THE STATE OF NEW HAMPSHIRE
Lawyers Title Insurance Corporation
David M. Groff, Esquire
FINDINGS, RULINGS, AND DECISION
On January 29 and 30, 2001, this matter was tried to the Court. The Court heard testimony from five witnesses, including the defendant and expert witnesses proffered by both parties, and received into evidence numerous exhibits.
Set forth below are the Court's rulings on the parties' requests for findings of fact and rulings of law. Here, the Court explains its essential conclusions.
In November, 1998, Defendant, Attorney David Groff, represented a lender (Mayflower d/b/a Republic Bancorp Mortgage, Inc., hereafter "Republic") in a transaction in which E. Kevin Lanchester and Karen Lanchester purchased a home in Londonderry, New Hampshire, constructed by Keystar Group, Inc., d/b/a Carrington Homes ("Keystar"). In the Lanchester transaction, Attorney Groff also served as settlement agent. In connection with the transaction, both Republic and the Lanchesters purchased title insurance from the plaintiff. The title insurance policies were issued by Attorney Groff, who has served as a title agent for the plaintiff since 1991 under an Agency Agreement. Republic was the intended first mortgagee.
Before issuing the title insurance policies, and before the Lanchester closing, Attorney Groff commissioned Michael Walsh to conduct a title search. Walsh did not carry errors and omissions insurance coverage. After his title search, Mr. Walsh reported to Attorney Groff; his report did not reveal a recorded mortgage from Keystar to Hancock Construction Financing, LLC ("Hancock") in the principal amount of $134,600. Attorney Groff issued the title insurance policies without excepting the Hancock construction mortgage. At the closing, the Hancock mortgage was not discharged, and Attorney Groff disbursed more than $128,000 in proceeds directly to Keystar. As a result, Republic's mortgage was subordinate to Hancock's mortgage.
Following the Lanchester transaction, Hancock asserted its mortgage rights and threatened to foreclose. In April, 1999, plaintiff paid Hancock $152,340.81 in order to obtain an assignment of Hancock's mortgage on the Lanchester property and on other property of Keystar. Plaintiff then discharged the mortgage on the Lanchester property to fulfill its obligations to both Republic and the Lanchesters under the title insurance policies. Plaintiff subsequently obtained a recovery of $80,000 from Keystar. In this litigation, plaintiff claims that Attorney Groff is liable to it in the amount of $72,340.81 ($152,340.81 less $80,000), plus attorney's fees and costs. The parties have stipulated that the $152,340.81 paid to Hancock was the proper amount, that plaintiff has not failed to mitigate, and that Attorney Groff had the opportunity to pay the Hancock claim and declined to do so.
Plaintiff asserts four claims against Attorney Groff: negligence, breach of contract, and breach of fiduciary duty, all arising from Attorney Groff's alleged duties to plaintiff; and negligence, arising from Attorney Groff's alleged duties to Republic, to which plaintiff is subrogated. The essence of plaintiff's claims is that Walsh was negligent in failing to find and report the Hancock mortgage, that Walsh's negligence is imputable to Attorney Groff, and that Attorney Groff is liable for his own negligence. Attorney Groff argues that he, himself, was not negligent, and that he should not be liable for Walsh's negligence because Walsh was an independent contractor and because plaintiff sanctioned his use of Walsh to do the abstracting work.
The parties do not dispute that Walsh was negligent in failing to find and report the Hancock mortgage which was recorded at the registry of deeds. Neither does there appear to be a genuine dispute as to Walsh's status as an independent contractor. In any event, I find -- based on the evidence -- that Walsh was in fact an independent contractor. However, that does not end the inquiry. The question then becomes whether Attorney Groff is liable for Walsh's negligence because Groff's duties were nondelegable. In answering this question, I first examine Attorney Groff's duties to Republic.
Attorney Groff represented Republic in the Lanchester transaction. His duty, in part, was to assure that Republic, as the lender/mortgagee would occupy the first priority mortgage position on the property. Critical and integral to his work for Republic was a careful title review -- a review which would disclose any mortgages of record. While Attorney Groff cannot be regarded as a guarantor vis-a-vis the title work, neither can he avoid liability by virtue of the fact that he used an independent contractor to do the title search.
I find, based on the trial testimony, that it is common and accepted practice for New Hampshire attorneys to commission independent contractors to search titles. Attorney Groff was not negligent (i.e., he did not deviate from the standard of care) in either his use of Mr. Walsh or his review of Walsh's work. Nonetheless, to the extent that Walsh's work did not disclose a mortgage of record, Attorney Groff is liable for Walsh's negligence -- that is, his duty to perform an adequate title search could not be delegated to Walsh. While it is true that generally an employer of an independent contractor is not vicariously liable for the torts of the contractor, that general principle of law is not applicable here. From the perspective of his client, Republic, Attorney Groff failed in one of his essential duties. That the failure resulted from the negligence of an independent contractor is of no consequence. See Kleeman v. Rheingold, 614 N.E.2d 712 (N.Y. 1993). Moreover, I find that the seller's misrepresentations concerning the status of the liens on the property do not constitute an "intervening cause" of damage; such misrepresentations are reasonably foreseeable and do not serve to cut off Attorney Groff's liability.
Attorney Groff's duties as title agent for the plaintiff stem from a comprehensive written Agency Agreement. Under the terms of the agreement, Attorney Groff is required to "process applications for title insurance in a timely, prudent, and ethical manner with due regard to recognized title insurance underwriting practices...." Groff is liable if he fails to "exercise due care and diligence" in committing the plaintiff to risks by issuance of policies, or if he fails to comply with the terms of the agreement. Groff is required to carry errors and omissions coverage and to obtain approval to use independent title abstractors. Finally, the agreement provides that no duties under the agreement are delegable.
Regarding Groff's conduct, I find, based on the expert testimony and other evidence, the following: Groff's decision to use an independent abstractor and his selection of Walsh to do the abstracting work was not below the standard of care; although it would have been better practice to assure that Walsh had insurance coverage, Groff's failure to do so was not below the standard of care; Groff's review of Walsh's work was not below the standard of care -- that is, it was not below the standard of care for Groff not to question the fact that a construction mortgage was not reported in the abstract. Thus, I conclude that Groff himself was not negligent, and did not breach his fiduciary duties to the plaintiff.
As to the issue of vicarious liability, Attorney Groff points to a number of factors which he asserts, taken together, relieve him of liability for Walsh's negligence. Use of an independent abstractor is clearly contemplated under the parties' agreement. And while the agreement provides for formal approval of independent abstractors, plaintiff has never, with any title agent, including Attorney Groff, implemented an approval process, or enforced the approval provision. Plaintiff knew of Groff's use of Walsh, and by its conduct "approved" him. Plaintiff regularly audited Groff and had the ability to control his use of Walsh and other independent abstractors. The agency agreement contains no requirement for insurance coverage for approved independent abstractors, and plaintiff has never otherwise required its title agents to ensure that independent abstractors are insured. Neither does the agreement contain an express provision regarding the liability of the agent (Groff) for acts or omissions of approved abstractors.
I find, however, that a careful title search (one that would disclose all recorded mortgages) was integral to Groff's duties as set forth in the agreement. To be sure, Groff was not an insurer of clear title. However, his duties to plaintiff included, at the very least, finding and excepting from the title policies an outstanding recorded mortgage; a properly conducted title search would have disclosed the Hancock mortgage. That the failure in this duty was the result of reliance on an independent contractor does not absolve Groff from liability. Walsh acted as Groff's agent, and notwithstanding the de facto approval of Walsh, the Agency Agreement contains an unambiguous nondelegation provision. The doctrine of equitable estoppel is not applicable here. Plaintiff's tacit approval of the use of Walsh cannot reasonably be construed as a modification of the agreement whereby negligence of Walsh would not be imputable to Groff. Even if Walsh had been formally approved by plaintiff, the nondelegation provision would still be operative. Thus, although plaintiff approved the use of Walsh -- and the use of Walsh was not below the standard of care -- such did not serve to abrogate Groff's ultimate responsibility for his essential duties to the plaintiff under the agreement. The risk of error by Walsh remained with Groff.
Accordingly, I find that Groff is liable to plaintiff on Count I (negligence), Count II (breach of contract), and Count IV (negligence as to Republic, with plaintiff as subrogee). Groff is not liable on Count III (breach of fiduciary duty). Judgment is ordered in favor of plaintiff in the amount of $72,340.81 plus statutory interest and costs, and reasonable attorney's fees. To the extent the parties cannot agree on the amount of the attorney's fees and costs, the matter shall be submitted to the Court for determination.
The Court rules as follows on the pending motions: Defendant's Pre-trial Motion Regarding Attorney's Fees (doc. 46) is addressed in this decision; Defendant's Pre-trial Motion for Litigation Sanctions (doc. 47) is denied; Defendant's oral motion to dismiss the claim for breach of fiduciary duty is moot; Defendant's oral motion to dismiss the negligence claim as it relates to the issue of the lack of errors and omissions insurance coverage for Walsh is addressed in this decision.
The Court rules as follows on the parties' requests for findings and rulings:
Plaintiff - Fact (including supplemental requests): Requests 1-20, 22-25, 27-34, 36, and 37 are granted; Request 21 is granted except that the amount is $134,600; Request 35 is granted except that the reference should be to Exhibit 14 at Paragraph 13; Request 38 is granted as to the quotation of the agreement provision, but otherwise denied; Request 39 is denied on the basis that the request is unclear; Request 26 is addressed in this decision. Law (including supplemental requests): Requests 1, 3-13, 18, 19, 21, 22, 25, 26, 27, 30, 31, 38, 39, 40, and 41 are granted; Request 42 is granted as general statement of law; Requests 32, 34, 43, 44, and 45 are denied; Requests 2, and 33 are denied as stated; Requests 14-17, 20, 23, 24, 28, 29, 35, 36, 37, 46, 47 and 48 are addressed in this decision.
Defendant - Initial requests: Requests 1-10, 12-21, 23-31, 34-36, 38, 41-43, 45, 46, 48, and 50-56 are granted; Request 39 is granted as general statement of law; Requests 40, 44, 49, and 57 are denied; Request 32 is denied as stated; Request 22 is neither granted nor denied; Requests 11, 33, 37, and 47 are addressed in this decision. Supplemental requests: Requests 1-6, 8, 12-14, 18-32, and 39-41 are granted; Request 16 is granted as a general statement of law; Request 17 is granted as to the first sentence, and the second in addressed in this decision; Request 15 is denied as stated; Requests 7, 9, 10, 33-38, and 42 are addressed in this decision.
Signed and issued February 22, 2001