Opinion
NOT TO BE PUBLISHED
Alameda County Super. Ct. No. RG09442208.
Margulies, J.
Saraj P. Puri held a third deed of trust on a parcel of real property securing an improvement loan he made to the owner. Facing nonjudicial foreclosure proceedings initiated by the senior lienholder, the owner arranged a “short sale” of the property. Puri’s deed was not disclosed in the preliminary title report prepared by the buyer’s title insurer, and no payoff demand or other notice of the sale was ever sent to him by the escrow holder. When he learned of the completed sale, Puri demanded satisfaction of his lien from the escrow holder and title insurer, to no avail. The title insurer brought suit against Puri in the name of its insured to challenge the lien. Puri cross-complained against the title insurer, the insurer’s underwriter, and the escrow holder seeking, among other things, to recover the attorney fees he incurred in having to defend the validity of his lien.
Puri ultimately settled with the insurer’s underwriter which dismissed the complaint. On Puri’s cross-complaint, the trial court sustained the title insurer’s demurrer without leave to amend, and granted the escrow holder’s motion for summary judgment. Puri appeals both rulings. We affirm the judgment on Puri’s cross-complaint.
I. BACKGROUND
In June 2005, Khalid Mayar acquired title to property located on East Avenue in Hayward (the Property). In 2006, Mayar obtained two refinance loans from Fremont Investment & Loan (Fremont) for $720,000 and $180,000 secured, respectively, by first and second deeds of trust against the Property. Puri agreed to loan Mayar an additional $142,000 in 2007 to make certain improvements to the Property. Mayar signed a promissory note and gave Puri a third deed of trust against the Property that was recorded in May 2007. Due to the ensuing economic downturn, Mayar was unable to make payments on the various loans against the Property. Eventually, Fremont initiated a nonjudicial foreclosure proceeding against the Property. Puri, who was also not being paid by Mayar on his loan, received notices of default the senior lienholders recorded against the Property. Mayar told Puri he was going to refinance or sell the Property.
After learning of the foreclosure proceedings, Umesh Maharaj negotiated with Mayar and Fremont to purchase the Property in a “short sale” under which Maharaj agreed to pay Mayar a purchase price substantially below the combined amount outstanding on Fremont’s two refinance loans, and Fremont agreed to accept the net proceeds of the sale (after deduction of commissions, fees, and costs) in full satisfaction of its liens.
In March 2008, First Reliance Escrow, Inc. (Reliance), an independent escrow company, was selected to act as escrow agent for the sale. Reliance ordered a preliminary title report covering the Property from First Southwestern Title Company of California, Inc. (Southwestern). The escrow instructions required Reliance to obtain payoff demands from the lenders identified in the preliminary report, and to pay those lenders in accordance with the instructions. Southwestern issued a title policy to Maharaj that was underwritten by Old Republic Title Company (Old Republic). Escrow closed on March 24, 2008.
The preliminary title report did not disclose the recorded Puri deed of trust. Puri did not learn Mayar had arranged a short sale of the Property until five months after the sale had taken place. He promptly submitted a payoff demand to Reliance in the amount of $164,145.61. Reliance referred the claim to Southwestern, which then referred it to Old Republic. In October 2008, Puri received a letter from D. Brad Jones, an attorney representing Old Republic, offering Puri a small amount to settle his claim. Puri refused to settle for less than what was owed to him.
In March 2009, Jones filed a complaint against Puri in Maharaj’s name, seeking a declaratory judgment that Puri’s deed of trust had been extinguished or canceled and the new first deed of trust recorded on the Property by Maharaj’s lender had priority. Before Puri answered, Maharaj lost his interest in the Property to his lenders—a group of investors including Virender K. Luthra (collectively Luthra)—through foreclosure. The trial court ultimately granted leave to substitute Luthra as the nominal plaintiffs in the action.
Puri answered and filed a cross-complaint against Reliance, Southwestern, and Old Republic, alleging (1) Reliance was not a California corporation nor was it a foreign corporation authorized to transact business in California; (2) Reliance was not licensed as an escrow company at the time escrow closed; (3) Southwestern and Old Republic were agents for one another; (4) either Southwestern or Old Republic used the cooperation clause contained in the title insurance policy to sue him for declaratory relief in the name of the insured with the intent to relieve itself of liability upon the policy of title insurance; (5) the preliminary title report was negligently prepared by either Southwestern or Old Republic and was relied upon by Reliance in closing escrow; and (6) Puri had been damaged as a result of the negligently prepared title report and the lawsuit filed against him, and his damages were the result of the “ ‘tort of another.’ ”
The cross-complaint alleged Southwestern or Old Republic negligently prepared the “abstract of title or preliminary title report.” There is in fact no evidence in the record that an abstract of title was prepared for the Property. The distinction between an abstract of title and a preliminary title report, which is of significance in this case, is further discussed post.
Puri’s cross-complaint alleged causes of action for equitable indemnity, abuse of process, negligent interference with prospective economic advantage, and prima facie tort (against Reliance only) as a consequence of its failure to be qualified to do business in California and failure to have a license as an escrow agent. Puri sought damages of $164,145.61 together with prejudgment interest, as well as his attorney fees and costs.
Cross-defendant Southwestern did not answer or otherwise plead to the cross-complaint, and Puri took its default on September 30, 2009.
Old Republic demurred to the cross-complaint. On November 5, 2009, the court sustained Old Republic’s demurrer without leave to amend. The court found it was not reasonably likely Puri could amend to state a cause of action against Old Republic on any theory because he was “not a party to the title insurance policy or a contract for an abstract of title, and no duties were owed to him in connection with the preparation of the abstract of title or under the policy.”
Reliance filed a motion for summary judgment in May 2010. Reliance asserted as undisputed facts that it (1) had no knowledge of Puri’s lien, (2) had no contractual or other relationship with Puri giving rise to a duty of due care towards him, and (3) had not sued Puri and could therefore not be liable for abuse of process. Further, Reliance contended that even assuming, as alleged in the cross-complaint, it was not qualified to do business in California and was not licensed as an escrow agent, Puri had no private right of action to obtain damages for these statutory violations. The trial court entered an order granting Reliance’s motion for summary judgment on August 19, 2010.
On August 27, 2010, Luthra and Old Republic settled with Puri, and Luthra dismissed its complaint against him. The settlement was without prejudice to Puri appealing from the summary judgment in favor of Reliance or seeking entry of a default judgment against Southwestern. On November 1, 2010, the trial court denied Puri’s request to enter a default judgment against Southwestern and dismissed his cross-complaint against it.
No final judgments in favor of Reliance or Southwestern were entered. On November 30, 2010, Puri filed a notice of appeal from the orders of August 19 and November 1, 2010.
II. DISCUSSION
A. Appealability Issues
Although no final appealable judgment resolving the complaint and cross-complaint was entered, it is clear the trial court intended its rulings to finally dispose of the action. The trial court’s order of November 1, 2010 dismissed the last remaining defendant or cross-defendant in the action. Accordingly, we will exercise our discretion to order judgment on the complaint in favor of the defendant (Puri) and on the cross-complaint in favor of Old Republic, Reliance, and Southwestern, consistent with the nominal plaintiffs’ voluntary dismissal of the complaint and the trial court’s rulings in favor of the cross-defendants, and to deem Puri’s appeal to be from such final, appealable judgment. (See Holt v. Booth (1991) 1 Cal.App.4th 1074, 1081.)
B. Denial of Request for Default Judgment
Puri contends the trial court abused its discretion by denying his request for a default judgment against Southwestern. The trial court found there was no legal support for the causes of action alleged against Southwestern in Puri’s cross-complaint. In support of that finding, the court cited its prior ruling of November 5, 2009 sustaining Old Republic’s demurrer without leave to amend. According to Puri, that demurrer ruling, not in itself at issue on this appeal, was also erroneous.
Puri relies on Lang v. Klinger (1973) 34 Cal.App.3d 987 (Lang), a case applying the “tort of another” doctrine, and argues Southwestern was liable under that doctrine for his attorney fees and costs incurred in defending against the complaint. Lang involved a suit nominally brought by the purchasers of a property to enjoin an execution sale on behalf of the sellers’ judgment creditors. (Id. at p. 991.) Just before the sale closed, the judgment creditors had obtained an abstract of judgment in the county where the property was located. (Id. at p. 990.) The purchasers’ title insurer had failed to discover it. (Ibid.) Although filed in the purchasers’ names, the injunction suit was in fact brought on behalf of the title insurer. (Id. at p. 993.) As in this case, the defendant judgment creditors cross-complained against the title insurer for their attorney fees and costs incurred in defending against the injunction. (Ibid.)
In reversing a trial court judgment dismissing the cross-complaint, the appellate court relied on the “tort of another” doctrine, which it described as follows: “Although ordinarily attorney’s fees are to be paid by the party employing the attorney, there is an exception when a person through the tort of another has been required to act in the protection of his own interests by bringing or defending an action against a third person, in which case he is entitled to recover compensation for the reasonably necessary loss of time, attorney’s fees and other expenditures thereby suffered or incurred.” (Lang, supra, 34 Cal.App.3d at p. 993.) The court explained it was primarily due to the negligence of the title insurer that the sale transaction was completed before the encumbrance was discovered. (Ibid.) To avoid whatever insured loss would result to the purchasers due to the execution sale, the insurer then sued to enjoin it. (Ibid.) The appellate court reasoned the judgment creditors—although not themselves parties to the escrow—were injured by having to incur attorney fees and expenses to defend against the suit, and were entitled under the “tort of another” doctrine to be awarded their fees and expenses as damages flowing from the title insurer’s negligence. (Ibid.)
Although the holding in Lang undoubtedly supports Puri’s position he was entitled to a default judgment against Southwestern, it is not controlling here. (See The MEGA Life & Health Ins. Co. v. Superior Court (2009) 172 Cal.App.4th 1522, 1529 [appellate court is not bound by the decision of a sister appellate court].) On two grounds, we do not believe Lang correctly states the law applicable to this case. First, Lang’s holding has been effectively abrogated by changes in statutory and decisional law since it was decided. Second, Lang has been persuasively criticized for stretching the “tort of another” doctrine beyond its intended scope by awarding tort damages to a party to whom the tortfeasor owed no duty of due care.
The relevant changes in the law since Lang were described in Soifer v. Chicago Title Co. (2010) 187 Cal.App.4th 365 (Soifer): “Prior to the enactment of Insurance Code sections 12340.10 and 12340.11, case law had held that a preliminary title report is the equivalent of an abstract of title, and a title insurer could be liable in negligence for its failure to list all recorded encumbrances in a preliminary title report. [Citation.] However, in 1981, the Legislature enacted Insurance Code sections 12340.10 and 12340.11 in order to ‘make a formal distinction between’ a preliminary title report and an abstract of title. [Citation.] From that time onward, a preliminary title report ‘[would] no longer be treated or considered to have the legal consequence of an abstract of title. If a current representation as to the status of title is required then an abstract can be ordered and separately purchased.’ ” (Id. at p. 371.)
Insurance Code section 12340.10 provides: “ ‘Abstract of title’ is a written representation, provided pursuant to a contract, whether written or oral, intended to be relied upon by the person who has contracted for the receipt of such representation, listing all recorded conveyances, instruments or documents which, under the laws of this state, impart constructive notice with respect to the chain of title to the real property described therein. An abstract of title is not a title policy as defined in Section 12340.2.”
Insurance Code section 12340.11 provides: “ ‘Preliminary report’, ‘commitment’, or ‘binder’ are reports furnished in connection with an application for title insurance and are offers to issue a title policy subject to the stated exceptions set forth in the reports and such other matters as may be incorporated by reference therein. The reports are not abstracts of title, nor are any of the rights, duties or responsibilities applicable to the preparation and issuance of an abstract of title applicable to the issuance of any report. Any such report shall not be construed as, nor constitute, a representation as to the condition of title to real property, but shall constitute a statement of the terms and conditions upon which the issuer is willing to issue its title policy, if such offer is accepted.”
As Soifer and other cases explain, a title insurer prepares a preliminary title report at little or no charge as an inducement to purchase a title policy. (Soifer, supra, 187 Cal.App.4th at p. 372.) In contrast, an abstract of title can take months to prepare and is very costly. (Lee v. Fidelity National Title Ins. Co. (2010) 188 Cal.App.4th 583, 595.) The preliminary report specifies the liens and encumbrances the insurer’s offer of title insurance will not cover, but it may not be relied upon as an affirmative representation as to the status of title. (Ibid.; Siegel v. Fidelity Nat. Title Ins. Co. (1996) 46 Cal.App.4th 1181, 1192–1193 (Siegel) [prospective insured reasonably concludes purchase transaction not in reliance on the preliminary report but on the anticipated policy of title insurance].) As summed up in Siegel: “[A] title insurer prepares a preliminary report to limit its own risk—by locating and excluding items from coverage—and not on behalf of any party to a real estate transaction.” (Id. at p. 1193.)
Consistent with the foregoing principles, the preliminary title report in this case contained the following disclaimer in conspicuous type on its first page: “It is important to note that this preliminary report is not a written representation as to the condition of title and may not list all liens, defects and encumbrances affecting title to the land. [¶] This report... is issued solely for the purpose of facilitating the issuance of a policy of title insurance and no liability is assumed hereby.”
Lang merely assumed the title insurer in that case was actionably negligent in failing to discover the judgment creditors’ liens. Even if that was a reasonable assumption in 1973, it was no longer true in 2008 when Southwestern issued its preliminary title report in this case. As a matter of statutory law, Southwestern committed no tort in failing to discover Puri’s lien. It owed no duty of due care to any party to the escrow in the preparation of its preliminary report, much less to a stranger to the transaction. Having committed no tort in the first instance, Southwestern could not be found liable for Puri’s attorney fees or costs under the “tort of another” doctrine. (See Behniwal v. Mix (2005) 133 Cal.App.4th 1027, 1043.)
Lang is also unpersuasive because it is one of only two published cases purporting to apply the “tort of another” doctrine where it is unclear the tortfeasor owed the party seeking fees a tort duty of some kind. (See discussion in Sooy v. Peter (1990) 220 Cal.App.3d 1305, 1309–1312 (Sooy).) Sooy explained the “tort of another” doctrine (or “ ‘third party tort exception’ ” to the rule that each side bears its own attorney fees) is not an exception all, but an application of the general law of tort damages: “[T]he so-called ‘third party tort exception’... is not really an ‘exception’ at all but an application of the usual measure of tort damages. The theory of recovery is that the attorney fees are recoverable as damages resulting from a tort in the same way that medical fees would be part of the damages in a personal injury action. In such cases there is no recovery of attorney fees qua attorney fees. [Citation.]... [¶] Because the third party tort “exception” is in fact an element of tort damages, nearly all of the cases which have applied the doctrine involve a clear violation of a traditional tort duty between the tortfeasor who is required to pay the attorney fees and the person seeking compensation for those fees.” (Id. at p. 1310, italics added.)
Thus, notwithstanding Lang, Southwestern could not be liable for Puri’s attorney fees unless it breached a tort duty to him. As discussed earlier, Southwestern assumed no duty or liability to Mayar, Maharaj, or Luthra by preparing a preliminary title report so it surely assumed no duty to Puri, who was not even a party to the escrow or an intended beneficiary of the title insurance policy. Accordingly, the “tort of another” doctrine did not apply, at least as to Southwestern.
We note that Puri did not sue Mayar who had actual knowledge of the Puri lien yet agreed to proceed with the transaction on the basis of a preliminary title report he knew was incomplete. Puri admits he did not sue Mayar because Mayar filed for bankruptcy shortly after selling to Maharaj.
Puri’s claim he was entitled to equitable indemnity from Southwestern also fails. The title company committed no wrong. As discussed earlier, it made no representation as to the condition of title or the existence or nonexistence of liens or encumbrances not listed in its preliminary title report, and in fact expressly disclaimed any such representation. That the parties to the escrow, for whatever reasons, agreed to treat the title report as conclusive for purposes of sending payoff demand notices cannot be attributed to Southwestern.
The trial court did not abuse its discretion in denying Puri’s request to enter a default judgment against Southwestern or ordering dismissal of the cross-complaint against it.
C. Granting of Summary Judgment to Reliance
Puri contends the trial court erred in granting summary judgment to Reliance on his claims for equitable indemnity, negligent interference with prospective advantage, and prima facie tort.
According to Puri, the elements of a cause of action for equitable indemnity are (1) a showing of fault on the part of the indemnitor, and (2) resulting damage to the indemnitee for which the indemnitor is contractually or equitably responsible. (See Expressions at Rancho Niguel Assn. v. Ahmanson Developments, Inc. (2001) 86 Cal.App.4th 1135, 1139.) But as stated in Expressions, “[t]he right to indemnity flows from payment of a joint legal obligation on another’s behalf. [Citations.]... [¶] Equitable indemnity principles govern the allocation of loss or damages among multiple tortfeasors whose liability for the underlying injury is joint and several.” (Ibid.) As an initial matter, Puri’s equitable indemnity claim fails because he cannot identify any joint legal obligation of his and Reliance’s he paid on Reliance’s behalf, nor can he show he and Reliance are joint tortfeasors.
As the trial court pointed out, Puri was not seeking to make Reliance pay for any damages for which it might be found liable to Luthra. Luthra was not seeking any damages against Puri. It was only seeking to establish, on behalf of Southwestern, that Puri’s lien was extinguished. “ ‘A fundamental prerequisite to an action for partial or total equitable indemnity is an actual monetary loss through payment of a judgment or settlement.’ ” (Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital (1994) 8 Cal.4th 100, 110.) The attorney fees and costs Puri incurred in defending the Maharaj/Luthra lawsuit do not give rise to a claim for equitable indemnity because those fees and costs do not constitute “ ‘actual monetary loss through payment of a judgment or settlement’ ” and do not represent “a joint legal obligation to another for damages.” (Id. at pp. 110, 114.)
Further, Puri cannot show fault on Reliance’s part. Even assuming Southwestern’s preliminary title report was negligently prepared—contrary to the discussion above concerning the effect of Insurance Code sections 12340.10 and 12340.11— its assumed negligence is not attributable to Reliance. In an effort to get around this problem, Puri asserts Reliance had a nondelegable duty to determine the state of title to the Property and is therefore legally responsible for the title company’s alleged negligence. But Puri cites no authority for this novel proposition. In fact, the law is to the contrary. “The agency created by the escrow is limited—limited to the obligation of the escrow holder to carry out the instructions of each of the parties to the escrow.” (Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 711 (Summit).) Here, Puri did not come forward with any part of the written escrow instructions in opposition to the summary judgment motion in the trial court. There was no competent evidence of any kind before the court that Reliance failed to carry out any escrow instruction. The fact the preliminary title report failed to pick up Puri’s lien is not evidence of any failure to follow the parties’ instructions. As mentioned earlier, the parties to a real property escrow do not rely on the preliminary title report to proceed with the transaction; they rely on the policy of title insurance. (See Siegel, supra, 46 Cal.App.4th at pp. 1192–1193.)
For all of these reasons, the trial court properly ruled there were no triable issues of material fact with regard to Puri’s equitable indemnity claim.
Puri’s negligent interference with prospective advantage claim also fails. Puri was not a party to the escrow. In general, an escrow holder does not owe a duty of care to persons who are not parties to the escrow. (Summit, supra, 27 Cal.4th at pp. 712–716; Markowitz v. Fidelity Nat. Title Co. (2006) 142 Cal.App.4th 508, 527–528.) Moreover, if a title company incurs no liability for negligence when it prepares an incomplete title report, it is difficult to see how an escrow holder, with no knowledge or reason to know of the title company’s error, can be liable in its stead. Puri urges we apply the six-factor test found in Biakanja v. Irving (1958) 49 Cal.2d 647, 650 (Biakanja)for determining whether a tort duty to a third party should be imposed. But before even considering the six factors, the third party has to prove a negligent act on the part of the defendant. Puri has not done that. It is not enough, as Puri claims, that Reliance—along with the rest of the world—had record notice of his lien. He fails to establish it was part of Reliance’s standard of care to discover and call attention to liens overlooked by the title insurer of which it had no actual knowledge.
The six factors have been summarized as follows: “(1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to the plaintiff, (3) the degree of certainty that the plaintiff suffered injury, (4) the closeness of the connection between the defendant’s conduct and the injury suffered, (5) the moral blame attached to the defendant’s conduct and (6) the policy of preventing future harm.” (J’Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 804.)
Moreover, as the trial court found, the existence of a duty of care is not supported by the Biakanja factors in any event. Reliance’s agreement to follow the escrow instructions was not intended to directly affect those with existing deeds of trust on the Property. The harm to Puri was not foreseeable because Reliance was not aware of Puri’s deed of trust and did not agree to search for it or insure against damage caused by its existence. Absent knowledge of an actual fraud, an escrow holder has no duty to police the affairs of its depositors. (Summit, supra, 27 Cal.4th at p. 711.) The certainty of injury was not great in that the price for which the Property could be sold was less than the combined amount of the liens senior to Puri’s. Further, the sale did not extinguish Puri’s lien rights or his right to enforce them. There was little connection between Reliance’s conduct and the harm to Puri. Reliance was not the party that caused a suit to be filed against Puri or required him to incur legal fees to defend his lien. In fact, Puri settled with that party and could have negotiated reimbursement for his fees as part of that settlement. Reliance’s conduct in accepting the title report at face value was not particularly blameworthy or morally repugnant, and the policy of preventing future harm does not justify assigning escrow holders duties and liabilities with respect to third party lienholders or making them liable for conduct by title companies for which even the title company itself cannot by law be held liable. The trial court therefore correctly found Reliance had no duty of care toward Puri, and correctly dismissed his negligent interference claim.
Finally, the trial court properly found the statutes regulating the licensing of escrow agents provide for no private right of action, much less a private right of action on behalf of a stranger to the escrow. Puri has not established he is within the class of persons intended to be protected by such statutes or that there is any proximate causal relationship between Reliance’s unlicensed status at the time of the transaction and the injury Puri alleged he suffered—attorney fees incurred in a suit brought about by the title insurer.
Reliance’s summary judgment motion was properly granted.
III. DISPOSITION
The judgment is affirmed.
We concur: Marchiano, P.J., Dondero, J.