Case Information
*1 Before F LAUM E ASTERBROOK , Circuit Judges , G RIESBACH , District Judge .
F LAUM Circuit Judge
. diversity case are lenders who lost lot money bad real estate vestment. They sued transaction’s escrowee breach law. argued Of Eastern District Wisconsin, sitting designation. ‐ because escrowee signed a form stating acting as lenders’ “agent” purposes of escrow and closing, escrowee should communicated they not going receive first ‐ priority mortgage they had been promised real ‐ estate devel opers. We agree with Illinois does impose such a escrowee unu sual circumstances of this transaction, and affirm grant summary judgment favor defendant.
I. Background
Plaintiffs Steven Edelman, Will Furman, and C. Bradford Jeffries, together with nonplaintiff investor Nam Yung Suh, got into business brothers Craig and John Nicholson and one brothers’ real ‐ estate development firms, Ca seyville Sport Choice LLC (“Caseyville”). Caseyville de veloping multi use real estate project Caseyville, called Forest Lakes. had invested Ni cholsons before. Edelman, Furman, and Suh had invested Forest Lakes project before, too.
In 2007—as result Nicholsons’ solicitation— Edelman, Furman, Suh took collective $1.6 million previously loaned another Nicholsons’ firms, Nicholson Property Investments, transferred amount new “Phase II” loan Forest Lakes project. Jeffries put in additional $1.4 million. The Nicholsons promised in exchange for Phase II loan, Caseyville would give them first priority mortgage on residential portion Forest Lakes. This promise was reflect ‐ ed in deal’s written Loan Agreement. Contrary Ni ‐ cholsons’ representations, however, received junior mortgage. A mortgage on residential por ‐ tion Forest Lakes (for $20 million) already held by Meridian Bank, which acquired back in 2005. And when bank foreclosed its mortgage in September lost everything.
The defendant appeal, Title & Escrow, LLC (“Belco”), title company formed law firm repre ‐ senting Caseyville, Belsheim & Bruckert, LLC (“Belsheim”). Belsheim created carry out title work Ca seyville’s various Forest Lakes transactions—including Meridian Bank mortgage 2005. firm and title company shared same office employees. Caseyville executed Phase II Loan Agreement March Jeffries already wire transferred his $1.4 million Caseyville February; Edel man, Furman, Suh’s collective $1.6 million “jour naled” from Nicholson Property Investments Caseyville day parties signed Loan Agreement. Throughout process, Nicholsons communicated directly one another. nev er communicated Belco.
After Caseyville told who lenders were, ordered title search Phase II Forest Lakes property from Attorney’s Title Guaranty Fund, Inc. (“ATG”), un derwriter regularly used its real estate clos ings. ATG returned title search revealed Meridian Bank’s senior mortgage on Forest Lakes. After reviewing title search, gave “commitment preparation instruc ‐ tions” ATG, and ATG prepared title commitment which also disclosed Meridian Bank’s mortgage. Either Belsheim or Nicholsons (the record is unclear which) drafted mortgage agreement for Phase II property. mortgage agreement disclose senior Meridian mortgage—it incorrectly stated Phase II property “free and clear all encumbrances.” closing took place April 2007. It seems ly representatives from Belsheim and attended. They executed document titled “Agency/Escrow Disburse ment Agreement”; this document is relevant issue parties litigate this appeal. Here is relevant portion:
1. We, undersigned Seller and Buyer (or, refinance transactions, Borrower) direct you make disbursements transac tion, pursuant attached HUD Settle ment Statement …. We understand agree pur
poses closing, Title & Escrow, LLC (hereinafter “Closing Agent”) acting agent lending institution, does represent either Seller or Buy er/Borrower attorney or way . If Closing Agent’s representation lending institution gives rise apparent conflict interest, parties consent waive said conflict interest. parties un derstand agree representations *5 5 ‐ made to the Closing Agent by the Borrower may be made known the lender and all doc uments executed and delivered the Closing Agent may be known delivered the lender any time hereafter …. Agency/Escrow Disbursement Agreement appears be stock form used by ATG. A Belsheim attorney signed the
document on behalf of Caseyville, the “Borrower.” A parale gal employed Belsheim—but who acting as repre sentative of Belco—signed document on line designat ed “ATG Member or Authorized Signatory.” There is no signature on line for “Seller,” there is no line “lending institution.” Belsheim attorney signed rest closing doc uments on behalf Caseyville, paralegal signed transaction’s HUD Settlement Statement behalf Belco. had been holding certain settlement costs transaction escrow. One Nicholson entities had provided funds these costs (once again, record clear point). None $3 million loan funds ever escrowed Belco, those funds had gone directly Caseyville. On day closing, distributed escrowed funds accordance HUD Settlement Statement, directed do Agency/Escrow Disbursement Agreement.
That same day, paralegal sent email Craig Nicholson telling him transaction closed. paralegal attached title commitment, Agency/Escrow Disbursement Agreement, HUD Settlement Statement, executed Phase II mortgage. email those documents plaintiffs. In fact, never once No. ‐ contacted the plaintiffs—before, during, or after the closing. Craig Nicholson forwarded Belco’s email plaintiff Edel man, but he only included mortgage with the email.
After Forest Lakes project went under and Meridian Bank foreclosed property, brought suit against Belsheim, Belco, and ATG federal district court. (Interestingly, sue Nicholsons or Caseyville.) The alleged Illinois state ‐ claims breach fiduciary duty against Belsheim negligent misrepresentation against ATG. Eventually, dismissed their claims against two de fendants. This appeal concerns only plaintiffs’ breach ‐ fiduciary ‐ duty claims against Belco.
The gist plaintiffs’ claims Belco—as self avowed “closing agent” for transaction—owed lend ers—Belco’s principals—a duty look out for their interests transaction. Naturally, if been looking out their interests, reason, would tipped them off they were receiving first priority mortgage Forest Lakes property thought they getting. Belco’s failure even communicate them before closing proximate cause their going through deal eventually losing $3 million investment. judge, presiding consent, granted summary judgment Belco. agreed agent purposes escrow closing. But he nonetheless found law, escrow agent owes its lender principal only very limited “to act according terms escrow structions.” Edelman Title & Escrow, LLC 3:11 cv *7 7 2363 DGW, WL 2147627, *3 (S.D. Ill. May 16, 2013) (quoting Bescor, Inc. Chi. Title & Trust Co. N.E.2d (Ill. App. Ct. 1983)). Reasoning that “[t]here no ques tion here that Belco complied with terms escrow agreement funds were disbursed according [that] agreement,” court concluded Belco fulfilled every obligation it owed plaintiffs transaction’s escrowee. Id.
The judge further found Belco not owe plaintiffs additional duties derived from source than Agency/Escrow Disbursement Agree ment. The judge reasoned Belco agent with respect loan itself: Loan Agreement between Caseyville, who executed before got involved, loan funds never placed escrow Belco. Thus, having concluded relevant cases “tie owed escrow/closing agent actual instrument directing actions agent,” held could show promise made failed adhere to. Id. *4. appeal.
II. Discussion
A. Federal Rule Civil Procedure 8(b)(6) Before turning merits, we must dispense procedural issue. never filed answer plain tiffs’ fourth amended complaint. result, has admitted allegations against it. We disagree. filed initial nine count complaint
against three defendants December They filed amended complaint shortly afterward. The magistrate judge ordered plaintiffs to file a second amended complaint to cure jurisdictional deficiencies; plaintiffs obliged Janu ary 2012. The second amended complaint alleged three counts breach against Belco (one count per plaintiff), which are claims before us here. In March 2012, filed answer responding to those counts to parts complaint included information rel evant to its liability.
In May 2012, magistrate judge granted defendant ATG’s motion to dismiss three counts against it. judge also granted defendant Belsheim’s motion to dismiss counts against Belsheim because failed to allege element crucial to those claims. But court al lowed to replead Belsheim counts—so filed a third amended complaint June third amended complaint did amend counts, it added no new allegations relevant to Belco’s liability. But mistakenly include dismissed counts against ATG. Accordingly, same month, filed fourth amended complaint properly excluded ATG counts, but otherwise made no changes third version.
In March Belsheim filed joint motion summary judgment. At point, voluntar ily dismissed Belsheim defendant. In response Belco, however, raised Belco’s failure file answer fourth amended complaint defense summary judgment. asked leave file answer. granted request required file its answer May (three days after judge’s or der). But May 16—without waiting Belco’s answer come in—the judge granted Belco’s motion for summary judgment memorandum opinion. Apparently believing that judge’s action meant that no answer necessary, Belco nothing. judge entered judgment May
Federal Rule Civil Procedure 8(b)(6) holds that “[a]n allegation—other than one relating amount damag ‐ es—is admitted if responsive pleading is required allegation not denied.” by opera ‐ tion rule, judge should have found ad ‐ mitted all complaint’s allegations summary judgment stage.
This argument overreaches. may not have filed answer fourth amended complaint. did, however, file answer second amended com plaint. third fourth amended complaints stated very same allegations against second amended complaint—the allegations changed during time against defendants who have since dropped out case. Thus, time ruled Belco’s motion summary judgment, fourth amended com plaint effectively reverted back one had already answered.
As support argument Rule 8(b)(6) nonethe less requires court treat everything fourth amended complaint admitted, invoke our decision Modrowski Pigatto F.3d (7th Cir. 2013). It does help them. Modrowski merely noted de fendants case may admitted allega tions against them filing answer plaintiff’s amended complaint filing motion summary judg *10 10 13 2363 ment instead. Id. But unlike Belco, Modrowski de fendants never filed a responsive pleading all. Id. lan guage in opinion is inapposite.
As we emphasized in similar circumstances, “[t]he Federal Rules reject approach pleading is a game of skill which one misstep by counsel may be decisive outcome accept principle purpose of plead ing is facilitate a proper decision on merits.” Conley v. Gibson, 355 U.S. 41, 48 (1957), quoted Pepper v. Vill. of Oak Park , F.3d 805, 812 (7th Cir. 2005) (granting summary judgment against plaintiff despite defendant’s failure file answer responding a new, related claim plaintiff’s amended complaint). purpose of a responsive pleading put everyone notice what defendant admits what it intends contest. undoubtedly this, previously answered allegations against it. cannot claim preju diced Belco’s oversight; “this [is] clearly no harm, no foul situation.” Isby v. Clark , F.3d 502, (7th Cir. 1996) (finding no abuse discretion district court’s im posing default judgment against defendants who failed file new answer after plaintiff amended his complaint).
B. Breach fiduciary duty
We now proceed merits breach fiduciary claim. We review judge’s grant summary judgment de novo. Ellis DHL Express Inc. F.3d (7th Cir. 2011).
To succeed claim law, must show owed them duty, breached duty, Belco’s breach proximately *11 11 13 2363 caused the plaintiffs’ injury. Neade v. Portes , 739 N.E.2d 496, 502 (Ill. 2000). If evidence is undisputed (as it is here), the determination of whether a fiduciary duty exists a ques tion of law for court decide. Wargel v. First Nat’l Bank Harrisburg , N.E.2d 331, 334 (Ill. App. Ct. 1984). granted summary judgment basis that shown that Belco, as escrowee for transaction, owed them any duties they al lege—namely, a communicate lenders be fore closing, ask instructions, and disclose any material information might cause them reevaluate deal.
In response, they and in a principal–agent relationship respect Phase II loan. Insisting “admitted” in Agency/Escrow Disbursement Agreement plaintiffs’ agent transaction, maintain owed them fiduciary duties agent owes its principal. See, e.g. , Khan v. BDO Seidman, LLP , N.E.2d 132, (Ill. App. Ct. 2011) (“[An] agent and principal are rela tionship matter law.”); Moehling W. E. O’Neil Con str. Co. N.E.2d (Ill. 1960) (“[T]he agent sustains position trust toward his principal, all his trans actions affecting subject his agency dictates he must act utmost good faith must make known his principal material facts within his knowledge which anyway [ sic ] affect transaction subject matter his agency.”).
We are puzzled understanding shared principal–agent relationship pur pose loan transaction. As far we can tell, evidence such relationship is single statement the Agency/Escrow Disbursement Agreement “for pur ‐ poses closing” “acting as agent lending institution.” But themselves em phasized their briefing at oral argument, they never even saw Agency/Escrow Disbursement Agreement dur ing time period issue, let alone signed it. So plain tiffs can hardly claim to have expressed their agreement to Belco’s representation through form.
Perhaps realizing this, quick clarify Agency/Escrow Disbursement Agreement did not create principal–agency relationship between parties, but merely served Belco’s admission it. But if form source agency, what was? never told us, we don’t see how, these facts, agen cy relationship could have formed. “Agency is fiduciary relationship arises when one person (a ‘principal’) mani fests assent another person (an ‘agent’) agent shall act principal ʹ s behalf subject principal’s control, agent manifests assent or otherwise consents so act.” R ESTATEMENT (T HIRD ) OF A GENCY § 1.01 (2006). speak time before, dur ing, or after transaction’s closing. (Indeed, lack communication one things they are complaining about.) That being case, certainly never manifested their assent should represent interests transaction. fallback argument. They law, escrowees owe par ties escrow default. But case cite proposition, International Capital Corp. Moyer N.E.2d *13 13 13 2363 1166 (Ill. App. Ct. 2004), states only that “[e]scrowees have been found owe fiduciary duty both to party making deposit party whose benefit made .” Id. at (emphasis added); see also Bescor , N.E.2d (same). The never deposited any their loan funds with Belco. All three Suh directed collective $3 million Caseyville before closing took place, money was never escrowed. only funds were es crowed as part transaction—and thus controlled Belco—were transaction’s settlement costs. Because one Nicholsons’ firms provided funds these costs, were not “the party making deposit.” And, as far as we can tell, were not intended ben eficiaries funds held in escrow, ei ther.
Even if in some sense intended beneficiary escrowed settlement costs, however, have not shown deficient in its obligations escrow agent. Illinois holds “an escrowee, like trustee, owes fiduciary duty act only according terms escrow instructions.” Bescor N.E.2d Here, “escrow instructions” those contained Agency/Escrow Disbursement Agreement, which told distribute escrowed funds accordance transaction’s HUD Settlement Statement. do failed regard. judge interpreted cases like Bescor mean escrowees but single obligation: act
accordance escrow instructions. In words, assumed escrowee cannot breach its parties so long escrowee does disobey instructions’ explicit terms. We note that another district court has questioned assumption. See Home Loan Ctr., Inc. Flanagan C 6787, WL 1108132, *6 (N.D. Ill. Apr. 2012) (reasoning, interpreting Illinois law a neg ligent misrepresentation case, “[t]he fact that an escrow agent must follow closing instructions … does not pre clude existence duties derived from sources”).
We need not address issue Illinois here, how ever, because plaintiffs told us argument (repeatedly) they are not contesting judge’s premise escrowees have only a limited duty to follow structions. Instead, an escrowee’s to follow parties’ instructions presupposes a duty to ask instructions. Thus, plaintiffs’ view, obligation to contact before closing to find out how wanted proceed—for instance, ask whether still wanted close deal even if would receive a junior mortgage Forest Lakes property. But have identified no cases holding closing agent under obliga tion seek additional instructions from transacting par ties when parties do not see fit provide them. Again, possess plaintiffs’ loan funds. And party Loan Agreement. If we hold that, matter law, became responsible interests these circumstances, ruling would surely destabilize escrow transactions; escrow agent would no sure way knowing what responsibil ities owed whom.
This unusual transaction. entered into loan agreement handed over cash directly borrowers without first ensuring they actually getting what paid for. But does hold responsible interests these cir cumstances. judgment A FFIRMED .
[1] Steven Edelman made his investment as individual. Will Furman made investment trustee Furman Doane Revocable Trust, C. Bradford Jeffries trustee C. Bradford Jeffries Living Trust. two trusts are this lawsuit—not Fur man Jeffries themselves—but detail does matter our anal ysis. We will refer three collectively throughout opinion.