The opinion of the court was delivered by: Kimba M. Wood, U.S.D.J.
In the above-captioned case, the central issues before the Court are (1) whether JerseySearch Title Services, Inc. and William Kolshorn (collectively, "Title Defendants") are liable for failing to disclose a lis pendens on the Center Point Mall; and (2) whether Stonewell Corporation and Richard Gladstone (collectively, "Stonewell")*fn1 are entitled to coverage under a title insurance policy issued by Conestoga Title Insurance Company ("Conestoga") for a mortgage on a New Jersey property known as Center Point Mall.
For the reasons discussed below, the Court holds that Stonewell is collaterally estopped from asserting that Stonewell (1) ever owned the mortgage on Center Point Mall (hereinafter, "the Center Point Mortgage"); and (2) was unaware of the fact that it never owned the Center Point Mortgage. Based on these holdings, the Court concludes that Title Defendants are not liable for failing to disclose the lis pendes on the Center Point Mall.
The Court also holds that there are genuine issues of material fact as to whether Conestoga has waived its right to deny coverage under the title insurance policy on the Center Point Mortgage (hereinafter, "Mortgage Policy").
Accordingly, the Court: (1) GRANTS Title Defendants' motion to dismiss all of Stonewell's claims against Title Defendants;*fn2 and (2) DENIES both Conestoga's motion for summary judgment and Stonewell's motion for partial summary judgment against Conestega.
In this background section, the Court addresses the facts pertinent to resolving the parties' summary judgment motions. The Court begins by describing the proceedings in the Middle District of Florida and the Eleventh Circuit. These proceedings are relevant because: (1) they prompted Stonewell to seek coverage under the Mortgage Policy; and (2) they establish the facts that Stonewell is collaterally estopped from relitigating in this action. The Court then turns to the procedural history of the present actions.
Stonewell Corporation, a corporation whose sole shareholder, officer, and director is Richard J. Gladstone, alleges that in March 1997, it sought to purchase the Center Point Mortgage. Stonewell contacted Conestoga, a business engaged in providing title insurance to real estate buyers, for the purpose of securing title insurance.
Conestoga arranged for Title Defendants to conduct a title search of the Center Point Mall in order to assess whether the property had defects, liens, or encumbrances on the title. During this title search, Title Defendants discovered, but did not disclose, to anyone, not even Conestoga, a title impediment in the form of a lis pendens (notice that the property is the subject a pending lawsuit).
Stonewell alleges that it bought the Center Point Title after Title Defendants informed it that the title had no defects, liens, or encumbrances.*fn3 On March 24, 1997, Conestoga also relied on this information when it issued the Mortgage Policy to Conestoga, and listed no exceptions from coverage.
In the Mortgage Policy, Conestoga agreed to insure Stonewell in the amount of $4,000,000, in the event of loss or damage arising from certain defects in Stonewell's claim of title to the Center Point Mortgage. The Mortgage Policy also stated that upon written request of Stonewall, Conestoga would pay for Stonewell's defense against third-parties making claims adverse to Stonewell's title based on a title defect, lien, or encumbrance. The Policy included an attachment that set forth certain exclusions from coverage.*fn4
2. Factual Description of Related Litigation
Soon after purchasing the Mortgage Policy, Stonewell became involved in several lawsuits related to the validity of its title to the Center Point Mortgage.
On November 17, 1997, Stonewell sent a claim letter to Conestoga requesting that Conestoga provide it with counsel to represent Stonewell's interests in an action brought by Donna Williams ("Williams"), the Insurance Commissioner for the State of Delaware, against the officers of the Heritage Life Insurance Company ("Heritage Life"). See Donna Lee H. Williams, Insurance Commissioner for the State of Delaware v. LPDA Acquistition Corp., et al., 96 Civ. 3079 (BDP)(the "Williams Action").
Williams claimed that officers of Heritage Life had stolen money from Heritage Life and used some of it to buy the Center Point Mall in New Jersey. She sought to obtain title to the Center Point Mall property, so that she could then sell the property and give the proceeds from the sale to the defrauded Heritage Life.
Stonewell became involved in the action in order to assert its alleged interest in the Center Point Mortgage, and to ensure that the Williams Action did not extinguish Stonewell's alleged interest. Conestoga agreed to provide Stonewell with counsel, and made the following reservation of rights: (1) the offer to defend Stonewell was not an admission of liability or a waiver of coverage defense under the Policy; (2) Conestoga reserved the right to terminate the tender of the defense; and (3) Conestoga could require reimbursement of the attorneys' fees expended on Stonewell's behalf if Conestoga later determined that Stonewell was not entitled to coverage under the Mortgage Policy.
Stonewell accepted the counsel Conestoga provided -- Matthew Dollinger. Conestoga paid Stonewell's substantial attorney's fees and expenses in the Williams Action until 2000, when the presiding judge stayed the action.
In April 1998, some of the Heritage Life officers were indicted in the Middle District of Florida for looting and defrauding Heritage Life. After a jury trial, Shalom Weiss, a former Heritage Life officer, was convicted of violating the Racketeer Influenced and Corrupt Organization Act ("RICO"). United States v. Weiss, 98-cr-99-Orl-19 (KRS)("Weiss Action"). The jury returned a special verdict of forfeiture against Weiss, finding that Weiss's alleged interest in a number of assets, including Stonewell, should be forfeited to the United States. In February 2000, the district court in the Weiss action entered a preliminary order of forfeiture, requiring Stonewell to forfeit its interest in the Center Point Mortgage to the United States.
c. First Forfeiture Petition
On April 5, 2000, Stonewell filed a petition pursuant to 18 U.S.C § 1963(1) (hereinafter, the "First Forfeiture Petition") to protect Stonewell's interest in the Center Point Mortgage from the District Court's forfeiture order. The First Forfeiture Petition stated that Gladstone was the exclusive owner of Stonewell and its assets, such as the Center Point Mortgage, and, therefore, the Center Point Mortgage could not be forfeited to the United States as one of Weiss's properties. The Government argued that Stonewell was simply a nominee for Weiss, which was holding the Center Point Mortgage for Weiss, but had no ownership interest in the property.
In August and November 2001, the Honorable Karla R. Spaulding, Magistrate Judge for the Middle District of Florida, held a seven-day evidentiary proceeding on the merits of the First Forfeiture Petition. She allowed Stonewell's counsel, Dollinger, to make an opening statement, put on direct testimony, cross-examine the United States's witnesses, object to the admissibility of documentary exhibits offered by the Government, and make a closing statement.*fn5 Gladstone himself testified in support of Stonewell's claim.*fn6
On October 29, 2002, the Honorable Patricia C. Fawcett, District Court Judge for the Middle District of Florida, issued an opinion and order (hereinafter, "October 2002 Order") based in part upon the evidence presented in the Weiss trial and the evidentiary proceedings before Judge Spaulding.
Judge Fawcett's October 2002 Order found that Gladstone was the sole owner of Stonewell. She also found that Stonewell was helping Weiss to launder money. Stonewell did so by advancing money to third-parties for the Center Point Mortgage; Stonewell did not expect to actually acquire title to the mortgage - instead, Stonewell expected that its funds "would be protected and repaid surreptitiously by Sholam Weiss." Judge Fawcett concluded that Stonewell allowed its name to be used on the title even though it had no claim to the property; she concluded that Stonewell was acting as a nominee for Weiss and had no ownership interest in the Center Point Mortgage.
d. Eleventh Circuit Appeal in 2004
Gladstone appealed the October 2002 Order to the United States Court of Appeals for the Eleventh Circuit (hereinafter the "Eleventh Circuit"). On April 15, 2004, the Eleventh Circuit affirmed in part and reversed in part the October 2002 Order. The Eleventh Circuit affirmed the district court's conclusion that Stonewell never owned the Center Point Mortgage, because Stonewell was acting as Weiss's nominee. At the same time, the Eleventh Circuit reversed and vacated the portion of district court's order that forfeited the Center Point Mortgage to the Government, holding that the district court did not have the jurisdiction to award the Center Point Mortgage to the United States because the jury forfeiture verdict applied only to Weiss's alleged interest in Stonewell, not to Weiss's interest in the Center Point Mortgage.
On remand, Judge Fawcett granted the United States's amended preliminary order of forfeiture (hereinafter, the "Amended Forfeiture Order"), which cured the jurisdictional defect identified by the Eleventh Circuit.
Stonewell wrote to Conestoga requesting that Conestoga fund its second petition pursuant to 18 U.S.C. § 1963, in which it sought to challenge the Amended Forfeiture Order (hereinafter, the "Amended Forfeiture Petition"). Conestoga agreed to pay for counsel, subject to reservations that was similar to the reservation of rights letter provided in the Williams action.
In May 2005, Judge Fawcett issued an order dismissing the Amended Forfeiture Petition (hereinafter, "May 2005 Order"). The May 2005 Order found that Stonewell was collaterally estopped from relitigating issues already determined in the October 2002 Order. The May 2005 Order also granted the Government's motion for summary judgment on the ground that the Center Point Mall was "free and clear" of any claim by Stonewell.
Stonewell appealed the May 2005 Order to the Eleventh Circuit. On October 18, 2006, the Eleventh Circuit dismissed Stonewell's appeal for lack of standing. Gladstone petitioned the Eleventh Circuit for a rehearing en banc and petitioned the Supreme Court for a writ of certiorari. Both petitions were denied.
Stonewell here seeks to hold Title Defendants liable for failing to disclose the lis pendes on the Center Point Mortgage, and to require Conestoga to provide coverage under the terms of the Mortgage Policy.
The first complaint in the instant consolidated case was filed in 2004 by Stonewell against Title Defendants. Stonewell alleges that Title Defendants knowingly failed to disclose the lis pendens against the Center Point Mall.*fn7 Stonewell claims that had it known about this defect, it would not have agreed to purchase the Center Point ...