Opinion
28579/09.
Decided August 2, 2010.
Defendant Stewart Title Insurance Company has moved for an order pursuant to CPLR 3211(a)(1) and (7) dismissing the complaint against it.
On April 12, 2005, defendant Stewart and the predecessor of defendant Titledge of New York Abstract, LLC. entered into an underwriting agreement whose first paragraph read in relevant part: "Underwriter [Stewart] hereby appoints Company [Titledge] to issue title assurances of Underwriter in the State of New York." Paragraph 3 of the underwriting agreement provided in relevant part: "Authority of Company. Company *** shall have authority on behalf of Underwriter to sign, countersign, and issue Underwriter's title assurances *** concerning real property located in the State of New York ***. Company shall not be deemed and this Agreement shall not be construed to authorize Company to perform any act for Underwriter not expressly authorized herein." Paragraph 4 of the underwriting agreement provided in relevant part: "Acts of Company. Company shall: *** J. Segregate and safely keep in a separately designated trust account all moneys entrusted to Company by Underwriter and others, including but not limited to fiduciary funds ***." Paragraph 24 of the underwriting agreement provided in relevant part: "Escrow Transfer Upon Termination. Upon termination of this Agreement *** Underwriter shall have the right to review any escrow or indemnity deposits and funds held by Company which were collected as a result of title assurances of the Underwriter having been issued. *** Upon termination of this Agreement, the Underwriter shall be entitled to the immediate transfer and possession of all such escrow or indemnity deposits held by the Company. The Company will be responsible for delivering to the Underwriter *** the appropriate certified funds, payable to the Underwriter, including the original escrow, indemnity, or deposit agreement and whatever appropriate documentation would be required to release or act upon the requirement of the indemnity, escrow or deposit agreement."
On or about June 27, 2006, plaintiff Faith Assembly Church (FAC) borrowed $2,200,000 from defendant CMAC, LP., which received a mortgage on church property (120-13 101st Ave., Richmond Hill, New York) as security. Titledge, as Stewart's title agent, agreed to issue a policy insuring, inter alia, FAC's ownership in fee simple of the church's property, although, according to Stewart, the policy was eventually issued by Liberty Abstract Corp. as the title agent. A letter agreement dated June 26, 2006 between CMAC and Titledge regarding closing instructions reads in relevant part: "We agree to issue the Title Policy and perform our other obligations under this letter as provided above." The letter agreement was signed: "Stewart Title Insurance Company By Titledge Its Authorized Agent By [Stefano Pisano]." FAC gave certain documents to Titledge including a note and mortgage to be held in escrow, and CMAC placed part of the loan fund with Titledge to be held in escrow. The escrow agreement reads: "This escrow agreement *** is made as of June 27, 2006 by and among CMAC, LP, a Delaware limited partnership (Lender'), Faith Assembly, a New York not-for-profit corporation (Borrower'), and Titledge, an authorized agent for Stewart Title Insurance Company (Escrowee') ***." Paragraph D of the Recitals in the escrow agreement provided in relevant part: "On the date hereof, Loan proceeds in the amount of $635,193.50 (the "Holdback Funds") will be deposited into escrow with Escrowee and subsequently disbursed in accordance with the terms and conditions of this agreement ***." The escrow agreement was signed "Titledge, an authorized agent for Stewart Title Insurance Company." Titledge placed the escrowed funds in account No. 7862615775 at defendant Commerce Bank, the predecessor of defendant TD bank.
Pursuant to a letter dated December 4, 2008, CMAC and FAC directed Titledge to disburse the escrowed funds, but the escrowee did not comply with their instructions. After an investigation disclosed that most of the escrowed funds had been impermissibly withdrawn, CMAC contacted Stewart which denied that Titledge had acted as its agent in regard to the escrowed funds. By letter dated April 1, 2009, an attorney for defendant CMAC demanded that defendant Stewart comply with the escrow agreement. The letter notes: "CMAC is affiliated with Columbus Nova Real Estate Equity Fund, which has closed some $130 million in real estate transactions since 2006, all with Stewart Title providing title insurance and acting as escrow agent." The letter further reads in relevant part: "Indeed, Stewart has acknowledged that Titledge possessed the requisite authority to bind Stewart to escrow agreements. In a lawsuit filed in October 2008 in state court, Stewart admits the existence of an agency relationship with Titledge and alleges that the defendants, including Titledge, misappropriated approximately $600,000 or more in escrow funds for which Stewart is ultimately liable. See Stewart Title Ins. Co. v Boxman, Index No. 23733/08 (Sup Ct. Westchester Co.)." The complaint in the Westchester action, which refers to Titledge as one of the "Boxman Entities" (Jonathan Boxman is their principal) reads in relevant part: "34. Pursuant to the terms of the Underwriting Agreements, at the afore described closings, the Boxman Entities collected payments for fees and insurance premiums earned, and took custody, in escrow, of funds to be used for the payment of transfer taxes, recording fees, and similar transaction charges *** together with funds to be used as payment for the satisfaction of liens against real property bought and sold at the closings (the Trust Funds')." The complaint in the Westchester action charges Titledge with a breach of fiduciary duty owed to Stewart in regard to escrowed funds.
FAC alleges that Titledge misappropriated the escrowed funds, and the plaintiff began this action on or about October 23, 2009, asserting various causes of action against Stewart on the theory that Titledge acted as its agent in regard to escrowed funds.
Those branches of the motion which are for an order pursuant to CPLR 3211(a)(7) dismissing the second (agency theory), fifth (breach of contract), eleventh (fraud), fourteenth (conversion), and seventeenth (negligence) causes of action in the complaint which are asserted against defendant Stewart are denied. "It is well-settled that on a motion to dismiss a complaint for failure to state a cause of action pursuant to CPLR 3211(a)(7), the pleading is to be liberally construed, accepting all the facts alleged in the complaint to be true and according the plaintiff the benefit of every possible favorable inference ***." ( Jacobs v Macy's East, Inc., 262 AD2d 607, 608; Leon v Martinez, 84 NY2d 83.) The court does not determine the merits of a cause of action on a CPLR 3211(a)(7) motion ( see, Stukuls v State of New York, 42 NY2d 272; Jacobs v Macy's East Inc., supra), and the court will not examine affidavits submitted on a CPLR 3211(a)(7) motion for the purpose of determining whether there is evidentiary support for the pleading. ( See, Rovello v Orofino Realty Co., Inc., 40 NY2d 633.) The plaintiff may submit affidavits and evidentiary material on a CPLR 3211(a)(7) motion for the limited purpose of correcting defects in the complaint. ( See, Rovello v Orofino Realty Co., Inc. supra; Kenneth R. v Roman Catholic Diocese of Brooklyn, 229 AD2d 159.) In regard to the fifth cause of action, "[i]t is well settled that a principal is liable on contracts entered into on its behalf by an authorized agent ***." ( Plymouth Rock Fuel Corp. v Leucadia, Inc. 100 AD2d 842; see, Key Intern. Mfg., Inc. v Morse/Diesel, Inc., 142 AD2d 448.) In regard to the eleventh, fourteenth, and seventeenth causes of action, a principal is liable for the tortious acts committed by its agent within the scope of the agency. ( See, Fils-Aime v Ryder TRS, Inc. 40 AD3d 917 ; Steinborn v Himmel , 9 AD3d 531 .) Contrary to the argument made by defendant Stewart, plaintiff FAC has adequately alleged in the complaint and through its submissions in opposition to the instant motion that defendant Titledge entered into the escrow agreement as an agent on behalf of defendant Stewart. For example, the plaintiff has alleged that Stewart and Titledge entered into an underwriting agreement appointing the latter as the agent of the former and that the underwriting agreement had clauses pertaining to Titledge's holding of funds placed in escrow with it in connection with its duties as an issuing agent. Paragraph 24 provides in relevant part: "Upon termination of this Agreement *** Underwriter shall have the right to review any escrow or indemnity deposits and funds held by Company which were collected as a result of title assurances of the Underwriter having been issued. "(Italics added.) The court finds HSA Residential Mortg. Services of Texas., Inc. v Stewart Title Guaranty Co. ( 7 AD3d 426 [AD 1st]) distinguishable because the appellate case contains no mention of clauses in the underwriting agreement pertaining to escrow funds, and the appellate case may not even concern escrowed funds.
That branch of the motion which is for an order pursuant to CPLR 3211(a)(1) dismissing the second, fifth, eleventh, fourteenth, and seventeenth causes of action in the complaint which are asserted against defendant Stewart is denied. CPLR 3211 provides in relevant part: "(a) Motion to dismiss cause of action. A party may move for judgment dismissing one or more causes of action asserted against him on the ground that: 1.a defense is founded on documentary evidence***." In order to prevail on a CPLR 3211(a)(1) motion, the documentary evidence submitted "must be such that it resolves all the factual issues as a matter of law and conclusively and definitively disposes of the plaintiff's claim ***." ( Fernandez v Cigna Property and Casualty Insurance Company, 188 AD2d 700,702; Vanderminden v Vanderminden, 226 AD2d 1037; Bronxville Knolls, Inc. v Webster Town Center Partnership, 221 AD2d 248.) The document evidence alone does not allow Stewart to prevail in this case. First, the documentary evidence is conflicting concerning the identity of the issuing agent. Second, contrary to the argument made by defendant Stewart, the underwriting agreement does not conclusively establish that defendant Titledge's authority was limited only to the issuance of title insurance policies on behalf of the insurer. Paragraph 3 of the underwriting agreement cannot be read in isolation from the remainder of the agreement and from the rest of the documentary evidence in this case. Paragraphs 4 and 24 of the underwriting agreement contemplated that Titledge's duties would include the holding of funds in escrow. Furthermore, the complaint filed by Stewart in the Westchester County action contains admissions by the title insurer that the Boxman Entities "took custody, in escrow" of monies "[p]ursuant to the terms of the Underwriting Agreements." In any event, the underwriting agreement alone does not establish the extent of Titledge's actual authority. "Actual authority granted to an agent to bind his principal is created by direct manifestations from the principal to the agent, and the extent of the agent's actual authority is interpreted in the light of all the circumstances attending these manifestations, including the customs of business, the subject matter, any formal agreement between the parties, and the facts of which both parties are aware.' ( Demarco v Edens, 390 F2d 836; see, Peltz v SHB Commodities, Inc., 115 F3d 1082.) Moreover, [t]o effectuate an authority conferred, an agent has implied authority to do whatever is necessary according to the usual course of procedure prevailing in the business." (2A NYJur2d, "Agency," § 102; see, Burke v Bonat, 255 NY 226.) "Essentially, implied authority is that which is necessary to carry out the agency. It may be found by reference to industry custom, from the circumstances attending a particular transaction, from the principal's acquiescence to acts done by the agent, or from the implied power to act in the face of emergency." (4A N.Y.Prac., Com. Litig. in New York State Courts § 69:13 [2d ed.].) The documentary evidence in this case does not eliminate factual issues concerning whether the conferring of actual authority to issue title policies carried with it the implied authority to hold moneys in escrow. The documentary evidence alone in this case does not conclusively establish that Titledge was wearing "two hats" at the closing, one as the issuer of title insurance and the other as an escrow or closing agent. ( See, National Mortgage Warehouse, LLC v Bankers First Mortgage Co., Inc., 190 F.Supp.2d 774.)
Those branches of the motion which are for an order pursuant to CPLR 3211(a)(1) and (7) dismissing the twenty-fifth cause of action in the complaint which is asserted against Stewart for breach of fiduciary duty are denied. The plaintiff alleges that Stewart learned in 2008 that Boxman had misappropriated funds and that Stewart committed a breach of fiduciary duty by failing to timely inform the plaintiff about the misappropriation. Agents owe their principals duties of undivided loyalty, obedience, and reasonable care ( see, 4A N.Y.Prac., Com. Litig. in New York State Courts § 69:32 [2d ed.]). The twenty-fifth cause of action adequately states facts alleging that the Stewart as an agent breached a fiduciary duty owed to the plaintiff and the documentary evidence in this case is not dispositive.
Short form order signed herewith.