Arellano et al v. Montoya et al

1Federal Rule of Bankruptcy Procedure 7056 adopts Federal
Rule of Civil Procedure 56.
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
JIMMIE ARELLANO and
MARTHA ARELLANO,
Debtors. 	No. 13-06-11966 SL
JIMMIE ARELLANO, et al.
Plaintiffs,
v. 	Adv. No. 07-1024 S
AMOS MONTOYA, et al.
Defendants.
MEMORANDUM OPINION ON DEFENDANTS
FIRST AMERICAN TITLE CO. AND DONA ANA TITLE CO.
MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on Defendants First American
Title Company (“First American”) and Dona Ana Title Company
(“Dona Ana”) Motion for Summary Judgment (doc 52) and Memorandum
in Support Thereof (doc 53). 	Plaintiffs did not file a response.
This is a core proceeding. 	28 U.S.C. § 157(b)(2). 	For the
reasons set forth below, the Court finds that the Motion is well
taken and should be granted.
Federal Rule of Civil Procedure 56(c) 1 provides in part:
The judgment sought shall be rendered forthwith if the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to
a judgment as a matter of law.
(Emphasis added.) 	Because no response was filed to the Motion no
facts are in dispute. 	See N.M. L.B.R. 7056-1 (“All material
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facts set forth in the statement of the movant shall be deemed
admitted unless specifically controverted.”) 	Therefore, the
issue for the Court is whether the Title Company defendants are
entitled to a judgment as a matter of law. 	The Court finds that
under New Mexico law they are.
Only Counts 3 and 4 are involved. 	Count 3 is against First
American only and seeks damages, punitive damages, attorney’s
fees and costs for breach of contract, fraud, negligence and
prima facie tort. 	Count 4 is against Dona Ana only and seeks
damages, punitive damages, attorney’s fees and costs for breach
of contract, fraud, negligence and prima facie tort.
FACTS
The Court finds the following facts to be undisputed:
1. 	Prior to March 14, 2002 the Arellanos entered into a
preliminary agreement to purchase real property owned by Muriel.
The Arellanos agreed Montoya would represent them in connection
with the transaction. 	Total Financial was a business owned and
operated by Montoya at the time.
2. 	As part of his representation of the Arellanos, Montoya then
contacted First American Title in order to secure a title binder
to determine the status of the title. 	The Arellanos did not, at
that time or any time thereafter, speak to anyone associated with
First American or Dona Ana Title.
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3. 	Because the title order was only for the issuance of title
commitments and title policies, and did not include the title
company serving as closing agent, receiving any loan documents,
or distributing any funds, the title companies processed the
order for a title commitment as a title only order. 	Because
First American was engaged for only a “title only” order, neither
First American nor Dona Ana Title prepared any closing documents,
prepared any settlement statements, received any closing funds,
distributed any of the closing funds, or participated in any
respect.
4. 	In a title only order, on a residence, the title company
typically communicates only with the insured’s broker, and not
directly with the insured.
5. 	Because the real property was located in Dona Ana County,
New Mexico, where First American does not have a title plant,
First American contacted Dona Ana Title to do the title work and
provide a title binder on First American’s behalf, and later to
issue a title policy on First American’s behalf. 	Dona Ana Title
had no other role in the transaction. 	Montoya never had any
contact with Dona Ana Title.
6. 	On March 19, 2002, Dona Ana Title issued a title binder, on
behalf of First American, which listed the Arellanos as proposed
insured, Muriel as the current title holder, and requirements
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that included that a deed be recorded in the name of the
Arellanos, and a release of the Bank One Mortgage be recorded.
7. 	About the same time Montoya requested the title binder from
First American, he was informed by Georgia Barrett (“Barrett”) of
CitiFinancial that the Arellanos did not qualify for a purchase
money mortgage and could only qualify for a loan from
CitiFinancial if the transaction was a refinance transaction.
8. 	In order for the transaction to look like a refinance
transaction, the title to the residence needed to be in the
Arellano’s name prior to closing. 	The Arellanos credit
application to CitiFinancial, prepared by CitiFinancial, and
signed by the Arellanos, reflected the loan as being a refinance.
Neither First American nor Dona Ana Title were aware that the
transaction was a sale documented as a refinance.
9. 	On April 2, 2002 Dona Ana Title issued a second title
binder, under which the Arellanos and CitiFinancial were the
insured, which then listed the Arellanos as the current title
holder, and requirements that included that a release of the Bank
One Mortgage be recorded.
10. 	At the closing on April 5, 2002, CitiFinancial acted as the
closing agent. 	Present at the closing were Montoya (the
Arellanos’ broker), Montoya’s wife, Barrett (who worked for
CitiFinancial), and the Arellanos. 	A check was jointly issued to
the Arellanos and Total Financial in the amount of $60,000, which
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the Arellanos endorsed over to Total Financial. 	Total Financial
then deposited the check into Total Financial’s account.
CitiFinancial and Montoya had agreed that the check would be
payable to jointly to the Arellanos and Montoya’s company, and
that Montoya would then disburse the money as agreed including to
pay off the Bank One Mortgage. 	Such agreements and practices
violate established customs and norms within the title insurance
industry.
11. 	Montoya intentionally did not pay the amount owed on the
Bank One Mortgage and used the funds for his personal use and to
service the installments due under the Bank One Mortgage for some
time.
12. 	Neither First American nor Dona Ana Title had any knowledge
of how funds that the closing were received, disbursed, or that
any misappropriation occurred.
13. 	On April 11, 2002, after receiving the closing documents and
after reviewing the county records, Dona Ana Title, on First
American’s behalf, issued an owners title policy to the
Arellanos, which was received by the Arellanos, and a mortgagee
policy to CitiFinancial, both of which listed the Bank One
Mortgage and outstanding property taxes as exceptions to the
policy.
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14. 	It is the policy of First American and Dona Ana Title, when
issuing a policy on a title only order that unsatisfied
requirements after the closing become exceptions to coverage.
15. 	Based on industry standards nothing concerning the
transaction lead Dona Ana Title or First American to consider
there was any problem that would need to be communicated directly
to the Arellanos instead of their agent.
16. 	Montoya continued to service the Bank One Mortgage for
years. 	However, after he was unable to continue to make payments
on the loan, Bank One began foreclosure procedures on the
property. 	The Arellanos filed a claim under their insurance
policy with First American, however, their claim was denied as an
exception to the owner’s policy issued April 11, 2002.
CONCLUSIONS OF LAW
1. 	There was no contract between the Arellanos and Dona Ana.
Neither the Arrellanos of their agent Montoya ever spoke to any
employee or other representative of Dona Ana. 	Dona Ana did not
conduct the closing on the property. 	The breach of contract
claim against Dona Ana should be dismissed.
2. 	First American did not breach its contract with the
Arellanos. 	It contracted to issue an Owner’s Title Commitment,
which it did. 	The Commitment contained certain requirements in
Schedule B, Part I, including a release of the Bank One mortgage.
It then issued both an Owner’s Policy and Mortgagee Policy about
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2See, e.g., Henning v. Rounds, 142 N.M. 803, 808, 171 P.2d
317, 322 (Ct. App. 2007)(New Mexico does not recognize breach of
an implied covenant of good faith and fair dealing as a cause of
action in at-will employment relationships, but does recognize it
in not at-will employment relationships.) and Ruegsegger v. Board
of Regents of Western New Mexico University, 141 N.M. 306, 315,
154 P.3d 681, 690 (Ct. App.), cert. denied, 140 N.M. 845, 149
P.3d 942 (2006)(Specifically not addressing whether a claim for
breach of an implied covenant of good faith and fair dealing
would be recognized in the case, the Court decided that plaintiff
failed to state a claim for it.)
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a week after the closing that listed the Bank One mortgage as an
exception. 	First American did not contract to not issue policies
if the exceptions were not cleared up. 	First American fully
complied with its duties under the contract. 	The breach of
contract claim against First American should be dismissed.
3. 	Plaintiff alleges in Count 3 that First American and in
Count 4 that Dona Ana breached the implied covenant of good faith
and fair dealing. 	Without deciding whether such a cause of
action is even available in this situation 2 , the Court finds that
these claims should be dismissed under the facts of this case.
“Whether express or not, every contract in New Mexico
imposes the duty of good faith and fair dealing upon the parties
in the performance and enforcement of the contract.” 	Continental
Potash, Inc. v. Freeport-McMoran, Inc., 115 N.M. 690, 706, 858
P.2d 66, 82 (1993), cert. denied, 510 U.S. 1116 (1994)(Citation
omitted.) 	“The breach of this covenant requires a showing of bad
faith or that one party wrongfully and intentionally used the
contract to the detriment of the other party.” 	Id. 	“The implied
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covenant is breached only when a party seeks to prevent the
contract’s performance or to withhold its benefits from the other
party.” 	Smoot v. Physicians Life Ins. Co., 135 N.M. 265, 268-69,
87 P.3d 545, 548-49 (Ct. App. 2003).
Because there was no contract between Dona Ana and the
Arellanos, there can be no breach of an implied covenant related
to a contract. 	Therefore, this cause of action as to Dona Ana
should be dismissed.
As to First American, the Arellanos received what they
contracted for, i.e., a title commitment and a title policy. 	The
Arellanos therefore received all benefits to which they were
entitled. 	First American did not attempt to prevent this. 	The
breach of covenant claim should be dismissed as to First
American.
4. 	“A successful fraud claim must prove a misrepresentation of
fact, known by the maker to be untrue, made with the intent to
deceive and to induce the other party to act upon it, and upon
which the other party relies to his detriment.” 	Golden Cone
Concepts, Inc. v. Villa Linda Mall, Ltd., 113 N.M. 9, 14, 820
P.2d 1323, 1328 (1991)(Citation omitted.) 	Dona Ana made no
representations to the Arellanos or Montoya. 	The fraud claim
against Dona Ana should be dismissed.
5. 	There is no evidence that anyone at First American made a
representation to the Arellanos or Montoya. 	However, even if the
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Title Commitment constitutes a representation, it was not untrue.
The Title Commitment was an accurate representation of the state
of the title of the property. 	Notably, there was no
representation that no policy would be issued unless all
requirements were satisfied. 	The fraud claim against First
American should also be dismissed.
6. 	“In New Mexico, ‘a negligence claim requires the existence
of a duty from a defendant to a plaintiff, breach of that duty,
which is typically based upon a standard of reasonable care, and
the breach being a proximate cause and cause in fact of the
plaintiff's damages.’” Chavez v. Desert Eagle Distributing Co. of
N.M., 141 N.M. 116, 119, 151 P.3d 77, 80 (Ct. App. 2006), cert.
denied, 141 N.M. 164, 152 P.3d 151 (2007) (quoting Herrera v.
Quality Pontiac, 134 N.M. 43, 47-48, 73 P.3d 181, 185-86 (2003)).
“The proximate cause of an injury is that which in a natural and
continuous sequence, unbroken by any new, independent cause,
produces the injury, and without which the injury would not have
occurred.” 	Cano v. Lovato, 105 N.M. 522, 535, 734 P.2d 762, 775
(Ct. App.), cert denied, 104 N.M. 246, 719 P.2d 1267 (1986).
Neither Dona Ana nor First American breached any duty to the
Arellanos; both Defendants correctly identified the state of the
title and reported that to Citifinancial and Montano.
Furthermore, the Court finds that the proximate cause and cause
in fact of the Arellano’s damages were the actions taken by
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Citifinancial and Montoya. 	Therefore, the Court finds that
nothing done by either Dona Ana or First American could have been
the proximate cause of any injury in this case. 	The negligence
claims should be dismissed against both Dona Ana and First
American.
7. 	The elements of prima facie tort are 1) an intentional and
lawful act, 2) an intent to injure the plaintiff, 3) injury to
the plaintiff as a result of the intentional act, and 4) the
absence of justification for the injurious act. 	Kitchell v.
Public Service Co. of New Mexico, 126 N.M. 525, 529, 972 P.2d
344, 348 (1998). 	Neither of the title company defendants took
part in the closing, and neither were aware of the injury that
took place at closing. 	There is nothing in the record that shows
that either title company intended to injure the plaintiff. 	The
prima facie tort claims against Dona Ana and First American
should be dismissed.
8. 	The Unfair Trade Practices Act defines “unfair or deceptive
trade practice” and “unconscionable trade practice” as follows:
D. "unfair or deceptive trade practice" means ... a
false or misleading oral or written statement ... which
may, tends to or does deceive or mislead any person...
E. "unconscionable trade practice" means an act or
practice in connection with the sale, lease, rental or
loan, or in connection with the offering for sale,
lease, rental or loan, of any goods or services,
including services provided by licensed professionals,
or in the extension of credit or in the collection of
debts which to a person's detriment:
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(1) takes advantage of the lack of knowledge,
ability, experience or capacity of a person to a
grossly unfair degree; or
(2) results in a gross disparity between the value
received by a person and the price paid.
N.M. Stat. Ann. § 57-12-2. 	First, the Unfair Practices Act does
not apply to sales of real estate. 	McElhannon v. Ford, 134 N.M.
124, 129, 73 P.3d 827, 832 (Ct. App. 2003). 	Therefore, the only
possible application of the UPA would be in connection with
either providing the title company services or the financing for
the purchase of the property. 	The facts establish that neither
Dona Ana or First American made a false or misleading oral or
written statement regarding provision of title company services.
And, neither title company was involved with the financing.
Therefore, the UPA causes of action should be dismissed as to
both Dona Ana and First American.
9. 	Count 4 alleges that Dona Ana was the closing agent and
violated duties as closing agent. 	The undisputed facts show that
these allegations are false. 	Therefore, any claim that Dona Ana
violated its duties as closing agent should be dismissed.
CONCLUSION
The Court finds that there are no disputed material facts
and that Dona Ana and First American are entitled to judgment as
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3 The foregoing discussion, together with Plaintiffs’
(wisely) not contesting the summary judgment motion, raises the
question of whether Dona Ana or First American should have been
dismissed from the action upon request once the operative facts
became known. 	See Rule 11 1993 Amendments Advisory Committee
Notes:
The rule continues to require litigants to “stop-and-
think” before initially making legal or factual
contentions. 	It also, however, emphasizes the duty of
candor by subjecting litigants to potential sanctions
for insisting upon a position after it is no longer
tenable....
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a matter of law. 	An Order will enter dismissing both Dona Ana
and First American from this adversary proceeding. 3
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	February 25, 2008
copies to:
R Trey Arvizu, III
PO Box 1479
Las Cruces, NM 88004-1479
James A Askew
PO Box 1888
Albuquerque, NM 87103-1888
Robert H Jacobvitz
500 Marquette NW Ste 650
Albuquerque, NM 87102-5309
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