. Co. v. Employers Mut. Ins. Co., 125 Ariz. 275, 609 P.2d 90, 92 (App. 1980) (quoting 5A J. Appleman, Insurance Law and Practice § 3335).
The fact that if the plaintiff‘s claim against the defendant Commonwealth is successful, the plaintiff‘s Lenders may be entitled to payment from the proceeds of the Owner‘s Policy, does not mean that relief is incomplete or inadequate among the existing parties. Accord Bedel v. Thompson, 103 F.R.D. 78, 80 (S.D. Ohio 1984) (“The ‘complete relief’ provision of
Second, defendant Commonwealth raises concern over impairment of the plaintiff‘s Lenders’ ability to protect their interests in the Owner‘s Policy proceeds if they are not joined. Since any interest these Lenders may have in the policy proceeds is wholly contingent on the success of the plaintiff‘s claim, the Lenders’ interests are not impaired but rather protected by thе fact that the plaintiff is asserting a claim in this lawsuit. The case of Markel American Ins. Co. v. Cockrell, No. 06-cv-603, 2008 WL 314368, 2008 U.S. Dist. LEXIS 8085 (M.D. La. 2008), which is relied upon by the plaintiff, is particularly apposite for the proposition that a loss payee in the position of plaintiff‘s Lenders is not a required party. In Cockrell, the plaintiff insurance company issued an insurance policy to the defendant for a boat, which subsequently crashed while the defendant was operating it. Id. at *2. The plaintiff insurance company then filed a declaratory judgment action against the defendant insured seeking а declaration that any damage to the boat was excluded under the policy due to the insured‘s operation of the boat while intoxicated. Id. The insured counterclaimed for damages. Id. at *1. The plaintiff sought dismissal of the counterclaim for failure to join the lender bank, which was “listed as a mortgagee under a loss payable clause contained in the insurance policy.” Cockrell, 2008 WL 314368, at *3. The plaintiff insurance company argued, similarly to Commonwealth in the instant matter, that without the absent mortgagee, complete relief could not be obtained and the insurance company “may be subject to additional, inconsistent lawsuits.” Id. at *2. The court rejected these grounds, noting that the “mortgagee is only a conditional appointee of the mortgagor to receive part of the proceeds in case of loss,” and “recovers solely on the right of the mortgagor.” Id. at *3. The court found that the lender bank‘s “interests are derivative of the [insured‘s] rights under the insurance contract, and as such, the [insured‘s] assertion of rights under the policy adequately protects [the lender bank‘s] derivative interest and shields [the insurer] from independent lawsuits by [the lender bank].” Id. As a result, the court denied the insurance company‘s motion to dismiss the counterclaim for failure to join the lender bank as an indispensable party under
Similarly, here, the plaintiff‘s Lenders’ interests in the Owner‘s Policy at issue are entirely derivative of the plaintiff. If the plaintiff has satisfied its debts to the Lenders, the plaintiff‘s Lenders have no interest whatsoever in the Owner‘s Policy, let alone
Finally, defendant Commonwealth‘s assertion that it may be subject to multiple and inconsistent obligations to pay the plaintiff in this lawsuit and then the Lenders in some other lawsuit is incorrect. At the outset, this presumes that the plaintiff will not satisfy its debts, prompting the Lenders to turn to Commonwealth directly for payment from the policy proceeds. This presumption is purely speculative and, in any event, the mere risk of potential litigation is not enough to require joinder. See FDIC v. Bank of N.Y., 479 F.Supp.2d 1, 12 (D.D.C. 2007) (“‘In order to qualify as a necessary party under Rule 19(a), the possibility of being subject to multiple or inconsistent obligations must be real, and not a mere possibility.‘“) (quoting TRT Telecomm. Corp. v. W. Union Tel. Co., No. 87-cv-2760, 1988 WL 19259, at *2 (D.D.C. 1988)); Daudert v. State Farm Fire & Cas. Co., No. 06-cv-13269, 2007 WL 1005974, at *4, 2007 U.S. Dist. LEXIS 22764, at *12 (E.D. Mich. Mar. 29, 2007) (absent mortgage company “is not a necessary party” warranting dismissal of insured‘s suit against casualty insurance company when “if, and only if, [insureds] default on their loan payments will [mortgage company] be in a position to bring suit against Defendant. This potential for litigation is too attenuated to require joinder at this juncture. Complete relief can be accorded without joining [mortgage company] to this action.“).
Whether the plaintiff has any continuing indebtedness to the Lenders and, if so, the amount оf such debt, is entirely unclear from the current record. The fact that both Lenders provided Commonwealth with notice of potential claims under the Owner‘s Policy and Loan Policy in January 2009, over two and one-half years ago, does not mean they continue to carry any of plaintiff‘s debt that might be subject to payment from the proceeds of the Owner‘s Policy.12 Should it become clear during the course of discovery that the Lenders have a continuing interest in the proceeds of the Owner‘s Policy, reconsiderаtion of their joinder may be appropriate. To the extent that the plaintiff has continuing indebtedness to the Lenders that may be subject to satisfaction from the proceeds of the Owner‘s Policy, the Lenders may seek those funds directly from the plaintiff without the necessity of being parties to the instant lawsuit.
Moreover, defendant Commonwealth should have no concern regarding a “double” or “multiple” recovery against it because liability under the Owner‘s Policy is limited to the amount owed to the plaintiff. Commonwealth P. & A. Supp. Mot. Dismiss, ECF No. 8, at 3. In other words, defendant Commonwealth owes no more to the plaintiff‘s Lenders than is owed to the plaintiff. In this respect, the plaintiff is sole possessor of the contractual claim against Commonwealth. See Primax Recoveries, Inc. v. Lee, 260 F.Supp.2d 43, 51 (D.D.C. 2003) (holding that joinder was not required where plaintiff was the “sole possessor of the rights being asserted” and hence no multiple or inconsistent obligations could arise). Should the plaintiff have any remaining indebtedness to the Lenders, and Commonwealth is found liable to pay proceeds under the Owner‘s Policy in excess of the $141,114 to which it concedes liability, Commonwealth Cross-Claim, ECF No. 15, ¶ 21, it may interplead that amount, in accordance with the terms of the Mezzanine Endorsement for payment to the plaintiff or Lenders, as appropriate and at no cost to itself. Under the Mezzanine Endorsement, Commonwealth is entitled to payment of the costs, including attorney‘s fees, for all such interpleader proceedings.
Defendant Commonwealth has not shown that the plaintiff‘s Lenders are required parties to this action and, thus, no inquiry under
III. CONCLUSION
Defendant Commonwealth has failed to establish that the plaintiff‘s Lenders are required parties to this action and, therefore, its motion to dismiss under