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Old Republic National Title Insurance Company v. Shulman, Rogers, Gandal, Pordy & Ecker, P.A.

United States District Court, D. Maryland

December 16, 2019




         Plaintiff Old Republic National Title Insurance Company ("Old Republic") has filed this legal malpractice and breach of contract action against attorney Morton A. Faller and his law firm, Shulman, Rogers, Gandal, Pordy & Ecker, P.A. ("Shulman Rogers") (collectively, Defendants), in connection with representation they provided to First Horizon Home Loan Corporation ("First Horizon"), in First Horizon Loans v. Georg, No. 03-C-10-011261 (Cir. Ct. Bait. Cty. 2010) ("First Horizon"). As title insurer for First Horizon, Old Republic retained and paid Defendants to litigate the case. Defendants have filed a Motion to Dismiss or, in the Alternative, Motion for Summary Judgment. Old Republic has filed a Cross Motion for Summary Judgment. Having reviewed the briefs and submitted materials, the Court finds that no hearing is necessary. D. Md. Local R. 105.6. For the reasons set forth below, Defendants' Motion for Summary Judgment is GRANTED, and Old Republic's Cross Motion for Summary Judgment is DENIED.


         The facts of this case are largely undisputed. In February 2002, Heinz Otto Georg ("Mr. Georg") and his wife Susan Georg ("Mrs. Georg") (collectively, "the Georgs") purchased an unimproved piece of land at 504 Pond View Lane in Hunt Valley, Maryland ("the Property") as tenants in the entirety. In September 2004, the Georgs obtained a construction loan from Chevy Chase Bank, F.S.B. ("Chevy Chase") in the amount of $807, 000, secured by a deed of trust on the Property. In September 2006, the Georg's obtained a $100, 000 home equity line of credit, again from Chevy Chase, secured by a second deed of trust on the Property. Neither of these transactions is at issue here.

         I. The Mortgage

         In October 2006, Mrs. Georg, a real estate agent, contacted a First Horizon branch manager with whom she had previously conducted business to discuss refinancing the construction and home equity loans. The Georgs wished to structure the loan such that Mr. Georg would be the only borrower. Accordingly, only Mr. Georg is listed as a borrower on the resulting "Uniform Residential Loan Application," which requests a loan of $1.13 million. Joint Record ("J.R.") 236, ECF No. 32. The application lists the "subject property" as 504 Pond View Lane and notes that title to the Property was held by Heinz and Susan Georg as tenants in the entirety. Id.

         First Horizon approved Mr. Georg's loan application. The Underwriting Summary for the loan identified it as a mortgage to be given first priority. The title search confirmed that title to the Property was held by Heinz and Susan Georg as tenants in the entirety. At closing, Mrs. Georg was listed on and signed several of the documents, including the Form HUD-1 Settlement Statement, a limited power of attorney for the correction of typographical errors, a title insurance owner's affidavit, and a residential mortgage survey affidavit. Each of these documents had been prepared with signature lines for both Heinz Georg and Susan Georg. However, the deed of trust for this mortgage ("the Deed of Trust"), prepared by First Horizon, listed only Heinz Georg as the borrower and had a signature line only for him. Mr. Georg thus was the only signatory on the Deed of Trust. Mr. Georg was also the only person to initial each page of the Deed of Trust. These steps were in keeping with First Horizon's closing instructions, which stated, "vesting as follows: Heinz Otto Georg," an instruction that meant that only Heinz Georg would be included on the Deed of Trust. J.R. 122. The Deed of Trust, signed on October 28, 2006, was later recorded in the relevant county land records. However, First Horizon's title insurance policy on the Property, issued by Old Republic, identified the insured mortgage as the "Deed of Trust from Heinz Otto Georg and Susan M. Georg to Larry Rice, Trustee, securing First Horizon Home Loans in the original principal amount of $ 1, 130, 119.00." J.R. 342.

         In December 2006, First Horizon sold the mortgage to the Bank of New York Mellon ("BNYM"), but First Horizon remained as the loan servicer. In July 2007, both Mr. and Mrs. Georg signed a deed of trust encumbering the Property as security for a new home equity line of credit provided by Bank of America.

         In June 2009, the Georgs defaulted on the mortgage. When First Horizon attempted to initiate foreclosure proceedings, it discovered that because the Georgs owned the Property as tenants in the entirety, but only Mr. Georg had signed the Deed of Trust, First Horizon did not in fact have a secured loan on the Property. See Columbian Carbon Co. v. Kight, 114 A.2d 28, 30 (Md. 1955) (stating that when a married couple owns property as tenants in the entirety, "neither the husband nor the wife can dispose of any part without the assent of the other"). In light of this cloud on First Horizon's title, in September 2010, First Horizon submitted a claim to Old Republic under its title insurance policy, which triggered Old Republic's duty to indemnify.

         II. The First Horizon Litigation

         In response to First Horizon's claim, Old Republic retained Shulman Rogers, specifically Faller, to file suit against the Georgs on behalf of First Horizon. In September 2010, Defendants filed a Complaint, listing First Horizon as the plaintiff and the Georgs as the defendants, asserting claims for (1) reformation of the Deed of Trust, and related claims, seeking that both Mr. and Mrs. Georg be designated as co-grantors of the Deed of Trust based on the doctrine of mutual mistake; (2) equitable subrogation; and (3) equitable mortgage. First Horizon v. Georg, No. 03-C-10-011261 (Cir. Ct. Bait. Cry. 2010). In the equitable subrogation claim, First Horizon sought to be subrogated to the position of the prior Chevy Chase mortgage to the extent of $916, 000, which was the mortgage balance that First Horizon had paid off as part of the refinancing. In the equitable mortgage claim, First Horizon sought an equitable mortgage on the Property, as if signed by both Mr. and Mrs. Georg, on equal terms to the defective First Horizon mortgage executed by Mr. Georg only. The Complaint also named as defendants PRLAP, Inc. and Bank of America, because those two entities together had a secured interest in the Property based on the 2007 home equity line of credit.

         On December 8, 2011, Faller sent an email to First Horizon's counsel reminding her that they needed to address whether First Horizon was the proper plaintiff in the action. The same day, First Horizon's counsel responded that, in her estimation and the estimation of another colleague, the lawsuit should have been filed in the name of BNYM, not First Horizon, because BNYM held the mortgage while First Horizon was only the master servicer. Faller did not take any immediate action.

         A. The Correction

         The case was scheduled for a bench trial to begin on Monday, April 23, 2012. On April 20, 2012, the Friday before trial, Faller filed a document entitled "Correction to Caption of Complaint and Name of Plaintiff," which stated that the caption of the case should be corrected to state that First Horizon, as master servicer, was suing in its capacity as an agent for BNYM. On the morning of April 23, the Georgs moved to strike the Correction, arguing that the Correction was in fact a procedurally improper attempt by First Horizon to amend its pleading and substitute a new plaintiff, in violation of Maryland Rule 2-341. In oral argument before the court, the Georgs pressed a new argument, specifically that the proposed correction to the caption revealed that First Horizon lacked standing to pursue its claims. Counsel for the Georgs asserted that because First Horizon had sold the mortgage loan to BNYM in 2006, the claims seeking reformation of the Deed of Trust, whether in contract or in equity, were no longer its to pursue. The Georgs accordingly moved to dismiss the action, or for summary judgment, based on First Horizon's lack of standing.

         In response, Faller asserted, first, that it was only on April 20, three days before the trial, that he thought, as a precaution, to ensure that First Horizon was properly named as a plaintiff. He also asserted that as an equitable matter, First Horizon, as the loan originator and in its continuing role as master servicer, was the real party in interest. In support of that claim, Faller stated that at trial, the evidence would establish that the pooling and servicing agreement ("PSA") between BNYM and First Horizon gave First Horizon authority in its role as master servicer to pursue the reformation claims.

         The court agreed with the Georgs' characterization of the Correction to Caption as, in fact, an amendment seeking to substitute a new plaintiff, denied the amendment, and expressed doubt that First Horizon had standing to pursue the action. However, the court reserved its decision on dismissal or summary judgment, allowing First Horizon to have the opportunity to establish, as part of the merits trial, whether it was authorized to pursue the reformation claims on behalf of BNYM.

         B. The Trial

         At trial, the court received evidence on the merits of First Horizon's contract reformation claims, including testimony from a number of individuals involved in the origination of the First Horizon mortgage loan, the development of the closing documents, and the sequence of events at closing. In particular, the court heard testimony from Daniel M. Radebaugh of First Mountain Title, Inc., an agent of Old Republic, who handled the closing. Radebaugh testified that although Mrs. Georg was asked to sign a number of documents at closing, she was not asked to sign the Deed of Trust. Radebaugh stated that Mrs. Georg was not asked to sign the Deed of Trust because her name was not included on it. He noted that the Deed of Trust had been prepared by First Horizon. Radebaugh also testified that although the title insurance offered by First Mountain Title was premised on the execution of the mortgage by both Mr. and Mrs. Georg, no documents describing that requirement were given to the Georgs. First Horizon offered into evidence, without accompanying testimony, an April 2009 letter ...

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